The parties shall collaborate to obtain useful EST sequence data on all expressed human genes and, by themselves or with third parties, to develop practical applications therefor. Such data shall consist principally of HGS Technology, HGS Patents, SB Technology and SB Patents.
EST (Expressed Sequence Tag) shall mean a partial cDNA sequence. The ESTs shall comprise as many nucleotides from the 5' end or the 3' end of a cDNA (exclusive of vector nucleotides) as is practicable in order to enhance the informational value of the ESTs. At SB's request, during the Initial Research Term the Research Committee shall give high priority to cDNAs from specified cell types with characterized lineage-specific identifications and, when relevant, specified diseases states or disorders from multiple specified cell lineages to permit identification of organ- and tissue-specific expression of specific protein families and/or superfamilies.
Per the 9/93 Amendment, unless otherwise requested by the RC, ESTs provided after 9/1/93 shall be derived from the 5' end of the cDNAs.
HGS Technology shall mean any and all data, substances, processes, materials, formulae, know-how and inventions (i) with respect to genes and/or expression products thereof (including sequence and function) which are useful within the SB Field or the HGS Field (see Section II.B) and which are developed by or on behalf of HGS during or prior to the Initial Research Term and/or (ii) developed by HGS from work funded by SB (see Section I.C). HGS Patents shall mean all patents and patent applications which claim HGS Technology.
SB Technology shall mean any and all data, substances, processes, materials, formulae, know-how, inventions and information useful within the SB Field and/or HGS Field (i) developed by or on behalf of SB during the Initial Research Term which incorporate or are based on or derived by use of HGS Technology or other technology or information which is proprietary to HGS and/or (ii) developed by or on behalf of SB pursuant to a Research Program (see Section I.W). SB Technology shall not include technologies, reagents or materials made by SB merely because of an incidental or immaterial use of HGS Technology. SB Patents shall mean all patents and patent applications which claim SB Technology.
In 9/94 an agreement was signed by the two parties (the "9/94 License Agreement") granting SB an exclusive license to sell Collaboration Products in the SB Field in Southeast Asia. The 9/94 License Agreement was amended and restated in 5/95 (the "5/95 Restated License Agreement")--see Section II.C.
In 12/94 three amendments were signed, regarding Milestone III (the "12/94 Milestone II Amendment"--see Section I.E), equity related to Milestone III (the "12/94 Equity Amendment"--see Section V.E), and Therapeutic Proteins (the "12/94 Therapeutic Protein Amendment"--see Section I.U).
In 4/95 an amendment was signed, whereby HGS obtained rights to a specific Therapeutic Protein in the SB Field (the "4/95 Protein Amendment"--see Section I.U). In 5/95 an amendment was signed, whereby the collaboration was modified to permit the signing of the SB-Takeda collaboration (the "5/95 Takeda Amendment").
In 6/96 an amendment was signed, whereby the collaboration was modified to permit the signing of multiple third party alliances in the SB Field and for Gene Therapy Vaccines (the "6/96 Third Party Amendment"). Concurrently with signing of the 6/96 Third Party Amendment, the parties entered into a License Agreement, which superceded and replaced this Collaboration Agreement and Southeast Asia License Agreement with respect to the SB Field and Gene Therapy Vaccines--see separate deal analysis.
B. Research Period:
The Initial Research Term shall mean the term beginning on the signing of this Agreement and ending on the earlier of 10 years from signing or five years after HGS provides to SB the number of ESTs which when added to the number of human genes known at the time equals 90% of the total number of expressed human genes.
Per the 12/94 Milestone III Amendment, the Initial Research Term shall end on the earlier of 10 years from signing or five years after achievement of Milestone III (see Section I.E).
C. Cost Sharing & Reimbursement Basis:
Except as otherwise provided, each party shall undertake all gene sequencing and related activities at its sole expense. During the Initial Research Term, either party may request sequencing of specified cDNAs. Such requests will be prioritized by the RC. The RC shall prioritize the cDNA libraries for sequencing based on SB's scientific and commercial interests, the patentability of such sequences and the likelihood that Research Programs can result therefrom (see Section I.W). The parties acknowledge that some or all sequencing of genes will be carried out by The Institute for Genomic Research (TIGR).
Per the 9/94 License Agreement, for Additional R&D requested by SB on behalf of a sublicensee under this Agreement and approved by the RC, SB shall pay HGS at HGS' fully allocated cost for such R&D.
"Additional R&D" means any research and development activities to be conducted at HGS other than cDNA library sequencing or second walks approved and prioritized by the RC on the 35 sequencers which are at the disposal of the RC under the Collaboration Agreement.
D. Upfront Payment:
$13 million, of which $1 million has been received by HGS prior to the date of signing of this Agreement.
Per the 9/94 License Agreement, in 8/93 SB elected to exercise the option granted to it in the Collaboration Agreement relating to exclusive rights in Southeast Asia by paying $9,000,000 to HGS on 8/19/93 and a remaining $16,000,000 targeted for payment to HGS on 9/19/94.
E. Benchmark Amounts:
SB shall make milestone payments to HGS as follows:
(a) $12.5 million after HGS achieves Milestone I; provided, however, that such payment shall be due no earlier than 1/1/94 and shall no longer be owed to HGS if Milestone I is not achieved by 5/19/94 [Milestone I occurred in 2/94]. Milestone I shall mean full operational use of 35 gene sequencing machines and 15 Catalyst or comparable robotic system machines owned or controlled by HGS at conveniently accessible facilities. By full operational use is meant that the machines are fully installed, checked out, debugged and available for regular use at normal performance levels and that HGS possesses all human and material resources reasonably required for regular use of the machines.
(b) $12.5 million after HGS achieves Milestone II; provided, however, that such payment shall be due no earlier than 1/1/94 and shall no longer be owed to HGS if Milestone II is not achieved by 5/19/95 [Milestone II occurred in 4/94]. Milestone II shall mean transfer to SB by HGS of 30,000 ESTs or pairs of ESTs, at least 80% of which are from Novel Human Genes. Novel Human Genes shall mean a human gene which was not disclosed in a written publication or other public disclosure and not entered into the NCBI CD-ROM-published DNA sequence database prior to the later of (i) signing of this Agreement or (ii) six months before each transfer of an EST to SB. If HGS fails to achieve Milestone II by 5/19/95 and as a result the payment specified above is not made, SB shall purchase an additional 226,245 shares of Series B preferred stock (169,683 shares after 1:1.33 reverse stock split) at a price of $0.01 per share (see also Section V.E).
In addition, SB shall pay to HGS $1,000,000 upon initiation by SB or by a third party authorized by SB of the first clinical study for each product and $1,500,000 upon acceptance of the first filing of an NDA or PLA in a Major Market (see Section II.C) for each SB Product; provided, however, that such milestone payments shall not be applicable to clinical laboratory services and shall be reduced to $1,000,000 upon initiation of country-wide sales with respect to an SB Product where expected worldwide sales are less than $5 million.
Per the 9/93 Amendment, "Milestone II" shall mean transfer to SB by HGS of 45,000 Unique ESTs.
"Unique ESTs" means ESTs which are:
1) less than 95% identical to ESTs already transferred to SB by HGS over any 50 consecutive nucleotides; and
2) not otherwise known to have been derived from the same gene as that from which an EST already transferred to SB was derived.
(c) $25 million of additional equity purchase from HGS after HGS achieves Milestone III; provided, however, that if Milestone III is achieved after 5/19/96, then such additional equity purchase price shall be $20 million. Milestone III shall mean transfer to SB by HGS of the number of ESTs or pairs of ESTs equal to the lesser of (i) a number of transferred ESTs which when added to the number of human genes known at the time equals 90% of the total number of expressed human genes or (ii) 90,000 ESTs. If necessary to establish Novel Human Genes for this purpose, each EST shall comprise pairs of ESTs, one from the 3' end of a cDNA and one from the 5' end of that cDNA (see also Sections V.A & V.E).
Per the 9/93 Amendment, "Milestone III" shall mean transfer to SB by HGS of the number of ESTs or pairs or ESTs equal to the lesser of:
1) a number of transferred ESTs which when added to the number of human genes known at the time equals 90% of the total number of expressed human genes; or
2) 90,000.
Per the 4/94 Amendment, for the purpose of Milestone III, each partial DNA sequence of an animal gene transferred to SB under Section I.R. shall be counted as an EST.
[See also Section II.C concerning option payments associated with expansion of the Territory.]
Per the 12/94 Milestone III Amendment, "Milestone III" shall mean _____ (CON). Within 90 days of the achievement of Milestone III, the parties will meet to jointly determine a sequencing strategy for use of the RC directed 35 sequencers until the end of the Initial Research Term. HGS shall provide adequate staff and reagents to keep the 35 RC dedicated sequencers running at capacity during the Initial Research Term.
[Per the 12/94 Equity Amendment, SB will be required to make a $25 million payment to HGS on January 9, 1996 if HGS has delivered to SB a specified number of partial gene sequences during 1995 at a specified minimum quarterly rate. Of this $25 million, a portion will be attributed to an additional equity purchase--see Section V.E. If HGS does not meet these requirements, to which the parties refer as Milestone III, by January 9, 1996, the payment will not be made until one month after the requirements have been met. In accordance with the original Collaboration Agreement, if Milestone III is not achieved until after May 19, 1996, SB's payment to HGS will be reduced to $20 million. No payment will be made if Milestone III is not achieved.
F. Technology Acquisition Fees:
None
G. Payment Schedule:
NA
H. Budgets:
NA
I. Reimbursement Start Date:
NA
J. Regulatory Filings:
SB shall have full control and authority over development, registration and approval of all SB Products.
Per the 9/94 License Agreement, SB shall have full control and authority over development, registration and commercialization of Collaboration Products in the SB Field in Southeast Asia including Collaboration Products which are SB Products.
K. Special Capital Requirements
None
L. Patent Ownership:
Each party shall have and retain sole and exclusive title to all inventions, discoveries, designs, works of authorship and other know-how which are made, conceived, reduced to practice or generated by its employees, agents, or other persons acting under its authority. Each party shall own a 50% undivided interest in all such inventions generated jointly by both parties; provided, however, that any invention made by an employee of SB while working at a HGS site on a project directed by HGS shall be owned by HGS as if such invention was made by an HGS employee.
M. Patent Filing Costs:
HGS shall have the first right, using in-house or outside legal counsel selected at HGS' sole discretion, to prepare, file, prosecute, maintain and extend HGS Patents and other forms of intellectual property for cDNA sequences generated during the Initial Research Term in countries of HGS' choosing, and HGS shall bear all costs relating to such activities, except that SB and HGS may agree on a sharing of patent costs associated with filings outside of the US.
SB shall have the first right to prepare, file, prosecute, maintain and extend SB Patents, and SB shall bear all costs relating to such activities. SB and HGS shall agree on drafting, filing, prosecuting and maintaining patents as jointly owned inventions, with costs thereof to be shared equally.
N. Patent Defense Costs:
The owner of the SB Patent or HGS Patent shall have the first right but not the obligation to bring, at its own expense, an infringement action against any third party. Any recovery in excess of actual out-of-pocket expenses shall be shared by the parties in an amount proportional to their respective losses and expenses.
O. 3rd-Party Patents:
In the event of the institution of any suit by a third party against HGS, SB or its sublicensees for patent infringement with respect to an HGS Product or SB Product, the party sued shall promptly notify the other party. The other party shall have the first right but not the obligation to defend or participate in the defense of such suit at its own expense.
Per the 9/94 License Agreement, in the event that royalties paid to a third party on Net Sales of the Collaboration Product are a significant factor in the return realized by SB such as to diminish SB's capability to respond to competitive pressures in the market, the parties shall agree on a reasonable reduction in the royalties payable under this Agreement on Net Sales of the affected product for so long as the market conditions persists.
P. Non-Compete Provisions:
Neither party may conduct a Research Program without the approval of the RC (see Section I.W). Neither party shall employ or otherwise engage for hire in any capacity, or solicit for employment or other engagement in any capacity, any employee or former employee of the other party until at least one year after the employment relationship with the other party has been terminated.
Each party retains its rights to undertake research and development programs, and to commercialize products which are not Collaboration Products (see Section II.A).
Q. Publications:
Neither party shall submit written or oral publications without first obtaining the prior written consent of the RC. Within 3 months after signing, the parties shall establish a publication policy which policy shall be taken into account when considering the reasonableness of a request to withhold or defer such submission.
[Pursuant to HGS' agreements with TIGR, TIGR shall not publish human cDNA sequences identified prior to 4/1/94 until after the later of October 1994 or for a period of up to eighteen months after disclosure to HGS or its collaborators. Additionally, with respect to human cDNA sequences identified after 4/1/94, TIGR shall not publish such data until 6 months after filing of a US patent application or, in some cases, a foreign patent application (per HGS' IPO Prospectus).]
R. Core Technology:
HGS shall promptly disclose and provide SB and the RC with all HGS Technology known to it prior to or subsequent to signing, including but not limited to information concerning the novelty and biological functions of the cDNAs and their gene products, the relative abundance of the cDNAs and the cell types from which the cDNAs were derived.
Human sequence data generated during the Initial Research Term shall be electronically transferred to SB as near to simultaneously upon receipt by HGS of such data from TIGR as reasonably possible and shall be stored by HGS in an electronic database having appropriate database encryption and security provisions.
SB shall have the right, at it own expense, to locate up to two of its employees or agents working at the HGS facility to work alongside HGS employees on the sequencing and characterization of genes.
During the Initial Research Term, HGS shall provide SB and the RC with yeast gene sequence and function information which is known to HGS, but only to facilitate decision making, and otherwise to advance research and development under this Agreement.
At the request of the RC, HGS agrees to sequence and provide to SB partial DNA sequences of animal genes from libraries prepared by SB which sequencing is to be performed on the machines (see Section I.E.). Such partial DNA sequences of animal genes shall be used by SB only to facilitate decision making and otherwise advance research under this Agreement.
S. Cancellation Amounts:
None
T. Termination:
SB may terminate this Agreement prior to HGS achieving Milestone III (see Section I.E) on at least 60 days advance written notice to HGS for any reason or at will. If the termination is made at will by SB, SB shall pay to HGS a pro rata portion of the payment due on achievement of Milestone I (based on the number of machines actually installed and in full operational use), plus unrecoverable cancellation charges, if any, and SB shall pay to HGS a pro rata portion of the payment due on achievement of Milestone II (based on the number of ESTs actually provided to SB and accepted by the RC).
If SB terminates the Collaboration Agreement after Milestones I & II have been achieved and before Milestone III is achieved, then SB shall purchase additional HGS Series B shares (@ $73.73/share after reverse stock split) which equals the product of $25 million times a fraction, the numerator of which is the number of ESTs transferred to SB after achievement of Milestone II and before the date of termination and the denominator of which is the difference between the number of ESTs required to achieve Milestone III and 30,000.
Per the 9/94 License Agreement, the license granted to SB shall terminate with respect to each Collaboration Product which becomes an HGS Product (see Section I.W.) or which is released to HGS for sublicensing (see Section II.E.) as to which a sublicense under this Agreement has been terminated effective at the earlier of:
(a) 2 years after such event for Collaboration Products which are other than proteins or diagnostics or 9 months thereafter for Collaboration Product which are diagnostics or proteins; or
(b) the end of the Initial Research Term.
However, if prior to the end of the applicable period a sublicensee of SB provides a research plan (see Section II.E.), then the license under this Agreement and any sublicenses under this Agreement shall remain in effect as to each Collaboration Product addressed by the plan. This section does not apply to Collaboration Products which are SB Products.
This Agreement may be terminated in the event SB fails to make a payment to HGS with respect to a Collaboration Product and does not remedy such breach within 60 days of notice. Any sublicenses granted with respect to such Collaboration Product or upon termination of this Agreement due to the termination of the Collaboration Agreement, shall remain in full force and effect if:
(c) the SB sublicensee is not then in breach of its sublicense;
(d) HGS's rate of royalty compensation thereunder is no less than the rate of royalty compensation to HGS under this Agreement;
(e) HGS assumes no performance obligations under the sublicense agreement; and
(f) SB and its sublicensee assign the sublicense agreement to HGS within 60 days after such termination.
Either party may terminate this Agreement if the other party shall file for bankruptcy or become insolvent.
Termination of the Collaboration Agreement shall terminate this Agreement.
U. Product Reversion:
If SB elects to undertake a Research Program and subsequently elects to terminate such program before initiation of a clinical study of an SB Product encompassed by that Research Program, then HGS may elect to convert the SB Product to an HGS Product in the SB Field. For each such SB Product which HGS does not elect to convert to an HGS Product, SB shall have the right to grant a sublicense with the approval of HGS, which approval shall not be unreasonably withheld, and thereupon HGS shall no longer have the right to co-promote such SB Product.
If SB elects to undertake a Research Program and subsequently elects to terminate such program after initiation of a clinical study of an SB Product encompassed by that Research Program, then HGS may elect to convert the SB Product to an HGS Product in the SB Field, subject to reimbursement to SB by HGS of SB's out-of-pocket costs expended in the research and development of the SB Product in four equal yearly installments. For each such SB Product which HGS does not elect to convert to an HGS Product, SB shall have the right to grant a sublicense with the approval of HGS, which approval shall not be unreasonably withheld, and thereupon HGS shall no longer have the right to co-promote such SB Product.
Per the 9/94 License Agreement, upon termination of this Agreement SB shall be entitled to retain the licenses granted herein, subject to the rights of a party to terminate this Agreement for reasons other than bankruptcy or insolvency.
Per the 12/94 Therapeutic Proteins Amendment, during the Initial Research Term, at HGS' expense, HGS shall have the right to submit directly to SB in each calendar quarter a maximum of four proposals for four different Therapeutic Proteins as to the suitability of such Therapeutic Proteins for designation by SB a an HGS Product in the SB Field. SB agrees that each proposal which HGS certifies meets all of the following criteria shall be a Therapeutic Protein Proposal:
(a) the sequence of the full length coding region of the cDNA encoding the polypeptide has been obtained, or where the polypeptide is an antibody, a polyclonal or monoclonal antibody has been obtained and the sequence of the full lenth coding region of the cDNA encoding the protein to which the antibody is directed forms a part of the Therapeutic Protein Proposal;
(b) a US or PCT (designating the US) patent application for such Therapeutic Protein has been filed;
(c) a Therapeutic Category has been specified for the Therapeutic Protein;
(d) an in vitro biological or biochemical activity or in vivo activity, which activity provides a preliminary indication of the potential relationship of the Therapeutic Protein to a therapeutic use within each of the Therapeutic Categories specified; a preparation of the Therapeutic Protein will be used to demonstrate such activity and the preparation shall be (i) a purified preparation in which at least 50% (w/w) of the protein component of the preparation is the Therapeutic Protein or (ii) a purified preparation in which the relative concentration and/or specific activity of the Therapeutic Protein has been increased at least 1000 fold as compared to an unpurified preparation; in no case shall the concentration of the Therapeutic Protein be less than 1 microgram/ml in the purified preparation; such purified preparation shall be shown to have a biological activity which is not attributable to endotoxin contamination, provided, however, for the four Therapeutic Protein Proposals for the last calendar quarter of 1994, the sole endotoxin criterion shall be that the purified preparation shall have an endotoxin level of less than 1 EU per microgram as determined by the LAL test supplied by Bio-Whittaker;
(e) the results of a single dose experiment that produces a response that is statistically significantly different (p<0.05), using a statistically valid test, from an appropriate control response; HGS shall use reasonable best efforts to define a dose-response relationship, which will include a threshold and maximum effect concentration, the maximum range of which shall not be required to be greater than three log units, provided that circumstances reasonably beyond the control of HGS (e.g. inherent limitations of the test system, protein insolubility and/or stability) do not obviate such a dose-response relationship from being defined; and,
(f) all data with respect to the Therapeutic Protein available to HGS currently or within the 90 day proposal period has been or will be described to SB.
Per the 12/94 Therapeutic Proteins Amendment, if an a calendar quarter four different Therapeutic Protein Proposals are submitted to SB, within 90 days after submission of the fourth of such proposals SB shall be required to designate one of the Therapeutic Proteins so proposed as an HGS Product in the SB Field for use as a therapeutic protein for any and all indications. SB shall have the right to designate more than one of such Therapeutic Proteins as an HGS Product in the SB Field. If SB has not received from HGS four Therapeutic Protein Proposals in any calendar quarter, SB shall not be obligated to designate any of the Therapeutic Proteins of such proposals received from HGS during that calendar quarter as an HGS Product in the SB Field. Any one Collaboration Product which is the subject of a Therapeutic Protein Proposal in one calendar year may not again be the subject of a Therapeutic Protein Proposal until the next calendar year. Only two Therapeutic Proteins from the same class of structural motifs (e.g. chemokines as a class) may be submitted per calendar quarter. If in a calendar year 16 different Therapeutic Protein Proposals (4 per quarter) are submitted to SB by HGS, within 90 days after the submission of the sixteenth such proposal SB shall designate two additional Therapeutic Proteins from such proposals as HGS Products in the SB Field for use as a therapeutic protein for any and all indications, such that a total of six Therapeutic Proteins have become HGS Products in the SB Field from the 16 Therapeutic Protein Proposals received in such calendar year. HGS shall reimburse SB for the expense, if any, paid by SB with respect to preparation, filing, prosecution and maintenance of any HGS Patent which covers a Therapeutic Protein which becomes an HGS Product in the SB Field as provided hereunder.
Per the 12/94 Therapeutic Proteins Amendment, HGS shall have the exclusive right to commercialize (including the right to sublicense) Therapeutic Proteins which have become HGS Products in the SB Field, subject to the payment of royalties (see Section II.D) and SB's copromotion rights (see Section II.J); provided, however, that if HGS intends to sublicense a third party for such a Therapeutic Protein, HGS shall provide written notice of such intent to SB along with a copy of the information relating to the activity of such Therapeutic Protein which HGS proposes to disclose to such third party on a confidential or non-confidential basis. Within 15 days thereafter, SB shall have the right to notify HGS in writing that SB desires to negotiate a license to such Therapeutic Protein, whereupon the parties shall initiate good-faith negotiations. If the final agreement is not reached within 60 days after initiation of such negotiations, or if SB does not so notify HGS, then HGS shall have the right to grant a license to a third party for such Therapeutic Protein.
Per the 12/94 Therapeutic Proteins Amendment, with respect to each Therapeutic Protein which becomes an HGS Product in the SB Field as provided above and which is sublicensed to a third party, HGS shall pay to SB ___% (CON) of Outlicense Fees (other than royalties based on Net Sales and monies received by HGS for copromotion--see Section II.E) which are received by HGS from its sublicensee, and the following percentages of royalties which are received from sublicensee which are based on Net Sales of such HGS Product in a calendar year by the sublicensee: (i) for HGS Products which are approved for sale only for an approved indication which is not in a Therapeutic Category included in the Therapeutic Protein Proposal for such HGS Product _____ (royalty categories and rates CON); and (ii) for all other such HGS Products _____ (royalty categories and rates CON).
Per the 12/94 Therapeutic Proteins Amendment, if SB has not entered into a Special Sublicense Agreement by 12/31/96, HGS' right to submit Therapeutic Protein Proposals under this section after such date and to obtain rights to Therapeutic Proteins thereunder shall terminate as of such date. Special Sublicense Agreement shall mean any sublicense under this Collaboration Agreement (as amended and expanded in 9/94 to include Southeast Asia) which requires the parties to negotiate an amendment to this Colla
boration Agreement.
Therapeutic Protein shall mean a Collaboration Product which is a polypeptide (including antibodies) which is potentially useful for the treatment or prevention of a disease or disorder, other than (i) a Collaboration Product which is the subject of a Research Program undertaken by SB or (ii) the protein designated as _____ (CON).
Therapeutic Category shall mean one or more of the following: (1) neurological disease (2) cardiovascular disease (3) pulmonary disease (4) infectious disease (5) oncology (6) immunology (7) inflammation (8) musculoskeletal disease (9) urology (10) hematology or (11) metabolic disorders. Other Therapeutic Categories may be defined from time to time by HGS or SB and approved by the RC.
Per the 4/95 Protein Amendment, HGS obtained rights to one or more Therapeutic Proteins in the SB Field (EST coding CON), subject to royalty payments on net sales by HGS or sublicensees (sales thresholds and royalty rates are CON.)
V. Change in Control:
Except as provided herein, each party may assign this Agreement to any Affiliate or third party with which it may merge or consolidate, or to which it may transfer all or substantially all of its assets to which this Agreement relates without obtaining the consent of the other party.
Until the earlier of the completion of the initial public offering of HGS or the expiration of the Initial Research Term, HGS agrees that it will not sell all or substantially all of the assets of HGS or be acquired by another entity pursuant to a merger except after first identifying the proposing party and terms of such a transaction to SB and then negotiating with SB for 30 days to meet or exceed such proposal. Thereafter, HGS may accept such proposal, but not on terms and conditions more favorable to the third party than those proposed to SB.
HGS shall have the right to transfer its co-promotion right (see Section II.J) only in connection with a transfer of all of HGS' rights and obligations under this Agreement to another single entity.
Notwithstanding any other provisions concerning sublicensing fees (see Section II.E), if HGS assigns this Agreement or any of its rights or obligations hereunder to any third party with which it may merge or consolidate, or to which it may transfer all or substantially all of its assets to which this Agreement relates, then, in any case in which HGS is required under this Agreement to pay to SB 10% of HGS' sublicense fees, then such third party acquirer shall instead pay to SB 50% thereof.
W. Options/Other:
Either party may conduct Feasibility Studies at its own expense, alone or jointly with each other. The RC may request the parties to carry out a Feasibility Study, in which case the RC shall determine the optimum allocation of responsibilities related thereto. If HGS carries out work, other than sequencing of genes, at the request of the RC, SB shall bear the reasonable costs and expenses thereof.
Feasibility Study(ies) shall mean studies to generate information and data to evaluate the practicality and feasibility of initiating a Research Program. For example, a Feasibility Study may comprise development of an assay for compound screening utilizing a defined molecular target where antagonism or agonism of the target(s) is known to be of pharmacologic value. Development and use of an assay to identify compound(s) needed to test the pharmacologic value of an assay target would constitute a Feasibility Study, as would the development of an assay utilizing a defined molecular target. In contrast, the use of such assay utilizing a defined molecular target of known pharmacologic value for compound screening would be part or all of a Research Program.
Research Program shall mean a research program, approved by the RC during the Initial Research Term, to create or discover Collaboration Products in the SB Field for subsequent commercialization. The parties may at any time during the Initial Research Term submit to the RC proposals for Research Programs. The RC shall consider all such proposals as joint proposals, without regard for which party initiates such proposal. Neither party may conduct a Research Program without the approval of the RC.
Proposed Research Programs shall be reviewed and dispatched by the RC as follows:
(a) If approved by the RC, then SB shall have the first right to undertake such Research Program. SB shall give written notice to the RC of its election to undertake within 90 days of approval by the RC. If so electing, SB shall have full control and responsibility for that Research Program and may undertake it alone, in collaboration with HGS or with third parties. Any products derived therefrom shall be SB Product in the SB Field.
(b) If SB elects not to undertake such Research Program for good reason or at will, or if SB does not commence such Research Program within six months following its election to undertake, then SB shall be deemed to have rejected the Research Program and HGS shall then have the right to undertake such program within 30 days. If HGS elects to undertake, then HGS shall have full control and responsibility for that Research Program and may undertake it alone, in collaboration with SB or with third parties. All Collaboration Products in the SB Field which are part of such Research Program shall become HGS Product in the SB Field.
(c) If both parties elect not to undertake a Research Program, then all Collaboration Products in the SB Field which are part of such Research Program shall become HGS Product in the SB Field and HGS shall have the right to grant sublicenses thereto (see Section II.E); provided, however, that in the event that SB gives notice to HGS that it elects not to undertake a Research Program solely because SB does not have the capacity to reasonably elect to undertake such Research Program owing at least in part to its allocation of resources to another Research Program, then SB shall have the right to propose to HGS within 120 days of rejection of the program by HGS a plan for developing and/or licensing subject matter in the SB Field for the maximum benefit of both parties.
Either party may at any time during the Initial Research Term propose to the RC research and development of a Gene Therapy Vaccine. The RC shall decide which party is better suited to undertake such efforts.
Gene Therapy Vaccine shall mean a Vaccine which achieves a therapeutic effect by inducing an antigen-specific humoral and/or cellular immune system response by a Gene Therapy (see Section II.C). Vaccine shall mean any substance which achieves a prophylactic or therapeutic effect by inducing an antigen-specific humoral and/or cellular immune system response.
2. Product License(s)
A. License Holder/Type:
HGS grants to SB an exclusive license under HGS Patents and HGS Technology to make, have made, use and sell SB Product in the Territory within the SB Field. SB grants to HGS an option to co-promote SB Product sold by SB in the SB Field, on a country-by-country basis in the US, Canada, Mexico and Europe (see Section II.J).
SB grants to HGS an exclusive license under SB Patents and SB Technology to make, have made, use and sell HGS Product. HGS grants to SB an option to co-promote HGS Product sold by HGS in the SB Field or in the HGS Field, on a country-by-country basis in the Territory (see Section II.J).
SB Product shall mean a Collaborative Product in the SB Field which results in whole or in part from a Research Program approved by the RC and undertaken by SB, excluding those SB Products which become HGS Products but including those HGS Products which become SB Products due to reversion (see Section I.U) and any Collaboration Product which is a Gene Therapy Vaccine and becomes a SB Product as provided in Section I.W.
HGS Product shall mean (i) a Collaboration Product in the HGS Field and/or (ii) a Collaboration Product in the SB Field which becomes a HGS Product as provided in Section I.W or via reversion (see Section I.U) and/or (iii) a Collaboration Product which is a Gene Therapy Vaccine and becomes a HGS Product as provided in Section I.W.
Collaboration Product shall mean any product, process, method, substance, device, composition, service or compilation of information on gene sequencing which (i) incorporates, or is based on or uses or is derived by use of HGS Technology and/or SB Technology and/or (ii) is covered by a HGS Patent and/or (iii) is covered by a SB Patent.
Per the 9/94 License Agreement, HGS grants to SB an exclusive license, with the right to grant sublicenses (subject to HGS approval), under HGS Patents and HGS Technology to make, have made, use and sell Collaboration Products in the SB Field in Southeast Asia.
Per the 12/94 Therapeutic Protein Amendment and 4/95 Protein Amendment, SB grants to HGS rights to certain Therapeutic Proteins in the SB Field--see Section I.U.
Per the 6/96 Third Party Amendment, this collaboration agreement was superseded with respect to the SB Field and Gene Therapy Vaccines by the 6/96 License Agreement--see separate analysis.
Per the 7/97 Diagnostics License Agreement, this collaboration agreement was superseded with respect to Human Diagnostic Products--see separate analysis.
B. Product Field of Use:
The SB Field shall mean human and animal health care, excluding the HGS Field. By way of illustration, included within the SB Field are prediction, counseling, diagnosis, staging, vaccination, prophylaxis, treatment and monitoring of human or animal (pre- and post-natal) disease states, disorders, phenotypes and genotypes, forensic applications, devices for in vitro or in vivo
human or animal health applications, feed additives (but not feeds) for improving efficiency of feed utilization in non-human animals to improve growth of the animal or to improve the production of a substance naturally produced by the animal such as but not limited to meat from pigs, milk from cows and eggs from chickens, diagnostic and therapeutic uses in sensor technologies, and related research and development and all medical information compilation services. The SB Field shall include Vaccines, except Gene Therapy Vaccines.
The HGS Field shall consist of the following:
(a) Gene Therapy, excluding Gene Therapy Vaccines and Vaccines;
(b) Antisense; and,
(c) Biotransformation of a chemical to prepare pharmaceutically active agents for human or animal use, or intermediates therefor, which active agents were discovered before signing of this Agreement.
Gene Therapy shall mean treatment or prevention of a disease, or remedying a gene deficiency of humans or animals by genetic modification of human somatic cells or animal somatic or germ cells (in vivo, in vitro or ex vivo) with DNA (RNA) for the purpose of expressing a protein or oligo(poly)nucleotide encoded by said DNA (RNA) in a human or animal.
Antisense shall mean inhibiting or preventing in vivo expression in a human or animal of a gene product by use of an oligonucleotide or modified oligonucleotide which binds to RNA or DNA to prevent and/or impair expression of the gene product.
Per the 6/96 Third Party Amendment, this collaboration agreement was superseded with respect to the SB Field and Gene Therapy Vaccines by the 6/96 License Agreement--see separate analysis.
Per the 7/97 Diagnostics License Agreement, this collaboration agreement was superseded with respect to Human Diagnostic Products--see separate analysis.
C. Territory Splits:
The Territory shall mean all the countries and territories in the world, other than Southeast Asia; provided, however, that SB shall have the option to include Southeast Asia in the Territory as follows:
(a) within three months following signing, SB shall make an initial option exercise payment to HGS of $9 million [per HGS's 12/93 Annual Report, such payment was made in 8/93]; and,
(b) within twelve months following the $9 million payment and no earlier than 1/1/94, if SB shall have made the initial option exercise payment, then SB shall have the opportunity to make a final option payment of $16 million, whereupon Southeast Asia shall become part of the Territory. HGS' only remedy for a failure by SB to make the final option payment shall be termination of SB's rights in Southeast Asia and retention of the initial $9 million payment. [Per HGS 12/94 10-K, HGS received such payment in September 1994.]
Major Market shall mean any of the US, Canada, Japan, Great Britain, France, Germany, Spain or Italy.
Southeast Asia shall mean Burma, Cambodia, Hong Kong, Indonesia, Japan, Laos, Malaysia, Papua New Guinea, People's Republic of China, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
Per the 9/94 License Agreement, the Territory shall include Southeast Asia.
D. Royalty Rate:
SB shall pay to HGS the following royalties on Net Sales of SB Product:
a) 6% of Net Sales during each calendar year in which Net Sales do not exceed $25 million;
b) 8% of all Net Sales during each calendar year in which the Net Sales exceed $25 million but do not exceed $75 million;
c) 9% of all Net Sales during each calendar year in which the Net Sales exceed $75 million but do not exceed $100 million;
d) 10% of all Net Sales during each calendar year in which the Net Sales exceed $100 million.
If a HGS Product (i) is sold by HGS in the HGS Field and is covered by a SB Patent or incorporates or is based on or is derived by use of SB Technology or (ii) is sold in the SB Field, then HGS shall pay to SB the following royalties on Net Sales of the HGS Product:
e) 6% of Net Sales during each calendar year in which Net Sales do not exceed $25 million;
f) 8% of all Net Sales during each calendar year in which the Net Sales exceed $25 million but do not exceed $75 million;
g) 9% of all Net Sales during each calendar year in which the Net Sales exceed $75 million but do not exceed $100 million;
h) 10% of all Net Sales during each calendar year in which the Net Sales exceed $100 million.
Per the 9/94 License Agreement, SB shall pay HGS the following royalties on Net Sales of Collaboration Product sold within Southeast Asia:
i) __% (CON) of Net Sales during each calendar year in which Net Sales do not exceed $__(CON);
j) __% (CON) of all Net Sales during each calendar year in which the Net Sales exceed $__(CON) but do not exceed $__(CON); k) __% (CON) of all Net Sales during each calendar year in which the Net Sales exceed $__(CON) but do not exceed $__(CON);
l) __% (CON) of all Net Sales during each calendar year in which the Net Sales exceed $__(CON).
If the Collaboration Product sold within Southeast Asia by SB is other than a human pharmaceutical, then SB shall pay to HGS a royalty as stated above, except that such royalty rate schedule shall be adjusted if necessary to provide SB with profit margins which are customary in the particular field in which such Collaboration Product is sold, but in no event shall such royalties exceed those in (i) to (j) above.
In the event that the Collaboration Product sold within Southeast Asia by SB is a service, then such royalty rate schedule shall be adjusted by mutual agreement if such adjustment is necessary to equitable reflect the value of the service component of the product relative to the value of the component derived from or based upon HGS Technology or SB Technology, but in no event shall such royalties exceed those in (i) to (j) above.
[See Section I.U regarding royalties payable to SB on HGS Therapeutic Proteins.]
E. Right to Sublicense:
Except with respect to Gene Therapy Vaccines, if SB sells a SB Product in at least one of the Major Markets, SB shall have the right to grant a sublicense to any third party to make, have made, use and sell such product, subject to the co-promotion rights of HGS.
With respect to Outlicense Fees received by a party with respect to sublicensing of such party's rights to a product (see Section I.W), the following conditions shall pertain:
(a) If a SB Product is sold in the SB Field by a sublicensee of SB following termination by SB of a Research Program, then SB shall pay to HGS 50% of Outlicense Fees received by SB.
(b) If a HGS Product is sold in the HGS Field by a sublicensee of HGS, then HGS shall pay to SB 12.5% of Outlicense Fees received by HGS.
(c) If a HGS Product is sold in the SB Field by a sublicensee of HGS following termination by SB of a Research Program and where such sublicense was granted prior to initiation a clinical study, then HGS shall pay to SB 50% of Outlicense Fees received by HGS.
(d) If a HGS Product is sold in the SB Field by a sublicensee of HGS following termination by SB of a Research Program and where such sublicense was granted after initiation of a clinical study, then HGS shall pay to SB 10% of Outlicense Fees received by HGS.
(e) If a Collaboration Product which becomes a HGS Product after both parties have rejected it as a Research Program is sublicensed by HGS, then HGS shall pay to SB 10% of Outlicense Fees received by HGS.
(f) If either party sublicenses a Gene Therapy Vaccine, the other party shall receive 50% of the sublicensing party's Outlicense Fees.
Outlicense Fees shall mean all royalties, license fees and other payments or product rights received by HGS or SB from third parties based on sublicensing permitted under this Agreement, after deducting therefrom fees reasonably paid to compensate HGS or SB, as the case may be, for services rendered to the sublicensee after the effective date of the agreement with the sublicensee.
SB, in the case of SB Product, and HGS, in the case of HGS Product in the SB Field, shall each have the right to propose to the other party that a SB or HGS Product be outlicensed to a third party in exchange for a technology or a product of such third party. If such proposal is approved but compensation cannot be agreed upon, the parties shall resolve such issue via binding arbitration.
In the event SB exercises its option to include Southeast Asia in the Territory, SB shall have the right to sublicense its rights in Southeast Asia as follows:
(g) HGS shall approve the selection of SB's sublicensee;
(h) SB shall have the right to allow such sublicensee to undertake R&D utilizing HGS Technology without a need for RC approval;
(i) HGS shall receive royalties on net sales by SB and its sublicensees in Southeast Asia at the standard royalty rates (see Section II.D); and,
(j) SB shall pay to HGS 50% of licensing fees (other than those based on milestone achievements or performance by SB or sublicensee and similar fees and royalties) in excess of $25,000,000 promptly following receipt thereof from SB's sublicensee(s).
Per the 9/94 License Agreement, SB will require its sublicensees granted under this Agreement to adhere to a research plan solely approved by SB which research plan shall be designed to discover, develop and commercialize Collaboration Products in the SB Field in Southeast Asia as soon as practicable.
[See Section I.U regarding HGS's right to sublicense Therapeutic Proteins.]
F. Term/Patent Life:
Royalty obligations under this Agreement shall terminate on a country-by-country and product-by-product basis on the later of (i) 10 years after first country-wide launch of each product in each country or (ii) expiration of the last-to-expire SB Patent or HGS Patent which covers such product in such country.
Unless earlier terminated, the License Agreement shall remain in full force until SB is no longer obligated to make any further payments to HGS under this Agreement.
G. Adv/Min Royalty & Diligence Requirement
None
H. Royalty Accounting:
Net Sales shall mean gross receipts from sales of SB Product or HGS Product by SB or HGS or third parties, less the following deductions:
(a) transportation charges, including transportation insurance to the extent separately invoiced;
(b) sales and excise taxes and duties paid or allowed by a selling party and any other governmental charges imposed upon the production, importation, use or sale of such product;
(c) normal and customary trade, quantity and cash discounts allowed and rebates including but not limited to Medicaid rebates; and,
(d) allowances or credits to customers on account of rejection or return of such product or on account of retroactive price reductions affecting such product.
I. Patent-Royalty Tie-In:
None
J. Options/Other:
Within 60 days of acceptance by the FDA (or like agency of another country) of an application for approval to sell SB Product in each applicable country, HGS may exercise its option to co-promote in one or more ofthe US, Canada, Mexico and Europe (the "Co-Promotion Territory") on a country-by-country basis. Upon such election, the parties shall enter into a definitive co-promotion agreement, which shall incorporate the following principles:
(a) SB shall be solely responsible for pricing;
(b) The parties shall promote a single brand of the SB Product using a trademark selected and controlled by SB;
c) A Marketing Committee, consisting of SB representatives and two representatives of HGS, shall make all decisions on sales, marketing, promotion and advertising, including the target prescribers whom HGS will detail and the number and manner of details; SB shall make all final decisions related thereto;
(d) HGS shall have the right to provide 20%, and shall provide at least 10%, of the total promotion effort in each country where it co-promotes; and,
(e) HGS shall receive a percentage of the Operating Profits (in addition to royalties specified above) in the countries where HGS co-promotes, which percentage shall be equal to the percentage of the promotion effort provided by HGS (but not to exceed 20%).
[These same principles shall apply with respect to SB's right to co-promote HGS Product; provided, however, that such right shall apply throughout the Territory.]
If HGS sells a HGS product in the SB Field anywhere in the Territory and grants a sublicense to any third party, such sublicense shall be subject to the co-promotion rights of SB.
The option by either party to co-promote does not extend to any HGS or SB Product which is primarily a service.
Operating Profits shall mean Net Sales less the sum ot he following:
(f) Cost of Goods;
(g) royalties paid to a party or to third parties;
(h) costs and expenses of Phase IV studies; and,
(i) marketing, promotion, distribution and selling expenses of SB, in the case of a SB Product, or of HGS, in the case of a HGS Product.
With respect to HGS' reserved rights in the HGS Field, HGS grants to SB additional rights as follows:
(j) HGS grants to SB the first right to negotiate an agreement under which Gene Therapy will become excluded from the HGS Field and added to the SB Field. This first right shall expire unless the parties reach mutual agreement on reasonable terms within six months from signing of this Agreement.
(k) HGS grants to SB the first right to an exclusive license under HGS know-how and patents to make, have made, use and sell any pharmaceutically active human or animal agent which was sold by SB prior to signing of this Agreement for which HGS may develop during the Initial Research Term a biotransformation process for preparing such agent(s). If the parties are unable to reach agreement on terms within 90 days, HGS shall thereafter have the right to grant such license to a third party; provided, however, that HGS shall not grant such license on terms more favorable than those last extended to SB without re-offering such terms to SB.
Per the 5/95 Takeda Amendment, HGS's co-promotion rights shall not apply to any product being sold by Takeda anywhere in the world pursuant to the SB/Takeda agreement.
3. Manufacturing & Supply
A. Right Holder/Type:
SB shall retain the right to make all preclinical, clinical and commercial supplies of any SB Product sold by SB or by sublicensees of SB; provided, however, that in the event that SB decides, at its sole discretion, to have any quantity of supplies of any such product made by an entity other than SB, SB shall give HGS the first right to supply such quantity. If HGS and SB do not reach such agreement within a reasonable period of time, SB shall be free to have the SB Product supplied from another source.
B. Bulk/Dosage Form:
All forms.
C. Territory:
See Section II.C.
D. Reimbursement Basis:
NA
E. Proc. Dev. Terms:
NA
F. Clinical Use Manufacturing:
NA
G. Shipment Terms:
NA
H. Financing:
NA
I. Escape Clause:
NA
J. Product Liability:
Each party shall indemnify the other party with respect to such party's products. Per the 12/94 Therapeutic Proteins Amendment, such indemnity shall extend to any acts of a third party granted rights by such party hereunder.
K. Options/Other:
None
4. Collaboration Management
A. Representation:
The parties shall establish a Research Committee (RC) which shall consist of three scientists appointed by each party. The RC shall be chaired by one of the SB appointees.
B. Quorum:
To constitute a quorum, at least four members must be present, two of whom shall be from each party.
C. Basis of Actions:
All RC decisions shall be decided by majority vote of all members. To constitute a valid decision of the RC, the majority vote must always include at least one concurring vote from each party.
D. Meetings:
The RC shall meet at least six times per year.
E. Disagreements:
Tie votes of the RC shall be resolved by senior management of the parties. Tie votes which cannot be resolved by senior management shall be resolved by binding arbitration.
F. Buyout/Windup:
NA
G. Options/Other:
None
5. Equity Investment
A. Type of Security:
SB shall purchase 1,802,317 shares of Series B preferred stock of HGS (1,012,673 Series B shares following 1:1.33 reverse stock split). In addition, SB shall purchase a Warrant to acquire for $0.01/share additional Series B shares of HGS ("Dilution Shares"), if any, such that SB shall own at least 7% of HGS' shares on a fully-diluted basis immediately following the close of HGS' initial public offering; provided, however, that SB's Warrant to purchase such Dilution Shares shall only become effective if and after SB has paid to HGS all amounts associated with achievement with Milestones I, II & III and full exercise of the Southeast Asia option by SB. This Warrant to purchase such Dilution Shares shall have no force or effect in the event that the aggregate number of shares owned by SB equals or exceeds 7% of the shares of HGS stock outstanding immediately following the close of HGS' initial public offering.
SB shall be required to make an additional purchase of HGS shares upon completion of Milestone III (see Sections I.E & V.E). SB shall be entitled to an additional 169,683 (post-split) HGS shares at nominal cost in the event that Milestone II is not achieved by HGS by 5/19/95 (see Section I.E).
B. Pricing:
$32 million for Series B shares ($23.70 per share, or $31.60/share following reverse stock split), plus $5 million as additional consideration for the Warrant.
C. Board Seat:
SB shall be entitled to one nominee as a Director on HGS' Board of Directors, plus an additional person designated by SB as an observer at all meetings of the Board of HGS. If SB decides that it no longer wants its nominee on the Board, SB shall thereafter have the right to have one of its officers attend Board meetings in addition to the observer identified above.
Such Board rights shall terminate on the later of the expiration of the Initial Research Term or the date on which SB owns beneficially less than 5% of the outstanding voting securities of HGS.
D. Research Tie-Ins:
None
E. Options & Rights:
Upon achievement by HGS of Milestone III (see Section I.E), SB shall purchase 452,086 additional shares of Series B preferred stock of HGS (339,064 Series B shares following 1:1.33 reverse stock split). The purchase price shall be $25 million ($73.73/share after reverse stock split); provided, however, that if Milestone III is achieved later than the third anniversary of signing of this Agreement, then the purchase price for such shares shall be reduced to $20 million for the same number of shares ($59.00/share after reverse stock split).
[Per HGS 12/94 10-K, the Milestone III Amendment includes a revision to the Stock Purchase Agreement regarding the allocation of the $25 million payable to HGS upon its successful completion of Milestone III. At the time of such payment, HGS would sell 339,065 shares of common stock to SB at a price per share equal to the greater of $37.00 or 125% of the average market price of HGS's common shares for the five trading days preceding payment. The remainder of the payment would be recorded by HGS as revenue.]
In no event may HGS require SB to make this additional equity purchase prior to 1/1/95.
SB shall not acquire or offer to acquire, directly or indirectly, more than 9.9% of the voting securities of HGS with HGS' prior written consent. HGS shall have the right and option to accept any or all of shares owned by SB which SB proposes for sale to a third party. Such acceptance shall be upon the terms of such proposed sale by SB.
SB shall be entitled to four demand registrations and unlimited piggyback registrations; provided however that no demand registration shall occur until at least 12 months following an initial public offering by HGS. SB shall a right of first refusal with respect to any further issuances of securities by HGS, such that SB may retain its pro-rata interest in HGS. Such right shall terminate upon the earlier of expiration or termination of the Initial Research Term.
6. Signatories
A. For Drug Company:
Jan Leschly
Chairman, Pharmaceuticals
B. For Biotech Company:
Wallace H. Steinberg
Director
Key: CON Confidential Treatment granted by SEC; material omitted from public filings. UKN Unknown NA Not applicable
