Lilly shall be the exclusive distributor of HA-1A (also known as "Centoxin"), a monoclonal antibody product to treat septic shock. In addition, Lilly shall have the option to develop, license and distribute CentoRx [more recently known as "ReoPro"] (see Section II.J).
[In 7/95, PaineWebber filed two complaints against Centocor ("PW Complaints"). The first complaint by PaineWebber R&D Partners, L.P. charged that some portion of the $100,000,000 paid by Lilly to Centocor in July 1992 constituted revenues to Centocor for the licensing, sublicensing or
sale of Centoxin and that Centocor is obligated to pay a percentage thereof to the former limited partners of Centocor Partners II ("CPII"). The second complaint by PaineWebber R&D Partners II, L.P. claims that at least $25,000,000 of the money paid by Lilly to Centocor in 1992 represented profits from the marketing of ReoPro, obligating Centocor to pay a portion thereof and an increased percentage of the profits from ReoPro to Centocor Partners III ("CPIII"). Per Centocor's 12/97 Annual Report, in June 1997, Centocor reached an agreement to settle the litigation with PaineWebber R&D Partners II, L.P. The settlement provided for Centocor to pay the former limited partners of Centocor Partners III ("CPIII") $10,800,000 from which attorney's fees and expenses will be deducted, an additional $5,000,000, if and when cumulative worldwide sales of ReoPro exceed $600 million, and a revision to the royalties payable to the former limited partners of CPIII. At December 31, 1997, Centocor has recorded a current liability for $15,800,000 for these probable payments to the former limited partners of CPIII.]
B. Research Period:
NA
C. Cost Sharing & Reimbursement Basis:
[Per Centocor's 12/98 annual report, for the years ended December 31, 1998, 1997, 1996, and 1995, ReoPro sales to Lilly were $205,590,000, $158,373,000, $88,669,000, and $15,545,000, respectively, and Lilly's announced sales to end-users were $365,000,000, $254,400,000, $149,300,000 and $22,800,000, respectively.]
D. Upfront Payment:
$50 million (and $50 million in equity--see Section V.A.), consisting of three components as follows:
1) In consideration of 90 days of sales training, six months' supply of promotional materials and six months' supply of packing materials, Lilly shall make a payment on signing of $5 million;
2) In consideration of Centocor's incurred costs in connection with preparing and distributing promotional and educational materials and conduct of exhibitions, symposiums and hospital meetings related to Centoxin, Lilly shall make a payment on signing of $21.5 million;
3) In consideration of Centocor's ongoing clinical development costs for Centoxin, Lilly shall make a payment on signing of $21 million;
4) In consideration of Centocor's grant of an exclusive distribution license to Lilly, beginning on 1/1/93, to make Commercial Sales of Centoxin in each country in the Territory, Lilly shall make a payment on signing of $2 million; and
5) In consideration of Centocor's grant of options to Lilly with respect to the inclusion of CentoRx (also known as "ReoPro") under this Agreement (see Section II.J), Lilly shall make a payment on signing of $500,000.
E. Benchmark Amounts:
Per the 6/93 Amendment, Lilly will pay to Centocor to fund a portion of Centocor's future research and development of CentoRx the amounts set forth for each of the calendar quarters beginning with the 4th quarter of 1993, provided that:
(a) as of the last date according to the following schedule has been achieved;
(b) Centocor is not in material breach of a covenant contained in the Agreement;
(c) each of Centocor's warranties and representations contained in the Agreement is true; and
(d) neither party has terminated the payments.
Amount/Qtr Milestones to be Achieved in that Quarter
$2 million/3Q93 Start of CAPTURE trial
Complete technical section of PLA
Complete review of restenosis clinical data from EPIC-I
Complete analysis of HACA/HAMA data from EPIC-I
$4 million/4Q93 Startup of EPIC-II
Filing of complete PLA for CentoRx (a Critical Milestone)
$3 million/1Q94 Complete European filing before CPMP (a Critical Milestone)
Startup of reinjection trial
NEJM Publication of EPIC-I data
CAPTURE trial first Interim Analysis Report
$3 million/2Q94 Interim Analysis of EPIC-II trial completed
CAPTURE trial enrolls first 600 patients
$3 million/3Q94 Completion of enrollment in reinjection trial
$3 million/4Q94 FDA Advisory Panel review of CentoRx
CAPTURE trial completed (a Critical Milestone)
Completion of EPIC-II enrollment (a Critical Milestone)
CPMP Advisory Panel review
$2 million/1Q95 Final report of CAPTURE and reinjection trials
Final report of EPIC-II trial
Per the 6/93 Amendment, in the event a Critical Milestone is not achieved within 60 days after the end of the quarter required by the schedule above, Lilly may, after 30 days notice, assume control of the research and development effort.
[Per Centocor's 12/95 10-K, for the years ended December 31, 1995, 1994, and 1993 Lilly paid $10.0 million, $9.5 million and $5.0 million as a result of Centocor's achievement of milestones in the development of ReoPro.]
F. Technology Acquisition Fees:
None
G. Payment Schedule:
NA
H. Budgets:
None
I. Reimbursement Start Date:
NA
J. Regulatory Filings:
To the extent necessary for Lilly to exercise its rights and carry out its obligations under this Agreement and to the extent permitted by law, Centocor agrees to transfer and assign all licenses, registrations, permits and regulatory approvals related to Product to Lilly.
Product clinical studies initiated after the date of signing shall be reviewed and approved by the Product Committee prior to implementation.
K. Special Capital Requirements
None
L. Patent Ownership:
Centocor owns all patents.
M. Patent Filing Costs:
No provision
N. Patent Defense Costs:
Centocor shall have the primary right to defend its patents. Any recoveries shall be divided evenly between the parties.
O. 3rd-Party Patents:
Any third party payments shall be deducted as costs to their respective party prior to allocation of gross profits.
P. Non-Compete Provisions:
During the term of this Agreement, Lilly shall not promote, market, manufacture, sell or distribute any monoclonal antibody-based product for the treatment of shock induced by endotoxin of gram negative bacteria in the Territory other than Centoxin.
In the event Lilly exercises its options with respect to CentoRx (see Section II.J), Lilly shall not promote, market, manufacture, sell or distribute any monoclonal antibody-based product for the prevention of platelet thrombotic events, other than CentoRx, anywhere in the world during the term of this Agreement.
Q. Publications:
No provision
R. Core Technology:
Centocor owns.
S. Cancellation Amounts:
If Lilly is the terminating party (as provided in Section I.T or Section I.V), Centocor shall pay to Lilly an amount equal to 40% of Net Sales during the 90 day period immediately following the termination.
In addition, if Lilly is the terminating party, Centocor shall pay to Lilly an amount calculated pursuant to the following schedule in recognition of Lilly's expenditure of resources to maximize sales of the Product:
Termination on or prior to: Termination Payment:
12/31/93 $75 million
12/31/94 $60 million
12/31/95 $50 million
12/31/96 $40 million
12/31/97 $30 million
12/31/98 $20 million
12/31/99 $10 million
Thereafter $0
T. Termination:
If as a result of any governmental action or determination, this Agreement is not in full force and effect in all material respects in any country in the Territory except the US at all times prior to 12/31/96, Lilly shall have the right to terminate this Agreement.
Per the 6/93 Amendment, in the event a critical milestone is not achieved within 60 days after the end of the quarter required by the schedule (see Section I.E.), Lilly, after 30 days notice given at any time more than 30 days after the end of that quarter, may assume control of the research and development effort. If Lilly exercises that right:
(a) Centocor shall cooperate with Lilly in the orderly completion of the research and development of CentoRx, including assignment of such rights, licenses, applications, or other interests as are reasonable necessary to that completion by Lilly; and
(b) expenses in devising or implementing a plan incurred by Lilly in any calendar quarter shall be treated for royalty purposes (see Section II.D.) as payments for research and development by Lilly on the 15th day of the second month of that quarter.
Centocor or Lilly may terminate the development payments on thirty days notice to the other and thereafter no further payments may be made pursuant to Section I.E. All other provisions of the Agreement and this Amendment shall be unaffected.
U. Product Reversion:
All Product rights shall revert to Centocor upon termination by Lilly.
V. Change in Control:
This Agreement may be terminated by either party upon notice to the other within six months after any person or group acquires control of the other party (see Section I.S.).
W. Options/Other:
Per the 6/93 Amendment, as security for Centocor's performance under the Agreement and this Amendment and as security against the occurrence of a Trigger Event (definition CON), Centocor will enter into an option agreement with Lilly and shall grant to Lilly a right of mortgage on the manufacturing facility and all related licenses and intellectual property owned or licensed by Centocor. The parties agree that an actual or threatened interruption of the supply caused by a Trigger Event would cause damage to Lilly in an amount of at least US$__(CON).
2. Product License(s)
A. License Holder/Type:
Beginning on 1/1/93, Centocor shall grant to Lilly the right to make Commercial Sales of Product in each country in the Territory in which Lilly may lawfully sell the Product, and Centocor shall not sell any Product to any person other than Lilly. Centocor retains the right to co-promote the Product in all countries within the Territory to the extent which may be provided in any approved Country Marketing Plans.
Product shall mean Centoxin, and shall also include CentoRx in the event that Lilly exercises one of its options (see Section II.J.)
Centocor may sell the Product in the Territory prior to 1/1/93, and thereafter only in those countries in the Territory where Lilly may not lawfully sell the Product.
Lilly shall have the right to set the prices of the Products for Commercial Sale without the approval of Centocor.
[Per Centocor's 12/97 10-K, in June 1996, Centocor and Lilly amended the amendment, so that Lilly no longer has the right to buy ReoPro for resale in Japan; however, Lilly will maintain its exclusive right to buy and resell ReoPro in the rest of the world.]
B. Product Field of Use:
All uses.
C. Territory Splits:
Worldwide, except for Japan and Spain. In the event that CentoRx becomes a Product under this Agreement (as provided in Section II.J), the Territory for CentoRx shall be worldwide, except Japan (per 6/96 Amendment).
D. Royalty Rate:
The parties shall endeavor to equally divid over time all margins related to the Product (sales less costs and expenses of both parties as provided herein) via annual adjustment of the Centocor Selling Price to Lilly for manufactured Product (see Section III.D).
During the period of manufacture of Product by Lilly (see Section III.I), Lilly shall pay a ___% (CON) royalty to Centocor on Net Sales less the sum of all Lilly Costs and all other amounts paid by Lilly to any third party to secure the Product.
Per the 6/93 Amendment, development royalties shall be paid by Centocor to Lilly for each calendar quarter at the rate of 15% of Net Sales of CentoRx during the quarter provided that:
(a) no development royalties shall be owned on Net Sales below $50 million in any calendar year; and
(b) at such time as the Maximum Aggregate Development Royalty as of that time has been paid, no further development royalties shall be owing.
"Maximum Aggregate Development Royalty" means the sum of each payment by Lilly for research and development (see Section I.E) plus each payment by Lilly subsequent to the date of this Amendment to acquire rights to CentoRx, Adjusted for Time, minus each Development Royalty payment by Centocor. "Adjusted for Time" as to any payment means compounded at an annual simple rate of 25% from the date the payment was made to the date as of which the adjustment is measured.
[Per the PW Complaint, Centocor has asserted rights to a 17% commission on CentoRx sales for "marketing services"and a 10% commission on such sales for management and administrative costs when Lilly [Centocor] is providing such services.]
E. Right to Sublicense:
No
F. Term/Patent Life:
This Agreement shall continue as to each Product until June 30, 2002, but shall automatically renew for additional 5 year terms if Commercial Sales during the 12 month period ending six months prior to the scheduled termination date are at least $10 million; provided, however, that after June 30, 2007 in no event shall the term of this Agreement extend beyond the expiration of all US patents issued or pending as of the signing of this Agreement.
G. Adv/Min Royalty & Diligence Requirement
None, but Lilly's level of effort in promoting the Product shall not be less than the level of effort which Lilly uses for its own products which are of similar stature and at a similar stage of introduction to the market as the Product.
H. Royalty Accounting:
Net Sales shall mean the gross selling price of Product, less applicable sales and use taxes, and less trade and invoice payment period discounts and credits or allowances granted for defective or returned Product, and less any amounts appropriate to reflect rebates or returns pursuant to policies approved by the Product Committee or required by law of any kind.
All costs of working capital (receivables and inventory), interest or other items customarily classified as other income and deductions are specifically excluded from the equal margin sharing concept, and any indemnification payments made by Lilly or Centorocr shall not be included as Lilly Costs or Centocor Costs, as the case may be. All impacts on margins due to currency fluctuations are specifically included in the equal margin sharing concept. In general, costs of both parties will be limited to direct or incremental charges resulting from activities to perform the obligations of this Agreement.
Any late payments shall bear interest from the 61st day after receipt of the Product through the date of payment at a fixed annual rate equal to 4% over the prime rate.
I. Patent-Royalty Tie-In:
None
J. Options/Other:
Lilly shall have the option (Option I) to include CentoRx as a Product under this Agreement by so electing on or before July 1, 1993 and making a payment of $25 million to Centocor (in the event FDA approval of Centoxin has already been granted) or to an escrow account (in the event that FDA approval of Centoxin is then still pending). If such payment is made to the escrow account and FDA approval of Centoxin is granted on or before January 1, 1994, the payment shall be made to Centocor. If approval is not granted on such date, however, the payment shall be refunded to Lilly, together with all interest thereon.
Lilly shall also have the option (Option II) to include CentoRx as a Product under this Agreement if FDA approval is not obtained or Centoxin is not Commercially Available on or prior to January 1, 1994. Such option shall expire on the earlier to occur of March 31, 1994 or 30 days after FDA approval.
Commercially Available shall mean that both (1) Centoxin is not the subject of any order or rule of the FDA or any other agency or any court prohibiting its distribution in more than four states in the US, and (2) Centoxin continues to be approved for sale in at least three of the following four countries: UK, Germany, France and Italy.
3. Manufacturing & Supply
A. Right Holder/Type:
Centocor agrees to supply to Lilly, and Lilly agrees to purchase from Centocor, all of Lilly's requirements of Product for Commercial Sales.
B. Bulk/Dosage Form:
Final dosage form.
C. Territory:
Worldwide, except for Japan and Spain. In the event that CentoRx becomes a Product under this Agreement (as provided in Section II.J), the Territory for CentoRx shall be worldwide.
D. Reimbursement Basis:
The initial Centocor Selling Price to Lilly shall be $2,250. The Centocor Selling Price shall be reviewed and adjusted annually with the intention of achieving an equal division of the margins from the Product considering correction of any pervious imbalances together with the forecase for the current Agreement Year. Profits for any period shall be calculated using actual data to the extent available and forecasts where actual data is unavailable.
Lilly shall provide five quarter rolling forecasts on a non-binding basis and binding orders at least 90 days prior to requested date of shipment.
E. Proc. Dev. Terms:
NA
F. Clinical Use Manufacturing:
No provision
G. Shipment Terms:
F.O.B. Centocor's place of shipment. The parties shall share equally the inventory carrying costs via adjustment, as necessary, of Lilly's payment terms upon shipment of Product by Centocor.
The expense of any Product recall shall be borne initially by the party desiring the recall. If it is later determined that the recall was appropriate, the cost of the recall will be treated as a cost of the respective party in determination of the formula pricing.
H. Financing:
None
I. Escape Clause:
Lilly shall have rights to manufacture or have manufactured Product, contingent upon the occurrence of a Trigger Event, as follows:
1) Lilly terminates this Agreement due to material breach or insolvency by Centocor;
2) Centocor has failed to supply to Lilly at least 75% of the requirements of the applicable Product for two of three consecutive months, provided that such amount shipped during that three month period shall also be less than 80% of the amount shipped during the three month prior period;
3) Centocor fails to pay principal or interest when due, with respect to any indebtedness for borrowed money in an aggregate principal amount of at least $50 million; or
4) Centocor has failed to supply to Lilly at least 75% of the requirements of the applicable Product for six consecutive months due to a Force Majeure condition.
Lilly's right of manufacture shall revert to Centocor upon Centocor's demonstration of adequate ability to supply Product. Any licenses or rights granted to Lilly under this provision shall be assignable, sublicensable or transferable by Lilly to third parties only for the purposes of manufacturing, using, selling, distributing or promoting a Product.
Per the 6/93 Amendment, the parties agree that an actual or threatened interruption of supply caused by a Trigger Event would cause damage to Lilly in the amount of at least $5 million.
Per the 8/93 Option Agreement, Lilly's supply option shall lapse in the event that Centocor achieves shareholders' equity in excess of $200 million or upon 6/3/99, whichever shall first occur.
J. Product Liability:
Mutual indemnification. During the term of this Agreement, Centocor shall maintain in force product liability insurance coverage, and shall use its best efforts to cause Lilly to be a named insured.
Per the 8/93 Option Agreement, Centocor's liability under Lilly's supply option (see Section III.I) shall be fixed at Dfl. 10,000,000 notwithstanding Lilly's right to claim any actual damage suffered in excess thereof.
K. Options/Other:
None
4. Collaboration Management
A. Representation:
The parties shall each appoint an authorized representative ("Coordinator") between whom communications will be directed.
The parties shall establish an Oversight Committee, consisting of two representatives of each party.
The parties shall also establish a Product Committee which will develop and recommend to the Oversight Committee the core detailing and promotion strategies (the "Core Marketing Plan").
Lilly shall have the responsibility from time to time as determined by the Product Committee for the preparation and submission to that Committee of a proposed Country Marketing Plan for each country within the Territory.
B. Quorum:
No provision
C. Basis of Actions:
Consensus
D. Meetings:
As agreed upon by the parties.
E. Disagreements:
In the event the parties fail to agree on a revision of the Centocor Selling Price (see Section III.D), a partner of a major accounting firm shall fix the revised Centocor Selling Price.
All other disputes shall be settled as follows:
1) all matters pertaining to patents and other intellectual property, interpretation of the legal effect of the Agreement, or any request for specific performance shall be settled by binding arbitration via selection of a legal arbitrator;
2) all other matters shall be settled by binding arbitration via selection of a retired CEO or CFO of a "Fortune 1000" company;
The arbitrators shall be selected from lists compiled by the Center for Public Resources
F. Buyout/Windup:
NA
G. Options/Other:
None
5. Equity Investment
A. Type of Security:
2 million common shares
[Per Centocor's 12/97 Annual Report, in July 1996, Centocor issued 920,716 shares, at a price of $29.32 per share, as consideration for the 6/96 Amendment ("Amendment Shares").]
B. Pricing:
$50 million (@ $25/share). [See also Section V.A.]
C. Board Seat:
No
D. Research Tie-Ins:
None
E. Options & Rights:
Lilly shall be entitled to two demand registrations for at least 500,000 shares per registration. Lilly shall not transfer these shares to any entity whose principal business is in the manufacture or distribution of pharmaceuticals or chemicals.
[Per 6/96 Amendment, Centocor will file a shelf registration on the Amendment Shares.]
