<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
OR
[_] Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 0-21699
VIROPHARMA INCORPORATED
(Exact name of registrant as specified in our charter)
94-2347624
Delaware (I.R.S. Employer Identification
(State or other jurisdiction of No.)
incorporation or organization)
19341
405 Eagleview Boulevard (Zip Code)
Exton, Pennsylvania
(Address of principal executive
offices)
Registrant's telephone number, including area code: 610-458-7300
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class: Name of each exchange on which registered:
-------------------- ------------------------------------------
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.002
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days: YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The approximate aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $1,324,000,000 as of March 1,
2000, based upon the closing sale price per share of the Common Stock as
quoted on the Nasdaq National Market. This amount excludes 3,338,645 shares of
the registrant's voting stock held by directors, officers and stockholders
with representatives on the board of directors whose ownership exceeds ten
percent of the registrant's Common Stock outstanding at March 1, 2000.
Exclusion of shares held by any person should not be construed to indicate
that such person possesses the power, direct or indirect, to direct or cause
the direction of the management or policies of the registrant, or that such
person is controlled by or under common control with the registrant.
The number of shares of the registrant's Common Stock outstanding as of
March 1, 2000 was 15,119,936.
DOCUMENTS INCORPORATED BY REFERENCE
As stated in Part III of this Annual Report on Form 10-K, portions of the
registrant's definitive proxy statement for the registrant's 2000 Annual
Meeting of Stockholders to be held on May 18, 2000 are incorporated by
reference in Part III of this Annual Report on Form 10-K.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
VIROPHARMA INCORPORATED
FORM 10-K ANNUAL REPORT
For Fiscal Year Ended December 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I
Item 1. Business 1
Item 2. Properties 25
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 27
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 28
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 32
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 33
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K 34
Index to Financial Statements 37
</TABLE>
"ViroPharma" is a trademark and service mark of ViroPharma. We have
applications to register the trademark and service mark in the United States
and Canada. All other brand names or trademarks appearing in this Annual
Report on Form 10-K are the property of others.
<PAGE>
PART I
Business
ITEM 1. BUSINESS
Overview
We are a pharmaceutical company dedicated to the commercialization,
development and discovery of new antiviral medicines. We have focused our
current drug development and discovery activities on a number of ribonucleic
acid, or RNA, virus diseases, including:
. viral respiratory infection, or VRI;
. viral meningitis;
. hepatitis C; and
. respiratory syncytial virus diseases, or RSV diseases.
In September 1999, we commenced our Phase III clinical program with our lead
product candidate, pleconaril, for the treatment of VRI, a severe form of the
common cold. We are also conducting a Phase III clinical program with
pleconaril for the treatment of viral meningitis. In July 1999, we reported
our preliminary analysis of data from our Phase II clinical program with
pleconaril for the treatment of VRI. We reported our preliminary analyses of
data from our Phase II/III program with pleconaril for the treatment of viral
meningitis in adults and adolescents in January 1999 and in pediatric patients
in November 1998. We expect to have preliminary results from the first Phase
III clinical trial in VRI and the two Phase III clinical trials in viral
meningitis, in the first half of 2000. We commenced a Phase I clinical program
with our hepatitis C product candidate in collaboration with American Home
Products Corporation in February 2000. We have additional proprietary
compounds in research, preclinical and early clinical stages of development
for the treatment of hepatitis C and RSV diseases.
We believe that our drug discovery and development technologies and
expertise have potential applicability to a broad range of diseases caused by
RNA viruses. RNA viruses are responsible for the majority of human viral
diseases, causing illnesses ranging from acute and chronic ailments to fatal
infections.
We were incorporated in Delaware in September 1994 and commenced operations
in December 1994. Our executive offices and research facility are located at
405 Eagleview Boulevard, Exton, PA 19341, and our telephone number is 610-458-
7300.
Diseases Caused By Viruses
Viruses are intracellular parasites that require a living host cell within
which to reproduce. Infection by viruses, and their ensuing replication, can
lead to disease. Viral epidemics, pandemics, acute outbreaks and chronic viral
diseases continue to cause an enormous amount of human suffering and death.
There are three fundamental classes of viruses:
. deoxyribonucleic acid, or DNA, viruses, which use DNA as their genetic
material and replicate their DNA in a manner similar to human cells;
. retroviruses, which reproduce by first converting their RNA into DNA in
infected cells, then converting this DNA back into RNA; and
. RNA viruses, which have the unique ability to directly reproduce their
RNA to create new RNA virus offspring through a process known as RNA
replication. This ability to directly replicate RNA distinguishes RNA
viruses from DNA viruses, retroviruses and human cells.
DNA viruses cause diseases such as herpes, hepatitis B and papillomas
(warts). The retrovirus HIV, or human immunodeficiency virus, causes AIDS. RNA
viruses, however, are responsible for the majority of human viral diseases,
causing a multitude of illnesses ranging from acute and chronic ailments to
fatal infections. The following is a list of selected diseases caused by RNA
viruses:
1
<PAGE>
- -------------------------------------------------------------------------------
RNA Virus Diseases
<TABLE>
<CAPTION>
Bronchiolitis Hemorrhagic fevers Rhinovirus common cold
<S> <C> <C>
Bronchitis Hepatitis A, D and E RSV diseases
Dengue fever Hepatitis C Rubella
Diarrhea diseases Influenza Tick fevers
Ebola fever Measles Viral meningitis
Encephalitis Myocarditis Viral pharyngitis
Hand-foot-and-mouth disease Neonatal enteroviral disease Viral respiratory infection
Hantavirus pulmonary syn-
drome Otitis media Yellow fever
Hemorrhagic conjunctivitis Rabies
</TABLE>
We have focused our current product development and discovery activities on
the italicized diseases.
- -------------------------------------------------------------------------------
Product Pipeline
We are focusing our current product discovery and development activities on
a number of RNA virus diseases affecting children and adults, including VRI,
viral meningitis, hepatitis C and RSV diseases. The following chart sets forth
these target disease indications and the status of our product candidates:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Disease
Indication Product Candidate Development Status
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Viral respi- Pleconaril
ratory in-
fection First Phase III trial in adolescents/adults ongoing
Two Phase II trials in adolescents/adults completed
Phase II trial in adolescents/adults with asthma completed
Phase II challenge study completed
Viral menin- Pleconaril
gitis Phase III trial in children ongoing
Phase III trial in adolescents/adults ongoing
Phase II/III trial in children completed
Phase II/III trial in adolescents/adults completed
Phase II trial completed
High risk Pleconaril Open label compassionate use ongoing
picornavirus
- diseases
Hepatitis C VP 50406 Phase I trial ongoing
RSV diseases VP 14637 Preclinical development
</TABLE>
- -------------------------------------------------------------------------------
Pleconaril
We currently are developing our most advanced product candidate, pleconaril,
for the treatment of common diseases caused by picornaviruses. Picornaviruses
are a large, very prevalent group of RNA viruses that are responsible for a
significant portion of human disease caused by RNA viruses. Picornaviruses,
particularly enteroviruses and rhinoviruses, are the predominant cause of VRI
(a severe form of the common cold), viral meningitis, myocarditis,
encephalitis, bronchitis, otitis media and neonatal enteroviral disease, as
well as viral exacerbations in individuals with asthma and chronic obstructive
pulmonary disease. Immunocompromised patients, including transplant patients
and patients receiving chemotherapy, also are extremely susceptible to severe
disease caused by picornavirus infections.
Pleconaril is a proprietary, orally-administered small molecule inhibitor of
picornaviruses that was discovered by scientists currently with ViroPharma.
Pleconaril has been demonstrated to inhibit picornavirus replication in vitro
by a novel, virus-specific mode of action. Pleconaril works by inhibiting the
function of the viral protein coat, also known as the viral capsid, which is
essential for virus infectivity and transmission. Preclinical studies have
shown that pleconaril integrates within the picornavirus capsid at a specific
site that is common to a majority of picornaviruses and disrupts several
stages of the virus infection cycle.
2
<PAGE>
We have developed liquid, solid, suspension and intranasal formulations of
pleconaril. The liquid formulation has been used in all of our trials
completed to date and is being used in our ongoing trials for viral
meningitis. The solid formulation is being used in our ongoing VRI trial.
Viral Respiratory Infection.
In September 1999, we commenced the first of two planned Phase III studies
of pleconaril for the treatment of respiratory illness caused predominantly by
picornaviruses, which is often referred to as viral respiratory infection, or
VRI. VRI is a severe form of the common cold characterized by sore throat,
runny nose, cough, body aches and weakness.
Currently, there are no antiviral pharmaceuticals for the treatment of VRI.
However, physicians often prescribe antibiotics to patients with VRI. In fact,
there are 18 million to 20 million antibiotic prescriptions written annually
in the United States for patients suffering from the symptoms of VRI. Other
than to prevent secondary bacterial infections, antibiotics are ineffective in
treating viral diseases, including VRI. Therefore, many people afflicted with
this illness seek relief from prescription and over-the-counter cough and cold
remedies, analgesics and antipyretics. However, these medicines are only able
to reduce the symptoms of VRI, and do not treat the underlying disease.
In July 1999, we reported our preliminary analysis of data from our Phase II
clinical program for pleconaril for the treatment of VRI. The program enrolled
1,501 patients in three double-blinded, placebo-controlled trials for VRI. The
largest of the three studies enrolled 1,024 otherwise healthy adolescent and
adult patients who received either 400 milligrams of pleconaril or placebo two
times or three times daily. Based on our analysis of the data from this study,
randomized patients who received 400 milligrams of pleconaril three times
daily experienced a clinical benefit and a statistically significant reduction
in their disease when compared to placebo. Specifically, these patients
reported:
. a 3.5 day reduction in the median time to complete elimination of
disease symptoms from 14 days to 10.5 days (p = 0.009);
. a 3.5 day reduction in the median time to patient overall wellness from
14 days to 10.5 days (p = 0.002);
. a 1.5 day reduction in median time to elimination of nasal congestion
(p = 0.030);
. a 1.5 day reduction in median time to elimination of runny nose (p =
0.035);
. a one day reduction in median time to elimination of sore throat (p =
0.008); and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
We designed our Phase III clinical program with pleconaril for the treatment
of VRI based on the results of this study and data obtained from our two
smaller studies. We expect this clinical program to include two Phase III
double-blinded placebo-controlled clinical trials. In September 1999, we
initiated our first Phase III clinical trial for VRI using 400 milligrams of
pleconaril three times daily in otherwise healthy adolescent and adult
patients. We expect to have preliminary results from the first Phase III
clinical trial in VRI in the first half of 2000.
Viral Meningitis.
In July 1998, we commenced our Phase III clinical program with pleconaril
for the treatment of viral meningitis in both adults and children between the
ages of eight and 14 years.
Meningitis is an infection of the central nervous system predominantly
caused by enteroviruses, and is characterized by the abrupt onset of severe
headache, stiffness of the neck or back, fever, muscle pain, nausea, vomiting
and malaise. The disease generally requires emergency medical care and
occasionally progresses to serious neurologic effects, particularly among
infants. There are currently no antiviral pharmaceuticals for the treatment of
viral meningitis.
3
<PAGE>
We reported our preliminary analysis of data from our Phase II/III clinical
program for viral meningitis in adolescents and adults in January 1999 and in
pediatric patients in November 1998.
The results for 130 adult patients treated with 200 milligrams of pleconaril
or placebo three times daily were as follows:
. a two day reduction in the median duration of headache for pleconaril-
treated patients with confirmed enteroviral meningitis from nine to
seven days (p = 0.04);
. a one day reduction in the median duration of headache in all
randomized patients from nine to eight days (p = 0.03);
. a two day reduction in the median time for patients to return to work
(p = 0.045);
. a clinical benefit within 24 hours after initiation of therapy; and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
The results for 144 pediatric patients treated with 2.5 milligrams/kilogram
of pleconaril or placebo three times daily were as follows:
. a one day reduction in disease duration when measured by the
elimination of major meningitis symptoms (p = 0.033);
. a three day reduction in disease duration when measured by a
caregiver's assessment of the patient's illness (p = 0.048); and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
While our analysis of the data from this pediatric study demonstrated a
statistically significant reduction in disease duration when measured by
headache in children between the ages of eight and 14 years, the data did not
show a statistically significant reduction in the duration of headache for all
children treated in this study. We believe that this result was due to the
difficulty in assessing headache severity in children between the ages of four
and seven years. The results for 76 children between the ages of eight and 14
years who received 2.5 milligrams/kilogram of pleconaril or placebo three
times daily were as follows:
. a one day reduction in disease duration when measured by headache (p =
0.029);
. a three day reduction in disease duration when measured by the
elimination of major meningitis symptoms (p = 0.045); and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
We designed our Phase III clinical program for pleconaril for the treatment
of viral meningitis based on these studies. This clinical program, which
commenced in July 1998, includes one Phase III double-blinded placebo-
controlled clinical trial using 200 milligrams of pleconaril three times daily
in otherwise healthy adolescent and adult patients, and one Phase III double-
blinded placebo-controlled clinical trial using 2.5 milligrams/kilogram of
pleconaril three times daily in otherwise healthy children between the ages of
eight and 14 years. In addition, we are conducting a non-drug, natural history
study of viral meningitis in children between the ages of four and seven years
to further understand the disease in this population. We expect to have
preliminary results from the two Phase III clinical trials in viral meningitis
in the first half of 2000.
High Risk Patients.
Since August 1996, we have made pleconaril available on an open label basis
for patients with life-threatening or seriously disabling diseases caused by
picornaviruses. As of January 13, 2000, a total of 120 patients have been
treated for a variety of life-threatening illnesses, including chronic
meningoencephalitis in patients with immune deficiency, myocarditis, neonatal
enteroviral disease, poliomyelitis syndromes, enterovirus infections after
bone marrow transplantation, rhinovirus pneumonia, encephalitis, post-polio
syndrome, chronic fatigue, enteroviral infection in patients with immune
deficiency and enteroviral gastroenteritis in patients with immune deficiency.
A majority of these high risk patients receiving a short course of pleconaril
treatment have experienced a sustained clinical benefit and clearance of the
virus. Although data from the compassionate use of
4
<PAGE>
pleconaril in these patients will be included in our New Drug Application for
viral meningitis, these data are typically not sufficient to support an
independent label indication.
Hepatitis C
In February 2000, we commenced Phase I clinical studies on product candidate
VP50406 for the treatment of hepatitis C due to the hepatitis C virus,
commonly known as HCV. VP50406 is a proprietary, orally bioavailable small
molecule that has been demonstrated to inhibit RNA replication of HCV in
vitro. This compound is the lead compound in a chemical series discovered and
developed by ViroPharma. We are conducting these Phase I studies as part of
our collaboration with American Home Products Corporation under a
collaboration and license agreement that we entered into with American Home
Products Corporation in December 1999. In our collaboration with American Home
Products Corporation, we also are continuing with the development of several
additional potent, selective and chemically distinct compounds that inhibit
several key HCV-encoded enzyme activities that are essential to viral RNA
replication.
HCV is recognized as a major cause of chronic hepatitis worldwide.
Approximately 85% of persons infected with HCV develop chronic hepatitis, of
which 20% progress to liver cirrhosis. Chronic HCV infection can also lead to
the development of hepatocellular carcinoma and liver failure.
RSV Diseases
We currently are conducting preclinical toxicology studies on product
candidate VP14637 for the treatment of diseases caused by respiratory
syncytial virus, or RSV. VP14637 is a proprietary, small molecule that has
been demonstrated to inhibit RSV replication in vitro. This compound is the
lead compound in a chemical series discovered and developed by ViroPharma. We
also are continuing with discovery and development activities of additional
compounds that have selective activity against RSV.
RSV is a major viral respiratory tract pathogen that often causes pneumonia
and bronchiolitis. Infants and young children with underlying conditions such
as prematurity, congenital heart disease, bronchopulmonary dysplasia and
various congenital or acquired immunodeficiency syndromes (such as asthma or
immunodeficiency resulting from bone marrow transplants) are at greatest risk
of serious RSV morbidity and mortality. RSV is also a major cause of morbidity
and mortality in the elderly. Certain patient groups are particularly at risk
for suffering from serious and life-threatening complications arising from RSV
infections. These groups include:
. Bone marrow transplant patients;
. Chronic obstructed pulmonary disease patients (including bronchitis and
emphysema); and
. Asthmatic patients.
Treating RNA Virus Diseases
The RNA Virus Replication Process
Important to the successful discovery and development of antiviral
pharmaceuticals is the ability to analyze the virus in a laboratory setting
and to dissect the molecular and biochemical events critical to virus
replication. The manipulation of RNA viruses and, in particular, the virus's
RNA genome, requires special techniques and skills. Historically, technical
limitations have hampered investigation of RNA virus replication.
Consequently, the scientific community's understanding of the molecular events
of RNA virus replication is incomplete. However, significant recent
advancements in biological and molecular technologies related to the
manipulation of RNA and RNA viruses have enabled us to pursue the discovery
and development of effective treatments for RNA virus diseases.
5
<PAGE>
We believe that the process of viral RNA uncoating and replication
represents an attractive target for the therapeutic intervention in disease
caused by RNA viruses. For RNA viruses to cause disease, they must replicate.
Inhibiting RNA virus replication can prevent, limit or stop disease. In
addition to thwarting disease, the direct inhibition of viral RNA uncoating
and replication should reduce generation of drug-resistant virus offspring and
decrease virus transmission from infected individuals to healthy persons. RNA
replication is a complicated process involving several viral proteins that
must act together in a coordinated fashion. Due to the nature of this process,
changes or mutations in these proteins are not readily tolerated.
Consequently, viral proteins required for RNA replication are not only
specific to the virus, they are among the least variable proteins of the
virus. This is in contrast to the highly variable viral surface proteins
generally involved in immune responses to virus infections. This invariability
of the viral proteins responsible for viral RNA replication represents an
important attribute in their selection as molecular targets for antiviral
product discovery and development.
The ViroPharma Approach
While the RNA uncoating and replication process is common among all RNA
viruses, the detailed molecular and biochemical mechanisms involved currently
are not fully understood. However, we have used our experience in RNA
virology, RNA virus uncoating and RNA replication, along with recent advances
in biological, molecular and informatics technologies, to gain an
understanding of several aspects of the RNA virus uncoating and replication
process. Scientists now with ViroPharma have elucidated fundamental processes
involved in virus uncoating and have used this knowledge to design compounds
to inhibit these processes. These scientists have also succeeded in
discovering essential virus enzyme activities that are critical to RNA
replication. They have further characterized RNA virus replication activities
and have used the resulting information to develop novel drug screening
assays. Our assays are optimized for high sensitivity and specificity and are
validated for reproducibility. These assays are automated using state-of-the-
art robotics technologies to facilitate the high throughput screening of large
chemical libraries. Using our novel assays, we have discovered proprietary
small molecule compounds that inhibit the targeted virus-specific activities.
Once active compounds are identified, we advance such compounds to clinical
product candidates through a process of chemical optimization. This process
involves the rapid generation of an expanded chemical analog series based on
the initial active compounds and utilizes an array of technologies including
computer-assisted pharmacophore modeling and drug design techniques, two-
dimensional and three-dimensional structure and substructure chemical database
searches and conventional medicinal chemistry, combinatorial chemistry and
automated high capacity chemical synthetic methods. We then evaluate analog
series in various biochemical and biological assays that assess compound
selectivity, potency, safety and bioavailability. Importantly, we chemically
optimize active compounds for these four key parameters in parallel, not
sequentially. We believe that our combination of chemical and biological
technologies and our parallel compound optimization process allows us to
accelerate product discovery and development. The generation of large numbers
of specific chemical analogs by our scientists also enables us to rapidly
expand our valuable chemical library in a manner that is biased toward
inhibitors of enzymes and activities essential to RNA virus replication. We
believe that this library provides a significant advantage in our efforts to
discover novel inhibitors for additional RNA virus diseases.
Manufacturing
We currently do not have commercial manufacturing capabilities, and do not
intend to develop such capabilities for any product in the near future. Our
commercialization plans are to leverage the infrastructure of partners for the
manufacturing and distribution of pleconaril and our other product candidates.
Pleconaril drug substance is prepared from readily available materials using
reliable processes. Both pleconaril and the technology used to manufacture it
are proprietary and covered by the patents licensed to us by Sanofi-
Synthelabo. In April 1997, we entered into a Development Agreement with SELOC
France for the manufacture of pleconaril bulk drug substance and the
development of a process for its commercial-scale production. In March 1998,
we entered into an Addendum to the Development Agreement with SELOC France for
the manufacture of validation batches of pleconaril bulk drug substance and
the preparation of certain documentation that will be required in
6
<PAGE>
connection with our New Drug Applications for pleconaril. We have entered into
agreements with Patheon, Inc. for the manufacture of liquid and solid
formulations of pleconaril drug product from bulk drug substance. We have not
yet committed to a commercial supply agreement with any third party.
We have developed liquid, solid, suspension and intranasal formulations of
pleconaril. We have used a liquid formulation of pleconaril in all of our
trials completed to date and the liquid formulation is being used in our
ongoing trials for viral meningitis. We are using a solid formulation in our
ongoing trial for pleconaril in the treatment of VRI.
We anticipate that our current supply of pleconaril drug substance and drug
product, together with the bulk drug substance and drug product that we will
receive from our suppliers, will be sufficient to complete our formulation
development activities and our ongoing clinical trials.
We have established quality control guidelines, which require that third
party manufacturers under contract produce the drug product in accordance with
the FDA's current Good Manufacturing Practices requirements. We maintain
confidentiality agreements with potential and existing manufacturers in order
to protect our proprietary rights related to pleconaril.
For the preparation of other compounds, we intend to contract with third-
party manufacturers for preclinical research, manufacture of drug substances
for clinical development and manufacture of drug products for commercial sale.
Marketing and Sales
Under our agreement with Sanofi-Synthelabo, we have the exclusive right to
market and sell pleconaril for all enterovirus and rhinovirus indications in
the United States and Canada. We are continuing our market research on the
multiple disease indications for which we are developing pleconaril. Our
marketing plans focus on medical education, including the use of thought
leaders in peer-to-peer presentations at appropriate medical meetings. In
addition, we have an extensive medical and scientific publications plan in
place.
We currently do not have a sales staff. We expect to build a focused
antiviral sales force to launch pleconaril for the treatment of viral
meningitis and high risk patients. To penetrate the VRI marketplace, however,
we intend to identify a strategic partner to help us market pleconaril for the
treatment of VRI to primary care physicians.
The success and commercialization of our other potential products will be
dependent, in part, upon our ability to enter into additional collaborative
agreements for other potential products. There can be no assurance that we
will be successful in developing a sales force, entering into collaborative
arrangements, penetrating the markets for any proposed products or achieving
market acceptance of our products. There can be no assurance that any such
marketing arrangements will be available on terms acceptable to us, if at all,
that such third parties would perform adequately their obligations as
expected, or that any revenue would be derived from such arrangements.
Strategic Relationships
Sanofi-Synthelabo
Pleconaril was discovered by scientists currently with ViroPharma while they
were with Sterling Winthrop, Inc., now Sanofi-Synthelabo S.A. In December
1995, we entered into an agreement with Sanofi-Synthelabo under which we
received exclusive rights under patents owned by Sanofi-Synthelabo to develop
and market all products relating to pleconaril and related compounds for use
in enterovirus and rhinovirus disease indications in the United States and
Canada, as well as a right of first refusal for any other indications in the
United States and Canada. Our rights include rights to use all of Sanofi-
Synthelabo's patents, know-how and trademarks relating to pleconaril for those
indications in the United States and Canada. We have the right to sublicense
our rights under the agreement subject to Sanofi-Synthelabo's consent, which
consent is not to be unreasonably withheld.
7
<PAGE>
Pleconaril, which is currently in clinical trials, is covered by one of the
licensed United States patents, which expires in 2012, and one of the licensed
Canadian patent applications. We will be dependent on Sanofi-Synthelabo to
prosecute such patent applications and may be dependent on Sanofi-Synthelabo
to protect such patent rights.
Under our agreement with Sanofi-Synthelabo, we are required to make
milestone payments to Sanofi-Synthelabo upon the achievement of certain
development milestones and, until the expiration or termination of the
agreement, royalty payments on any sales of products developed under the
agreement in the United States and Canada, which royalty payments will be
reduced upon the expiration of the last patent on pleconaril or any related
drug. We would receive royalties from Sanofi-Synthelabo on sales of products
by Sanofi-Synthelabo outside the United States and Canada. We believe that the
royalty rates payable by both Sanofi-Synthelabo and us are comparable to the
rates generally payable by other companies under similar arrangements. The
milestone events generally include regulatory submissions of new drug
applications and regulatory approvals in various jurisdictions. These
milestones, however, may never be attained. Sanofi-Synthelabo must reimburse
certain of the milestone fees previously paid by us upon submission of
pleconaril for regulatory approval in Japan. Also, if foreign regulatory
authorities require significant additional testing of pleconaril for use in
the European Union, we will be required to conduct such studies at our own
expense.
Our agreement with Sanofi-Synthelabo terminates on the later of expiration
of the last patent licensed to us under the agreement or ten years following
our first sale of a product containing a compound licensed to us under the
agreement in the United States or Canada, or earlier under certain
circumstances. In the event of such a termination, we may be subject to
restrictions under the agreement on our ability to market pleconaril and
compete with Sanofi-Synthelabo. In addition, Sanofi-Synthelabo has the right
to terminate the agreement if we are subject to a change of control that would
materially and adversely affect the development, manufacturing and marketing
of the products under the agreement. The term automatically renews for
successive five-year terms unless six months' prior written notice of
termination is given by either party. We also have the right to manufacture,
or contract with third parties to manufacture, any drug product derived from
the pleconaril drug substance.
American Home Products Corporation
In December 1999, we entered into a collaboration and license agreement with
American Home Products Corporation to jointly develop products for use in
treating hepatitis C due to the hepatitis C virus in humans. Under the
agreement, we licensed to American Home Products worldwide rights under
patents and know-how owned by us or created under the agreement. We have the
right to co-promote these products in the United States and Canada and
American Home Products will promote the products elsewhere in the world.
During the initial research phase of the agreement, the two parties will work
together exclusively on the development of small molecule compounds directed
against certain HCV targets. For the entire term of the agreement the two
parties will work together exclusively on any promising compounds. Under the
agreement, American Home Products has the right to manufacture any commercial
products developed under the agreement.
American Home Products paid us $5.0 million on the effective date of the
agreement, and is obligated to make milestone payments to us, and purchase
shares of our common stock at a premium to the market price, upon the
achievement of certain development milestones. The milestone events generally
include successful completion of steps in the clinical development of an HCV
product and the submission for, and receipt of, marketing approval for the
product in the United States and abroad. These milestones, however, may never
be attained. American Home Products Corporation will provide significant
financial support for the development of an HCV therapeutic compound.
Until the expiration or termination of the agreement, any profits from the
sale of products developed under the agreement and sold in the United States
and Canada will be shared equally between us and American Home
8
<PAGE>
Products, subject to adjustment under certain circumstances. For sales of
these products outside the United States and Canada, American Home Products
will make royalty payments to us. These royalty payments will be reduced upon
the expiration of the last of our patents covering those products.
The collaborative research component of our agreement with American Home
Products has an initial term of three years after the effective date of the
agreement, unless extended by mutual agreement. Our agreement with American
Home Products terminates, country-by-country, in the United States and Canada,
if the parties are no longer co-promoting any product developed under the
agreement, and outside the United States and Canada, when American Home
Products is no longer obligated to pay us royalties on sales of products
developed under the agreement.
Battelle Memorial Institute
In November 1999, we entered into a product development and
commercialization agreement with Battelle Memorial Institute in connection
with our RSV program. Under this agreement, we received, subject to certain
conditions, certain exclusive rights to use patents and know-how owned or
controlled by Battelle or developed under the agreement covering Battelle's
hand-held, inhalation device for the delivery of compounds to treat RSV.
We will pay Battelle for development activities that it will perform on our
behalf on a fee-for-service basis. Battelle also is entitled to milestone
payments upon achievement of certain events relating to clinical development
and regulatory approval. We will pay Battelle royalties on net sales of
products, subject to certain minimum amounts due. Royalties will be reduced as
to sales in any country in which no issued patent protects the Battelle
device.
Other Collaborative Agreements
In August 1998, our Collaborative Research Agreement (the "Collaboration
Agreement") with Boehringer Ingelheim Pharmaceuticals, Inc. ("BI") expired. We
entered into an agreement with BI, effective as of the expiration of the
Collaboration Agreement, that permits each of the parties to continue the
development of all compounds that each party brought to the collaboration, and
all inventions jointly discovered by the parties during the term of the
Collaboration Agreement, without obligation to compensate the other party.
In October 1997, we received $1,000,000 from BI as an advance on a future
milestone in connection with the agreement. Such amount will be due and
payable in August 2000. The advance bears interest at 8.5% and is evidenced by
a convertible promissory note. If amounts due under the note are not paid as
described in the note, BI may convert the then outstanding principal balance
and accrued interest thereon into shares of our Common Stock based on the last
sale price of such Common Stock on the date immediately prior to the date on
which we are notified of BI's intention to convert the promissory note.
Patents and Proprietary Technology
We believe that patent protection and trade secret protection are important
to our business and that our future will depend, in part, on our ability to
maintain our technology licenses, maintain trade secret protection, obtain
patents and operate without infringing the proprietary rights of others both
in the United States and abroad. We currently have received two issued United
States patents covering compounds, compositions and methods for treating
hepatitis C, one issued United States patent covering methods for treating
pestivirus disease (a disease caused by viruses related to HCV) and three
issued United States patents for compounds, compositions or methods for
treating influenza. We have three pending United States patent applications
covering compounds and methods for treating RSV diseases and influenza, as
well as six United States patent applications covering compounds and methods
for treating hepatitis C and related virus diseases, as well as compounds
active against pestivirus diseases. We have two pending United States patent
applications covering technology and methods for identifying inhibitors of
HCV. We also have filed patent applications under the Patent Cooperation
Treaty, or PCT. These patent applications cover compounds and methods for
treating hepatitis C and related virus diseases,
9
<PAGE>
pestivirus diseases, RSV diseases and influenza and technology, compositions
and methods for identifying inhibitors of HCV. We intend to seek patent
protection on these inventions in countries having significant market
potential around the world on the basis of our PCT filings.
As patent applications in the United States are maintained in secrecy until
patents issue and as publication of discoveries in the scientific or patent
literature often lags behind the actual discoveries, we cannot be certain that
we or our licensors were the first to make the inventions covered by each of
these pending patent applications or that we or our licensors were the first
to file patent applications for such inventions. Furthermore, the patent
positions of biotechnology and pharmaceutical companies are highly uncertain
and involve complex legal and factual questions, and, therefore, the breadth
of claims allowed in biotechnology and pharmaceutical patents or their
enforceability cannot be predicted. We cannot be sure that any patents will
issue from any of these patent applications or, should any patents issue, that
we will be provided with adequate protection against potentially competitive
products. Furthermore, we cannot be sure that should patents issue, they will
be of commercial value to us, or that private parties, including competitors,
will not successfully challenge these patents or circumvent our patent
position in the United States or abroad. In the absence of adequate patent
protection, our business may be adversely affected by competitors who develop
comparable technology or products.
Pursuant to the terms of the Uruguay Round Agreements Act, patents filed on
or after June 8, 1995 have a term of twenty years from the date of filing,
irrespective of the period of time it may take for the patent to ultimately
issue. This may shorten the period of patent protection afforded to our
products as patent applications in the biopharmaceutical sector often take
considerable time to issue. Under the Drug Price Competition and Patent Term
Restoration Act of 1984, a sponsor may obtain marketing exclusivity for a
period of time following Food and Drug Administration approval of certain drug
applications, regardless of patent status, if the drug is a new chemical
entity or if new clinical studies were used to support the marketing
application for the drug. Pursuant to the FDA Modernization Act of 1997, this
period of exclusivity can be extended if the applicant performs certain
studies in pediatric patients. This marketing exclusivity prevents a third
party from obtaining FDA approval for a similar or identical drug under an
Abbreviated New Drug Application or a "505(b)(2)" New Drug Application.
The Drug Price Competition and Patent Term Restoration Act of 1984 also
allows a patent owner to obtain an extension of applicable patent terms for a
period equal to one-half the period of time elapsed between the filing of an
Investigational New Drug Application and the filing of the corresponding New
Drug Application plus the period of time between the filing of the New Drug
Application and FDA approval, with a five year maximum patent extension. We
cannot be sure that we will be able to take advantage of either the patent
term extension or marketing exclusivity provisions of this law.
In order to protect the confidentiality of our technology, including trade
secrets and know-how and other proprietary technical and business information,
we require all of our employees, consultants, advisors and collaborators to
enter into confidentiality agreements that prohibit the use or disclosure of
confidential information. The agreements also oblige our employees,
consultants, advisors and collaborators to assign to us ideas, developments,
discoveries and inventions made by such persons in connection with their work
with us. We cannot be sure that these agreements will maintain
confidentiality, will prevent disclosure, or will protect our proprietary
information or intellectual property, or that others will not independently
develop substantially equivalent proprietary information or intellectual
property.
The pharmaceutical industry is highly competitive and patents have been
applied for by, and issued to, other parties relating to products competitive
with those being developed by us. Therefore, our product candidates may give
rise to claims that they infringe the patents or proprietary rights of other
parties existing now and in the future. Furthermore, to the extent that we, or
our consultants or research collaborators, use intellectual property owned by
others in work performed for us, disputes may also arise as to the rights in
such intellectual property or in related or resulting know-how and inventions.
An adverse claim could subject us to significant liabilities to such other
parties and/or require disputed rights to be licensed from such other parties.
A license required under any such patents or proprietary rights may not be
available to us, or may not be available on acceptable terms. If
10
<PAGE>
we do not obtain such licenses, we may encounter delays in product market
introductions, or may find that we are prevented from the development,
manufacture or sale of products requiring such licenses. In addition, we could
incur substantial costs in defending ourselves in legal proceedings instituted
before the United States Patent and Trademark Office or in a suit brought
against us by a private party based on such patents or proprietary rights, or
in a suit by us asserting our patent or proprietary rights against another
party, even if the outcome is not adverse to us.
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements on the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval and promotion of
our products. All of our products will require regulatory approval before
commercialization. In particular, therapeutic products for human use are
subject to rigorous preclinical and clinical testing and other requirements of
the Federal Food, Drug, and Cosmetic Act, implemented by the FDA, as well as
similar statutory and regulatory requirements of foreign countries. Obtaining
these marketing approvals and subsequently complying with ongoing statutory
and regulatory requirements is costly and time consuming. Any failure by us or
our collaborators, licensors or licensees to obtain, or any delay in
obtaining, regulatory approval or in complying with other requirements, could
adversely affect the commercialization of products then being developed by us
and our ability to receive product or royalty revenues.
The steps required before a new drug product may be distributed commercially
in the United States generally include:
. conducting appropriate preclinical laboratory evaluations of the
product's chemistry, formulation and stability, and animal studies to
assess the potential safety and efficacy of the product;
. submitting the results of these evaluations and tests to the FDA, along
with manufacturing information and analytical data, in an
Investigational New Drug Application, or IND;
. making the Investigational New Drug Application effective after the
resolution of any safety or regulatory concerns of FDA;
. obtaining approval of Institutional Review Boards, or IRBs, to
introduce the drug into humans in clinical studies;
. conducting adequate and well-controlled human clinical trials that
establish the safety and efficacy of the drug product candidate for the
intended use, typically in the following three sequential, or slightly
overlapping stages:
. Phase I: The drug is initially introduced into healthy human subjects or
patients and tested for safety, dose tolerance, absorption, metabolism,
distribution and excretion;
. Phase II: The drug is studied in patients to identify possible adverse
effects and safety risks, to determine dose tolerance and the optimal
dosage, and to collect initial efficacy data;
. Phase III: The drug is studied in an expanded patient population at
multiple clinical study sites, to confirm efficacy and safety at the
optimized dose, by measuring a primary endpoint established at the outset
of the study;
. submitting the results of preliminary research, preclinical studies,
and clinical studies as well as chemistry, manufacturing and control
information on the drug to the FDA in a New Drug Application, or NDA;
and
. obtaining FDA approval of the New Drug Application prior to any
commercial sale or shipment of the drug product.
11
<PAGE>
This process can take a number of years and often requires substantial
financial resources. The results of preclinical studies and initial clinical
trials are not necessarily predictive of the results from large-scale clinical
trials, and clinical trials may be subject to additional costs, delays or
modifications due to a number of factors, including the difficulty in
obtaining enough patients, clinical investigators, drug supply, or financial
support. The FDA has issued regulations intended to accelerate the approval
process for the development, evaluation and marketing of new therapeutic
products intended to treat life-threatening or severely debilitating diseases,
especially where no alternative therapies exist. If applicable, this procedure
may shorten the traditional product development process in the United States.
Similarly, products that represent a substantial improvement over existing
therapies may be eligible for priority review with a target review and
approval time of six months. Nonetheless, approval may be denied or delayed by
FDA or additional trials may be required. FDA also may require testing and
surveillance programs to monitor the effect of approved products that have
been commercialized, and the agency has the power to prevent or limit further
marketing of a product based on the results of these post-marketing programs.
Upon approval, a drug product may be marketed only in those dosage forms and
for those indications approved in the New Drug Application, although
information may be distributed about off-label indications in certain
circumstances.
In addition to obtaining FDA approval for each indication to be treated with
each product, each domestic drug product manufacturing establishment must
register with the FDA, list its drug products with the FDA, comply with
current Good Manufacturing Practices and permit and pass inspections by the
FDA. Moreover, the submission of applications for approval may require
additional time to complete manufacturing stability studies. Foreign
establishments manufacturing drug products for distribution in the United
States also must list their products with the FDA and comply with current Good
Manufacturing Practices. They also are subject to periodic inspection by the
FDA or by local authorities under agreement with the FDA.
Any products manufactured or distributed by us pursuant to FDA approvals are
subject to extensive continuing regulation by the FDA, including record-
keeping requirements and a requirement to report adverse experiences with the
drug. In addition to continued compliance with standard regulatory
requirements, the FDA also may require post-marketing testing and surveillance
to monitor the safety and efficacy of the marketed product. Adverse
experiences with the product must be reported to the FDA. Product approvals
may be withdrawn if compliance with regulatory requirements is not maintained
or if problems concerning safety or efficacy of the product are discovered
following approval.
The Federal Food, Drug, and Cosmetic Act also mandates that drug products be
manufactured consistent with current Good Manufacturing Practices. In
complying with the FDA's regulations on current Good Manufacturing Practices,
manufacturers must continue to spend time, money and effort in production,
recordkeeping, quality control, and auditing to ensure that the marketed
product meets applicable specifications and other requirements. The FDA
periodically inspects drug product manufacturing facilities to ensure
compliance with current Good Manufacturing Practices. Failure to comply
subjects the manufacturer to possible FDA action, such as warning letters,
suspension of manufacturing, seizure of the product, voluntary recall of a
product or injunctive action, as well as possible civil penalties. We
currently rely on, and intend to continue to rely on, third parties to
manufacture our compounds and products. Such third parties will be required to
comply with current Good Manufacturing Practices.
Even after FDA approval has been obtained, and often as a condition to
expedited approval, further studies, including post-marketing studies, may be
required. Results of post-marketing studies may limit or expand the further
marketing of the products. If we propose any modifications to the product,
including changes in indication, manufacturing process, manufacturing facility
or labeling, a New Drug Application supplement may be required to be submitted
to the FDA.
Products manufactured in the United States for distribution abroad will be
subject to FDA regulations regarding export, as well as to the requirements of
the country to which they are shipped. These latter requirements are likely to
cover the conduct of clinical trials, the submission of marketing
applications, and all aspects of product manufacture and marketing. Such
requirements can vary significantly from country to
12
<PAGE>
country. As part of our strategic relationships our collaborators may be
responsible for the foreign regulatory approval process of our products,
although we may be legally liable for noncompliance.
We are also subject to various federal, state and local laws, rules,
regulations and policies relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in connection with
our research work. Although we believe that our safety procedures for handling
and disposing of such materials comply with current federal, state and local
laws, rules, regulations and policies, the risk of accidental injury or
contamination from these materials cannot be entirely eliminated.
The extent of government regulation which might result from future
legislation or administrative action cannot be accurately predicted. In this
regard, although the Food and Drug Administration Modernization Act of 1997
modified and created requirements and standards under the Federal Food, Drug,
and Cosmetic Act with the intent of facilitating product development and
marketing, the FDA is still in the process of developing regulations
implementing the Food and Drug Administration Modernization Act of 1997.
Consequently, the actual effect of these developments on our business is
uncertain and unpredictable.
Moreover, we anticipate that Congress, state legislatures and the private
sector will continue to review and assess controls on health care spending.
Any such proposed or actual changes could cause us or our collaborators to
limit or eliminate spending on development projects and may otherwise impact
us. We cannot predict the likelihood, nature, or extent of adverse
governmental regulation that might result from future legislative or
administrative action, either in the United States or abroad. Additionally, in
both domestic and foreign markets, sales of our proposed products will depend,
in part, upon the availability of reimbursement from third-party payors, such
as government health administration authorities, managed care providers,
private health insurers and other organizations. Significant uncertainty often
exists as to the reimbursement status of newly approved health care products.
In addition, third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. There can be no assurance
that our proposed products will be considered cost-effective or that adequate
third-party reimbursement will be available to enable us to maintain price
levels sufficient to realize an appropriate return on our investment in
product research and development.
Competition
The pharmaceutical and biopharmaceutical industries are intensely
competitive and are characterized by rapid technological progress. Certain
pharmaceutical and biopharmaceutical companies and academic and research
organizations currently engage in, or have engaged in, efforts related to the
discovery and development of new antiviral medicines. Significant levels of
research in chemistry and biotechnology occur in universities and other
nonprofit research institutions. These entities have become increasingly
active in seeking patent protection and licensing revenues for their research
results. They also compete with us in recruiting skilled scientific talent.
Antiviral therapeutics for certain RNA virus diseases are currently
available. For example:
. zanamivir and oseltamivir phosphate are used to treat influenza due to
influenza A and B viruses;
. amantadine and rimantadine are used to treat influenza A virus
infections;
. ribavirin is used to treat serious respiratory disease caused by RSV;
and
. interferon, alone or in combination with ribavirin, is used to treat
hepatitis C.
Two specific immunoglobulin products, one an intravenous human plasma-
derived immune globulin preparation and the other an injectable humanized
monoclonal antibody (palivizumab), currently are approved for prophylactic use
in certain high risk infants with RSV infections. In addition, several
standard immunoglobulin products are used to treat or prevent some RNA virus
diseases. We believe, however, that based on the characteristics of existing
treatments, there is a clear need for new agents with superior therapeutic
efficacy to treat these viral diseases.
13
<PAGE>
In addition to approved products, other companies are developing treatments
for RNA virus diseases, including compounds in clinical development for
rhinovirus, HCV and influenza infections. Moreover, there are compounds in
preclinical and clinical studies for rhinovirus, HCV, RSV and influenza
infections. Our ability to compete successfully will be based on our ability
to:
. create and maintain scientifically advanced technology,
. develop proprietary products,
. attract and retain scientific personnel,
. obtain patent or other protection for our products,
. obtain required regulatory approvals and manufacture, and
. successfully market our products either alone or through outside
parties.
Some of our competitors have substantially greater financial, research and
development, manufacturing, marketing and human resources and greater
experience in product discovery, development, clinical trial management, FDA
regulatory review, manufacturing and marketing than we do.
Human Resources
As of January 31, 2000, we had 107 full-time employees, including 21 persons
with Ph.D. or M.D. degrees. Seventy-five of our employees are engaged in
research and development activities at our laboratory facility in Exton,
Pennsylvania. A significant number of our management and professional
employees have had prior experience with pharmaceutical, biotechnology or
medical products companies. None of our employees is covered by collective
bargaining agreements. We believe that our relations with our employees are
good.
Risk Factors
Our disclosure and analysis in this report contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. They use words
such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," and other words and terms of similar meaning in connection with any
discussion of future operating or financial performance. In particular, these
include statements relating to present or anticipated scientific progress,
development of potential pharmaceutical products, future revenues, capital
expenditures, research and development expenditures, future financings and
collaborations, personnel, manufacturing requirements and capabilities, and
other statements regarding matters that are not historical facts or statements
of current condition.
Any or all of our forward-looking statements in this report may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors mentioned in the
discussion below will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially. The risks described below are not the only ones
facing our company. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business operations. We do not
intend to update our forward-looking statements to reflect future events or
developments.
We depend heavily on the success of our lead product candidate, pleconaril,
which is still in clinical trials and may never be approved for commercial
use. If we are unable to commercialize pleconaril, our business and results of
operations will be harmed.
We have invested a significant portion of our time and financial resources
since our inception in the development of pleconaril and anticipate that for
the foreseeable future our ability to achieve profitability will be solely
dependent on its successful commercialization. We expect to have preliminary
results from the first Phase III clinical trial in VRI and the two Phase III
clinical trials in viral meningitis, in the first half of 2000. If these
trials do not show that pleconaril is safe and effective, our stock price and
results of operations will be
14
<PAGE>
materially and adversely affected. Many factors could negatively affect the
success of our efforts to develop and commercialize pleconaril, including:
. significant delays in our clinical trials;
. significant increases in the costs of our clinical trials;
. negative, inconclusive or otherwise unfavorable results from our
clinical trials;
. an inability to obtain, or delay in obtaining, regulatory approval for
the commercialization of pleconaril;
. an inability to manufacture pleconaril in commercial quantities at
acceptable cost; and
. a failure to achieve market acceptance of pleconaril.
. If we are unable to commercialize pleconaril, our business and results
of operations will be harmed.
If we are unable to commercialize pleconaril, our business and results of
operations will be harmed.
We have incurred losses since inception and anticipate that we will incur
continued losses for the foreseeable future. We do not have a current source
of product revenue and may never be profitable.
We are a development stage company with no current source of product
revenue. We have incurred losses in each year since our inception in 1994. As
of December 31, 1999, we had an accumulated deficit of approximately $77.9
million. We do not know when or if we will achieve product revenue. We expect
to incur such losses at an increasing rate over at least the next several
years, primarily due to expected increases in our research and development
expenses, further clinical trials of our most advanced product candidate,
pleconaril (including any significant additional studies for approval in the
European Union, if any are required), and milestone payments that may be
payable under the terms of our agreement with Sanofi-Synthelabo for
pleconaril. Also, we expect to incur expenses related to our marketing and
market research activities for pleconaril, our development of a marketing and
sales staff and building the requisite infrastructure, and further research
and development related to other product candidates. Our ability to achieve
profitability is dependent on a number of factors, including our ability to
develop and obtain regulatory approvals for our product candidates,
successfully commercialize those product candidates, which may include
entering into collaborative agreements for product development and
commercialization, and secure contract manufacturing and distribution and
logistics services. We do not know when or if we will complete our product
development efforts, receive regulatory approval of any of our product
candidates or successfully commercialize any approved products. As a result,
we are unable to predict the extent of any future losses or the time required
to achieve profitability, if at all.
Our long term success depends upon our ability to develop additional drug
product candidates. If our drug discovery and development programs are not
successful, our business and results of operations will be harmed.
We are performing clinical and preclinical research on product candidates
for the treatment of hepatitis C , and preclinical research on product
candidates for the treatment of RSV diseases. We also are seeking to discover
additional product candidates for the treatment of these and other RNA virus
diseases. Drug discovery and research for RNA virus diseases is a new and
challenging area. We cannot be certain that our efforts in this regard will
lead to commercially viable products. Moreover, we have not submitted
Investigational New Drug Applications, or INDs, for these products, which are
required before we can begin clinical trials on the products in the United
States. We are not sure that we will submit INDs for the treatment of
hepatitis C and RSV as planned, or whether FDA will permit us to proceed with
clinical trials. These product candidates are in the early stages of
development, and we may abandon further development efforts before the
products reach clinical trials. We do not know what the cost to manufacture
these products in commercial quantities will be, or the dose required to treat
patients. We do not know whether any of these early-stage development products
ultimately will be shown to be safe and effective. Moreover, governmental
authorities may enact new legislation or regulations that could limit or
restrict our development efforts. If we are unable to successfully discover
new product candidates or develop our early-stage product candidates, our
business and results of operations will be harmed.
15
<PAGE>
None of our product candidates is approved for commercial use. If our product
candidates do not receive regulatory approval, or if we are unable to maintain
regulatory compliance, we will be limited in our ability to commercialize
these products, and our business and results of operations will be harmed.
We have not received regulatory approval to commercialize pleconaril or any
of our other product candidates. We will need to complete preclinical and
clinical testing of each of our product candidates before submitting marketing
applications. Negative, inconclusive or inconsistent clinical trial results
could prevent regulatory approval, increase the cost and timing of regulatory
approval or require additional studies or a filing for a narrower indication.
FDA recently enacted new regulations requiring the development and submission
of pediatric use data for new drug products. Our failure to obtain this data,
or to obtain a delay of, or exemption from, this requirement could adversely
affect our chances of receiving regulatory approval, or could result in
regulatory or legal enforcement actions.
The development of any of our product candidates is subject to many risks,
including the risk that:
. the product candidate is found to be ineffective or unsafe;
. the clinical test results for a product candidate delay or prevent
regulatory approval;
. the product candidate cannot be developed into a commercially viable
product;
. the product candidate is difficult to manufacture;
. the product candidate later is discovered to cause adverse effects that
prevent widespread use, require withdrawal from the market, or serve as
the basis for product liability claims;
. third party competitors hold proprietary rights that preclude us from
marketing the product; and
. third party competitors market a more clinically effective or more
cost-effective product.
Even if we believe that clinical data demonstrate the safety and efficacy of
our product, regulators may disagree with us, which could delay, limit or
prevent the approval of our product candidates. As a result, we may not obtain
the labeling claims we believe are necessary or desirable for the promotion of
those products. In addition, regulatory approval may take longer than we
expect as a result of a number of factors, including failure to qualify for
priority review of our application. For example, the regulatory approval
process may delay the launch of pleconaril for the treatment of viral
meningitis beyond the year 2000. All statutes and regulations governing the
approval of our product candidates are subject to change in the future. These
changes may increase the time or cost of regulatory approval, limit approval,
or prevent it completely.
Even if we receive regulatory approval for our product candidates, the later
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions, including withdrawal of the product from
the market. Approval of a product candidate may be conditioned upon certain
limitations and restrictions as to the drug's use, or upon the conduct of
further studies, and may be subject to continuous review. After approval of a
product, we will have significant ongoing regulatory compliance obligations,
and if we fail to comply with these requirements, we could be subject to
penalties, including:
. warning letters;
. fines;
. product recalls;
. withdrawal of regulatory approval;
. operating restrictions;
. injunctions; and
. criminal prosecution.
If we are unable to commercialize our products as anticipated, our business
and results of operations will be harmed. Our license with Sanofi-Synthelabo
makes Sanofi-Synthelabo responsible for seeking regulatory approval for and
marketing pleconaril outside the United States and Canada. If Sanofi-
Synthelabo fails to diligently and successfully pursue these activities, our
business and results of operations will be harmed.
16
<PAGE>
We will need to conduct clinical studies of all of our product candidates.
These studies are costly, time consuming and unpredictable. Any unanticipated
costs or delays in our clinical studies could harm our business, financial
condition and results of operations.
Our lead candidate, pleconaril, is in Phase III trials for treatment of VRI
and viral meningitis. We have other product candidates for treatment of
hepatitis C in clinical development and for RSV disease in preclinical
development. We must complete significant research and development, laboratory
testing, and clinical testing on these product candidates before we submit
marketing applications in the United States and abroad. These studies and
trials can be very costly and time-consuming. In addition, we rely on third
party contract research organizations to perform significant aspects of our
studies and clinical trials, introducing additional sources of risk into our
program.
The rate of completion of clinical trials depends upon many factors,
including the rate of enrollment of patients. The acute nature of our disease
targets, the fact that some of these diseases have peak incidence rates during
certain times of the year, and the difficulties in anticipating where disease
outbreaks will occur, may affect patient enrollment in our clinical trials. If
we are unable to accrue sufficient clinical patients during the appropriate
period, we may need to delay our clinical trials and incur significant
additional costs. In addition FDA or Institutional Review Boards may require
us to delay, restrict, or discontinue our clinical trials on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Even if we complete our current Phase III clinical
trials, we may desire or be required to conduct additional clinical trials of
pleconaril prior to commercialization. In addition, we may be unable to submit
a New Drug Application to the FDA within the timeframe we currently expect. If
submitted, a New Drug Application would require FDA approval before we could
commercialize the product described in the application.
The cost of human clinical trials varies dramatically based on a number of
factors, including:
. the order and timing of clinical indications pursued;
. the extent of development and financial support from corporate
collaborators;
. the number of patients required for enrollment;
. the difficulty of obtaining clinical supplies of the product candidate;
and
. the difficulty in obtaining sufficient patient populations and
clinicians.
All statutes and regulations governing the conduct of clinical trials are
subject to change in the future, which could affect the cost of our clinical
trials. Any unanticipated costs or delays in our clinical studies could harm
our business, financial condition and results of operations.
Even if we obtain positive preclinical or clinical trial results initially,
future clinical trial results may not be similarly positive. As a result,
ongoing and contemplated clinical testing, if permitted by governmental
authorities, may not demonstrate that a product candidate is safe and
effective in the patient population and for the disease indications for which
we believe it will be commercially advantageous to market the product. The
failure of our clinical trials to demonstrate the safety and efficacy of our
desired indications could harm our business, financial condition and results
of operations.
We do not have any marketing or sales experience and will need to develop
marketing and sales capabilities to successfully commercialize our product
candidates. If we are unable to do so, our business and results of operations
will be harmed.
We currently are developing a marketing staff and do not have a sales staff.
We will need both staffs to successfully commercialize any of our product
candidates, including pleconaril. We intend to establish a specialty sales
force for viral meningitis and to use a third-party sales and marketing
partner for VRI. Once established, we intend to expand our specialty sales
force to allow us to maximize our return in a co-promotion partnership for
VRI. The development of a marketing and sales capability will require
significant expenditures, management resources and time. We may be unable to
build such a sales force, the cost of establishing such a sales force may
exceed any product revenues, or our marketing and sales efforts may be
unsuccessful. We may
17
<PAGE>
not be able to find a suitable sales and marketing partner for VRI. If we are
unable to successfully establish a sales and marketing capability in a timely
manner or find suitable sales and marketing partners, our business and results
of operations will be harmed. Even if we are able to develop a sales force or
find a suitable marketing partner, we may not successfully penetrate the
markets for any of our proposed products.
We currently depend and will in the future depend on third parties to
manufacture our products and product candidates, including pleconaril. If
these manufacturers fail to meet our requirements and the requirements of
regulatory authorities, our business, financial condition and results of
operations will be harmed.
We do not have the internal capability to manufacture commercial quantities
of pharmaceutical products under the FDA's current Good Manufacturing
Practices. We entered into agreements with SELOC France for the manufacture of
pleconaril bulk drug substance and the development of a process for commercial
scale production of pleconaril. In addition, SELOC France will assist us in
the preparation of certain documentation that will be required in connection
with our New Drug Application for pleconaril. We also have entered into
agreements with Patheon, Inc. for the manufacture of oral liquid and solid
formulations of pleconaril drug product. Other than the production of
validation batches, these manufacturers have not delivered commercial
quantities of pleconaril bulk drug substance or drug product to us yet, and we
cannot be certain that they will be able to deliver commercial quantities of
pleconaril bulk drug substance or drug product on a timely basis. If SELOC
France or Patheon, Inc. is unable to satisfy our requirements and we are
required to find an additional or alternative source of supply, there may be
additional cost and delay in product development and commercialization of
pleconaril.
We are also evaluating manufacturing alternatives for the commercial
manufacture of drug substance and drug product. The FDA requires pre-approval
inspection for all commercial manufacturing sites. We may not be able to
identify and qualify alternative manufacturers on a timely basis, if at all.
We have used an oral liquid formulation of pleconaril in all of our clinical
trials completed to date, and in our ongoing clinical trials for viral
meningitis. We are using an oral solid formulation in our ongoing Phase III
clinical trial of pleconaril for the treatment of VRI. We have also developed
suspension and intranasal formulations of pleconaril. A delay in manufacturing
validation batches, or a failure to negotiate agreements with manufacturers,
will delay product development and commercialization and could harm our
business, financial condition and results of operations. The chemical
stability of the oral solid formulation must be tested. We also may need to
demonstrate that the oral solid formulation is bioequivalent to the oral
liquid formulation. A delay in the required stability testing or in
manufacturing validation batches, or a failure to demonstrate chemical
stability or any required bioequivalence will prevent or delay the
commercialization of the oral solid formulation of pleconaril. The suspension
and intranasal formulations of pleconaril have not been used in any of our
clinical trials to date.
Any contract manufacturers that we may use must adhere to the FDA's
regulations on current Good Manufacturing Practices, which are enforced by the
FDA through its facilities inspection program. These facilities must pass a
plant inspection before the FDA will issue a pre-market approval of the
product. The manufacture of product at these facilities will be subject to
strict quality control, testing and recordkeeping requirements. Moreover,
while we may choose to manufacture products in the future, we have no
experience in the manufacture of pharmaceutical products for clinical trials
or commercial purposes. If we decide to manufacture products, we would be
subject to the regulatory requirements described above. In addition, we would
require substantial additional capital and would be subject to delays or
difficulties encountered in manufacturing pharmaceutical products. No matter
who manufacturers the product, we will be subject to continuing obligations
regarding the submission of safety reports and other post-market information.
If we encounter delays or difficulties with contract manufacturers,
packagers or distributors, market introduction and subsequent sales of our
products could be delayed. In addition, we may need to seek alternative
sources of supply. If so, we may incur additional costs or delays in product
commercialization. If we change the
18
<PAGE>
source or location of supply or modify the manufacturing process, regulatory
authorities will require us to demonstrate that the product produced by the
new source or from the modified process is equivalent to the product used in
any clinical trials that we had conducted.
We may not be able to enter into alternative supply arrangements at
commercially acceptable rates, if at all. Moreover, the manufacturers utilized
by us may not provide quantities of product sufficient to meet our
specifications or our delivery, cost and other requirements.
We license patented technology and other proprietary rights from Sanofi-
Synthelabo, including rights to pleconaril. If Sanofi-Synthelabo does not
protect our rights under our license agreement with it or does not reasonably
consent to our sublicense of rights to pleconaril, or if this license
agreement is terminated, our business and results of operations would be
harmed.
We have licensed from Sanofi-Synthelabo the exclusive United States and
Canadian rights to antiviral agents for use in enterovirus and rhinovirus
indications, which are the subject of two issued United States patents and two
related Canadian patent applications owned by Sanofi-Synthelabo that cover
both pleconaril and technology used to manufacture pleconaril. We depend on
Sanofi-Synthelabo to prosecute such patent applications and protect such
patent rights. Failure by Sanofi-Synthelabo to prosecute such applications and
protect such patent rights could harm our business. Our ability to sublicense
our rights under this license agreement are subject to Sanofi-Synthelabo's
consent, which is not to be unreasonably withheld. Under our license
agreement, Sanofi-Synthelabo also has exclusive rights to market and sell
products covered by these patents and patent applications in countries other
than the United States and Canada, although we would receive royalties from
Sanofi-Synthelabo on such sales. In connection with these rights, Sanofi-
Synthelabo may require us to pay for clinical trials required for products to
receive regulatory approval in the European Union if significant additional
testing is required. If Sanofi-Synthelabo does not successfully market and
sell products outside of the United States and Canada, our business and future
results of operations may be harmed. If our license agreement with Sanofi-
Synthelabo is terminated, our business and results of operations would be
harmed.
We depend on collaborations with third parties, which may reduce our product
revenues or restrict our ability to commercialize products.
We have entered into, and may in the future enter into, sales and marketing,
distribution, manufacturing, development, licensing and other strategic
arrangements with third parties. For example, in December 1999, we entered
into an agreement with American Home Products Corporation to develop and
commercialize jointly products for use in treating the effects of hepatitis C
virus in humans. Under this Agreement, we licensed to them worldwide rights
under patents and know-how owned by us or created under the agreement. In
November 1999, we entered into a product development and commercialization
agreement with Battelle Memorial Institute in connection with our RSV program.
We are currently engaged in additional discussions relating to other
arrangements. We cannot be sure that we will be able to enter into any such
arrangements with third parties on terms acceptable to us or at all. Third
party arrangements may require us to grant certain rights to third parties,
including exclusive marketing rights to one or more products, or may have
other terms that are burdensome to us, and may involve the acquisition of our
equity securities.
Our ultimate success may depend upon the success of our collaborators. We
have obtained, and intend to obtain in the future, licensed rights to certain
proprietary technologies and compounds from other entities, individuals and
research institutions, for which we may be obligated to pay license fees, make
milestone payments and pay royalties. We may be unable to enter into
collaborative licensing or other arrangements that we need to develop and
commercialize our drug candidates. Moreover, we may not realize the
contemplated benefits from such collaborative licensing or other arrangements.
These arrangements may place responsibility on our collaborative partners for
preclinical testing, human clinical trials, the preparation and submission of
applications for regulatory approval, or for marketing, sales and distribution
support for product commercialization. We cannot be certain that any of these
parties will fulfill their obligations in a manner consistent with our best
interests. These arrangements may also require us to transfer certain material
rights or
19
<PAGE>
issue our equity securities to corporate partners, licensees and others. Any
license or sublicense of our commercial rights may reduce our product revenue.
Moreover, we may not derive any revenues or profits from these arrangements.
In addition, our current strategic arrangements may not continue and we may be
unable to enter into future collaborations. Collaborators may also pursue
alternative technologies or drug candidates, either on their own or in
collaboration with others, that are in direct competition with us.
We depend on patents and proprietary rights, which may offer only limited
protection against potential infringement. If we are unable to protect our
patents and proprietary rights, our business, financial condition and results
of operations will be harmed.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and
processes. Our success depends, in part, on our ability to develop and
maintain a strong patent position for our products and technologies both in
the United States and in other countries. Litigation or other legal
proceedings may be necessary to defend against claims of infringement, to
enforce our patents, or to protect our trade secrets, and could result in
substantial cost to us and diversion of our efforts. We intend to file
applications as appropriate for patents covering the composition of matter of
our drug candidates, the proprietary processes for producing such
compositions, and the uses of our drug candidates. We own six issued United
States patents and have 11 pending United States patent applications. We also
have filed international patent applications in order to pursue patent
protection in major foreign countries.
We also rely on trade secrets, know-how and continuing technological
advancements to protect our proprietary technology. We have entered into
confidentiality agreements with our employees, consultants, advisors and
collaborators. However, these parties may not honor these agreements and we
may not be able to successfully protect our rights to unpatented trade secrets
and know-how. Others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets and know-how.
Many of our scientific and management personnel were previously employed by
competing companies. As a result, such companies may allege trade secret
violations and similar claims against us.
To facilitate development of our proprietary technology base, we may need to
obtain licenses to patents or other proprietary rights from other parties. If
we are unable to obtain such licenses, our product development efforts may be
delayed.
We may collaborate with universities and governmental research organizations
which, as a result, may acquire certain rights to any inventions or technical
information derived from such collaboration.
We may incur substantial costs in asserting any patent rights and in
defending suits against us related to intellectual property rights. Such
disputes could substantially delay our product development or
commercialization activities. The United States Patent and Trademark Office or
a private party could institute an interference proceeding relating to our
patents or patent applications. An opposition or revocation proceeding could
be instituted in the patent offices of foreign jurisdictions. An adverse
decision in any such proceeding could result in the loss of our rights to a
patent or invention.
Any of our future products, including pleconaril, may not be accepted by the
market, which would harm our business and results of operations.
Even if approved by the FDA and other regulatory authorities, our product
candidates may not achieve market acceptance and we may not receive revenues
from these products as anticipated. The degree of market acceptance will
depend upon a number of factors, including:
. the receipt and timing of regulatory approvals;
20
<PAGE>
. the availability of third-party reimbursement; and
. the establishment and demonstration in the medical community of the
clinical safety, efficacy and cost-effectiveness of drug candidates, as
well as their advantages over existing technologies and therapeutics.
We may not be able to successfully manufacture and market our products even
if they perform successfully in clinical trials. Furthermore, physicians or
the medical community in general may not accept and utilize any of our
products.
We may not receive third party reimbursement for any of our future products,
which may harm our results of operations.
Our future revenues, profitability and access to capital will be affected by
the continuing efforts of governmental and private third-party payors to
contain or reduce the costs of health care through various means. We expect a
number of federal, state and foreign proposals to control the cost of drugs
through governmental regulation. We are unsure of the form that any health
care reform legislation may take or what actions federal, state, foreign, and
private payors may take in response to the proposed reforms. Therefore, we
cannot predict the effect of any implemented reform on our business.
Our ability to commercialize our products successfully will depend, in part,
on the extent to which reimbursement for the cost of such products and related
treatments will be available from government health administration
authorities, such as Medicare and Medicaid in the United States, private
health insurers and other organizations. Significant uncertainty exists as to
the reimbursement status of newly approved health care products, particularly
for indications for which there is no current effective treatment or for which
medical care typically is not sought. Adequate third-party coverage may not be
available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product research and development. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for use of our products, our products may fail to achieve
market acceptance and our results of operations will be harmed.
We need substantial additional funding and may not have access to capital. If
we are unable to raise capital when needed, we may need to delay, reduce or
eliminate research and development programs or our commercialization efforts,
which would harm our business.
We will need to raise substantial additional funds to continue our business
activities. We have incurred losses from operations since inception and we
expect to incur additional operating losses at an increasing rate over at
least the next several years. We expect this increase to result from further
research and development activities, further clinical trials, development of
marketing and sales capabilities and building the requisite infrastructure,
and milestone payments related to pleconaril and our other product candidates.
We believe that we will require additional capital in 2003. However, our
actual capital requirements will depend upon numerous factors, including:
. the development of commercialization activities and arrangements;
. the progress of our research and development programs;
. the progress of preclinical and clinical testing;
. the time and cost involved in obtaining regulatory approvals;
. the cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
. the effect of competing technological and market developments;
. the effect of changes and developments in our existing collaborative,
licensing and other relationships; and
. the terms of any new collaborative, licensing and other arrangements
that we may establish.
21
<PAGE>
We may be unable to raise sufficient funds to complete our development,
marketing and sales activities for pleconaril or any of our other product
candidates. Potential funding sources include:
. public and private securities offerings;
. debt financing, such as bank loans; and
. collaborative, licensing and other arrangements with third parties.
We may not be able to find sufficient debt or equity funding on acceptable
terms. If we cannot, we may need to delay, reduce or eliminate research and
development programs. The sale by us of additional equity securities or the
expectation that we will sell additional equity securities may have an adverse
effect on the price of our common stock. In addition, collaborative
arrangements may require us to grant product development programs or licenses
to third parties for products that we might otherwise seek to develop or
commercialize ourselves.
We face intense competition, which could harm our business and results of
operations.
There are many entities, both public and private, including well-known,
large pharmaceutical companies, chemical companies, biotechnology companies
and research institutions, engaged in developing pharmaceuticals for
applications similar to those targeted by us. Developments by these or other
entities may render our products under development non-competitive or
obsolete. Many of these companies have substantially greater resources and
experience than we have. Accordingly, our competitors may succeed in obtaining
regulatory approval for products more rapidly and more effectively than we do.
Competitors may succeed in developing products that are more effective and
less costly than any that may be developed by us and also may prove to be more
successful in the manufacture and marketing of products.
We may not be able to keep pace with technological changes in the
biopharmaceutical industry, which may prevent us from commercializing our
product candidates.
Our business is characterized by extensive research efforts and rapid
technological progress. New developments in molecular biology, medicinal
chemistry and other fields of biology and chemistry are expected to continue
at a rapid pace in both industry and academia. Research and discoveries by
others may render some or all of our programs or drug candidates non-
competitive or obsolete.
Our business strategy is based, in part, upon the application of our
technology platform to discover and develop pharmaceutical products for the
treatment of infectious human diseases. This strategy is subject to the risks
inherent in the development of new products using new and emerging
technologies and approaches. There are no approved drugs on the market for the
treatment of certain of the disease indications being targeted by us.
Unforeseen problems may develop with our technologies or applications. We
may not be able to successfully address technological challenges that we
encounter in our research and development programs and may not ultimately
develop commercially feasible products.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our business.
Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. Our
anticipated growth and expansion into new areas and activities will require
additional expertise and the addition of new qualified personnel. For example,
we intend to recruit sales and marketing personnel to support the
commercialization of pleconaril. We will face intense competition in
recruiting these persons. We may not be able to attract and retain qualified
personnel to develop our sales and marketing forces. There is intense
competition for qualified personnel in the pharmaceutical field. Therefore, we
may not be able to attract and retain the qualified personnel necessary for
the development of our business. Furthermore, we have not entered into non-
competition agreements with our key employees. The loss of the services of
existing personnel, as well as the failure to recruit additional key
scientific, technical and
22
<PAGE>
managerial personnel in a timely manner would harm our research and
development programs and our business. We do not maintain key man life
insurance on any of our employees.
We may be subject to product liability claims, which may harm our business,
financial condition and results of operations regardless of the outcome.
The administration of drugs to humans, whether in clinical trials or after
marketing clearance is obtained, can result in product liability claims.
Product liability claims can be expensive, difficult to defend and may result
in large judgments or settlements against us. In addition, third party
collaborators and licensees may not protect us from product liability claims.
Although we maintain product liability insurance, claims could exceed the
coverage obtained. A successful product liability claim in excess of our
insurance coverage could harm our business, financial condition and results of
operations. In addition, any successful claim may prevent us from obtaining
adequate product liability insurance in the future on commercially desirable
terms. Even if a claim is not successful, defending such a claim may be time-
consuming and expensive.
The rights that have been and may in the future be granted to holders of our
common or preferred stock may adversely affect the rights of other
stockholders and may discourage a takeover.
Pursuant to our certificate of incorporation, our board of directors has the
authority, without further action by the holders of our common stock, to issue
5,000,000 shares of preferred stock from time to time in such series and with
such preferences and rights as it may designate. As of February 15, 2000, we
have issued 2,300,000 shares of series A convertible participating preferred
stock and have reserved for issuance 200,000 shares of series A junior
participating preferred stock. Thus, we may issue an additional
2,500,000 shares of preferred stock. The preferences and rights of any such
additional preferred stock may be superior to those of the holders of our
common stock. For example, the holders of preferred stock may be given a
preference in payment upon our liquidation, or for the payment or accumulation
of dividends before any distributions are made to the holders of our common
stock.
On May 5, 1999, we completed the sale of 2,300,000 shares of series A
convertible participating preferred stock to PSV, LP (formerly Perseus-Soros
BioPharmaceutical Fund, L.P.). This preferred stock is convertible into shares
of common stock on a one-for-one basis (subject to adjustment) by PSV at any
time and by us under certain conditions. There is a 5% annual dividend,
payable quarterly, associated with this preferred stock. We may choose to
permanently defer payment of any dividend, in which case the dividend is added
to the liquidation value and increases the conversion ratio of the preferred
stock into common stock. Holders of the preferred stock have liquidation
rights equal to their original investment, subject to adjustment. Such holders
also have preemptive rights with respect to proposed private placements of our
common stock or other equity securities for cash, other than issuances under
our equity compensation or stock option plans and issuances pursuant to our
stockholder rights plan, at a price below $6.20 per share (with adjustment for
any stock dividend, stock split or other subdivision of stock, or any
combination or reclassification of stock).
In September 1998, our board of directors adopted a plan that grants each
holder of our common stock the right to purchase shares of our series A junior
participating preferred stock. This plan is designed to help insure that all
our stockholders receive fair value for their shares of common stock in the
event of a proposed takeover of ViroPharma, and to guard against the use of
partial tender offers or other coercive tactics to gain control of ViroPharma
without offering fair value to the holders of our common stock. The plan is
likely to discourage a merger or tender offer involving our securities that is
not approved by our board of directors by increasing the cost of effecting any
such transaction and, accordingly, could have an adverse impact on holders of
our stock who might want to vote in favor of such a merger or participate in
such a tender offer.
While we have no present intention to authorize or issue any additional
series of preferred stock, any such authorization or issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could also have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock. The
preferred stock may have other rights, including economic rights senior to
23
<PAGE>
those of our common stock, and, as a result, an issuance of additional
preferred stock could adversely affect the market value of our common stock.
We have significant indebtedness and we may not be able to meet our
obligations
We are highly leveraged and have significant debt service requirements. In
March 2000, we issued $180,000,000 of convertible subordinated notes due in
March 2007. Our interest expense will increase significantly during the term
that the convertible notes are outstanding. This increased indebtedness will
impact us by:
. significantly increasing our interest expense and related debt service
costs; and
. making it more difficult to obtain additional financing.
Currently, we are not generating sufficient cash flow from operations to
satisfy the annual debt service payments that will be required as a result of
the consummation of this offering. This may require us to use a portion of the
proceeds of this offering to pay interest or borrow additional funds or sell
additional equity to meet our debt service obligations. If we are unable to
satisfy our debt service requirements, substantial liquidity problems could
result, which would negatively impact our future prospects.
Our ability to meet our debt service obligations and to reduce our total
indebtedness depends on our future operating performance and on economic,
financial, competitive, regulatory and other factors affecting our operations.
Many of these factors are beyond our control and our future operating
performance could be adversely affected by some or all of these factors. We
historically have been unable to generate sufficient cash flow from operations
to meet our operating needs and have relied on equity, debt and capital lease
financings to fund our operations.
Year 2000 issues could disrupt our business.
Our assessment of our exposure to Year 2000-related problems focused on four
potential areas of exposure: internal information systems; scientific
equipment; facility support systems; and the readiness of significant third
parties with whom we have material business relationships. During 1999, we
implemented all necessary upgrades to our internal information systems and to
date have not experienced significant operational problems. In addition, to
date our major pieces of scientific equipment and our major facility support
systems such as communications, security and building maintenance systems,
have shown to be Year 2000-compliant. We contacted our significant suppliers
and service providers to determine if such parties were Year 2000 compliant.
To date, we have not been advised of material Year 2000 issues by any of these
parties. In addition, all contracts between us and third parties providing
product development or manufacturing services to us require such third parties
be in compliance with the laws, regulations and guidelines of the Federal
Food, Drug, and Cosmetic Act, which requires appropriate steps to eliminate
Year 2000 computer risks. We cannot be certain that the systems of these third
parties will be timely converted and any failure by these companies to do so
may have an adverse impact on our business. We estimate that future cost, if
any, of addressing Year 2000 issues will not have a significant impact on our
results of operations.
We are subject to environmental risks which may adversely affect our business.
Our research and development processes involve the controlled use of
hazardous, infectious and radioactive materials. We are subject to stringent
federal, state and local laws, rules, regulations and policies governing the
use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials and wastes. We may be required to
incur significant costs to comply with environmental laws, rules, regulations
and policies. In addition, our business may be adversely affected by current
or future environmental laws, rules, regulations and policies or by any
releases or discharges of materials that could be hazardous.
We utilize radioactive and other materials that could be hazardous to human
health, safety or the environment. We store these materials and various wastes
resulting from their use at our facility pending ultimate
24
<PAGE>
use and disposal. Although we believe that our safety procedures for handling
and disposing of such materials comply with federal, state and local laws,
rules, regulations and policies, the risk of accidental injury or
contamination from these materials cannot be entirely eliminated. If such an
accident occurs, we could be held liable for any resulting damages, and any
such liability could exceed our resources. We do not maintain a separate
insurance policy for these types of risks.
ITEM 2. PROPERTIES
Our corporate facilities located in Exton, Pennsylvania currently occupy
approximately 48,400 square feet. We are expanding by 22,500 square feet and
may expand to a total of 86,500 square feet. The lease, which will expire in
2008, has two 5-year renewal options, monthly base rent and additional
provisions for allocation of direct expense charges for utilities,
maintenance, insurance and property taxes.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
The following is a list of our executive officers, including their ages, as
of December 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Claude H. Nash................. 57 Chief Executive Officer, President and
Chairman of the
Board of Directors
Marc S. Collett, Ph.D.......... 48 Vice President, Discovery Research
Thomas F. Doyle................ 39 Vice President, General Counsel and
Secretary
Johanna A. Griffin, Ph.D....... 55 Vice President, Business Development
Michael Kelly.................. 35 Executive Director, Marketing
Mark A. McKinlay, Ph.D......... 48 Vice President, Research & Development
Vincent J. Milano.............. 36 Vice President, Chief Financial Officer
and Treasurer
</TABLE>
Claude H. Nash, a co-founder of ViroPharma, has served as Chairman of the
Board of Directors of ViroPharma since February 1997, and as Chief Executive
Officer, President and director since our commencement of operations in
December 1994. From 1983 until 1994, Dr. Nash served as Vice President,
Infectious Disease and Tumor Biology at Schering-Plough Corporation, a
pharmaceutical company. Dr. Nash received his Ph.D. from Colorado State
University.
Marc S. Collett, Ph.D., a co-founder of ViroPharma, has served as Vice
President, Discovery Research of ViroPharma since our commencement of
operations in December 1994. From 1993 until 1994, he served as Senior
Director, Viral Therapeutics at PathoGenesis Corporation, a biotechnology
company. Prior to joining PathoGenesis Corporation, Dr. Collett served as
Director, Virology & Antibody Engineering and Director, Biochemical Virology
at MedImmune, Inc., a biotechnology company, where he was employed from 1988
to 1993. Dr. Collett received his Ph.D. from the University of Michigan.
Thomas F. Doyle has served as Vice President, General Counsel of ViroPharma
since November 1997, as Secretary since February 1997 and as Executive
Director, Counsel since joining ViroPharma in November 1996. From 1990 until
1996, Mr. Doyle was a corporate attorney with the law firm of Pepper, Hamilton
LLP. Mr. Doyle received his J.D. from Temple University School of Law. Prior
to attending Temple University, Mr. Doyle was a certified public accountant.
Mr. Doyle received his B.S. in accounting from Mt. St. Mary's College.
25
<PAGE>
Johanna A. Griffin, Ph.D., a co-founder of ViroPharma, has served as Vice
President, Business Development since June 1995 and, from December 1994 until
June 1995, Dr. Griffin served as Executive Director, Business Development.
From 1990 until 1994, Dr. Griffin served as Director of Molecular Biology at
Boehringer Ingelheim Pharmaceuticals, Inc., a pharmaceutical company. Dr.
Griffin received her Ph.D. from the University of Alabama at Birmingham.
Michael Kelly has served as Executive Director, Marketing since joining
ViroPharma in April 1997. From 1991 until 1997, Mr. Kelly held various
positions at TAP Pharmaceuticals, a pharmaceutical company, the latest being
Manager of Hospital Account Executives within the Mid-Atlantic Region. Mr.
Kelly received his B.S. in Marketing from the Trenton State College and his
M.B.A. from Rider College.
Mark A. McKinlay, Ph.D., a co-founder of ViroPharma, has served as Vice
President, Research & Development since our commencement of operations in
December 1994, and served as Secretary from December 1994 until February 1997.
From 1989 through 1994, Dr. McKinlay served in several positions, including
Senior Director, at Sterling Winthrop Pharmaceuticals Research Division, a
division of Sterling Winthrop Incorporated, a pharmaceutical company. Dr.
McKinlay received his Ph.D. from Renssalear Polytechnic Institute.
Vincent J. Milano has served as Vice President, Chief Financial Officer of
ViroPharma since November 1997, as Vice President, Finance & Administration
since February 1997, as Treasurer since July 1996, and as Executive Director,
Finance & Administration from April 1996 until February 1997. From 1985 until
1996, Mr. Milano was with KPMG LLP, independent certified public accountants,
where he was Senior Manager since 1991. Mr. Milano is a certified public
accountant. Mr. Milano received his B.S. in accounting from Rider College.
26
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company's Common Stock is traded on the National Market segment of The
Nasdaq Stock Market under the symbol "VPHM." We commenced trading on The
Nasdaq Stock Market on November 19, 1996. The following table sets forth the
high and low sale prices as quoted on The Nasdaq Stock Market for each quarter
of 1998 and 1999 and through March 13, 2000.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Year ended December 31, 1998
First Quarter.............................................. $ 21.75 $ 16.5
Second Quarter............................................. $ 26.13 $19.63
Third Quarter.............................................. $ 24.25 $14.00
Fourth Quarter............................................. $ 20.00 $ 7.88
Year ended December 31, 1999
First Quarter.............................................. $ 13.00 $ 5.00
Second Quarter............................................. $ 9.31 $ 6.13
Third Quarter.............................................. $ 29.44 $ 7.68
Fourth Quarter............................................. $ 47.00 $18.50
First Quarter 2000 (through March 13)...................... $111.66 $28.88
</TABLE>
Holders and Dividends
There were approximately 421 record holders of the Company's Common Stock as
of March 1, 2000. We have never declared or paid any cash dividends on our
common stock. There is a 5% annual dividend, payable quarterly, associated
with our series A convertible participating preferred stock. We may choose to
permanently defer any quarterly payment, in which case the amount of payment
is added to the liquidation value and increases the conversion ratio of the
preferred stock into common stock. Alternatively, we may choose to pay the
dividend in cash. In January 2000, we paid a cash dividend for the quarter
ended December 31, 1999 of $181,700 on our series A convertible participating
preferred stock. Any future determination to pay dividends will be at the
discretion of our board of directors and will be dependent on then existing
conditions, including our financial condition, results of operations,
contractual restrictions, capital requirements, business and other factors our
board of directors deems relevant. In addition, our business loan agreements
restrict our ability to declare and pay cash dividends. We are obligated to
pay any cash dividends paid to common stockholders to the holders of our
series A convertible participating preferred stock on an as converted basis.
Recent Sales of Unregistered Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below under the caption "Balance Sheet
Data" as of December 31, 1995, 1996, 1997, 1998 and 1999, and under the
caption "Statement of Operations Data" for the years ended December 31, 1995,
1996, 1997, 1998 and 1999 are derived from financial statements of the Company
which have been audited by KPMG LLP, independent certified public accountants.
The data set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Financial Statements and the Notes thereto and the other financial information
included
27
<PAGE>
elsewhere in this Report. We are considered a "development stage company" as
described in Note 1 of the Company's Financial Statements.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December December 31, December 31, December 31,
1995 31, 1996 1997 1998 1999
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
License fee and
milestones revenue..... $ -- $ 1,000,000 $ 1,500,000 $ 1,500,000 $ --
Grant revenue........... 90,813 436,081 -- -- --
----------- ----------- ------------ ------------ ------------
Total revenues.......... 90,813 1,436,081 1,500,000 1,500,000 --
----------- ----------- ------------ ------------ ------------
Operating expenses:
Research and
development............ 2,930,106 6,694,703 10,928,976 25,130,232 26,055,884
General and
administrative......... 1,091,299 1,421,524 3,341,081 4,375,800 4,986,452
----------- ----------- ------------ ------------ ------------
Total operating
expenses............... 4,021,405 8,116,227 14,270,057 29,506,032 31,042,336
Interest income, net.... 75,730 285,142 1,320,174 1,603,916 1,542,298
----------- ----------- ------------ ------------ ------------
Net loss................ $(3,854,862) $(6,395,004) $(11,449,883) $(26,402,116) $(29,500,038)
=========== =========== ============ ============ ============
Net loss allocable to
common stockholders.... $(3,873,966) $(7,992,345) $(11,449,883) $(26,402,116) $(34,574,571)
=========== =========== ============ ============ ============
Net loss per share
allocable to common
stockholders:
Basic................. $ (4.67) $ (3.89) $ (1.13) $ (2.30) $ (2.84)
Diluted............... (3.52) (3.44) (1.13) (2.30) $ (2.84)
Shares used in computing
net loss per share
allocable to common
stockholders:
Basic................. 828,750 2,053,114 10,092,590 11,485,589 12,181,853
Diluted............... 1,099,396 2,323,760 10,092,590 11,485,589 12,181,853
<CAPTION>
December 31,
-------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term
investments $ 4,713,426 $22,547,679 $ 43,368,462 $ 20,011,782 $ 66,852,920
Working capital......... 3,270,375 20,001,703 37,209,028 11,490,395 58,691,259
Total assets............ 4,873,845 23,452,879 46,275,480 23,657,401 72,085,866
Loan payable-
noncurrent............. -- -- 416,667 1,822,917 525,000
Long-term capital
leases................. -- 104,571 53,186 2,807 --
Mandatorily redeemable
convertible preferred
stock.................. 7,416,604 -- -- -- --
Total stockholders'
equity (deficit)....... (4,089,758) 20,605,161 39,150,871 12,836,031 58,291,236
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Our disclosure and analysis in this report contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. They use words
such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," and other words and terms of similar
28
<PAGE>
meaning in connection with any discussion of future operating or financial
performance. In particular, these include statements relating to present or
anticipated scientific progress, development of potential pharmaceutical
products, future revenues, capital expenditures, research and development
expenditures, future financings and collaborations, personnel, manufacturing
requirements and capabilities, and other statements regarding matters that are
not historical facts or statements of current condition.
Any or all of our forward-looking statements in this report may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors mentioned in the
discussion below will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially. We do not intend to update our forward-looking
statements to reflect future events or developments.
Overview
Since inception, we have devoted substantially all of our resources to our
research and product development programs. We have generated no revenues from
product sales and have been dependent upon funding primarily from equity
financing. We do not expect any revenues from product sales for at least the
next twelve months, if at all. We have not been profitable since inception and
we have incurred a cumulative net loss of $77,921,000 through December 31,
1999. Losses have resulted principally from costs incurred in research and
development activities and general and administrative expenses. We expect to
incur additional operating losses over at least the next several years. We
expect such losses to increase over historical levels, primarily due to
expected increases in our research and development expenses, further clinical
trials of our most advanced product candidate, pleconaril (including any
significant additional studies for approval in the European Union, if any are
required), and milestone payments that may be payable under the terms of our
agreement with Sanofi-Synthelabo for pleconaril. Also, we expect to incur
expenses related to our marketing and market research activities for
pleconaril, our development of a marketing and sales staff and building the
requisite infrastructure, and further research and development related to
other product candidates. Our ability to achieve profitability is dependent on
a number of factors, including our ability to develop and obtain regulatory
approvals for our product candidates, successfully commercialize those product
candidates (which may include entering into collaborative agreements for
product development and commercialization), and secure contract manufacturing
and distribution and logistics services.
Liquidity and Capital Resources
We began operations in December 1994. We are a development stage
pharmaceutical company and to date have not generated revenues from product
sales. The cash flows used in operations are primarily for research and
development activities and supporting general and administrative expenses.
Through December 31, 1999, we have used approximately $64.7 million in
operating activities. We invest our cash in short-term investments. Through
December 31, 1999, we have used approximately $65.3 million in investing
activities, including $60.5 million in short-term investments and $4.8 million
in equipment purchases and leasehold improvements. Through December 31, 1999,
we have financed our operations primarily through public offerings of common
stock, private placements of preferred stock, two bank loans, equipment lease
lines and a milestone advance totaling approximately $137.0 million net of
repayments. At December 31, 1999, we had cash and cash equivalents and
short-term investments aggregating approximately $66.9 million. In March 2000,
we closed on a $180,000,000 private placement of convertible subordinated
notes due 2007. The notes are convertible into shares of our common stock at a
price of $109.15 per share, subject to certain adjustments. The notes bear
interest at a rate of 6 percent per annum payable semiannually in arrears,
have a 7 year term and can be redeemed by us, at certain premiums over the
principal amount, at any time on or after March 6, 2003. The notes may be
required to be repaid on the occurrence of certain fundamental changes as
defined.
We lease our corporate and research and development facilities under an
operating lease expiring in 2008. We also have the right to expand the
facility and, under certain circumstances, to purchase the facility. We have
financed substantially all of our equipment under two bank loans and two
master lease agreements. The
29
<PAGE>
first bank loan, which we entered into in February 1997, is for $600,000, is
payable in equal monthly installments over 72 months and has a 9.06% interest
rate. The second bank loan, which we entered into in December 1998, is for
$500,000, is payable in equal monthly installments over 60 months and has a
7.25% interest rate. We have paid off one of the lease agreements and expect
to pay off the second lease agreement in 2000. As of March 1, 2000, aggregate
outstanding borrowings under these bank loans and lease agreements were
approximately $700,000.
Under our agreement with Sanofi-Synthelabo, we are required to make
milestone payments upon the achievement of certain development milestones and,
until the expiration of the last patent on pleconaril or any related drug,
royalty payments on any sales in the United States and Canada of products
developed under the agreement. The development milestones include regulatory
submissions of New Drug Applications and regulatory approvals in various
jurisdictions, however we may not be able to achieve these milestones. Unless
the agreement is earlier terminated, in September 2001, or within 60 days
after we file a New Drug Application for pleconaril for the treatment of viral
meningitis, whichever occurs sooner, we will be required to pay
Sanofi-Synthelabo $900,000.
We entered into an addendum to our development agreement with SELOC France
in 1998. Under this addendum, SELOC France has manufactured three validation
batches of pleconaril drug substance. SELOC France also is assisting us in
preparing the pleconaril drug master file and is preparing certain
documentation that will be required with our New Drug Applications for
pleconaril. We will pay approximately $750,000 during the first half of 2000
under this addendum. We expect to engage SELOC to manufacture additional
quantities of pleconaril during the second half of 2000 to build inventory for
the potential launch of pleconaril. We estimate that such additional inventory
will cost approximately $2.25 million.
On October 9, 1997, we received $1.0 million from Boehringer Ingelheim
Pharmaceuticals, Inc. as an advance on a future milestone in connection with a
collaborative research agreement. The Boehringer Agreement expired in August
1998. The advance was made in the form of a loan that bears interest at 8.5%
and is evidenced by a convertible promissory note. If amounts due under the
note are not paid by August 15, 2000, Boehringer Ingelheim may convert the
then-outstanding principal balance and accrued interest into shares of our
common stock based on the last sale price of the common stock on the date
immediately prior to the date Boehringer Ingelheim notifies us of its
intention to convert the promissory note.
We recently completed our expansion of our research and development
capabilities at our facility. We invested approximately $1,000,000 for this
expansion. In addition, we have exercised our right to expand our current
facility by 22,500 square feet. We will incur no additional material capital
expenditures in connection with this expansion. We expect that rent expense in
future years will increase approximately $268,000 per year, commencing in mid-
2000.
We have incurred losses from operations since inception. We expect to incur
additional operating losses over at least the next several years. We expect to
incur such losses at an increasing rate over at least the next several years,
primarily due to expected increases in our research and development expenses,
further clinical trials and clinical development of our most advanced product
candidate, pleconaril (including any significant additional studies for
approval in the European Union, if any are required), and milestone payments
that may be payable under the terms of our agreement with Sanofi-Synthelabo
for pleconaril. Also, we expect to incur expenses for pleconaril marketing and
market research activities, our development of a marketing and sales staff and
building the requisite infrastructure, and further research and development
related to other product candidates.
We expect that we will need to raise additional funds to continue our
business activities and to further expand our facilities. We may need
additional financing to complete all clinical studies, to develop our
marketing and sales staffs for pleconaril and to build the requisite
infrastructure. We expect that we will need additional financing for the
development and required testing of our hepatitis C and RSV disease compounds,
and for any other product candidates. To obtain this financing, we intend to
access the public or private equity
30
<PAGE>
or debt markets or enter into additional arrangements with corporate
collaborators to whom we may issue shares of our stock. For example, in
connection with our collaboration and license agreement, American Home
Products Corporation will purchase our common stock at a market value premium
at the time of completion of certain product development stages. If we raise
additional capital by issuing equity securities, the terms and prices for
these financings may be much more favorable to the new investors than the
terms obtained by our existing stockholders. These financings also may dilute
the ownership of existing stockholders. Collaborative arrangements may require
us to grant product development programs or licenses to third parties for
products that we might otherwise seek to develop or commercialize ourselves.
Additional financing, however, may not be available on acceptable terms from
any source. If sufficient additional financing is not available, we may need
to delay, reduce or eliminate current research and development programs or
other aspects of our business.
Results of Operations
Years ended December 31, 1999 and 1998
We earned no revenues for the year ended December 31, 1999. We earned
milestone revenue of $1,500,000 for the year ended December 31, 1998.
Our research and development expenses for the year ended December 31, 1999
were $26,055,884 compared to $25,130,232 for the same period in 1998. Research
and development expenses for both periods reflected costs associated with the
conduct of clinical trials of pleconaril, the company's most advanced drug
candidate. In 1999, pleconaril was being studied in three phase 3 clinical
trials, two in viral meningitis and one in viral respiratory infection. This
compares to 1998 in which the company was conducting phase 2 clinical trials
with pleconaril for both viral meningitis and viral respiratory infection,
with fewer patients enrolled in these studies compared to the phase 3 clinical
studies. The increase in 1999 was also the result of the advancement of drug
candidates for the treatment of hepatitis C (HCV) and respiratory syncytial
virus (RSV) diseases. We recorded $1,200,000 as a reduction to research and
development expenses in the year ended December 31, 1998 for an adjustment to
a milestone payable to Sanofi-Synthelabo and the reimbursement that we
received from Sanofi-Synthelabo for a license fee that we had previously paid
to them. Such amounts were originally recorded as research and development
expenses in prior periods.
General and administrative expenses were $4,986,452 in the year ended
December 31, 1999 compared to $4,375,800 for the same period of 1998. The
increase in 1999 is the result of market research and medical education
programs for pleconaril and additional employee-related expenses.
Net interest income decreased to $1,542,298 for the year ended December 31,
1999 from $1,603,916 for the year ended December 31, 1998, principally due to
decreased average invested balances.
The net loss increased to $29,500,038 for the year ended December 31, 1999
from $26,402,116 for the year ended December 31, 1998.
Years ended December 31, 1998 and 1997
We earned and received two milestone payments for $1,500,000 from Boehringer
Ingelheim for each of the years ended December 31, 1998 and 1997.
Research and development expenses increased to $25,130,232 for the year
ended December 31, 1998 from $10,928,976 for the year ended December 31, 1997.
The increase was principally due to the cost of ongoing multiple clinical
trials, including the manufacture of bulk drug substance for stability and
validation batches, related to pleconaril conducted during the year ended
December 31, 1998. Also, we had more scientists conducting discovery research
in the year ended December 31, 1998 compared to the year ended December 31,
1997 to advance product candidates for our HCV and RSV disease programs. In
addition, we incurred increased expenses for preclinical activities for our
HCV and RSV disease research programs in the year ended December 31, 1998
versus the year ended December 31, 1997. We recorded $1,200,000 as a reduction
to research and
31
<PAGE>
development expenses in the year ended December 31, 1998 for an adjustment to
a milestone payable to Sanofi-Synthelabo and the reimbursement that we
received from Sanofi-Synthelabo for a license fee that we had previously paid
to them. Such amounts were originally recorded as research and development
expenses in prior periods.
General and administrative expenses increased to $4,375,800 for the year
ended December 31, 1998 from $3,341,081 for the year ended December 31, 1997.
The increase is principally due to increased pleconaril marketing and market
research expenses, salary expenses and facilities costs related to our move to
our current facilities in March 1998.
Net interest income increased to $1,603,916 for the year ended December 31,
1998 from $1,320,174 for the year ended December 31, 1997, principally due to
larger invested balances provided by the proceeds of a follow-on public
offering in July 1997.
The net loss increased to $26,402,116 for the year ended December 31, 1998
from $11,449,883 for the year ended December 31, 1997.
Year 2000 Impact
We recognize the need to ensure that our operations will not be harmed by
year 2000 software failures. We have assessed the potential overall impact of
the impending century change on our business, financial condition and
operating results.
Our assessment of our exposure to Year 2000-related problems focused on four
potential areas of exposure: internal information systems; scientific
equipment; facility support systems; and the readiness of significant third
parties with whom we have material business relationships. During 1999, we
implemented all necessary upgrades to our internal information systems and to
date have not experienced any significant operational problems. In addition,
to date, our major pieces of scientific equipment and our major facility
support systems such as communications, security and building maintenance
systems, have shown to be Year 2000 compliant.
We contacted significant suppliers and service providers to determine if
such parties were Year 2000 compliant. To date, we have not been advised of
material Year 2000 issues by any of these parties. The failure of third party
suppliers and service providers, particularly contract research organizations
engaged by us to monitor clinical trials, to be Year 2000 compliant could
adversely affect our operations. If such third parties are not Year 2000
compliant, or are unable to fix problems that they encounter related to the
Year 2000 issue in a timely manner, our business or operation could be
disrupted. If systems used by our contract research organizations are not Year
2000 compliant, and the data collected by the contract research organizations
on our behalf is corrupted or not available, we will have to recreate such
data from the source documents, either by ourselves or by engaging others to
perform the task on our behalf. If we are required to recreate such data,
significant delays in reporting the results of our clinical trials could
result.
Although, to date, we have not experienced internal systems problems nor
have we been notified by any of our third party suppliers and service
providers that any of their systems or products have been materially adversely
affected due to the Year 2000 issue, we cannot be certain that Year 2000
problems will not arise during the calendar year.
To date, we have not expended material amounts on the Year 2000 issue and do
not expect future costs, if any, of addressing Year 2000 issues presented by
our internal systems to have a material adverse impact on our financial
position or results of operations.
Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulleting ("SAB") No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees
received upon entering into arrangements. We are
32
<PAGE>
in the process of evaluating this SAB and the effect it will have on our
financial statements and current revenue recognition policy.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our holdings of financial instruments are comprised of a mix of U.S.
corporate debt, government securities and commercial paper. All such
instruments are classified as securities available for sale. Our debt security
portfolio represents funds held temporarily pending use in our business and
operations. We manage these funds accordingly. We seek reasonable assuredness
of the safety of principal and market liquidity by investing in rated fixed
income securities while at the same time seeking to achieve a favorable rate
of return. Our market risk exposure consists principally of exposure to
changes in interest rates. Our holdings are also exposed to the risks of
changes in the credit quality of issuers. We typically invest in the shorter-
end of the maturity spectrum. The principal amount and weighted average
interest rate of our investment portfolio at December 31, 1999 was $59,868,213
and approximately 5.7%, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company required by this item are attached
to this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and regarding compliance
with Section 16 of the Securities Exchange Act of 1934 required by this Item
will be set forth in the Company's Proxy Statement, to be filed within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K, and is incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers required by this
Item is incorporated by reference herein to the section of this Report in Part
I, Item 4 entitled "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in the Company's
Proxy Statement, to be filed within 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, and is incorporated by reference
to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth in the Company's
Proxy Statement, to be filed within 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, and is incorporated by reference
to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth in the Company's
Proxy Statement, to be filed within 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, and is incorporated by reference
to the Company's Proxy Statement.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial Statements. The Financial Statements listed in the
accompanying Index to Financial Statements appearing on page F-1 are filed
as part of this Annual Report on Form 10-K.
(2) Financial Statement Schedules. All schedules are omitted because they
are not applicable, or not required, or because the required information is
included in the Financial Statements or notes thereto.
(3) Exhibits. The following is a list of Exhibits filed as part of this
Annual Report on Form 10-K. Where so indicated by footnote, Exhibits which
were previously filed are incorporated by reference. For Exhibits
incorporated by reference, the location of the Exhibit in the previous
filing is indicated in parentheses.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company,
as amended by a Certificate of Amendment of Amended and Restated
Certificate of Incorporation dated May 18, 1999. (12) (Exhibit
3.1)
3.2 Certificate of Designation establishing and designating the Series
A Junior Participating Preferred Shares. (9) (Exhibit 3.2)
3.3 Amended and Restated By-Laws of the Company. (12) (Exhibit 3.3)
3.4 Certificate of Designation establishing and designating the Series
A Convertible Participating Preferred Stock.(10) (Exhibit 3.4)
4.1 Rights Agreement, dated as of September 10, 1998, between
ViroPharma Incorporated and StockTrans, Inc., as Rights Agent. (4)
(Exhibit 4.1)
4.2 Amendment No. 1 to Rights Agreement.(10) (Exhibit 4.2)
10.1++ ViroPharma Incorporated Stock Option Plan (5)
10.2+ Agreement dated December 22, 1995 between the Company and Sanofi.
(1) (Exhibit 10.6)
10.3 Form of Employment Agreement. (1) (Exhibit 10.8)
10.4 Form of Indemnification Agreement. (1) (Exhibit 10.9)
10.5 Restricted Stock Purchase Agreement dated as of January 17, 1996,
by and between the Company and Frank Baldino, Jr. (1) (Exhibit
10.11)
10.6 Series B Convertible Preferred Stock Purchase Agreement dated as
of June 16, 1995 among the Company and each of the entities on the
"Schedule of Purchasers" attached thereto as Schedule A. (1)
(Exhibit 10.12)
10.7 Series C Convertible Preferred Stock Purchase Agreement dated as
of May 30, 1996 among the Company and each of the individuals and
entities on the "Schedule of Purchasers" attached thereto as
Schedule A. (1) (Exhibit 10.13)
10.8 Amended and Restated Investors' Rights Agreement, dated as of May
30, 1996, by and among the Company and the persons identified on
Schedule A, Schedule B and the Schedule of Founders thereto. (1)
(Exhibit 10.16)
10.9 Amendment to Restricted Stock Purchase Agreement dated as of
January 17, 1996, among the Company and Frank Baldino, Jr., dated
as of January 17, 1996. (1) (Exhibit 10.18)
10.10 Development Agreement dated as of April 16, 1997, by and among
SELOC AG, SICOR, S.A. and the Company. (2) (Exhibit 10.19)
10.11 First Amendment to Agreement dated as of February 21, 1997 by and
between Sanofi and the Company. (2) (Exhibit 10.20)
10.12 Promissory Note of Jon M. Rogers and Traci J. Rogers, dated as of
June 12, 1997. (2) (Exhibit 10.21)
10.13 Lease, dated July 21, 1997, between the Company and The Hankin
Group. (2) (Exhibit 10.23)
10.14 Purchase Option Agreement, dated July 21, 1997, between the
Company and The Hankin Group. (2) (Exhibit 10.24)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.15 Escrow Agreement, dated July 21, 1997, among the Company. The
Hankin Group and Manito Abstract Company, Inc.(2)(Exhibit 10.25)
10.16 Consulting Agreement dated July 31, 1997 between the Company and
Frank Baldino, Jr. (2) (Exhibit 10.27)
10.17 Promissory Note of Vincent J. Milano and Christie A. Milano, dated
August 20, 1997. (3) (Exhibit 10.29)
10.18 Consulting Agreement dated November 13, 1997 between the Company
and David J. Williams. (6) (Exhibit 10.26)
10.19 Promissory Note of Michael Kelly and Joan C. Kelly, dated February
18, 1998. (7) (Exhibit 10.27)
10.20 Addendum to Development Agreement dated as of March 1, 1998
between the Company and SELOC France. (8) (Exhibit 10.28)
10.21 Investment Agreement among ViroPharma Incorporated and Perseus-
Soros Biopharmaceutical Fund, L.P. dated May 5, 1999. (10)
(Exhibit 10.21)
10.22 ViroPharma Incorporated Common Stock Purchase Warrant (10)
(Exhibit 10.22)
10.23 Letter Agreement dated June 7, 1999 between the Company and
Perseus-Soros BioPharmaceutical Fund, L.P. (11) (Exhibit 10.23)
10.24*+ Product Development and Commercialization Agreement dated November
19, 1999 between Battelle Memorial Institute and ViroPharma
Incorporated. (Exhibit 10.24)
10.25*+ Collaboration and License Agreement dated December 9, 1999 between
American Home Products Corporation, acting through its Wyeth-
Ayerst Laboratories Division, and ViroPharma Incorporated.
(Exhibit 10.25)
10.26*+ Stock Purchase Agreement dated December 9, 1999 between American
Home Products Corporation and ViroPharma Incorporated. (Exhibit
10.26)
11* Statement of Computation of Loss Per Share.
23* Consent of KPMG LLP.
24* Power of Attorney (included on signature page).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
+ Portions of this exhibit were omitted and filed separately with the
Securities and Exchange Commission pursuant to an application for
confidential treatment.
++ Compensation plans and arrangements for executives and others.
(1) Filed as an Exhibit to Registration Statement on Form S-1 (File No. 333-
12407), as amended, initially filed on September 20, 1996.
(2) Filed as an Exhibit to Registration Statement on Form S-1 (File No. 333-
30005), as amended, initially filed on June 25, 1997.
(3) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended
September 30, 1997.
(4) Filed as an Exhibit to the Company's Current Report on Form 8-K filed
with the Commission on September 21, 1998.
(5) Filed as an Annex to the Company's Proxy Statement filed with the
Commission on April 15, 1998.
(6) Filed as an Exhibit to Registrant's Form 10-K for the year ended December
31, 1997.
(7) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended March
31, 1998.
(8) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended June
30, 1998.
(9) Filed as an Exhibit to Registrant's Form 10-K for the year ended December
31, 1998.
(10) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended March
31, 1999.
(11) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended June
30, 1999.
Copies of the exhibits are available to stockholders from Thomas F. Doyle,
Vice President, General Counsel and Secretary, ViroPharma Incorporated, 405
Eagleview Boulevard, Exton, Pennsylvania 19341. There will be a fee to cover
the Company's expenses in furnishing the exhibits.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company for the quarter ended
December 31, 1999.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.
VIROPHARMA INCORPORATED
/s/ Vincent J. Milano
By: _________________________________
Vincent J. Milano
Vice President, Chief Financial
Officer
and Treasurer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Claude H. Nash and Vincent J. Milano as
his or her attorney-in-fact, with the full power of substitution, for him or
her in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Claude H. Nash President, Chief Executive March 15, 1999
______________________________________ Officer and Chairman of
Claude H. Nash the Board (Principal
Executive Officer)
/s/ Vincent J. Milano Vice President, Chief March 15, 1999
______________________________________ Financial Officer and
Vincent J. Milano Treasurer (Principal
Financial and Accounting
Officer)
/s/ Claude H. Nash Director March 15, 1999
______________________________________
Claude H. Nash
/s/ Frank Baldino, Jr., Ph.D Director March 15, 1999
______________________________________
Frank Baldino, Jr., Ph.D.
/s/ Robert J. Glaser Director March 15, 1999
______________________________________
Robert J. Glaser
/s/ Ann H. Lamont Director March 15, 1999
______________________________________
Ann H. Lamont
/s/ Howard Pien Director March 15, 1999
______________________________________
Howard Pien
/s/ David J. Williams Director March 15, 1999
______________________________________
David J. Williams
</TABLE>
36
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Index to Financial Statements
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report.......................................... F-1
Balance Sheets at December 31, 1998 and 1999.......................... F-2
Statements of Operations and Comprehensive Loss for the years ended
December 31, 1997, 1998 and 1999, and the period December 5, 1994
(Inception) to December 31, 1999..................................... F-3, F-4
Statements of Stockholders' Equity for the period December 5, 1994
(Inception) to December 31, 1996, and the years ended December 31,
1997, 1998, and 1999 ................................................ F-5
Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999, and the period December 5, 1994 (Inception) to December 31,
1999 ................................................................ F-6
Notes to Financial Statements......................................... F-7
</TABLE>
<PAGE>
Independent Auditors' Report
The Stockholders and Board of Directors
ViroPharma Incorporated:
We have audited the accompanying balance sheets of ViroPharma Incorporated (A
Development Stage Company) as of December 31, 1998 and 1999, and the related
statements of operations, comprehensive loss, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999
and for the period December 5, 1994 (Inception) to 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 referred to above present fairly, in
all material respects, the financial position of ViroPharma Incorporated (A
Development Stage Company) as of December 31, 1998 and 1999, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1999 and for the period December 5, 1994 (Inception)
to December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Princeton, New Jersey
February 23, 2000, except as to note 13 which is as of
March 8, 2000
F-1
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Balance Sheets
December 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 1,076,682 $ 6,984,707
Short-term investments............................... 18,935,100 59,868,213
Notes receivable from officers--current.............. 39,205 39,205
Other current assets................................. 435,054 1,068,764
----------- -----------
Total current assets............................... 20,486,041 67,960,889
Equipment and leasehold improvements, net............ 2,477,105 3,469,927
Restricted investments............................... 550,000 550,000
Notes receivable from officers--noncurrent........... 62,356 23,151
Other assets......................................... 81,899 81,899
----------- -----------
Total assets....................................... $23,657,401 $72,085,866
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable..................................... $ 1,442,756 $ 1,187,234
Loans payable--current............................... 200,000 1,200,000
Deferred revenue--current............................ -- 1,000,000
Obligation under capital lease--current.............. 50,379 2,807
Accrued expenses and other current liabilities....... 7,302,511 5,879,589
----------- -----------
Total current liabilities.......................... 8,995,646 9,269,630
Loans payable--noncurrent.............................. 1,822,917 525,000
Deferred revenue--noncurrent........................... -- 4,000,000
Obligation under capital lease--noncurrent............. 2,807 --
----------- -----------
10,821,370 13,794,630
----------- -----------
Stockholders' equity:
Preferred stock, par value $.001 per share. 5,000,000
shares authorized; Series A convertible
participating preferred stock; 2,300,000 issued and
outstanding at December 31, 1999; none at December
31, 1998 (liquidation value $14,547,031)............ -- 2,300
Series A junior participating preferred stock;
200,000 shares designated; no shares issued and
outstanding........................................ -- --
Common stock, par value $.002 per share. Authorized
27,000,000 shares in 1998 and 1999; issued and
outstanding 11,516,794 at December 31, 1998
and 15,066,612 at December 31, 1999................. 23,034 30,133
Additional paid-in capital........................... 61,373,998 136,259,509
Deferred compensation................................ (247,601) (44,580)
Unrealized gains (losses) on available for sale
securities.......................................... 107,562 (35,126)
Deficit accumulated during the development stage..... (48,420,962) (77,921,000)
----------- -----------
Total stockholders' equity......................... 12,836,031 58,291,236
Commitments
Total liabilities and stockholders' equity......... $23,657,401 $72,085,866
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Statements of Operations
Years ended December 31, 1997, 1998 and 1999,
and the period December 5, 1994 (Inception) to December 31, 1999
<TABLE>
<CAPTION>
Period
December 5,
1994
Year ended December 31, (Inception)
---------------------------------------- to December
1997 1998 1999 31, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
License fee and
milestones revenue... $ 1,500,000 $ 1,500,000 $ -- $ 4,000,000
Grant revenue......... -- -- -- 526,894
------------ ------------ ------------ ------------
Total revenues...... 1,500,000 1,500,000 -- 4,526,894
------------ ------------ ------------ ------------
Operating expenses
incurred in the
development stage:
Research and
development.......... 10,928,976 25,130,232 26,055,884 71,815,680
General and
administrative....... 3,341,081 4,375,800 4,986,452 15,459,474
------------ ------------ ------------ ------------
Total operating
expenses........... 14,270,057 29,506,032 31,042,336 87,275,154
------------ ------------ ------------ ------------
Loss from
operations......... (12,770,057) (28,006,032) (31,042,336) (82,748,260)
Interest income, net.... 1,320,174 1,603,916 1,542,298 4,827,260
------------ ------------ ------------ ------------
Net loss............ $(11,449,883) $(26,402,116) $(29,500,038) $(77,921,000)
============ ============ ============ ============
Preferred stock
dividends, including
beneficial conversion
component.............. -- -- 934,533
Beneficial conversion
feature of preferred
stock.................. -- -- 4,140,000
------------ ------------ ------------
Net loss allocable to
common stockholders.... $(11,449,883) $(26,402,116) $(34,574,571)
============ ============ ============
Basic and diluted net
loss per share
allocable to common
stockholders:.......... $ (1.13) $ (2.30) $ (2.84)
============ ============ ============
Shares used in computing
basic and diluted net
loss per share
allocable to common
stockholders:.......... 10,092,590 11,485,589 12,181,853
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Statements of Comprehensive Loss
Years ended December 31, 1997, 1998 and 1999,
and the period December 5, 1994 (Inception) to December 31, 1999
<TABLE>
<CAPTION>
Period
December 5,
1994
Year ended December 31, (Inception)
---------------------------------------- to December
1997 1998 1999 31, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss................ $(11,449,883) $(26,402,116) $(29,500,038) $(77,921,000)
------------ ------------ ------------ ------------
Other comprehensive
income (loss):
Unrealized holding
gains (losses)
arising during
period............... 276,126 107,562 (35,126) 433,615
Less: reclassification
adjustment for gains
included in net loss
..................... 58,311 276,126 107,562 468,741
------------ ------------ ------------ ------------
Unrealized gains
(losses) on available
for sale securities.... 217,815 (168,564) (142,688) (35,126)
------------ ------------ ------------ ------------
Comprehensive loss...... $(11,232,068) $(26,570,680) $(29,642,726) $(77,956,126)
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Statements of Stockholders' Equity
Period December 5, 1994 (Inception) to December 31, 1996,
and years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Deficit
Preferred Stock Common Stock Notes Unrealized gains Accumulated
----------------- ------------------- Additional Receivable (losses) on during the
Number of Number of paid-in on common Deferred available for development
Shares Amount Shares Amount capital stock compensation sale securities stage
--------- ------- ----------- ------- ------------ ---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
5, 1994
(Inception)...... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock to
founders........ -- -- 828,750 1,657 79,593 (1,625) (79,625) -- --
Proceeds from
notes
receivable...... -- -- -- -- -- 1,625 -- -- --
Deferred
compensation
resulting from
grant of
options......... -- -- -- -- 753,461 -- (753,461) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- 171,749 -- --
Unrealized gains
on available for
sale
securities...... -- -- -- -- -- -- -- 58,311 --
Issuance costs
of Series A, B
and C preferred
stock........... -- -- -- -- (74,012) -- -- -- --
Exercise of
common stock
grant and
options......... -- -- 72,420 145 6,955 -- -- -- --
Value attributed
to issuance of
warrants........ -- -- -- -- 109,920 -- -- -- --
Accretion of
redemption value
attributable to
mandatorily
redeemable
convertible
preferred
stock........... -- -- -- -- (1,616,445) -- -- -- --
Conversion of
preferred stock
to common
stock........... -- -- 5,588,191 11,177 16,253,022 -- -- -- --
Issuance of
common stock,
net of issuance
costs........... -- -- 2,587,500 5,175 16,246,502 -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (10,568,963)
--------- ------- ----------- ------- ------------ ------- --------- --------- ------------
Balance, December
31, 1996......... -- -- 9,076,861 18,154 31,758,996 -- (661,337) 58,311 (10,568,963)
Amortization of
deferred
compensation.... -- -- -- -- -- -- 209,616 -- --
Unrealized gains
on available for
sale
securities...... -- -- -- -- -- -- -- 217,815 --
Exercise of
common stock
options......... -- -- 15,450 31 7,070 -- -- -- --
Value attributed
to issuance of
warrants........ -- -- -- -- 15,936 -- -- -- --
Issuance of
common stock,
net of issuance
costs........... -- -- 2,300,000 4,600 29,510,475 -- -- -- --
Cashless
exercise of
warrants........ -- -- 71,795 143 (143) -- -- -- --
Consulting
expense related
to option
grants.......... -- -- -- -- 30,050 -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (11,449,883)
--------- ------- ----------- ------- ------------ ------- --------- --------- ------------
Balance, December
31, 1997......... -- -- 11,464,106 22,928 61,322,384 -- (451,721) 276,126 (22,018,846)
Amortization of
deferred
compensation.... -- -- -- -- -- -- 204,120 -- --
Unrealized loss
on available for
sale
securities...... -- -- -- -- -- -- -- (168,564) --
Exercise of
common stock
options and
warrants........ -- -- 52,688 106 23,613 -- -- -- --
Value attributed
to issuance of
warrants........ -- -- -- -- 15,936 -- -- -- --
Consulting
expense related
to option
grants.......... -- -- -- -- 12,065 -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (26,402,116)
--------- ------- ----------- ------- ------------ ------- --------- --------- ------------
Balance, December
31, 1998......... -- -- 11,516,794 23,034 61,373,998 -- (247,601) 107,562 (48,420,962)
Amortization of
deferred
compensation.... -- -- -- -- -- -- 203,021 -- --
Unrealized loss
on available for
sale
securities...... -- -- -- -- -- -- -- (142,688) --
Exercise of
common stock
options......... -- -- 99,818 199 292,051 -- -- -- --
Value attributed
to issuance of
warrants........ -- -- -- -- 11,959 -- -- -- --
Issuance of
preferred stock,
net of issuance
costs........... 2,300,000 2,300 -- -- 13,308,600 -- -- -- --
Issuance of
common stock,
net of issuance
costs........... -- -- 3,450,000 6,900 61,449,741 -- -- -- --
Consulting
expense related
to option
grants.......... -- -- -- -- 4,860 -- -- -- --
Preferred
dividends....... -- -- -- -- (181,700) -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (29,500,038)
--------- ------- ----------- ------- ------------ ------- --------- --------- ------------
Balance, December
31, 1999......... 2,300,000 $ 2,300 15,066,612 $30,133 $136,259,509 -- $ (44,580) $ (35,126) $(77,921,000)
========= ======= =========== ======= ============ ======= ========= ========= ============
<CAPTION>
Total
Stockholders'
equity
-------------
<S> <C>
Balance, December
5, 1994
(Inception)...... $ --
Issuance of
common stock to
founders........ --
Proceeds from
notes
receivable...... 1,625
Deferred
compensation
resulting from
grant of
options......... --
Amortization of
deferred
compensation.... 171,749
Unrealized gains
on available for
sale
securities...... 58,311
Issuance costs
of Series A, B
and C preferred
stock........... (74,012)
Exercise of
common stock
grant and
options......... 7,100
Value attributed
to issuance of
warrants........ 109,920
Accretion of
redemption value
attributable to
mandatorily
redeemable
convertible
preferred
stock........... (1,616,445)
Conversion of
preferred stock
to common
stock........... 16,264,199
Issuance of
common stock,
net of issuance
costs........... 16,251,677
Net loss........ (10,568,963)
-------------
Balance, December
31, 1996......... 20,605,161
Amortization of
deferred
compensation.... 209,616
Unrealized gains
on available for
sale
securities...... 217,815
Exercise of
common stock
options......... 7,101
Value attributed
to issuance of
warrants........ 15,936
Issuance of
common stock,
net of issuance
costs........... 29,515,075
Cashless
exercise of
warrants........ --
Consulting
expense related
to option
grants.......... 30,050
Net loss........ (11,449,883)
-------------
Balance, December
31, 1997......... 39,150,871
Amortization of
deferred
compensation.... 204,120
Unrealized loss
on available for
sale
securities...... (168,564)
Exercise of
common stock
options and
warrants........ 23,719
Value attributed
to issuance of
warrants........ 15,936
Consulting
expense related
to option
grants.......... 12,065
Net loss........ (26,402,116)
-------------
Balance, December
31, 1998......... 12,836,031
Amortization of
deferred
compensation.... 203,021
Unrealized loss
on available for
sale
securities...... (142,688)
Exercise of
common stock
options......... 292,250
Value attributed
to issuance of
warrants........ 11,959
Issuance of
preferred stock,
net of issuance
costs........... 13,310,900
Issuance of
common stock,
net of issuance
costs........... 61,456,641
Consulting
expense related
to option
grants.......... 4,860
Preferred
dividends....... (181,700)
Net loss........ (29,500,038)
-------------
Balance, December
31, 1999......... $58,291,236
=============
</TABLE>
- -----
See accompanying notes to financial statements.
F-5
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Statements of Cash Flows
Years ended December 31, 1997, 1998 and 1999,
and the period December 5, 1994 (Inception) to December 31, 1999
<TABLE>
<CAPTION>
Period
December 5,
1994
Year ended December 31, (Inception) to
---------------------------------------- December 31,
1997 1998 1999 1999
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(11,449,883) $(26,402,116) $(29,500,038) $ (77,921,000)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Non-cash compensation
expense.............. 209,616 204,120 203,021 788,506
Non-cash warrant
value................ 15,936 15,936 11,959 153,751
Non-cash consulting
expense.............. 30,050 12,065 4,860 46,975
Depreciation and
amortization
expense.............. 288,278 428,165 556,639 1,331,104
Changes in assets and
liabilities:
Other current
assets............... (264,460) 26,577 (633,710) (1,068,764)
Notes receivable from
officers............. (117,793) 16,232 39,205 (62,356)
Other assets.......... (45,899) -- -- (81,899)
Accounts payable...... 563,799 522,786 (255,522) 1,187,234
Deferred revenue...... -- -- 5,000,000 5,000,000
Accrued expenses and
other current
liabilities.......... 2,239,273 2,835,462 (1,529,172) 5,879,589
------------ ------------ ------------ -------------
Net cash used in
operating
activities......... (8,531,083) (22,340,773) (26,102,758) (64,746,860)
------------ ------------ ------------ -------------
Cash flows from
investing activities:
Purchase of equipment
and leasehold
improvements......... (1,561,944) (959,575) (1,549,461) (4,801,031)
Purchase of short-
term investments..... (61,108,260) (26,206,929) (72,515,626) (186,185,484)
Sales of short-term
investments.......... 5,316,660 -- -- 9,680,414
Maturities of short-
term investments..... 28,282,652 46,017,397 31,439,825 116,051,731
------------ ------------ ------------ -------------
Net cash provided by
(used in) investing
activities......... (29,070,892) 18,850,893 (42,625,262) (65,254,370)
------------ ------------ ------------ -------------
Cash flows from
financing activities:
Net proceeds from
issuance of
preferred stock...... -- -- 13,310,900 27,242,143
Net proceeds from
issuance of common
stock................ 29,522,176 23,719 61,748,891 107,553,562
Preferred stock cash
dividends............ -- -- (181,700) (181,700)
Proceeds from loans
payable and
milestone advance.... 1,600,000 500,000 -- 2,100,000
Payment of loans
payable.............. (83,333) (100,000) (191,667) (375,000)
Proceeds received on
notes receivable..... -- -- -- 1,625
Proceeds from notes
payable.............. -- -- -- 692,500
Payment of notes
payable.............. -- -- -- (50,000)
Obligation under
capital lease........ (42,848) (61,487) (50,379) 2,807
------------ ------------ ------------ -------------
Net cash provided by
financing
activities......... 30,995,995 362,232 74,636,045 136,985,937
------------ ------------ ------------ -------------
Net increase (decrease)
in cash and cash
equivalents........... (6,605,980) (3,127,648) 5,908,025 6,984,707
Cash and cash
equivalents at
beginning of period... 10,810,310 4,204,330 1,076,682 --
------------ ------------ ------------ -------------
Cash and cash
equivalents at end of
period................ $ 4,204,330 $ 1,076,682 $ 6,984,707 $ 6,984,707
============ ============ ============ =============
Supplemental disclosure
of noncash
transactions:
Conversion of Note
Payable to Series A
and Series B
Preferred Stock...... -- -- -- $ 642,500
Conversion of
mandatorily
redeemable
convertible
preferred stock to
common shares........ -- -- -- 16,264,199
Notes issued for
828,750 common
shares............... -- -- -- 1,625
Deferred
compensation......... -- -- -- 833,086
Accretion of
redemption value
attributable to
mandatorily
redeemable
convertible
preferred stock...... -- -- -- 1,616,445
Conversion of
milestone advance to
loan payable......... -- $ 1,000,000 -- 1,000,000
Unrealized gains
(losses) on
available for sale
securities........... $ 217,815 (168,564) $ (142,688) (35,126)
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 and 1999
1. Organization and Business Activities
ViroPharma Incorporated (a development stage company) (the "Company")
commenced operations on December 5, 1994. The Company is a development stage
pharmaceutical company engaged in the discovery and development of new
antiviral medicines.
The Company is devoting substantially all of its efforts towards conducting
drug discovery and development, raising capital, conducting clinical trials,
pursuing regulatory approval for products under development, recruiting
personnel and building infrastructure. In the course of such activities, the
Company has sustained operating losses and expects such losses to continue for
the foreseeable future. The Company has not generated any significant revenues
or product sales and has not achieved profitable operations or positive cash
flow from operations. The Company's deficit accumulated during the development
stage aggregated $77,921,000 through December 31, 1999. There is no assurance
that profitable operations, if ever achieved, could be sustained on a
continuing basis.
The Company plans to continue to finance its operations with a combination
of stock and debt issuances, license payments, payments from strategic
research and development arrangements and, in the longer term, revenues from
product sales. There are no assurances, however, that the Company will be
successful in obtaining an adequate level of financing needed for the long-
term development and commercialization of its planned products.
2. Basis of Accounting and Summary of Significant Accounting Policies
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All
cash and cash equivalents are held in United States (U.S.) financial
institutions.
Short-term investments
Short-term investments consist primarily of debt securities backed by the
U.S. government. The Company's entire short-term investment portfolio is
currently classified as available for sale and is stated at fair value as
determined by quoted market values. Changes in the net unrealized holding
gains and losses are included as a separate component of stockholders' equity
and comprehensive loss. For purposes of determining gross realized gains and
losses, the cost of short-term investments sold is based upon specific
identification. The Company has not experienced any significant realized gains
or losses on its investments through December 31, 1999.
Concentration of credit risk
The Company invests its excess cash and short-term investments in accordance
with a policy objective that seeks to ensure both liquidity and safety of
principal. The policy limits investments to certain types of instruments
issued by the U.S. government and institutions with strong investment grade
credit ratings and places restrictions in their terms and concentrations by
type and issuer.
Equipment and leasehold improvements
Equipment and leasehold improvements are recorded at cost. Depreciation and
amortization is computed on a straight-line basis over the useful lives of the
assets or the lease term, whichever is shorter, ranging from two to ten years.
F-7
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
The Company leases certain of its equipment and facilities under operating
leases. Operating lease payments are charged to operations over the related
period that such leased equipment is utilized in service.
Assets and liabilities related to capital leases are recorded at the present
value of the future minimum rental payments using interest rates appropriate
at the inception of the lease. Capital lease amortization is included with
depreciation and amortization expense.
Expenditures for repairs and maintenance are expensed as incurred.
Research and development
Research and product development costs are expensed as incurred.
Licensed technology
Costs incurred in obtaining the license rights to technology in the research
and development stage are expensed as incurred and in accordance with the
specific contractual terms of such license agreements.
Accounting for income taxes
Deferred income tax assets and liabilities are determined based on
differences between the financial statement reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The
measurement of deferred income tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits which are not expected to be
realized. The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in the period that such tax rate changes are
enacted.
Revenue recognition--collaborative research, contract and license agreements
Collaborative research revenue from cost-reimbursement and grant agreements
are recorded when earned, up to the contractual limits. Contract and licensing
revenue is recognized when milestones are met and the Company's specific
performance obligations have been satisfied in accordance with the terms of
the respective agreements. Cash received that is related to future performance
under such contracts is deferred and recognized as revenue when earned.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-based compensation
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts are amortized over the respective vesting periods of the
option grant. The Company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to provide
pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-value based method
defined in SFAS No. 123 had been applied.
F-8
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
Segment Information
The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive
officer. The Company does not operate separate lines of business or separate
business entities with respect to any of its product candidates. Accordingly,
the Company does not prepare discrete financial information with respect to
separate product areas or by location and does not have separately reportable
segments as defined by SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information".
Net loss per share
Basic earnings per share ("EPS") is calculated by dividing earnings (loss)
allocable to common stockholders by the weighted average shares of common
stock outstanding. Net loss allocable to common stockholders includes
preferred stock dividends and beneficial conversion features of preferred
stock. Diluted EPS would also include the effect of dilution to earnings of
convertible securities, stock options and warrants. As of December 31, 1999,
the Company has certain convertible preferred stock, options and warrants
which have not been used in the calculation of diluted net loss per share
allocable to common stockholders because to do so would be anti-dilutive. As
such, the numerator and denominator used in computing both basic and diluted
net loss per share allocable to common stockholders are equal.
Comprehensive Loss
SFAS No. 130, "Reporting Comprehensive Income" establishes standards for
reporting and presentation of comprehensive loss and its components in a full
set of financial statements. Comprehensive loss consists of net loss and net
unrealized gains (losses) on securities and is presented in the statements of
comprehensive loss. The Statement requires only additional disclosures in the
financial statements; it does not affect the Company's financial position or
results of operations.
3. Short-Term Investments
Short-term investments consist of fixed income securities with original
maturities of greater than three months but less than one year including U.S.
treasury instruments of agencies of the U.S. Government and high-grade
commercial paper. At December 31, 1998 and 1999, all of the short-term
investments were deemed as "available for sale" investments.
The following summarizes the "available for sale" investments at December
31, 1998 and 1999:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Cost gains losses Fair value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Obligations of the U.S.
Government and agencies
of the U.S.............. 1,953,858 50,522 -- 2,004,380
Commercial paper......... 16,873,680 70,769 13,729 16,930,720
----------- -------- -------- -----------
December 31, 1998...... $18,827,538 $121,291 $ 13,729 $18,935,100
=========== ======== ======== ===========
Commercial paper......... 59,903,339 153,371 188,497 59,868,213
----------- -------- -------- -----------
December 31, 1999...... $59,903,339 $153,371 $188,497 $59,868,213
=========== ======== ======== ===========
</TABLE>
F-9
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
4. Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following at December
31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Computers and equipment............................ $2,266,787 $2,751,717
Leasehold improvements............................. 899,838 1,931,626
---------- ----------
3,166,625 4,683,343
Less accumulated depreciation and amortization..... 689,520 1,213,416
---------- ----------
$2,477,105 $3,469,927
========== ==========
</TABLE>
Included in equipment and leasehold improvements at December 31, 1998 is
assets totaling approximately $215,000 held under capital lease. Included in
equipment and leasehold improvements at December 31, 1999 is assets totaling
approximately $150,000 held under capital lease. Included in leasehold
improvements at December 31, 1999 is $923,900 related to construction in
progress. At December 31, 1998, the Company had no construction in progress.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Preferred stock dividends payable.................. -- 181,700
Clinical development and research.................. 6,970,839 3,407,567
Marketing.......................................... 122,484 --
Payroll and payroll taxes payable.................. 116,580 1,583,871
Other current liabilities.......................... 92,608 706,451
---------- ----------
$7,302,511 $5,879,589
========== ==========
</TABLE>
6. Loans Payable
The Company entered into two loan agreements with a bank, one for $600,000
and one for $500,000, of which $916,667 was outstanding at December 31, 1998,
and $725,000 was outstanding at December 31, 1999. The terms of the loans
extend through February and December 2003, respectively, with principal and
interest due monthly. The interest rates are approximately 9% and 7.25%
respectively and are secured by certain equipment and certificates of deposit
aggregating $550,000.
In October 1997, the Company received a $1,000,000 payment as an advance on
a future milestone in connection with a collaborative drug discovery and
development agreement with Boehringer Ingelheim Pharmaceuticals Inc. ("BI").
The agreement expired in August 1998. Such amount is due and payable in August
2000. The loan bears interest at 8.5% and is evidenced by a convertible
promissory note. If amounts due under the note are not paid as described in
the note, BI may convert the then outstanding principal balance and accrued
interest thereon into shares of the Company's common stock based on the last
sale price of such common stock on the date immediately prior to the date on
which the Company is notified of BI's intention to convert the promissory
note.
F-10
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
7. License and Research Agreements
In December 1995, the Company entered into a license agreement with Sanofi
S.A. ("Sanofi") for its most advanced drug candidate, pleconaril. At December
31, 1997, an estimated milestone payable to Sanofi of $2 million was recorded.
In June 1998, Sanofi chose to have the Company be solely responsible for all
development and development costs of pleconaril. As a result of this decision
by Sanofi, the milestone payable of $2 million was reduced to $1.2 million,
which was paid in 1998. Also, the Company will receive a higher royalty on
sales of pleconaril by Sanofi outside of the United States and Canada, and
Sanofi reimbursed the Company $400,000 for a license fee previously paid by
the Company. The reduction to the milestone payable by $800,000 and the
$400,000 reimbursement of the previously paid license fee were recorded as a
reduction of research and development expenses in 1998. Under the Company's
agreement with Sanofi, the Company is required to make certain additional
payments to Sanofi, including royalties, as defined, should agreed-upon future
milestones be attained. The milestone events contemplate regulatory
submissions of new drug applications and regulatory approvals in various
jurisdictions.
There can be no assurance that any milestones will be attained. Also, if
foreign regulatory authorities require significant additional studies of
pleconaril for use in the European Union, the Company would be required to
conduct such studies at its own expense.
In December 1999, the Company entered into a licensing agreement with
American Home Products for the discovery, development and commercialization of
hepatitis C drugs. In connection with the signing of the agreement, the
Company received $5,000,000 from American Home Products. This amount is non-
refundable and is recorded as deferred revenue at December 31, 1999. This will
be recognized as revenue as certain activities are performed by the Company
over the expected term of the agreement. If drug candidates are successfully
commercialized, the Company has the right to co-promote the products and share
equally in the net profits in the United States and Canada. The Company is
entitled to milestones and royalties for activities outside of the United
States and Canada.
The Company has entered into various licensing, research and other
agreements. Under these agreements, the Company is working in collaboration
with various other parties. Should any discoveries be made under such
arrangements, the Company would be required to negotiate the licensing of the
technology for the development of the respective discoveries. There are no
significant funding commitments under any other agreement other than Sanofi.
In July 1996, the Company entered into a collaborative drug discovery and
development agreement with BI for one hepatitis C target identified by the
Company. Under this agreement, the Company granted to BI the exclusive
worldwide rights to develop and commercialize compounds discovered under the
agreement. In return, BI paid a non-refundable technology access fee of
$1,000,000 to the Company and was required to make certain research and
milestone payments, as defined, to the Company in connection with the
Company's transfer of HCV screening and assay technology and at various stages
in the development of compounds under the agreement. The Company earned
$1,500,000 in each of 1997 and 1998 for achieving two milestones in each year.
8. Common Stock and Common Stock Options
On July 23, 1997, the Company completed a follow-on public offering of
common stock. The Company sold 2,300,000 shares (including 300,000 shares
exercised by the underwriters for the overallotment). Net proceeds
approximated $29,515,000.
On October 21, 1999, the Company completed a follow-on public offering of
common stock. The Company sold 3,450,000 shares (including 450,000 shares
exercised by the underwriters for overallotment). Net proceeds approximated
$61,450,000.
F-11
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
In 1995, the Company adopted a Stock Option Plan, and amended and restated
the Stock Option Plan in 1998 (as amended and restated, the "Plan"), to
provide eligible individuals with an opportunity to acquire or increase an
equity interest in the Company and to encourage such individuals to continue
in the employment of the Company. Stock options are granted at the fair market
value of the stock on the day immediately preceding the date of grant. Stock
options are exercisable for a period not to exceed ten years from the date of
grant. Vesting of the stock options occurs, generally 25% per year, over four
years. There are 2,000,000 shares reserved under the Plan.
Stock option activity for the three years ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Weighted-
average Weighted-
remaining average
Exercise contractual exercise
price per Share life price per
share options (years) share
------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1996..... $ .10-5.25 435,783
=========
Granted....................... 8.75-22.50 335,233
Exercised..................... .10-.8.75 (15,450)
Canceled...................... 2.16-8.75 (555)
------------- ---------
Balance, December 31, 1997..... .10-22.50 755,011
---------
Granted....................... 9.94-23.50 330,700
Exercised..................... .10-8.75 (35,065)
Canceled...................... 2.16-8.75 (500)
------------- ---------
Balance, December 31, 1998..... .10-23.50 1,050,146
---------
Granted....................... 6.50-27.9375 385,100
Exercised..................... .10-20.375 (99,818)
Canceled...................... .45-20.375 (60,763)
------------- ---------
Balance, December 31, 1999..... .10-27.9375 1,274,665
============= =========
Options outstanding as of
December 31, 1999:............ .10-.20 179,848 5.61 $ .16
.45 1,836 6.42 .45
2.16 84,492 6.51 2.16
5.25 21,695 6.84 5.25
6.50 22,000 9.20 6.50
7.40-8.00 6,000 9.40 7.64
8.38 20,000 9.37 8.38
8.75-9.50 197,850 7.01 8.75
9.875-14.75 353,635 8.83 11.56
15.125-22.50 377,309 8.24 17.94
23.50-27.9375 10,000 9.25 25.72
------------- ---------
Balance, December 31, 1999..... .10-27.9375 1,274,665 7.74 10.61
============= =========
Options exercisable as of
December 31, 1999:............ .10-.20 147,438 $ .15
.45 1,224 .45
2.16 61,019 2.16
5.25 15,830 5.25
8.75 105,100 8.75
9.875-14.75 23,400 11.06
15.125-22.50 115,724 17.65
------------- ---------
Options exercisable at December
31, 1999...................... $ .10-22.50 469,735 $ 7.37
============= =========
</TABLE>
F-12
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
At December 31, 1999, there were 553,582 shares available for grant under
the Plan. In January 2000, the Company granted 303,700 options to its
employees. Such options were granted at exercise prices equal to the fair
market value at the grant date.
During 1996, various executive officers and certain employees of the Company
were granted options to acquire 270,644 shares of common stock at exercise
prices ranging from $.20 to $2.16 per share. The exercise price of the options
was equal to the fair market value of the Common Stock on the date of grant,
as determined by the Board of Directors. However, for financial statement
purposes, the difference between a deemed value in the range of $2.35 to $5.25
per share and the respective exercise prices at the grant dates has been
recorded as deferred compensation ($753,461) and is being amortized over the
four-year vesting period. Compensation expense for the aforementioned options
aggregated $193,691 for the year ended December 31, 1997, $188,195 for the
year ended December 31, 1998, and $203,021 for the year ended December 31,
1999.
The per share weighted-average fair value of stock options granted during
1997, 1998 and 1999 was $8.66, $14.82, and $11.61 per share, respectively, on
the date of grant. Such fair values were determined using the Black-Scholes
option-pricing model and are based on the following weighted-average
assumptions: an expected dividend yield of 0% and a risk-free interest rate of
7.5%, for 1997, 5.0% for 1998 and 6.45% for 1999; volatility of 68% for 1997,
79% for 1998, and 135% for 1999 and an expected option life of ten years for
1997, 1998 and 1999.
The Company applies APB Opinion No. 25 in accounting for its stock option
plan. Had the Company determined compensation cost for options granted based
on the fair value at the grant date under SFAS No. 123, the Company's net loss
and net loss per share would have been increased to the pro forma amounts
under SFAS No. 123 indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss allocable to common
stockholders:
As reported.................... $(11,449,883) $(26,402,116) $(34,574,571)
Pro forma under SFAS No. 123... $(12,308,195) $(28,511,508) $(37,626,511)
============ ============ ============
Net loss per share allocable to
common stockholders:
Basic and diluted:
As reported.................. $ (1.13) $ (2.30) $ (2.84)
Pro forma under SFAS No.
123......................... $ (1.22) $ (2.48) $ (3.09)
============ ============ ============
</TABLE>
Pro forma net loss allocable to common stockholders reflects only options
granted in 1995 through 1999. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss allocable to common stockholders amounts presented above
because compensation cost is incurred under SFAS No. 123 over the respective
vesting period of such options, and options granted by the Company prior to
January 1, 1995 are not reflected in the pro forma net loss allocable to
common stockholders figures above.
9. Preferred Stock
The Company adopted a Stockholders' Rights Plan (the "Plan") in September
1998. In connection with the Plan, the Company designated from its preferred
stock, par value $.001 per share, Series A Junior Participating Preferred
Stock, par value $.001 per share (the "Series A Preferred Shares"), and
reserved 200,000 Series A Preferred Shares for issuance under the Plan. The
Company declared a dividend distribution of one right for each outstanding
share of common stock. The rights entitle stockholders to purchase one
one-hundredth
F-13
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
of a share of Series A Junior Participating Preferred stock. The rights expire
in 2008. Each holder of a right other than the acquiring person, would be
entitled to purchase $250 worth of common stock of the Company for each right
at the exercise price of $125 per right, which would effectively enable such
rights holders to purchase common stock at one-half of the then current price.
At December 31, 1999, the rights were neither exercisable nor traded
separately from the company's common stock, and become exercisable only if a
person or group becomes the beneficial owner of 20% or more of the Company's
common stock or announces a tender offer which would result in ownership of
20% or more of the Company's common stock.
On May 5, 1999, the Company completed the sale of 2,300,000 shares of Series
A Convertible Participating Preferred Stock ("preferred stock"). Net proceeds
approximated $13,300,000. In addition, the Company issued warrants to purchase
595,000 shares of common stock at $9.53 per share to the purchasers of the
preferred stock. The warrants expire on May 5, 2004. The preferred stock is
convertible into shares of common stock on a one-for-one basis (subject to
adjustment) at any time by the holder and under certain conditions by the
Company. There is a 5% dividend per annum associated with the preferred stock
in which the Company may choose to permanently defer cash payment of the
dividend. In such case, the dividend is added to the liquidation value of the
preferred stock and the preferred stock's conversion ratio is increased. The
holders of the preferred stock have voting rights equivalent to the common
stockholders. In addition, the holders of the preferred stock have liquidation
rights equal to their original investment, subject to adjustment. As a result
of the difference in the price paid per share of preferred stock and the fair
market value per share of the underlying common stock at the date of the
closing of the transaction, the Company has reflected the amount of the
beneficial conversion feature in the statement of operations for the year
ended December 31, 1999. The beneficial conversion feature aggregated
$4,140,000 and is included in the net loss allocable to common stockholders.
The Company deferred the June 30 and September 30, 1999 dividends and as a
result, the difference between the conversion price per share of preferred
stock and the fair market value per share of the underlying common stock at
June 30 and September 30, 1999 has been reflected as a beneficial conversion
feature in the statement of operations for the year ended December 31, 1999.
The fair market values were determined using the closing prices as quoted on
Nasdaq. The beneficial conversion feature related to the quarterly preferred
stock dividends aggregated $465,802 and is included in the net loss allocable
to common stockholders for the year ended December 31, 1999. At December 31,
1999, the preferred stock is convertible into 2,346,295 shares of common
stock.
10. Income Taxes
As of December 31, 1999, the Company has approximately $21,300,000 of
Federal and $19,900,000 of state net operating loss carryforwards available to
offset future taxable income. The federal and state net operating loss
carryforwards will begin expiring in the year 2009 and 2005, respectively, if
not utilized. In addition, the utilization of the state net operating loss
carryforwards is subject to a $2 million annual limitation.
Based on "change in ownership" provisions of the Tax Reform Act of 1986, net
operating loss carryforwards may be subject to annual limitations that could
reduce the Company's ability to utilize these carryforwards in the future.
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1998 and 1999 are shown below. Due to the uncertainty of
the Company's ability to realize the benefit of the deferred tax assets, the
net deferred tax assets are fully offset by a valuation allowance at December
31, 1998 and 1999. The change in the valuation allowance for 1998 and 1999 was
an increase of $10,466,032 and $11,901,661, respectively.
F-14
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 4,182,587 $ 8,483,527
Capitalized research and development costs........ 14,952,831 22,539,989
Expenses not currently deductible................. -- --
Capitalized start up costs........................ 11,917 --
------------ ------------
Total gross deferred tax assets................. 19,147,335 31,023,516
------------ ------------
Deferred tax liability:
Employee compensation............................. 25,480 --
------------ ------------
Net deferred tax assets......................... 19,121,855 31,023,516
Valuation allowance................................. (19,121,855) (31,023,516)
------------ ------------
Net deferred taxes.............................. -- --
============ ============
</TABLE>
11. 401(k) Profit Sharing Plan
In 1998, the Company adopted a new 401(k) Profit Sharing Plan (the "401(k)
Plan") available to all employees meeting certain eligibility criteria. The
401(k) Plan permits participants to contribute up to 15% of their compensation
not to exceed the limits established by the Internal Revenue Code. All
contributions made by participants vest immediately in the participant's
account. The Company contributed none, $47,768, and $61,306 to the 401(k) Plan
in 1997, 1998 and 1999, respectively.
12. Commitments
In March 1998, the Company entered into a lease for laboratory and office
space. The term of the lease is ten years with two five-year renewal options.
The Company also has the right, under certain circumstances, to purchase the
facility.
The Company's future minimum lease payments under the aforementioned leases
and a capital lease related to equipment for years subsequent to December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Year ending Operating Capital
December 31, leases leases
------------ ---------- -------
<S> <C> <C>
2000................................................... 683,514 2,870
2001................................................... 677,604 --
2002................................................... 672,140 --
2003................................................... 661,212 --
2004................................................... 658,942 --
Thereafter............................................. 2,050,708 --
---------- ------
Total minimum lease payments......................... $5,404,120 $2,870
========== ======
Amounts representing interest............................ $ (63)
------
Present value of net minimum lease payments.............. $2,807
Current portion.......................................... $2,807
------
Long term portion........................................ $ --
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1998, and 1999
aggregated $394,000, $760,000, and $851,000, respectively.
F-15
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
13. Subsequent Events
The Company made a private offering of $180 million of Convertible
Subordinated Notes due 2007, which closed on March 8, 2000. Net proceeds from
the issuance of convertible subordinated notes were approximately
$174,400,000. The notes are convertible into shares of the Company's common
stock at a price of $109.15 per share, subject to certain adjustments. The
notes bear interest at a rate of 6 % per annum, payable semi-annually in
arrears, and can be redeemed by the Company, at certain premiums over the
principal amount, at any time on or after March 6, 2003. The notes are
subordinated in right of payment to all senior indebtedness of the Company.
The notes may be required to be repaid on the occurance of certain fundamental
changes, as defined.
F-16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
-------- -----------
<C> <S>
10.24 Product Development and Commercialization Agreement dated November
19, 1999 between Battelle Memorial Institute and ViroPharma
Incorporated.
10.25 Collaboration and License Agreement dated December 9, 1999 between
American Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and ViroPharma Incorporated.
10.26 Stock Purchase Agreement dated December 9, 1999 between American Home
Products Corporation and ViroPharma Incorporated.
11 Statement of Computation of Loss Per Share.
23 Consent of KPMG LLP.
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 10.24
Portions of this exhibit were omitted and filed separately with the Secretary of
the Commission pursuant to an application for confidential treatment filed with
the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
Such portions are marked by a series of asterisks.
PRODUCT DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
This Product Development and Commercialization Agreement (the "Agreement") dated
as of the 19th day of November, 1999 (the "Effective Date") is made and entered
into by and between ViroPharma Incorporated, a Delaware corporation having its
principal place of business at 405 Eagleview Boulevard, Exton, PA 19341
("ViroPharma"), and Battelle Memorial Institute, an Ohio non-profit corporation,
having a principal place of business at 505 King Avenue, Columbus, OH 43201,
through its Battelle Pulmonary Therapeutics Division ("BPTD"). ViroPharma and
BPTD may be referred to herein as a "Party" or, collectively, as "Parties."
BACKGROUND
In consideration of the covenants and promises contained in this Agreement, and
intending to be legally bound, the Parties agree as follows:
1. DEFINITIONS.
As used herein, the following capitalized terms shall have the following
meanings when used in this Agreement, and all terms defined in the singular
shall have the same meanings when used in the plural (and vice versa, as
appropriate), unless otherwise specified:
1.1 "Affiliate" means a corporation, partnership, entity, person, firm,
company, or joint venture, whether de jure or de facto, that controls,
is controlled by or is under the common control with the referenced
Party. For the purposes of this definition the word "control"
(including, with correlative meaning, the terms "controlled by" or "is
under the common control with") means (a) ownership directly or
indirectly of at least fifty percent (50%) of the voting stock of the
applicable entity, or such lesser percentage that is the maximum
allowed to be owned by a foreign corporation in a particular
jurisdiction, or (b) the actual ability to control the management and
operations of the applicable entity.
1.2 "Approval Application" means any application to a Regulatory
Authority, required to be approved by such Regulatory Authority before
marketing the Drug Inhalation System in a particular country, and may
include, without limitation a New Drug Application, Abbreviated New
Drug Application, 510(k) Premarketing Notification, and/or a Premarket
Application, and analogous foreign regulatory filings.
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 1
<PAGE>
1.3 "BPTD Invention" means any Invention that covers the EHD Device, the
Drug Container, or the Drug Vehicle, or any method of making or using
the EHD Device, the Drug Container, or the Drug Vehicle in the Field,
which Invention is made during the Term of this Agreement.
1.4 "BPTD Patent" means any Patent owned or Controlled by BPTD or a BPTD
Affiliate during the term of the Agreement that generically or
specifically claims or covers the manufacture, use, sale, or offer for
sale, import or export of the EHD Device, the Drug Container, or the
Drug Vehicle. Attached hereto as Exhibit A is a list of BPTD Patents
existing as of the Effective Date, which Exhibit A shall be updated by
BPTD on at least a semiannual basis during the term of the Agreement,
provided, however, that unintentional omission of Patents from such
Exhibit A shall not constitute a breach of the Agreement, nor shall it
limit the scope of the defined term "BPTD Patent."
1.5 "BPTD Technology" means all BPTD Patents and BPTD Inventions, and all
Information reasonably necessary for ViroPharma to practice the rights
granted and fulfill the responsibilities imposed in this Agreement,
and all copyrights relating to the Drug Inhalation System, that BPTD
or a BPTD Affiliate owns or Controls during the term of the Agreement.
1.6 "Commercialization Plan" means the plan developed by ViroPharma for
the distribution, marketing and sale of the Drug Inhalation System.
1.7 "cGMPs" means the then current standards for manufacture of
pharmaceuticals and pharmaceutical delivery devices, as set forth in
the United States Federal Food, Drug, and Cosmetic Act and applicable
regulations promulgated thereunder, as amended from time to time, and
such standards of good manufacturing practice as are required by the
European Union and other organizations and governmental agencies in
countries in which the Drug Inhalation System is intended to be sold.
1.8 (a) "Confidential Information" means all secret, confidential or
proprietary information or data, whether provided in written, oral,
graphic, video, computer or other form, provided by one Party (the
"Discloser") to the other Party ("Disclosee") pursuant to this
Agreement or the Confidential Disclosure Agreement between the Parties
dated January 20, 1999, or generated pursuant to this Agreement,
including but not limited to information relating to the Discloser's
existing or proposed research, development efforts, business or
products, the terms of this Agreement and any other materials that
have not been made available by the Discloser to the general public.
(b) Notwithstanding the foregoing Section 1.8(a), Confidential
Information shall not include any information or materials that: (i)
at the time of disclosure by the Discloser to the Disclosee are in, or
after such disclosure become part of, the
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 2
<PAGE>
public domain, through no improper act on the part of the Disclosee
or any of its officers, employees, or agents; (ii) was in the
Disclosee's possession at the time that such information was first
disclosed by the Discloser, as shown by written evidence, and was not
acquired, directly or indirectly, from the Discloser; (iii) the
Disclosee receives from a third party, provided that such information
was not obtained by such third party, directly or indirectly, from
the Discloser; (iv) are required to be disclosed pursuant to valid
law, regulation or court order; or (v) was independently developed by
Disclosee employees having no access to the Confidential Information.
1.9 "Control" means, with respect to a material, Information or
intellectual property right, possession by a Party of the ability to
grant access to or a license or sublicense as provided for herein
under such material, Information or right without violating the terms
of any agreement or other arrangements with any Third Party existing
at the time such Party would be first required hereunder to grant the
other Party such access or license or sublicense.
1.10 "Development Activities" means all activities performed pursuant to
the Development Plan and this Agreement.
1.11 "Development Plan" means the detailed written work plan prepared in
accordance with Section 3.2.1, as such plan may be amended from time
to time.
1.12 "Device Specifications" means the analytical and design
specifications for the EHD Device and the Drug Container, prepared
and modified in accordance with Section 3.2.3(a), and incorporated
into this Agreement by reference.
1.13 "Diligent Efforts" means efforts that are no less than the applicable
efforts that a Party applies to the development, manufacture or
commercialization of its own compounds or products with similar
regulatory requirements and market potential.
1.14 "Drug" means a Small Molecule for use in the Field, and shall
include, without limitation VP 14637.
1.15 "Drug Container" means the container developed or identified for
ViroPharma for the Formulated Drug, all connectors, adapters and
other equipment necessary to permit the attachment of the container
to and incorporation of the container into the EHD Device, all
connectors, adapters and other equipment necessary to permit the
container to be attached to a device to fill the container with
Formulated Drug, and all labels, labeling and packaging for such
container.
1.16 "Drug Inhalation System" means the EHD Device and Packaged Drug
combined and assembled together for use in the Field by a patient
or subject.
1.17 "Drug Master File" or "DMF" means Information and materials, or the
applicable part thereof, submitted to a Regulatory Authority,
providing
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 3
<PAGE>
information on the manufacturing facilities and manufacturing
processes for making a Drug Inhalation System or component thereof,
including, without limitation, activities relating to manufacturing,
processing, formulating, packaging and storage to be conducted by or
under the direction of BPTD or its Affiliates, which Information may
be used to support Regulatory Approval of the Drug Inhalation System
in a country. For purposes of this Agreement, the Drug Master File
shall include, without limitation, chemistry, manufacturing and
control information, as defined in the FDA regulations at 21 CFR
Section 314.50(d).
1.18 "Drug Vehicle" means the combination of all excipients, active, and
inactive ingredients developed for ViroPharma other than the Drug,
with which the Drug is mixed to permit the Pulmonary Delivery of the
Drug via the EHD Device.
1.19 "EHD Device" means the hand-held, single-user, disposable device
developed by BPTD for ViroPharma for the electrohydrodynamic delivery
of Drugs by inhalation, including, without limitation, any removable
mouthpiece or mask for use by patients, and any other equipment or
accessories necessary for a patient to use the device in accordance
with its approved labeling and supplied together with the device, all
of which meet the Specifications.
1.20 "FDA" means the United States Food and Drug Administration, or the
successor thereto.
1.21 "Field" means the treatment and/or prevention of the effect on humans
of respiratory syncytial viruses ("RSV") by Pulmonary Delivery of one
or more Small Molecules not in a formulation or in a combination with
one or more ********** or **********, but not the treatment and/or
prevention of the effect on humans of RSV by Pulmonary Delivery of
one or more ********** or ********** alone or in a formulation or in
a combination with one or more Small Molecules.
1.22 "First Commercial Sale" means, on a country by country basis, the
first sale of the Drug Inhalation System to a Third Party after
Regulatory Approval.
1.23 "Formulated Drug" means the combined, formulated Drug and Drug
Vehicle.
1.24 "Full Royalty Rate Period" for the Drug Inhalation System in any
given country means the period during which ViroPharma's distribution
and/or sale of the Drug Inhalation System in the applicable country,
in the absence of the rights and licenses granted by this Agreement,
would have infringed a BPTD Patent.
1.25 "Information" means information and data of any type whatsoever, in
any tangible or intangible form, including without limitation
inventions, practices, methods, techniques, specifications,
formulations, formulae, knowledge, know-how, skill, experience, trade
secrets, test data including pharmacological,
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 4
<PAGE>
biological, chemical, biochemical, toxicological and clinical test
data, analytical and quality control data, stability data, studies
and procedures, and patent and other legal information or
descriptions.
1.26 "Invention" means any invention, modification, discovery,
improvement, technology, trade secret, chemical or biological
material, assay, method, process, technique, documentation,
scientific and technical data, drawing or other information, whether
patentable or not, relating to a Drug, Drug Vehicle, Formulated Drug,
Drug Container, or EHD Device, or any method of making or using such
Drug, Drug Vehicle, Formulated Drug, Drug Container, or EHD Device in
the Field.
1.27 "Major Markets" means Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Indonesia, Ireland, Italy, Japan, Mexico,
Netherlands, Portugal, Spain, Sweden, the United Kingdom, the United
States.
1.28 "Net Sales" means the total amount invoiced or otherwise charged by
ViroPharma or its Affiliates to customers or Third Party licensees on
account of the sale of the Drug Inhalation System, less the following
deductions: (a) deductions, credits, allowances, and discounts
actually granted for spoiled, damaged, out-dated and returned units
of the Drug Inhalation System (including withdrawals and recalls);
(b) rebates (including Medicaid, managed care rebates and other
similar types of rebates, e.g. chargebacks); (c) freight and
insurance costs for transporting the Drug Inhalation System which are
included in the billed amount; (d) sales, use, excise, value-added
and other direct taxes on the sale of the Drug Inhalation System; (e)
customs duties, surcharges and other governmental charges incurred in
connection with the exportation or importation of the Drug Inhalation
System; (f) trade, cash, and quantity discounts off the invoiced
price and similar promotional discounts or rebates (such as
management fees required by hospital buying groups or granted to
managed care organizations) off the invoiced price, and (g) amounts
reflecting retroactive price adjustments on sale of products, to the
extent not previously deducted from net sales, but only to the extent
such adjustment is not made more than one year after the sale; all of
the foregoing to the extent consistent with the normal practice in
the industry, and provided that any and all of the foregoing are
calculated in accordance with United States generally accepted
accounting principles consistently applied. Included in Net Sales
shall be any disposition of a Drug Inhalation System or component
thereof for value, and if for other than cash, such disposition to be
converted to a cash amount equal to the amount such system or
components are sold to others.
1.29 "Packaged Drug" means Formulated Drug packaged in a finished Drug
Container.
1.30 "Patent" means (a) all patent applications heretofore or hereafter
filed or having legal force in any country; (b) all patents that have
issued or in the future issue
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 5
<PAGE>
therefrom, including without limitation utility, model and design
patents and certificates of invention; and (c) all divisionals,
continuations, continuations-in-part, reissues, renewals, extensions
(including supplemental protection certificates), additions,
registrations or confirmations to or of any such patent applications
and patents.
1.31 "Pulmonary Delivery" means
a. the administration of any substance by:
i. inhalation through the mouth, or
ii. simultaneous inhalation through the mouth and nose, or
iii. where inhalation through the mouth is not possible or
reasonably practicable due to the patient's condition,
inhalation through the nose,
in each case to the lungs and/or to the trachea (including
necessary incidental non-therapeutic and non-functional [i.e.,
not for diagnosis, prevention or treatment of disease] delivery
to the mouth, nose and throat as a result of such inhalation) for
the purpose of diagnosis, prevention or treatment of disease;
b. the administration of any substance to the lungs, trachea, mouth,
throat or nasal passages by inhalation through the mouth and/or
nose for the treatment, prevention, or diagnosis of all cancers
of the respiratory tract; and
c. where it can be shown by clinical trials that treatment or
prevention of a particular disease by delivery of a substance to
the lungs and/or the trachea in accord with Section 1.31(a) above
is significantly improved by simultaneous delivery of the same
substance to the mouth and/or throat then "Pulmonary Delivery"
will be extended to include delivery under Section 1.31(a) above
together with simultaneous delivery of the same substance to the
mouth and/or throat for the prevention or treatment of that
disease.
For the avoidance of doubt, "Pulmonary Delivery" shall not include:
---
d. any delivery or deposition to the nasal passage or nasal cavities
other than as expressly permitted in Sections 1.31(a-b) above;
and
e. except as provided in Section 1.31(b) above, delivery to the
mouth and/or throat when not done simultaneously with delivery to
the lungs and/or trachea in accordance with Section 1.31(c)
above.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 6
<PAGE>
1.32 "Pulmonary Surfactant" means
a. More than ********** total, per dose, of one or more of the
following **********; **********, and/or
b. Any amount of ********** or ********** or any derivative thereof
(a fragment or modified form of ********** or ********** or such
fragment) or any molecule specifically developed and
intentionally used to replace ********** or ********** in whole,
or in part, and/or
c. Any amount of ********** or any derivative thereof (a fragment
or modified form of ********** or such fragment) plus (i)
********** conforming to a) above and/or (ii) any molecule
conforming to b) above.
1.33 "Recovery Cost" means the actual costs inclusive of all direct and
reasonable indirect costs of products or services incurred after the
Effective Date, with no mark-up for profits, and in the case of
products or services provided by a Third Party, the actual amount
charged by such Third Party, but in no event shall Recovery Costs
include Third Party Payments. Notwithstanding anything in this
Agreement to the contrary, all services and/or property provided by
any Battelle Memorial Institute operating unit, division, or
affiliate other than BPTD shall be sold or billed to ViroPharma or
any other party under this Agreement at ordinary and customary prices
and/or rates, including profits (but not for BPTD).
1.34 "Reduced Royalty Rate Period" for the Drug Inhalation System in a
country means the period beginning on the expiration of the Full
Royalty Rate Period for the Drug Inhalation System in that country,
or if there is no Full Royalty Rate Period in that country, then
beginning on the First Commercial Sale of the Drug Inhalation System
in that country, and ending on the ********** anniversary of the
Effective Date.
1.35 "Regulatory Approval"
1.36 "Regulatory Authority" { shall mean any national (e.g., the United
States Food and Drug Administration), supra-national (e.g., the
European Commission, the Council of the European Union, or the
European Agency for the Evaluation of Medicinal Products), regional,
state or local regulatory agency, department, bureau, commission,
council or other governmental entity in each country of the
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 7
<PAGE>
world involved in the granting of Regulatory Approval for the Drug
Inhalation System.
1.37 "Retained Rights" means the right of the Third Party identified in
Exhibit B to this Agreement to have granted to it upon request a
paid-up, non-exclusive license to make, keep, use and sell subject
matter disclosed and claimed in those of the BPTD Patents designated
with an asterisk in Exhibit A to this Agreement.
1.38 "Small Molecule" means any chemical entity or compound, but not small
peptides or proteins.
1.39 "Specifications" means the System Specifications and the Device
Specifications.
1.40 "System Specifications" means the analytical, design and performance
specifications for the Drug Inhalation System, prepared and modified
in accordance with Section 3.2.2, and incorporated into this
Agreement by reference.
1.41 "Third Party" means any entity or individual other than BPTD,
ViroPharma, or Affiliates of either.
1.42 "Third Party Payment" means any payment made by BPTD or a BPTD
Affiliate:
a. to any Third Party as a result of BPTD's obtaining or licensing,
before or after the Effective Date, such Third Party's Patents or
technology; or
b. to any Third Party as a result of any defense or settlement of
any Third Party claim or action alleging that the manufacture,
use, sale, offer for sale, importation or exportation of the EHD
Device, the Drug Vehicle or the Drug Container infringes a Third
Party Patent in any country of the world.
1.43 "ViroPhaema Invention" means any Invention that is not a BPTD
Invention, including, without limitation, any Invention that covers
the Drug, or the Formulated Drug, or any method of making or using
the Drug or Formulated Drug in the Field, which Invention is made
during the Term of this Agreement.
1.44 "ViroPharma Patent" means any Patent owned or Controlled by
ViroPharma or a ViroPharma Affiliate during the term of the Agreement
that claims an Invention in the Field or that generically or
specifically claims or covers the manufacture, use, sale, or offer
for sale, import or export of the Drug or Formulated Drug.
1.45 "ViroPharma Technology" means all ViroPharma Patents and ViroPharma
Inventions, and all copyright, trademarks, and Information that
ViroPharma or an Affiliate owns or Controls during the term of the
Agreement.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 8
<PAGE>
2. LICENSES
2.1 License to ViroPharma.
2.1.1 General. Except as limited by the Retained Rights, BPTD grants
to ViroPharma and its Affiliates the worldwide, royalty-
bearing, exclusive, except as to BPTD and its Affiliates,
sublicensable right and license to use the BPTD Technology to
the extent necessary to perform the activities under this
Agreement in the Field, including, without limitation, making,
using, selling, offering for sale, importing, or exporting the
Drug Inhalation System or any part of the Drug Inhalation
System, or licensing a Third Party to do any of the foregoing.
2.1.2 Post Expiration of Payment Obligation. After the expiration of
the obligation to make payments under Sections 9.1-9.6 of this
Agreement, the licenses under this Section 2.1 shall be fully-
paid, perpetual, irrevocable and royalty-free.
2.2 License to BPTD. ViroPharma grants to BPTD and its Affiliates the
royalty-free, non-sublicensable, non-exclusive, right and license to
use the ViroPharma Technology only to the extent necessary to perform
the activities under this Agreement in the Field, but for no other
purposes.
2.3 Exclusive Relationship.
2.3.1 General. Except as specifically permitted by the terms of this
Agreement and for the purposes of this Agreement, during the
term of this Agreement, without the prior written consent of
ViroPharma, neither BPTD nor any of its Affiliates shall
directly or indirectly use or license a Third Party to use the
BPTD Technology in the Field.
2.3.2 Drug Vehicle Use. Except as specifically permitted by the terms
of this Agreement and for the purposes of this Agreement,
neither BPTD nor any of its Affiliates shall directly or
indirectly use the Drug Vehicle in the Field, or any BPTD
Technology covering the Drug Vehicle in the Field:
a. During the term of this Agreement; and
b. For five years after the term of this Agreement, unless
this Agreement is terminated pursuant to Section 14.2 or
14.3.
2.3.3 Drug Vehicle License. Neither BPTD nor any of its Affiliates
shall directly or indirectly license a Third Party to use the
Drug Vehicle in the Field, or any BPTD Technology covering the
Drug Vehicle in the Field:
a. During the term of this Agreement; and
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 9
<PAGE>
b. For five years after the term of this Agreement, unless
this Agreement is terminated pursuant to Section 14.2 or
14.3.
2.3.4 ********** or ********** Used with Small Molecules. Without the
prior written consent of ViroPharma, BPTD and its Affiliates
shall not directly or indirectly use or license a Third Party
to use the BPTD Technology for the Pulmonary Delivery of one or
more Small Molecules in a formulation or in a combination with
one or more ********** or ********** for the treatment and/or
prevention of the effect on humans of RSV where any Small
Molecule in such formulation or combination is active as a
single agent for the treatment and/or prevention of the effect
on humans of RSV.
2.4 Right of Reference. BPTD and its Affiliates grant ViroPharma, its
Affiliates and designees a "Right of Reference," as that term is
defined in 21 C.F.R. (S) 314.3(b), to any data developed under this
Agreement or under the Master Services Agreement between the Parties
dated April 12, 1999, and BPTD and/or its Affiliates shall provide a
signed statement to this effect, if requested by ViroPharma, in
accordance with 21 C.F.R. (S) 314.50(g)(3).
3. PRODUCT DEVELOPMENT.
3.1 General.
3.1.1 Compliance with Laws. The Parties shall perform all activities
under this Agreement, including, without limitation,
Development Activities, in compliance with all federal, state
and local laws, regulations and ordinances, and with any
applicable professional standards. Neither Party shall take
legal action against the other Party for damages for a non-
material breach of this Section 3.1.1.
3.1.2 Diligence. The Parties will use Diligent Efforts in performing
Development Activities.
3.1.3 Terms for Performing Development Activities. All Development
Activities performed by BPTD shall be performed pursuant to
Section 4 of this Agreement. ViroPharma shall not be liable to
BPTD for the costs of any Development Activities not performed
pursuant to Section 4.
3.2 Development Planning and Development Activities.
3.2.1 Preparation of Development Plan. Within ninety days after the
Effective Date, ViroPharma and BPTD will prepare a mutually
agreeable
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharms-BPTD Agreement Page 10
<PAGE>
Development Plan, which shall be attached to this Agreement
as Exhibit C that shall identify in reasonable detail the
activities necessary to:
a. Design and develop an EHD Device appropriate to deliver
the Formulated Drug, in accordance with Device
Specifications;
b. Design and develop a Drug Vehicle that is compatible
with the EHD Device and the Drug;
c. Design and develop a Drug Container or identify a
commercially available Drug Container that can contain
adequate quantities of the Formulated Drug, and that
can be readily incorporated into the EHD Device, in
accordance with Device Specifications for the Drug
Container; and
d. Develop preclinical and clinical data and complete
Approval Applications necessary to obtain Regulatory
Approval for the Drug Inhalation System in countries
throughout the world.
At least semiannually, after reviewing the results of the
development efforts to that time, ViroPharma and BPTD shall
mutually agree on any amendments to the Development Plan to
reflect revised development and/or regulatory activities or
goals. In the event of any failure to agree on the portions
of the Development Plan described in Sections 3.2.1(a)
through(c), BPTD shall have final decision making authority.
In the event of any failure to agree on the portions of the
Development Plan described in Section 3.2.1(d), ViroPharma
shall have final decision making authority.
3.2.2 Drug Inhalation System Specifications. The summary System
Specifications for the Drug Inhalation System setting forth
the planned design, performance and features of the Drug
Inhalation System are to be developed after the Effective
Date and attached to this Agreement as Exhibit D (the
"System Specifications"). The System Specifications may be
altered by ViroPharma, only after BPTD has had a reasonable
opportunity to review and comment on any proposed changes.
3.2.3 EHD Device and Drug Container.
a. EHD Device and Drug Container Specifications.
ViroPharma and BPTD shall collaborate to prepare
summary Device Specifications for the EHD Device and
Drug Container setting forth the planned design,
features and performance of the EHD Device and the Drug
Container consistent with the System Specifications. If
the System Specifications and the Device Specifications
conflict in any material regard, the System
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 11
<PAGE>
Specifications shall govern. At any time during the
term of the Agreement, BPTD may suggest changes to the
design of the EHD Device or the Drug Container. No such
changes shall be implemented except upon the written
approval of ViroPharma.
b. Development Activities. The Parties shall perform
Development Activities on the EHD Device and the Drug
Container in compliance with the Development Plan and
the Specifications. BPTD shall perform Development
Activities pursuant to Article 4, as requested by
ViroPharma. ViroPharma shall not employ Third Parties
to perform Development Activities on the EHD Device and
the Drug Container.
3.2.4 Drug Vehicle Development. The Parties shall perform
Development Activities on the Drug Vehicle in compliance
with the Development Plan and the Specifications. At
ViroPharma's reasonable request, BPTD shall perform
Development Activities pursuant to Article 4.
3.2.5 Costs. Except as expressly set out in this Agreement,
ViroPharma shall pay for all Development Activities under
this Agreement.
3.2.6 Master Services Agreement. As reasonably requested by
ViroPharma, BPTD shall perform the activities described in
the document entitled "ViroPharma Project: Preformulation
and EHD Aerosol Feasibility Study of VP 14637" attached to
the Master Services Agreement between the Parties dated
April 12, 1999, in accordance with the terms of such Master
Services Agreement. If the performance of activities under
the Master Services Agreement conflicts with, or is made
impractical by, this Agreement, such activities shall be
performed pursuant to this Agreement. If any provisions of
the Master Services Agreement are in conflict with the
provisions of this Agreement, this Agreement shall control.
3.3 Clinical Testing of Inhalation System. ViroPharma or its designees
shall be responsible for designing, performing and funding clinical
studies necessary to obtain Regulatory Approval for the Drug
Inhalation System.
3.4 Development Product Supply. ViroPharma or its designees shall supply,
at its own cost, adequate amounts of Drug, Formulated Drug and placebo
for the performance of Development Activities under this Section 3.
BPTD shall supply, at ViroPharma's expense (to be charged to
ViroPharma at BPTD's Recovery Cost), adequate numbers of Drug
Inhalation System units for the performance of Development Activities
under this Article 3, consistent with Article 5.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 12
<PAGE>
3.5 Approval Applications.
3.5.1 Generally. ViroPharma, by itself, or through its Affiliates
or sublicensees will use Diligent Efforts to prepare,
assemble and submit in its own name and at its own expense
all Approval Applications and DMFs for the Drug Inhalation
System in countries of the world consistent with the
Commercialization Plan. ViroPharma will own any such
Approval Applications, DMFs and Regulatory Approvals.
3.5.2 Assistance by BPTD. BPTD and its Affiliates shall provide to
ViroPharma for inclusion in Approval Applications or DMFs
any necessary information or materials regarding the EHD
Device and/or the Drug Container and shall employ Diligent
Efforts to provide any reasonably necessary assistance to
ViroPharma in obtaining Regulatory Approval or in submitting
DMFs at ViroPharma's cost. Upon ViroPharma's reasonable
request, BPTD and/or BPTD's Affiliates shall attend and
participate in meetings regarding the Drug Inhalation
System, including meetings with Regulatory Authorities.
3.5.3 Filings by BPTD. If the laws or regulations of any country
require that BPTD, or a BPTD Affiliate rather than
ViroPharma, file any part of any Approval Application, DMF
or part thereof, BPTD, or such BPTD Affiliate, shall file
the Approval Application, DMF or part thereof at
ViroPharma's expense and shall, consistent with the laws and
regulations of the country, transfer such Approval
Application, DMF, Regulatory Approval, or part thereof, to
ViroPharma, or hold and maintain the same on ViroPharma's
behalf.
4. PERFORMANCE OF DEVELOPMENT ACTIVITIES BY BPTD.
4.1 Work Orders. BPTD shall perform Development Activities as agreed to by
the Parties, consistent with the Development Plan from time to time.
The specific details of each assignment in respect of the Development
Activities will be separately negotiated and contracted for in
writing, and shall be set forth in a work order in substantially the
form attached hereto as Exhibit E each to be sequentially numbered and
to be subject to all of the terms and conditions set forth in this
Agreement, and incorporated into this Agreement by reference (each, a
"Work Order").
4.2 Protocols. Unless otherwise indicated on the applicable Work Order,
BPTD shall prepare protocols describing the Development Activities for
ViroPharma's review and approval prior to initiating such Development
Activities. BPTD shall make such changes to such protocol that are
reasonably requested by ViroPharma and agreed to by BPTD, such
agreement not to be withheld or delayed unreasonably
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 13
<PAGE>
(as so modified, the "Protocol"). BPTD shall perform the Development
Activities in accordance with the applicable Protocol.
4.3 Deliverables. BPTD shall deliver to ViroPharma the deliverables
described or referred to on the applicable Work Order (each, a
"Deliverable"). The Development Activities described in a particular
Work Order shall be deemed to have been completed upon BPTD's
completing such Development Activities in accordance with the Work
Order terms and with the terms of this Agreement.
4.4 Inspection; Project Materials. Upon reasonable advance notice to BPTD,
and at reasonable times during normal business hours, ViroPharma shall
be permitted to send certain of its employees or designees to BPTD's
facilities to consult with BPTD's employees and consultants engaged in
the activities contemplated by a Work Order, to observe BPTD in the
performance of its duties hereunder, and to inspect and take copies of
any of the results of the Development Activities. BPTD shall make
BPTD's employees and consultants and such results available to
ViroPharma for such purposes. During such visits, ViroPharma shall
comply with BPTD policy regarding security, as such policy shall be in
force from time to time.
4.5 Reports. BPTD shall maintain accurate and complete records of all
Development Activities it performs and all results of any trials,
studies and other investigations conducted by or on behalf of
ViroPharma hereunder. Unless otherwise indicated on the applicable
Work Order, BPTD shall prepare and deliver to ViroPharma a final
written Report for each Work Order, in such detail as agreed to by the
Parties. BPTD shall provide ViroPharma with summary data describing
the interim results of the Development Activities, and copies of all
materials generated in connection with the activities contemplated by
this Agreement, upon ViroPharma's request and at ViroPharma's cost,
provided that ViroPharma is not then in default of its obligations
under this Agreement.
4.6 Fees. Except as expressly agreed to in advance by ViroPharma: (a) in
no event shall the price to ViroPharma for any Deliverable exceed the
"Maximum Fee" listed opposite such Deliverable on such Work Order; (b)
in no event shall the aggregate amount due for any Work Order exceed
the "Total Fee" set forth on such Work Order; and (c) in no event
shall Development Activities be billed at more than BPTD's Recovery
Cost. The Maximum Fee and Total Fee are to be negotiated for the work
orders on a case-by-case basis. Unless otherwise agreed to by
ViroPharma in a Work Order, BPTD shall be solely responsible for
expenses incurred by it in the performance of the Development
Activities.
4.7 Invoices. BPTD shall generate invoices in accordance with the mutually
agreed upon payment schedule described in the applicable Work Order
(the "Payment Schedule"). All invoices that are not disputed by
ViroPharma in good faith shall be payable within thirty days after
ViroPharma's receipt. ViroPharma will pay interest of 1% per month on
balances due for late payment.
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 14
<PAGE>
5. CLINICAL SUPPLY MANUFACTURING.
5.1 General. BPTD agrees to itself, or through its Affiliates, (a) supply
ViroPharma's clinical testing requirements of the EHD Device, (b)
install Packaged Drug supplied by ViroPharma to BPTD into such EHD
Devices, and (c) ship labeled and packaged investigational Drug
Inhalation Systems to clinical trial sites or a clinical trial
distributor identified by ViroPharma. If the Drug Container is not
readily commercially available, BPTD agrees to itself, or through its
Affiliates, (x) supply ViroPharma's clinical testing requirements of
the Drug Container, and (y) ship such Drug Container to ViroPharma or
a designee. BPTD shall perform or cause to be performed all such
activities in accordance with the Specifications and the terms of this
Agreement and in compliance with all applicable federal, state, and
local laws, regulations and ordinances, including, without limitation,
cGMPs. Neither BPTD nor its Affiliates shall alter the manufacturing
processes of clinical supplies under this Section 5.1 without the
prior written approval of ViroPharma, not to be unreasonably withheld
or delayed.
5.2 Manufacturing Facilities, Equipment and Licenses. In manufacturing
clinical supplies pursuant to Section 5.1, BPTD and BPTD's Affiliates
shall:
5.2.1 acquire all equipment and licenses, including, without
limitation, all necessary plant equipment and facilities
licenses, necessary to manufacture investigational EHD
Devices and Drug Containers under this Section 5;
5.2.2 use Diligent Efforts to keep such equipment properly
maintained and to reduce risks of breakdown of critical
machinery;
5.2.3 obtain and maintain all necessary federal, state and local
manufacturing licenses and approvals for the manufacturing
facilities;
5.2.4 maintain all records that are necessary and appropriate to
demonstrate compliance with cGMPs; and
5.2.5 BPTD shall ensure that the manufacturing of investigational
EHD Devices, Drug Containers, or assembly of Drug Inhalation
Systems under Section 5 complies with all applicable
federal, state and local environmental, health and safety
laws and regulations in effect at the time and place of such
manufacture, and all waste, including but not limited to all
hazardous waste, generated in such manufacturing shall be
disposed of in accordance with all applicable federal, state
and local laws and regulations.
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 15
<PAGE>
5.3 Orders.
5.3.1 Placement of an Order. ********** prior to the start of each
clinical trial, ViroPharma will advise BPTD of the estimated
number of Drug Inhalation System units necessary to complete
such clinical trial, the estimated schedule on which the
units will be needed and an order specifying the number of
units needed for the first ********** of the clinical trial.
ViroPharma will place orders for ********** of inventory for
the Drug Inhalation System at a time, ********** in advance
of the required delivery date.
5.3.2 Confirmation of an Order. Within two business days after
receiving a an order under Section 5.3.1, BPTD shall provide
written confirmation of its ability to fill such order as
well as the address to which ViroPharma should ship Packaged
Drug to be used in filling the order. If BPTD believes that
it may be unable to fulfill such order, it shall notify
ViroPharma by telephone and in writing immediately, but in
no case later than two business days after receiving such
order.
5.3.3 Conflicting Terms in Order Forms or Invoices. If any
purchase order, invoice or acknowledgment form used by
either ViroPharma or BPTD contains any provision additional
or contrary to the provisions of this Agreement, such
additional or contrary provision shall have no force or
effect and the terms of this Agreement shall control.
5.4 Shipment of Packaged Drug.
5.4.1. Shipping by ViroPharma. Within two business days after
ViroPharma receives written confirmation of BPTD's ability
to fulfill an order pursuant to Section 5.3.2, ViroPharma
shall ship a number of units of Packaged Drug equal to 102%,
rounded up to the nearest whole number, of the number of
units of Drug Inhalation System requested in the order FOB
the address supplied by BPTD in such written confirmation.
5.4.2. Receipt and Possession by BPTD. ViroPharma shall retain
title and BPTD shall be solely responsible for the risk of
loss of Packaged Drug in the inventory or possession of BPTD
or a BPTD Affiliate which loss is due to the negligence or
intentional misconduct of BPTD or the BPTD Affiliate.
ViroPharma shall be responsible for all losses of Packaged
Drug not described in the preceding sentence. BPTD shall
notify ViroPharma promptly upon the loss of any Packaged
Drug. ViroPharma shall invoice BPTD for the cost of any lost
Packaged Drug, for which BPTD is liable under this Section
5.4.2., which amount BPTD shall pay within thirty days of
its receipt of such invoice.
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 16
<PAGE>
5.5 Completion and Packaging. BPTD will combine the Packaged Drug and the
EHD Device, package and label the Drug Inhalation System for use in
the clinical research program in accordance with the Specifications.
5.6 Inspection of Final Products.
5.6.1 Inspection. BPTD shall inspect finished Drug Inhalation
System units pursuant to the applicable Specifications, all
federal, state, and local laws and regulations, and in
accordance with reasonable industry standards. ViroPharma
shall have the right, at its own cost, to witness or
participate in any and all inspections of finished Drug
Inhalation System units at the site where such inspection
takes place.
5.6.2 Documentation. Within three business days after completing
the inspection of finished Drug Inhalation System units,
BPTD shall forward to ViroPharma:
a. a production report identifying any problems
encountered in the fulfillment of the applicable
Binding Order, the results of the QC analysis, and the
results of any inspection, along with any supporting
data, and
b. a Certificate of Analysis and Conformance ("COA")
specifying that all Drug Inhalation System units
subject to such COA conform with the Specifications.
The COAs will use lot numbers as directed by ViroPharma.
ViroPharma shall be under no obligation to accept any
shipment of BPTD products without an accompanying COA.
5.7 Shipment of Final Products. BPTD, or its Affiliates shall ship the
units of Drug Inhalation Systems in fulfillment of an order FOB the
address specified in such order for delivery by the Delivery Date.
5.8 Invoices. BPTD will invoice ViroPharma for the Recovery Cost of
investigational EHD Devices and Drug Containers upon delivery of the
Drug Inhalation Systems to the carrier identified by ViroPharma. Such
invoices shall reasonably itemize BPTD's Recovery Costs for labor,
materials, supplies, and payments to Third Parties or Affiliates, by
production lot number for the Drug Inhalation System, and shall
contain such other information as may be reasonably requested by
ViroPharma.
5.9 Payments. ViroPharma shall pay any invoice under Section 5.8 within
thirty days of receiving such invoice.
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 17
<PAGE>
6. MANUFACTURING OF COMMERCIAL SUPPLY.
6.1 General. ViroPharma or its designees shall be solely responsible for
contracting for and paying the costs of any commercial supply of the
Drug Inhalation System. ViroPharma may, but is not required to,
contract with BPTD to provide any part of such commercial supply.
6.2 Volume Discounts for EHD Device Component Supply. BPTD shall disclose
to ViroPharma the identity of the supplier for each component of the
EHD Device or the Drug Container purchased from a Third Party for
which BPTD is eligible to receive a volume discount, and will exert
reasonable commercial efforts to cause any such supplier to provide
similar discounts to ViroPharma.
6.3 Consulting and Technology Transfer. If ViroPharma contracts with a
Third Party to manufacture commercial supplies of the EHD Device, Drug
Container, and/or Drug Vehicle (the "Third Party Manufacturer"), then
BPTD shall, at its Recovery Cost for such services:
6.3.1 assist ViroPharma in transferring to the Third Party
Manufacturer all BPTD Technology existing at the time of
transfer which is necessary in the manufacture of the EHD
Device, Drug Container, and/or Drug Vehicle to
Specifications and in compliance with all applicable
federal, state, and local laws and regulations, except that
the first such transfer shall be at BPTD's expense;
6.3.2 assist ViroPharma and the Third Party Manufacturer in
troubleshooting any problems that may arise in manufacturing
the EHD Device, Drug Container, and/or Drug Vehicle;
6.3.3 consult with ViroPharma and its Third Party Manufacturer on
all aspects of manufacturing of the EHD Device, Drug
Container, and/or Drug Vehicle, and any improvements that
can be made to the manufacturing process; and
6.3.4 perform any other consulting, advisory, technology transfer,
problem-solving or other activities reasonably necessary to
assist ViroPharma and its Third Party Manufacturer to
successfully manufacture the EHD Device, Drug Container,
and/or Drug Vehicle.
7. COMMERCIALIZATION AND MARKETING.
7.1 Commercialization Plan. Ninety days before it submits the first
Approval Application for the Drug Inhalation System to any Regulatory
Authority, ViroPharma shall provide to BPTD a copy of its
Commercialization Plan. The Commercialization Plan shall set out the
countries in which ViroPharma intends
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 18
<PAGE>
to seek Regulatory Approval for and launch the Drug Inhalation System
in the next five years. ViroPharma shall update the Commercialization
Plan at least annually and shall provide BPTD with a copy of all
updated Commercialization Plans.
7.2 Diligence. Within ********** of receiving the first Regulatory
Approval for the Drug Inhalation System, ViroPharma shall obtain
Regulatory Approval of the Drug Inhalation System in ********** of the
Major Market countries.
7.2.1 If ViroPharma's failure to obtain such Regulatory Approvals
is not due to reasonably unforeseeable adverse regulatory
actions, or refusal or delay of Regulatory Approval because
of a Regulatory Authority's concerns with the EHD Device,
the Drug Container, or the Drug Vehicle, the license grant
to ViroPharma under this Agreement becomes non-exclusive for
all countries in which ViroPharma has not already obtained
Regulatory Approval or in which approval is not pending.
7.2.2 If ViroPharma's failure to obtain such Regulatory Approvals
is due to reasonably unforeseeable adverse regulatory
actions, then the period for obtaining such Regulatory
Approvals shall be extended by a reasonable period of time,
mutually agreed to by the Parties.
7.2.3 If ViroPharma's failure to obtain such Regulatory Approvals
is due to refusal or delay of Regulatory Approval because of
a Regulatory Authority's concerns with the EHD Device, the
Drug Container, or the Drug Vehicle, then the period for
obtaining such Regulatory Approvals shall be extended for as
long as necessary to resolve such Regulatory Authority's
concerns with the EHD Device, the Drug Container, or the
Drug Vehicle.
7.3 Further Diligence. ViroPharma shall exercise Diligent Efforts to
obtain Regulatory Approval in countries consistent with the
Commercialization Plan.
7.3.1 Countries Declined by ViroPharma. If ViroPharma has not
received Regulatory Approval for the Drug Inhalation System
in a country, and ViroPharma has confirmed to BPTD in
writing that it does not intend to seek Regulatory Approval
for the Drug Inhalation System in such country, and if no
gray market or price effects exist as set forth in Section
7.3.3, then upon ninety days prior written notice, BPTD may
grant a non-exclusive license to a Third Party to use the
BPTD Technology, in the Field, in such country.
7.3.2 Countries Requested by BPTD. If ********** after the first
Regulatory Approval, ViroPharma has not submitted an
Approval Application for the Drug Inhalation System in a
country, and if BPTD has received a request from a Third
Party to License the BPTD Technology in the Field in such
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 19
<PAGE>
country, then BPTD may request from ViroPharma, in writing,
the right to make such license.
a. If within ninety days of such request, ViroPharma does
not respond in writing stating that ViroPharma will
submit an Approval Application for the Drug Inhalation
System in such country or that gray market or price
effects exist as set forth in Section 7.3.3, then BPTD
may license a Third Party to use the BPTD Technology,
in the Field, in such country.
b. If ViroPharma responds in writing stating that it will
submit an Approval Application for the Drug Inhalation
System in such country, then ViroPharma shall have a
reasonable period of time, mutually agreed to by the
Parties, but in no event less than **********, to
obtain Regulatory Approval in such country, and
ViroPharma will use Diligent Efforts to obtain such
Regulatory Approval. The Parties shall agree to extend
the time for obtaining Regulatory Approval in the event
of reasonably unforeseeable adverse regulatory actions,
or in the event of a refusal or delay of Regulatory
Approval because of a Regulatory Authority's concerns
with the EHD Device, the Drug Container, or the Drug
Vehicle. If ViroPharma fails to obtain Regulatory
Approval in such country in the period agreed to by the
Parties, then upon ninety days prior written notice,
BPTD may grant a non-exclusive license to a Third Party
to use the BPTD Technology, in the Field, in such
country, unless the failure is due to the Regulatory
Authority's concerns with the EHD Device, the Drug
Container, or the Drug Vehicle.
7.3.3 Gray Market and Price Effects. Gray market or price effects
shall be deemed to exist if it is reasonably expected that
the licensing of the BPTD Technology in the Field to a Third
Party in a country would either:
a. Reduce ********** of the Drug Inhalation System
********** by ********** or more; or
b. Reduce ********** of the Drug Inhalation System by
********** or more.
In the event of a failure of the Parties to agree on the
existence of gray market or price effects under this
Section 7.3.3, the Parties shall resolve the matter in
accordance with Section 15.15.
7.4 Marketing Diligence. During the term of this Agreement, ViroPharma
shall use Diligent Efforts to promote the use and sale of the Drug
Inhalation System in each country in which the Drug Inhalation System
has received Regulatory Approval,
- -------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 20
<PAGE>
and ViroPharma shall assure that an adequate sales force is maintained
for the appropriate promotion of the Drug Inhalation System.
7.5 Regulatory Reporting. ViroPharma or its designee shall be responsible
for filing all reports required to be filed in order to maintain any
Regulatory Approvals granted for the Drug Inhalation System in the
world, including, without limitation, adverse drug experience reports.
BPTD and its Affiliates shall cooperate with ViroPharma in preparing
and filing all such reports and, upon ViroPharma's request, provide
ViroPharma with any information in BPTD's or its Affiliates'
possession or Control that ViroPharma reasonably deems to be relevant
to any such reports. If BPTD or a BPTD Affiliate has or receives any
information regarding any adverse drug experience that may be related
to the use of the Drug Inhalation System, BPTD shall provide
ViroPharma with all such information in writing within forty-eight
hours of BPTD's receiving such information.
7.6 Recalls.
7.6.1 Notification. BPTD shall immediately inform ViroPharma
orally of all information in BPTD's possession relating to:
a. any incident relating to a Drug Inhalation System unit
and/or any lot of the Drug Inhalation System that is
the subject of recall, market withdrawal or correction,
or
b. any Drug Inhalation System Units that may require,
whether based on design defect, manufacturing defect,
or otherwise, a recall, field alert, product withdrawal
or field correction arising from any defect in such
units.
7.6.2 Costs of Recall. The costs of any recall shall be borne
consistent with the indemnification in Sections 13.1-2.
7.7 Failure Analysis. BPTD shall, at ViroPharma's expense, assist
ViroPharma or its designees in performing all failure analysis for
recalled, rejected, and out-of-System Specification Drug Inhalation
System units that is required by federal, state, or local laws or
regulations, or that is reasonably requested by ViroPharma. BPTD shall
assist in making all reasonable changes to the Specifications to
reduce failure rates in Drug Inhalation System units.
7.8 Technical Assistance. At ViroPharma's reasonable request and expense,
BPTD shall provide ViroPharma with reasonable technical assistance and
advice for responding to consumer queries regarding the Drug
Inhalation System.
7.9 Patent Marking. ViroPharma shall assure that, consistent with the laws
of the country in which it is distributed, each Drug Inhalation System
unit subject in such country to a BPTD Patent shall be marked in a
conspicuous location with a
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 21
<PAGE>
patent notice adequate to meet the patent notification requirements of
that country.
8. GENERAL REGULATORY MATTERS.
8.1 Inspections. If BPTD or a BPTD Affiliate is inspected by a Regulatory
Authority regarding activities under this Agreement, BPTD or the
Affiliate shall promptly notify ViroPharma. BPTD or the inspected
party shall provide ViroPharma with a written report of any such
inspection, noting with specificity any record or document reviewed by
the regulatory inspector. When a copy of a document or record is
supplied to the inspector on request, that fact will be noted in the
report. BPTD or the BPTD Affiliate shall keep copies of each of these
records or documents in a separate inspection file and, on
ViroPharma's request, will provide ViroPharma with copies of any or
all of these Study Records or documents.
8.2 Regulatory Correspondence. BPTD shall provide ViroPharma with a copy
of all correspondence between BPTD or any Affiliate and a Regulatory
Authority pertaining to the manufacturing of investigational EHD
Devices, Drug Containers, or assembly of Drug Inhalation Systems under
Section 5, including, without limitation, any Form 483s, or similar
notices or observations. BPTD shall provide ViroPharma with a copy of
any proposed response or correspondence to a Regulatory Authority that
relates directly or indirectly to the manufacturing of investigational
EHD Devices, Drug Containers, or assembly of Drug Inhalation Systems
under Section 5 for ViroPharma's approval at least five business days
before the submission of such response or correspondence.
8.3 Audits. At reasonable times and at reasonable intervals, ViroPharma or
a designee may inspect and audit BPTD's, or a BPTD Affiliate's
manufacturing of investigational EHD Devices, Drug Containers, or
assembly of Drug Inhalation Systems under Section 5. BPTD, or the BPTD
Affiliate shall make all documents and records available for review
and copying. BPTD or the BPTD Affiliate shall adopt reasonable
suggestions of ViroPharma or a designee to correct any deficiencies
identified in any site visit or audit.
9. LICENSE FEES AND ROYALTIES.
9.1 Milestone License Fees. In partial consideration for the licenses
granted to ViroPharma under this Agreement, ViroPharma shall pay BPTD
the following amounts in U.S. Dollars within the specified time period
after the occurrence of the specified events:
**********
_______________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 22
<PAGE>
9.2 Royalty Payments on ViroPharma Sales During Full Royalty Rate Period.
During the Full Royalty Rate Period, in partial consideration for the
licenses granted to ViroPharma under this Agreement, ViroPharma shall
pay BPTD the following amounts:
9.2.1 Marginal Rates. For each calendar year, or portion thereof,
in the Full Royalty Rate Period during which ViroPharma or
any of its Affiliates sells the Drug Inhalation System,
ViroPharma shall pay BPTD a royalty on the combined Net
Sales made by ViroPharma and its Affiliate of such Drug
Inhalation System units **********:
**********
9.2.2 Minimum Payments. In no event shall the payment under
Section 9.2.1 for the second or any subsequent full calendar
year during which ViroPharma or an Affiliate sells the Drug
Inhalation System be less than **********.
9.3 Royalty Payments on ViroPharma Sales During Reduced Royalty Period.
During the Reduced Royalty Rate Period, in partial consideration for
the know-how and trade secret licenses granted to ViroPharma under
this Agreement, ViroPharma shall pay BPTD, for each calendar year, or
portion thereof during which ViroPharma sells the Drug Inhalation
System, a royalty equal to ********** of the Net Sales made by
ViroPharma and its Affiliates of the Drug Inhalation System units.
9.4 Royalty Payments on Sublicensed Sales Outside the U.S.
9.4.1 In partial consideration for the licenses granted to
ViroPharma under this Agreement, for each calendar year, or
portion thereof during which a Third Party sublicensee of
ViroPharma or its Affiliates sells the Drug Inhalation
System outside the U.S. during the Full Royalty Rate Period,
ViroPharma shall pay BPTD an amount equal to **********, and
during the Reduced Royalty Rate Period, ViroPharma shall pay
BPTD an amount equal to ********** of ********** during each
calendar year or portion thereof for such Third Party
sublicensee's sales of, and/or right to sell Drug Inhalation
System units outside the U.S., including **********, but
excluding **********.
9.4.2 In partial consideration for the licenses granted to
ViroPharma under this Agreement, for each calendar year, or
portion thereof during which ViroPharma or its Affiliates
sells the Drug Inhalation System to a sublicensee for
intended sale outside the U.S. during the Full Royalty Rate
Period, ViroPharma shall pay BPTD an amount equal to
********** of
_______________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 23
<PAGE>
Net Sales to such sublicensee, and ********** of Net
Sales to such sublicensee during the Reduced Royalty Rate
Period.
9.5 Royalty Payments on Sublicensed Sales in the U.S. For purposes of
Sections 9.2-9.3, any sale in the U.S. of the Drug Inhalation System
by a Third Party sublicensee of ViroPharma shall be deemed a sale by
ViroPharma.
9.6 Reduction in Royalty Payments for Infringing Competition. If
infringing Competition, as defined below in this Section 9.6, exists
during a given calendar quarter during the Full Royalty Rate Period
for the Drug Inhalation System in a country, the royalty rates used to
calculate the royalties payable to BPTD for sales of the Drug
Inhalation System in such country during such calendar quarter will be
reduced to **********, retroactive to the first date that infringement
is determined to exist by agreement of the Parties, or pursuant to
Section 15.15. Infringing Competition shall be deemed to exist if,
during the applicable calendar quarter, each of the following is true:
9.6.1 one or more Third Parties is selling a pharmaceutical
product for electohydrodynamic inhalation delivery for use
in the Field that infringes a BPTD patent. If the parties
disagree as to whether or not such an infringement exists,
the matter shall be resolved in accordance with the terms of
Section 15.15;
9.6.2 BPTD has not filed suit against such Third Parties for
infringement of a BPTD Patent, and BPTD has not obtained a
discontinuance of such infringement by such Third Parties;
and
9.6.3 the sales of such competing products (measured on a unit
basis) accounts for ********** or more of the combined
market for the Drug Inhalation System and such competing
products in such country.
9.7 Sales Reports. Within forty-five days of the end of each calendar
quarter after the first commercial sale of the Drug Inhalation System
in any country, ViroPharma will provide BPTD with a report listing the
Net Sales of Drug Inhalation System units by country, to the extent
available; identifying whether such sales were made by ViroPharma
and/or an Affiliate, or by a Third Party sublicensee of ViroPharma
and/or an Affiliate and calculating the royalty due on such Net Sales
pursuant to this Section 9.
9.8 Payments.
9.8.1 Timing. The payment obligations under Sections 9.2-9.6 shall
accrue upon the sale of the Drug Inhalation System to a
Third Party purchaser, other than a Third Party Sublicensee
of ViroPharma and/or an Affiliate, by ViroPharma, its
Affiliates or sublicensees. Such a sale shall be deemed to
occur on the date of the invoice for such sale. Payment
obligations under
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 24
<PAGE>
Sections 9.2-9.6 that accrue during a calendar quarter shall
be payable within forty-five days after the end of such
calendar quarter.
9.8.2 Currency. All amounts due under this Agreement shall be
payable in the United States in U.S. Dollars. Net Sales in a
particular country outside the United States shall be
converted from the currency of the sale into U.S. Dollars at
the average daily rates of exchange for the four week period
immediately preceding the last week in such calendar quarter
as reported in the Wall Street Journal or some other source
agreeable to both Parties.
9.9 Records; Audits.
9.9.1 Record Keeping. ViroPharma shall keep, and shall require its
Affiliates and sublicensees to keep complete and accurate
records of all Net Sales, and ViroPharma shall obtain and
keep copies of such records sent by its Affiliates and
sublicensees. BPTD shall keep, and shall require its
Affiliates to keep complete and accurate records of all
costs of the manufacturing of investigational EHD Devices,
Drug Containers or assembly of Drug Inhalation Systems under
Section 5, and BPTD shall obtain and keep copies of such
records sent by its Affiliates.
9.9.2 Audits. Upon thirty days prior written notice from a Party
(the "Auditing Party"), the other Party (the "Audited
Party") shall permit an independent certified public
accounting firm of nationally recognized standing selected
by the Auditing Party and reasonably acceptable to the
Audited Party, to examine, at the Auditing Party's sole
expense, the relevant books and records of the Audited Party
and its Affiliates as may be reasonably necessary to verify
the accuracy of the calculation of sales and royalties under
Sections 9.2-9.6, and Recovery Costs of the manufacture of
investigational EHD Devices, Drug Containers or assembly of
Drug Inhalation Systems under Section 5. An examination by a
Party under this Section 9.9.2 shall occur not more than
once in any calendar year and shall be limited to the
pertinent books and records for any calendar year ending not
more than thirty-six months before the date of the request.
The accounting firm shall be provided access to such books
and records at the Audited Party's facility(ies) where such
books and records are normally kept and such examination
shall be conducted during the Audited Party's normal
business hours. The Audited Party may require the accounting
firm to sign a standard non-disclosure agreement before
providing the accounting firm access to the Audited Party's
facilities or records. Upon completion of the audit, the
accounting firm shall provide both Parties with a written
report disclosing whether the reports submitted by the
Audited Party are correct or incorrect, whether the
royalties under Sections 9.2-9.6, and Recovery Costs of the
manufacture of investigational EHD Devices, Drug Containers,
or assembly of Drug Inhalation Systems under Section 5, are
correct or incorrect, and, in each case, the specific
details
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 25
<PAGE>
concerning any discrepancies. No other information shall be
provided to the Auditing Party.
9.9.3 Underpayments/Overpayments. If the results of the audit
under Section 9.9.2 show that additional royalties were due
to BPTD, ViroPharma shall pay BPTD the additional royalties
together with interest at 1% per month (or the maximum
amount allowed by law, if less) from the day such amounts
were first due until paid, within thirty days of the date
ViroPharma receives the written audit report. If such
underpayment exceeds five percent of the royalties that were
to be distributed to BPTD, ViroPharma also shall reimburse
BPTD for the out-of-pocket expenses incurred in conducting
the audit. If the results of the audit under Section 9.9.2
show that ViroPharma overpaid BPTD for the Recovery Costs of
manufacturing under Section 5, BPTD will refund such
overpayments, together with interest at 1% per month (or the
maximum amount allowed by law, if less) from the day such
amounts were first paid by ViroPharma until reimbursed by
BPTD, within thirty days of the date BPTD receives the
written audit report. If such overpayment exceeds five
percent of the Recovery Costs that were to be paid to BPTD,
BPTD also shall reimburse ViroPharma for the out-of-pocket
expenses incurred in conducting the audit.
9.9.4 Confidentiality. All financial information of a Party which
is subject to review under this Section 9.9 shall be deemed
to be Confidential Information subject to the provisions of
Article 11, and such Confidential Information shall not be
disclosed to any Third Party or used for any purpose other
than verifying payments to be made by one Party to the other
hereunder, provided, however, that such Confidential
Information may be disclosed to Third Parties only to the
extent necessary to enforce a Party's rights under this
Agreement.
10. INTELLECTUAL PROPERTY.
10.1 Pre-existing Technology. ViroPharma shall remain the sole and
exclusive owner of the ViroPharma Patents and all Information,
copyrights, and trademarks owned or Controlled by ViroPharma at the
Effective Date, subject to the rights granted hereunder. BPTD shall
remain the sole and exclusive owner of the BPTD Patents and all
Information, copyrights, and trademarks owned or Controlled by BPTD at
the Effective Date, subject to the rights granted hereunder.
10.2 Inventions. ViroPharma shall own all ViroPharma Inventions and BPTD
shall own all BPTD Inventions, whether such Inventions are made solely
by either Party or jointly by the Parties. BPTD hereby irrevocably
assigns and transfers to ViroPharma, and to the extent that an
executory assignment is not enforceable, BPTD hereby agrees to assign
and transfer to ViroPharma, in writing, from time
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 26
<PAGE>
to time, upon request, any and all right, title and interest that BPTD
may have or may later acquire in the ViroPharma Inventions under
copyright, patent, trade secret and trademark law, in perpetuity or
for the longest period otherwise permitted by law, without the
necessity of further consideration. ViroPharma hereby irrevocably
assigns and transfers to BPTD, and to the extent that an executory
assignment is not enforceable, ViroPharma hereby agrees to assign and
transfer to BPTD, in writing, from time to time, upon request, any and
all right, title and interest that ViroPharma may have or may later
acquire in the BPTD Inventions under copyright, patent, trade secret
and trademark law, in perpetuity or for the longest period otherwise
permitted by law, without the necessity of further consideration.
10.3 Prosecution and Maintenance of Patents; Abandonment.
10.3.1 Primary Responsibility. ViroPharma shall have the sole right
and responsibility to file, prosecute and maintain the
ViroPharma Patents, and to file Patents on ViroPharma
Inventions, and shall bear all expenses associated
therewith. BPTD shall have the sole right and responsibility
to file, prosecute and maintain the BPTD Patents, and to
file Patents on BPTD Inventions, and shall bear all expenses
associated therewith. Each Party will keep the other Party
reasonably apprised of the filing, prosecution and
maintenance status of the Party's respective Patents
referred to in this Section 10.3.1.
10.3.2 Abandonment. BPTD shall use Diligent Efforts to initially
file those BPTD Patents owned by BPTD (or foreign
equivalents thereof) in the countries identified in Exhibit
F to the extent such filing is permitted under the
applicable patent laws. BPTD shall use Diligent Efforts to
prosecute and maintain those BPTD Patents owned by BPTD (or
foreign equivalents thereof) in the countries listed in
Exhibit F in which it has chosen to prosecute and maintain
such Patents to the extent such prosecution is permitted
under the applicable patent laws. If BPTD decides to refrain
from filing, or to abandon prosecution or maintenance of a
particular BPTD Patent whose claims relate generically or
specifically to the Drug Inhalation System in any country,
ViroPharma may request that ViroPharma have the right to
continue such prosecution and/or maintenance, which request
BPTD will reasonably consider, provided that BPTD need not
in any event grant any such request if BPTD has a strategic
reason, with respect to its prosecution strategy for its
Patents, for abandoning such Patent (which reason may not
include simply cost savings). If BPTD grants ViroPharma's
request, ViroPharma may continue the prosecution and
maintenance of such BPTD Patent, at ViroPharma's expense,
provided that ViroPharma keeps BPTD reasonably informed of
the progress of any such prosecution.
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 27
<PAGE>
10.4 Third Party Patent Licenses.
10.4.1 Procedures. If either Party reasonably believes that the
manufacture, use, sale, offering for sale, import, or export
of the Drug Inhalation System may infringe a Patent owned by
a Third Party, then such Party will provide the other Party
all Information in its possession relating to such belief.
Promptly thereafter, the Parties shall meet to discuss in
good faith the appropriate steps to take to address such
possible infringement, which may include, without
limitation:
a. negotiating and entering into a license agreement with
such Third Party that grants the Parties the right to
continue making, importing, using, selling and/or
offering for sale the Drug Inhalation System,
b. modifying the Drug Inhalation System so that the
Parties believe it no longer infringes, or
c. proceeding without any change based on a reasonable
analysis that the Drug Inhalation System does not
infringe and/or such Patent is not valid or
enforceable.
10.4.2 Costs of License. If the Parties decide to obtain a license
pursuant to Section 10.4.1(a), then ViroPharma shall be
solely responsible for the payment of all consideration for
such license if the Drug is the basis for the infringement,
BPTD shall be solely responsible for the payment of all
consideration for such license if the EHD Device, the Drug
Vehicle, or the Drug Container is the basis for the
infringement, and the Parties shall share equally the
responsibility for payment of all consideration for such
license if the Formulated Drug is the basis for the
infringement. If the EHD Device, the Drug Vehicle, the
Formulated Drug, or the Drug Container is the basis for the
infringement, and if the Parties do not agree that
proceeding under Section 10.4.1(c) is prudent and BPTD is
unwilling or unable to make the modifications described in
Section 10.4.1(b), and BPTD elects not to enter into a
license agreement with such third party pursuant to Section
10.4.1(a), then ViroPharma may enter into such agreement,
and all amounts paid by ViroPharma thereunder, or half of
such amounts if the basis for infringement is the Formulated
Drug, shall be creditable against amounts payable to BPTD
under this Agreement.
10.4.3 Cost of Royalties. If the Parties agree to obtain a license
pursuant to Section 10.4.1(a) for the manufacture, import,
use, sale or offering for sale of the Drug Inhalation
System, or if the Parties are required to pay royalties or
other consideration to a Third Party to settle or otherwise
resolve a Patent infringement suit alleging Patent
infringement by the Drug Inhalation System:
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 28
<PAGE>
a. all royalties based on the manufacture, import, use,
sale, or offer for sale of the EHD Device, the Drug
Vehicle, or the Drug Container shall be paid by BPTD;
b. all royalties based on the manufacture, import, use,
sale, or offer for sale of the Drug shall be paid by
ViroPharma;
c. each Party shall pay half of all royalties based on the
manufacture, import, use, sale, or offer for sale of
the Formulated Drug.
10.5 Defense of Third Party Patent Claims.
10.5.1 Third Party Claims Regarding BPTD Products.
ViroPharma shall promptly notify BPTD in writing
of any action against ViroPharma based on alleged
infringement of a Third Party's Patent by the EHD
Device, the Drug Vehicle, or the Drug Container.
BPTD shall defend any claim or action by a Third
Party against ViroPharma and/or BPTD based on a
claim that the EHD Device, the Drug Vehicle, or
the Drug Container infringes a Patent that is
owned or controlled by such Third Party.
ViroPharma shall give BPTD control of the defense
thereof (and any negotiations for settlement or
compromise thereof) and will cooperate fully in
the defense thereof. BPTD shall not settle or
compromise any such claim or action without
ViroPharma's prior written consent, if such
settlement or compromise would impose on
ViroPharma any obligation to pay or incur any
costs or expenses. If BPTD does not undertake the
defense of an action against ViroPharma hereunder
within fifteen days of notice to BPTD of such
claim, then ViroPharma shall have the full right
to defend itself, using counsel of its own
choosing, against such claim, including any
negotiations for settlement or compromise thereof,
and BPTD shall reimburse ViroPharma for all
reasonable costs and expenses of such defense.
10.5.2 Third Party Claims Regarding ViroPharma Products.
BPTD shall promptly notify ViroPharma in writing
of any action against BPTD based on alleged
infringement of a Third Party's Patent by the Drug
or Formulated Drug. ViroPharma shall defend any
claim or action by a Third Party against
ViroPharma and/or BPTD based on a claim that the
Drug or Formulated Drug infringes a Patent that is
owned or controlled by such Third Party. BPTD
shall give ViroPharma control of the defense
thereof (and any negotiations for settlement or
compromise thereof) and will cooperate fully in
the defense thereof. ViroPharma shall not settle
or compromise any such claim or action without
BPTD's prior written consent, if such settlement
or compromise would impose on BPTD any obligation
to pay or incur any costs or expenses. If
ViroPharma does not undertake the defense of an
action against BPTD hereunder within fifteen
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 29
<PAGE>
days of notice to ViroPharma of such claim, then
BPTD shall have the full right to defend itself,
using counsel of its own choosing, against such
claim, including any negotiations for settlement
or compromise thereof, and ViroPharma shall
reimburse BPTD for all reasonable costs and
expenses of such defense.
10.6 Enforcement of Patent Rights. If any BPTD Patent or ViroPharma
Patent is infringed by a Third Party in any country, the Party to
this Agreement first having knowledge of such infringement shall
promptly notify the other in writing. The notice shall set forth
the facts of that infringement in reasonable detail. BPTD shall
have the primary right, but not the obligation, to institute,
prosecute, and control any action or proceeding with respect to
such infringement of a BPTD Patent by counsel of its own choice
and at its expense, and ViroPharma shall have the primary right,
but not the obligation, to institute, prosecute, and control any
action or proceeding with respect to such infringement of a
ViroPharma Patent by counsel of its own choice and at its
expense.
10.7 Patent Certifications. Each Party shall immediately give written
notice to the other of any certification of which it becomes
aware filed pursuant to 21 U.S.C. (S) 355(b)(2)(A), or (S)
355(j)(2)(A)(vii) (or any amendment or successor statute thereto)
claiming that any Patent covering the Drug Inhalation System is
invalid or that infringement will not arise from the manufacture,
use or sale of the Drug Inhalation System by a Third Party.
10.8 Trademarks and Tradenames Generally. ViroPharma will select and
own the trademarks or tradenames to be used by ViroPharma for the
Drug Inhalation System. Neither Party nor its Affiliates shall
adopt, use, or register any acronym, trademark, tradename,
service mark or other marketing name that is the same as or
confusingly similar to any acronym, trademark, tradename, service
mark or other marketing name used by the other Party or its
Affiliates except to the extent such adoption, use or
registration was in process prior to the Effective Date.
11. EXCHANGE OF INFORMATION, CONFIDENTIALITY AND PUBLICATION.
11.1 Exchange Of Information. Promptly after the Effective Date, BPTD
shall disclose and supply to ViroPharma all Information relating
to the EHD Device, the Drug Vehicle, the Formulated Drug and the
Drug Container, to the extent known to and legally disclosable by
BPTD, that is necessary to enable ViroPharma to fully carry out
all of its rights and obligations under this Agreement.
Thereafter, during the term of the Agreement, BPTD shall promptly
disclose and supply to ViroPharma any further Information meeting
the foregoing requirements that may have become known to BPTD
during such time. For clarification, the foregoing obligation
shall not require BPTD to disclose proprietary Information except
as reasonably required to implement the licenses granted to
ViroPharma.
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 30
<PAGE>
11.2 Confidentiality. Except as otherwise provided in this Article 11,
during the term of this Agreement and for a period of five years
thereafter, each Party shall maintain in confidence and shall use only
for purposes of this Agreement all Confidential Information disclosed
by the other Party under the Agreement, except as may be otherwise
provided herein. Notwithstanding the foregoing, a Party may disclose
the other Party's Confidential Information to those of its Affiliates,
Permitted Sublicensees (as defined in Section 11.3), directors,
officers, employees, agents, consultants and clinical investigators
that have a need to know such Information in order to achieve the
purposes of this Agreement, provided that such Party obtains prior
agreement from such disclosees to hold in confidence and not make use
of such Confidential Information for any purpose other than those
permitted by this Agreement. Each Party will promptly notify the other
upon discovery of any unauthorized use or disclosure of the
Confidential Information. Any breech of this obligation of
Confidentiality by an Affiliate, Permitted Sublicensee, director,
officer, employee, agent, consultant or clinical investigator of a
Party shall be deemed a breech by that Party.
11.3 Authorized Disclosure. Each Party may disclose Confidential
Information of the other Party to Third Parties solely to the extent
such disclosure is reasonably necessary in filing or prosecuting
patent applications, prosecuting or defending litigation, applying for
and obtaining Regulatory Approvals or complying with applicable laws,
governmental regulations or court orders, provided that such Party
will give reasonable advance notice to the other Party of such
disclosure requirement and shall give the other Party sufficient
opportunity to object to such disclosure or to secure confidential
treatment of such Confidential Information required to be disclosed to
the extent that such is available. Either Party may disclose (subject
to the confidentiality restrictions contained herein) Confidential
Information to Third Parties to the extent necessary to perform its
obligations or exercise its rights under this Agreement, provided such
Third Parties execute confidentiality agreements containing terms no
less strict than those contained herein (a "Permitted Sublicensee").
Further, nothing in this Article 11 shall be construed as preventing
or in any way inhibiting either Party from complying with statutory
and regulatory requirements governing the development, manufacture,
use and sale or other distribution of the Drug Inhalation System in
any manner consistent with the terms of this Agreement, provided that
any such compliance that requires disclosing to regulatory authorities
confidential or other information received from the other Party may be
made only if such Party provides reasonable advance notice of such
disclosure to the other Party and makes reasonable efforts to obtain
confidential treatment of such confidential information if requested
by the other Party to the extent that such is available.
11.4 Publication. BPTD shall not submit for written or oral publication any
manuscript, abstract or the like which includes data or other
information relating directly or indirectly to the Drug Inhalation
System or any part of it without first obtaining the prior written
consent of ViroPharma, which consent shall not be
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 31
<PAGE>
unreasonably withheld. ViroPharma shall not submit for written or oral
publication any manuscript, abstract or the like which includes data
or other information relating directly or indirectly to the EHD
Device, Vehicle or Drug Container without first obtaining the prior
written consent of BPTD, which consent shall not be unreasonably
withheld. The Parties agree to review and comment within thirty
working days on any such draft publication. Each Party shall use its
Diligent Efforts to bind the clinical investigators and other agents
it utilizes for the Development of the Drug Inhalation System to a
provision similar to this Section, provided that it is understood that
a Party's inability to bind a clinical investigator to such a similar
provision shall not prohibit such party from utilizing such clinical
investigator. The contribution of each Party shall be noted in all
publications or presentations by acknowledgment or coauthorship,
whichever is appropriate.
11.5 Confidentiality Issues In Bankruptcy. In the event that a court
or other legal or administrative tribunal, directly or through an
appointed master, trustee or receiver, assumes partial or complete
control over the assets of a Party to this Agreement based on the
insolvency or bankruptcy of such Party, the bankrupt or insolvent
Party shall promptly notify the court or other tribunal: (a) that
Confidential Information received from the other Party under this
Agreement remains the property of the other Party and (b) of the
confidentiality obligations under this Agreement with respect to such
information. In addition, the bankrupt or insolvent Party shall, to
the extent permitted by law, take all steps necessary or desirable to
maintain the confidentiality of the other Party's Confidential
Information and to seek to ensure that the court, other tribunal or
appointee maintains such information in confidence in accordance with
the terms of this Agreement.
12. REPRESENTATIONS & WARRANTIES.
12.1 Representations and Warranties of the Parties. Each of ViroPharma and
BPTD represents and warrants to the other that:
12.1.1 It is duly organized and validly existing and in good
standing under the laws of its organization or formation, and
has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.
12.1.2 It is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder.
12.1.3 This Agreement is a legal and valid obligation binding upon
it and enforceable in accordance with its terms, except to
the extent limited by applicable bankruptcy and creditor's
rights laws. The execution, delivery and performance of this
Agreement by it does not conflict with any
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 32
<PAGE>
agreement, instrument or understanding, oral or written, to
which it is a party or by which it may be bound, nor violate
any material law or regulation of any court, governmental
body or administrative or other agency having jurisdiction
over it.
12.1.4 It has obtained all necessary consents, approvals and
authorizations of all governmental authorities and other
entities and persons required to be obtained by it in
connection with entry into this Agreement.
12.1.5 No agreement between it and a Third Party in existence as of
the Effective Date would prevent it from performing its
obligations under this Agreement or granting to the other
Party the rights granted hereunder, and it shall not enter
into any such Third Party agreement that would prevent it
from performing its obligations under this Agreement or
granting to the other Party the rights granted hereunder.
12.2 Additional Representation and Warranties of BPTD. BPTD represents and
warrants to ViroPharma that:
12.2.1 To the best of BPTD's knowledge, as of the Effective Date,
the manufacture, use or sale of the EHD Device, the Drug
Vehicle, or the Drug Container will not violate the
intellectual property rights of any Third Party, and BPTD has
no present knowledge from which it reasonably can be inferred
that any BPTD Patent is invalid.
12.2.2 BPTD has no present knowledge of the existence of any pre-
clinical or clinical data or information concerning the EHD
Device, the Drug Vehicle, or the Drug Container that BPTD has
not provided to ViroPharma that suggests that there may exist
quality, toxicity, safety and/or efficacy concerns that may
materially impair the utility and/or safety of the EHD
Device, the Drug Vehicle, or the Drug Container in the Field;
12.2.3 BPTD shall use Diligent Efforts in performing all Development
Activities;
12.2.4 at the time of delivery of any unit of the investigational
Drug Inhalation System, any part of such unit that BPTD or a
BPTD Affiliate manufactured shall conform in all material
respects to the Specifications, and federal, state and local
laws and regulations, and shall be free from material defects
in materials and workmanship;
12.2.5 the term "condition" as used in Section 1.31(a)(iii),
includes but is not limited to infancy and elderly;
12.2.6 BPTD has the full right, power, and authority to grant
ViroPharma all the right, title, and interest in the license
described in Section 2.1.1 for each
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 33
<PAGE>
BPTD Patent included in Exhibit A as such Exhibit A exists on
the Effective Date; and
12.2.7 only those BPTD Patents designated with an asterisk in
Exhibit A as such Exhibit A exists on the Effective Date are
subject to the Retained Rights.
12.3 DISCLAIMER. EXCEPT FOR THE EXPRESS WARRANTIES AND REPRESENTATIONS
CONTAINED IN THIS AGREEMENT, NEITHER VIROPHARMA NOR BPTD MAKES, AND
EACH HEREBY EXPRESSLY DISCLAIMS, ANY WARRANTIES OR REPRESENTATIONS,
EITHER EXPRESS OR IMPLIED, WHETHER IN FACT OR IN LAW, INCLUDING
WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
12.4 Certain Additional Covenants.
12.4.1 BPTD shall pay all royalties or other sums that BPTD may owe
to any Third Party by virtue of its activities under this
Agreement, and shall perform and observe all of the other
material obligations under all present and future agreements
between BPTD and any Third Party that are in any way related
to BPTD's ability to grant the rights BPTD has granted to
ViroPharma under this Agreement or to BPTD's ability to
perform its obligations to ViroPharma under this Agreement.
If BPTD receives notice from any such Third Party that BPTD
has committed a breach of its obligations under any such
agreement, or if BPTD anticipates such breach, which breach
may give rise to a right by such Third Party to terminate or
materially diminish BPTD's rights to Patents and/or
Information in the Field licensed to BPTD, which Patents
and/or Information are sublicensed to ViroPharma hereunder,
or otherwise to diminish materially BPTD's ability to perform
its obligations to ViroPharma under this Agreement, BPTD
shall immediately notify ViroPharma of such situation, and
BPTD shall promptly cure such breach. However, if BPTD is
unable to cure such breach, BPTD shall, to the extent
possible, permit ViroPharma to cure such breach on BPTD's
behalf.
12.4.2 BPTD agrees that, without the prior written approval of
ViroPharma, BPTD and its Affiliates shall not knowingly
conduct any development work, either themselves or in
conjunction with any other licensees or partners, on the EHD
Device, the Drug Vehicle, the Formulated Drug, the Drug, or
the Drug Container for use in the Field; provided that the
foregoing shall not be interpreted to prevent BPTD or its
Affiliates or other licensees from developing other BPTD
pulmonary drug delivery products for use outside the Field.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 34
<PAGE>
12.5 Representation by Legal Counsel. Each Party hereto represents
that it has been represented by legal counsel in connection
with this Agreement and acknowledges that it has participated
in the drafting hereof. In interpreting and applying the
terms and provisions of this Agreement, the Parties agree
that no presumption shall exist or be implied against the
Party that drafted such terms and provisions.
13. INDEMNIFICATION.
13.1 Indemnification by BPTD. BPTD shall indemnify, defend and
hold ViroPharma, its directors, employees, agents and
representatives (including but not limited to ViroPharma's
Affiliates and sublicensees) harmless from and against all
claims, causes of action, settlement costs (including but not
limited to reasonable attorney's fees and expenses) losses or
liabilities of any kind which (a) arise from or are
attributable to any negligent act or omission or willful
misconduct on the part of BPTD, its directors, employees,
agents or representatives relating to any of its obligations
under this Agreement, including, but not limited to any
breach of a representation or warranty; or (b) arise from or
are attributable to a defect in the EHD Device, the Drug
Container or the Drug Vehicle or in the manufacture of the
EHD Device, the Drug Container or the Drug Vehicle where such
manufacture is under the control of BPTD, and which in either
case are not otherwise attributable to any negligent act or
omission or willful misconduct on the part of ViroPharma, its
directors, employees, agents or representatives (including,
but not limited to ViroPharma's Affiliates).
13.2 Indemnification by ViroPharma. ViroPharma shall indemnify,
defend and hold BPTD, its directors, employees, agents and
representations harmless from and against all claims, causes
of actions, settlement costs (including but not limited to
reasonable attorney's fees and expenses) losses or
liabilities of any kind which: (a) arise from or are
attributable to any negligent act or omission or willful
misconduct on the part of ViroPharma, its directors,
employees, agents or representatives relating to any of its
obligations under this Agreement; or (b) arise from or are
attributable to the labeling, distribution, use, sale,
marketing and promotion of the Drug Inhalation System or
manufacturing of the Drug Inhalation System or its components
where such manufacturing is under the control of ViroPharma,
and which in either case are not otherwise attributable to
any negligent act or omission or willful misconduct on the
part of BPTD, its directors, employees, agents or
representatives (including, but not limited to BPTD's
Affiliates).
13.3 Indemnity Procedure. If a Party seeks indemnification under
Section 13.1 or 13.2, it shall inform the other Party (the
"Indemnifying Party") of a claim as soon as reasonably
practicable after it receives notice of the claim, shall
permit the Indemnifying Party to assume direction and control
of the defense of the claim (including the right to settle
the claim solely for monetary consideration), and, at
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 35
<PAGE>
the Indemnifying Party's expense, shall cooperate as
reasonably requested in the defense of the claim. The
Indemnified Party shall have the right to retain its own
counsel, subject to the approval of any such outside counsel
by the Indemnifying Party, with the fees and expenses to be
paid by the Indemnifying Party if representation of such
Party by the counsel retained by Indemnifying Party would be
inappropriate due to actual or potential differing interests
between such indemnitee and any other party represented by
such counsel in such proceedings. The Indemnifying Party may
not settle such action or claim, or otherwise consent to an
adverse judgment in such action or claim, without the express
written consent of the Indemnified Party if such settlement
or adverse judgment diminishes the rights or interests of the
Indemnified Party.
13.4 LIMITATION OF LIABILITY. IN NO EVENT, NOT WITHSTANDING ANY
PROVISION OF THIS AGREEMENT TO THE CONTRARY, SHALL EITHER
PARTY, ITS DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES, AGENTS
OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A
CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT
LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS
AGREEMENT.
13.5 Insurance. Each Party hereby agrees to maintain, during the
term of this Agreement, insurance with reputable and sound
independent insurers at commercially reasonable levels of
coverage in relation to the type, scope and size of business
it conducts and to all its obligations herein contained and
shall give the other Party an opportunity from time to time
to review the insurance policies so that the other Party may
satisfy itself that such insurance policies are valid, that
the premiums are being paid regularly and that the policies
are kept in full force and effect. Each Party shall, upon the
other Party's reasonable request from time to time, produce
evidence that all insurance premiums have been paid and kept
up to date and are kept in accordance with any local
insurance laws or regulations from time to time in force.
Each Party will, at the request of the other Party, name the
other Party and its Affiliates as additional insureds as
applicable on all liability insurance policies, including,
but not limited to, product liability, products and
clinicians, malicious product tampering and general liability
policies and will obtain for the other Party an endorsement
that such insurance shall not be cancelled without thirty
days prior written notice to the other Party. A Party's
liability to the other is in no way limited to the extent of
the Party's insurance coverage. In the event of duplicate
coverage, the insurance policy of the Party whose fault
causes the need for reimbursement under an insurance policy
shall be primary and the other Party's secondary.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 36
<PAGE>
14. TERM OF AGREEMENT AND TERMINATION.
14.1 Term. Unless earlier terminated as provided herein, this
Agreement shall expire on the expiration of the last to
expire Reduced Royalty Rate Period for the Drug Inhalation
System.
14.2 Termination for Material Breach. A non defaulting Party shall
have the right to terminate this Agreement after written
notice to the other that the other is in material breach of
this Agreement (the "Defaulting Party"), unless the
Defaulting Party cures the breach before the expiration of
ninety days - thirty days in the case of a delayed payment -
after such written notice.
14.3 Termination by ViroPharma. ViroPharma may terminate this
Agreement at any time effective upon thirty (30) days written
notice to BPTD and payment of any amounts due as of the date
of notice of termination, including direct costs to terminate
commitments and work in process authorized through open Work
Orders that cannot be avoided through reasonable commercial
efforts.
14.4 Termination for Bankruptcy. Either Party may terminate this
Agreement if, at any time, the other Party shall file in any
court or agency pursuant to any statute or regulation of any
state or country, a petition in bankruptcy or insolvency or
for reorganization or for an arrangement or for the
appointment of a receiver or trustee of the Party or of its
assets, or if the other Party proposes a written agreement of
composition or extension of its debts, or if the other Party
shall be served with an involuntary petition against it,
filed in any insolvency proceeding, and such petition shall
not be dismissed within sixty days after the filing thereof,
or if the other Party shall propose or be a party to any
dissolution or liquidation, or if the other Party shall make
an assignment for the benefit of creditors.
14.5 Consequences of Termination. Upon the expiration or any
termination of this Agreement, (i) all licenses under this
Agreement shall be terminated, except as expressly provided
under this Agreement, including, without limitation, Sections
14.8 and 2.1; and (ii) each Party shall destroy and shall not
retain any copies of any Confidential Information provided by
the other Party hereunder, except for one copy to be retained
by legal counsel solely for archival purposes.
Notwithstanding anything in this Agreement to the contrary,
in the event of the termination or expiration of this
Agreement, ViroPharma shall have a continuing right to sell
under this Agreement for a period of ********** days
following termination, such amount of EHD Devices or Drug
Containers remaining in its inventory.
14.6 Accrued Rights, Surviving Obligations. Termination or
expiration of this Agreement shall not affect any rights to
payment or other rights that accrued before the date of
termination or expiration. The terms of the following
Articles and Sections shall survive any termination of this
Agreement: 2.1.2, 2.3.2-2.3.3, 2.4, 3.5.3, 7.5-7.6, 9.9,
10.1, 10.2, 10.5, 10.7, 11, 12, 13, 14.5, 14.6, 14.8.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 37
<PAGE>
14.7 Financial Status; Rights in Event of Financing Difficulties.
BPTD and ViroPharma agree to keep each other informed as to
its financial condition during the term of this Agreement. If
at any time the financial resources of BPTD or ViroPharma are
not reasonably sufficient to enable it to continue to meet
its obligations hereunder for at least the next six months,
the parties will meet to review and consider steps that might
be taken to ensure that the other party will be able to
perform its obligations under this Agreement.
14.8 Rights In Event of Bankruptcy.
14.8.1 Notwithstanding the bankruptcy of BPTD, or the impairment of
performance by BPTD of its obligations under this Agreement
as a result of bankruptcy or insolvency of BPTD, ViroPharma
shall be entitled to retain the license rights and licenses
granted herein, subject to ViroPharma's performance of all
its obligations under the Agreement and to BPTD's rights to
terminate this Agreement for reasons other than bankruptcy or
insolvency as expressly provided in this Agreement.
14.8.2 All rights and licenses granted under or pursuant to this
Agreement are, for all purposes of Section 365(n) of Title 11
of the United States Code ("Title 11"), licenses of rights to
"intellectual property" as defined in Title 11. Each Party
agrees that the other Party, as licensee of such rights under
this Agreement shall retain and may fully exercise all of its
rights and elections under Title 11. Each Party shall during
the Term of this Agreement create and maintain current copies
or, if not amenable to copying, detailed descriptions or
other appropriate embodiments, to the extent feasible, of all
such intellectual property. If a case is commenced by or
against a Party under Title 11 (the "Affected Party"), the
Affected Party (in any capacity, including debtor-in-
possession) and its successors and assigns (including,
without limitation, a Title 11 Trustee) shall:
a. as the other Party may elect in a written request,
immediately upon such request:
i. perform all of the obligations provided in this
Agreement to be performed by the Affected Party
including, where applicable and without limitation,
providing to the other Party portions of such
intellectual property (including embodiments
thereof) held by the Affected Party and such
successors and assigns or otherwise available to
them; or
ii. provide to the other Party all such intellectual
property (including all embodiments thereof) held
by the Affected Party and such successors and
assigns or otherwise available to them; and
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 38
<PAGE>
b. not interfere with the rights of the other Party under
this Agreement, or any agreement supplemental hereto, to
such intellectual property (including such embodiments),
including any right to obtain such intellectual property
(or such embodiments) from another entity.
14.8.3 If a Title 11 case is commenced by or against the Affected
Party, and this Agreement is rejected as provided in Title
11, and the other Party elects to retain its rights hereunder
as provided in Title 11, then the Affected Party (in any
capacity, including debtor-in-possession) and its successors
and assigns (including, without limitation, a Title 11
Trustee) shall provide to the other Party all such
intellectual property (including all embodiments thereof)
held by the Affected Party and such successors and assigns,
or otherwise available to them, immediately upon the other
Party's written request. Whenever the Affected Party or any
of its successors or assigns provides to the other Party any
of the intellectual property licensed hereunder (or any
embodiment thereof) pursuant to this Section 13.8, the other
Party shall have the right to perform the obligations of the
Affected Party hereunder with respect to such intellectual
property, but neither such provision nor such performance by
the other Party shall release the Affected Party from any
such obligation or liability for failing to perform it.
14.8.4 All rights, powers and remedies of the other Party provided
herein are in addition to and not in substitution for any and
all other rights, powers and remedies now or hereafter
existing at law or in equity (including, without limitation,
Title 11) in the event of the commencement of a Title 11 case
by or against the Affected Party. The other Party, in
addition to the rights, power and remedies expressly provided
herein, shall be entitled to exercise all other such rights
and powers and resort to all other such remedies as may now
or hereafter exist at law or in equity (including, without
limitation, Title 11) in such event. The Parties agree that
they intend the foregoing rights to extend to the maximum
extent permitted by law, including, without limitation, for
purposes of Title 11:
a. the right of access to any intellectual property
(including all embodiments thereof) of the Affected
Party, or any third party with whom the Affected Party
contracts to perform an obligation of the Affected Party
under this Agreement, and, in the case of the Third
Party, which is necessary for the development,
registration, manufacture and marketing of Drug
Inhalation Systems; and
b. the right to contract directly with any Third Party
described in 14.8.4(a) to complete the contracted work.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 39
<PAGE>
15. MISCELLANEOUS.
15.1 Press Releases; Disclosure of Agreement. No public announcement
or other disclosure to Third Parties concerning the terms of
this Agreement shall be made, either directly or indirectly, by
either Party to this Agreement, except as may be legally
required or as may be required by the terms of that certain
license agreement between Battelle Memorial Institute and
Electrosols, Ltd. dated March 29, 1999, and as may be required
for recording purposes, without first obtaining the written
approval of the other Party and agreement upon the nature and
text of such announcement or disclosure. The Party desiring to
make any such public announcement or other disclosure shall
inform the other Party of the proposed announcement or
disclosure in reasonably sufficient time prior to public
release, and shall provide the other Party with a written copy
thereof, in order to allow such other Party to comment upon
such announcement or disclosure. Each Party agrees that it
shall cooperate fully with the other with respect to all
disclosures regarding this Agreement to the Securities Exchange
Commission and any other governmental or regulatory agencies,
including requests for confidential treatment of proprietary
information of either Party included in any such disclosure.
15.2 Recordation. Subject to compliance with all confidentiality
obligations of ViroPharma under this Agreement, ViroPharma
shall have the right, at any time, to record or register this
Agreement in appropriate governmental or regulatory offices
anywhere in the world, and BPTD shall provide reasonable
assistance to ViroPharma in effecting such recording or
registration, provided that ViroPharma shall take appropriate
measures available to protect the confidentiality of the terms
of the Agreement.
15.3 Entire Agreement; Amendment. This Agreement, and the existing
Confidentiality Agreements between the Parties related to the
subject matter of this Agreement, sets forth the terms of the
collaboration agreement between the Parties hereto and, except
as otherwise set forth herein, supersedes and terminates all
prior representations, agreements and understandings between
the Parties regarding the subject matter hereof. Any
modification of this Agreement shall be effective only when in
writing and signed by the Parties, and specifically stating
that it is an amendment to this Agreement.
15.4 Assignment. This Agreement and the licenses and rights herein
granted shall be binding upon and inure to the benefit of the
successors in interest of the respective Parties. Neither Party
may assign or transfer this Agreement or any rights or
obligations hereunder without the prior written consent of the
other Party, which consent shall not be unreasonably withheld,
except that a Party may make such an assignment without the
other Party's consent to Affiliates or to a successor to all or
substantially all of the related business assets of such Party
relating to this Agreement, whether by way of a merger, sale of
stock, sale of assets or other similar transaction.
- --------------------------------------------------------------------------------
November 19, 1999 ViroPharma-BPTD Agreement Page 40
<PAGE>
15.5 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this
Agreement and shall be effective on receipt, as evidenced in writing,
when given by registered airmail or overnight courier and addressed,
unless otherwise specified in writing, to the addresses of the
Parties described below:
For BPTD: Battelle Pulmonary Therapeutics Division
Attention: Dennis Cearlock
505 King Avenue
Columbus, Ohio 43201-2693
FAX (614) 424-3622
With a copy to: Robert L. Zieg (same address)
FAX (614) 424-3864
For ViroPharma: ViroPharma Incorporated
405 Eagleview Boulevard
Exton, PA 19341
FAX: (610) 458-7380
Attention: Jeffrey Hincks, Ph.D.
With a copy to: ViroPharma Incorporated
405 Eagleview Boulevard
Exton, PA 19341
FAX: (610) 458-7380
Attention: General Counsel
15.6 Severability. If any Article or part thereof of this Agreement is
declared invalid by any court of competent jurisdiction, or any
government or other agency having jurisdiction over either BPTD or
ViroPharma deems any Article or part thereof to be contrary to any
anti-trust or competition laws then such declaration shall not affect
the remainder of the Article or other Articles. To the extent
possible the Parties shall revise such invalidated Article or part
thereof in a manner that will render such provision valid without
impairing the Parties' original intent. In the event a Party's rights
are materially affected as a result of a change in this Agreement
under this Paragraph, the Parties will renegotiate the terms and
conditions of this Agreement to resolve any inequities.
15.7 Force Majeure. Except as otherwise provided herein, no Party shall be
in breach of this Agreement, or liable to the other Party, for any
delay or failure of performance to the extent such delay or failure
is caused by circumstances beyond its reasonable control and that by
the exercise of Diligent Efforts it is unable to
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 41
<PAGE>
prevent, provided that the party claiming excuse uses its Diligent
Efforts to overcome the same.
15.8 Expenses. Except as otherwise provided in the Agreement, all expenses
incurred by ViroPharma in connection with its obligations under this
Agreement will be borne solely by ViroPharma and all expenses
incurred by BPTD in connection with its obligations under this
Agreement will be borne solely by BPTD. Each Party will be
responsible for appointing its own employees, agents and
representatives, who will be compensated by such Party. Each Party
will be responsible for paying any finder's or broker's fee owed to a
Third Party that such Party incurs based directly or indirectly on
negotiating and entering this Agreement, and shall indemnify the
other Party against any obligation to pay such fee.
15.9 Non-Waiver. The failure of a Party in any one or more instances to
insist upon strict performance of any of the terms and conditions of
this Agreement shall not be construed as a waiver or relinquishment,
to any extent, of the right to assert or rely upon any such terms or
conditions on any future occasion.
15.10 Disclaimer of Agency; Relationship of the Parties. This Agreement
shall not render either Party the legal representative or agent of
the other, nor shall either Party have the right or authority to
assume, create, or incur any Third Party liability or obligation of
any kind, express or implied, against or in the name of or on behalf
of another except as expressly set forth in this Agreement. The
relationship between BPTD and ViroPharma under this Agreement is that
of independent contractors. BPTD and ViroPharma are not joint
venturers, partners, principal and agent, master and servant,
employer or employee, and have no relationship other than as
independent contracting Parties. Neither Party shall have any
responsibility for the hiring, firing, compensation or employee
benefits of the other Party's employees.
15.11 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as
may be necessary or appropriate in order to carry out the purposes
and intent of the Agreement.
15.12 Governing Law. This Agreement will be governed by and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania, without
regard to the choice of law doctrines of Pennsylvania or any other
jurisdiction.
15.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which
shall constitute together the same document.
15.14 Debarment. Each Party certifies that none of its directors, officers,
employees, consultants or agents, nor any of its Affiliates'
directors, officers, employees, consultants or agents have been
debarred, nor have they been engaged in any acts
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 42
<PAGE>
that could serve as the basis for debarment under the Generic Drug
Enforcement Act.
15.15 Dispute Resolution. In the event the parties cannot resolve any
controversy or claim arising out of or relating to this Agreement or
the breach thereof, such controversy or claim shall be settled by a
sole neutral through a binding, non-reviewable and non-appealable
alternative dispute resolution process in accordance with the then
existing Non-Administered Arbitration Rules of the CPR Institute for
Dispute Resolution, 366 Madison Avenue, New York, New York 10017-
3122. The neutral's award may be entered in any court having final
jurisdiction.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of
the date first above written.
BATTELLE MEMORIAL INSTITUTE- VIROPHARMA INCORPORATED
COLUMBUS OPERATIONS
By: /s/ Dennis B. Cearlock By: /s/ Claude H. Nash
Name: Dennis B. Cearlock Name: Claude H. Nash
Its: Senior Vice President Its: President, CEO & Chairman
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 43
<PAGE>
EXHIBIT A
BPTD Patents/Applications
**********
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 44
<PAGE>
EXHIBIT B
The Third Party referred to in Section 1.37 of this Agreement is ********** and
its successors in interest.
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 45
<PAGE>
EXHIBIT C
Development Plan
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 46
<PAGE>
EXHIBIT D
System Specifications
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 47
<PAGE>
EXHIBIT E
Form of Work Order
WORK ORDER
This Work Order is entered into this ____ day of ______________, 1999
between BPTD and ViroPharma and is subject to all of the terms and conditions
set forth in that certain Product Development and Commercialization Agreement
dated November 19, 1999, between the BPTD and ViroPharma (the "PDC Agreement").
In the event of any conflict between the terms of this Work Order and the PDC
Agreement, the terms of this Work Order shall control.
1. Description of Services.
-----------------------
2. Deliverables; Fees; Delivery Dates.
----------------------------------
Maximum Fee
Description of Deliverables for Deliverable Delivery Date
--------------------------- --------------- -------------
TOTAL MAXIMUM FEE
3. Payment Schedule.
----------------
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 48
<PAGE>
The PDC Agreement shall remain in full force and effect, subject only to
the express terms of this Work Order, and the parties hereto hereby ratify and
confirm the provisions of the PDC Agreement, as may be so modified by this Work
Order. The parties have executed this Work Order as of the latest of the dates
set forth below.
VIROPHARMA INCORPORATED BATTELLE MEMORIAL INSTITUTE
By:_______________________________ By:________________________________
Name, Title:______________________ Name, Title:_______________________
Date:_____________________________ Date:______________________________
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 49
<PAGE>
EXHIBIT F
Countries in Which BPTD Shall File, Prosecute
and Maintain BPTD Patents Pursuant to Section 10.3.2
----------------------------------------------------
**********
________________________________________________________________________________
November 19, 1999 ViroPharma-BPTD Agreement Page 50
<PAGE>
EXHIBIT 10.25
Portions of this exhibit were omitted and filed separately with the Secretary of
the Commission pursuant to an application for confidential treatment filed with
the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
Such portions are marked by a series of asterisks.
COLLABORATION AND LICENSE AGREEMENT
by and between
AMERICAN HOME PRODUCTS CORPORATION,
acting through its
WYETH-AYERST LABORATORIES DIVISION
and
VIROPHARMA INCORPORATED
December 9, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS......................................................................................................... 1
1.1 "Acquiring Entity"............................................................................................... 1
1.2 "Active Collaboration Target".................................................................................... 1
1.3 "Active Compound"................................................................................................ 2
1.4 "Affiliate(s)"................................................................................................... 2
1.5 "AHPC Chemical Library".......................................................................................... 5
1.6 "AHPC Know-How".................................................................................................. 5
1.7 "AHPC Patent Rights"............................................................................................. 5
1.8 "AHPC Technology"................................................................................................ 5
1.9 "AHPC Territory"................................................................................................. 5
1.10 "Annual Commercialization Plan and Budget"....................................................................... 5
1.11 "Annual Development Plan and Budget"............................................................................. 5
1.12 "Assay and Screening Technology"................................................................................. 6
1.13 "Assigned Sales Force Effort".................................................................................... 6
1.14 "Baseline Allocation of Net Profits"............................................................................. 6
1.15 "Biomolecule".................................................................................................... 6
1.16 "Calendar Quarter"............................................................................................... 6
1.17 "Change of Control".............................................................................................. 6
1.18 "Class A Product"................................................................................................ 6
1.19 "Class B Product"................................................................................................ 6
1.20 "Collaboration Inventions"....................................................................................... 6
1.21 "Collaboration Know-How"......................................................................................... 7
1.22 "Collaboration Patent Rights".................................................................................... 7
1.23 "Collaboration Target"........................................................................................... 7
1.24 "Collaboration Technology"....................................................................................... 7
1.25 "Commercialization".............................................................................................. 7
1.26 "Commercially Reasonable Efforts"................................................................................ 7
1.27 "Compound"....................................................................................................... 7
1.28 "Confidential Information"....................................................................................... 7
1.29 "Control" or "Controlled"........................................................................................ 7
1.30 "Copromotion Territory".......................................................................................... 8
1.31 "Copromotion Territory Commercialization Plan"................................................................... 8
1.32 "Copyright"...................................................................................................... 8
1.33 "Cost of Goods Manufactured for Sale"............................................................................ 8
1.34 "Derivative"..................................................................................................... 8
1.35 "Detail"......................................................................................................... 8
1.36 "Development".................................................................................................... 8
1.37 "Development Candidate".......................................................................................... 9
1.38 "Development Expenses"........................................................................................... 9
1.39 "Development Phase".............................................................................................. 9
1.40 "Effective Date"................................................................................................. 9
1.41 "Executive Steering Committee" or "ESC".......................................................................... 9
1.42 "Extra Effort"................................................................................................... 9
1.43 "Extra Effort Expense"........................................................................................... 9
1.44 "FDA"............................................................................................................ 9
1.45 "FD&C Act"....................................................................................................... 9
1.46 "Field".......................................................................................................... 9
1.47 "First Commercial Sale".......................................................................................... 9
1.48 "FTE"............................................................................................................ 9
</TABLE>
________________________________________________________________________________
December 9, 1999 Collaboration Agreement Page i
<PAGE>
<TABLE>
<S> <C>
1.49 "Full Royalty Rate Period"................................................................................... 10
1.50 "Fully-Absorbed Standard Cost"............................................................................... 10
1.51 "Global Development Plan".................................................................................... 10
1.52 "Good Clinical Practice" or "GCP"............................................................................ 10
1.53 "Good Laboratory Practice" or "GLP".......................................................................... 10
1.54 "HCV"........................................................................................................ 11
1.55 "Hit"........................................................................................................ 11
1.56 "Incremental Sales Force Effort"............................................................................. 11
1.57 "Incremental Sales Force Effort Expense"..................................................................... 11
1.58 "IND"........................................................................................................ 11
1.59 "Initial Term of the Screening Phase"........................................................................ 11
1.60 "Invention".................................................................................................. 11
1.61 "Joint Steering Committee" or "JSC".......................................................................... 11
1.62 "Know-How"................................................................................................... 11
1.63 "Lapse Quarter".............................................................................................. 12
1.64 "Lapse Year"................................................................................................. 12
1.65 "Lead Compound".............................................................................................. 12
1.66 "Major European Country"..................................................................................... 12
1.67 "Marketing Account".......................................................................................... 12
1.68 "Marketing Steering Committee" or "MSC"...................................................................... 12
1.69 "NDA"........................................................................................................ 12
1.70 "Net Profits"................................................................................................ 12
1.71 "Net Sales".................................................................................................. 12
1.72 "Non-Collaboration Invention"................................................................................ 13
1.73 "Patent Rights".............................................................................................. 13
1.74 "Penalty Year"............................................................................................... 14
1.75 "Phase I Clinical Study"..................................................................................... 14
1.76 "Phase II Clinical Study".................................................................................... 14
1.77 "Phase III Clinical Study"................................................................................... 14
1.78 "Post Approval Research and Regulatory Expenses"............................................................. 14
1.79 "Pre-Development Expenses"................................................................................... 14
1.80 "Pre-Marketing Expenses"..................................................................................... 14
1.81 "Pre-Marketing Expense Shortfall"............................................................................ 15
1.82 "Prior Invention"............................................................................................ 15
1.83 "Product".................................................................................................... 15
1.84 "Promotion".................................................................................................. 15
1.85 "R&D Account"................................................................................................ 15
1.86 "R&D Reimbursement Account".................................................................................. 15
1.87 "R&D Shortfall".............................................................................................. 15
1.88 "Reduced Royalty Rate Period"................................................................................ 15
1.89 "Regulatory Approval"........................................................................................ 15
1.90 "Regulatory Authority"....................................................................................... 16
1.91 "Research"................................................................................................... 16
1.92 "Research Phase"............................................................................................. 16
1.93 "Research Program"........................................................................................... 16
1.94 "Sales and Marketing Expenses"............................................................................... 16
1.95 "Sample"..................................................................................................... 17
1.96 "Sample Receipt Forms"....................................................................................... 17
1.97 "Screening".................................................................................................. 17
1.98 "Screening Phase"............................................................................................ 17
1.99 "Small Molecule"............................................................................................. 17
1.100 "Surviving Entity"........................................................................................... 17
1.101 "Tail Compound".............................................................................................. 17
1.102 "Target"..................................................................................................... 17
1.103 "Target Market".............................................................................................. 17
1.104 "Target Physician"........................................................................................... 17
</TABLE>
________________________________________________________________________________
December 9, 1999 Collaboration Agreement Page ii
<PAGE>
<TABLE>
<S> <C>
1.105 "Term of the Screening Phase".................................................................................... 17
1.106 "Third Part(y/ies)".............................................................................................. 17
1.107 "Third Party License Fee"........................................................................................ 18
1.108 "Trademark"...................................................................................................... 18
1.109 "Valid Claim".................................................................................................... 18
1.110 "ViroPharma Chemical Library".................................................................................... 18
1.111 "ViroPharma Know-How"............................................................................................ 18
1.112 "ViroPharma Patent Rights"....................................................................................... 18
1.113 "ViroPharma Technology".......................................................................................... 18
2. LICENSES............................................................................................................ 19
2.1 Licenses to AHPC................................................................................................. 19
2.2 Licenses to ViroPharma........................................................................................... 19
2.3 Sublicensing to Third Party Contractors.......................................................................... 20
2.4 Dropped Compounds................................................................................................ 20
2.5 Direct Licenses to AHPC Affiliates............................................................................... 20
2.6 Exclusive Working Relationship................................................................................... 21
2.7 Right of Reference............................................................................................... 22
3. MANAGEMENT OF COLLABORATION......................................................................................... 22
3.1 Joint Steering Committee......................................................................................... 22
3.1.1 Formation; Membership...................................................................................... 22
3.1.2 Chairperson; Secretary..................................................................................... 22
3.1.3 Meetings................................................................................................... 23
3.1.4 Decision Making............................................................................................ 23
3.1.5 Responsibilities of the JSC................................................................................ 23
3.2 Marketing Steering Committee..................................................................................... 24
3.2.1 Formation; Membership...................................................................................... 24
3.2.2 Chairperson; Secretary..................................................................................... 24
3.2.3 Meetings................................................................................................... 25
3.2.4 Decision Making............................................................................................ 25
3.2.5 Responsibilities of the MSC................................................................................ 25
3.3 Executive Steering Committee..................................................................................... 26
3.3.1 Formation; Membership...................................................................................... 26
3.3.2 Chairperson; Secretary..................................................................................... 26
3.3.3 Meetings................................................................................................... 26
3.3.4 Decision Making............................................................................................ 27
3.3.5 Dispute Resolution......................................................................................... 27
3.4 Authority........................................................................................................ 27
3.5 Project Coordinators............................................................................................. 27
4. RESEARCH AND DEVELOPMENT............................................................................................ 27
4.1 The Research Program............................................................................................. 27
4.1.1 General.................................................................................................... 27
4.2 Research & Development Plans..................................................................................... 28
4.2.1 Global Research and Development Plan....................................................................... 28
4.2.2 Annual Development Plans................................................................................... 28
4.3 Term of Research Program......................................................................................... 29
4.3.1 Screening Phase............................................................................................ 29
4.3.2 Research Phase............................................................................................. 29
4.3.3 Screening Phase Tail....................................................................................... 30
4.3.4 Development Phase.......................................................................................... 30
4.4 Selection of Additional Targets, Biomolecules, Hits, Lead Compounds, Development Candidates and Products......... 31
4.4.1 Selection of Additional Targets............................................................................ 31
4.4.2 Selection of Biomolecules as Compounds..................................................................... 31
</TABLE>
________________________________________________________________________________
December 9, 1999 Collaboration Agreement Page iii
<PAGE>
<TABLE>
<S> <C>
4.4.3 Selection of Hits...................................................................................... 31
4.4.4 Selection of Lead Compounds............................................................................ 31
4.4.5 Selection of Development Candidates.................................................................... 31
4.4.6 Selection of Products.................................................................................. 31
4.5 Conduct of the Research Program.............................................................................. 32
4.6 Funding of the Research Program.............................................................................. 32
4.6.1 Pre-Development Expenses............................................................................... 32
4.6.2 Development Expenses................................................................................... 33
4.6.3 Payment of Expenses; R&D Accounts...................................................................... 33
4.6.4 Expense Limitations.................................................................................... 33
4.6.5 Reconciliation of Expenses............................................................................. 34
4.6.6 Records and Audits..................................................................................... 35
4.7 Reporting and Disclosure..................................................................................... 36
4.7.1 Reports................................................................................................ 36
4.7.2 Quarterly Meeting...................................................................................... 36
4.7.3 Disclosure............................................................................................. 36
5. MANUFACTURING OF PRODUCTS; REGULATORY MATTERS................................................................... 36
5.1 Manufacturing................................................................................................ 36
5.2 Labeling..................................................................................................... 37
5.3 Regulatory Approvals......................................................................................... 37
5.4 Regulatory Reporting......................................................................................... 37
6. COMMERCIALIZATION OF PRODUCTS................................................................................... 38
6.1 Commercialization in the Copromotion Territory............................................................... 38
6.1.1 Principles of Copromotion.............................................................................. 38
6.1.2 Commercialization Plan................................................................................. 38
6.1.3 Allocation of Target Markets; Sales Effort............................................................. 39
6.1.4 Incremental Sales Force Effort......................................................................... 39
6.1.5 Extra Effort........................................................................................... 40
6.1.6 Performance Metrics.................................................................................... 40
6.1.7 Sales and Distribution; Recalls........................................................................ 40
6.1.8 Commercialization Expenses............................................................................. 41
(a) Pre-Marketing Expenses................................................................................. 41
(b) Sales and Marketing Expenses........................................................................... 41
(c) Post-Approval Research and Regulatory Expenses......................................................... 42
(d) Payment of Expenses; Marketing Accounts................................................................ 42
(e) Expense Limitations.................................................................................... 42
(f) Reconciliation of Pre-Marketing Expenses............................................................... 42
(g) Reimbursement of Sales and Marketing Expenses and Post Approval Research and Regulatory Expenses....... 43
6.1.9 Marketing and Promotional Materials.................................................................... 43
6.1.10 Promotional Claims..................................................................................... 44
6.1.11 Samples................................................................................................ 44
6.1.12 Communications......................................................................................... 44
6.1.13 Training............................................................................................... 45
6.1.14 Compliance............................................................................................. 45
6.1.15 Generic Product........................................................................................ 45
6.2 Commercialization in the AHPC Territory...................................................................... 46
7. CONSIDERATION; PROFIT SHARING................................................................................... 46
7.1 Research Program Expense Reimbursements...................................................................... 46
7.2 Additional Development Expense Payments...................................................................... 46
7.3 Purchase of Equity........................................................................................... 47
7.4 Royalties.................................................................................................... 47
7.4.1 Royalty Rates.......................................................................................... 47
7.4.2 Royalty Adjustments.................................................................................... 49
(a) Unpatented Products.................................................................................... 49
(b) Competition............................................................................................ 49
</TABLE>
________________________________________________________________________________
December 9, 1999 Collaboration Agreement Page iv
<PAGE>
<TABLE>
<S> <C>
7.4.3 Term of Royalty............................................................................................ 50
7.5 Profit Sharing................................................................................................... 50
7.5.1 Baseline Allocation of Profits; Penalties.................................................................. 50
7.5.2 Temporary Adjustments to Distribution of Profits........................................................... 50
7.5.3 Permanent Adjustment to Baseline Allocation of Profits..................................................... 51
7.5.2 Term of Profit Split Payments.............................................................................. 51
7.6 Reports and Payments............................................................................................. 51
7.6.1 Cumulative Royalties....................................................................................... 51
7.6.2 Royalty Statements and Payments............................................................................ 51
7.6.3 Net Profit Statements and Payments......................................................................... 51
(a) Estimated Statements....................................................................................... 51
(b) Actual Statements.......................................................................................... 52
7.6.4 Taxes and Withholding...................................................................................... 52
7.6.5 Currency................................................................................................... 53
7.7 Maintenance of Records; Audits................................................................................... 53
7.7.1 Record Keeping for the Copromotion Territory............................................................... 53
7.7.2 Record Keeping for the AHPC Territory...................................................................... 53
7.7.3 Audits..................................................................................................... 54
7.7.4 Underpayments/Overpayments................................................................................. 54
7.7.5 Confidentiality............................................................................................ 55
7.8 Interest......................................................................................................... 55
8. INTELLECTUAL PROPERTY............................................................................................... 55
8.1 Inventions....................................................................................................... 55
8.2 Patent Rights.................................................................................................... 55
8.2.1 Prosecution and Maintenance of Patent Rights............................................................... 55
(a) ViroPharma's Prior Inventions and Non-Collaboration Inventions............................................. 56
(b) AHPC's Prior Inventions and Non-Collaboration Inventions................................................... 56
(c) Collaboration Inventions................................................................................... 57
8.2.2 Enforcement of Patent Rights............................................................................... 58
(a) Notice and Discontinuance of Infringement - General........................................................ 58
(b) AHPC Patent Rights and ViroPharma Patent Rights............................................................ 58
(c) Collaboration Patent Rights................................................................................ 59
(d) Continuance of Infringement of ViroPharma Patent Rights.................................................... 60
(e) Continuance of Infringement of the AHPC Patent Rights...................................................... 60
8.2.3 Infringement and Third Party Licenses...................................................................... 61
(a) Infringement of Third Party Patents - Course of Action..................................................... 61
(b) AHPC Option to Negotiate................................................................................... 61
(c) Third Party Infringement Suit.............................................................................. 61
(d) Other Third Party Licenses................................................................................. 62
(e) Third Party License Fees................................................................................... 62
8.2.4 Patent Certifications...................................................................................... 63
8.2.5 Patent Term Restoration.................................................................................... 63
8.3 Trademarks.................................................................................................... 63
9. CONFIDENTIALITY..................................................................................................... 64
9.1 Confidentiality.................................................................................................. 64
9.2 Authorized Disclosure and Use.................................................................................... 64
9.2.1 Disclosure................................................................................................. 64
9.2.2 Use........................................................................................................ 65
9.3 SEC Filings...................................................................................................... 65
9.4 Publications..................................................................................................... 65
9.5 Public Announcements............................................................................................. 66
9.5.1 Coordination............................................................................................... 66
9.5.2 Announcements.............................................................................................. 66
10. REPRESENTATIONS AND WARRANTIES...................................................................................... 66
10.1 Representations and Warranties of Each Party..................................................................... 66
10.2 Additional Representations and Warranties of ViroPharma.......................................................... 67
</TABLE>
________________________________________________________________________________
December 9, 1999 Collaboration Agreement Page v
<PAGE>
<TABLE>
<S> <C>
10.3 Additional Representations and Warranties of AHPC............................................................ 69
10.4 Representation by Legal Counsel.............................................................................. 70
10.5 No Inconsistent Agreements................................................................................... 70
10.6 Disclaimer................................................................................................... 70
11. GOVERNMENT APPROVALS; TERM AND TERMINATION...................................................................... 70
11.1 Government Approvals......................................................................................... 70
11.1.1 ViroPharma's and AHPC's Obligations.................................................................... 70
11.1.2 Cooperation............................................................................................ 71
11.2 Term......................................................................................................... 71
11.3 Expiration................................................................................................... 71
11.4 Termination for Cause........................................................................................ 71
11.4.1 Termination for Cause................................................................................. 71
11.4.2 Effect of Termination for Cause on License............................................................. 72
11.5 Termination for Convenience.................................................................................. 72
11.5.1 Right to Terminate..................................................................................... 72
11.5.2 Effect of Termination for Convenience.................................................................. 72
11.6 Termination of ViroPharma's Right to Promote Products........................................................ 73
11.6.1 Failure to Provide Assigned Sales Force Effort......................................................... 73
11.6.2 Payment and Term of Royalty............................................................................ 74
11.6.3 Effect on Other Rights and Obligations................................................................. 75
11.7 Blocking Patents............................................................................................. 75
11.8 Survival of Certain Obligations.............................................................................. 75
11.9 Provision for Insolvency..................................................................................... 76
11.9.1Termination............................................................................................... 76
11.9.2 Effect on Licenses..................................................................................... 76
11.9.3 Rights to Intellectual Property........................................................................ 77
11.9.4 Additional Rights...................................................................................... 77
12. INDEMNIFICATION AND INSURANCE................................................................................... 78
12.1 Indemnification by AHPC...................................................................................... 78
12.2 Indemnification by ViroPharma................................................................................ 79
12.3 Procedure.................................................................................................... 79
12.4 Insurance.................................................................................................... 80
13. MISCELLANEOUS................................................................................................... 80
13.1 Assignment................................................................................................... 80
13.2 Further Actions.............................................................................................. 80
13.3 Force Majeure................................................................................................ 80
13.4 Correspondence and Notices................................................................................... 81
13.4.1 Ordinary Notices....................................................................................... 81
13.4.2 Extraordinary Notices.................................................................................. 81
13.5 Amendment.................................................................................................... 82
13.6 Waiver....................................................................................................... 82
13.7 Severability................................................................................................. 82
13.8 Descriptive Headings......................................................................................... 82
13.9 Governing Law................................................................................................ 83
13.10 Entire Agreement of the Parties.............................................................................. 83
13.11 Independent Contractors...................................................................................... 83
13.12 Debarment.................................................................................................... 83
13.13 Counterparts................................................................................................. 83
</TABLE>
________________________________________________________________________________
December 9, 1999 Collaboration Agreement Page vi
<PAGE>
LIST OF EXHIBITS
Exhibit 1.7 AHPC Patent Rights
Exhibit 1.18 Class A Product Chemical Series
Exhibit 1.23 Collaboration Targets
Exhibit 1.50 Elements of Fully-Absorbed Standard Costs
Exhibit 1.112 ViroPharma Patent Rights
Exhibit 5.4 Adverse Event Reporting Procedures
Exhibit 7.3 Stock Purchase Agreement
Exhibit 7.4.1 Sample Calculation of Royalty Distributions
Exhibit 7.5.3 Sample Calculation of Net Profit Distributions
Exhibit 10.2(a) Third Party Rights, Title or Interest in ViroPharma
Intellectual Property
Exhibit 10.2(b) Third Party Claims on ViroPharma Patent Rights and
Know-How
Exhibit10.2(c) ViroPharma Intellectual Property Subject to
Government Funding Agreements
Exhibit 10.3(a) Third Party Claims on AHPC Patent Rights and Know-
How
________________________________________________________________________________
December 9, 1999 Collaboration Agreement Page vii
<PAGE>
COLLABORATION AND LICENSE AGREEMENT
THIS COLLABORTION AND LICENSE AGREEMENT (the "Agreement") is entered into
on this 9th day of December, 1999 by and between American Home Products
Corporation, acting through its Wyeth-Ayerst Laboratories Division ("AHPC"), a
Delaware Corporation, having a place of business at 5 Giralda Farms, Madison,
New Jersey 07940 and ViroPharma Incorporated ("ViroPharma"), a Delaware
corporation having a place of business at 405 Eagleview Boulevard, Exton,
Pennsylvania 19341. AHPC and ViroPharma may each be referred to herein
individually as a "Party" and collectively as the "Parties".
WHEREAS, AHPC is engaged in the research, development and commercialization
of human pharmaceutical products;
WHEREAS, ViroPharma is the owner of certain patent rights and know-how
relating to the hepatitis C virus and compounds and methods for treating humans
infected with the hepatitis C virus;
WHEREAS, AHPC and ViroPharma have agreed to collaborate, on the terms and
conditions set forth herein, on the development and commercialization of
compounds for the treatment of humans infected with the hepatitis C virus.
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth below and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree as
follows:
1. DEFINITIONS.
1.1 "Acquiring Entity" shall mean a Third Party that comes into control
(as such term is defined in Section 1.4 hereof) of a Party or any of a
Party's Affiliates through a Change in Control of such Party or such
Affiliate occurring after the Effective Date hereof, and all other
Third Parties controlling, controlled by or under common control with
such Third Party, which Third Parties are not otherwise an Affiliate
of such Party hereunder.
1.2 "Active Collaboration Target" shall mean a Collaboration Target (a)
that is not discontinued from use in accordance with Section 4.4.1 or
(b) against which an Active Compound has been determined to have
activity during the Screening Phase or Screening Phase Tail, whether
or not such Collaboration Target has been discontinued from use in
accordance with Section 4.4.1. Notwithstanding the foregoing, if, at
any time after the end of the Screening Phase Tail, (a) a
Collaboration Target has been discontinued from use in accordance with
Section 4.4.1, (b) the use of such Collaboration Target has not been
reinstated in accordance with Section 4.4.1, and (c) all Compounds
which, during the Screening Phase or the Screening Phase Tail, were
determined to have activity against such Collaboration Target and all
Derivatives of such Compounds are no
<PAGE>
longer Active Compounds, then such Collaboration Target shall
thereafter not be an Active Collaboration Target for purposes of this
Agreement.
1.3 "Active Compound" shall mean a Compound that is being Researched,
Developed or Commercialized by either of the Parties pursuant to this
Agreement. For the sake of clarity, when the JSC or the MSC, as
applicable, determines to discontinue the Research, Development or
Commercialization of a Compound, such Compound shall no longer be an
Active Compound for purposes of this Agreement.
1.4 "Affiliate(s)" shall mean, with respect to each Party hereto, any
corporation, company, partnership, joint venture, firm and/or other
entity that controls, is controlled by or is under common control with
such Party. For purposes of Section 1.1 and this Section 1.4,
"control" shall mean (x) in the case of corporate entities, direct or
indirect ownership of at least fifty percent (50%) of the stock or
shares having the right to vote for the election of directors (other
than such ownership by an employee benefit plan (or related trust)
sponsored or maintained by a Party), and (y) in the case of non-
corporate entities, direct or indirect ownership of at least fifty
percent (50%) of the equity interest with the power to direct the
management and policies of such non-corporate entities.
Notwithstanding the foregoing, for purposes of this Agreement, the
term "Affiliate" shall not include
(a) subsidiaries or any other entities in which a Party owns a
majority of the ordinary voting power necessary to elect a
majority of the board of directors or other governing board
but is restricted from electing such majority by contract or
otherwise until such time as such restrictions are no longer
in effect, or
(b) an Acquiring Entity that comes into control of ViroPharma or
a parent company Affiliate of ViroPharma after the Effective
Date hereof, provided that ViroPharma, on or before the date
such Change of Control becomes effective, delivers to AHPC
written notice stating that such Acquiring Entity shall not
be considered to be an Affiliate of ViroPharma and shall be
considered to be a Third Party for all purposes of this
Agreement and, provided further, that, by written agreement
(a copy of which shall be provided to AHPC along with the
notice described above in this Section 1.4(b)) between
ViroPharma and such Acquiring Entity, such written agreement
to be entered into either before or promptly after such
Change of Control becomes effective and to designate AHPC as
a third party beneficiary, such Acquiring Entity shall have
(i) no right, title or interest in or to any Product
hereunder, including, without limitation, the right to
participate in the Copromotion of any Product in the
Copromotion Territory (other than any such right, title or
interest that may be merely incidental to the
<PAGE>
Acquiring Entity's having an equity interest in ViroPharma,
e.g., an ownership interest in or right to receive a share
of ViroPharma's profits), (ii) no right to participate in
any of the activities to be conducted by or on behalf of
ViroPharma or ViroPharma's Affiliates hereunder or to
exercise any of ViroPharma's rights hereunder (other than
any such right that may exist as a result of a director or
employee of the Acquiring Entity serving as an officer or
director of ViroPharma, provided, however, that each such
director or employee shall not utilize any information
gained through participating in such activities for the
benefit of the Acquiring Entity in any way that the
Acquiring Entity is prohibited from using such information
pursuant to this Section 1.4), and (iii) no access to or
right to use, itself or on behalf of any Third Party or to
permit any Third Party to use, in either case for the
discovery, development and/or commercialization of
pharmaceutical products in the Field, any
(A) of the ViroPharma Technology,
(B) Compound included within the ViroPharma Chemical
Library,
(C) of the AHPC Technology,
(D) Compound included with the AHPC Chemical Library,
or
(E) Confidential Information of either Party relating
to the Field, the Research Program or either
Party's activities under this Agreement,
(except to the extent that any of the foregoing constitute
Permitted Materials (as such term is defined below in this
Section 1.4), it being understood, however, that in the
event that either (xx) the written agreement between
ViroPharma and such Acquiring Entity described above expires
or is later terminated, (yy) ViroPharma provides AHPC with
written notice that it desires such Acquiring Entity to be
considered an Affiliate hereunder or (zz) such Acquiring
Entity otherwise gains access to or the right to use, itself
or on behalf of any Third Party, any materials or
information included within items A through E, inclusive,
described in clause (iii) above for the discovery,
development and/or commercialization of pharmaceutical
products in the Field, except to the extent that such
material or information constitutes Permitted Materials,
such Acquiring Entity thereafter shall be considered to be
an Affiliate of ViroPharma for all purposes of this
<PAGE>
Agreement, including, without limitation, the provisions set
forth in Section 2.6 hereof. For purposes of this Section
1.4, "Permitted Materials" shall mean any of items A through
E, inclusive, described above in this Section 1.4, which
(I) the Acquiring Entity can demonstrate, through
written records created prior to the effective
date of the Change of Control of ViroPharma, was
in the Acquiring Entity's prior possession, other
than through receipt, directly or indirectly from
ViroPharma,
(II) the Acquiring Entity can demonstrate, through
written records, was acquired by the Acquiring
Entity from a Third Party who had the right to
disclose or transfer the same to the Acquiring
Entity;
(III) the Acquiring Entity can demonstrate, through
written records, was independently developed by
employees of the Acquiring Entity who had no
knowledge of or access to any of items A through
E, inclusive, described above in this Section
1.4;
(IV) becomes part of the public domain after the date
this Agreement was signed by the Parties other
than through any breach of this Agreement by
ViroPharma; or
(V) is made available to such Acquiring Entity by
AHPC or any of AHPC's Affiliates;
provided, however, that none of the foregoing exclusions
shall result in the Acquiring Entity having any right to:
1. practice any of the ViroPharma Patent Rights for
the discovery, development and/or
commercialization of pharmaceutical products in
the Field,
2. practice any of the AHPC Patent Rights except
through a license granted by AHPC directly to
such Acquiring Entity,
3. practice any of the Collaboration Patent Rights
for the discovery, development and/or
<PAGE>
commercialization of pharmaceutical products in
the Field,
4. utilize Compounds included within the ViroPharma
Chemical Library for the discovery, development
and/or commercialization of pharmaceutical
product in the Field, or
5. utilize Compounds included within the AHPC
Chemical Library, which Compounds are obtained
directly or indirectly from ViroPharma, except
through a license granted by AHPC directly to
such Acquiring Entity.
1.5 "AHPC Chemical Library" shall mean those Compounds that AHPC, as of
the Effective Date owns or Controls, or that come into AHPC's Control
during the of the Research Program, provided, however, that for
purposes of this Agreement, the AHPC Chemical Library shall not
include those Compounds in the agricultural chemical library of AHPC's
subsidiary, American Cyanamid Company.
1.6 "AHPC Know-How" shall mean Know-How, excluding the Collaboration Know-
How, that AHPC owns or Controls as of the Effective Date or that comes
into the Control of AHPC during the term of this Agreement.
1.7 "AHPC Patent Rights" shall mean Patent Rights that AHPC owns or
Controls as of the Effective Date or that come into the Control of
AHPC during the term of this Agreement, which Patent Rights claim any
AHPC Prior Invention and/or AHPC Non-Collaboration Invention. Those
AHPC Patent Rights known to be existing as of the Effective Date are
listed on Exhibit 1.7 attached hereto.
1.8 "AHPC Technology" shall mean the AHPC Patent Rights, AHPC's interest
in the Collaboration Patent Rights, the AHPC Know-How, AHPC's interest
in the Collaboration Know-How and the AHPC Assay and Screening
Technology.
1.9 "AHPC Territory" shall mean the world other than the countries
included within the Copromotion Territory.
1.10 "Annual Commercialization Plan and Budget" shall have the meaning set
forth in Section 6.1.2.
1.11 "Annual Development Plan and Budget" shall have the meaning set forth
in Section 4.2.2.
<PAGE>
1.12 "Assay and Screening Technology" shall mean the Know-How, methods and
technology owned or Controlled by either Party which may be used for
the screening of Compounds for activity against one or more
Collaboration Targets.
1.13 "Assigned Sales Force Effort" shall mean ******* in a **********
during any Calendar Quarter or calendar year, as applicable, as
assigned by the MSC under the then applicable Annual Commercialization
Plan and Budget and in accordance with Section 6.1.3.
1.14 "Baseline Allocation of Net Profits" shall have the meaning set forth
in Section 7.5.1.
1.15 "Biomolecule" shall mean a polypeptide, protein, vaccine or antibody,
any of which is either of natural origin, expressed by recombinant
methodology or chemically synthesized or which may be a chemical
structure derived therefrom, an analog, derivative, congener or the
like.
1.16 "Calendar Quarter" shall mean the respective periods of three
consecutive calendar months ending on March 31, June 30, September 30
or December 31, for so long as this Agreement is in effect.
1.17 "Change of Control" shall mean any of the following: (a) the sale or
disposition of all or substantially all of the assets of a Party to a
Third Party, (b) the acquisition by a Third Party, other than an
employee benefit plan (or related trust) sponsored or maintained by a
Party or any of its Affiliates, of more than 50% of such Party's
outstanding shares of voting capital stock, or (c) the merger or
consolidation of a Party with or into another corporation, other than
a merger or consolidation of a Party in which holders of shares of
such Party's voting capital stock immediately prior to the merger or
consolidation will have at least 50% of the ownership of voting
capital stock of the surviving corporation immediately after the
merger or consolidation.
1.18 "Class A Product" shall mean any Product that: ********************.
1.19 "Class B Product" shall mean ********************.
1.20 "Collaboration Inventions" shall mean all Inventions owned or
Controlled by either Party which Inventions are made by either Party's
employees, agents or subcontractors in the performance of such Party's
obligations under the Research Program or in performing any research
and development of a Product, pursuant to this Agreement, after such
Product has received Regulatory Approval, including, without
limitation, Phase IV clinical studies and clinical studies in support
of additional indications within the Field or labeling changes for
such Product during the term of this Agreement, regardless of whether
such Inventions are made solely by such Party's employees, agents or
subcontractors or jointly with the employees, agents or subcontractors
of the other Party.
<PAGE>
1.21 "Collaboration Know-How" shall mean that Know-How that is created or
developed by or on behalf of either Party, either alone or jointly
with the other Party, in performing its obligations under the Research
Program or in performing any Post-Approval Research.
1.22 "Collaboration Patent Rights" shall mean those Patent Rights that
include claims directed to Collaboration Inventions.
1.23 "Collaboration Target" shall mean any Target that is (a) listed in
Exhibit 1.23 attached hereto, (b) selected by the JSC in accordance
with Section 4.4.1 or (c) used by either Party in its performance of
the Research Program for Screening Compounds for potential activity as
a prophylactic or therapeutic agent in the Field.
1.24 "Collaboration Technology" shall mean the Collaboration Patent Rights
and the Collaboration Know-How.
1.25 "Commercialization" shall mean any and all activities of making,
having made, using, importing, marketing, promoting, distributing,
offering for sale and selling a Product in the Field and shall include
Promotion. When used as a verb, "Commercialize" shall mean to engage
in Commercialization.
1.26 "Commercially Reasonable Efforts" shall mean efforts and resources
normally used by a Party for a product or compound owned by it or to
which it has rights, which is of similar market potential at a similar
stage in its development or product life, taking into account issues
of safety and efficacy, product profile, the competitiveness of the
marketplace, the proprietary position of the compound or product, the
regulatory structure involved, the profitability of the applicable
products, and other relevant factors.
1.27 "Compound" shall mean a chemical compound or substance together with
all complexes, mixtures and other combinations, prodrugs, metabolites,
enantiomers, salt forms, racemates, and isomers thereof. For the sake
of clarity, the term "Compounds" may include both Small Molecules and
Biomolecules, provided, however, that, with respect to Biomolecules,
only those Biomolecules selected for collaborative Research pursuant
to Section 4.4.2, shall be considered to be Compounds hereunder.
1.28 "Confidential Information" shall mean with respect to each Party, non-
public proprietary data or information which belong in whole or in
part to such Party or its Affiliates and/or information designated as
Confidential Information of such Party hereunder.
1.29 "Control" or "Controlled" shall mean with respect to any (a) item of
information, including, without limitation, Know-How, or (b)
intellectual property right, the possession (whether by ownership or
license, other than pursuant to this
<PAGE>
Agreement) by a Party of the ability to grant to the other Party
access and/or a license as provided herein under such item or right
without violating the terms of any agreement or other arrangements
with any Third Party existing before or after the Effective Date.
1.30 "Copromotion Territory" shall mean: (a) the fifty (50) states of the
United States and the District of Columbia, and (b) Canada.
1.31 "Copromotion Territory Commercialization Plan" shall have the meaning
set forth in Section 6.1.2.
1.32 "Copyright" shall mean any copyright owned or Controlled by AHPC which
copyright pertains to the promotional materials and literature
utilized by the Parties in connection with the Promotion of Products
in the Copromotion Territory pursuant to Section 6.1.
1.33 "Cost of Goods Manufactured for Sale" shall mean AHPC's actual cost to
acquire Product from a Third Party, or its Fully-Absorbed Standard
Cost to produce the Product, plus (or minus, as the case may be): (a)
AHPC's costs for Product inventory adjustments and losses, (b) any
manufacturing cost variances allocable to such Product, (c)
amortization of new standard costs for such Product, (d) prior period
adjustments allocable to such Product, and (e) actual distribution
costs (other than those deducted as part of the calculation of Net
Sales pursuant to Section 1.71(a)(v)), warehousing costs and billing,
receiving, collection and other miscellaneous costs incurred by AHPC
as they relate to distribution of the Products.
1.34 "Derivative" of a given Compound shall mean a chemical compound
derived by addition to or manipulation of a fundamental structure of
such Compound.
1.35 "Detail" shall mean a face-to-face meeting between one or more Target
Physicians and one or more professional sales representative, made in
compliance with the Target Market allocation of the MSC under Section
6.1.3, during which a complete Product presentation, as defined from
time to time by the MSC, is communicated, which Product presentation
is either the first or second product-related information communicated
by such professional sales representative during such meeting. When
used as a verb, "Detail" shall mean to perform a Detail.
1.36 "Development" shall mean, on a country by country basis, all
activities performed by or on behalf of either Party pursuant to the
Global Research and Development Plan on a Compound in the Field from
the effective date of an IND for such Compound until Regulatory
Approval of such Compound is obtained in such country for the
indication under study. When used as a verb, "Develop" shall mean to
engage in Development.
<PAGE>
1.37 "Development Candidate" shall mean a Lead Compound or any Derivative
thereof or any other Compound for use in the Field, that the JSC, in
accordance with Section 4.4.5, selects or otherwise designates for
further development to IND filing.
1.38 "Development Expenses" shall mean, on a Compound by Compound and
Product by Product basis, the expenses (other than Third Party License
Fees) of the Parties incurred in performing the Development Phase of
the Research Program and obtaining Regulatory Approval for such
Compound or Product pursuant to the Global Research and Development
Plan.
1.39 "Development Phase" shall have the meaning set forth in Section 4.3.4.
1.40 "Effective Date" shall mean the date of this Agreement first set forth
above.
1.41 "Executive Steering Committee" or "ESC" shall have the meaning set
forth in Section 3.3.1.
1.42 "Extra Effort" shall have the meaning set forth in Section 6.1.5. For
the sake of clarity, Extra Effort shall not include any Incremental
Sales Force Effort.
1.43 "Extra Effort Expense" shall mean the cost to be charged to a Party's
Marketing Account in accordance with Section 6.1.5 due to such Party's
provision of Extra Effort.
1.44 "FDA" shall mean the United States Food and Drug Administration or any
successor agency thereto.
1.45 "FD&C Act" shall mean the United States Federal Food, Drug, and
Cosmetic Act, as amended, and the regulations promulgated thereunder.
1.46 "Field" shall mean the therapeutic and/or prophylactic treatment of
the effects of HCV on humans.
1.47 "First Commercial Sale" shall mean, with respect to any Product and
any country of the world, the first sale of such Product under this
Agreement, for use in the Field, to a Third Party in such country,
after such Product has been granted Regulatory Approval for use in the
Field by the competent Regulatory Authorities in such country.
1.48 "FTE" shall mean a full time equivalent scientific person year
consisting of a minimum of a total of one thousand eight hundred
eighty hours (1,880) per year of scientific work on or directly
related to the Research Program. Work on or directly related to the
Research Program can include, but is not limited to, experimental
preclinical and clinical laboratory and research work, recording and
writing up results, reviewing literature and references, holding
scientific
<PAGE>
discussions, managing and leading scientific staff, carrying out
management duties related to the Research Program, and, only to the
extent specifically pre-approved in writing by both ViroPharma and
AHPC, writing up results for publications or presentation and
attending or presenting appropriate seminars and symposia.
1.49 "Full Royalty Rate Period" for a Product sold in any given country
means the period during which either or both of the following is true:
(a) AHPC's distribution and/or sale of the applicable Product in the
applicable country, in the absence of the rights and licenses
granted by this Agreement, would have infringed one or more Valid
Claims under Patent Rights, including Collaboration Patent
Rights, then owned in whole or part by ViroPharma;
(b) AHPC's manufacture of the Product, in the absence of the rights
and licenses granted by this Agreement, would have infringed one
or more Valid Claims under Patent Rights, including Collaboration
Patent Rights, then owned in whole or part by ViroPharma,
provided that, except as may be precluded or limited by applicable
law, the Full Royalty Rate Period for such Product in such country
shall not expire before the tenth (10/th/) anniversary of the First
Commercial Sale of such Product in such country.
1.50 "Fully-Absorbed Standard Cost" shall mean the cost for those items
specified in Exhibit 1.50 attached hereto, which costs are calculated
in accordance with generally accepted accounting principles and have
been incurred by AHPC or its Affiliates in manufacturing (i) materials
to be used by the Parties in conducting clinical trials of Compounds
or Products hereunder or (ii) Products for sale or distribution in the
Copromotion Territory hereunder.
1.51 "Global Research and Development Plan" shall have the meaning set
forth in Section 4.2.1.
1.52 "Good Clinical Practice" or "GCP" shall mean the then current
standards for clinical trials for pharmaceuticals, as set forth in the
United States Federal Food, Drug and Cosmetics Act and applicable
regulations promulgated thereunder, as amended from time to time, and
such standards of good clinical practice as are required by the
European Union and other organizations and governmental agencies in
countries in which the Products are intended to be sold, to the extent
such standards are not inconsistent with United States GCP.
1.53 "Good Laboratory Practice" or "GLP" shall mean the then current
standards for laboratory activities for pharmaceuticals, as set forth
in the United States Federal Food, Drug and Cosmetics Act and
applicable regulations promulgated
<PAGE>
thereunder, as amended from time to time, and such standards of good
laboratory practice as are required by the European Union and other
organizations and governmental agencies in countries in which the
Products are intended to be sold, to the extent such standards are
not inconsistent with United States GLP.
1.54 "HCV" shall mean the hepatitis C virus.
1.55 "Hit" shall mean a Compound identified by early screening, in assays
conducted pursuant to protocols approved by the JSC, during the
Screening Phase or the Screening Phase Tail that the JSC confirms,
in accordance with Section 4.4.3 hereof, has activity against the
applicable Collaboration Target that meets or exceeds an active
threshold established by the JSC for that Collaboration Target.
1.56 "Incremental Sales Force Effort" shall have the meaning set forth in
Section 6.1.4. For the sake of clarity, "Incremental Sales Force
Effort" shall not include any Extra Effort.
1.57 "Incremental Sales Force Effort Expense" shall mean the cost to be
charged to a Party's Marketing Account in accordance with Section
6.1.4 hereof due to such Party's provision of an Incremental Sales
Force Effort.
1.58 "IND" shall mean an Investigational New Drug Application, as defined
in the FD&C Act, that is required to be filed with the FDA before
beginning clinical testing of a Product in human subjects, or an
equivalent foreign filing.
1.59 "Initial Term of the Screening Phase" shall have the meaning set
forth in Section 4.3.1.
1.60 "Invention" shall mean any invention in the Field that encompasses
or relates to any Assay and Screening Technology, any Collaboration
Target, any Compound that is Screened, Researched, or Developed
under the Research Program, any Derivatives of any such Compounds,
any Product and any method of making any such Compound, Derivative,
or Product and any method of using any such Compound, Derivative or
Product.
1.61 "Joint Steering Committee" or "JSC" shall have the meaning set forth
in Section 3.1.
1.62 "Know-How" shall mean, as each of the following relates to the
Field, all know-how, processes, materials, information, data and
analyses including any copyright relating thereto Controlled by
either Party or its Affiliates as of the Effective Date or coming
into the Control of either Party or its Affiliates during the term
of this Agreement relating to any Assay and Screening Technology,
any Collaboration Target, any Compound that is at any time screened
or developed under the Research Program, any Derivatives of any such
Compounds, any Product and any
<PAGE>
method of making any such Compound, Derivative, or Product and any
method of using any such Compound, Derivative or Product.
1.63 "Lapse Quarter" for a Party shall mean, on a Product by Product and
country by country basis in the Copromotion Territory, any Calendar
Quarter in which: (a) the Party has delivered less than *************
of its then current Assigned Sales Force Effort, and (b) such
percentage portion of its then current Assigned Sales Force Effort is
at ************** lower than the portion of the other Party's
Assigned Sales Force Effort actually performed by such other Party.
1.64 "Lapse Year" for a Party shall mean, on a Product by Product and
country by country basis in the Copromotion Territory, any calendar
year in which such Party has three (3) or more Lapse Quarters.
1.65 "Lead Compound" shall mean a Compound with: (a) sufficient potency
and selectivity, based on activity against a Collaboration Target and
activity in secondary selectivity assays, which activity levels and
selectivity indices have been established by the JSC, (b) chemical
tractability, (c) a preliminary indication of chemical structure-
activity relationships and (d) a clear basis for initiating chemical
optimization.
1.66 "Major European Country" shall mean any of France, Germany, Italy, or
the United Kingdom.
1.67 "Marketing Account" shall have the meaning set forth in Section
6.1.8(d).
1.68 "Marketing Steering Committee" or "MSC" shall have the meaning set
forth in Section 3.2.
1.69 "NDA" shall mean a New Drug Application, as defined in the FD&C Act,
that is required to be approved by the FDA before marketing a
Product, or an equivalent foreign filing.
1.70 "Net Profits" shall mean, with respect to the sales of any Product in
a country of the Copromotion Territory, the Net Sales of such Product
in such country, less the following expenses (deducted in the
sequence listed) allocable to such Product in such country: (a) the
Cost of Goods Manufactured for Sale, and (b) the Parties' combined
Sales and Marketing Expenses, a Party's Incremental Sales Force
Expenses, if any, a Party's Extra Effort Expense, if any, and the
Parties' combined Post-Approval Research and Regulatory Expenses.
1.71 "Net Sales" shall mean the gross amounts charged for sales of
Products by AHPC, its Affiliates, or sublicensees, as appropriate, to
non-Affiliate Third Parties on which payments are due under this
Agreement, less the sum of (a) and (b) where (a) is a provision,
determined under Generally Accepted Accounting Principles in the
United States, for (i) reasonable trade, cash and quantity
<PAGE>
discounts or rebates (other than price discounts granted at the time
of sale), reasonable service allowances and reasonable broker's or
agent's commissions, if any, actually allowed or paid, (ii) credits
or allowances actually given or made for rejection or return of,
previously sold Products or for retroactive price reductions
(including Medicaid, managed care and similar types of rebates),
(iii) taxes, duties or other governmental charges levied on or
measured by the billing amount (excluding income and franchise
taxes), as adjusted for rebates and refunds, and (iv) reasonable
credits or allowances actually given or made for wastage replacement,
and (v) charges actually incurred for packing, freight, and shipping
from AHPC's or its Affiliates' distribution center and insurance
directly related to such packing, freight, and shipping of such
Product (excluding amounts reimbursed by Third Party customers and
any amounts associated with packing, freight, and shipping to and
holding at AHPC's or its Affiliate's distribution center, which
amounts are included within the Cost of Goods Manufactured for Sale)
and (b) is a periodic adjustment of the provision determined in (a)
to reflect amounts actually incurred for (i), (ii), (iii), (iv), and
(v). A "sale" of a Product is deemed to occur upon the invoicing, or
if no invoice is issued, upon the earlier of shipment or transfer of
title in the Product to a Third Party. If a Product is sold or
distributed for use in combination with or as a component of another
product or products (a "Combination Product"), the calculation of
"Net Sales" from such Combination Product will be determined by
multiplying the Net Sales for such Combination Product calculated as
set forth above by a fraction, the numerator of which is the fair
market value of the Product in such Combination Product, and the
denominator of which is the fair market value of the Combination
Product. If a Product is sold as part of a bundle of distinct
products (i.e., not (i) packaged together with another product or
(ii) in a Combination Product form alone,) the Net Sales for such
Product will be based on the discounted unit price of such Product
sales, which discounted unit price shall be proportional to the total
discount provided for the entire bundle (e.g., if, the price for the
bundle of products is twenty percent (20%) lower than the price that
would be charged by AHPC, its Affiliates or sublicensees for the same
group of products if sold separately, based on the average unit price
of such products when sold separately, then the discounted unit price
attributable to the Product when sold as part of such bundle would be
eighty percent (80%) of the average unit price of the Product when
sold separately by AHPC, its Affiliates or sublicensees.
1.72 "Non-Collaboration Invention" of a Party shall mean an Invention
owned or Controlled by either Party, which Invention (a) is made
solely by such Party's employees, agents or subcontractors during the
term of this Agreement or otherwise comes into the Control of such
Party during the term of this Agreement and(b) is not made in the
performance of the Research Program.
1.73 "Patent Rights" shall mean any and all (a) patents, (b) pending
patent applications, including, without limitation, all provisional
applications, substitutions, continuations, continuations-in-part,
divisions, renewals, and all patents granted thereon, and (c) all
patents-of-addition, reissues, reexaminations
<PAGE>
and extensions or restorations by existing or future extension or
restoration mechanisms, including, without limitation, supplementary
protection certificates or the equivalent thereof, that, (i) during
the Term of this Agreement, are owned or Controlled by either Party,
and (ii) claim any Invention.
1.74 "Penalty Year" for a Party shall mean the calendar year following a
Lapse Year.
1.75 "Phase I Clinical Study" shall mean a study, conducted in accordance
with a protocol approved by the JSC, of a Development Candidate in
human volunteers or patients with the endpoint of determining initial
tolerance, safety and/or pharmacokinetic information in single dose,
single ascending dose, multiple dose and/or multiple ascending dose
regimens.
1.76 "Phase II Clinical Study" shall mean a study, conducted in accordance
with a protocol approved by the JSC, of a Development Candidate in
patients to determine initial efficacy and dose range finding before
embarking on Phase III Clinical Studies.
1.77 "Phase III Clinical Study" shall mean a pivotal study in patients, ,
conducted in accordance with a protocol approved by the JSC, which
protocol is designed to ascertain efficacy and safety of a Product
for the purpose of preparing and submitting applications for
Regulatory Approval to the competent Regulatory Authorities in a
country of the world.
1.78 "Post-Approval Research and Regulatory Expenses" shall mean those
expenses incurred, on a Product by Product and country by country
basis, by either Party directly attributable to (a) ongoing research
and development of a Product after such Product has received
Regulatory Approval in such country of the Copromotion Territory,
including, without limitation, Phase IV clinical studies and clinical
studies in support of additional indications within the Field or
labeling changes for such Product in such country and/or (b)
complying with its regulatory reporting obligations in the
Copromotion Territory in accordance with Section 5.4.
1.79 "Pre-Development Expenses" shall mean, on a Compound by Compound
basis, the expenses (other than Third Party License Fees) incurred by
the Parties after the Effective Date in performing the Screening
Phase and the Research Phase of the Research Program.
1.80 "Pre-Marketing Expenses" shall mean those expenses incurred on a
country by country and Product by Product basis within the
Copromotion Territory, by either Party, other than R&D Expenses,
before Regulatory Approval of a Product in such country, directly
attributable to the carrying out of such Party's obligations under
the Copromotion Territory Commercialization Plan in preparation for
the marketing, promotion, sale and distribution of such Product in
such country. Such expenses may include, without limitation, costs
incurred for professional
<PAGE>
education, Product related public relations, relationships with
opinion leaders and professional societies, market research, health
care economics studies, and establishment of the supply chain for the
distribution and sale of such Product in such country. Such expenses
may include both internal expenses incurred by a Party as well as
out-of-pocket expenses paid to Third Parties by a Party at reasonable
rates pre-approved by the MSC.
1.81 "Pre-Marketing Expense Shortfall" shall have the meaning set forth in
Section 6.1.8(f).
1.82 "Prior Invention" of a Party shall mean an Invention owned or
Controlled by either Party, which Invention is made solely by the
Party's employees, agents or subcontractors before the Effective Date
or which otherwise came into the Control of such Party before the
Effective Date.
1.83 "Product" shall mean any pharmaceutical product, for use in the
Field, containing one or more Development Candidates as an active
ingredient.
1.84 "Promotion" shall mean those activities, including, without
limitation, Detailing and distributing Samples of a Product, normally
undertaken by a pharmaceutical company's sales force to implement
marketing plans and strategies aimed at encouraging the appropriate
use of a particular Product. When used as a verb, "Promote" shall
mean to engage in such activities.
1.85 "R&D Account" shall have the meaning set forth in Section 4.6.3.
1.86 "R&D Reimbursement Account" shall have the meaning set forth in
Section 7.1(b).
1.87 "R&D Shortfall" shall have the meaning set forth in Section 4.6.5.
1.88 "Reduced Royalty Rate Period" for a Product in a country means the
period beginning on the expiration of the Full Royalty Rate Period
for the Product in that country, or if there is no Full Royalty Rate
Period for that Product in that country, then beginning on the First
Commercial Sale of the Product in that Country, and ending on the
twenty-fifth (25/th/) anniversary of the Effective Date.
1.89 "Regulatory Approval" shall mean the technical, medical and
scientific licenses, registrations, authorizations and approvals
(including, without limitation, approvals of NDAs, supplements and
amendments, pre- and post-approvals, pricing and third party
reimbursement approvals, and labeling approvals) of any national,
supra-national, regional, state or local regulatory agency,
department, bureau, commission, council or other governmental entity,
necessary for the commercial manufacture, distribution, marketing,
promotion, offer for sale, use, import, export and sale of Product(s)
in a regulatory jurisdiction.
<PAGE>
1.90 "Regulatory Authority" shall mean any national (e.g., the United
States Food and Drug Administration), supra-national (e.g., the
European Commission, the Council of the European Union, or the
European Agency for the Evaluation of Medicinal Products), regional,
state or local regulatory agency, department, bureau, commission,
council or other governmental entity in each country of the world
involved in the granting of Regulatory Approval for the Product.
1.91 "Research" shall mean, on a Compound by Compound basis, those
preclinical activities undertaken by or on behalf of either Party
subsequent to Screening and prior to Development of such Compound,
including, without limitation, medicinal chemistry, pharmacology,
preclinical toxicology, and formulation of such Compound in the
Field.
1.92 "Research Phase" shall have the meaning set forth in Section 4.3.2.
1.93 "Research Program" shall have the meaning set forth in Section 4.1.
1.94 "Sales and Marketing Expenses" shall mean those expenses directly
allocable, on a Product by Product and country by country basis, to
the Parties' market development and/or Promotion of such Product in
the Copromotion Territory, consistent with the Copromotion Territory
Commercialization Plan for such Product. Sales and Marketing Expenses
shall include: (a) costs for Promotion of the Product, excluding
costs of the field sales force personnel (i.e., Detailing expenses,
including, without limitation, salaries, bonus, benefits, sales force
automation, and personnel expenses -- telephone, supplies, postage,
meetings, travel and voice mail including all information
technology); (b) out-of-pocket payments to Third Parties incurred by
such Party and specifically attributable to such Party's performance
under the Copromotion Territory Commercialization Plan, excluding
Third Party License Fees, (c) costs for activities related to
obtaining reimbursement from payers, (d) market research costs
(including, without limitation, actual costs of sales and marketing
data), (e) marketing and advertising costs (including, without
limitation, cost for preparing and reproducing detail aids and other
promotional materials), (f) professional education, (g) Product
related public relations, (h) costs of pharmacoeconomics studies, (i)
costs for manufacturing and distributing Product Samples, and (j)
costs for conducting seminars and establishing relationships with
opinion leaders and professional societies in connection with the
Product. Such costs will include both internal costs (e.g., salaries,
benefits, supplies and materials, etc.) as well as the actual amounts
paid to outside service providers (e.g., consultants, agency fees,
meeting costs, etc.). Sales and Marketing Expenses will specifically
exclude the cost of activities that promote either Party's business
as a whole without being Product specific (such as corporate image
advertising) as well as Extra Effort Expenses, and Incremental Sales
Force Expenses.
<PAGE>
1.95 "Sample" shall mean a unit of a Product, as used by AHPC, that is
not intended to be sold and is intended to promote the sale of such
Product. When used as a verb, "Sample" shall mean to provide Samples
to Target Physicians.
1.96 "Sample Receipt Forms" shall mean those multi-part paper forms (or
an electronic version thereof) supplied by AHPC for the purpose of
recording Detail and Sample activity performed by ViroPharma sales
representatives during Details. These forms are also used as Sample
receipts on which to obtain a physician's signature in
acknowledgment of the physician's receipt of Samples.
1.97 "Screening" shall mean screening and identification of Compounds,
including, without limitation, Compounds from the ViroPharma
Chemical Library or the AHPC Chemical Library to determine whether
such Compounds may have activity against an Active Collaboration
Target.
1.98 "Screening Phase" shall have the meaning set forth in Section 4.3.1.
1.99 "Small Molecule" shall mean any Compound that is not a Biomolecule.
1.100 "Surviving Entity" of a Change of Control of ViroPharma shall mean:
(a) a Third Party that has acquired substantially all of the assets
of ViroPharma or 100% of the outstanding shares of voting capital
stock of ViroPharma pursuant to a Change of Control, (b) a company
that results from the merger of ViroPharma and another entity
pursuant to a Change of Control, or (c) ViroPharma if a Third Party
acquires more than 50% but less than 100% of the outstanding shares
of voting capital stock of ViroPharma pursuant to a Change of
Control.
1.101 "Tail Compound" shall have the meaning set forth in Section 4.3.3.
1.102 "Target" shall mean a molecular entity for which there is sufficient
information, data, or valid reason to believe that perturbation of
such entity would be sufficient to prevent or affect the course of
human disease caused by the HCV.
1.103 "Target Market" shall mean the segments of the overall market for a
Product to whom a Party will Promote such Product.
1.104 "Target Physician" shall mean each physician and other health care
professional and organization to whom either Party Details a Product
in the Copromotion Territory.
1.105 "Term of the Screening Phase" shall mean, with respect to any
Compound, the Initial Term of the Screening Phase and all extensions
made thereto with respect to such Compound in accordance with
Section 4.3.1.
1.106 "Third Part(y/ies)" shall mean any person(s) or entit(y/ies) other
than AHPC, ViroPharma or their respective Affiliates.
<PAGE>
1.107 "Third Party License Fee" shall mean license fees, royalties and
other amounts paid to any Third Party for the license under
intellectual property rights of technology necessary or useful for
Screening, Research, Development or Commercialization, which license
is entered into, during the term of this Agreement, by a Party
pursuant to Section 8.2.3.
1.108 "Trademark" shall mean those registered trademarks used in
connection with the Commercialization of any Product by either Party
hereunder, provided, however, that the term "Trademark" shall not
include the tradename of either Party or any trademark or tradedress
of either Party which is not used exclusively in connection with the
Products Commercialized under this Agreement.
1.109 "Valid Claim" shall mean a claim that (i) in the case of any
unexpired United States or foreign patent, shall not have been
donated to the public, disclaimed, nor held invalid or unenforceable
by a court or government agency of competent jurisdiction in an
unappealed or unappealable decision, or (ii) in the case of any
United States or foreign patent application, shall not have been
canceled, withdrawn, or abandoned without being refiled in another
application or finally rejected by an administrative agency action
from which no appeal can be taken, or shall not have been pending
for more than five years. For purposes of this definition, time
periods shall be measured cumulatively for claims in a later filed
application in a country which are substantially the same as claims
in an earlier filed application in that country. If a claim of a
patent application that ceased to be a Valid Claim under (ii) due to
the passage of time later issues as part of a patent described
within (i) then it shall again be considered to be a Valid Claim
effective as of the issuance of such patent.
1.110 "ViroPharma Chemical Library" shall mean those Compounds that
ViroPharma, as of the Effective Date owns or Controls, or that come
into ViroPharma's Control during the term of the Research Program.
1.111 "ViroPharma Know-How" shall mean Know-How, excluding the
Collaboration Know-How, that ViroPharma owns or Controls as of the
Effective Date or that comes into the Control of ViroPharma during
the term of this Agreement.
1.112 "ViroPharma Patent Rights" shall mean Patent Rights that ViroPharma
owns or Controls as of the Effective Date or that come into the
Control of ViroPharma during the term of this Agreement, which
Patent Rights claim any ViroPharma Prior Invention and/or ViroPharma
Non-Collaboration Invention. Those ViroPharma Patent Rights known to
be existing as of the Effective Date are listed on Exhibit 1.112
attached hereto.
1.113 "ViroPharma Technology" shall mean the ViroPharma Patent Rights,
ViroPharma's interest in the Collaboration Patent Rights, the
ViroPharma Know-How, ViroPharma's interest in the Collaboration
Know-How, and the ViroPharma Assay and Screening Technology.
<PAGE>
2. LICENSES.
2.1 Licenses to AHPC. Subject to the terms and conditions of this
Agreement, including, without limitation, Sections 2.4 and 2.6
hereof, ViroPharma hereby grants to AHPC:
(a) the exclusive worldwide right and license, without the right to
grant sublicenses (except to AHPC's Affiliates or ViroPharma), to
use the ViroPharma Technology, the ViroPharma Chemical Library,
and the Collaboration Targets only to the extent necessary for
AHPC to exercise its rights and perform its obligations under the
Research Program and to exercise its rights and perform its
obligations during the Screening Phase Tail; and
(b) the exclusive worldwide right and license, with the right to
sublicense one or more of its Affiliates, ViroPharma and/or Third
Parties (provided, however, that in the Copromotion Territory,
AHPC may only grant sublicenses to one or more or its Affiliates
and ViroPharma), to use the ViroPharma Technology, the
Collaboration Targets, and the ViroPharma Chemical Library only
to the extent necessary to Develop and Commercialize Hits, Lead
Compounds, Development Candidates and Products for use in the
Field.
2.2 Licenses to ViroPharma. Subject to the terms and conditions of this
Agreement, including, without limitation, Sections 2.4 and 2.6
hereof, AHPC grants to ViroPharma:
(a) the nonexclusive right and license, without the right to grant
sublicenses (except to ViroPharma Affiliates), to use the AHPC
Technology, the AHPC Chemical Library, the ViroPharma Technology,
the ViroPharma Chemical Library, and the Collaboration Targets
only to the extent necessary for ViroPharma to exercise its
rights and perform its obligations under the Research Program and
to exercise its rights and perform its obligations during the
Screening Phase Tail;
(b) the nonexclusive right and license, without the right to grant
sublicenses (except to ViroPharma Affiliates), to use the AHPC
Technology, the AHPC Chemical Library, the ViroPharma Technology,
the ViroPharma Chemical Library, and the Collaboration Targets
only to the extent necessary for ViroPharma to Promote Products
in the Copromotion Territory in accordance with Section 6.1 of
this Agreement; and
(c) the nonexclusive right and license, without the right to grant
sublicenses (except to ViroPharma Affiliates), to use the
Trademarks and Copyrights
<PAGE>
in the Copromotion Territory during the term of this Agreement
only to the extent such license is necessary for ViroPharma to
Promote Products in the Copromotion Territory in accordance with
Section 6.1 of this Agreement.
2.3 Sublicensing to Third Party Contractors. Notwithstanding any provision
to the contrary in this Agreement, if pursuant to Section 4.5, the JSC
approves the utilization of one or more Third Parties to perform
certain tasks under the Research Program, the Party entering into a
contract with such Third Party for the performance of such services,
may, as part of such contract, grant to such Third Party a
nonexclusive, nontransferable, nonsublicensable license or sublicense,
as applicable, under the ViroPharma Technology or the AHPC Technology,
as applicable, only to the extent and only for so long as such license
or sublicense is necessary for such Third Party to perform such tasks
under the Research Program. Likewise, to the extent that either Party
enters into a contract with a Contract Sales Organization to perform
all or part of its obligations in Promoting Products pursuant to
Section 6.1.1 hereof, such Party may, as a part of such contract,
grant to such Third Party a nonexclusive, nontransferable,
nonsublicensable license or sublicense, as applicable, under the
ViroPharma Terchnology or the AHPC Technology, as applicable, only to
the extent and only for so long as such license or sublicense is
necessary for such Third Party to perform such Promotion. All such
contracts and sublicenses entered into by either Party with a Contract
Sales Organization shall be subject to the prior written approval of
the MSC, which approval shall not be unreasonably withheld or delayed.
2.4 Dropped Compounds. Upon the written determination of the JSC not to
advance a Compound further in Screening, Research, Development, or
Commercialization hereunder, such Compound shall no longer be included
in the rights licensed by one Party to the other Party under Section
2.1 or 2.2, provided, however, that for so long as either (a) there is
at least one Development Candidate being studied hereunder during the
Development Phase of the Research Program or (b) a Product is being
marketed in the Field by AHPC pursuant to this Agreement, neither
Party will develop or commercialize in the Field, independently or in
collaboration with any Third Party, such Compound or any Derivative
thereof without the prior written consent of the other Party.
2.5 Direct Licenses to Party Affiliates. Either Party may at any time
request and authorize the other Party to grant licenses directly to
Affiliates of the requesting Party by giving written notice
designating to whom a direct license is to be granted. Upon receipt of
any such notice, the requested Party shall enter into and sign a
separate direct license agreement with such designated Affiliate of
the requesting Party. All such direct license agreements shall be
consistent with the terms and conditions of this Agreement, except for
such modifications as may be required by the laws and regulations in
the country in which the direct license will be exercised. In
countries where validity of the direct license agreement requires
prior government approval or registration, such direct license
agreement shall not
<PAGE>
become binding between the parties thereto until such approval or
registration is granted, which approval or registration shall be
obtained by the requesting Party. All costs of making a direct license
under this Section 2.5 shall be borne by the requesting Party.
2.6 Exclusive Working Relationship. Notwithstanding the licenses granted
under Sections 2.1 and 2.2 hereof, it is expressly understood and
agreed by the Parties that
(a) during the Screening Phase and the Screening Phase Tail,
ViroPharma and its Affiliates shall work exclusively with AHPC
and AHPC's Affiliates in the Screening, Research, Development and
Commercialization of Compounds and pharmaceutical products for
use in the Field, provided, however, that during the Screening
Phase Tail, either Party and/or its Affiliates shall be free to
continue the Screening of Tail Compounds either independently or
exclusively with the other Party and the other Party's
Affiliates, but not with any Third Party,
(b) after the end of the Screening Phase Tail ViroPharma and its
Affiliates shall be free to conduct Screening of Compounds (other
than Compounds from the AHPC Chemical Library or to which AHPC
otherwise has proprietary rights) against Targets that are not
Active Collaboration Targets and, provided that such Compounds
are not active against any Active Collaboration Target,
ViroPharma and its Affiliates shall be free to conduct Research,
Development and Commercialization with respect to such Compounds,
(c) during the Research Program, AHPC and its Affiliates shall work
exclusively with ViroPharma and its Affiliates on the development
of Compounds which are directed against Active Collaboration
Targets, and
(d) during the term of this Agreement, neither Party nor its
Affiliates shall develop or commercialize any Active Compound for
use outside of the Field, except in collaboration with the other
Party and such other Party's Affiliates pursuant to an agreement
to be negotiated by the Parties. Notwithstanding the foregoing,
once a Compound has ceased to be an Active Compound, the Parties
and their respective Affiliates shall be free to develop and/or
commercialize such Compound for use outside of the Field,
provided, however, that with respect to such Compound, as of the
time such Compound ceases to be an Active Compound, AHPC and its
Affiliates shall have no further rights or licenses under the
ViroPharma Technology and ViroPharma and its Affiliates shall
have no further rights or licenses under the AHPC Technology.
For the sake of clarity, AHPC would have no obligation to work
exclusively with ViroPharma (i) with respect to any Biomolecule based
pharmaceutical products
<PAGE>
regardless of the Target of such product, (ii) with respect to Small
Molecules based pharmaceutical products directed against Targets that
are not, at such time, Active Collaboration Targets, and (iii) during
the Development Phase, with respect to Small Molecule based
pharmaceutical products directed against Targets for which no Small
Molecule based pharmaceutical product is then being Developed under
this Agreement.
2.7 Right of Reference. Each Party hereby grants the other a "Right of
Reference," as that term is defined in 21 C.F.R. (S) 314.3(b), to any
data developed under this Agreement, and a Party shall provide a
signed statement to this effect, if requested by the other, in
accordance with 21 C.F.R. (S) 314.50(g)(3).
3. MANAGEMENT OF COLLABORATION.
3.1 Joint Steering Committee.
3.1.1 Formation; Membership. Within thirty (30) days after the
Effective Date, ViroPharma and AHPC shall establish a Joint
Steering Committee (the "JSC") to oversee and control the
collaborative discovery and preclinical and clinical
development of Compounds and Products for use in the Field, as
further described below in this Agreement. The JSC shall be
composed of an equal number of from two (2) to four (4)
representatives from each Party as appointed by such Party,
which representatives shall have expertise suitable to the
then-current activities of the collaboration. The JSC shall
initially have two (2) representatives from each Party, but the
JSC may change its size from time to time by mutual consent of
its members, provided, however, that the size of the JSC shall
be no less than four (4) members and no greater than eight (8)
members. A Party may replace one or more of its representatives
from time to time upon written notice to the other Party. From
time to time, the JSC may establish subcommittees to oversee
specific projects or activities and such subcommittees shall be
constituted as the JSC shall determine, but shall always
include at least one (1) member from each Party. The JSC will
exist until the termination of the Research Program, as set out
in Section 4.3, unless the Parties otherwise agree in writing.
3.1.2 Chairperson; Secretary. The chairperson of the JSC shall be
designated by AHPC. The chairperson will be responsible for
scheduling meetings of the JSC, preparing agendas for meetings,
sending to all JSC members notices of all regular meetings and
agendas for such meetings at least five (5) business days
before such meetings. The chairperson shall appoint a secretary
for each meeting who will record the minutes of the meeting,
circulate copies of meeting minutes to the Parties and each JSC
member promptly following the meeting for review, comment and
approval and finalize approved meeting minutes.
<PAGE>
3.1.3 Meetings. The JSC shall meet at least once each Calendar
Quarter during the term of the Research Program, unless
otherwise mutually agreed by the Parties. Either Party may call
a special meeting of the JSC on fifteen (15) days written
notice to the other Party and each of the JSC members. Such
written notice shall include an agenda for the special meeting.
Meetings, including, without limitation, special meetings, of
the JSC will alternate between the offices of the Parties,
unless otherwise agreed by the members of the JSC, or may be
held telephonically or by video-conference. Meetings of the JSC
shall be effective only if at least one (1) representative of
each Party is in attendance or participating in the meeting.
Members of the JSC shall have the right to participate in and
vote at meetings by telephone. The most senior attending
representative of each Party on the JSC shall have the right to
vote on behalf of any members of the JSC from such Party not
attending a JSC meeting in person or by telephone. Each Party
shall be responsible for expenses incurred by its employees and
its members of the JSC in attending or otherwise participating
in JSC meetings.
3.1.4 Decision Making. All decisions of the JSC shall be made by
majority vote. ************
3.1.5 Responsibilities of the JSC. In addition to its general
responsibility to oversee and coordinate the development of
Compounds and Products in the Field according to the Global
Research and Development Plan and ensure a regular flow of
research and development information between the Parties, the
JSC shall in particular:
(a) develop the Global Research and Development Plan and the
Annual Development Plan and Budget for the remainder of
calendar year 1999 and for calendar year 2000 within sixty
(60) days after the Effective Date;
(b) review and update as necessary the Global Research and
Development Plan and develop an Annual Development Plan and
Budget for activities under the Global Research and
Development Plan for subsequent calendar years no later
than the October 31 immediately preceding each such
subsequent calendar year;
(c) oversee the activities of each Party's project team that is
performing such Party's obligations under the Research
Program;
(d) facilitate the flow of information between the Parties with
respect to all development work being conducted for each
Compound and Product in the Field on a worldwide basis;
<PAGE>
(e) review and approve all scientific and clinical protocols,
which shall provide that all preclinical and clinical
development work under this Agreement shall be conducted
in accordance with GLPs and GCPs;
(f) review and approve the contents and filing of INDs,
applications for Regulatory Approval, and related and
supporting submissions to Regulatory Authorities; and
(g) until such time as the MSC is formed, review and approve
premarketing activities and expenses.
3.2 Marketing Steering Committee.
3.2.1 Formation; Membership. As soon as agreed by the JSC, but not
later than thirty (30) days after the initiation of the first
Phase III Clinical Study of a Product, ViroPharma and AHPC
shall establish a Marketing Steering Committee (the "MSC") to
develop and coordinate a Copromotion Territory
Commercialization Plan and Annual Commercialization Plans and
Budgets and to oversee the execution of each Party's
responsibilities in the Copromotion Territory under the
Copromotion Territory Commercialization Plan and the applicable
Annual Commercialization Plan and Budget. The MSC shall be
composed of an equal number of from two (2) to four (4)
representatives from each Party as appointed by such Party,
which representatives shall have expertise suitable to the
then-current activities of the collaboration. The MSC shall
initially have two (2) representatives from each Party, but the
MSC may change its size from time to time by mutual consent of
its members, provided, however, that the size of the MSC shall
be no less than four (4) members and no greater than eight (8)
members. A Party may replace one or more of its representatives
from time to time upon written notice to the other Party. From
time to time, the MSC may establish subcommittees to oversee
specific projects or activities and such subcommittees shall be
constituted as the MSC shall determine, but shall always
include at least one (1) member from each Party. The MSC will
exist for so long as a Product is Promoted by both of the
Parties in the Copromotion Territory pursuant to this Agreement
unless otherwise agreed, in writing, by the Parties.
3.2.2 Chairperson; Secretary. The chairperson of the MSC shall be
designated by AHPC. The chairperson will be responsible for
scheduling meetings of the MSC, preparing agendas for meetings,
sending to all MSC members notices of all regular meetings and
agendas for such meetings at least five (5) business days
before such meetings. The chairperson shall appoint a secretary
for each meeting who will record the minutes of the meeting,
circulate copies of meeting minutes to the Parties and each MSC
<PAGE>
member promptly following the meeting for review, comment and
approval and finalize approved meeting minutes.
3.2.3 Meetings. After the MSC is formed in accordance with Section
3.2.1, the MSC shall meet at least once each Calendar Quarter,
unless otherwise mutually agreed by the Parties. Either Party
may call a special meeting of the MSC on fifteen (15) days
written notice to the other Party and each of the MSC members.
Such written notice shall include an agenda for the special
meeting. Meetings, including, without limitation, special
meetings, of the MSC will alternate between the offices of the
Parties, unless otherwise agreed by the members of the MSC, or
may be held telephonically or by video-conference. Meetings of
the MSC shall be effective only if at least one (1)
representative of each Party is in attendance or participating
in the meeting. Members of the MSC shall have the right to
participate in and vote at meetings by telephone. The most
senior attending representative of each Party on the MSC shall
have the right to vote on behalf of any members of the MSC from
such Party not attending a MSC meeting in person or by
telephone. Each Party shall be responsible for expenses
incurred by its employees and its members of the MSC in
attending or otherwise participating in MSC meetings.
3.2.4 Decision Making. All decisions of the MSC shall be made by
majority vote *******************.
3.2.5 Responsibilities of the MSC. In addition to its general
responsibility to oversee and coordinate the Commercialization
of Products in the Copromotion Territory according to the
Copromotion Territory Commercialization Plan, the MSC shall in
particular:
(a) not later than sixty (60) days after the filing of the
first application for Regulatory Approval of a Product in
the Copromotion Territory, complete and approve a
Copromotion Territory Commercialization Plan for such
Product and an Annual Commercialization Plan and Budget for
such Product covering the period through the end of the
first full calendar year after anticipated Regulatory
Approval;
(b) oversee and coordinate the activities of the Parties in
marketing, selling and distributing Products in the
Copromotion Territory during the Term of this Agreement
following Regulatory Approval of such Products in the
Copromotion Territory; and
(c) not later than September 30 of each year after formation of
the MSC establish an Annual Commercialization Plan and
Budget describing each of the Parties' Commercialization
activities and forecast the expected sales level of
Products each in the
<PAGE>
Copromotion Territory during the following calendar year,
which will guide the schedule of production of Products.
3.3 Executive Steering Committee.
3.3.1 Formation; Membership. Within thirty (30) days after the
Effective Date, ViroPharma and AHPC shall establish an
Executive Steering Committee (the "ESC") to resolve disputes
arising within the JSC and the MSC. The ESC shall be composed
of two (2) representatives appointed by each of ViroPharma and
AHPC, provided, however, that no such representative is also a
member of either the JSC or the MSC. A Party may replace one
(1) or more of its representatives from time to time upon
written notice to the other Party. The ESC shall exist until
the expiration or earlier termination of this Agreement.
3.3.2 Chairperson; Secretary. The chairperson of the ESC shall be
designated by AHPC. The chairperson will be responsible for
scheduling meetings of the ESC, preparing agendas for meetings,
sending to all ESC members notices of all regular meetings and
agendas for such meetings at least five (5) business days
before such meetings. The chairperson shall appoint a secretary
for each meeting who will record the minutes of the meeting,
circulate copies of meeting minutes to the Parties and each ESC
member promptly following the meeting for review, comment and
approval and finalize approved meeting minutes.
3.3.3 Meetings. The ESC shall meet on an as needed basis, provided,
however, that the ESC shall meet and decide on each matter
presented to it within thirty (30) calendar days after each
such matter is referred to it by the JSC or the MSC, as
applicable. A matter shall be considered referred to the ESC as
of the date that either Party provides each member of the ESC
with a written description of the disputed matter, which
written description shall include the positions taken by each
member of the JSC or MSC, as applicable, as to such matter, all
other information relevant to such matter and a copy of the
minutes of each JSC or MSC meeting, as applicable, at which
such matter was discussed. Within ten (10) days after such
matter is so presented to the ESC, the chairman of the ESC
shall notify each member of the ESC of the date, time and
location of the ESC meeting to address such matter. The
meetings of the ESC will alternate between the offices of the
Parties, unless otherwise agreed by the members of the ESC, or
may be held telephonically or by video-conference. Meetings of
the ESC shall be effective only if at least one (1)
representative of each Party is in attendance or participating
in the meeting. An attending or participating representative of
a Party shall have the right to vote on behalf of non-attending
or non-participating member from such Party. Each Party shall
be responsible for expenses incurred by its employees and its
<PAGE>
members of the ESC in attending or otherwise participating in
ESC meetings.
3.3.4 Decision Making. All decisions of the ESC shall be made by
majority vote ************.
3.3.5 Dispute Resolution. If the ESC is unable to reach a decision
with respect to any matter, such matter shall be referred for
resolution ***********. The decision **************** with
respect to such matter pursuant to this Section 3.3.5 shall be
final and binding upon each of the Parties. Notwithstanding the
foregoing, if an unresolved matter is presented ***************
for resolution as provided in this Section 3.3.5,
***************** refer the matter back to the ESC or the JSC,
as applicable, for further consideration with a specified date
by which the ESC or JSC, as applicable, must either resolve the
matter or resubmit the matter ************* for final
resolution.
3.4 Authority. The Parties agree that, in voting on matters as described
in this Article 3, it shall be conclusively presumed that each voting
member of the JSC, MSC and ESC has the authority and approval of such
member's respective senior management in casting his or her vote and
decisions of the JSC, MSC and ESC made in accordance with this Article
3 shall be binding upon each of the Parties.
3.5 Project Coordinators. Each Party shall designate one or two of its
employees as project coordinator(s) for all of the activities
contemplated under this Agreement. Such project coordinators will be
responsible for the day-to-day coordination of the collaboration
contemplated by this Agreement and will serve to facilitate
communication between the Parties. A Party may, from time to time,
replace its designated project coordinator(s) upon providing the other
Party with written notice to that effect.
4. RESEARCH AND DEVELOPMENT.
4.1 The Research Program.
4.1.1 General. Under the terms and conditions set forth herein, AHPC
and ViroPharma will collaborate in the conduct of a
collaborative research program for the (i) identification and
validation of Targets and assay and screening methods utilizing
such Targets and (ii) the discovery, identification, screening,
and pre-clinical and clinical development of Compounds and
Products for use in the Field (collectively, the "Research
Program"). The Research Program shall consist of a Screening
Phase, a Screening Phase Tail, if applicable, and with respect
to any Compound identified by the JSC as a Hit during the
Screening Phase, a Research Phase and, if warranted, a
Development Phase. The Screening Phase of
<PAGE>
the Research Program (the "Screening Phase") will be focused on
the development of Targets, assays and Screening methods and
the Screening of the ViroPharma Chemical Library, the AHPC
Chemical Library and any other library selected by mutual
agreement of the Parties for the identification and validation
of Hits. The Research Phase of the Research Program (the
"Research Phase") will be focused on a medicinal chemistry
program for the further evaluation of Hits, the development and
validation of Lead Compound candidates, including, without
limitation, Derivatives of Hits, screening and testing of Lead
Compound candidates to identify and validate Lead Compounds,
the optimization of Lead Compounds and their Derivatives,
further preclinical Research and Screening of Lead Compounds to
identify and select Development Candidates, and the further
preclinical Development of Development Candidates. The
Development Phase of the Research Program (the "Development
Phase") will be focused on the clinical Development of
Development Candidates and Products.
4.2 Research & Development Plans.
4.2.1 Global Research and Development Plan. Within thirty (30) days
following its formation, the JSC shall prepare and approve a
global research and development plan (the "Global Research and
Development Plan"). The Global Research and Development Plan
shall consist of those tasks that the Parties agree are
essential to the validation of Targets, the discovery,
validation and preclinical and clinical development of
Compounds and Products for use in the Field, and obtaining
Regulatory Approval for Products in the world. The Global
Research and Development Plan shall be kept current by the JSC,
updated on such schedule as the JSC may determine but not less
often than once per calendar year. The Global Research &
Development Plan may only be modified or amended upon written
approval of the JSC.
4.2.2 Annual Development Plans. Within thirty (30) days following
its formation, the JSC shall prepare and approve an annual
development plan and budget (the "Annual Development Plan and
Budget") addressing the collaborative Screening, Research and
Development activities to be carried out by the Parties during
the remainder of calendar year 1999 pursuant to this Agreement
and the Global Research and Development Plan. Thereafter, on or
before October 31 of each year, the JSC shall prepare and
approve an Annual Development Plan and Budget addressing the
collaborative Screening, Research and Development activities to
be undertaken by the Parties during the following calendar year
pursuant to this Agreement and the then current Global Research
and Development Plan. Each Annual Development Plan and Budget
shall include, without limitation, detailed plans for the
characterization and validation of Targets, the discovery and
validation of Compounds for use in the Field, the
<PAGE>
collaborative research and development of Compounds and
Products for use in the Field, designation of which Party is
responsible for each task, staffing levels required to carry
out such activities, and a budget setting forth the estimated
expenditures required to carry out such activities. The Annual
Development Plan and Budget may only be modified or amended
upon written approval of the JSC.
4.3 Term of Research Program. The Research Program shall extend until the
termination of the latest of all of the following, including, if
applicable, the last meeting of the JSC necessary to determine whether
Hits in the Screening Phase Tail should be advanced to Development.
4.3.1 Screening Phase. The Screening Phase of the Research Program
shall begin on the Effective Date and, on a Collaboration
Target by Collaboration Target basis, unless extended in
accordance with this Section 4.3.1, shall extend until the
three (3) year anniversary of the Effective Date (the "Initial
Term of the Screening Phase") unless this Agreement is earlier
terminated in its entirety in accordance with Sections 11.4,
11.5, or 11.9.1 or with respect to such Collaboration Target in
accordance with Section 11.7. The Initial Term of the Screening
Phase of the Research Program may be extended by mutual
agreement of the Parties on terms substantially the same as
those set forth herein, unless otherwise agreed in writing by
the Parties. On or before the day one hundred eighty (180) days
before the expiration of the Initial Term of the Screening
Phase of the Research Program or the then current extension
thereof, as applicable, either Party may provide to the other
Party written notice of its desire to extend the Screening
Phase of the Research Program by one (1) additional year.
Promptly after the other Party's receipt of such written notice
the Parties shall commence discussions of the need and desire
to extend the Screening Phase of the Research Program and if
both Parties do not agree, in writing, to such extension on or
before the day sixty (60) days before the expiration of the
Initial Term of the Screening Phase or the then current
extension thereof, the Term of the Screening Phase shall expire
at the end of the Initial Term of the Screening Phase or the
then current extension thereof, as applicable.
4.3.2 Research Phase. The Research Phase of the Research Program
shall commence, on a Compound by Compound basis, upon the JSC's
designation of such Compound as a Hit, and shall extend until
the later of (a) the initiation of the Development Phase for
such Compound, or (b) such time as the JSC determines, in
writing, to discontinue all Research on such Compound and not
to advance such Compound to the Development Phase, unless
earlier terminated in accordance with Sections 11.4, 11.5, 11.7
or 11.9.1.
<PAGE>
4.3.3 Screening Phase Tail. The Screening Phase Tail shall begin
during the term of this Agreement, on a Compound-by-Compound
basis, when such Compound is first screened and found by either
Party to have any activity against any Collaboration Target,
whether or not such Compound is determined to be a Hit (a "Tail
Compound"), and shall extend until the two (2) year anniversary
of the end of the Term of the Screening Phase, unless this
Agreement is earlier terminated in its entirety in accordance
with Section 11.4 or 11.9.1 or pursuant to Section 11.7, with
respect to any Collaboration Target identified pursuant to
Section 11.7(b) for which the Research Program has been
terminated in accordance with Section 11.7, but regardless of
whether this Agreement is earlier terminated in accordance with
Section 11.5. Within ten (10) business days after the end of
each Calendar Quarter during the Screening Phase Tail each
Party shall provide to the other a written report detailing all
data and information obtained by such Party with respect to any
Tail Compound studied by such Party during such Calendar
Quarter. For the Calendar Quarter during which the Screening
Phase Tail ends, such written reports shall be provided within
ten (10) business days after the last day of the Screening
Phase Tail. At any time during the Screening Phase Tail, either
Party may propose in writing to the JSC that a Tail Compound
subject to the Screening Phase Tail be designated a Hit or Lead
Compound and be further developed. Additionally, within thirty
(30) days after the last day of the Screening Phase Tail, the
JSC shall meet to determine whether any of the Tail Compounds
studied by the Parties during the Screening Phase Tail shall be
designated as a Hit or Lead Compound and further developed. If
the JSC designates a Tail Compound as a Hit or Lead Compound,
then the Parties shall collaborate on further, Research,
Development and Commercialization of such Compound consistent
with the terms of this Agreement, regardless of whether this
Agreement is earlier terminated in accordance with Section
11.5, in which event, such earlier termination shall be void
and the effects of any such termination arising in accordance
with Section 11.5.2 shall be reversed such that each Party
thereafter has the rights it had immediately prior to such
termination. If the JSC in good faith determines not to
designate any such Tail Compound as a Hit or a Lead Compound,
then the Party owning such Compound may further Develop and
Commercialize such Compound independently of the other Party
subject to the restrictions of Section 2.6.
4.3.4 Development Phase. With respect to any Compound, the
Development Phase shall commence on the date an IND is filed
seeking permission from the appropriate Regulatory
Authority(ies) to conduct clinical studies of such Compound and
shall continue until the JSC agrees to cease the clinical
development of such Compound or until a Product containing such
Compound has received Regulatory Approval in the Copromotion
Territory and each country of the AHPC Territory where AHPC
determines to apply for Regulatory Approval.
<PAGE>
4.4 Selection of Additional Targets, Biomolecules, Hits, Lead Compounds,
Development Candidates and Products.
4.4.1 Selection of Additional Targets. During the Screening Phase,
the JSC may select one or more additional Targets as
Collaboration Targets against which to Screen Compounds for
activity. Likewise, during the term of the Screening Program,
the JSC may determine to discontinue Screening Compounds for
activity against one or more Targets or to reinstate the
screening of Compounds for activity against one or more Targets
that were previously discontinued from Screening.
4.4.2 Selection of Biomolecules as Compounds. Neither Party shall
Screen or conduct any Research or Development under this
Agreement on any Compound that is a Biomolecule unless the JSC
first approves, in writing, the inclusion of such Biomolecule
as a Compound under this Agreement.
4.4.3 Selection of Hits. The JSC shall review the data obtained by
the Parties in the Screening of Compounds, and, upon agreement
that such data support a determination that such Compound has
activity against the applicable Collaboration Target that meets
or exceeds an active threshold established by the JSC for that
Collaboration Target, such Compound shall be deemed to be a
Hit.
4.4.4 Selection of Lead Compounds. Based on criteria to be determined
by the JSC, the JSC may select Lead Compounds during the
Screening Phase, the Screening Phase Tail or the Research Phase
from (a) Hits in the ViroPharma Chemical Library, the AHPC
Chemical Library or any other library the Parties shall
mutually agree to screen in connection with the Research
Program, and/or (b) any Derivative of any such Hits.
4.4.5 Selection of Development Candidates. During the Research Phase,
the JSC may select Development Candidates from those Compounds
designated by the JSC as Lead Compounds and any Derivatives
thereof. The JSC's selection of Development Candidates shall be
based upon the JSC's determination to develop such Compound
toward IND filing, based on criteria established by the JSC,
which criteria may include, without limitation, consideration
of the following factors: in vitro efficacy and potency, in
vivo oral activity, efficacy and potency, medicinal chemistry
criteria, toxicology studies required for IND filing, ancillary
pharmacology studies, clinical drug substance stability and
formulation, scale up compound synthesis and other competitive
and commercial factors, including without limitation, the
proprietary position of such Compound.
4.4.6 Selection of Products. Development Candidates will become
Products upon the filing of an IND for such Development
Candidate, which filing
<PAGE>
will be made only after the JSC determines that such
Development Candidate is suitable for clinical trials based on
its preclinical profile and competitive and other commercial
considerations.
4.5 Conduct of the Research Program. ViroPharma and AHPC shall each use
its respective Commercially Reasonable Efforts to perform its
obligations under the Research Program in accordance with the Global
Research and Development Plan and the then current Annual Development
Plan and Budget and each Party shall perform such obligations in
accordance with applicable GLPs and GCPs. All activities to be
undertaken in the performance of the Research Program shall be carried
out by employees of the Parties and/or their respective Affiliates,
provided, however, that if either Party is able to reasonably
demonstrate, and the JSC agrees, that it would be in the best
interests of both Parties to contract with one (1) or more Third
Parties to perform certain tasks under the Research Program, the Party
responsible for such task may enter into a contract with a Third Party
to perform such task, which contract shall be subject to the prior
written approval of the JSC. In determining whether to utilize the
services of any Third Party in conducting activities under the
Research Program, the Parties shall consider, inter alia, what would
be the most efficient and cost-effective means for accomplishing the
proposed activity, any relevant intellectual property issues that may
impede a Third Party's ability to perform the proposed activity or
that may warrant limiting the performance of the proposed activity to
one of the Parties, and other relevant factors. The responsibility for
performing clinical studies of each Product will be assigned to AHPC
and/or Third Party contractors selected by the JSC in accordance with
this Section 4.5. Notwithstanding the foregoing, ViroPharma shall be
given the opportunity to perform three (3) clinical studies in the
Development of Products in the Copromotion Territory under this
Agreement, which clinical studies shall consist of one (1) Phase I
Clinical Study, one (1) Phase II Clinical Study and one (1) Phase III
Clinical Study ******************. Within thirty (30) days of the
JSC's deciding that a clinical study on a Product is warranted,
*****************. If the JSC agrees, in writing, such agreement not
to be unreasonably withheld, ***********************, the Annual
Development Plan and Budget for the calendar year in which such
clinical study is to take place shall assign responsibility for such
clinical study to ViroPharma, or be amended to reflect such assignment
of responsibility. ****************************** Notwithstanding the
foregoing, the JSC may assign to ViroPharma responsibility for
conducting additional clinical trials beyond the three (3) described
above in this Section 4.5.
4.6 Funding of the Research Program.
4.6.1 Pre-Development Expenses. The Parties shall share the Pre-
Development Expenses *****************************.
<PAGE>
4.6.2 Development Expenses. The Parties shall share the Development
Expenses, on a Product by Product basis, as follows:
(a) AHPC shall be responsible for *************** and
ViroPharma shall be responsible for ****************** of
the Development Expenses incurred by either Party.
(b) Expenses incurred by the Parties for the continued
development of a Product in a country of the Copromotion
Territory (i.e., for Phase IV clinical studies, studies
supporting approval of additional indications or labeling
changes or other post-marketing studies) will be treated
as Post-Approval Research and Regulatory Expenses
pursuant to Section 6.1.8(c).
4.6.3 Payment of Expenses; R&D Accounts. Subject to reconciliation as
provided in Section 4.6.5, each Party shall be responsible and
pay for the expenses incurred by it in performing its
obligations under the Research Program. Subject to the
limitations set forth in Section 4.6.4, each Party shall charge
all such expenses so incurred by it or its Affiliates to a
separate account created by such Party on its books and records
solely for the purpose of tracking expenses incurred in
connection with the Research Program (each, a "R&D Account").
Within thirty (30) days after the end of each Calendar Quarter,
each Party shall submit to the other Party a written summary of
all expenses charged to its R&D Account during such Calendar
Quarter, which summary shall be accompanied by reasonable
supporting documentation for such expenses.
4.6.4 Expense Limitations. The expenses charged by either Party to
its R&D Account in accordance with Section 4.6.3, shall not be
in an amount in excess of ************* of the amount included
for such expenses in the then current Annual Development Plan
and Budget unless the JSC recommends and the respective R&D
management of each Party approves such excess expenses.
Additionally, the Parties hereby agree that efforts of the
employees of a Party or its Affiliates in performing its
obligations under the Research Program shall be charged to such
Party's R&D Account at the rate of *******************, or such
other amount as may be agreed to from time to time in writing
by the Parties, for efforts in support of preclinical studies
of a Compound or otherwise performed in the Screening Phase or
the Research Phase of the Research Program and
***********************, or such other amount as may be agreed
to from time to time in writing by the Parties, for efforts in
support of clinical studies of a Compound or Product or
otherwise performed as part of the Development Phase of the
Research Program, provided, however, that only those efforts
that are contemplated by the Global Research and Development
Plan and/or the applicable Annual Development Plan and Budget
shall be chargeable by a Party to its R&D Account, except as
<PAGE>
otherwise approved in writing by the JSC. All payments made by
a Party to a Third Party in connection with the performance of
its obligations under the Research Program shall be charged to
such Party's R&D Account at such Party's actual out-of-pocket
cost. Expenses incurred by each Party for equipment, materials
and supplies utilized in performing its obligations under the
Research Program shall not be separately charged to such
Party's R&D Account, except for those expenses incurred by a
Party, with the prior written consent of the JSC, in the
purchase or making of equipment, materials or supplies (other
than common laboratory supplies, e.g., pipettes, test tubes,
petri dishes, reagents, and the like) that are to be used
exclusively in connection with the performance of such Party's
obligations under the Research Program (e.g., laboratory
animals, compounds that are Development Candidates, Products,
placebo supplies, etc.), which expenses shall be charged to
such Party's R&D Account at such Party's actual out-of-pocket
expense incurred in purchasing or making such equipment,
materials or supplies. Notwithstanding the foregoing, in the
case of materials supplied to the Parties by AHPC for use in
clinical trials of Compounds or Products, AHPC shall charge to
its R&D Account its Fully Absorbed Standard Cost for such
materials, as adjusted to account for manufacturing cost
variances allocable to such materials.
4.6.5 Reconciliation of Expenses. Within sixty (60) days after the
end of each calendar year, AHPC shall prepare a reconciliation
report, accompanied by reasonable supporting documents and
calculations, which reconciles the amounts charged to each
Party's R&D Account during such calendar year pursuant to
Section 4.6.3, including, without limitation, making any
necessary adjustments for prior period manufacturing cost
variances allocable to Products utilized in Development, and
the share of the Parties' aggregate Pre-Development Expenses
and Development Expenses to be allocated to each of the Parties
for such calendar year in accordance with Sections 4.6.1 and
4.6.2. Within thirty (30) days after AHPC delivers such
reconciliation report to ViroPharma, the net amount shown as
being due either AHPC or ViroPharma (the "R&D Shortfall") will
be paid by the Party owing such amount, provided, however, that
in the event ViroPharma is the Party owing such amount to AHPC,
ViroPharma may, by written notice to AHPC provided within such
thirty (30) day period, ************************************.
If, with respect to any calendar year, ViroPharma has an R&D
Shortfall for which it is to reimburse AHPC, the balance in the
R&D Reimbursement Account has been exhausted, and ViroPharma is
unable or otherwise fails to pay to AHPC all or part of the R&D
Shortfall before the end of the thirty (30) day period required
by this Section 4.6.5, then the unpaid portion of the R&D
Shortfall (the "Deferred Payment") shall accumulate interest at
the annual interest rate of twelve percent (12%), compounded
monthly, and shall be repaid to AHPC ************************
*****, until all
<PAGE>
such R&D Shortfalls and any interest accrued thereon are paid
in full. Notwithstanding the foregoing, all Deferred Payments
and all interest accumulating thereon shall be due and payable
to AHPC within seven (7) years after the end of the thirty (30)
day period described above in this Section 4.6.5. The failure
of ViroPharma to pay to AHPC all or part of an R&D Shortfall
prior to the end of such seven (7) year period shall not be a
material breach of this Agreement for purposes of Section 11.4.
4.6.6 Records and Audits. During the term of this Agreement, each
Party shall keep and maintain accurate and complete records
showing the expenses incurred by it in performing its
obligations under the Research Program during the three (3)
preceding calendar years, which books and records shall be in
sufficient detail such that each such expense can be (i)
allocated as a Pre-Development Expense or a Development Expense
and (ii) in the case of Development Expenses, allocated to
particular clinical trials or activities such that each Party's
responsibility for such expenses as provided in Section 4.6.2
can accurately be determined. Upon fifteen (15) days prior
written notice from a Party (the "Auditing Party"), the other
Party (the "Audited Party") shall permit an independent
certified public accounting firm of nationally recognized
standing selected by the Auditing Party and reasonably
acceptable to the Audited Party, to examine the relevant books
and records of the Audited Party and its Affiliates as may be
reasonably necessary to verify the reports submitted by the
Audited Party in accordance with Section 4.6.3 and the accuracy
of the reconciliation report prepared in accordance with
Section 4.6.5. An examination by a Party under this Section
4.6.6 shall occur not more than once in any calendar year and
shall be limited to the pertinent books and records for any
calendar year ending not more than thirty-six (36) months
before the date of the request. The accounting firm shall be
provided access to such books and records at the Audited
Party's facility(ies) where such books and records are normally
kept and such examination shall be conducted during the Audited
Party's normal business hours. The Audited Party may require
the accounting firm to sign a standard non-disclosure agreement
before providing the accounting firm access to the Audited
Party's facilities or records. Upon completion of the audit,
the accounting firm shall provide both AHPC and ViroPharma a
written report disclosing whether the reports submitted by the
Audited Party are correct or incorrect and the specific details
concerning any discrepancies. No other information shall be
provided to the Auditing Party. If the accountant determines
that, based on errors in the reports so submitted, the
reconciliation report prepared in accordance with Section 4.6.5
is incorrect, the Parties shall promptly revise the
reconciliation report and any additional amount owed by one
Party to the other shall be paid within thirty days after
receipt of the accountant's report, along with interest at the
annual interest rate of twelve percent (12%), compounded
monthly from the date that such additional amount should have
first been paid,
<PAGE>
provided, however, that no such interest shall be payable if
the errors leading to the reconciliation report being incorrect
were in the reports provided by the Party to receive such
additional amount. Additionally, if the accountant determines
that the reports submitted by the Audited Party overstate the
Audited Party's expenses by more than ten percent (10%), the
Audited Party shall reimburse the Auditing Party for the
expenses incurred by the Auditing Party in conducting the
audit.
4.7 Reporting and Disclosure.
4.7.1 Reports. Before each quarterly meeting of the JSC, ViroPharma
and AHPC will each provide the other with written copies of all
materials they intend to present at the JSC meeting plus, to
the extent not set forth in the JSC materials, a written report
summarizing any other material data and information arising out
of the conduct of the Research Program. If after receipt of any
such report, either Party shall request additional data or
information relating to Research Program data or Collaboration
Technology licensed hereunder, the Party to whom such request
is made shall promptly provide to the other Party such data or
information that such Party reasonably believes is necessary
for the continued conduct of the Research Program.
4.7.2 Quarterly Meeting. At the quarterly meeting of the JSC, AHPC
and ViroPharma will review in reasonable detail (i) all data
and information generated in the conduct of the Research
Program by each Party, and (ii) all Collaboration Technology
licensed hereunder developed by the Parties.
4.7.3 Disclosure. During the term of the Research Program, the
Parties will promptly disclose to one another all data,
information, Inventions, techniques and discoveries (whether
patentable or not) arising out of the conduct of the Research
Program and all Inventions, techniques and discoveries (whether
patentable or not) included in Collaboration Technology
licensed hereunder.
5. MANUFACTURING OF PRODUCTS; REGULATORY MATTERS.
5.1 Manufacturing. Pursuant to the licenses granted to AHPC in Section 2,
AHPC shall have the exclusive right to manufacture, either itself
and/or through Third Parties selected by AHPC, Products under the
Agreement. To the extent possible, AHPC shall notify ViroPharma at
least one (1) year before any anticipated occurrence of the inability
of AHPC to supply one hundred fifteen percent (115%) of the commercial
demands for Product in the Co-Promotion Territory as forecast by the
MSC. Within fifteen (15) days of such notice the MSC shall meet to
discuss the need to identify and obtain a secondary source of Product
supply to avoid or reduce the effect of any shortage. Additionally,
after the First Commercial Sale of a Product in the Copromotion
Territory, AHPC shall, by
<PAGE>
December 1 of each year, provide ViroPharma with an estimate of AHPC's
expected Fully Absorbed Standard Cost for manufacturing the full
estimated commercial needs for such Product for sale in the
Copromotion Territory for the upcoming calendar year. AHPC shall
provide ViroPharma with an updated estimate from time to time if an
unexpected event occurs that significantly raises or lowers the last
estimate that AHPC provided to ViroPharma.
5.2 Labeling. To the extent permitted by applicable laws and regulations,
as may be reasonably requested by ViroPharma, AHPC shall include in
all Product Labels, Labeling, and Packaging, as those terms are use in
the FD&C Act, a statement indicating that such Product was developed
in collaboration with ViroPharma.
5.3 Regulatory Approvals. AHPC shall file, in its own name, all
applications for Regulatory Approval for Products in the Copromotion
Territory and in those countries of the AHPC Territory where AHPC, in
its sole discretion, determines it is commercially advantageous to do
so. AHPC shall have the primary responsibility for communicating with
any Regulatory Authority regarding any application for Regulatory
Approval or any Regulatory Approval once granted, provided, however,
that ViroPharma shall, upon AHPC's request, and at ViroPharma's
expense, (a) provide AHPC with advice and reasonable assistance in (i)
developing a Regulatory Approval filing strategy for Products, (ii)
reviewing study reports from clinical trials of Products, (iii)
preparing applications for Regulatory Approval for Products, (iv)
preparing supplements to applications for Regulatory Approval for
Products, (v) responding to questions from Regulatory Authorities
regarding applications for Regulatory Approval or any supplement
thereto and (b) participate in interactions with Regulatory
Authorities concerning the Products.
5.4 Regulatory Reporting. AHPC shall be responsible for filing all reports
required to be filed in order to maintain any Regulatory Approvals
granted for Products in the world, including, without limitation,
adverse drug experience reports. ViroPharma shall cooperate with AHPC
in preparing and filing all such reports and, upon AHPC's request,
provide AHPC with any information in ViroPharma's possession or
Control which AHPC reasonably deems to be relevant to any such
reports. Notwithstanding the foregoing, to the extent ViroPharma has
or receives any information regarding any adverse drug experience
which may be related to the use of any Product, ViroPharma shall
promptly provide AHPC with all such information in accordance with the
Adverse Event Reporting Procedures (as may be amended from time to
time upon mutual agreement of the Parties) set forth in Exhibit 5.4
attached hereto. Expenses (both internal expenses and out-pocket costs
paid to a Third Party) incurred by a Party in performing its
regulatory reporting obligations under this Section 5.4 in connection
with Regulatory Approvals in the Copromotion Territory shall be
charged by such Party to such Party's Marketing Account for such
Product as a Post-Approval Research and Regulatory Expense. AHPC shall
be solely responsible for expenses incurred by
<PAGE>
it in performing its regulatory reporting obligations under this
Section 5.4 in connection with Regulatory Approvals in the AHPC
Territory.
6. COMMERCIALIZATION OF PRODUCTS.
6.1 Commercialization in the Copromotion Territory.
6.1.1 Principles of Copromotion. Pursuant to the licenses granted to
AHPC in Section 2, AHPC shall have the exclusive right to
Commercialize each Product in the Field in the Copromotion
Territory during the term of this Agreement. Notwithstanding
the foregoing, ViroPharma, subject to this Section 6.1 and
Section 11.6, shall have the right to Promote each Product,
jointly with AHPC, in the Copromotion Territory, using
professional sales representatives that are full time employees
of ViroPharma or that are employees of Contract Sales
Organizations ("CSOs"). The Parties' marketing activities shall
comply with the terms of this Agreement and the Copromotion
Territory Commercialization Plan.
6.1.2 Commercialization Plan. On a Product by Product basis, not
later than sixty (60) days after the filing of the first
application for Regulatory Approval of a Product in the
Copromotion Territory, the MSC shall prepare and approve a
rolling multiyear (not less than three (3) years) plan for
Commercializing such Product in the Copromotion Territory (the
"Copromotion Territory Commercialization Plan"), which plan
includes a comprehensive market development, marketing, sales,
supply and distribution strategy for such Product in the
Copromotion Territory. The Copromotion Territory
Commercialization Plan shall be updated by the MSC at least
once each calendar year such that it addresses no less than the
three (3) upcoming years. Not later than thirty (30) days after
the filing of the first application for Regulatory Approval of
a Product in the Copromotion Territory and thereafter on or
before September 30 of each calendar year, the MSC shall
prepare an annual commercialization plan and budget (the
"Annual Commercialization Plan and Budget"), which plan is
based on the then current Copromotion Territory
Commercialization Plan and includes a comprehensive market
development, marketing, sales, supply and distribution
strategy, including an overall budget for anticipated
marketing, promotion and sales efforts in the upcoming calendar
year (the first such Annual Development Plan and Budget shall
cover the remainder of the calendar year in which such Product
is anticipated to be approved plus the first full calendar year
thereafter). The Annual Commercialization Plan and Budget will
specify which Target Markets and distribution channels each
Party shall devote its respective Promotion efforts towards,
the personnel and other resources to be devoted by each Party
to such efforts, the number and positioning of Details to be
performed by each Party, as well as market and sales
<PAGE>
forecasts and related operating expenses, for the Product in
each country of the Copromotion Territory, and budgets for
projected Pre-Marketing Expenses, Sales and Marketing Expenses
and Post-Approval Research and Regulatory Expenses. In
preparing and updating the Copromotion Territory
Commercialization Plan and each Annual Commercialization Plan
and Budget, the MSC will take into consideration factors such
as market conditions, regulatory issues and competition.
6.1.3 Allocation of Target Markets; Sales Effort. On a Product by
Product basis, at least ninety (90) days before the launch of
such Product in a country of the Copromotion Territory and
thereafter, at least ninety (90) days before the beginning of
each calendar year, the MSC *********** in such country and
************** on the following criteria and conditions:
(a) each ********* in each country of the Copromotion
Territory shall, as much as is reasonably possible,
*********** for such Product expected to be made in such
country of the Copromotion Territory in accordance with
the ************ for the Promotion of such Product in
such country;
(b) the inclusion of ************;
(c) AHPC's aggregate ***********; and
(d) the MSC may not, without the prior written consent of the
President of ViroPharma, ***********.
The number of Details assigned to a Party by the MSC in
accordance with this Section 6.1.3 shall be such Party's
*************.
6.1.4 Incremental Sales Force Effort. If a Party is asked by the MSC
to deliver more sales force effort than that which is agreed by
the Parties to be more than a 50/50 selling effort in any
Calendar Quarter, and if such Party provides such increased
sales force effort (the "Incremental Sales Force Effort"), such
Party shall be entitled to charge the cost of the Incremental
Sales Force Effort to such Party's Marketing Account as an
Incremental Sales Force Effort Expense. The cost to be so
charged shall be at a rate approved by the MSC at the time such
Incremental Sales Force Effort is requested and shall be on a
cost per Detail basis. If AHPC is the Party providing the
Incremental Sales Force Effort, AHPC shall be reimbursed for
its Incremental Sales Force Expense by deducting the
Incremental Sales Force Expense incurred for such Calendar
Quarter from the Net Sales of such Product sold during such
Calendar Quarter prior to the allocation of Net Profits for
such Calendar Quarter. If ViroPharma is the Party providing the
Incremental Sales Force Effort, AHPC shall
<PAGE>
reimburse ViroPharma for its Incremental Sales Force Expense by
deducting such Incremental Sales Force Expense from the Net
Sales of such Product sold during such Calendar Quarter prior
to the allocation of Net Products for such Calendar Quarter and
distributing such deducted amount to ViroPharma simultaneously
with the distribution of Net Profits to ViroPharma for such
Calendar Quarter. The Party incurring the Incremental Sales
Force Expense shall report the same to the other Party as part
of the reports submitted under Section 6.1.8(d).
6.1.5 Extra Effort. If a Party expends more effort than originally
required of it by the Copromotion Territory Commercialization
Plan in order to perform Details that were part of the other
Party's Assigned Sales Force Effort, and that the other Party
fails to perform and which additional effort is approved in
advance by the MSC ("Extra Effort"), the first Party shall be
entitled to charge the costs of the Extra Effort ("Extra Effort
Expense") to its Marketing Account on a cost per Detail basis
consistent with Section 6.1.8(d), as well as twelve percent
(12%) annual interest, compounded monthly, accrued on the
amount charged for the period in which the Extra Effort is
expended. If AHPC is the Party providing the Extra Effort, AHPC
shall be reimbursed for its Extra Effort Expense by deducting
the Extra Effort Expense incurred for such Calendar Quarter
from the Net Sales of such Product sold during such Calendar
Quarter before the allocation of Net Profits for such Calendar
Quarter. If ViroPharma is the Party providing the Extra Effort,
AHPC shall reimburse ViroPharma for its Extra Effort Expense by
deducting such Extra Effort Expense from the Net Sales of such
Product sold during such Calendar Quarter before the allocation
of Net Products for such Calendar Quarter and distributing such
deducted amount to ViroPharma simultaneously with the
distribution of Net Profits to ViroPharma for such Calendar
Quarter. The Party incurring the Extra Effort Expense shall
report the same to the other Party as part of the reports
submitted under Section 6.1.8(d).
6.1.6 Performance Metrics. The ********** or as part of any
************ shall be determined according to Detail reporting
mechanisms and methodology that are approved and applied
consistently by the MSC.
6.1.7 Sales and Distribution; Recalls. During the term of this
Agreement, AHPC shall be responsible for:
(a) distribution of all Products in the Copromotion Territory
hereunder, the booking of all sales with respect to such
Products and the performance of related services. If
ViroPharma receives any order for the Product in the
Copromotion Territory during the term of this Agreement,
it shall promptly refer such orders to AHPC.
<PAGE>
(b) handling and implementing all recalls and market withdrawals
of any Product in the Copromotion Territory. ViroPharma will
make available to AHPC, upon request, all of ViroPharma's
pertinent records that AHPC may reasonably request to assist
it in effecting any recall or market withdrawals. Except as
expressly otherwise provided below in this Section 6.1.7(b),
the Parties shall share equally all other costs of a recall
or marketing withdrawal of a Product in the Co-Promotion
Territory. Notwithstanding the foregoing, a Party shall bear
any and all costs of a recall or market withdrawal of a
Product in the Co-Promotion Territory to the extent such
recall or market withdrawal results from a negligent act or
omission or intentional misconduct on the part of such
Party, including, without limitation, the breach of any of
such Party's warranties under Sections 10.3(d) or 10.3(e)
hereof, and not from a negligent act or omission or
intentional misconduct on the part of the other Party. A
Party shall have no obligation to reimburse or otherwise
compensate the other Party for any lost profits or income
that may arise in connection with any such recall or market
withdrawal.
(c) handling all aspects of order processing, invoicing and
collection, inventory and receivables.
(d) providing customer support, including handling medical
queries, and performing other functions consistent with
consumer practice for pharmaceutical products consistent
with the then current Copromotion Territory
Commercialization Plan and the applicable Annual
Commercialization Plan and Budget.
6.1.8 Commercialization Expenses.
(a) Pre-Marketing Expenses. On a Product by Product and country
by country basis, before Regulatory Approval of such Product
in such country of the Copromotion Territory, the Pre-
Marketing Expenses incurred by the Parties with respect to
such Product in anticipation of obtaining Regulatory
Approval of such Product in such country shall
***************. As such Pre-Marketing Expenses are incurred
they shall be paid for by the Party incurring such expenses,
subject to reimbursement as set forth in Section 6.1.8(g).
(b) Sales and Marketing Expenses. On a Product by Product and
country by country basis, after Regulatory Approval of such
Product in such country of the Copromotion Territory, the
Sales and Marketing Expenses incurred by the Parties shall
*********************. The costs of a Party's professional
<PAGE>
sales representatives and marketing personnel
*********************.
(c) Post-Approval Research and Regulatory Expenses. On a Product
by Product and country by country basis, after Regulatory
Approval of such Product in such country of the Copromotion
Territory, the Post-Approval Research and Regulatory
Expenses incurred by the Parties in connection with such
Product in such country shall *********************.
(d) Payment of Expenses; Marketing Accounts. Subject to
reconciliation as provided in Sections 6.1.8(f) or 6.1.8(g),
as applicable, *********************. Subject to the
limitations set forth in Section 6.1.8(e), each Party shall
charge all such expenses so incurred by it or its Affiliates
to a separate account created by such Party on its books and
records solely for the purpose of tracking expenses incurred
in connection with the marketing, Promotion, distribution
and sale of Products in the Copromotion Territory (each, a
"Marketing Account"). Within thirty (30) days after the end
of each Calendar Quarter, each Party shall submit to the
other Party a written summary of all Pre-Marketing Expenses,
Sales and Marketing Expenses, Post-Approval Research and
Regulatory Expenses, Incremental Sales Force Expenses and
Extra Effort Expenses incurred by it in performing its
obligations in connection with the marketing, Promotion,
distribution and sale of Products in the Copromotion
Territory, charged to its Marketing Account during such
Calendar Quarter, which summary shall be accompanied by
reasonable supporting documentation for such expenses.
(e) Expense Limitations. The Pre-Marketing Expenses, Sales and
Marketing Expenses and Post-Approval Research and Regulatory
Expenses charged by either Party to its Marketing Account in
accordance with this Section 6.1.8, shall not be in amount
in excess of *********************of the amount included for
such expenses in the then current Annual Commercialization
Plan and Budget, unless the MSC approves such excess
expenses. All payments made by a Party to any Third Party in
connection with the performance of its obligations in
connection with the Commercialization of a Product in the
Copromotion Territory shall be charged to such Party's
Marketing Account at such Party's actual out-of-pocket cost
incurred in accordance with the MSC approved contract
entered into with such Third Party.
(f) Reconciliation of Pre-Marketing Expenses. Within sixty (60)
days after the end of each Calendar Quarter, AHPC shall
prepare a
<PAGE>
reconciliation report, accompanied by reasonable supporting
documentation and calculations, which reconciles the Pre-
Marketing Expenses charged to each Party's Marketing Account
during such Calendar Quarter pursuant to this Section 6.1.8
and the share of the Parties' aggregate Pre-Marketing
Expenses to be allocated to each of the Parties for such
Calendar Quarter in accordance with this Section 6.1.8.
Within thirty (30) days after AHPC delivers such
reconciliation report to ViroPharma, *********************.
If, with respect to any Calendar Quarter, ViroPharma has a
Pre-Marketing Expense Shortfall for which it is to reimburse
AHPC and ViroPharma is unable or otherwise fails to pay to
AHPC all or part of the Pre-Marketing Expense Shortfall
before the end of the thirty (30) day period required by
this Section 6.1.8(f), the unpaid portion of the Pre-
Marketing Shortfall would accumulate interest at the annual
interest rate of twelve percent (12%), compounded monthly,
and would be combined with any R&D Shortfall and repaid to
AHPC in accordance with Section 4.6.5.
(g) Reimbursement of Sales and Marketing Expenses and Post-
Approval Research and Regulatory Expenses. At the time AHPC,
pursuant to Section 7.6.3, distributes to ViroPharma,
ViroPharma's share of Net Profits obtained from the sale of
a Product in a country of the Copromotion Territory during
any Calendar Quarter, AHPC shall also reimburse each of AHPC
and ViroPharma for those Sales and Marketing Expenses, Post-
Approval Research and Regulatory Expenses, Incremental Sales
Force Effort Expenses, and Extra Effort Expenses that are
(i) directly allocable to the Commercialization of such
Product in such country during such Calendar Quarter (ii)
properly charged by such Party to its Marketing Account and
(iii) reported to the other Party in accordance with this
Section 6.1.8. Such reimbursements shall be made solely from
revenues obtained by AHPC which are attributable to the Net
Sales of such Product in such country of the Copromotion
Territory, *********************. If the Net Sales
********************* shall be carried over on such Party's
Marketing Account into subsequent Calendar Quarters
*********************.
6.1.9 Marketing and Promotional Materials. The MSC shall determine the
content, quantity and method of distribution of any promotional
materials related to the Product in the Copromotion Territory,
provided, however, that all such marketing and promotional
materials shall be subject to the approval of AHPC's and
ViroPharma's legal, medical affairs, marketing and regulatory
affairs department before any use thereof by either Party. AHPC
will be responsible for preparing and duplicating such marketing
<PAGE>
and promotional materials and shall provide reasonable quantities
of the same to ViroPharma for use by ViroPharma in connection
with its Promotion of the Product in the Copromotion Territory
hereunder. Each Party shall use only marketing and promotional
materials approved by the MSC and provided by AHPC. All copyright
and other intellectual property rights in said promotional
materials shall remain vested in AHPC. Neither Party may not
independently create, distribute or use sales, promotion or other
similar material relating to a Product in the Copromotion
Territory without the prior written consent of either the MSC or
the other Party.
6.1.10 Promotional Claims. Each Party shall limit the claims of safety
and efficacy that such Party or its sales force makes for a
Product in the Copromotion Territory to those that are consistent
with the approved labeling for such Product in such country of
the Copromotion Territory. Neither Party may add, delete or
modify claims of efficacy or safety in its Promotion of any
Product in the Copromotion Territory nor make any changes in
Promotion materials and literature approved by the MSC. Each
Party's Detailing and Promotion of a Product in the Copromotion
Territory shall be in strict adherence to all regulatory,
professional and legal requirements including, without
limitation, FDA's regulations and guidelines concerning the
advertising of prescription drug products, the American Medical
Association's Guidelines on Gifts to Physicians, the PhRMA
Guidelines for Marketing Practices, the ACCME Standards for
Commercial Support of Continuing Medical Education, the then
current Copromotion Territory Commercialization Plan for the
Product and any updates thereto.
6.1.11 Samples. When Detailing and Sampling the Product, each Party's
professional sales representative shall complete Sample Receipt
Forms provided by AHPC. A copy of the completed Sample Receipt
Forms shall be left with the Physician receiving the Detail. Such
professional sales representative shall mail to AHPC, in pre-
addressed, postage-paid envelopes provided by AHPC, at the close
of each business day the original completed Sample Receipt Forms
for all Details performed by such professional sales
representative that day. A copy of all such Sample Receipt Forms
shall be kept by each such professional sales representative.
Each Party shall ensure that each of its professional sales
representatives fills out the Sample Receipt Forms accurately,
completely and timely. The Fully-Absorbed Standard Cost incurred
by AHPC in providing and processing Sample Receipt forms shall be
charged by AHPC to its Marketing Account as a Sales and Marketing
Expense.
6.1.12 Communications. Each Party shall be fully responsible for
disseminating accurate information regarding a Product to its
professional sales
<PAGE>
representatives based on the Product's approved labeling and
information provided by the MSC.
6.1.13 Training. Each Party shall be responsible for the training of its
own professional sales representatives, in accordance with the
training requirements and training programs and using training
materials approved by the MSC and shall require each of its
professional sales representatives to attend sales training for a
Product before their Promotion of such Product in the Copromotion
Territory hereunder. After the initial training meeting, each
Party shall periodically provide additional training, in
accordance with the training requirements and training programs
and using training materials approved by the MSC, to each of its
professional sales representatives Promoting Products hereunder.
At the discretion and upon approval of the MSC, any such training
meetings may be held jointly by the Parties. The expenses
incurred by each Party in training its professional sales
representatives before the launch of a Product shall be charged
to such Party's Marketing Account as a Pre-Marketing Expense. The
expenses incurred by each Party in training its professional
sales representatives after the launch of a Product shall be
charged to such Party's Marketing Account as a Sales and
Marketing Expense.
6.1.14 Compliance. In connection with its Promotion of the Product in
the Copromotion Territory, each Party shall comply and shall
cause each of its employees, representatives and agents,
including, without limitation, each of its professional sales
representatives, to comply with all laws and regulations of the
Copromotion Territory and shall do nothing which such Party knows
or reasonably should know would jeopardize the goodwill or
reputation of either Party or the reputation of any Product.
6.1.15 Generic Product. On a Product by Product and country by country
(within the Copromotion Territory) basis, no later than three (3)
years before the expiration of the last to expire of the Patent
Rights conferring market exclusivity for such Product in such
country of the Copromotion Territory, the Parties will determine
by mutual agreement after good faith discussions whether to
jointly launch a generic version of such Product in the
Copromotion Territory and what the terms and conditions regarding
such Product will be. If the Parties, on or before such time, are
unable to agree to jointly launch such a generic Product in such
country, then upon expiration of the relevant Patent Rights in
such country, and notwithstanding any other exclusive or non-
exclusive license granted under this Agreement, each Party shall
have the right and license to utilize the Collaboration
Technology and the other Party's Know-How solely to the extent
necessary to launch and Commercialize its own generic version of
such Product in such country and thereafter shall have no further
obligations to the other Party with respect to such generic
Product.
<PAGE>
6.2 Commercialization in the AHPC Territory. AHPC shall have the sole
right, either directly or through its Affiliates, sublicensees
and/or distributors, to market, distribute and sell Products in
the AHPC Territory. AHPC shall use its Commercially Reasonable
Efforts to sell each Product in those countries of the AHPC
Territory for which AHPC has obtained Regulatory Approval for
such Product. AHPC shall be responsible for all marketing and
selling expenses for the sale of Products in the AHPC Territory
and AHPC shall have the sole right and discretion to determine
the price of Products sold in the AHPC Territory and to make all
other business decisions concerning the Commercialization of
Products in the AHPC Territory.
7. CONSIDERATION; PROFIT SHARING.
7.1 Research Program Expense Reimbursements. AHPC agrees to provide
ViroPharma *********************************:
(a) AHPC shall pay a nonrefundable fee of five million dollars
($5,000,000.00) to ViroPharma on the first business day after the
Effective Date in consideration of ViroPharma's agreement to
participate in the JSC, including the preparation, updating and
implementation of the Global Research and Development Plan and
the Annual Development Plans and Budgets; and
(b) AHPC shall reimburse ViroPharma for up to ************** of
ViroPharma's *****************. AHPC shall create on its books
and records an ***************** for this purpose, which
****************, but shall be subject to adjustment, from time
to time, 7.2 Additional Development Expense Payments. AHPC shall
pay to ViroPharma the following additional development expense
payments, each such payment being due and payable within thirty
(30) days after the occurrence of the corresponding event:
************************************.
7.2 *************************.
Each of the additional development expense payments set forth above
shall be payable one time only **********************, except in the
case of the additional development expense payments payable for
*******************, which additional development expense payments
shall be payable with respect to ********************, provided,
however, that, with respect to any Product that ****************, the
receipt of *************, shall not result in ****************.
If, with respect to any Product, any of the above events ************
does not occur because the JSC determines that ***************, such
event will be
<PAGE>
deemed to have occurred on the date the JSC makes such a determination
for purposes of determining *********************. Additionally, if
certain of the above stated events occur ***************, if such
later events occur in connection with the subsequent Development of
another Product hereunder, ******************. For example,
*************************.
7.3 Purchase of Equity. On the Effective Date, AHPC and ViroPharma shall
enter into the Stock Purchase Agreement attached to this Agreement as
Exhibit 7.3, pursuant to which AHPC shall purchase, and ViroPharma
will sell to AHPC, shares of the capital stock of ViroPharma on the
terms and conditions set forth therein.
7.4 Royalties.
7.4.1 Royalty Rates. In consideration for the licenses granted to
AHPC under Section 2.1 hereof, AHPC, on a Product by Product
and calendar year by calendar year basis, will pay to
ViroPharma royalties based on Net Sales obtained by AHPC or its
Affiliates from the sale of such Product in the AHPC Territory,
which royalties shall be calculated as follows:
royalty = A + B + C, where:
A = either (i) for **************** of the portion of
AHPC's and its Affiliates' Net Sales obtained from
the sale of such **************** in the AHPC
Territory (excluding Net Sales obtained from the
sale of such Product in any countries where the
obligation to pay royalties under this Section
7.4.1 has expired in accordance with Section 7.4.3
with respect to such Product), which, during the
calendar year in question are less than or equal
******************, or (ii) for ************ of
the portion of AHPC's and its Affiliates' Net
Sales obtained from the sale of such
**************** in the AHPC Territory (excluding
Net Sales obtained from the sale of such Product
in any countries where the obligation to pay
royalties with under this Section 7.4.1 has
expired in accordance with Section 7.4.3 with
respect to such Product) which, during the
calendar year in question are less than or equal
to **************;
B = either (i) for ************ of the portion of
AHPC's and its Affiliates' Net Sales obtained from
the sale of such **************** in the AHPC
Territory (excluding Net Sales obtained from the
sale of such Product in any countries where the
obligation to pay royalties with under this
Section 7.4.1 has expired in accordance with
Section
<PAGE>
7.4.3 with respect to such Product), which, during
the calendar year in question are greater than
************ and less than or equal to
*****************, or (ii) for ************* of
the portion of AHPC's and its Affiliates' Net
Sales obtained from the sale of such
**************** in the AHPC Territory (excluding
Net Sales obtained from the sale of such Product
in any countries where the obligation to pay
royalties with under this Section 7.4.1 has
expired in accordance with Section 7.4.3 with
respect to such Product), which, during the
calendar year in question are greater
*******************; and
C = either (i) for ************ of the portion of
AHPC's and its Affiliates' Net Sales obtained from
the sale of such **************** in the AHPC
Territory (excluding Net Sales obtained from the
sale of such Product in any countries where the
obligation to pay royalties with under this
Section 7.4.1 has expired in accordance with
Section 7.4.3 with respect to such Product),
which, during the calendar year in question are
greater than ***************** or (ii) for
****************of the portion of AHPC's and its
Affiliates' Net Sales obtained from the sale of
such **************** in the AHPC Territory
(excluding Net Sales obtained from the sale of
such Product in any countries where the obligation
to pay royalties with under this Section 7.4.1 has
expired in accordance with Section 7.4.3 with
respect to such Product), which, during the
calendar year in question are greater than
*******************************.
ViroPharma acknowledges and agrees that nothing in this Agreement
(including, without limitation, any exhibits or attachments
hereto) shall be construed as representing an estimate or
projection of either (i) the number of Class A Products and/or
Class B Products that will or may be successfully developed
and/or commercialized or (ii) anticipated sales or the actual
value of the ViroPharma Technology, and Compound or any Product
and that the figures set forth in this Section 7.4 or elsewhere
in this Agreement or that have otherwise been discussed by the
Parties are merely intended to define AHPC's royalty obligations
to ViroPharma in the event such sales performance is achieved.
AHPC MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR
IMPLIED, THAT IT WILL BE ABLE TO SUCCESSFULLY DEVELOP AND/OR
COMMERCIALIZE ANY PRODUCT OR, IF COMMERCIALIZED THAT ANY IT WILL
ACHIEVE ANY PARTICULAR SALES LEVEL OF SUCH PRODUCT(S).
<PAGE>
7.4.2 Royalty Adjustments. For each Product sold in each country of the
AHPC Territory in each Calendar Quarter, the royalties payable to
ViroPharma, pursuant to Section 7.4.1 and/or, if applicable,
Section 11.5 or 11.6, for the Net Sales of such Product in such
country during such Calendar Quarter may be reduced as set forth
below, provided, however, that in no event will such royalties in
any country be reduced by more than ************* by reason of
the adjustments set forth below:
(a) Unpatented Products. If in a given Calendar Quarter during
the Full Royalty Rate Period, neither of Section 1.49(a) or
(b) continues to be true because one or more of Valid Claims
are invalidated in such country, the royalties payable to
ViroPharma, pursuant to Section 7.4.1 and/or, if applicable,
Section 11.5 or 11.6, for the Net Sales of such Product in
such country during such Calendar Quarter shall be reduced
to ********** of the applicable marginal rate set forth in
Section 7.4.1 and/or, if applicable, Section 11.5 or 11.6.
To calculate such reduced royalty amount in such countries,
Net Sales will be allocated among the royalty increments in
Sections 7.4.1, 11.5 and/or 11.6, as applicable, based on
*******************.
(b) Competition. If Competition (as defined below in this
Section 7.4.2 (b)) exists during a given Calendar Quarter
with respect to a Product in any country, the royalties
payable to ViroPharma, pursuant to Section 7.4.1 and/or, if
applicable, Section 11.5 or 11.6, for the Net Sales of such
Product in such country during such Calendar Quarter shall
be reduced to ************* of the applicable marginal rate
set forth in Section 7.4.1 and/or, if applicable, Section
11.5 or 11.6. To calculate such reduced royalty amount when
Competition exists in such countries, Net Sales will be
allocated among the royalty increments in Sections 7.4.1,
11.5 and/or 11.6, as applicable, based on the
**************. For purposes of this Section 7.4.2(b),
Competition shall be deemed to exist if, during the
applicable Calendar Quarter, on a Product by Product and
country by country basis, (i) one or more Third Parties is
selling a pharmaceutical product for use in the Field
containing as an active ingredient, the Compound that is an
active ingredient in the Product being sold by or on behalf
of AHPC, its Affiliates or sublicensees in such country; and
(ii) the sales of such competing products (measured on a
unit basis) accounts for ******** or more of the total
market in such country. The total market in such country
shall be the sum of (x) the number of units of the affected
Product sold by AHPC, its Affiliates or sublicensees in such
country during such Calendar Quarter and (y) the number of
units of competing products sold by parties other than AHPC,
its
<PAGE>
Affiliates or sublicensees in such country during such
Calendar Quarter.
7.4.3 Term of Royalty. The royalties payable pursuant to Section
7.4.1 and, if applicable, pursuant to Section 11.5 or 11.6,
as adjusted pursuant to Section 7.4.2, will be payable on a
country by country and Product by Product basis during the
Full Royalty Rate Period. During the Reduced Royalty Rate
Period for a Product, AHPC shall have an exclusive license,
except as otherwise provided under this Agreement, to use
the ViroPharma Know-How in the Field and ViroPharma's
interest in any Collaboration Know-How in the Field, to
make, have made, use, import, offer to sell and sell such
Product in such country. In consideration of such license,
AHPC shall pay to ViroPharma a royalty in the amount of
three percent (3%) of the Net Sales obtained from the sale
by AHPC and its Affiliates of such Product in such country,
which royalty shall be payable only for sales made during
the Reduced Royalty Rate Period. On a country by country
basis, upon expiration of the Reduced Royalty Rate Period,
the license granted to AHPC with respect to such country
under this Section 7.4.3 shall continue to be a perpetual
license which thereafter shall become irrevocable, fully-
paid and royalty-free license, exclusive except for the
license granted pursuant to Section 6.1.15.
7.5 Profit Split Payments.
7.5.1 Baseline Allocation of Profits. In consideration for
ViroPharma's provision of services in connection with the
Promotion of Products in the Copromotion Territory pursuant
to Section 6.1, AHPC, on a country by country basis, shall
pay to ViroPharma *********************of the Net Profits
obtained from the sale of a Product in such country of the
Co-Promotion Territory, which percentage may be adjusted
from time to time in accordance with Section 7.5.3, (the
most recently updated and adjusted allocation, ViroPharma's
"Baseline Allocation of Net Profits") which payment shall be
made to ViroPharma at the times and in the manner set forth
in Section 7.6.3. AHPC shall retain the remaining portion of
Net Profits (AHPC's "Baseline Allocation of Net Profits").
Notwithstanding the foregoing, in any Penalty Year, the
allocation of Net Profits will be adjusted in accordance
with Section 7.5.2.
7.5.2 Temporary Adjustments to Distribution of Profits. In a
Penalty Year, each Party will be allocated a portion of Net
Profits which allocation will be made based on the following
formula:
***************************
where **************************
<PAGE>
7.5.3 Permanent Adjustment to Baseline Allocation of Profits. If a
Party incurs *****************, and the other Party incurs no
Lapse Year during this period, then the Party incurring no
Lapse Years may, at its discretion, impose a permanent change
in the Baseline Allocation of Net Profits established in
Section 7.5.1. The new Baseline Allocation of Profits shall be
equivalent to the average proportion of Net Profits received by
such Party during the *************** and shall become
effective on January 1 of the year following the
****************. Examples of the calculation of the
distribution of Net Profits during Penalty Years and the
imposition of new baseline distributions are set forth in
Exhibit 7.5.3.
7.5.4 Term of Profit Split Payments. With respect to a Product, AHPC,
on a country by country basis in the Copromotion Territory,
shall pay to ViroPharma a portion of Net Profits obtained from
the sale of such Product in such country of the Copromotion
Territory as set forth in Section 7.5.1 for so long as both
Parties are Promoting such Product in such country pursuant to
this Agreement.
7.6 Reports and Payments.
7.6.1 Cumulative Royalties. The obligation to pay royalties under
this Agreement shall be imposed only once with respect to a
single unit of a Product regardless of how many Valid Claims
included within the Patent Rights would, but for this
Agreement, be infringed by the manufacture, use, import, offer
for sale or sale of such Product in the country of such
manufacture, use or sale.
7.6.2 Royalty Statements and Payments. AHPC, within sixty (60) days
after the end of each Calendar Quarter shall deliver to
ViroPharma a report setting forth for such Calendar Quarter the
following information, on a Product by Product basis, with
respect to Products sold in the AHPC Territory, (a) the Net
Sales of such Product in the AHPC Territory, (b) the basis for
any adjustments to the royalty payable for the sale of such
Product, and (c) the royalty due hereunder for the sale of such
Product. No such reports shall be due for any Product before
the First Commercial Sale of such Product in the AHPC
Territory. The total royalty due for the sale of Products
during such Calendar Quarter less any deductions made in
accordance with Section 4.6.5 shall be remitted at the time
such report is made.
7.6.3 Net Profit Statements and Payments.
(a) Estimated Statements. Within the later of (i) thirty (30)
days after the end of each Calendar Quarter or (ii)
fifteen (15) days beyond the date on which AHPC receives
from ViroPharma the
<PAGE>
report required under Section 6.1.8(d) with respect to
such Calendar Quarter, AHPC shall deliver to ViroPharma a
report setting forth the following estimated information
with respect to Products sold in the Copromotion Territory
during such Calendar Quarter: (i) the Net Sales of such
Product in each country of the Copromotion Territory, (ii)
the Net Profits obtained from the sale of such Product in
each country of the Copromotion Territory, (iii) the
deductions made from Net Sales in calculating such Net
Profits, including, without limitation, the computation of
Cost of Goods Manufacture for Sale, each Party's Sales and
Marketing Expenses, Incremental Sales Force Expenses, if
any, Extra Effort Expenses, if any, and Post-Approval
Research and Regulatory Expenses, and (iv) the amount of
Net Profits to be allocated to each Party, including an
explanation of any deviation from the Baseline Allocation
of Net Profits made in accordance with Section 7.5.1. No
such reports shall be due with respect to any Product
before the First Commercial Sale of such Product in the
Copromotion Territory.
(b) Actual Statements. After the First Commercial Sale of a
Product in the Copromotion Territory, AHPC, within sixty
(60) days after the end of each Calendar Quarter, shall
deliver to ViroPharma a report setting forth for such
Calendar Quarter the following information, on a Product
by Product and Country by Country basis: (i) the Net Sales
of such Product in each country of the Copromotion
Territory, (ii) the Net Profits obtained from the sale of
such Product in each country of the Copromotion Territory,
(iii) the deductions made from Net Sales in calculating
such Net Profits, including, without limitation, the
computation of Cost of Goods Manufactured for Sale in such
detail as AHPC customarily uses for its own internal
reporting purposes, or as reasonably requested by
ViroPharma, each Party's Sales and Marketing Expenses,
Incremental Sales Force Expenses, if any, Extra Effort
Expenses, if any, and Post-Approval Research and
Regulatory Expenses, and (iv) the amount of Net Profits to
be allocated to each Party, including an explanation of
any deviation from the Baseline Allocation of Net Profits
made in accordance with Section 7.5.1. No such reports
shall be due with respect to any Product before the First
Commercial Sale of such Product in the Copromotion
Territory. At the time such report is made, AHPC shall
remit to ViroPharma the amount of Net Profits allocated to
ViroPharma for such Calendar Quarter less any deductions
made in accordance with Section 4.6.5.
7.6.4 Taxes and Withholding. All payments under this Agreement will
be made without any deduction or withholding for or on account
of any tax
<PAGE>
unless such deduction or withholding is required by applicable
laws or regulations. If the paying Party is so required to
deduct or withhold such Party will (i) promptly notify the
other Party of such requirement, (ii) pay to the relevant
authorities the full amount required to be deducted or withheld
promptly upon the earlier of determining that such deduction or
withholding is required or receiving notice that such amount
has been assessed against the other Party, (iii) promptly
forward to the other Party an official receipt (or certified
copy) or other documentation reasonably acceptable to the other
Party evidencing such payment to such authorities.
7.6.5 Currency. All amounts payable and calculations hereunder shall
be in United States dollars. As applicable, Net Sales, Net
Profits and any expenses incurred by either Party shall be
translated into United States dollars in accordance with AHPC's
customary and usual translation procedures, consistently
applied. If, due to restrictions or prohibitions imposed by
national or international authority, payments cannot be made as
provided in this Article 7, the Parties shall consult with a
view to finding a prompt and acceptable solution, and AHPC will
deal with such monies as ViroPharma may lawfully direct at no
additional out-of-pocket expense to AHPC. Notwithstanding the
foregoing, if payments arising in connection with the sale of
Products in any country cannot be remitted to ViroPharma for
any reason within six (6) months after the end of the Calendar
Quarter during which they are earned, then AHPC shall be
obligated to deposit the royalties in a bank account in such
country in the name of ViroPharma.
7.7 Maintenance of Records; Audits.
7.7.1 Record Keeping for the Copromotion Territory. AHPC shall keep
and maintain accurate and complete records in connection with
the sale of Products in the Copromotion Territory hereunder and
each Party shall keep and maintain accurate and complete
records showing the expenses incurred and efforts employed by
or on behalf of it or its Affiliates in Promoting Products in
the Copromotion Territory hereunder, which books and records
shall be in sufficient detail to permit the accurate
determination of Net Sales, Net Profits (including, without
limitation, the deduction of each Party's expenses from Net
Profits pursuant to Section 1.70), and all other figures
necessary for the verification of the allocation of Net Profits
to be made under Section 7.5. Each Party shall maintain and
cause its Affiliates to maintain such records for a period of
at least three (3) years after the end of the calendar year in
which they were generated.
7.7.2 Record Keeping for the AHPC Territory. AHPC shall keep and
shall cause its Affiliates and sublicensees to keep accurate
books and accounts of record in connection with the sale of
Products in the AHPC Territory in
<PAGE>
sufficient detail to permit accurate determination of all
figures necessary for verification of royalties to be paid
hereunder. AHPC and its Affiliates and sublicensees shall
maintain such records for a period of at least three (3) years
after the end of the calendar year in which they were
generated.
7.7.3 Audits. Upon thirty (30) days prior written notice from a Party
(the "Auditing Party"), the other Party (the "Audited Party")
shall permit an independent certified public accounting firm of
nationally recognized standing selected by the Auditing Party
and reasonably acceptable to the Audited Party, to examine, at
the Auditing Party's sole expense, the relevant books and
records of the Audited Party and its Affiliates as may be
reasonably necessary to verify the accuracy of the reports
submitted by the Audited Party in accordance with Section 7.6
and the calculation and allocation of Net Profits or the
payment of royalties hereunder, as applicable. An examination
by a Party under this Section 7.7.3 shall occur not more than
once in any calendar year and shall be limited to the pertinent
books and records for any calendar year ending not more than
thirty-six (36) months before the date of the request. The
accounting firm shall be provided access to such books and
records at the Audited Party's facility(ies) where such books
and records are normally kept and such examination shall be
conducted during the Audited Party's normal business hours. The
Audited Party may require the accounting firm to sign a
standard non-disclosure agreement before providing the
accounting firm access to the Audited Party's facilities or
records. Upon completion of the audit, the accounting firm
shall provide both AHPC and ViroPharma a written report
disclosing whether the reports submitted by the Audited Party
are correct or incorrect, whether the calculation and
allocation of Net Profits are correct or incorrect, whether the
royalties paid are correct or incorrect, and, in each case, the
specific details concerning any discrepancies. No other
information shall be provided to the Auditing Party.
7.7.4 Underpayments/Overpayments. If such accounting firm correctly
concludes that additional Net Profits were due to ViroPharma or
that additional royalties were due to ViroPharma, AHPC shall
pay to ViroPharma the additional Net Profits or additional
royalties, as applicable, together with any interest that may
be due thereon as provided in Section 7.8 within thirty (30)
days of the date AHPC receives such accountant's written report
so correctly concluding. If such underpayment exceeds five
percent (5%) of the Net Profits that were to be distributed to
ViroPharma or the royalties that were to be paid to ViroPharma,
as applicable, AHPC also shall reimburse ViroPharma for the
out-of-pocket expenses incurred in conducting the audit,
except in the event that such underpayment was due to any
inaccurate information provided by ViroPharma to AHPC. If such
accounting firm correctly concludes that additional Net Profits
were to be allocated to AHPC (i.e., there was an
<PAGE>
overpayment in the distribution of Net Profits to ViroPharma)
or that AHPC overpaid royalties to ViroPharma, ViroPharma will
refund such overpayments to AHPC, together with any interest
that may be due thereon as provided in Section 7.8, within
thirty (30) days of the date ViroPharma receives such
accountant's report so correctly concluding. If the amount of
such overpayment that is due to any inaccurate information
provided by ViroPharma to AHPC exceeds five percent (5%) of the
Net Profits that were to be paid to ViroPharma or the royalties
that were to be paid to ViroPharma, as applicable, ViroPharma
also shall reimburse AHCP for any out-of-pocket expenses
incurred by AHPC in conducting the audit.
7.7.5 Confidentiality. All financial information of a Party which is
subject to review under this Section 7.7 shall be deemed to be
Confidential Information subject to the provisions of Article
9, and such Confidential Information shall not be disclosed to
any Third Party or used for any purpose other than verifying
payments to be made by one Party to the other hereunder,
provided, however, that such Confidential Information may be
disclosed to Third Parties only to the extent necessary to
enforce a Party's rights under this Agreement.
7.8 Interest. Any payment under this Article 7 that is more than forty-
five (45) days past due shall thereafter be subject to interest at an
annual percentage rate of twelve percent (12%). Likewise, any
overpayment that is not refunded within forty-five (45) days after the
date such overpayment was identified shall thereafter be subject to
interest at an annual percentage rate of twelve percent (12%),
provided, however, that if the overpayment is due to errors in reports
provided by the overpaid Party, such interest shall accrue from the
date the overpayment was made.
8. INTELLECTUAL PROPERTY.
8.1 Inventions. Subject to the provisions of Article 2, a Party shall own:
(a) all of its Prior Inventions, (b) all of its Non-Collaboration
Inventions, and (c) all Patent Rights claiming such Prior Inventions
and Non-Collaboration Inventions. Also, subject to the provisions of
Article 2, both Parties shall jointly own all Collaboration
Inventions, Collaboration Patent Rights and Collaboration Know-How.
All determinations of inventorship under this Agreement shall be made
in accordance with United States patent law.
8.2 Patent Rights.
8.2.1 Prosecution and Maintenance of Patent Rights.
<PAGE>
(a) ViroPharma's Prior Inventions and Non-Collaboration
Inventions. ViroPharma shall have the first right to
prepare, file, prosecute and maintain, throughout the world,
all Patent Rights claiming ViroPharma's Prior Inventions and
Non-Collaboration Inventions. With respect to any ViroPharma
Prior Invention or Non-Collaboration Invention that is
applicable in the Field, ViroPharma shall give AHPC an
opportunity to review and comment upon the text of the
applications before filing, shall consult with AHPC with
respect to such application, and shall supply AHPC with a
copy of the applications as filed, together with notice of
its filing date and serial number. ViroPharma shall keep
AHPC advised of the status of the actual and prospective
patent filings (including, without limitation, the grant of
any Patent Rights that are applicable in the Field), and
shall provide advance copies of any official correspondence
related to the filing, prosecution and maintenance of such
patent filings. If ViroPharma elects not to file a patent
application or to cease the prosecution and/or maintenance
of any Patent Right claiming a ViroPharma Prior Invention or
Non-Collaboration Invention that relates to any
Collaboration Target, any Active Compound and/or any Assay
and Screening Technology and that is applicable in the
Field, ViroPharma shall provide AHPC with written notice
immediately upon the decision to not file or continue the
prosecution of such patent application or maintenance of
such patent and at least sixty (60) days before ceasing
prosecution and/or maintenance of a particular Patent Right
that is applicable in the Field and, in such case, shall
permit AHPC, at AHPC's sole discretion, to file and/or
continue prosecution and/or maintenance of such Patent Right
on ViroPharma's behalf and at AHPC's own expense. If AHPC
elects to continue prosecution or maintenance, ViroPharma
shall execute such documents and perform such acts, at
AHPC's expense, as may be reasonably necessary to permit
AHPC to file, prosecute and/or maintain such Patent Rights.
(b) AHPC's Prior Inventions and Non-Collaboration Inventions.
AHPC, at its own expense, shall have the sole right to
prepare, file, prosecute and maintain, throughout the world,
all Patent Rights claiming any of AHPC's Prior Inventions
and/or Non-Collaboration Inventions in countries and regions
of the world of AHPC's choice. With respect to patent
applications filed or to be filed in the Copromotion
Territory claiming any AHPC Prior Invention or Non-
Collaboration Invention that relates to any Active Compound
and is applicable in the Field, AHPC shall give ViroPharma
an opportunity to review and comment upon the text of such
applications before filing, shall consult with ViroPharma
with respect to such applications, and shall supply
ViroPharma
<PAGE>
with a copy of such applications as filed, together with
notice of its filing date and serial number. AHPC shall keep
ViroPharma advised of the status of such actual and
prospective patent filings (including, without limitation,
the grant of any Patent Rights that are applicable in the
Field), and shall provide advance copies of any official
correspondence related to the filing, prosecution and
maintenance of such patent filings. If AHPC elects not to
file a patent application or to cease the prosecution and/or
maintenance of any such Patent Right, AHPC shall provide
ViroPharma with written notice immediately upon the decision
to not file or continue the prosecution of such patent
application or maintenance of such patent and at least sixty
(60) days before ceasing prosecution and/or maintenance of a
particular Patent Right that is applicable in the Field and,
in such case, shall permit ViroPharma, at the ViroPharma's
sole discretion, to file and/or continue prosecution and/or
maintenance of such Patent Right on behalf of AHPC at
ViroPharma's own expense. If ViroPharma elects to continue
prosecution or maintenance, AHPC shall execute such
documents and perform such acts, at ViroPharma's expense, as
may be reasonably necessary to permit ViroPharma to file,
prosecute and/or maintain such Patent Rights.
(c) Collaboration Inventions. AHPC shall have the first right to
prepare, file, prosecute and maintain any Patent Right
claiming any Collaboration Invention throughout the world.
AHPC shall give ViroPharma an opportunity to review the text
of the applications before filing, shall consult with
ViroPharma with respect thereto, and shall supply ViroPharma
with a copy of the applications as filed, together with
notice of its filing date and serial number. AHPC shall keep
ViroPharma advised of the status of the actual and
prospective patent filings (including, without limitation,
the grant of any Patent Rights), and shall provide advance
copies of any official correspondence related to the filing,
prosecution and maintenance of such patent filings.
ViroPharma shall reimburse AHPC for fifty percent (50%) of
the costs incurred by AHPC in preparing, filing, prosecuting
and maintaining such Patent Rights, which reimbursement will
be made pursuant to invoices submitted by AHPC to ViroPharma
no more often than once per Calendar Quarter. If either
Party at any time declines to share in the costs of filing,
prosecuting and maintaining any such Patent Right in the
Field, on a country by country basis, such Party shall
provide the other Party with thirty (30) days prior written
notice to such effect, in which event, such Party shall (i)
have no responsibility for any expenses incurred in
connection with such Patent Right after the end of such
thirty (30) day period and (ii) if the other Party elects to
continue prosecution or maintenance, assign to the other
Party
<PAGE>
all of its right, title and interest in and to such Patent
Right and the underlying Collaboration Invention. If the
other Party elects to continue prosecution or maintenance,
the assigning Party shall execute such documents and perform
such acts, at the receiving Party's expense, as may be
reasonably necessary to effect an assignment of such Patent
Rights to the receiving Party on a country by country basis
and to allow the receiving Party to continue the prosecution
and maintenance of such Patent Right. Any such assignment
shall be completed in a timely manner to allow the receiving
Party to continue such prosecution or maintenance. Upon the
assignment of such Patent Right to the other Party, such
Patent Right shall cease to be a Collaboration Patent Right
on a country by country basis for purposes of this
Agreement, and, thereafter shall be considered to be a Non-
Collaboration Invention of the Party receiving such
assignment for all purposes of this Agreement.
8.2.2 Enforcement of Patent Rights.
(a) Notice and Discontinuance of Infringement - General. If
either AHPC or ViroPharma becomes aware of any infringement,
anywhere in the world, of any issued patent within the
Patent Rights, it will notify the other Party in writing to
that effect. Any such notice shall include evidence to
support an allegation of infringement by such Third Party.
The Party responsible for prosecuting and maintaining such
Patent Right in accordance with Section 8.2.1 shall have the
right, but not the obligation, to take action to obtain a
discontinuance of such infringement or bring suit against
the Third Party infringer within three (3) months from the
date of said notice. ViroPharma shall bear all the expenses
of any suit brought by it claiming infringement of any
ViroPharma Patent Rights. AHPC shall bear all the expenses
of any suit brought by it claiming infringement of any AHPC
Patent Rights. Subject to Section 8.2.2(c), the Parties
shall share equally the expenses of any suit brought by AHPC
claiming infringement of any Collaboration Patent Rights.
(b) AHPC Patent Rights and ViroPharma Patent Rights. With
respect to suits claiming infringement of either the AHPC
Patent Rights or the ViroPharma Patent Rights, the Party not
bringing such suit (the "Non-Prosecuting Party") shall have
the right, before commencement of the trial, suit or action
brought by the other Party (the "Prosecuting Party"), to
join any such suit or action, and in such event shall pay
one-half of the costs of such suit or action. In no event
shall the Prosecuting Party enter into any settlement,
consent judgment or other voluntary final disposition of
such suit
<PAGE>
which would adversely affect the Non-Prosecuting Party's
rights under this Agreement in any way without first
obtaining the Non-Prosecuting Party's written consent to do
so, which consent shall not be unreasonably withheld.
Additionally, if the Non-Prosecuting Party has joined in the
action and shared in the costs thereof as set forth above,
no settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without the
consent of the Non-Prosecuting Party, which consent shall
not be unreasonably withheld. If the Non-Prosecuting Party
has not joined the suit or action, the Non-Prosecuting Party
will reasonably cooperate with the Prosecuting Party in any
such suit or action and shall have the right to consult with
the Prosecuting Party and be represented by its own counsel
at its own expense. Any recovery or damages derived from a
suit in which the Non-Prosecuting Party has joined and
shared costs shall be used first to reimburse each of the
Prosecuting Party and the Non-Prosecuting Party for its
respective documented out-of-pocket legal expenses relating
to the suit, with any remaining amounts to be shared equally
by the Parties. Any recovery or damages derived from a suit
that the Non-Prosecuting Party has not joined shall be
retained by the Prosecuting Party.
(c) Collaboration Patent Rights. With respect to suits claiming
infringement of the Collaboration Patent Rights, AHPC shall
have the first right to bring suit claiming infringement of
the Collaboration Patent Rights. ViroPharma shall have the
right, before commencement of the trial, suit or action
brought by AHPC, to join any such suit or action. In no
event shall AHPC enter into any settlement, consent judgment
or other voluntary final disposition of such suit which
would adversely affect ViroPharma's rights under this
Agreement in any way without first obtaining ViroPharma's
written consent to do so, which consent shall not be
unreasonably withheld. If AHPC declines to bring suit,
ViroPharma may proceed with an infringement suit. Any
recovery or damages derived from such a suit shall be used
first to reimburse each of AHPC and ViroPharma for their
respective documented out-of-pocket legal expenses relating
to the suit, with any remaining amounts to be shared equally
by the Parties. If either Party desires not to proceed with
or participate in a suit against a Third Party for
infringement of a Collaboration Patent Right, such Party
may, by written notice to the other Party, elect not to
share in the expenses of such suit. In such event, the Party
continuing to prosecute the infringement action shall have
the right, but not the obligation to bring or continue such
suit at its own expense and shall be entitled to retain any
recovery or damages derived from such suit, and the Party
electing not to
<PAGE>
participate in the suit shall reasonably cooperate with such
other Party in prosecuting such infringement action. The
Party bringing such action shall incur no liability to the
other Party as a consequence of such litigation or any
unfavorable decision resulting therefrom, including any
decision holding any of the Collaboration Patent Rights
invalid or unenforceable.
(d) Continuance of Infringement of the ViroPharma Patent Rights.
With respect to the ViroPharma Patent Rights, if, after the
expiration of the three (3) month period specified in
Section 8.2.2(a), ViroPharma has not obtained a
discontinuance of infringement of its Patent Rights, filed
suit against any Third Party infringer of its Patent Rights,
or provided AHPC with information and arguments
demonstrating to AHPC's reasonable satisfaction that there
is insufficient basis for the allegation of infringement of
ViroPharma's Patent Rights, then AHPC shall have the right,
but not the obligation, to bring suit against such infringer
under the ViroPharma Patent Rights and to join ViroPharma as
a party plaintiff, provided that AHPC shall bear all the
expenses of such suit. ViroPharma will cooperate with AHPC
in any suit for infringement of ViroPharma's Patent Rights
brought by AHPC against a Third Party, and shall have the
right to consult with AHPC and to participate in and be
represented by independent counsel in such litigation at its
own expense. AHPC shall incur no liability to ViroPharma as
a consequence of such litigation or any unfavorable decision
resulting therefrom, including any decision holding any of
the ViroPharma Patent Rights invalid or unenforceable.
(e) Continuance of Infringement of the AHPC Patent Rights. With
respect to the AHPC Patent Rights in the Copromotion
Territory which claim an Active Compound in the Field, if,
after the expiration of the three (3) month period specified
in Section 8.2.2(a), AHPC has not obtained a discontinuance
of infringement of such Patent Rights in the Field, filed
suit against any Third Party infringer of such Patent
Rights, or provided ViroPharma with information and
arguments demonstrating to ViroPharma's reasonable
satisfaction that there is insufficient basis for the
allegation of infringement of such Patent Rights in the
Field, then ViroPharma shall have the right, but not the
obligation, to bring suit against such infringer under such
of the AHPC Patent Rights and to join AHPC as a party
plaintiff, provided that ViroPharma shall bear all the
expenses of such suit. AHPC will cooperate with ViroPharma
in any suit for infringement of such of AHPC's Patent Rights
brought by ViroPharma against a Third Party, and shall have
the right to consult with ViroPharma and to participate in
and
<PAGE>
be represented by independent counsel in such litigation at
its own expense. ViroPharma shall incur no liability to AHPC
as a consequence of such litigation or any unfavorable
decision resulting therefrom, including any decision holding
any of such AHPC Patent Rights invalid or unenforceable.
8.2.3 Infringement and Third Party Licenses.
(a) Infringement of Third Party Patents - Course of Action. If
the making, having made, importing, exporting, using,
distributing, marketing, promoting, offering for sale or
selling any Compound and/or Product in the Field, under this
Agreement, is alleged by a Third Party to infringe a Third
Party's patent, the Party becoming aware of such allegation
shall promptly notify the other Party. Additionally, if
either Party determines that, based upon the review of a
Third Party's patent or patent application, it may be
desirable to obtain a license from such Third Party with
respect thereto so as to avoid any potential suit between
either Party and such Third Party, such Party shall promptly
notify the other Party of such determination.
(b) AHPC Option to Negotiate. AHPC shall in the first instance
have the right to negotiate with said Third Party for a
suitable license or assignment, provided, however, that AHPC
shall enter into no such agreement unless it has first
obtained ViroPharma's approval of the terms of such
agreement, including the amounts of any royalties or
payments, which approval shall not be unreasonably withheld.
If such negotiation results in a consummated agreement, AHPC
shall make all payments to the Third Party and such payments
shall be deemed Third Party License Fees for purposes of
this Agreement.
(c) Third Party Infringement Suit. If a Third Party sues a Party
(the "Sued Party") alleging that the Sued Party's, the Sued
Party's Affiliates' or the Sued Party's sublicensees' use of
any Collaboration Target for the Screening of Compounds
pursuant to this Agreement, or the Screening, Research,
Development, or Commercialization of any Compound and/or
Product in the Field during the term of and pursuant to this
Agreement infringes or will infringe said Third Party's
patent, then upon the Sued Party's request and in connection
with the Sued Party's defense of any such Third Party
infringement suit, the other Party shall provide reasonable
assistance to the Sued Party for such defense. The Parties
shall equally share in the litigation expenses, including
settlement costs, royalties paid in settlement of any such
suit, and the payment of any damages to the Third Party,
other than Third
<PAGE>
Party License Fees paid pursuant to Section 8.2.3(e). The
Party paying such expenses shall periodically, but no more
than once per Calendar Quarter, invoice the other Party for
its *********** share of expenses incurred, which invoices
shall be accompanied by supporting documentation reasonably
showing the expenses so incurred. Such invoices shall be
paid within thirty (30) days of receipt, provided, however,
that if AHPC is the Sued Party, ViroPharma has earned
royalties pursuant to Section 7.4 or Net Profits pursuant to
Section 7.5, and AHPC has invoiced ViroPharma for expenses
under this Section 8.2.3(c) but ViroPharma has not yet paid
them AHPC may deduct ViroPharma's ************* share of
such expenses from such royalties or Net Profits due to
ViroPharma. The obligation to share expenses pursuant to
this Section 8.2.3(c) shall not apply to activities
conducted by either Party: (a) with respect to any
Collaboration Target after such Target has ceased to be a
Collaboration Target pursuant to Section 4.4.1, (b) with
respect to any Compound that has not been declared a Hit in
accordance with Section 4.4.3, (c) with respect to any Hit,
Lead Compound or Development Candidate after the JSC, in
accordance with Section 4.4 and 2.4, has determined not to
advance the development of such Hit, Lead Compound, or
Development Candidate, or (d) after the expiration or any
termination of this Agreement.
(d) Other Third Party Licenses. If the Parties determine that,
after consultation with intellectual property counsel,
obtaining a license from a Third Party under such Third
Party's intellectual property rights is necessary or useful
for Screening, Research, Development or Commercialization of
any Compound or Product under this Agreement, the JSC or the
MSC shall determine which Party shall have the
responsibility to negotiate and enter into an agreement with
such Third Party for such a license. The Party entering into
such agreement shall pay the Third Party License Fees due
thereunder to such Third Party, subject to reimbursement in
accordance with Section 8.2.3(e).
(e) Third Party License Fees. ViroPharma shall be responsible
for ************** of all Third Party License Fees paid by
either Party pursuant to this Section 8.2.3 and AHPC shall
be responsible for ***************** of all Third Party
License Fees paid by either Party pursuant to this Sections
8.2.3. Notwithstanding the foregoing, if, pursuant to
Section 8.2.3(d), AHPC determines it is necessary or
desirable to obtain a license from a Third Party to allow
the Screening, Research, Development and/or
Commercialization of any Class A Compound or Product
containing a Class A Compound, ***************. The Party
<PAGE>
paying such Third Party License Fees shall periodically
invoice the other Party for its share of such Third Party
License Fees, which invoices shall be submitted no more
often than once per Calendar Quarter. The Party receiving
such invoice shall reimburse the other Party for its share
of such Third Party License Fees within forty-five (45) days
after receiving the invoice therefor.
8.2.4 Patent Certifications. Each Party shall immediately give written
notice to the other of any certification of which it becomes
aware filed pursuant to 21 U.S.C. (S) 355(b)(2)(A), or (S)
355(j)(2)(A)(vii) (or any amendment or successor statute thereto)
claiming that Patent Rights covering any Product are invalid or
that infringement will not arise from the manufacture, use or
sale of such Product by a Third Party. Notwithstanding any
provision to the contrary, in the event that the Patent Rights at
issue are owned and/or Controlled by ViroPharma and ViroPharma
has failed to bring an infringement action against such Third
Party at least fourteen (14) days prior to expiration of the
forty five (45) day period set forth in 21 U.S.C. (S)355(c)(3)(C)
(or any amendment or successor statute thereto), AHPC shall have
the right to bring such an infringement action, in its sole
discretion and at its own expense, in its own name and/or in the
name of ViroPharma. At AHPC's request, ViroPharma shall, at its
own expense, provide AHPC reasonable assistance to conduct such
infringement action, including, without limitation, causing the
execution of such legal documents as AHPC may deem necessary for
the prosecution of such action. AHPC shall incur no liability to
ViroPharma as a consequence of such litigation or any unfavorable
decision resulting therefrom, including any decision holding any
of the Patent Rights invalid or unenforceable. In the event that
AHPC recovers any sums in such litigation by way of damages or in
settlement thereof, AHPC shall have the right to retain all such
sums to offset its costs, losses and expenses.
8.2.5 Patent Term Restoration. The Parties hereto shall cooperate with
each other in obtaining patent term restoration or its equivalent
in the world where applicable to Patent Rights. If elections with
respect to obtaining such patent term restoration are to be made,
the President, Wyeth-Ayerst Global Pharmaceuticals, and the
President, ViroPharma Incorporated, or their designees, shall
agree to an election and the Parties shall abide by such
election.
8.3 Trademarks. AHPC shall, in its sole discretion, select and own
all Trademarks, Product names and Compound names to be used in
connection with the marketing, promotion and sale of any Product
hereunder. ViroPharma shall neither use nor seek to register,
anywhere in the world, any trademarks which are confusingly
similar to any Trademark or any other trademarks, trade names,
trade dress or logos used by or on behalf of AHPC, its Affiliates
or sublicensees in connection with any Product. Nothing in this
Section 8.3 shall prevent or limit
<PAGE>
ViroPharma in any way from continuing to use any trademark, trade
name, trade dress or logo adopted by ViroPharma before the date
that the same or a confusingly similar trademark, trade name,
trade dress or logo is adopted by AHPC.
9. CONFIDENTIALITY.
9.1 Confidentiality. Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing, the Parties agree
that, for the term of this Agreement and for five (5) years
thereafter, each Party (the "Receiving Party"), receiving
hereunder any Confidential Information of the other Party (the
"Disclosing Party") shall keep such Confidential Information
confidential and shall not publish or otherwise disclose or use
such Confidential Information for any purpose other than as
provided for in this Agreement except for Confidential
Information that the Receiving Party can establish:
(a) was already known to the Receiving Party (other than under
an obligation of confidentiality), at the time of disclosure
by the Disclosing Party and such Receiving Party has
documentary evidence to that effect;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the
Receiving Party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure or development, as
the case may be, and other than through any act or omission
of a party in breach of this confidentiality obligation;
(d) was disclosed to that Party, other than under an obligation
of confidentiality, by a Third Party who had no obligation
to the Disclosing Party not to disclose such information to
others;
(e) was independently discovered or developed by or on behalf of
the Receiving Party without the use of the Confidential
Information belonging to the other Party and the Receiving
Party has documentary evidence to that effect.
9.2 Authorized Disclosure and Use.
9.2.1 Disclosure. Notwithstanding the foregoing Section 9.1,
each Party may disclose Confidential Information
belonging to the other Party to the extent such
disclosure is reasonably necessary to:
<PAGE>
(a) file or prosecute patent applications claiming
Inventions included within the Collaboration
Technology,
(b) prosecute or defend litigation,
(c) exercise rights hereunder provided such disclosure is
covered by terms of confidentiality similar to those
set forth herein, and
(d) comply with applicable governmental laws and
regulations.
In the event a Party shall deem it necessary to disclose
pursuant to this Section 9.2.1, Confidential Information
belonging to the other Party, the Disclosing Party shall to
the extent possible give reasonable advance notice of such
disclosure to the other Party and take reasonable measures
to ensure confidential treatment of such information.
9.2.2 Use. Notwithstanding the foregoing Section 9.1, each Party
shall have the right to use the other Party's Confidential
Information in carrying out its respective responsibilities
under this Agreement in both the conduct of the Research
Program and the Development and Commercialization of Lead
Compounds and Products. Similarly, subject to the license
granted in Article 2 and the terms of this Article 9, each
Party shall have the right to use the Joint Confidential
Information for any purpose under this Agreement.
9.3 SEC Filings. Either Party may disclose the terms of this Agreement to
the extent required, in the reasonable opinion of such Party's legal
counsel, to comply with applicable laws, including without limitation
the rules and regulations promulgated by the United States Securities
and Exchange Commission (the "SEC"). Notwithstanding the foregoing,
before disclosing this Agreement or any of the terms hereof pursuant
to this Section 9.3, the Parties will consult with one another on the
terms of this Agreement to be redacted in making any such disclosure.
If a Party discloses this Agreement or any of the terms hereof in
accordance with this Section 9.3, such Party agrees, at its own
expense, to seek confidential treatment of portions of this Agreement
or such terms, as may be reasonably requested by the other Party.
9.4 Publications. During the term of the Research Program, each Party will
submit to the other Party for review and approval all proposed
academic, scientific and medical publications and public presentations
relating to the Research Program, Lead Compounds, Development
Candidates, Products and/or Collaboration Technology for review in
connection with preservation of exclusive Patent Rights and/or to
determine whether Confidential Information should be modified or
deleted. Written copies of such proposed publications and
presentations shall be submitted to the nonpublishing Party no later
than sixty (60) days before submission for publication or presentation
and the non-publishing party shall
<PAGE>
provide its comments with respect to such publications and
presentations within fifteen (15) business days of its receipt of such
written copy. The review period may be extended for an additional
thirty (30) days in the event the nonpublishing Party can demonstrate
a reasonable need for such extension including, but not limited to,
the preparation and filing of patent applications. By mutual
agreement, this period may be further extended. ViroPharma and AHPC
will each comply with standard academic practice regarding authorship
of scientific publications and recognition of contribution of other
parties in any publications relating to Research Program, Lead
Compounds, Development Candidates, Products and/or Collaboration
Technology.
9.5 Public Announcements.
9.5.1 Coordination. The Parties agree on the importance of
coordinating their public announcements respecting this
Agreement and the subject matter thereof (other than
academic, scientific or medical publications that are
subject to the publication provision set forth above).
ViroPharma and AHPC will, from time to time, and at the
request of the other Party discuss and agree on the general
information content relating to this Agreement, the Research
Program, Lead Compounds, Development Candidates, Products
and/or Collaboration Technology which may be publicly
disclosed.
9.5.2 Announcements. Except as may be expressly permitted under Sections
9.3 and 9.4, neither Party will make any public announcement
regarding this Agreement, the Research Program, Lead Compounds,
Development Candidates, Products and/or Collaboration Technology
without the prior written approval of the other Party.
10. REPRESENTATIONS AND WARRANTIES.
10.1 Representations, Warranties of Each Party. As of the Effective Date,
each of ViroPharma and AHPC hereby represents, warrants, and
covenants to the other Party hereto as follows:
(a) it is a corporation or entity duly organized and validly
existing under the laws of the state or other jurisdiction of
its incorporation or formation;
(b) the execution, delivery and performance of this Agreement by
such Party has been duly authorized by all requisite corporate
action and does not require any shareholder action or approval;
(c) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
<PAGE>
(d) the execution, delivery and performance by such Party of this
Agreement and its compliance with the terms and provisions hereof
does not and will not conflict with or result in a breach of any
of the terms and provisions of or constitute a default under (i)
a loan agreement, guaranty, financing agreement, agreement
affecting a product or other agreement or instrument binding or
affecting it or its property; (ii) the provisions of its charter
or operative documents or bylaws; or (iii) any order, writ,
injunction or decree of any court or governmental authority
entered against it or by which any of its property is bound;
(e) it shall at all times comply with all applicable material laws
and regulations relating to its activities under this Agreement;
(f) as of the Effective Date, its Patent Rights and Know-How are
existing and, to the best of its knowledge, are not invalid or
unenforceable, in whole or in part;
(g) it has the full right, power and authority to grant all of right,
title and interest in the licenses granted to the other Party
under this Agreement;
10.2 Additional Representations and Warranties of ViroPharma. In addition
to the and warranties made by ViroPharma elsewhere in this Agreement,
ViroPharma, subject to Section 10.6, hereby represents, warrants, and
covenants to AHPC that:
(a) except as disclosed in Exhibit 10.2(a), as of the Effective Date,
no Third Party has any right, title or interest in or to:
(i) any Collaboration Target listed in Exhibit 1.23,
(II) any Class A Product, or
(iii) any of the ViroPharma Patent Rights, ViroPharma Know-How,
or any of ViroPharma's interest in the Collaboration Patent
Rights to the extent that any of the foregoing in this
Section 10.2(a)(iii) cover any Collaboration Target listed
in Exhibit 1.23, or any Class A Product,
with respect to which AHPC has been granted or is to be granted a
license hereunder;
(b) except as disclosed in Exhibit 10.2(b),It is the sole and
exclusive owner of the ViroPharma Patent Rights listed on Exhibit
1.112 and the ViroPharma Know-How existing as of the Effective
Date, all of which are free and clear of any liens, charges and
encumbrances, and, with respect to such
<PAGE>
Patent Rights and Know-How, ViroPharma has the right to grant to
AHPC those licenses granted in Section 2.1 hereof;
(c) except as set forth in Exhibit 10.2(c) attached hereto, no
ViroPharma Prior Invention and no ViroPharma Patent Right and no
portion of the ViroPharma Know-How existing as of the Effective
Date and relating to either any Class A Compound or to any
Collaboration Target listed on Exhibit 1.23 is subject to any
funding agreement with any government or government agency;
(d) to the best of its knowledge, as of November 1, 1999, the
practice of the ViroPharma Patent Rights listed on Exhibit 1.112,
the use of the ViroPharma Know-How, the use of the Collaboration
Targets listed in Exhibit 1.23, and the manufacture, use or sale
of any ViroPharma Compound each, as of the Effective Date, do not
infringe on any issued patents owned or possessed by any Third
Party;
(e) to the best of its knowledge, as of the Effective Date, there are
no Third Party pending patent applications (other than those
which have been disclosed, in writing, by ViroPharma to AHPC
prior to the signing of this Agreement) which, if issued, would
cover the development, manufacture or use of any Collaboration
Target or the development, manufacture, use or sale of any Class
A Compound arising from the ViroPharma Chemical Library or any
Product containing any Class A Compound arising from the
ViroPharma Chemical Library;
(f) as of the Effective Date, there are no claims, judgments or
settlements against or owed by ViroPharma or, to the best of its
knowledge, pending or threatened claims or litigation in either
case relating to the ViroPharma Patent Rights listed in Exhibit
1.112, the ViroPharma Know-How, any Collaboration Target, any
ViroPharma Class A Compound or any ViroPharma Class B Compound
that ViroPharma, as of the Effective Date, plans to Screen during
the Screening Phase; and
(g) during the Term of this Agreement it will use diligent efforts
not to diminish the rights under the ViroPharma Patent Rights or
the ViroPharma Know-How granted to AHPC hereunder, including
without limitation, by not committing or permitting any actions
or omissions which would cause the breach of any agreements
between itself and Third Parties which provide for intellectual
property rights applicable to the development, manufacture or use
of any Target or the development, manufacture, use or sale of any
Active Compound arising from the ViroPharma Chemical Library
and/or Product containing any Active Compound arising from the
ViroPharma Chemical Library, that it will provide AHPC promptly
with notice of any such alleged breach, and that as of the
Effective Date, it is in compliance in all material respects with
any agreements with Third Parties
<PAGE>
relating to the ViroPharma Patent Rights, the ViroPharma Know
How, the Targets and/or the Active Compounds arising from the
ViroPharma Chemical Library.
10.3 Additional Representations and Warranties of AHPC. In addition to the
representations and warranties made by AHPC elsewhere in this
Agreement, AHPC, subject to Section 10.6, hereby represents, warrants,
and covenants to ViroPharma that:
(a) except as disclosed in Exhibit 10.3(a), it is the sole and
exclusive owner of the AHPC Patent Rights listed on Exhibit 1.7
and the AHPC Know-How existing as of the Effective Date, all of
which are free and clear of any liens, charges and encumbrances,
and, with respect to such Patent Rights and Know-How AHPC has the
right to grant to ViroPharma those licenses granted in Section
2.2 hereof;
(b) to the best of its knowledge, as of the Effective Date, the
practice of the AHPC Patent Rights listed on Exhibit 1.7, the use
of the AHPC Know-How, and the manufacture, use or sale of any
AHPC Compound each, as of the Effective Date, do not infringe on
any issued patents owned or possessed by any Third Party;
(c) as of the Effective Date, there are no claims, judgments or
settlements against or owed by AHPC or, to the best of its
knowledge, pending or threatened claims or litigation in either
case relating to the AHPC Patent Rights listed in Exhibit 1.7,
the AHPC Know-How, or any AHPC Compound that AHPC, as of the
Effective Date, plans to Screen during the Screening Phase;
(d) all units of Product supplied in the United States by AHPC
pursuant to Section 5.1 will, as of the date of shipment or
delivery of such Product to a common carrier, not be adulterated
or misbranded within the meaning of the FD&C Act, and not be an
article which may not, under the provisions of Sections 404, 505
or 512 of the FD&C Act, be introduced into interstate commerce;
(e) all units of Product and containers for such Product supplied by
AHPC pursuant to Section 5.1 for sale in the Copromotion
Territory shall be manufactured, processed, prepared, packed,
and, while in AHPC's possession, held in accordance with all
applicable federal, state, and local laws and regulations,
including, without limitation, all current Good Manufacturing
Practices and with all applicable Regulatory Approvals in the
Copromotion Territory; and
(f) during the Term of this Agreement it will use diligent efforts
not to diminish the rights under the AHPC Patent Rights or the
AHPC Know-
<PAGE>
How granted to ViroPharma hereunder, including without
limitation, by not committing or permitting any actions or
omissions which would cause the breach of any agreements between
itself and Third Parties which provide for intellectual property
rights applicable to the development, manufacture, use or sale of
any Active Compound arising from the AHPC Chemical Library and/or
Product containing any Active Compound arising from the AHPC
Chemical Library, that it will provide ViroPharma promptly with
notice of any such alleged breach, and that as of the Effective
Date, it is in compliance in all material respects with any
agreements with Third Parties relating to the AHPC Patent Rights,
the AHPC Know How and/or the Active Compounds arising from the
AHPC Chemical Library.
10.4 Representation by Legal Counsel. Each Party hereto represents that it
has been represented by legal counsel in connection with this
Agreement and acknowledges that it has participated in the drafting
hereof. In interpreting and applying the terms and provisions of this
Agreement, the Parties agree that no presumption shall exist or be
implied against the Party which drafted such terms and provisions.
10.5 No Inconsistent Agreements. Neither Party has in effect and after the
Effective Date neither Party shall enter into any oral or written
agreement or arrangement that would be inconsistent with its
obligations under this Agreement.
10.6 Disclaimer. THE FOREGOING WARRANTIES OF EACH PARTY ARE IN LIEU OF ANY
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY IMPLIED WARRANTIES OF NONINFRINGEMENT, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE ALL OF WHICH ARE HEREBY SPECIFICALLY EXCLUDED AND DISCLAIMED.
11. GOVERNMENT APPROVALS; TERM AND TERMINATION.
11.1 Government Approvals.
11.1.1 ViroPharma's and AHPC's Obligations. Each of ViroPharma and AHPC
shall use its good faith efforts to eliminate any concern on the
part of any court or government authority regarding the legality
of the proposed transaction, including, if required by federal or
state antitrust authorities, promptly taking all steps to secure
government antitrust clearance, including, without limitation,
cooperating in good faith with any government investigation
including the prompt production of documents and information
demanded by a second request for documents and of witnesses if
requested.
<PAGE>
11.1.2 Cooperation. ViroPharma and AHPC will cooperate and use
respectively all reasonable efforts to make all other
registrations, filings and applications, to give all notices
and to obtain as soon as practicable all governmental or
other consents, transfers, approvals, orders, qualifications
authorizations, permits and waivers, if any, and to do all
other things necessary or desirable for the consummation of
the transactions as contemplated hereby. Neither Party shall
be required, however, to divest or out-license products or
assets or materially change its business if doing so is a
condition of obtaining approval under the HSR Act or other
governmental approvals of the transactions contemplated by
this Agreement.
11.2 Term. The term of this Agreement will commence on the Effective Date
and extend, unless this Agreement is terminated earlier in accordance
with this Section 11, on a Product by Product and country by country
basis (a) in the AHPC Territory until such time as the obligation to
pay royalties with respect to the sale of such Product in such country
expires in accordance with Section 7.4.3 and (b) in the Copromotion
Territory, until the later of (i) such time as the Parties are no
longer copromoting such Product in such country or (ii) if the Parties
discontinue the copromotion of Products pursuant to Section 11.6, such
time as the obligation to pay royalties with respect to the sale of
such Product in such country expires in accordance with Section 7.4.3.
11.3 Expiration. If at any time after the expiration of the Screening Phase
Tail, the Parties have determined, in accordance with Section 4.3.3,
not to advance any Tail Compound as a Hit or Lead Compound and there
is otherwise no Active Compound hereunder, this Agreement shall expire
effective as of the later of (a) the date the Parties have determined,
in accordance with Section 4.3.3, not to advance any Tail Compound as
a Hit or a Lead Compound and (b) the date on which all Active
Compounds have ceased to be Active Compounds hereunder.
11.4 Termination for Cause.
11.4.1 Termination for Cause. This Agreement may be terminated
effective immediately by written notice by either Party at
any time during the Term of this Agreement for material
breach by the other Party, which breach remains uncured for
ninety (90) days in the case of nonpayment of any amount due
(unless there exists a bona fide dispute as to whether such
payment is owing, in which case the ninety (90) day period
shall be tolled pending resolution of such dispute) and one
hundred eighty (180) days for all other breaches, each
measured from the date written notice of such breach is
given to the breaching Party, provided, however, that if
such breach is not susceptible of cure within the stated
period and the breaching Party uses diligent good faith
efforts to cure such breach, the stated period will be
extended by an additional ninety (90) days.
<PAGE>
11.4.2 Effect of Termination for Cause on License. If a Party
terminates this Agreement pursuant to this Section 11.4 (the
"Terminating Party"):
(a) all licenses granted by the Terminating Party to the
other Party hereunder will automatically terminate;
(b) all licenses granted by the other Party to the
Terminating Party will become fully paid up,
irrevocable, perpetual, royalty-free licenses;
(c) the other Party will assign the Terminating Party all
right, title and interest in and to: (i) all regulatory
filings and Regulatory Approvals pertaining to any
Product which regulatory filings and Regulatory
Approvals, if any, are owned or otherwise controlled by
the other Party, (ii) all of the other Party's interest
in the Collaboration Patent Rights and the
Collaboration Know-How, (iii) all of the other Party's
interest in any Trademark, including, without
limitation, the good will symbolized by such Trademark
used for Products, and (iv) all of the other Party's
interest in any copyrights necessary or useful for
Commercializing Products;
(d) the other Party will have no right to receive
royalties, a share of Net Profits or any other payments
which may result from the sale of any Product, the
occurrence of any event or the conduct of any activity
after the effective date of such termination, provided,
however, that the other Party shall remain entitled to
receive any payments that accrued before the effective
date of such termination.
11.5 Termination for Convenience.
11.5.1 Right to Terminate. After the expiration of the Term of the
Screening Phase, either Party may terminate this Agreement
upon one hundred eighty days prior written notice to the
other Party (a "Termination for Convenience").
11.5.2 Effect of Termination for Convenience. Upon a Termination
for Convenience the non-terminating Party shall have a
royalty-bearing, perpetual, irrevocable, worldwide,
exclusive license under the other Party's Technology and the
other Party's interest in any Collaboration Technology to
develop, make, have made, use, import, offer for sale and
sell Products in the Field in the world. For the sake of
clarity, in such event, the non-terminating Party shall have
no rights with respect to any Compound of the terminating
Party, which Compound, before the effective date of such
termination, was not yet designated as a Lead Compound or a
Development Candidate in accordance with Section 4.4.
Additionally, in the event of a Termination for Convenience,
the
<PAGE>
terminating Party shall assign to the non-terminating Party all
right, title and interest in and to any regulatory filings and
Regulatory Approvals pertaining directly to the Products. If a
Termination for Convenience occurs before the enrollment of the
first patient in a Phase III Clinical Trial in any country of the
world, the non-terminating Party, on a Product by Product basis,
would pay to the terminating Party a royalty of ******** of the
Net Sales obtained from the sale of such Product in the world by
the non-terminating Party, its Affiliates or sublicensees. If a
Termination for Convenience occurs after the completion of the
first Phase III Clinical Trial in any country of the world, the
non-terminating Party, on a Product by Product basis, would pay
to the terminating Party a royalty of ************* of the Net
Sales obtained from the sale of such Product in the world by the
non-terminating Party, its Affiliates or sublicensees. Any
royalty that becomes payable under this Section 11.5.2 will be
payable on a country by country basis until the later of (i) the
last to expire, in such country, of the Patent Rights included
within the Collaboration Technology containing a Valid Claim
which would be infringed by the manufacture, use, import, offer
for sale, or sale of such Product in such country or (ii) ten
(10) years from the First Commercial Sale of such Product in such
country. The non-terminating Party shall provide reports and pay
such royalties to the terminating Party in the manner set forth
in Section 7.6.2.
11.6 Termination of ViroPharma's Right to Promote Products.
11.6.1 Failure to Provide Assigned Sales Force Effort. If
during any ********** ViroPharma fails *************,
such failure shall not be considered a material breach
for purposes of Section 11.4, but, AHPC, upon sixty
(60) days prior written notice to ViroPharma, given
within sixty (60) days after AHPC, pursuant to Section
7.6.3, distributes to ViroPharma its share of Net
Profits for the last Calendar Quarter of the third such
calendar year, may terminate ViroPharma's right to
Promote Products in the Copromotion Territory
hereunder. Upon the effective date of any such
termination, AHPC shall assume all of ViroPharma's
obligations with respect to the Promotion of the
Product in the Copromotion Territory and thereafter,
shall have the right to sublicense Third Parties the
rights granted to it by ViroPharma in the Copromotion
Territory hereunder. Additionally, if AHPC, pursuant to
this Section 11.6.1, terminates ViroPharma's right to
Promote Products in the Copromotion Territory
hereunder, ViroPharma shall no longer be entitled to
receive any share of Net Profits obtained from the sale
of Products in the Copromotion Territory after the
effective date of such termination, provided, however,
that, with respect to the sale of Products in the
Copromotion Territory by AHPC, its Affiliates or
sublicensees
<PAGE>
after the effective date of such termination, AHPC
shall pay to ViroPharma royalties, on a Product by
Product basis, which royalties will be the sum of X, Y
and Z, where
X = either (a) for ******** of the portion of the
aggregate Net Sales obtained by AHPC, its
Affiliates and sublicensees from the sale of
such Product in the Copromotion Territory,
which Net Sales, during the calendar year in
question, are less than or equal to
************, or (b) for ************ of the
portion of the aggregate Net Sales obtained
by AHPC, its Affiliates and sublicensees from
the sale of such Product in the Copromotion
Territory, which Net Sales, during the
calendar year in question, are less than or
equal to ******************,
Y = either (a) for ***************** of the
portion of the aggregate Net Sales obtained
by AHPC, its Affiliates and sublicensees from
the sale of such Product in the Copromotion
Territory, which Net Sales, during the
calendar year in question, are greater than
**************** and less than or equal to
******************, or (b) for
***************** of the portion of the
aggregate Net Sales obtained by AHPC, its
Affiliates and sublicensees from the sale of
such Product in the Copromotion Territory,
which Net Sales, during the calendar year in
question, are greater than
******************* and less than or equal to
***************, and
Z = either (a) for *************** of the portion
of the aggregate Net Sales obtained by AHPC,
its Affiliates and sublicensees from the sale
of such Product in the Copromotion Territory,
which Net Sales, during the calendar year in
question, are greater than *****************,
or (b) for ************** of the portion of
the aggregate Net Sales obtained by AHPC, its
Affiliates and sublicensees from the sale of
such Product in the Copromotion Territory,
which Net Sales, during the calendar year in
question, are greater than **************.
11.6.2 Payment and Term of Royalty. If ViroPharma's right to
Promote Products in the Copromotion Territory is terminated
pursuant to this Section 11.6, the royalties payable
pursuant to this Section 11.6, and as adjusted pursuant to
Section 7.4.2, will be payable as set forth in Section
7.4.3.
<PAGE>
11.6.3 Effect on Other Rights and Obligations. Except as expressly
provided in this Section 11.6, any termination of
ViroPharma's right to Promote Products in the Copromotion
Territory pursuant to this Section 11.6 shall have no effect
on any of the other rights and obligations of the Parties
under this Agreement, including, without limitation, the
rights or obligations of the Parties in conducting the
Research Program or the rights or obligations of the Parties
in the AHPC Territory.
11.7 Blocking Patents. If during the term of the Research Program:
(a) a Third Party is granted a Patent relating to a Collaboration
Target in the Copromotion Territory;
(b) either Party determines, based on the advice of patent counsel,
that such Patent may be infringed by the activities of either
Party under the Research Program with respect to one or more
Collaboration Targets; and
(c) the Parties, within ninety (90) days of making the determination
in Section 11.7(b) above, determine that no license is available
on commercially reasonable terms after having attempted in good
faith to obtain such a license from such Third Party;
AHPC shall have the right, exercisable within sixty (60) days after
the determination in Section 11.7(c) is made, upon thirty (30) days
prior written notice to ViroPharma to terminate that portion of the
Research Program under this Agreement covering the Collaboration
Targets identified in Section 11.7(b). Upon such termination, subject
to Section 11.8 hereof, with respect to such Collaboration Targets
neither Party shall have any further rights or obligations under this
Agreement, each Party shall retain all rights to its respective Know-
How, Prior Inventions and Non-Collaboration Inventions covering only
such Collaboration Targets and each Party shall be free to practice
any Collaboration Invention and use any Joint-Know-How covering only
such Collaboration Targets created by the Parties prior to such
termination.
11.8 Survival of Certain Obligations. Expiration or termination of the
Agreement shall not relieve the Parties of any obligation accruing
before such expiration or termination, and the provisions of Articles
9 and 12 and Sections 2.6, 4.3.3, 4.6.5, 4.6.6, 6.1.7(b), 6.1.8(f-g),
7.4.3, 7.7, 7.8, 8.1, 8.3, 10.3(d-e), 11.4.2, 11.5.2, 11.8, 13.4,
13.8, 13.9 and 13.11 shall survive the expiration of the Agreement.
Any expiration or early termination of this Agreement shall be without
prejudice to the rights of either Party against the other accrued or
accruing under this Agreement before termination, including, without
limitation, the obligations to pay royalties and distribute Net
Profits for Product(s) sold before such termination.
<PAGE>
11.9 Provision for Insolvency.
11.9.1 Termination. This Agreement may be terminated by written
notice by either Party at any time during the Term of this
Agreement upon the declaration by a court of competent
jurisdiction that the other Party is bankrupt and, pursuant
to the U.S. Bankruptcy Code such other Party's assets are to
be liquidated, the filing or institution of bankruptcy,
liquidation or receivership proceedings (other than
reorganization proceedings under Chapter 11 of the U.S.
Bankruptcy Code), or upon an assignment of a substantial
portion of the assets for the benefit of creditors by the
other Party, or in the event a receiver or custodian is
appointed for such Party's business, or if a substantial
portion of such Party's business is subject to attachment or
similar process; provided, however, that in the case of any
involuntary bankruptcy proceeding such right to terminate
shall only become effective if the proceeding is not
dismissed within sixty (60) days after the filing thereof.
To the extent permitted by applicable law, the effect of a
termination under this section 11.9.1 shall be as described
in Section 11.5.2, i.e., as if the Insolvent Party elected
to Terminate for Convenience.
11.9.2 Effect on Licenses. All rights and licenses granted under or
pursuant to this Agreement by one Party to the other Party
are, for all purposes of Section 365(n) of Title 11 of the
United States Code ("Title 11"), licenses of rights to
"intellectual property" as defined in Title 11. Each Party
agrees that the other Party, as licensee of such rights
under this Agreement shall retain and may fully exercise all
of its rights and elections under Title 11. Each Party
agrees during the Term of this Agreement to create and
maintain current copies or, if not amenable to copying,
detailed descriptions or other appropriate embodiments, to
the extent feasible, of all such intellectual property. If a
case is commenced by or against a Party under Title 11 (the
"Title 11 Party"), such Party (in any capacity, including
debtor-in-possession) and its successors and assigns
(including, without limitation, a Title 11 Trustee) shall,
(a) as the other Party may elect in a written request,
immediately upon such request:
(i) perform all of the obligations provided in this
Agreement to be performed by the Title 11 Party
including, where applicable and without
limitation, providing to the other Party
portions of such intellectual property
(including embodiments thereof) held by the
Title 11 Party and such successors and assigns
or otherwise available to them; or
(ii) provide to the other Party all such intellectual
property (including all embodiments thereof)
held by the Title 11
<PAGE>
Party and such successors and assigns or
otherwise available to them; and
(b) not interfere with the rights of the other Party under
this Agreement, or any agreement supplemental hereto,
to such intellectual property (including such
embodiments), including any right to obtain such
intellectual property (or such embodiments) from
another entity.
11.9.3 Rights to Intellectual Property. If a Title 11 case is
commenced by or against the Title 11 Party, and this
Agreement is rejected as provided in Title 11, and the other
Party elects to retain its rights hereunder as provided in
Title 11, then the Title 11 Party (in any capacity,
including debtor-in-possession) and its successors and
assigns (including, without limitation, a Title 11 Trustee)
shall provide to the other Party all such intellectual
property (including all embodiments thereof) held by the
Title 11 Party and such successors and assigns, or otherwise
available to them, immediately upon the other Party's
written request. Whenever the Title 11 Party or any of its
successors or assigns provides to the other Party any of the
intellectual property licensed hereunder (or any embodiment
thereof) pursuant to this Section 11.9, the other Party
shall have the right to perform the obligations of the Title
11 Party hereunder with respect to such intellectual
property, but neither such provision nor such performance by
the other Party shall release the Title 11 Party from any
such obligation or liability for failing to perform it.
11.9.4 Additional Rights. All rights, powers and remedies of a
Party provided herein are in addition to and not in
substitution for any and all other rights, powers and
remedies now or hereafter existing at law or in equity
(including, without limitation, Title 11) in the event of
the commencement of a Title 11 case by or against the Title
11 Party. A non-Title 11 Party, in addition to the rights,
power and remedies expressly provided herein, shall be
entitled to exercise all other such rights and powers and
resort to all other such remedies as may now or hereafter
exist at law or in equity (including, without limitation,
Title 11) in such event. The Parties agree that they intend
the foregoing rights to extend to the maximum extent
permitted by law, including, without limitation, for
purposes of Title 11:
(a) the right of access to any intellectual property
(including all embodiments thereof) of the Title 11
Party, or any Third Party with whom the Title 11 Party
contracts to perform an obligation of the Title 11
Party under this Agreement, and, in the case of the
Third Party, which is necessary for the Development,
registration, manufacture and Commercialization of
licensed Compounds and/or licensed Products; and
<PAGE>
(b) the right to contract directly with any Third Party
described in 11.9.4(a) to complete the contracted work.
12. INDEMNIFICATION AND INSURANCE.
12.1 Indemnification by AHPC. AHPC will indemnify, defend and hold
harmless ViroPharma, its Affiliates, and each of its and their
respective employees, officers, directors and agents (each, a
"ViroPharma Indemnified Party") from and against any and all
liability, loss, damage, expense (including reasonable attorneys'
fees and expenses) and cost (collectively, a "Liability") that
the ViroPharma Indemnified Party may be required to pay to one or
more Third Parties resulting from or arising out of:
(a) any claims of any nature, other than claims by Third Parties
relating to patent infringement, arising out of the conduct
of the Research Program by, on behalf of, or under the
authority of AHPC (other than by ViroPharma);
(b) any AHPC representation or warranty set forth herein being
untrue in any material respect when made;
(c) the Promotion of any Product by AHPC in the world;
(d) any claim of any nature, including any products liability
claim, directly arising from the failure of a Product or its
container to have been manufactured, processed, prepared,
packed, or held in accordance with federal, state, and local
laws and regulations, Regulatory Approvals, or AHPC's
representations or warranties hereunder; and/or
(e) any claims of any nature to the effect that any Trademark
selected by AHPC in accordance with Section 8.3 and used by
the Parties, their Affiliates, or their sublicensees in
conjunction with the Promotion, marketing or sale of any
Product pursuant to this Agreement infringes the rights of
any Third Party;
except in each case, to the extent caused by the negligence or
willful misconduct of ViroPharma or any ViroPharma Indemnified
Party. Notwithstanding the foregoing, AHPC shall have no
obligation to defend, indemnify or hold harmless any ViroPharma
Indemnified Party from and against any Liability arising out of
or resulting from the infringement of a Third Party patent.
<PAGE>
12.2 Indemnification by ViroPharma. ViroPharma will indemnify, defend
and hold harmless AHPC, its Affiliates, sublicensees,
distributors and each of its and their respective employees,
officers, directors and agents (each, an "AHPC Indemnified
Party") from and against any and all Liabilities that the AHPC
Indemnified Party may be required to pay to one or more Third
Parties arising out of:
(a) any claims of any nature, other than claims by Third Parties
relating to patent infringement, arising out of the conduct
of the Research Program by, on behalf of, or under the
authority of ViroPharma (other than by AHPC);
(b) any ViroPharma representation or warranty set forth herein
being untrue in any material respect when made; and/or
(c) the Promotion of any Product by ViroPharma in the
Copromotion Territory;
except in each case, to the extent caused by the negligence or
willful misconduct of AHPC or any AHPC Indemnified Party.
Notwithstanding the foregoing, ViroPharma shall have no
obligation to defend, indemnify or hold harmless any AHPC
Indemnified Party from and against any Liability arising out of
or resulting from the infringement of a Third Party patent.
12.3 Procedure. Each Party will notify the other in the event it
becomes aware of a claim for which indemnification may be sought
hereunder. In case any proceeding (including any governmental
investigation) shall be instituted involving any Party in respect
of which indemnity may be sought pursuant to this Article 12,
such Party (the "Indemnified Party") shall promptly notify the
other Party (the "Indemnifying Party") in writing and the
Indemnifying Party and Indemnified Party shall meet to discuss
how to respond to any claims that are the subject matter of such
proceeding. The Indemnifying Party, upon request of the
Indemnified Party, shall retain counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party and
shall pay the fees and expenses of such counsel related to such
proceeding. In any such proceeding, the Indemnified Party shall
have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of the
Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. All such fees and
expenses shall be reimbursed as they are incurred. The
Indemnifying
<PAGE>
Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from
and against any loss or liability by reason of such settlement or
judgment. The Indemnifying Party shall not, without the written
consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which the
Indemnified Party is, or arising out of the same set of facts
could have been, a party and indemnity could have been sought
hereunder by the Indemnified Party, unless such settlement
includes an unconditional release of the Indemnified Party from
all liability on claims that are the subject matter of such
proceeding.
12.4 Insurance. Each Party further agrees to use its Commercially
Reasonable Efforts to obtain and maintain, during the term of
this Agreement, Commercial General Liability Insurance, including
Products Liability Insurance, with reputable and financially
secure insurance carriers to cover its indemnification
obligations under Sections 12.1 or 12.2, as applicable, or self-
insurance, with limits of not less than five million dollars
($5,000,000.00) per occurrence and in the aggregate.
13. MISCELLANEOUS.
13.1 Assignment. Neither this Agreement nor any interest hereunder
shall be assignable by either Party without the prior written
consent of the other Party, except for assignment in connection
with a Change of Control of a Party. This Agreement shall be
binding upon the successors and permitted assigns of the Parties
and the name of a Party appearing herein shall be deemed to
include the names of such Party's successors and permitted
assigns to the extent necessary to carry out the intent of this
Agreement. Any assignment not in accordance with this Section
13.1 shall be void.
13.2 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts,
as may be necessary or appropriate in order to carry out the
purposes and intent of the Agreement.
13.3 Force Majeure. Neither Party shall be liable to the other for
delay or failure in the performance of the obligations on its
part contained in this Agreement if and to the extent that such
failure or delay is due to circumstances beyond its control which
it could not have avoided by the exercise of reasonable
diligence. It shall notify the other Party promptly should such
circumstances arise, giving an indication of the likely extent
and duration thereof, and shall use all Commercially Reasonable
Efforts to resume performance of its obligations as soon as
practicable, provided,
<PAGE>
however, that neither Party shall be required to settle any labor dispute
or disturbance. Actions taken by a Party to resume performance of its
obligations with respect to Screening, Research and Development matters
shall be taken in consultation with the JSC, and actions taken by a Party
to resume performance of its Commercialization obligations in the
Copromotion Territory shall be taken in consultation with the MSC.
13.4 Correspondence and Notices.
13.4.1 Ordinary Notices. Correspondence, reports, documentation, and any
other communication in writing between the Parties in the course of
ordinary implementation of this Agreement shall be delivered by
hand, sent by facsimile transmission (receipt verified), or by
airmail to the employee or representative of the other Party who is
designated by such other Party to receive such written
communication.
13.4.2 Extraordinary Notices. Extraordinary notices and other
communications hereunder (including, without limitation, any notice
of force majeure, breach, termination, change of address, exercise
of rights to negotiate additional agreements, etc.) shall be in
writing and shall be deemed given if delivered personally or by
facsimile transmission (receipt verified), mailed by registered or
certified mail (return receipt requested), postage prepaid, or sent
by nationally recognized express courier service, to the Parties at
the following addresses (or at such other address for a Party as
shall be specified by like notice, provided, however, that notices
of a change of address shall be effective only upon receipt
thereof):
All correspondence to AHPC shall be addressed as follows:
Wyeth-Ayerst Laboratories
555 East Lancaster Avenue
St. Davids, Pennsylvania 19087
Attn: Senior Vice President, Global Business Development
Fax: (610) 688-9498
with a copy to:
American Home Products Corporation
5 Giralda Farms
Madison, New Jersey 07940
Attn: Senior Vice President and General Counsel
Fax: (973) 660-7156
<PAGE>
All correspondence to ViroPharma shall be addressed as follows:
ViroPharma Incorporated
405 Eagleview Boulevard
Exton, Pennsylvania 19341
Attn: Vice President, Business Development
Fax: (610) 458-7380
with a copy to:
ViroPharma Incorporated
405 Eagleview Boulevard
Exton, Pennsylvania 19341
Attn: General Counsel
Fax: (610) 458-7380
13.5 Amendment. No amendment, modification or supplement of any provision of
this Agreement shall be valid or effective unless made in writing and
signed by a duly authorized officer of each Party.
13.6 Waiver. No provision of the Agreement shall be waived by any act,
omission or knowledge of a Party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a
duly authorized officer of the waiving Party.
13.7 Severability. If any clause or portion thereof in this Agreement is for
any reason held to be invalid, illegal or unenforceable, the same shall
not affect any other portion of this Agreement, as it is the intent of
the Parties that this Agreement shall be construed in such fashion as to
maintain its existence, validity and enforceability to the greatest
extent possible. In any such event, this Agreement shall be construed as
if such clause of portion thereof had never been contained in this
Agreement, and there shall be deemed substituted therefor such provision
as will most nearly carry out the intent of the Parties as expressed in
this Agreement to the fullest extent permitted by applicable law unless
doing so would have the effect of materially altering the right and
obligations of the Parties in which event this Agreement shall terminate
and all the rights and obligations granted to the Parties hereunder shall
cease and be of no further force and effect.
13.8 Descriptive Headings. The descriptive headings of this Agreement are for
convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
<PAGE>
13.9 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of New Jersey,
without regard to conflict of law principles thereof.
13.10 Entire Agreement of the Parties. This Agreement constitutes and
contains the complete, final and exclusive understanding and
agreement of the Parties and cancels and supersedes any and all
prior negotiations, correspondence, understandings and agreements
including, without limitation, the Prior Agreement, whether oral or
written, among the Parties respecting the subject matter hereof and
thereof.
13.11 Independent Contractors. Both Parties are independent contractors
under this Agreement. Nothing herein contained shall be deemed to
create an employment, agency, joint venture or partnership
relationship between the Parties hereto or any of their agents or
employees, or any other legal arrangement that would impose
liability upon one Party for the act or failure to act of the other
Party. Neither Party shall have any express or implied power to
enter into any contracts or commitments or to incur any liabilities
in the name of, or on behalf of, the other Party, or to bind the
other Party in any respect whatsoever.
13.12 Debarment. Each Party agrees that it will not Use, in any capacity,
in connection with any of its obligations to be performed under the
Research Program any individual who has been debarred under the FD&C
Act or the Generic Drug Enforcement Act.
13.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which need not contain the signature of more
than one Party but all such counterparts taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, duly authorized representatives of the Parties have
duly executed this Agreement to be effective as of the Effective Date.
AMERICAN HOME PRODUCTS CORPORATION VIROPHARMA INCORPORATED
By /s/ Robert Essner By /s/ Claude H. Nash
----------------------------- --------------------------------
Name: Robert Essner Name: Claude H. Nash
Title: Executive Vice President Title: President & CEO
<PAGE>
EXHIBIT 1.7
AHPC PATENT RIGHTS
------------------
NONE.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 1.7 Page 1
<PAGE>
EXHIBIT 1.18
CLASS A PRODUCT CHEMICAL SERIES
-------------------------------
*******************************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 1.18 Page 1
<PAGE>
EXHIBIT 1.23
COLLABORATION TARGETS
---------------------
*********************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 1.23 Page 1
<PAGE>
EXHIBIT 1.50
ELEMENTS OF FULLY-ABSORBED STANDARD COSTS
-----------------------------------------
The following expenses are included in Fully Absorbed Standard Costs for
purposes of this Agreement:
1. Direct Materials
----------------
Materials used in the manufacturing process that are traced directly to the
completed materials, Compound or Product, as applicable, and include:
- Inert raw materials or excipients
- Active substances/ingredients at market prices
- Packaging components such as bottles, caps, labels, etc.
2. Direct Labor
------------
The cost of employees engaged in production activities which are directly
identifiable with manufacturing the materials, Compound or Product, as
applicable. Excludes supervision and production support activities such as
inspection, plant and equipment maintenance labor, and material handling
personnel. Direct Labor cost includes:
- Base pay, overtime, vacation and holidays, illness, personal time with
pay and shift differential.
- Cost of employee fringe benefits such as health and life insurance,
payroll taxes, welfare, pension and profit sharing.
3. Allocated Costs
---------------
Costs which are allocated to manufacturing the Ingredient based on standard
direct labor hours of the manufacturing process. These allocated costs
include:
- Utilities - expenses incurred for fuel, electricity and water in
---------
providing power for production and other plant equipment
- Maintenance and repairs - amount of expense incurred in-house or
-----------------------
purchased to provide services for plant maintenance and repairs of
facilities and equipment.
- Depreciation - of plant and equipment utilizing the straight-line
------------
method of calculation.
- Insurance - cost of comprehensive and other insurance necessary for
---------
the safeguard of manufacturing plant and equipment.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 1.50 Page 1
<PAGE>
- Permits and Licenses - fees payable to governmental agencies or
--------------------
authorities to obtain or maintain permits or licenses that are
necessary for the operation of facilities used to manufacture the
materials, Compound or Product, as applicable.
- Costs of the following manufacturing services
---------------------------------------------
. Purchasing and Accounting
. Production Scheduling
. Inventory Management
. Plant Materials Management
. Supervision and Production Support
Various bases may be used for allocating these costs to manufacturing
operating departments including headcount, square feet, metered
utilities use, estimated services rendered, EDP computer hours, etc.
4. Testing Costs - direct labor costs for Quality Assurance ("QA") testing and
-------------
approving materials used in manufacturing and completed manufacturing
batches and finished Products. This includes all manufacturing in-process
testing and testing of finished materials. Excluded costs are QA costs
related to research and development, stability testing, etc.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 1.50 Page 2
<PAGE>
EXHIBIT 1.112
VIROPHARMA PATENT RIGHTS
------------------------
**************************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 7.35.4 Page 11.112
Page 1
<PAGE>
EXHIBIT 5.4
ADVERSE EVENT REPORTING PROCEDURES
----------------------------------
The Parties hereby agree that the following terms will govern disclosures
of each Party to the other with respect to adverse event reporting relating to
any Development Candidate or Product as clinically tested or marketed by or on
behalf of either Party.
1. Definitions.
1.1 Adverse Experience or Event (AE): An AE is defined by AHPC as any
untoward, undesired, or unplanned event in the form of signs,
symptoms, disease, or laboratory or physiological observations
occurring in a human being in a temporal relationship to use of an
AHPC product regardless of causal relationship. This includes:
. any clinically significant worsening of a pre-existing condition;
. an AE occurring from overdose (i.e., a dose higher than that
prescribed by a health care professional for clinical reasons) of
an AHPC product, whether accidental or intentional;
. an AE occurring from abuse (i.e., use for non-clinical reasons)
of an AHPC product;
. an AE that has been associated with the discontinuation of the
use of an AHPC product;
. any failure of expected pharmacological action (for spontaneous
reports).
If there is any doubt whether the information constitutes an AE, the
information will be treated as an AE.
1.2 Serious AE: A serious AE is defined by AHPC as an AE occurring at any
dose that: results in death; is life-threatening (see below); requires
inpatient hospitalization or prolongation of an existing
hospitalization; results in a persistent or significant disability or
incapacity (see below); results in cancer; results in a congenital
anomaly or birth defect. Additionally, important medical events that
may not result in death, be life-threatening, or require
hospitalization may be considered a serious AE when, based upon
appropriate medical judgment, they may jeopardize the patient or
subject and may require medical or surgical intervention to prevent
one of the outcomes listed in this definition. Examples of such
medical events include allergic bronchospasm requiring intensive
treatment in an emergency room or at home; blood dyscrasias or
convulsions that do not result in hospitalization; or the development
of drug dependency or abuse.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 5.4 Page 1
<PAGE>
1.2.1 Life-threatening refers to immediate risk of death as the
event occurred. A life-threatening experience does not include
an experience that, had it occurred in a more severe form,
might have caused death but as it actually occurred did not
create an immediate risk of death. For example, hepatitis that
resolved without evidence of hepatic failure would not be
considered life-threatening even though hepatitis of a more
severe nature can be fatal. Similarly, an allergic reaction
resulting in angioedema of the face would not be life-
threatening, even though angioedema of the larynx, allergic
bronchospasm, or anaphylaxis can be fatal.
1.2.2 Disability is defined as a substantial disruption in a person's
ability to conduct normal life functions.
1.2.3 For studies, all pregnancies and all overdoses will be reported
to GSSE in the same time frame as serious AEs.
1.2.4 A serious AE obtained from tests in laboratory animals includes
any experience suggesting a significant risk for human
subjects, including any findings of mutagenicity,
teratogenicity, or carcinogenicity.
1.2.5 If there is any doubt whether the information constitutes a
serious AE, the information will be treated as a serious AE.
1.3 Non-Serious AE: is any AE which does not meet the criteria for a
serious AE.
1.4 Unexpected AE: An unexpected AE is one that is not listed in the
current product labeling. The current product labeling is either the
package insert (for marketed AHPC products) or the current
investigator's brochure (for investigational AHPC products). An
unexpected AE includes any event that may be symptomatically and
pathophysiologically related to an event listed in the labeling, but
differs from the labeled event because of greater severity or
specificity. For example, hepatic necrosis would be unexpected (by
virtue of greater severity) if the product labeling referred only to
elevated hepatic enzymes or hepatitis. Similarly, cerebral
thromboembolism and cerebral vasculitis would be unexpected (by virtue
of greater specificity) if the labeling only listed cerebral vascular
accidents.
1.5 Product (Drug, Vaccine, Biological, Device)-Related: For the purposes
of regulatory reporting for investigational products, an AE will be
considered "product-related" (i.e., drug-related, vaccine-related,
etc.) for studies if either the investigator, the Medical Monitor, the
CR&D Clinical Project Team Medical Monitor (or designee), or the Local
Monitor (if applicable) assesses the AE(s) as possibly, probably, or
definitely related.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 5.4 Page 2
<PAGE>
1. An AE will be considered "not product-related" for studies if
the investigator and the medical monitor(s) and the local monitor
(if applicable) assess the AE(s) as probably not related or
definitely not related, or "relationship remote."
2. Whenever the investigator's or monitor's assessment is
unknown or unclear, the AE(s) will be treated as product-related
for the purposes of reporting to regulatory authorities.
1.6 Protocol-Related: AEs from studies that are not product-related may
nevertheless be considered by the investigator or the medical
monitor(s) or the local monitor (if applicable) to be protocol-
related. For purposes of reporting to GSSE and regulatory authorities,
these will be reported in the same manner as product-related events.
1.7 NDA Holder is defined as: An "Applicant" as defined in 21 C.F.R.
Section 314.3(b), for regulatory approval of a Product in any
regulatory jurisdiction, including a holder of a foreign equivalent
thereto.
1.8 IND Holder is defined as: A "Sponsor" as defined in 21 C.F.R. Section
312.3(b) of an investigational new drug in any regulatory
jurisdiction, including a holder of a foreign equivalent thereto.
1.9 Capitalized terms not defined in this Exhibit shall have the meaning
assigned thereto in the Agreement.
2. With respect to any Development Candidate or Product, the Parties agree as
follows:
a. All initial reports and any follow-up information (oral or written)
for any and all Serious AEs as defined above, (other than with respect
to animal studies) which become known to either Party (other than from
disclosure by or on behalf of the other Party) must be communicated by
telephone, telefax or electronically directly to the other Party
and/or the NDA Holder, IND Holder (individually and collectively
referred to as "Holders") within forty-eight hours of receipt of the
information. Written confirmation of the Serious AE received by such
Party should be sent to the other Party and/or the Holders as soon as
it becomes available, but in any event within forty-eight hours of
initial report of the Serious AE by such Party.
b. Both Parties shall exchange Medwatch and/or CIOMs forms and other
health authority reports within forty-eight hours of submission to any
Regulatory Authority.
c. All initial reports and follow-up information received for all Non-
Serious AEs for marketed Product which become known to a Party (other
than from disclosure by or on behalf of the other Party) must be
communicated in writing, by telefax or
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 5.4 Page 3
<PAGE>
electronically to the other Party within ten days, on Medwatch or
CIOMs forms (where possible).
d. Each Party shall coordinate and cooperate with the other whenever
practicable to prepare a single written report regarding all Serious
and/or Non-Serious AEs, provided, however, that neither Party shall be
obligated to delay reporting of any AE in violation of applicable law
or regulations regarding the reporting of AEs.
3. The Parties further agree that:
a. A written report be forwarded to the other Party within forty-eight
hours of receipt by the Party making the report, for AEs for animal
studies which suggest a potential significant risk for humans;
b. Each Party will give the other Party a report via a print-out or
computer disk of all AEs reported to it and its Affiliates relating to
any Development Candidate or Product within the last year, within
thirty days of receipt of a request from the other Party but not more
often than four times a year;
c. If either Party wishes access to AE Reports of the other Party
relating to a Development Candidate or Product, upon request of that
Party, the other Party shall make available its AE records relating to
the Product or Substance (including computer disks) for viewing and
copying by the other Party. The Parties may discuss the transfer of AE
Reports by computer disk.
d. Disclosure of information hereunder by a Party to the other Party
shall continue as long as either Party and/or its Affiliates or
designees continue to clinically test or market a Development
Candidate or Product.
4. Each Party shall diligently undertake the following further obligations
where both Parties are or will be commercializing the Development Candidate
or Product pursuant to the Agreement and/or performing clinical trials with
respect to the Development Candidate or Product:
a. Upon the Effective Date, each Party shall identify individuals who
shall be responsible for identifying all AE reporting requirements in
all countries of the world as set forth in the Agreement, and any
amendments thereto;
b. To immediately consult with the other Party, with respect to the
investigation and handling of any Serious AE disclosed to it by the
other Party or by a third Party and to allow the other Party to review
the Serious AE and to participate in the follow-up investigation;
c. To immediately advise the other Party of any Development Candidate
and/or Product safety communication received from a health authority
and consult with the other Party with respect to any Product and/or
Substance warning, labeling change
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 5.4 Page 4
<PAGE>
or change to an investigators' brochure involving safety issues
proposed by the other Party, including, but not limited to the safety
issues agreed to by the Parties;
d. To diligently handle in a timely manner the follow-up investigation
and resolution of each AE reported to it;
e. To provide the other Party mutually agreed upon audit rights of its AE
reporting system and documentation, upon prior notice, during normal
business hours, at the expense of the auditing Party and under the
confidentiality obligations set forth in the Agreement;
f. To meet in a timely fashion from time to time as may be reasonably
required to implement the adverse event reporting and consultation
procedures described in this Exhibit 5.4, including identification of
those individuals in each Party's Drug Safety group who will be
responsible for reporting to and receiving AE information from the
other Party, and the development of a written standard operating
procedure with respect to adverse event reporting responsibilities,
including reporting responsibilities to investigators;
g. Where possible, to transmit all data electronically;
h. to report to each other any addenda, revisions or changes to the
Agreement (e.g., change in territories, local regulations, addition of
new licensors/licensees to the Agreement, etc.) which might alter the
adverse event reporting responsibilities hereunder;
i. to utilize English as the language of communication and data exchange
between the Parties;
j. to develop a system of exchange of documents and information if the
Agreement involves more than two Parties;
k. to work together to develop an electronic system to transmit AE data.
5. The Parties may meet after the Effective Date of the Agreement to establish
a separate agreement for adverse event exchange which will supersede this
Exhibit 5.4.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 5.4 Page 5
<PAGE>
EXHIBIT 7.3
STOCK PURCHASE AGREEMENT
------------------------
See attached.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 7.3 Page 1
<PAGE>
EXHIBIT 7.4.1
SAMPLE CALCULATION OF ROYALTY DISTRIBUTIONS
-------------------------------------------
***********************************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 7.4.1 Page 1
<PAGE>
EXHIBIT 7.5.3
SAMPLE CALCULATIONS OF NET PROFIT DISTRIBUTIONS
-----------------------------------------------
*****************************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 7.5.3 Page 1
<PAGE>
EXHIBIT 10.2(a)
THIRD PARTY RIGHTS, TITLE OR INTEREST IN
-----------------------------------------
VIROPHARMA INTELLECTUAL PROPERTY
--------------------------------
*******************************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 10.2(a) Page 1
<PAGE>
EXHIBIT 10.2(b)
THIRD PARTY CLAIMS ON
---------------------
VIROPHARMA PATENT RIGHTS AND KNOW-HOW
-------------------------------------
*********************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 10.3(a) 10.2.(b) Page 1
<PAGE>
EXHIBIT 10.2(c)
VIROPHARMA INTELLECTUAL PROPERTY SUBJECT TO
-------------------------------------------
GOVERNMENT FUNDING AGREEMENTS
-----------------------------
***********************
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 10.2(c) Page 1
<PAGE>
EXHIBIT 10.3(a)
THIRD PARTY CLAIMS ON
---------------------
AHPC PATENT RIGHTS AND KNOW-HOW
-------------------------------
None.
- --------------------------------------------------------------------------------
December 9, 1999 Collaboration Agreement - Exhibit 10.3(a) Page 1
<PAGE>
EXHIBIT 10.26
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Portions of this exhibit were omitted and filed separately with the Secretary of
the Commission pursuant to an application for confidential treatment filed with
the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
Such portions are marked by a series of asterisks.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of December 9,
1999 by and between ViroPharma Incorporated ("ViroPharma"), a Delaware
corporation with its principal place of business at 405 Eagleview Boulevard,
Exton, PA 19341, and American Home Products Corporation ("AHPC"), a Delaware
corporation with its principal place of business at 5 Giralda Farms, Madison, NJ
07940.
RECITALS
WHEREAS, ViroPharma and AHPC (through its Wyeth-Ayerst Laboratories
Division) have entered into that certain Collaboration and License Agreement of
even date herewith (the "Collaboration Agreement"); and
WHEREAS, in connection with the Collaboration Agreement, ViroPharma
desires to sell to AHPC and AHPC desires to purchase from ViroPharma shares of
Common Stock of ViroPharma in the potential aggregate amount of $16,000,000
(sixteen million dollars), on the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the Parties hereto, intending
to be legally bound, do hereby agree as follows:
1. Definitions. Unless otherwise indicated, the capitalized terms
-----------
used herein shall have the meanings ascribed to them below:
1.1 "Acquiror" means any corporation or other Person that
--------
acquires a Party's assets or capital stock or with which a Party merges or
consolidates pursuant to a Change of Control.
1.2 "Affiliate" means, with respect to each Party hereto, any
---------
entity or other Person that Controls, is Controlled by or is under common
Control with such Party; provided, however, that "Affiliate" shall not include
subsidiaries or other entities in which a Party owns a majority of the ordinary
voting power necessary to elect a majority of the board of directors or other
governing board but is restricted from electing such majority by contract or
otherwise until such time as such restrictions are no longer in effect.
<PAGE>
1.3 "Change of Control" means any of the following: (a) the sale
-----------------
or disposition of all or substantially all of the assets of a Party to a Third
Party, (b) the acquisition by a Third Party, other than an employee benefit plan
(or related trust) sponsored or maintained by a Party or any of its Affiliates,
of more than 50% of such Party's outstanding shares of voting capital stock, or
(c) the merger or consolidation of a Party with or into another corporation,
other than a merger or consolidation of a Party in which holders of shares of
such Party's voting capital stock immediately prior to the merger or
consolidation will have at least 50% of the ownership of voting capital stock of
the surviving corporation immediately after the merger or consolidation.
1.4 "Closings" means the First Closing, the Second Closing and
--------
the Third Closing collectively, and each individually, a "Closing."
-------
1.5 "Closing Date" means, with respect to each Closing, the day
------------
on which the transaction that is the subject of such Closing is consummated.
1.6 "Common Stock" means the common stock of ViroPharma, par
------------
value $0.002 per share.
1.7 "Control" means (i) the direct or indirect ownership of at
-------
least fifty percent (50%) of the voting stock, capital or equity, or at least a
fifty percent (50%) interest in the income of an entity, or (ii) the ability to
direct the management of an entity.
1.8 "Deemed Market Price" has the meaning ascribed to it in
-------------------
Section 2.1 hereof.
1.9 "Development Candidate" has the meaning ascribed to it in
---------------------
the Collaboration Agreement.
1.10 "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated thereunder.
1.11 "Excluded Registration Statements" means Registration
--------------------------------
Statements relating to (a) employee benefit plans, (b) corporate reorganizations
or other transactions under Rule 145 of the Securities Act, or (c) shares of
ViroPharma's capital stock issued pursuant to that certain Investment Agreement
(the "Perseus Shares") dated May 5, 1999 between ViroPharma and Perseus-Soros
BioPharmaceutical Fund, LP (the "Perseus Agreement"), and any Common Stock
issued upon conversion of the Perseus Shares or upon exercise of warrants issued
pursuant to the Perseus Agreement.
1.12 "First Closing" has the meaning ascribed to it in Section
-------------
3.1 hereof.
1.13 "First Purchase Price" has the meaning ascribed to it in
--------------------
Section 2.1 hereof.
2
<PAGE>
1.14 "*****************" means the first date on which the JSC
-----------------
(as defined in the Collaboration Agreement) determines that
*****************************************.
1.15 "First Shares" has the meaning ascribed to it in Section 2.1
------------
hereof.
1.16 "Holder" means any person owning of record Registrable
------
Securities that have not been sold to the public.
1.17 "IND" has the meaning ascribed to it in the Collaboration
---
Agreement.
1.18 "Nasdaq" means the Nasdaq Stock Market, Inc.
------
1.19 "Party" means a party to this Agreement.
-----
1.20 "Person" means any individual, firm, corporation,
------
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
1.21 "Purchase Price" means (a) with respect to the First Closing
--------------
the First Purchase Price, (b) with respect to the Second Closing, the Second
Purchase Price and (c) with respect to the Third Closing, the Third Purchase
Price.
1.22 "Register," "Registered," and "Registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such Registration Statement or document by the SEC.
1.23 "Registrable Securities" means (a) the Shares; and (b) any
----------------------
shares of Common Stock of ViroPharma issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the Shares. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a Registration Statement or Rule 144 of the Securities Act or
sold in a private transaction in which the transferor's rights under Section 8
hereof are not assigned.
1.24 "Registration Expenses" means all expenses incurred by
---------------------
ViroPharma in complying with Section 8.1 hereof, including, without limitation,
registration and filing fees, printing expenses, fees and disbursements of
counsel for ViroPharma, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration, but shall not
include Selling Expenses.
1.25 "Registration Statement" means a Registration Statement
----------------------
filed pursuant to the Securities Act.
3
<PAGE>
1.26 "Rights Agreement" means that certain Rights Agreement dated
----------------
September 10, 1998 between ViroPharma and StockTrans, Inc.
1.27 "SEC Documents" means ViroPharma's Annual Reports on Form
-------------
10-K for the years ended December 31, 1998 and 1997, and its Quarterly Reports
on Form 10-Q for the quarters ended September 30, 1999, June 30, 1999, March 31,
1999, September 30, 1998, June 30, 1998 and March 31, 1998, and its Proxy
Statement for its Annual Meeting of Stockholders held on May 14, 1999, each as
filed with the SEC, but shall not include any portion of any document which is
not deemed to be filed under applicable SEC rules and regulations.
1.28 "SEC" means the U.S. Securities and Exchange Commission.
---
1.29 "Second Closing" has the meaning ascribed to it in Section
--------------
3.2 hereof.
1.30 "***************" means the first date on which the JSC
---------------
determines that ***********************************.
1.31 "Second Purchase Price" has the meaning ascribed to it in
---------------------
Section 2.2 hereof.
1.32 "Second Shares" has the meaning ascribed to it in Section
-------------
2.2 hereof.
1.33 "Securities Act" means the Securities Act of 1933, as
--------------
amended, together with the rules and regulations promulgated thereunder.
1.34 "Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale, and all fees and expenses of counsel
exclusively for AHPC, if any.
1.35 "Shares" means, individually and collectively, the shares of
------
Common Stock purchased by AHPC pursuant to this Agreement, including the First
Shares, the Second Shares and the Third Shares.
1.36 "Third Closing" has the meaning ascribed to it in Section
-------------
3.3 hereof.
1.37 "Third Party(ies)" means any Person(s) other than AHPC,
----------------
ViroPharma or their respective Affiliates.
1.38 "Third Purchase Price" has the meaning ascribed to it in
--------------------
Section 2.3 hereof.
1.39 "Third Shares" has the meaning ascribed to it in Section 2.3
------------
hereof.
1.40 "Triggering Event" means each of the ********************.
----------------
4
<PAGE>
2. Purchases and Sales.
-------------------
2.1 First Purchase. At the First Closing, ViroPharma will sell
--------------
to AHPC and AHPC will purchase from ViroPharma that whole number of shares
(rounded down to the nearest share) of Common Stock (the "First Shares")
determined by dividing Three Million Dollars ($3,000,000) (the "First Purchase
Price") by an amount equal to *******************of the Deemed Market Price. For
the purposes of this Section 2, the "Deemed Market Price" shall be equal to (a)
the average of the last reported sale price of such stock (regular way) as
reported on the principal national securities exchange on which ViroPharma's
Common Stock is listed or admitted to trading or (b) if ViroPharma's Common
Stock is not listed or admitted to trading on any national securities exchange,
the average of the closing sales prices of ViroPharma's Common Stock, as
reported by Nasdaq, in either case for those days on which ViroPharma's Common
Stock was traded during the twenty (20) trading days ending on the trading day
prior to the fifth business day immediately preceding the applicable Closing
Date (the "Look-back Period"); provided that, if none of ViroPharma's Common
Stock is traded during the Look-back Period, or if on such Closing Date the
shares of Common Stock are not reported on a national securities exchange or
quoted by Nasdaq, then the Deemed Market Price for a share of Common Stock shall
be the fair market value of such share as determined in good faith by the Board
of Directors of the Company.
2.2 Second Purchase. At the Second Closing, ViroPharma will
---------------
sell to AHPC and AHPC will purchase from ViroPharma that whole number of shares
(rounded down to the nearest share) of Common Stock (the "Second Shares")
determined by dividing Three Million Dollars ($3,000,000) (the "Second Purchase
Price") by an amount equal to (a) ************************ of the Deemed Market
Price if the Deemed Market Price is less than or equal to Twelve Dollars ($12)
per share; (b) ************************ of the Deemed Market Price if the Deemed
Market Price is greater than Twelve Dollars ($12) per share and less than or
equal to Sixteen Dollars ($16) per share; or (c) ************************ of the
Deemed Market Price if the Deemed Market Price is greater than Sixteen Dollars
($16) per share.
2.3 Third Purchase. At the Third Closing, ViroPharma will sell
--------------
to AHPC and AHPC will purchase from ViroPharma that whole number of shares
(rounded down to the nearest share) of Common Stock (the "Third Shares")
determined by dividing Ten Million Dollars ($10,000,000) (the "Third Purchase
Price") by an amount equal to (a) ************************ of the Deemed Market
Price if the Deemed Market Price is less than or equal to Twelve Dollars ($12)
per share; (b) ************************ of the Deemed Market Price if the Deemed
Market Price is greater than Twelve Dollars ($12) per share and less than or
equal to Sixteen Dollars ($16) per share; or (c) ************************ of the
Deemed Market Price if the Deemed Market Price is greater than Sixteen Dollars
($16) per share.
3. Closings.
--------
3.1 First Closing. The completion of the sale and purchase of
-------------
the First Shares (the "First Closing") shall be held on such date as the parties
shall agree, provided such
5
<PAGE>
date is within five (5) days after the effectiveness of the first IND for any
Development Candidate.
3.2 Second Closing. The completion of the sale and purchase of
--------------
the Second Shares (the "Second Closing") shall be held on such date as the
parties shall agree, provided such date is within five (5) days after the
*********** for a Development Candidate.
3.3 Third Closing. The completion of the sale and purchase of
-------------
the Third Shares (the "Third Closing") shall be held on such date as the parties
shall agree, provided such date is within five (5) days after the
**************** for a Development Candidate.
3.4 Aggregate Closings. It is the intention of the Parties that
------------------
each of the First Closing, the Second Closing and the Third Closing shall occur
only once with potential purchases hereunder aggregating a total of $16,000,000
(sixteen million dollars) without any additional purchase for subsequent
Development Candidates.
3.5 H-S-R Act. If the Parties determine that a filing under the
---------
H-S-R Act (as defined in Section 9.4 below) would be required as a result of the
transactions contemplated by any Closing, then such Closing shall take place on
the date that is not more than five (5) business days after the expiration or
earlier termination of the applicable waiting period under the H-S-R Act (a
"Delayed Closing"). For the sole purposes of determining the Deemed Market Price
in respect of such Delayed Closing, and the expiration of the registration
rights for the Shares to be issued at the Delayed Closing in Section 8.4 below,
the Closing Date for the Delayed Closing shall be deemed to be the fifth day
after the date of the applicable Triggering Event giving rise to such Delayed
Closing.
3.6 Delivery. At each Closing, subject to the terms and
--------
conditions hereof, AHPC shall deliver to ViroPharma the applicable Purchase
Price by wire transfer to an account designated in writing by ViroPharma no less
than two business days prior to such Closing, and ViroPharma will deliver to
AHPC a stock certificate, in the name of AHPC, representing the Shares purchased
at such Closing, dated as of the Closing Date, against payment of such Purchase
Price.
3.7 Location. Each of the Closings shall occur at the offices of
--------
Pepper Hamilton LLP, 1235 Westlakes Drive, Suite 400, Berwyn, Pennsylvania,
unless otherwise agreed to by the Parties.
4. Capitalization and Litigation. ViroPharma hereby represents and
-----------------------------
warrants to AHPC as follows:
4.1 Capitalization. As of November 30, 1999, the authorized
--------------
capital stock of ViroPharma consists of (a) 27,000,000 shares of Common Stock,
of which (i) 15,049,415 shares were issued and outstanding, (ii) up to 2,600,000
shares have been reserved for issuance upon conversion of the Series A Stock
(defined below); (iii) up to 690,000 shares have been reserved for issuance upon
exercise of outstanding common stock warrants, and (iv) 2,000,000 shares have
been reserved for issuance under ViroPharma's Stock Option Plan; and (b)
5,000,000 shares of preferred stock, of which (i) 2,300,000 shares have been
designated as the Series A Convertible Participating Preferred Stock, par value
$.001 per shares (the "Series A
6
<PAGE>
Stock"), and are outstanding, and (ii) 200,000 shares have been designated the
Series A Junior Participating Preferred Shares, par vale $.01 per share, and
have been reserved for issuance pursuant to the Rights Agreement. All issued and
outstanding shares of ViroPharma's capital stock have been duly authorized and
validly issued, and are fully paid and nonassessable.
4.2 Litigation. There is no action, suit, proceeding nor, to
----------
the best of its knowledge, any investigation, pending or currently threatened
against ViroPharma that questions the validity of this Agreement or the issuance
of the Common Stock contemplated hereby, nor to best of its knowledge, is there
any basis therefor. There is no other action, suit, proceeding nor, to the best
of its knowledge, any investigation pending or currently threatened against
ViroPharma that might result in any material adverse change in the assets,
financial condition or operations of ViroPharma.
5. Additional Representations And Warranties Of ViroPharma.
-------------------------------------------------------
ViroPharma hereby further represents and warrants to AHPC as follows:
5.1 Organization and Good Standing. ViroPharma is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to carry
on its business as now conducted and as proposed to be conducted.
5.2 Authorization. All corporate action on the part of
-------------
ViroPharma, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement have been taken.
ViroPharma has the requisite corporate power to enter into this Agreement and to
carry out and perform its obligations under the terms of this Agreement. At each
Closing, ViroPharma will have the requisite corporate power to sell the
applicable Shares. This Agreement has been duly authorized, executed and
delivered by ViroPharma and, upon due execution and delivery by AHPC, this
Agreement will be a valid and binding agreement of ViroPharma, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by equitable
principles.
5.3 No Conflict With Other Instruments. The execution, delivery
----------------------------------
and performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of ViroPharma's Restated
Certificate of Incorporation or Bylaws as in effect on the date hereof or at
each Closing; or (b) any provision of any judgment, decree or order to which
ViroPharma is a party or by which it is bound.
5.4 Disclosure Documents. ViroPharma's SEC Documents, when
--------------------
filed with the SEC (a) did not contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and (b) complied in all material respects with
all applicable requirements of the Securities Act or the Exchange Act, as the
case may be, and the applicable rules and regulations promulgated thereunder.
Since November 19, 1996, ViroPharma has filed with the SEC each form,
Registration Statement, report, schedule, proxy, information statement and other
documents (including exhibits and
7
<PAGE>
amendments thereto) required to be filed by ViroPharma under the Securities Act
or the Exchange Act.
5.5 Absence Of Changes. Since March 31, 1999, ViroPharma has
------------------
conducted its business in the ordinary course consistent with past practices,
and there has not been:
(a) any material adverse change in the condition (financial
or otherwise) assets, liabilities or business of ViroPharma;
(b) any damage, destruction or casualty loss which would
have a material adverse effect on ViroPharma; or
(c) any material increase in indebtedness for borrowed
money, current liabilities or total liabilities.
5.6 Valid Issuance Of Shares. The Shares which will be purchased
------------------------
by AHPC hereunder, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly
authorized and issued, fully paid and nonassessable and, based in part upon the
representations of AHPC in Section 6.3 of this agreement, will be issued in
compliance with all applicable federal and state securities laws.
5.7 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
ViroPharma is required in connection with the consummation of the transactions
contemplated by this Agreement, except as contemplated by Section 3.4 above and
Section 9.4 below and for notices required or permitted to be filed with certain
state and federal securities commissions, which notices will be filed on a
timely basis.
5.8 No Brokers. No broker, finder or investment banker is
----------
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this agreement based on arrangements made
by ViroPharma.
6. Representations And Warranties Of AHPC. AHPC hereby represents
--------------------------------------
and warrants to ViroPharma as follows:
6.1 Legal Power. AHPC has the requisite corporate power to
-----------
enter into this agreement, to carry out and perform its obligations under the
terms of this Agreement and, at each Closing, will have the requisite corporate
power to purchase the Shares.
6.2 Due Execution. This Agreement has been duly authorized,
-------------
executed and delivered by AHPC, and, upon due execution and delivery by
ViroPharma, this Agreement will be a valid and binding agreement of AHPC, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by equitable
principles.
6.3 Investment Representations. In connection with the offer,
--------------------------
purchase and sale of the Shares, AHPC makes the following representations:
8
<PAGE>
(a) AHPC is acquiring the Shares for its own account, not
as nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act.
(b) AHPC understands that:
(i) the Shares have not been registered under the
Securities Act by reason of a specific exemption therefrom, that such securities
may be required to be held by it indefinitely under applicable securities laws,
and that AHPC must, therefore, bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration;
(ii) each certificate representing such Shares will be
endorsed with the following legends:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM."; and
(iii) ViroPharma will instruct its transfer agent not
to register the transfer of the Shares (or any portion thereof) unless the
conditions specified in the foregoing legends are satisfied.
(c) AHPC has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the Shares to be purchased hereunder. AHPC has had access to all
of the information regarding ViroPharma it has considered necessary to evaluate
such investment.
(d) AHPC is an "accredited investor" as such term is
defined in Rule 501(a) of the rules and regulations promulgated under the
Securities Act.
7. Conditions To Closings.
----------------------
7.1 Conditions To Obligations Of AHPC At Each Closing. AHPC's
-------------------------------------------------
obligation to purchase the Shares at each of the Closings is subject to the
fulfillment to its reasonable satisfaction, on or prior to each Closing, of all
of the following conditions, any of which may be waived by AHPC:
9
<PAGE>
(a) Representations And Warranties True. The representations
-----------------------------------
and warranties made by ViroPharma in Section 5 hereof shall be true and correct
in all material respects on the Closing Date with the same force and effect as
if they had been made on and as of said date, and a certificate duly executed by
an officer of ViroPharma, to the effect of the foregoing, shall be delivered to
AHPC.
(b) Performance Of Obligations. ViroPharma shall have performed
--------------------------
and complied with all obligations and conditions herein required to be performed
or complied with by it on or prior to the Closing and a certificate duly
executed by an officer of ViroPharma, to the effect of the foregoing, shall be
delivered to AHPC.
(c) Proceedings And Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated at the Closing and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to AHPC, and AHPC shall have received all
such counterpart originals or certified or other copies of such documents as it
may reasonably request.
(d) Qualifications; Legal Investment. All authorizations,
--------------------------------
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Shares shall have been duly obtained and shall
be effective on and as of the Closing. No stop order or other order enjoining
the sale of the Shares shall have been issued and no proceedings for such
purpose shall be pending or, to the knowledge of ViroPharma, threatened by the
SEC.
7.2 Conditions To Obligations Of ViroPharma At Each Closing.
-------------------------------------------------------
ViroPharma's obligation to issue and sell the Shares at each Closing is subject
to the fulfillment to its reasonable satisfaction, on or prior to each Closing,
of the following conditions, any of which may be waived by ViroPharma:
(a) Representations And Warranties True. The representations
-----------------------------------
and warranties made by AHPC in Section 6 hereof shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date, and a certificate duly executed by an
officer of AHPC, to the effect of the foregoing, shall be delivered to
ViroPharma.
(b) Performance Of Obligations. AHPC shall have performed and
--------------------------
complied with all agreements and conditions herein required to be performed or
complied with by it on or before the Closing, and a certificate duly executed by
an officer of AHPC, to the effect of the foregoing, shall be delivered to
ViroPharma.
(c) Qualifications; Legal Investment. All authorizations,
--------------------------------
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Shares shall have been duly obtained and shall
be effective on and as of each Closing. No stop order or other order enjoining
the sale of the Shares shall have been issued and no proceedings for such
purpose shall be pending or, to the knowledge of ViroPharma, threatened by the
SEC.
10
<PAGE>
7.3 Conditions To The Obligations Of The Parties With Respect to
------------------------------------------------------------
the Separate Closings. In addition the conditions set forth in Sections 7.1
- ---------------------
and 7.2 above:
(a) First Closing. The obligations of the Parties with respect
-------------
to the First Closing are subject to the condition that the first IND for any
Development Candidate shall have become effective, which may be waived as a
condition only upon the mutual agreement of the Parties.
(b) Second Closing. The obligations of the Parties with respect
--------------
to the Second Closing are subject to the condition that a **************** for a
Development Candidate shall have occurred, which may be waived as a condition
only upon the mutual agreement of the Parties.
(c) Third Closing. The obligations of the Parties with respect
-------------
to the Third Closing are subject to the condition that a ************** for a
Development Candidate shall have occurred, which may be waived as a condition
only upon the mutual agreement of the Parties.
8. Registration Rights.
-------------------
8.1 Piggyback Registrations. ViroPharma shall notify all Holders
-----------------------
of Registrable Securities in writing at least twenty (20) days prior to the
filing of any Registration Statement (the "Registration Notice"), other than an
Excluded Registration Statement, under the Securities Act for purposes of a
public offering of Common Stock of ViroPharma (including, but not limited to,
Registration Statements relating to secondary offerings of Common Stock of
ViroPharma), and will afford each such Holder an opportunity to include in such
Registration Statement (other than an Excluded Registration Statement) all or
part of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such Registration Statement all or any part of the Registrable
Securities held by it shall, within ten (10) days after receiving the
Registration Notice from ViroPharma, so notify ViroPharma in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder does not elect to include all of its
Registrable Securities in any Registration Statement thereafter filed by
ViroPharma, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent Registration Statement or
Registration Statements as may be filed by ViroPharma with respect to offerings
of its securities (other than an Excluded Registration Statement), all upon the
terms and conditions set forth herein.
(a) Underwriting. If the Registration Statement under which
------------
ViroPharma gives notice under this Section 8.1 is for an underwritten offering,
ViroPharma shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 8.1. shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form, reasonably acceptable to such Holder,
with the underwriter or underwriters selected for such underwriting by
ViroPharma, including the indemnification provisions thereof. Notwithstanding
any other provision of the Agreement, if the underwriter determines in good
11
<PAGE>
faith that marketing factors require a limitation of the total number of shares
to be underwritten, the number of shares that may be included in the
underwriting by the Holders may be reduced in the manner contemplated by that
certain Investors' Rights Agreement dated as of May 30, 1996 among ViroPharma
and the other signatories thereto (the "Investors' Rights Agreement"); provided
that, in connection with such underwritten offering and upon the request of the
Holders, ViroPharma shall use its reasonable efforts to acquire waivers of the
rights granted under Section 1.6 of the Investors' Rights Agreement to the Key
Employees and Founders (as each is defined in the Investors' Rights Agreement)
to the extent that the absence of such waivers would adversely effect the
ability of the Holders to include their shares of Registrable Securities in such
underwriting.
(b) Right To Terminate Registration. ViroPharma shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 8.1 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
8.2 Expenses Of Registration. Except as specifically provided
------------------------
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 8.1 shall be borne by
ViroPharma, and Selling Expenses incurred in connection with any registrations
hereunder shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of shares so registered.
8.3 Obligations Of ViroPharma. The obligations of ViroPharma to
-------------------------
effect the registration of any Registrable Securities pursuant to this Section 8
shall at all times be subject to the restrictions set forth in Section 9.1.
Whenever required to effect such a registration, ViroPharma shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such Registration Statement to become effective.
(b) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use all reasonable efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that ViroPharma shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
12
<PAGE>
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement. In addition, ViroPharma shall, upon the
request of the managing underwriter, make available ViroPharma management to
participate in customary selling efforts or "road shows," as appropriate.
(f) Notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of the Holders participating in the
registration, on the date that such Registrable Securities are delivered to the
underwriters for sale: (i) an opinion, dated as of such date, of the counsel
representing ViroPharma for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, and (ii) a letter dated as of such
date, from the independent certified public accountants of ViroPharma, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters.
8.4 Termination Of Registration Rights. Registration rights with
----------------------------------
respect to any Registrable Securities granted to a Holder under this Section 8
shall terminate and be of no further force and effect upon the date, following
AHPC's acquisition of all of the Shares available to it hereunder, on which AHPC
owns less than three percent (3%) of ViroPharma's outstanding Common Stock. This
Section 8 and the registration rights granted hereunder in respect of the First
Shares, the Second Shares and the Third Shares shall terminate in their entirety
seven (7) years from the Closing Dates of the First Closing, the Second Closing
and the Third Closing, respectively.
8.5 Delay Of Registration; Furnishing Information.
---------------------------------------------
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 8.
(b) It shall be a condition precedent to the obligations of
ViroPharma to take any action pursuant to Section 8.1 that the selling Holders
shall furnish to ViroPharma such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be legally required under the Securities Act to effect
the registration of their Registrable Securities.
13
<PAGE>
8.6 Indemnification; Contribution
-----------------------------
(a) ViroPharma shall indemnify and hold harmless each Holder
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement of a material fact contained in any Registration Statement,
prospectus or preliminary prospectus or notification or offering circular (as
amended or supplemented if ViroPharma shall have furnished any amendments or
supplements thereto) or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information concerning such Holder
furnished in writing to ViroPharma by such Holder expressly for use in such
Registration Statement.
(b) In connection with any Registration Statement in which a
Holder is participating pursuant to Section 8 hereof, each such Holder shall
furnish to ViroPharma in writing such information with respect to such Holder as
ViroPharma may reasonably request or as may be required by law specifically for
use in connection with any such Registration Statement or prospectus. Each
Holder shall indemnify and hold harmless ViroPharma, any underwriter retained by
ViroPharma and their respective directors, officers, employees and each Person
who controls ViroPharma or such underwriter (within the meaning of the
Securities Act and the Exchange Act) from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue, or allegedly untrue,
statement of a material fact contained in any Registration Statement, prospectus
or preliminary prospectus or notification or offering circular (as amended or
supplemented if ViroPharma shall have furnished any amendments or supplements
thereto) or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if such statement or omission was made in
reliance upon and in conformity with any information concerning such Holder
furnished in writing to ViroPharma by such Holder specifically for use in the
preparation of such Registration Statement or prospectus; provided, however,
-------- -------
that the total amount to be indemnified by such Holder pursuant to this Section
8.6(b) shall be limited to the net proceeds received by the Holders in the
offering to which the Registration Statement or prospectus relates.
(c) Any Person entitled to indemnification hereunder (the
"Indemnified Party") agrees to give prompt written notice to the indemnifying
party (the "Indemnifying Party") after the receipt by the Indemnified Party of
any written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which the Indemnified Party
intends to claim indemnification or contribution pursuant to this Agreement;
provided, however, that the failure so to notify the Indemnifying Party shall
- -------- -------
not relieve the Indemnifying Party of any liability that it may have to the
Indemnified Party hereunder unless, and only to the extent that, such failure
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. If notice of commencement of any such action is given to the
Indemnifying Party as above provided, the Indemnifying Party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and
14
<PAGE>
reasonably satisfactory to such Indemnified Party. The Indemnified Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action with counsel reasonably satisfactory
to the Indemnified Party in its reasonable judgment or (iii) the named parties
to any such action (including any impleaded parties) have been advised by such
counsel that either (x) representation of such Indemnified Party and the
Indemnifying Party by the same counsel would be inappropriate under applicable
standards of professional conduct or (y) there may be one or more legal defenses
available to it which are different from or additional to those available to the
Indemnifying Party. In either of such cases, the Indemnifying Party shall not
have the right to assume the defense of such action on behalf of such
Indemnified Party. No Indemnifying Party shall be liable for any settlement
entered into without its written consent (other than in the case where the
Indemnified Party is unconditionally released from liability and its rights are
not adversely effected), which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 8.6 from
the Indemnifying Party pursuant to applicable law is unavailable to an
Indemnified Party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
faults of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Sections 8.6(a), (b)
and (c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Section 8.6(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person.
8.7 Assignment Of Registration Rights. The rights to cause ViroPharma
---------------------------------
to register Registrable Securities pursuant to this Section 8 may be assigned by
a Holder to a transferee or assignee of Registrable Securities that is an
Affiliate or a successor to substantially all the business or assets of the
Holder; provided, however (i) the transferor shall, within ten (10) days after
such transfer, furnish to ViroPharma written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration
15
<PAGE>
rights are being assigned, and (ii) such transferee shall agree to be subject to
all restrictions with respect to the Shares set forth in this Agreement.
8.8 "Market Stand-Off" Agreement. If requested by ViroPharma or the
---------------------------
representative of the underwriters of Common Stock (or other securities) of
ViroPharma, each Holder shall agree not to sell or otherwise transfer or dispose
of any Common Stock (or other securities) of ViroPharma held by such Holder
(other than those included in the registration, if any) for a period commencing
on the date that such Holder receives the Registration Notice (but in no case
earlier than 30 days prior to the date of the filing of the applicable
Registration Statement) and continuing for the period specified by the
representative of the underwriters not to exceed ninety (90) days following the
effective date of a Registration Statement of ViroPharma filed under the
Securities Act, provided that all executive officers and directors of ViroPharma
enter into similar agreements. Notwithstanding the foregoing, AHPC shall have
no obligations under this Section 8.8: (a) in respect of a private placement by
AHPC of any Common Stock (or other securities) of ViroPharma to the extent that
such private placement occurs prior to the filing of the applicable Registration
Statement, and (b) from and after the date that AHPC's registration rights
granted hereunder have terminated in their entirety and (c) during any period
that AHPC owns less than three percent (3%) of ViroPharma's outstanding Common
Stock.
9. Covenants.
---------
9.1 Covenant Of AHPC. AHPC hereby covenants and agrees that it
----------------
shall not exercise the registration rights described in Section 8 during the two
(2) year period following the date of this Agreement.
9.2 Covenant Of ViroPharma. ViroPharma hereby covenants and
----------------------
agrees that it shall take all necessary and appropriate actions to ensure that
it shall have available under its Restated Certificate of Incorporation as in
effect on the Closing Date sufficient authorized but unissued shares of its
Common Stock to issue and sell to AHPC all of the Shares.
9.3 Rights Agreement. In the event that the purchase of the
----------------
Shares hereunder by AHPC at any Closing would cause AHPC to become an "Acquiring
Person," as such term is defined in the Rights Agreement, because either (a) the
Shares, by themselves, constitute in excess of 20% of then-outstanding Common
Stock of ViroPharma (the "Threshold"), or (b) after the date hereof, AHPC
acquires a third party that owns capital stock of ViroPharma and whose ownership
of capital stock of ViroPharma is not the primary business purpose of such third
party (the "Third Party ViroPharma Stock"), and when the Shares are added
together with Third Party ViroPharma Stock, AHPC's aggregate beneficial
ownership exceeds the Threshold, then prior to the consummation of the Closing
that would cause AHPC to become an Acquiring Person, ViroPharma shall cause the
Rights Agreement to be amended to ensure that the acquisition of the Shares at
such Closing does not cause AHPC to become an Acquiring Person. Notwithstanding
the foregoing, nothing in this Section 9.3 shall require ViroPharma to amend the
Rights Agreement if AHPC's purchase of the Shares would result in AHPC becoming
an Acquiring Person because such Shares, when added to any shares of the capital
stock of ViroPharma acquired by AHPC other than under this Agreement or as
16
<PAGE>
specifically described in clause (b) of this Section 9.3, causes AHPC's
ownership to exceed the Threshold.
9.4 Covenant of the Parties. If required by applicable law,
-----------------------
as concluded in good faith by the Parties, prior to the consummation of any
purchases of the Shares pursuant to Sections 2 and 3 above, the Parties will, at
their own expense (other than any required filing fees which shall be paid by
AHPC), prepare and make appropriate filings under Title II of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (16 C.F.R. Sections 801.1 et. seq.)(the "H-S-
R Act"). Each Party shall use its reasonable good faith efforts (not including
divestiture or out-license of any assets) in the antitrust clearance process and
the resolution of all issues or comments raised, and agrees to furnish to the
Federal Trade Commission and the Antitrust Division of the Department of Justice
any additional information reasonably requested by them in connection with such
filings and the transaction contemplated by this Agreement; provided, however,
that such efforts shall not require any out-license or divestiture by either
party of any products or other assets. In addition, each Party agrees to give
the other party prompt notice of any communication to or from the Federal Trade
Commission or the Department of Justice regarding this transaction. Each Party
will consult and cooperate with the other Party and will consider in good faith
the view of the other Party in connection with any analysis, appearance,
presentation, memorandum, brief, opinion or proposal made or submitted in
connection with any action, request, or investigation under or relating to the
H-S-R Act or any other federal antitrust, competition or fair trade law.
10. Miscellaneous.
-------------
10.1 Change of Control.
-----------------
a. If AHPC is subject to a Change of Control under which
AHPC is not the surviving entity, then AHPC shall use diligent efforts to ensure
that the Acquiror shall agree to be substituted for AHPC as a party to this
Agreement.
b. If ViroPharma is subject to a Change of Control under
which ViroPharma is not the surviving entity, then ViroPharma shall use diligent
efforts to ensure that the Acquiror shall agree to be substituted for ViroPharma
as a party to this Agreement and agree to assume in writing all obligations of
ViroPharma under this Agreement, including but not limited to the registration
rights described in Section 8 which would then apply to the Registration
Statements of Acquiror, which agreement shall be in a form reasonably acceptable
to AHPC; provided, however, that notwithstanding anything to the contrary set
forth in Sections 2.1 through 2.3 above, from and after the effective date of
such Change of Control, upon a Triggering Event such Acquiror shall have the
option to sell to AHPC at the applicable Purchase Price, and upon such
Acquiror's exercise of such option AHPC shall have the obligation to purchase
from such Acquiror at the applicable Purchase Price, that whole number of shares
(rounded down to the nearest share) of the Acquiror's common stock determined
with reference to the Acquiror's Market Capitalization, as described below. In
determining the number of shares of Acquiror's common stock that Acquiror may
sell to AHPC hereunder, the Purchase Price applicable to the particular Closing
shall be divided by the product of the applicable Deemed Market Price times the
Percentage of Deemed Market Price.
17
<PAGE>
Notwithstanding the foregoing, in the event that the Acquiror shall not agree in
writing within 90 days from the effective date of the Change of Control (but in
any event prior to any purchase requirement hereunder) to assume all obligations
of ViroPharma under this Agreement, AHPC's obligation to purchase capital stock
in the event of a Triggering Event shall be cancelled. The "Percentage of Deemed
Market Price" is the percentage set forth below opposite the range of "Market
Capitalization of Acquiror," also as set forth below, in which Acquiror's Market
Capitalization applies:
Market Capitalization of Acquiror Percentage of Deemed Market Price
--------------------------------- ---------------------------------
Up to $1,000,000,000 **********
$1,000,000,001 - $2,500,000,000 **********
$2,500,000,001 - $5,000,000,000 **********
In excess of $5,000,000,000 **********
provided, however, that with respect to the First Purchase Price to purchase the
First Shares, the price per share shall equal the product of the applicable
Deemed Market Price times the lesser of (i) the percentage of the Deemed Market
Price set forth in Section 2.1 hereof, or (ii) the Percentage of the Deemed
Market Price, as determined in this Section 10.1. In the event that the
Acquiror is subsequently subject to a Change of Control, all obligations of AHPC
to purchase Shares hereunder shall terminate.
To illustrate this Section 10.1, ************************.
c. As used in this Section:
(i) the Acquiror's "Market Capitalization" means the
product of the aggregate number of shares of Acquiror's capital stock
outstanding (calculated on a fully diluted basis) on the date of any applicable
Triggering Event times the Fair Market Value (as defined below) of Acquiror's
common stock on date of each such Triggering Event; and
(ii) "Fair Market Value" means, on the date of each
Triggering Event (A) the average of the last reported sale price of such stock
(regular way) as reported on the principal national securities exchange on which
Acquiror's common stock is listed or admitted to trading or (B) if such common
stock is not listed or admitted to trading on any national securities exchange,
the closing sales prices of Acquiror's common stock, as reported by Nasdaq.
10.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to the choice of law provisions thereof, and the federal laws of
the United States.
10.3 Public Statements. Any statement to the public regarding
-----------------
this Agreement and the license agreement shall be approved in advance by
ViroPharma and AHPC, except as otherwise required by law.
18
<PAGE>
10.4 Successors And Assigns. Except as otherwise expressly
----------------------
provided herein, neither Party may assign this agreement without the prior
written consent of the other Party. Notwithstanding the preceding sentence, in
connection a Change of Control of either Party, such Party may assign its rights
and obligations under this Agreement in whole or in part to such Party's
transferee or successor in interest without the prior written consent of the
other Party. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, and administrators of the parties hereto.
10.5 Entire Agreement. This Agreement, the Collaboration
----------------
Agreement and the exhibits thereto, and the other documents delivered pursuant
hereto, constitute the full and entire understanding and agreement among the
Parties with regard to the subjects hereof and no Party shall be liable or bound
to any other Party in any manner by any representations, warranties, covenants,
or agreements except as specifically set forth herein or therein. Nothing in
this Agreement, express or implied, is intended to confer upon any Party, other
than the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
10.6 Separability. In the event any provision of this Agreement
------------
shall be invalid, illegal, or unenforceable, it shall to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the Parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
10.7 Amendment And Waiver. Except as otherwise provided herein,
--------------------
any term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of ViroPharma and AHPC. Any amendment or
waiver effected in accordance with this Section shall be binding upon any holder
of any securities purchased under this Agreement (including securities into
which such securities have been converted), each future holder of all such
securities, and ViroPharma.
10.8 Notices. All notices, requests, or other communications
-------
given hereunder shall be in writing and shall be deemed to have been duly given
if (i) delivered by hand; (ii) mailed by registered or certified mail; (iii)
sent by air courier; or (iv) sent by cable, telex or facsimile, followed within
twenty-four (24) hours by notification pursuant to (i), (ii) or (iii) above, in
each case to the address set forth below or to such other address as a Party may
specify for itself by written notice given as aforesaid.
If to AHPC: American Home Products Corporation
5 Giralda Farms
Madison, NJ 07940
FAX: 973-660-7156
Attention: Chief Financial Officer
19
<PAGE>
with a copy to: American Home Products Corporation
5 Giralda Farms
Madison, NJ 07940
FAX: 973-660-7155
Attention: Senior Vice President and General Counsel
If to ViroPharma: ViroPharma Incorporated
405 Eagleview Boulevard
Exton, PA 19341
FAX: 610-458-7380
Attention: Chief Financial Officer
with a copy to: ViroPharma Incorporated
405 Eagleview Boulevard
Exton, PA 19341
FAX: 610-458-7380
Attention: General Counsel
10.9 Fees And Expenses. ViroPharma and AHPC shall each bear
-----------------
their own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby.
10.10 Titles And Subtitles. The titles of the Sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
10.11 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 instrument.
20
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby executed as of the date
first above written.
VIROPHARMA INCORPORATED
By: /s/ Claude H. Nash
--------------------------
Name: Claude H. Nash
Title: President and CEO
AMERICAN HOME PRODUCTS CORPORATION
By: /s/ Robert Essner
--------------------------
Name: Robert Essner
Title: Executive Vice President
21
<PAGE>
EXHIBIT 11
ViroPharma Incorporated
Computation of Net Loss per Share
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Net Loss (11,449,883) (26,402,116) (29,500,038)
Accretion of redemption value attributable to
mandatorily redeeemable convertible preferred stock - - -
Preferred stock dividends, including beneficial
conversion component 934,533
Beneficial conversion feature of preferred stock 4,140,000
Net loss allocable to shareholders (11,449,883) (26,402,116) (34,574,571)
Weighted average shares outstanding 10,092,590 11,485,589 12,181,853
Shares assumed to be outstanding related to
stock options and warrants granted for nominal
consideration - - -
Shares used in computing diluted net loss per share 10,092,590 11,485,589 12,181,853
Net loss per share
Basic (1.13) (2.30) (2.84)
Diluted (1.13) (2.30) (2.84)
</TABLE>
<PAGE>
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
ViroPharma Incorporated:
We consent to incorporation by reference in the registration statements (No.
333-34129 and No. 333-60951) on Form S-8 of ViroPharma Incorporated of our
report dated February 23, 2000, except as to note 13, which is as of March 8,
2000 relating to the balance sheets of ViroPharma Incorporated (A Development
Stage Company) as of December 31, 1998 and 1999, and the related statements of
operations, comprehensive loss, stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1999, and for the period
December 5, 1994 (Inception) to December 31, 1999, which report appears in the
December 31, 1999, Annual Report on Form 10-K of ViroPharma Incorporated.
KPMG LLP
Princeton, New Jersey
March 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,984,707
<SECURITIES> 59,868,213
<RECEIVABLES> 114,318
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,960,889
<PP&E> 4,683,343
<DEPRECIATION> 1,213,416
<TOTAL-ASSETS> 72,085,866
<CURRENT-LIABILITIES> 9,269,630
<BONDS> 0
0
2,300
<COMMON> 30,133
<OTHER-SE> 58,258,803
<TOTAL-LIABILITY-AND-EQUITY> 72,085,866
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 31,042,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,956
<INCOME-PRETAX> (29,500,038)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,500,038)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,500,038)
<EPS-BASIC> (2.84)
<EPS-DILUTED> (2.84)
</TABLE>
