UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2001
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: 0-30235
EXELIXIS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3257395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
170 Harbor Way
P.O. Box 511
South San Francisco, CA 94083
(Address of principal executive offices, including zip code)
(650) 837-7000
(Registrant's telephone number, including area code)
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 [ ]
As of July 31, 2001, there were 49,161,649 shares of the registrant's common
stock outstanding.
EXELIXIS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets
June 30, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Operations
Three and Six Months ended June 30, 2001 and 2000 4
Consolidated Condensed Statements of Cash Flows
Six Months ended June 30, 2001 and 2000 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information - Risk Factors 19
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EXELIXIS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2001 2000 (1)
---------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 46,063 $ 19,552
Short-term investments 76,990 93,000
Other receivables 2,689 1,493
Inventories - 3,612
Other current assets 2,791 1,987
---------- --------------
Total current assets 128,533 119,644
Property and equipment, net 35,639 23,480
Related party receivables 993 494
Goodwill and other intangibles, net 68,851 58,674
Other assets 4,503 2,622
---------- --------------
Total assets $ 238,519 $ 204,914
========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 11,304 $ 10,050
Line of credit - 1,484
Current portion of capital lease obligations 5,750 3,826
Current portion of notes payable 3,539 1,664
Advances from minority shareholders - 868
Deferred revenue 6,463 6,233
---------- --------------
Total current liabilities 27,056 24,125
Capital lease obligations 8,778 6,341
Notes payable 1,128 1,635
Convertible promissory note 30,000 -
Minority interest in consolidated subsidiary - 1,044
Other long-term liabilities 200 -
Deferred revenue 17,831 9,036
---------- --------------
Total liabilities 84,993 42,180
---------- --------------
Stockholders' equity:
Common stock 50 47
Additional paid-in-capital 328,008 304,339
Notes receivable from stockholders (1,701) (1,805)
Deferred stock compensation, net (6,800) (10,174)
Accumulated other comprehensive income 434 365
Accumulated deficit (166,465) (130,038)
---------- --------------
Total stockholders' equity 153,526 162,734
---------- --------------
Total liabilities and stockholders' equity $ 238,519 $ 204,914
========== ==============
(1) The consolidated condensed balance sheet at December 31, 2000 has been
derived from the audited financial statement at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
EXELIXIS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
License $ 924 $ 932 $ 1,848 $ 1,864
Contract and government grants 7,627 4,684 14,437 9,703
--------- --------- --------- ---------
Total revenues 8,551 5,616 16,285 11,567
--------- --------- --------- ---------
Operating expenses:
Research and development (1) 20,555 13,365 37,370 22,299
General and administrative (2) 4,976 4,921 9,236 9,216
Amortization of goodwill and intangibles 1,226 - 2,276 -
Acquired in-process research and development 6,673 - 6,673 -
--------- --------- --------- ---------
Total operating expenses 33,430 18,286 55,555 31,515
--------- --------- --------- ---------
Loss from operations (24,879) (12,670) (39,270) (19,948)
Other income (expense):
Interest and other income 1,597 1,866 3,492 2,014
Interest expense (426) (168) (649) (326)
--------- --------- --------- ---------
Total other income 1,171 1,698 2,843 1,688
Net loss $(23,708) $(10,972) $(36,427) $(18,260)
========= ========= ========= =========
Net loss per share, basic and diluted $ (0.52) $ (0.32) $ (0.81) $ (0.90)
========= ========= ========= =========
Shares used in computing net loss per share,
basic and diluted 45,724 34,622 45,048 20,263
========= ========= ========= =========
(1) Includes stock compensation expense of $1,633 and $3,998 in the quarters
ended June 30, 2001 and 2000, respectively, and includes stock compensation
expense of $2,800 and $6,002 in the six month periods ended June 30, 2001 and
2000, respectively.
(2) Includes stock compensation expense of $661 and $1,297 in the quarters ended
June 30, 2001 and 2000, respectively, and includes stock compensation expense of
$1,370 and $2,556 in the six month periods ended June 30, 2001 and 2000,
respectively.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
EXELIXIS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
SIX MONTHS ENDED JUNE 30,
--------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net loss $(36,427) $(18,260)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 4,401 1,749
Amortization of deferred stock compensation 4,170 8,558
Amortization of goodwill and other intangibles 2,276 -
Acquired in-process research and development 6,673 -
Changes in assets and liabilities:
Other receivables (587) (751)
Other current assets (962) (973)
Related party receivables (399) 160
Other assets (2,203) (20)
Accounts payable and accrued expenses (2,070) 2,800
Deferred revenue 9,747 10,163
--------- ---------
Net cash provided by (used in) operating activities (15,381) 3,426
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (10,403) (8,498)
Proceeds from sale-leaseback of equipment 4,008 -
Cash acquired in acquisition 3,463 -
Proceeds from maturity of short-term investments 90,469 -
Purchases of short-term investments (74,203) (73,045)
--------- ---------
Net cash provided by (used in) investing activities 13,334 (81,543)
--------- ---------
Cash flows from financing activities:
Proceeds from initial public offering, net - 124,709
Proceeds from convertible note 30,000 -
Proceeds from exercise of stock options and warrants 309 545
Proceeds from employee stock purchase plan 1,198 -
Repayments of notes from stockholders 105 -
Principal payments on capital lease obligations (1,922) (386)
Principal payments on notes payable (1,025) (733)
--------- ---------
Net cash provided by financing activities 28,665 124,135
--------- ---------
Effect of foreign exchange rate changes on cash (107) -
Net increase in cash and cash equivalents 26,511 46,018
Cash and cash equivalents, at beginning of period 19,552 5,400
--------- ---------
Cash and cash equivalents, at end of period $ 46,063 $ 51,418
========= =========
The accompanying notes are in integral part of these consolidated condensed
financial statements.
EXELIXIS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
Exelixis, Inc. ("Exelixis" or the "Company") is a genomics-based biotechnology
company focused on product development through its expertise in comparative
genomics and model system genetics. An outstanding team of Company scientists
has developed multiple fungal, nematode, insect, plant and vertebrate genetic
systems. Exelixis' proprietary model systems and comparative genomics
technologies address gene function by using biologically relevant functional
genomics information very early on in the process to rapidly, efficiently and
cost-effectively translate sequence data to knowledge about the function of
genes and the proteins that they encode. The Company also has a significant
internal cancer discovery and drug development program. Exelixis believes that
its technology is broadly applicable to all life science industries including
pharmaceutical, diagnostic, agricultural biotechnology and animal health. The
Company has active partnerships with Aventis, Bayer, Bristol-Myers Squibb,
Pharmacia, Protein Design Labs and Dow AgroSciences.
Basis of Presentation
- -----------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of
the Securities and Exchange Commission ("SEC"). Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001, or for any future period. These financial statements and
notes should be read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31, 2000 included in the Company's
Annual Report on Form 10-K.
Net Loss per Share
- ---------------------
Basic and diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common stock if their effect is antidilutive. Potential common stock
consists of common stock subject to repurchase, incremental common shares
issuable upon the exercise of stock options and warrants and shares issuable
upon conversion of the preferred stock and a convertible promissory note.
Comprehensive Income
- ---------------------
There are two components of other comprehensive income: unrealized gains on
available-for-sale securities and foreign currency translation adjustments. For
the three and six month periods ended June 30, 2001, total comprehensive loss
amounted to approximately $23.7 and $36.5 million, respectively. For the three
and six month periods ended June 30, 2000, total comprehensive loss amounted to
$10.9 million and $18.2 million, respectively.
Foreign Currency Translation
- ------------------------------
The Company's German subsidiary, Artemis Pharmaceuticals GmbH ("Artemis"), uses
its local currency as its functional currency. Assets and liabilities are
translated at exchange rates in effect at the balance sheet date and income and
expense amounts at the average exchange rates during the period. Resulting
translation adjustments are recorded directly to a separate component of
stockholders' equity.
Reclassification
- ----------------
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Recent Accounting Pronouncements
- ----------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations" ("SFAS No. 141"), which establishes financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, Business Combinations, and FASB Statement No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. SFAS No. 141 requires
that all business combinations be accounted for using one method, the purchase
method. The provisions of SFAS No. 141 apply to all business combinations
initiated after June 30, 2001. The adoption of SFAS No. 141 is expected to have
no material impact on financial reporting and related disclosures of the
Company.
In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), which establishes financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, Intangible Assets. SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements upon
their acquisition, and after they have been initially recognized in the
financial statements. The provisions of SFAS No. 142 are effective for fiscal
years beginning after December 15, 2001. The Company will adopt SFAS No. 142
during the first quarter of fiscal 2002, and is in the process of evaluating the
impact of implementation on the financial position of the Company.
NOTE 2. SALE OF VINIFERA OWNERSHIP INTEREST
On March 31, 2001, the Company reduced its ownership interest in Vinifera, Inc.
("Vinifera") to 19% by selling 3.0 million shares of Vinifera common stock back
to Vinifera in consideration for $2.1 million in interest bearing promissory
notes. The promissory notes bear interest rates of prime plus 1% and are
payable in two installments of $400,000, due no later than September 30, 2001
and February 28, 2002, respectively, and one installment of $1.3 million, due on
February 28, 2006. Due to risks associated with Vinifera's operating results,
the Company has reserved for $1.7 million of these promissory notes.
As a result of this transaction, the Company recorded the following amounts as
an adjustment to goodwill recorded in connection with the acquisition of
Agritope, Inc. (parent company of Vinifera), based on the operating results of
Vinifera through March 31, 2001: a write down of the value of acquired developed
technology attributable to Vinifera, a gain on sale of Vinifera shares, and the
promissory note reserve. The net adjustment was an increase to goodwill in the
amount of $675,000. Beginning April 1, 2001, the Company accounts for its
remaining investment in Vinifera using the cost method.
NOTE 3. ACQUISITION OF ARTEMIS
In May 2001, Exelixis acquired a majority of the outstanding capital stock of
Artemis, a privately held genetics and functional genomics company organized
under the laws of Germany. The transaction, which was accounted for under the
purchase method of accounting, was effected through the exchange of shares of
Exelixis common stock for DEM 1.00 of nominal value of Artemis capital stock,
using an exchange ratio of 4.064 to one. Approximately 1.6 million shares of
Exelixis common stock were issued in exchange for 78% of the outstanding capital
stock of Artemis held by the Artemis stockholders. In addition, Exelixis
received a call option (the "Call Option") from, and issued a put option (the
"Put Option") to, certain stockholders of Artemis (the "Option Holders") for the
issuance of approximately 480,000 shares of Exelixis common stock in exchange
for the remaining 22% of the outstanding capital stock of Artemis held by the
Artemis stockholders. Exelixis may exercise the Call Option at any time from
May 14, 2001 through January 31, 2002, and the Option Holders may exercise their
rights under the Put Option at any time from April 1, 2002 through May 15, 2002.
The value of any shares issued pursuant to exercising the Call Option or Put
Option will be added to goodwill. In connection with the acquisition, Exelixis
also issued fully vested options representing the right to purchase
approximately 187,000 additional shares of Exelixis common stock to Artemis
employees in exchange for such employees' vested options formerly representing
the right to purchase shares of Artemis capital stock pursuant to an Employee
Phantom Stock Option Program.
The total consideration for the acquisition was approximately $22.3 million,
which consisted of Exelixis common stock and options valued at $21.4 million and
estimated Exelixis transaction costs of $900,000. Exelixis' transaction costs
include financial advisory, legal, accounting and other fees.
Based upon an independent valuation of the tangible and intangible assets
acquired, Exelixis management has completed a preliminary allocation of the
total cost of the acquisition to the assets acquired and liabilities assumed as
follows (in thousands):
Tangible assets acquired $6,848
In-process research and development 6,673
Developed technology 1,240
Assembled workforce 1,332
Goodwill 9,655
Patents/core technology 571
Liabilities assumed (4,016)
-------
$22,303
=======
The Company will amortize the acquired intangible assets using the following
estimated useful lives:
Developed technology 5 years
Patents/core technology 15 years
Assembled workforce 3 years
Goodwill 15 years
The valuation of the purchased in-process research and development of $6.7
million was based upon the results of an independent valuation using the income
approach for each of the three significant in-process projects. The in-process
projects relate primarily to the development of technologies that use vertebrate
genetic model organisms, zebrafish and mice, to identify and functionally
validate novel genes in vivo. These genes can be used as novel screening
targets or as the basis for secreted proteins in clinically and commercially
relevant diseases. The in-process projects are expected to be completed over
the next 18 months. The income approach estimates the value of each acquired
project in-process based on its expected future cash flows. The valuation
analysis considered the contribution of the core technology as well as the
percent complete of each in-process research and development project. The
expected present value of the cash flows associated with the in-process research
and development projects was computed using a risk adjusted rate of return of
30%, which is considered commensurate with the overall risk and percent complete
of the in-process projects. The purchased in-process research and development
was not considered to have reached technological feasibility, and it has no
alternative future use, accordingly, it has been recorded as a component of
operating expense.
The revenues, expenses, cash flows and other assumptions underlying the
estimated fair value of the acquired in-process research and development involve
significant risks and uncertainties. The risks and uncertainties associated with
completing the acquired in-process projects include the ability to reach future
research milestones since the technologies being developed are unproven, the
ability to retain key personal, the ability to obtain licenses to key
technology, and the ability to avoid infringing on patents and propriety rights
of third parties.
PRO FORMA RESULTS
The Company's historical statements of operations include the results of Artemis
and Agritope, Inc. (now Exelixis Plant Sciences, Inc.) subsequent to the
acquisition dates of May 14, 2001 and December 8, 2000, respectively. The
following unaudited pro forma financial information presents the consolidated
results of the Company as if the acquisitions of Artemis and Agritope had
occurred at the beginning of each period presented. Nonrecurring charges, such
as acquired in-process research and development, are not reflected in the
following pro forma financial information. This unaudited pro forma information
is not intended to be indicative of future operating results (in thousands,
except per share data).
SIX MONTHS ENDED JUNE 30,
-------------------------
2001 2000
--------- ---------
Total revenues $ 16,359 $ 16,541
Net loss $(25,754) $(33,357)
Net loss per share, basic and diluted $ (1.09) $ (0.72)
NOTE 4. SUPPLEMENTAL STOCK OPTION PLAN
During April 2001, the Company granted approximately 545,000 supplemental stock
options ("Supplemental Options") under the 2000 Equity Incentive Plan to
employees (excluding officers and directors) who had stock options with exercise
prices greater than $16.00 per share under the 2000 Equity Incentive Plan. The
number of Supplemental Options granted were equal to 50% of the corresponding
original grant held by each employee, have an exercise price of $16.00, vest
monthly over a two year period beginning April 1, 2001, and have a 27 month
term. The vesting on the corresponding original grants was halted and will
resume in April 2003 following the completion of vesting of the Supplemental
Options. This new grant constitutes a synthetic repricing as defined in FASB
Interpretation Number 44 "Accounting for Certain Transactions Involving Stock
Compensation" and will result in certain options being reported using the
variable plan method of accounting for stock compensation expense until they are
exercised, forfeited or expire. For the quarter ended June 30, 2001, the
compensation expense recorded for these supplemental options is approximately
$0.3 million.
NOTE 5. COMMITMENTS
During April 2001, the Company entered into a master lease agreement with a
third party lessor for an equipment lease line of credit of up to $12.0 million,
which expires on December 31, 2001. The master lease agreement provides for a
periodic delivery structure. Each delivery has a payment term of 36 or 48 months
depending on the type of the equipment purchased under the lease. At June 30,
2001, $7.9 million was outstanding under the equipment lease line of credit.
Under the master lease agreement, the Company is subject to certain financial
covenants. As of June 30, 2001, the Company was in compliance with all such
covenants.
NOTE 6. COLLABORATION AGREEMENTS
On May 22, 2001, the Company and Protein Design Labs, Inc. ("PDL") entered into
a collaboration to discover and develop humanized antibodies for the diagnosis,
prevention and treatment of cancer. The collaboration will utilize Exelixis'
model organism genetics technology for the identification of new cancer drug
targets, and PDL's antibody and clinical development expertise to create and
develop new antibody drug candidates. PDL will provide Exelixis with $4.0
million in annual research funding for two or more years and has purchased a
$30.0 million convertible note. The note bears interest at 5.75% and the
interest thereon is payable annually. The note is convertible into Exelixis
common stock at a conversion price per share equal to the lower of (i) $28.175
and (ii) 110% of the Fair Market Value (as defined in the note) of a share of
Exelixis common stock at the time of conversion.
On July 17, 2001, the Company and Bristol-Myers Squibb Company ("BMS") entered
into a collaboration. The collaboration involved three agreements: (a) a Stock
Purchase Agreement; (b) a Cancer Collaboration Agreement; and (c) a License
Agreement. Under the terms of the collaboration, BMS (i) purchased 600,600
shares of Exelixis Common Stock in a private placement at a purchase price of
$33.30 per share, for proceeds to Exelixis of approximately $20.0 million; (ii)
agreed to pay Exelixis a $5.0 million upfront license fee and provide Exelixis
with $3.0 million per year in research funding for a minimum of three years; and
(iii) granted to Exelixis a worldwide, fully-paid, exclusive license to an
analogue to Rebeccamycin developed by BMS, which is currently in Phase I and
Phase II clinical studies for cancer. Due to risk and uncertainties with
Rebeccamycin, this was given no value in the collaboration agreement. Exelixis
has agreed to provide BMS with exclusive rights to certain potential small
molecule compound drug targets in cancer identified during the term of the
research collaboration. The premium of $10.0 million on the stock purchase by
BMS is being accounted for similar to an upfront license fee. Therefore,
revenue is being recognized ratably over the life of the contract.
On July 26, 2001, the Company announced the reacquisition, effective February
2002, of future rights to research programs in metabolism and alzheimer's
disease previously licensed exclusively to Pharmacia Corporation ("Pharmacia").
Pharmacia will retain rights to targets under the existing agreement selected
prior to the reacquisition date, subject to the payment of milestones for
certain of those targets selected and royalties for future development of
products against or using those targets but will have no other obligations to
make payments to the Company, including approximately $9.0 million in annual
funding that would otherwise be payable for an additional two years if the
Company had not elected to reacquire rights to the research at this time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with our financial
statements and accompanying notes included in this report and the 2000 audited
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2000. Operating results are
not necessarily indicative of results that may occur in future periods.
The following discussion and analysis contains forward-looking statements that
are based upon current expectations. Forward-looking statements involve risks
and uncertainties. Our actual results and the timing of events may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" as well as those discussed elsewhere in this
document and those discussed in our Annual Report on Form 10-K.
OVERVIEW
We believe that we are a leader in the discovery and validation of high-quality
novel targets for several major human diseases, and a leader in the discovery of
potential new drug therapies, specifically for cancer and other proliferative
diseases. Our mission is to develop proprietary cancer products by leveraging
our integrated discovery platform to increase the speed, efficiency and quality
of pharmaceutical and agricultural product discovery and development.
Through our expertise in comparative genomics and model system genetics, we are
able to find new drug targets that we believe would be difficult or impossible
to uncover using other experimental approaches. Our pharmaceutical research
identifies novel genes and proteins expressed by those genes that, when changed,
either decrease or increase the activity in a specific disease pathway in a
therapeutically relevant manner. These genes and proteins then represent either
potential product targets or drugs that may treat disease, or prevent disease
initiation or progression.
We have established commercial collaborations with Aventis CropScience, Bayer,
Bristol-Myers Squibb, Dow AgroSciences, Pharmacia and Protein Design Labs, which
provide us with substantial funding, including licensing fees, research funding,
milestone payments when specific objectives are met and royalties, if our
partners successfully develop and commercialize products. In addition, many of
these collaborations provide us with access to strategic technologies and
product development opportunities. Revenues from these collaborations were $16.3
million for the six months ended June 30, 2001, $24.8 million in 2000, $10.5
million for the same period in 1999 and $2.3 million for the same period in
1998. Our sources of potential revenue for the next several years are likely to
include upfront license and other fees, funded research payments under existing
and possible future collaborative arrangements and milestone payments and
royalties from our collaborators based on revenues received from any products
commercialized under those agreements.
We have a history of operating losses resulting principally from costs
associated with research and development activities, investment in core
technologies and general and administrative functions. As a result of planned
expenditures for future research and development activities, including
manufacturing and clinical development expenses for a compound in Phase II
clinical studies, Exelixis expects to incur additional operating losses for the
foreseeable future.
License, research commitment and other non-refundable payments received in
connection with research collaboration agreements are deferred and recognized on
a straight-line basis over the relevant periods specified in the agreements,
generally the research term. Exelixis recognizes contract research revenues as
services are performed in accordance with the terms of the agreements. Any
amounts received in advance of performance are recorded as deferred revenue.
ACQUISITION OF ARTEMIS PHARMACEUTICALS
In May 2001, we acquired a majority of the outstanding capital stock of Artemis
Pharmaceuticals GmbH, a privately held genetics and functional genomics company
organized under the laws of Germany ("Artemis"). The transaction, which was
accounted for under the purchase method of accounting, was effected through the
exchange of shares of our common stock for DEM 1.00 of nominal value of Artemis
capital stock, using an exchange ratio of 4.064 to one. Approximately 1.6
million shares of our common stock was issued in exchange for 78% of the
outstanding capital stock of Artemis held by the Artemis stockholders. In
addition, we received a call option (the "Call Option") from, and issued a put
option (the "Put Option") to, certain stockholders of Artemis (the "Option
Holders") for the issuance of approximately 480,000 shares of our common stock
in exchange for the remaining 22% of the outstanding capital stock of Artemis
held by the Option Holders. We may exercise the Call Option at any time from
May 14, 2001 through January 31, 2002, and the Option Holders may exercise their
rights under the Put Option at any time from April 1, 2002 through May 15, 2002.
The value of any shares issued pursuant to exercising the Call Option or Put
Option will be added to goodwill. In connection with the acquisition, we also
issued fully vested options representing the right to purchase approximately
187,000 additional shares of our common stock to Artemis employees in exchange
for such employees' vested options formerly representing the right to purchase
shares of Artemis capital stock pursuant to an Employee Phantom Stock Option
Program.
The purchase price, which for financial accounting purposes was valued at $22.3
million, was allocated to the assets acquired and the liabilities assumed based
on their estimated fair values at the date of acquisition, as determined by
management based upon an independent valuation. As a result of this
transaction, we recorded expense associated with the purchase of in-process
research and development of $6.7 million, net tangible assets of $2.8 million,
and intangible assets (including goodwill) of $12.8 million, the majority of
which will be amortized over 15 years.
RESULTS OF OPERATIONS
REVENUES
Total revenues were $8.6 million and $16.3 million for the three- and six-month
periods ended June 30, 2001, respectively, compared to $5.6 million and $11.6
million, respectively, for the comparable periods in 2000. The increase in
revenues over the 2000 levels was primarily due to additional license and
contract revenues earned from existing collaborations with Bayer, Bristol-Myers
Squibb, Pharmacia, and Dow AgroSciences, revenues earned under the collaboration
with Aventis Crop Sciences resulting from our acquisition of Agritope, Inc., now
renamed Exelixis Plant Sciences, Inc., and revenues earned under our new
collaboration with PDL entered into in May 2001. Our acquisition of Artemis in
May 2001 also resulted in approximately $0.3 million in additional revenue. We
expect revenues to continue to increase during the remainder of 2001 with the
signing of our new collaboration agreement with Bristol-Myers Squibb in July
2001.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of salaries and other
personnel-related expenses, facilities costs, supplies and depreciation of
facilities and laboratory equipment. Research and development expenses were
$20.6 million and $37.4 million for the three- and six-month periods ended June
30, 2001, respectively, compared to $13.4 million and $22.3 million,
respectively, for the comparable periods in 2000. The increase was due
primarily to increased staffing and other personnel-related costs. These
expenses were incurred to support new collaborative arrangements, our internal
self-funded research efforts, including the significant build-out of our drug
discovery organization and increased expenses related to the ongoing research
and development activities at Agritope and Artemis. This was partially offset by
a decrease in non-cash stock compensation expense (as described below). We
expect to continue to devote substantial resources to research and development.
In addition, we expect that research and development expenses will continue to
increase in absolute dollar amounts in the future as we assume the
responsibility for manufacturing and clinical development of a Phase I/II cancer
compound and as we continue to expand our proprietary drug development efforts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel costs to
support our worldwide activities, facilities costs and professional expenses,
such as legal fees. General and administrative expenses were $5.0 million and
$9.2 million for the three- and six-month periods ended June 30, 2001,
respectively, compared to $4.9 million and $9.2 million, respectively, for the
comparable periods in 2000. General and administrative expenses remained flat
year-over-year due primarily to a decrease in non-cash stock compensation
expense (as described below) which offset our increased staffing and other
personnel related costs and rent for facilities and expenses associated with
expanding our corporate headquarters. We expect that our general and
administrative expenses will increase in absolute dollar amounts in the future
as we support a larger, worldwide organization through expanding our
administrative staff and adding infrastructure to support our growing research
and development efforts.
STOCK COMPENSATION EXPENSE
Deferred stock compensation for options granted to our employees is the
difference between the deemed value for financial reporting purposes of our
common stock on the date such options were granted and their exercise price.
Deferred stock compensation for options granted to consultants has been
determined in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and is periodically remeasured as the underlying
options vest in accordance with Emerging Issues Task Force ("EITF") No. 96-18,
"Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with, Selling Goods or Services."
As of June 30, 2001, the Company has recorded $6.8 million of deferred stock
compensation, net of amortization, related to stock options granted to
consultants and employees. Stock compensation expense is being recognized in
accordance with FASB Interpretation No. 28 "Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans" ("FIN 28") over the
vesting periods of the related options, generally four years. During April 2001,
the Company granted approximately 545,000 supplemental stock options
("Supplemental Options") under the 2000 Equity Incentive Plan to certain
employees (excluding officers and directors) who had stock options with exercise
prices greater than $16.00 per share under the 2000 Equity Incentive Plan. The
number of Supplemental Options granted was equal to 50% of the corresponding
original grant held by each employee. The Supplemental Options have an exercise
price of $16.00, vest monthly over a two year period beginning April 1, 2001,
and have a 27 month term. The vesting on the corresponding original stock
options was halted and will resume in April 2003 following the completion of
vesting of the Supplemental Options. This new grant constitutes a synthetic
repricing as defined in FASB Interpretation Number 44, "Accounting for Certain
Transactions Involving Stock Compensation" and will result in certain options
being reported using the variable plan method of accounting for stock
compensation expense until they are exercised, forfeited or expire. For the
quarter ended June 30, 2001, the compensation expense recorded for these
supplemental options was approximately $0.3 million. The Company recognized
stock compensation expense of $2.3 million and $4.2 million for the three- and
six-month periods ended June 30, 2001, respectively, compared to $5.3 million
and $8.6 million, respectively, for the comparable periods in 2000. The decrease
in stock compensation expense year-over-year primarily results from the
accelerated amortization method proscribed by FIN 28 partially offset by the
expense resulting from the synthetic repricing effect of the supplemental
options.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
The valuation of the purchased in-process research and development related to
the acquisition Artemis of $6.7 million was determined by management based upon
the results of an independent valuation using the income approach for each of
the three significant in-process projects. The in-process projects relate
primarily to the development of technologies that use vertebrate genetic model
organisms, zebrafish and mice, to identify and functionally validate novel genes
in vivo. These genes can be used as novel screening targets or as the basis for
secreted proteins in clinically and commercially relevant diseases. The
in-process projects are expected to be completed over the next 18 months. The
income approach estimates the value of each acquired project in-process based on
its expected future cash flows. The valuation analysis considered the
contribution of the core technology as well as the percent complete of each
in-process research and development project. The expected present value of the
cash flows associated with the in-process research and development projects was
computed using a risk adjusted rate of return of 30%, which is considered
commensurate with the overall risk and percent complete of the in-process
projects. The purchased in-process technology was not considered to have reached
technological feasibility, and it has no alternative future use, accordingly, it
has been recorded as a component operating expense.
AMORTIZATION OF GOODWILL AND INTANGIBLES
Amortization of goodwill and intangibles results from our acquisitions of
Artemis and Agritope, now renamed Exelixis Plant Sciences, Inc. Amortization of
goodwill and intangibles was $1.2 million and $2.3 million for the three and six
month periods ended June 30, 2001, respectively, compared to none for the
comparable periods in 2000.
OTHER INCOME (EXPENSE), NET
Other income (expense), net primarily consists of interest income earned on
cash, cash equivalents and short-term investments, partially offset by interest
expense incurred on notes payable and capital lease obligations. Net interest
income was $1.2 million and $2.8 million for the three- and six-month periods
ended June 30, 2001, respectively, compared to $1.7 million for the comparable
periods in 2000. The increase year-over-year primarily relates to having earned
interest on higher levels of cash, cash equivalents and short-term investments
for a full six months during 2001, as compared to 2000 when we closed our
initial public offering in April. The decrease for the current quarter compared
to last year primarily relates to lower interest income due to declining cash
balances and an increase in interest expense for additional capital leases.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
placements of preferred stock, loans, convertible debt, equipment lease
financing and other loan facilities and payments from collaborators. In
addition, during the second quarter of 2000, we completed our initial public
offering raising $124.5 million in net cash proceeds. We intend to continue to
use the proceeds for research and development activities, capital expenditures,
working capital and other general corporate purposes. As of June 30, 2001, we
had approximately $123.1 million in cash, cash equivalents and short-term
investments.
Our operating activities used cash of $15.4 million for the six months ended
June 30, 2001, compared to cash provided of $3.4 million for the six months
ended June 30, 2000. Cash used in operating activities related primarily to
funding net operating losses, partially offset by an increase in non-cash
charges related to depreciation and amortization of deferred stock compensation,
goodwill and other intangible assets.
Our investing activities provided cash of $13.3 million for the six months ended
June 30, 2001, compared to cash used of $81.5 million for the corresponding
period in 2000. Investing activities consist primarily of maturities of
short-term investments, partially offset by purchases of short-term investments
and property and equipment for the six months ended June 30, 2001. We expect to
continue to make significant investments in research and development and our
administrative infrastructure, including the purchase of property and equipment
to support our expanding operations.
Our financing activities provided cash of $28.7 million and $124.1 million for
the six months ended June 30, 2001, and 2000, respectively. These amounts
consisted primarily of proceeds from a $30.0 million convertible note entered
into as part of our collaboration agreement with Protein Design Labs in May 2001
and proceeds from our initial public offering in April 2000.
We believe that our current cash and cash equivalents, short-term investments
and committed funding to be received from collaborators, will be sufficient to
satisfy our anticipated cash needs for at least the next two years. However, it
is possible that we will seek additional financing within this timeframe. We may
raise additional funds through public or private financings, collaborative
relationships or other arrangements. In July 2001, we filed a registration
statement on Form S-3 to offer and sell up to $150.0 million of common stock.
We have no current commitments to offer or sell securities with respect to
shares that may be offered or sold pursuant to this filing. We cannot assure
you that additional funding, if sought, will be available or, even if available,
will be available on terms favorable to us. Further, any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive covenants. Our failure to raise capital when needed may harm
our business and operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations" ("SFAS No. 141"), which establishes financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, Business Combinations, and FASB Statement No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. SFAS No. 141 requires
that all business combinations be accounted for using one method, the purchase
method. The provisions of SFAS No. 141 apply to all business combinations
initiated after June 30, 2001. The adoption of SFAS No. 141 is expected to have
no material impact on financial reporting and related disclosures of the
Company.
In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), which establishes financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, Intangible Assets. SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements upon
their acquisition, and after they have been initially recognized in the
financial statements. The provisions of SFAS No. 142 are effective for fiscal
years beginning after December 15, 2001. The Company will adopt SFAS No. 142
during the first quarter of fiscal 2002, and is in the process of evaluating the
impact of implementation on the financial position of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investments are only subject to interest rate risk and our interest income
may fluctuate due to changes in U.S. interest rates. By policy, we limit our
investments to money market instruments, debt securities of U.S. government
agencies and debt obligations of U.S. corporations. We manage market risk by our
diversification requirements, which limit the amount of our portfolio that can
be invested in a single issuer. We manage credit risk by limiting our purchases
to high quality issuers. Through our money manager, we maintain risk management
control systems to monitor interest rate risk. The risk management control
systems use analytical techniques, including sensitivity analysis. A
hypothetical 1% adverse move in interest rates along the entire interest rate
yield curve would cause an approximately $0.5 million decline in the value of
our financial instruments at June 30, 2001.
All highly liquid investments with an original maturity of three months or less
from the date of purchase are considered cash equivalents. The Company views its
available-for-sale portfolio as available for use in current operations.
Accordingly, we have classified all investments with an original maturity date
greater than three months as short-term, even though the stated maturity date
may be one year or more beyond the current balance sheet date.
Due to our German operations, we have market risk exposure to adverse changes in
foreign currency exchange rates. The revenues and expenses of our subsidiary
Artemis Pharmaceuticals, GmbH are denominated in Deutche Marks. At the end of
each quarter, the revenues and expenses of this subsidiary are translated into
U.S. dollars using the average currency rate in effect for the quarter and
assets and liabilities are translated into U.S. dollars using the exchange rate
in effect at the end of the quarter. Fluctuations in exchange rates therefore
impact our financial condition and results of operations, as reported in U.S.
dollars. To date we have not experienced any significant negative impact as a
result of fluctuations in foreign currency markets. As a policy, we do not
engage in speculative or leveraged transactions, nor do we hold financial
instruments for trading purposes. We will periodically analyze our exposure to
foreign currency fluctuations and may adjust our policies to allow for financial
hedging techniques to minimize exchange rate risk.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On May 22, 2001, we issued a convertible promissory note for the aggregate
principal amount of $30.0 million (the "Note") to Protein Design Labs, Inc.
("PDL") in connection with the execution of a collaboration agreement. The
Note, which bears interest at a rate of 5.75% annually, is convertible into
shares of Exelixis common stock, par value $0.001 per share (the "Exelixis
Common Stock"), after the first anniversary of the Note's date of issuance. The
Note is convertible into Exelixis Common Stock at a conversion price per share
equal to the lower of (i) $28.175 and (ii) 110% of the Fair Market Value (as
defined in the Note) of a share of Exelixis Common Stock at the time of
conversion. We issued the Note in reliance upon an exemption from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof and Regulation D promulgated thereunder.
On May 14, 2001, we acquired all, or rights to acquire all, of the outstanding
capital stock of Artemis Pharmaceuticals GmbH, a privately held genetics and
functional genomics company organized under the laws of Germany ("Artemis"). The
acquisition of Artemis (the "Acquisition") was effected pursuant to a Share
Exchange and Assignment Agreement among Exelixis and the stockholders of Artemis
(not including Exelixis, the "Artemis Stockholders"), dated as of April 23, 2001
(the "Exchange Agreement"), providing for the exchange of 4.064 shares of
Exelixis Common Stock for each DEM 1.00 of nominal value of Artemis capital
stock. Pursuant to the Exchange Agreement, Exelixis issued approximately 1.6
million shares of its common stock, in exchange for 78% of the outstanding
capital stock of Artemis held by the Artemis Stockholders. In addition, we
received a call option (the "Call Option") from, and issued a put option (the
"Put Option") to, certain stockholders of Artemis (the "Option Holders") for the
issuance of approximately 480,000 shares of Exelixis Common Stock in exchange
for the remaining 22% of the outstanding capital stock of Artemis held by the
Artemis Stockholders. We may exercise the Call Option at any time from May 14,
2001 through January 31, 2002, and the Option Holders may exercise their rights
under the Put Option at any time from April 1, 2002 through May 15, 2002.
Further, in connection with the Acquisition, we issued fully vested options
representing the right to purchase approximately 187,000 additional shares of
Exelixis Common Stock to Artemis employees in exchange for such employees'
vested options formerly representing the right to purchase shares of Artemis
capital stock pursuant to an Employee Phantom Stock Option Plan. We issued the
restricted shares of Exelixis Common Stock in reliance upon an exemption from
the registration requirements of the Securities Act by virtue of Section 4(2)
thereof and Regulation D promulgated thereunder.
(d) In May 2000, we completed our initial public offering for aggregate proceeds
of approximately $136.0 million. In connection with the offering, We paid a
total of approximately $9.5 million in underwriting discounts and commissions
and $2.0 million in other offering costs and expenses. After deducting the
underwriting discounts and commissions and the offering costs and expenses, the
net proceeds from the offering were approximately $124.5 million.
From the time of receipt through June 30, 2001, the proceeds from the offering
were used for research and development activities, capital expenditures, working
capital and other general corporate purposes. In the future, Exelixis intends
to use the net proceeds in a similar manner. As of June 30, 2001, approximately
$93.1 million of the proceeds remained available and were primarily invested in
short-term marketable securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2001 Annual Meeting of Stockholders held on May 22, 2001, the
stockholders were asked to vote on two items as follows:
1. To elect two Class II directors, Jason Fisherman, M.D. and
Jean-Francois Formela, M.D., to hold office until the 2004 Annual
Meeting of Stockholders; and
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Company for its fiscal year ended December 31,
2001.
The results of the matters presented at the annual meeting, based on 46,797,585
shares of record entitled to vote, were as follows:
1. Drs. Fisherman and Formela were approved as directors of the Company
until the 2004 Annual Meeting of Stockholders as follows:
For Withheld
---------- --------
Jason Fisherman 33,564,553 276,908
Jean-Francois Formela 33,563,612 277,849
2. The ratification of PricewaterhouseCoopers LLP as independent
accountants of the Company for its fiscal year ended December 31, 2001
was approved as follows:
For Against Abstain Broker Non-Vote
---------- ------- ------- ---------------
33,715,423 120,139 5,899 0
ITEM 5. OTHER INFORMATION - RISK FACTORS
WE HAVE A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET LOSSES, AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred net losses each year since our inception, including a net loss
of approximately $36.4 million for the six months ended June 30, 2001. As of
that date, we had an accumulated deficit of approximately $166.5 million. We
expect these losses to continue and anticipate negative cash flow for the
foreseeable future. The size of these net losses will depend, in part, on the
rate of growth, if any, in our license and contract revenues and on the level of
our expenses. Our research and development expenditures and general and
administrative costs have exceeded our revenues to date, and we expect to spend
significant additional amounts to fund research and development in order to
enhance our core technologies and undertake product development. As a result, we
expect that our operating expenses will increase significantly in the near term
and, consequently, we will need to generate significant additional revenues to
achieve profitability. Even if we do increase our revenues and achieve
profitability, we may not be able to sustain or increase profitability.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY NOT BE AVAILABLE TO US.
Our future capital requirements will be substantial, and will depend on many
factors including:
- payments received under collaborative agreements;
- the progress and scope of our collaborative and independent research and
development projects;
- our ability to successfully continue development of a recently acquired
cancer compound;
- our need to expand our other proprietary product development efforts as
well as develop manufacturing and marketing capabilities to
commercialize products; and
- the filing, prosecution and enforcement of patent claims.
We anticipate that our current cash and cash equivalents, short-term investments
and funding to be received from collaborators will enable us to maintain our
currently planned operations for at least the next two years. Changes to our
current operating plan may require us to consume available capital resources
significantly sooner than we expect. For example, our newly acquired cancer
product from our recent relationship with Bristol-Myers Squibb will require
significant resources for development that were not in our operational plans
prior to acquiring the cancer product. We may be unable to raise sufficient
additional capital when we need it, on favorable terms, or at all. If our
capital resources are insufficient to meet future capital requirements, we will
have to raise additional funds. The sale of equity or convertible debt
securities in the future may be dilutive to our stockholders, and debt financing
arrangements may require us to pledge certain assets and enter into covenants
that would restrict our ability to incur further indebtedness. If we are unable
to obtain adequate funds on reasonable terms, we may be required to curtail
operations significantly or to obtain funds by entering into financing, supply
or collaboration agreements on unattractive terms.
DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH MAY DIVERT RESOURCES AND LIMIT
OUR ABILITY TO SUCCESSFULLY EXPAND OUR OPERATIONS.
We have experienced a period of rapid and substantial growth that has placed,
and our anticipated growth in the future will continue to place a strain on our
administrative and operational infrastructure. As our operations expand, we
expect that we will need to manage multiple locations, including additional
locations outside of the United States, and additional relationships with
various collaborative partners, suppliers and other third parties. Our ability
to manage our operations and growth effectively requires us to continue to
improve our operational, financial and management controls, reporting systems
and procedures. We may not be able to successfully implement improvements to our
management information and control systems in an efficient or timely manner and
may discover deficiencies in existing systems and controls. In addition,
acquisitions involve the integration of different financial and management
reporting systems. We may not be able to successfully integrate the
administrative and operational infrastructure without significant additional
improvements and investments in management systems and procedures.
WE ARE DEPENDENT ON OUR COLLABORATIONS WITH MAJOR COMPANIES. IF WE ARE UNABLE TO
ACHIEVE MILESTONES, DEVELOP PRODUCTS OR RENEW OR ENTER INTO NEW COLLABORATIONS,
OUR REVENUES MAY DECREASE AND OUR ACTIVITIES MAY FAIL TO LEAD TO COMMERCIALIZED
PRODUCTS.
Substantially all of our revenues to date have been derived from collaborative
research and development agreements. Revenues from research and development
collaborations depend upon continuation of the collaborations, the achievement
of milestones and royalties derived from future products developed from our
research. If we are unable to successfully achieve milestones or our
collaborators fail to develop successful products, we will not earn the revenues
contemplated under such collaborative agreements. In addition, some of our
collaborations are exclusive and preclude us from entering into additional
collaborative arrangements with other parties in the area or field of
exclusivity.
We currently have continuing collaborative research agreements with Bayer,
Bristol-Myers Squibb (two agreements), Dow AgroSciences, Aventis and Protein
Design Labs. Our current collaborative agreement with Bayer is scheduled to
expire in 2008, after which it will automatically be extended for one-year terms
unless terminated by either party upon 12-month written notice. Our agreement
permits Bayer to terminate our collaborative activities prior to 2008 upon the
occurrence of specified conditions, such as the failure to agree on key
strategic issues after a period of years or the acquisition of Exelixis by
certain specified third parties. In addition, our agreements with Bayer are
subject to termination at an earlier date if two or more of our Chief Executive
Officer, Chief Scientific Officer, Agricultural Biotechnology Program Leader and
Chief Informatics Officer cease to have a relationship with us within six months
of each other and we are unable to find replacements acceptable to Bayer. The
first of our collaborative agreement with Bristol-Myers Squibb expires in
September 2002. The funded research term of second arrangement, entered into in
July 2002, expires in July 2005. Our collaborative agreement with Dow
AgroSciences is scheduled to expire in July 2003, after which Dow AgroSciences
has the option to renew on an annual basis. Our collaborative research
arrangement with Aventis is scheduled to expire in June 2004. Aventis has the
right to terminate the research arrangement prior to the expiration date,
provided that it pays the annual research funding amount due for the year
following termination. Thereafter, the arrangement renews annually unless
Aventis terminates automatic renewal prior to the scheduled date of renewal. The
Aventis arrangement is conducted through a limited liability company,
Agrinomics, which is owned equally by Aventis and Exelixis. Aventis may
surrender its interest in Agrinomics and terminate the related research
collaboration prior to the scheduled expiration upon the payment of the
subsequent year's funding commitment. Bayer and Aventis recently announced an
exclusive negotiation period for the purchase of Aventis by Bayer. We have not
been advised of the status of those discussions nor are we able to predict the
impact of such an acquisition of Aventis, if the acquisition were to occur. Our
agreement with Protein Design Labs is scheduled to expire in May 2003. Protein
Design Labs has a unilateral right to renew for additional 12 and six month
periods thereafter. The five-year term of the convertible promissory note
entered into as part of this arrangement is unaffected by whether or not Protein
Design Labs renews. If these existing agreements are not renewed or if we are
unable to enter into new collaborative agreements on commercially acceptable
terms, our revenues and product development efforts may be adversely affected.
We recently announced the reacquisition, effective February 2002, of future
rights to research programs in metabolism and alzheimer's disease previously
licensed exclusively to Pharmacia Corporation. The existing agreement with
Pharmacia will terminate as of that date. Pharmacia will retain rights to
targets under the existing agreement selected prior to the reacquisition date,
subject to the payment of milestones for certain of those targets selected and
royalties for future development of products against or using those targets but
will have no other obligations to make payments to the Company, including
approximately $9.0 million in annual funding that would otherwise be payable for
two years if the Company had not elected to reacquire rights to the research at
this time. Although we anticipate entering into future collaborations involving
either or both of these programs, there can be no assurance that we will be able
to enter into new collaborative agreements or that such collaborations will
provide revenues equal to or exceeding those otherwise obtainable under the
Pharmacia collaboration.
CONFLICTS WITH OUR COLLABORATORS COULD JEOPARDIZE THE OUTCOME OF OUR
COLLABORATIVE AGREEMENTS AND OUR ABILITY TO COMMERCIALIZE PRODUCTS.
We intend to conduct proprietary research programs in specific disease and
agricultural product areas that are not covered by our collaborative agreements.
Our pursuit of opportunities in agricultural and pharmaceutical markets could,
however, result in conflicts with our collaborators in the event that any of our
collaborators takes the position that our internal activities overlap with those
areas that are exclusive to our collaborative agreements, and we should be
precluded from such internal activities. Moreover, disagreements with our
collaborators could develop over rights to our intellectual property. In
addition, our collaborative agreements may have provisions that give rise to
disputes regarding the rights and obligations of the parties. Any conflict with
our collaborators could lead to the termination of our collaborative agreements,
delay collaborative activities, reduce our ability to renew agreements or obtain
future collaboration agreements or result in litigation or arbitration and would
negatively impact our relationship with existing collaborators.
We have limited or no control over the resources that our collaborators may
choose to devote to our joint efforts. Our collaborators may breach or terminate
their agreements with us or fail to perform their obligations thereunder.
Further, our collaborators may elect not to develop products arising out of our
collaborative arrangements or may fail to devote sufficient resources to the
development, manufacture, market or sale of such products. Certain of our
collaborators could also become our competitors in the future. If our
collaborators develop competing products, preclude us from entering into
collaborations with their competitors, fail to obtain necessary regulatory
approvals, terminate their agreements with us prematurely or fail to devote
sufficient resources to the development and commercialization of our products,
our product development efforts could be delayed and may fail to lead to
commercialized products.
WE ARE DEPLOYING UNPROVEN TECHNOLOGIES, AND WE MAY NOT BE ABLE TO DEVELOP
COMMERCIALLY SUCCESSFUL PRODUCTS.
You must evaluate us in light of the uncertainties and complexities affecting a
biotechnology company. Our technologies are still in the early stages of
development. Our research and operations thus far have allowed us to identify a
number of product targets for use by our collaborators and our own internal
development programs. We are not certain, however, of the commercial value of
any of our current or future targets, and we may not be successful in expanding
the scope of our research into new fields of pharmaceutical or pesticide
research, or other agricultural applications such as enhancing plant traits to
produce superior crop yields, disease resistance or increased nutritional
content. Significant research and development, financial resources and personnel
will be required to capitalize on our technology, develop commercially viable
products and obtain regulatory approval for such products.
WE HAVE NO EXPERIENCE IN DEVELOPING, MANUFACTURING AND MARKETING PRODUCTS AND
MAY BE UNABLE TO COMMERCIALIZE PROPRIETARY PRODUCTS.
We recently acquired a development compound, an analog to rebeccamycin
("Rebeccamycin"), directed against cancer under our recent collaborative
arrangement with Bristol-Myers Squibb. Clinical development of Rebeccamycin to
date has been conducted by the National Cancer Institute (the "NCI"), and
manufacturing of this product has been the responsibility of Bristol-Myers
Squibb. Rebeccamycin has recently completed Phase I clinical studies and is in
Phase I and early Phase II clinical trials being conducted by the NCI. We are
currently in negotiations with the NCI to use the results of the clinical
studies they have conducted and are conducting in order to determine what
additional studies, if any, will be conducted by the NCI or us. There can be no
assurance that we will successfully agree upon further development plans, the
respective rights and obligations of the parties to conduct additional clinical
studies or the timing of such studies. In addition, there can be no assurance
that the clinical studies conducted to date will support further clinical
development or be accepted by the Food and Drug Administration or FDA, in
conjunction with any application for product approval submitted to the FDA for
Rebeccamycin. Moreover, although Bristol-Myers Squibb has provided the NCI with
sufficient quantities of Rebeccamycin to complete the existing Phase I and II
clinical studies, development necessary for further clinical studies and product
approval will require us to either develop internal manufacturing capabilities
or retain a third party to manufacture the product. In addition, we have
recently hired a new Senior Vice President responsible for clinical development
of this product, as well as any new potential products that we may develop. As
a result, we have limited experience in clinical development and no experience
in manufacturing potential drug products. Accordingly, the development of
Rebeccamycin is subject to significant risk and uncertainty, particularly with
respect to our ability to successfully develop, manufacture and market
Rebeccamycin as a product.
With respect to products developed against our proprietary drug targets, we will
rely on our collaborators to develop and commercialize products based on our
research and development efforts. We have limited or no experience in using the
targets that we identify to develop our own proprietary products. Our recent
success in applying our drug development capabilities to our proprietary targets
in cancer are subject to significant risk and uncertainty, particularly with
respect to our ability to meet currently estimated timelines and goals for
completing preclinical development efforts and filing an Investigational New
Drug Application ("IND") for compounds developed. In order for us to
commercialize products, we would need to significantly enhance our capabilities
with respect to product development, and establish manufacturing and marketing
capabilities, either directly or through outsourcing or licensing arrangements.
We may not be able to enter into such outsourcing or licensing agreements on
commercially reasonable terms, or at all.
SINCE OUR TECHNOLOGIES HAVE MANY POTENTIAL APPLICATIONS AND WE HAVE LIMITED
RESOURCES, OUR FOCUS ON A PARTICULAR AREA MAY RESULT IN OUR FAILURE TO
CAPITALIZE ON MORE PROFITABLE AREAS.
We have limited financial and managerial resources. This requires us to focus on
product candidates in specific industries and forego opportunities with regard
to other products and industries. For example, depending on our ability to
allocate resources, a decision to concentrate on a particular agricultural
program may mean that we will not have resources available to apply the same
technology to a pharmaceutical project. While our technologies may permit us to
work in both areas, resource commitments may require trade-offs resulting in
delays in the development of certain programs or research areas, which may place
us at a competitive disadvantage. Our decisions impacting resource allocation
may not lead to the development of viable commercial products and may divert
resources from more profitable market opportunities. Moreover, our recent
acquisition of Rebeccamycin will require that resources and management time be
directed to clinical development and manufacturing of this potential product.
There can be no assurance that allocating resources and time to these efforts
will allow us to remain competitive in existing programs and potential areas of
future research. The resources dedicated to the development of Rebeccamycin may
limit or hinder our ability to meet currently estimated timelines and goals for
completing preclinical development efforts and filing an IND for our proprietary
compounds.
OUR COMPETITORS MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OURS OBSOLETE.
The biotechnology industry is highly fragmented and is characterized by rapid
technological change. In particular, the area of gene research is a rapidly
evolving field. We face, and will continue to face, intense competition from
large biotechnology and pharmaceutical companies, as well as academic research
institutions, clinical reference laboratories and government agencies that are
pursuing research activities similar to ours. Some of our competitors have
entered into collaborations with leading companies within our target markets,
including some of our existing collaborators. Our future success will depend on
our ability to maintain a competitive position with respect to technological
advances.
Any products that are developed through our technologies will compete in highly
competitive markets. Further, our competitors may be more effective at using
their technologies to develop commercial products. Many of the organizations
competing with us have greater capital resources, larger research and
development staffs and facilities, more experience in obtaining regulatory
approvals and more extensive product manufacturing and marketing capabilities.
As a result, our competitors may be able to more easily develop technologies and
products that would render our technologies and products, and those of our
collaborators, obsolete and noncompetitive.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, THIRD PARTIES
MAY BE ABLE TO USE OUR TECHNOLOGY, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
COMPETE IN THE MARKET.
Our success will depend in part on our ability to obtain patents and maintain
adequate protection of the intellectual property related to our technologies and
products. The patent positions of biotechnology companies, including our patent
position, are generally uncertain and involve complex legal and factual
questions. We will be able to protect our intellectual property rights from
unauthorized use by third parties only to the extent that our technologies are
covered by valid and enforceable patents or are effectively maintained as trade
secrets. The laws of some foreign countries do not protect intellectual property
rights to the same extent as the laws of the U.S., and many companies have
encountered significant problems in protecting and defending such rights in
foreign jurisdictions. We will continue to apply for patents covering our
technologies and products as and when we deem appropriate. However, these
applications may be challenged or may fail to result in issued patents. Our
existing patents and any future patents we obtain may not be sufficiently broad
to prevent others from practicing our technologies or from developing competing
products. Furthermore, others may independently develop similar or alternative
technologies or design around our patents. In addition, our patents may be
challenged, invalidated or fail to provide us with any competitive advantages.
We rely on trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information and trade secrets, but these measures may not provide adequate
protection. While we seek to protect our proprietary information by entering
into confidentiality agreements with employees, collaborators and consultants,
we cannot assure you that our proprietary information will not be disclosed, or
that we can meaningfully protect our trade secrets. In addition, our competitors
may independently develop substantially equivalent proprietary information or
may otherwise gain access to our trade secrets.
LITIGATION OR THIRD PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD
REQUIRE US TO SPEND SUBSTANTIAL TIME AND MONEY AND ADVERSELY AFFECT OUR ABILITY
TO DEVELOP AND COMMERCIALIZE PRODUCTS.
Our commercial success depends in part on our ability to avoid infringing
patents and proprietary rights of third parties, and not breaching any licenses
that we have entered into with regard to our technologies. Other parties have
filed, and in the future are likely to file, patent applications covering genes
and gene fragments, techniques and methodologies relating to model systems, and
products and technologies that we have developed or intend to develop. If
patents covering technologies required by our operations are issued to others,
we may have to rely on licenses from third parties, which may not be available
on commercially reasonable terms, or at all.
Third parties may accuse us of employing their proprietary technology without
authorization. In addition, third parties may obtain patents that relate to our
technologies and claim that use of such technologies infringes these patents.
Regardless of their merit, such claims could require us to incur substantial
costs, including the diversion of management and technical personnel, in
defending ourselves against any such claims or enforcing our patents. In the
event that a successful claim of infringement is brought against us, we may be
required to pay damages and obtain one or more licenses from third parties. We
may not be able to obtain these licenses at a reasonable cost, or at all.
Defense of any lawsuit or failure to obtain any of these licenses could
adversely affect our ability to develop and commercialize products.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD IMPAIR OUR ABILITY TO EXPAND OUR OPERATIONS.
We are highly dependent on the principal members of our management and
scientific staff, the loss of whose services might adversely impact the
achievement of our objectives and the continuation of existing collaborations.
In addition, recruiting and retaining qualified scientific personnel to perform
future research and development work will be critical to our success. We do not
currently have sufficient executive management and technical personnel to fully
execute our business plan. There is currently a shortage of skilled executives
and employees with technical expertise, and this shortage is likely to continue.
As a result, competition for skilled personnel is intense and turnover rates are
high. Although we believe we will be successful in attracting and retaining
qualified personnel, competition for experienced scientists from numerous
companies, academic and other research institutions may limit our ability to do
so.
Our business operations will require additional expertise in specific industries
and areas applicable to products identified and developed through our
technologies. These activities will require the addition of new personnel,
including management and technical personnel and the development of additional
expertise by existing employees. The inability to attract such personnel or to
develop this expertise could prevent us from expanding our operations in a
timely manner, or at all.
OUR COLLABORATIONS WITH OUTSIDE SCIENTISTS MAY BE SUBJECT TO RESTRICTION AND
CHANGE.
We work with scientific advisors and collaborators at academic and other
institutions that assist us in our research and development efforts. These
scientists are not our employees and may have other commitments that would limit
their availability to us. Although our scientific advisors and collaborators
generally agree not to do competing work, if a conflict of interest between
their work for us and their work for another entity arises, we may lose their
services. In addition, although our scientific advisors and collaborators sign
agreements not to disclose our confidential information, it is possible that
valuable proprietary knowledge may become publicly known through them.
OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN
REGULATORY PROCESS THAT MAY NOT RESULT IN THE NECESSARY REGULATORY APPROVALS,
WHICH COULD ADVERSELY AFFECT OUR ABILITY TO COMMERCIALIZE PRODUCTS.
The FDA must approve any drug or biologic product before it can be marketed in
the U.S. Any products resulting from our research and development efforts must
also be approved by the regulatory agencies of foreign governments before the
product can be sold outside the U.S. Before a new drug application or biologics
license application can be filed with the FDA, the product candidate must
undergo extensive clinical trials, which can take many years and may require
substantial expenditures. The regulatory process also requires preclinical
testing. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations, which could delay, limit or prevent regulatory
approval. In addition, delays or rejections may be encountered based upon
changes in regulatory policy for product approval during the period of product
development and regulatory agency review. The clinical development and
regulatory approval process is expensive and time consuming. Any failure to
obtain regulatory approval could delay or prevent us from commercializing
products.
Our efforts to date have been primarily limited to identifying targets.
Significant research and development efforts will be necessary before any
products resulting from such targets can be commercialized. If regulatory
approval is granted to any of our products, this approval may impose limitations
on the uses for which a product may be marketed. Further, once regulatory
approval is obtained, a marketed product and its manufacturer are subject to
continual review, and discovery of previously unknown problems with a product or
manufacturer may result in restrictions and sanctions with respect to the
product, manufacturer and relevant manufacturing facility, including withdrawal
of the product from the market.
SOCIAL ISSUES MAY LIMIT THE PUBLIC ACCEPTANCE OF GENETICALLY ENGINEERED
PRODUCTS, WHICH COULD REDUCE DEMAND FOR OUR PRODUCTS.
Although our technology is not dependent on genetic engineering, genetic
engineering plays a prominent role in our approach to product development. For
example, research efforts focusing on plant traits may involve either selective
breeding or modification of existing genes in the plant under study. Public
attitudes may be influenced by claims that genetically engineered products are
unsafe for consumption or pose a danger to the environment. Such claims may
prevent our genetically engineered products from gaining public acceptance. The
commercial success of our future products will depend, in part, on public
acceptance of the use of genetically engineered products including drugs and
plant and animal products.
The subject of genetically modified organisms has received negative publicity,
which has aroused public debate. For example, certain countries in Europe are
considering regulations that may ban products or require express labeling of
products that contain genetic modifications or are "genetically modified."
Adverse publicity has resulted in greater regulation internationally and trade
restrictions on imports of genetically altered products. If similar action is
taken in the U.S., genetic research and genetically engineered products could be
subject to greater domestic regulation, including stricter labeling
requirements. To date, our business has not been hampered by these activities.
However, such publicity in the future may prevent any products resulting from
our research from gaining market acceptance and reduce demand for our products.
LAWS AND REGULATIONS MAY REDUCE OUR ABILITY TO SELL GENETICALLY ENGINEERED
PRODUCTS THAT OUR COLLABORATORS OR WE DEVELOP IN THE FUTURE.
Our collaborators or we may develop genetically engineered agricultural and
animal products. The field-testing, production and marketing of genetically
engineered products are subject to regulation by federal, state, local and
foreign governments. Regulatory agencies administering existing or future
regulations or legislation may prevent us from producing and marketing
genetically engineered products in a timely manner or under technically or
commercially feasible conditions. In addition, regulatory action or private
litigation could result in expenses, delays or other impediments to our product
development programs and the commercialization of products.
The FDA has released a policy statement stating that it will apply the same
regulatory standards to foods developed through genetic engineering as it
applies to foods developed through traditional plant breeding. Genetically
engineered food products will be subject to premarket review, however, if these
products raise safety questions or are deemed to be food additives. Our products
may be subject to lengthy FDA reviews and unfavorable FDA determinations if they
raise questions regarding safety or our products are deemed to be food
additives.
The FDA has also announced that it will not require genetically engineered
agricultural products to be labeled as such, provided that these products are as
safe and have the same nutritional characteristics as conventionally developed
products. The FDA may reconsider or change its policies, and local or state
authorities may enact labeling requirements, either of which could have a
material adverse effect on our ability or the ability of our collaborators to
develop and market products resulting from our efforts.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE
MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development processes involve the controlled use of hazardous
materials, including chemicals, radioactive and biological materials. Our
operations produce hazardous waste products. We cannot eliminate the risk of
accidental contamination or discharge and any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of hazardous materials. We may be
sued for any injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our insurance
coverage and our total assets. Compliance with environmental laws and
regulations may be expensive, and current or future environmental regulations
may impair our research, development and production efforts.
In addition, our collaborators may use hazardous materials in connection with
our collaborative efforts. To our knowledge, their work is performed in
accordance with applicable biosafety regulations. In the event of a lawsuit or
investigation, however, we could be held responsible for any injury caused to
persons or property by exposure to, or release of, these hazardous materials use
by these parties. Further, we may be required to indemnify our collaborators
against all damages and other liabilities arising out of our development
activities or products produced in connection with these collaborations.
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES.
Our quarterly operating results have fluctuated in the past and are likely to
fluctuate in the future. A number of factors, many of which we cannot control,
could subject our operating results and stock price to volatility, including:
- recognition of license, milestone or other fees;
- payments of licensing fees to third parties;
- acceptance of our technologies and platforms;
- the success rate of our discovery efforts leading to milestones and
royalties;
- the introduction of new technologies or products by our competitors;
- the timing and willingness of collaborators to commercialize our
products;
- our ability to enter into new collaborative relationships;
- the termination or non-renewal of existing collaborations;
- general and industry-specific economic conditions that may affect our
collaborators' research and development expenditures; and
- exposure to fluctuations in foreign currency
A large portion of our expenses, including expenses for facilities, equipment
and personnel, are relatively fixed in the short term. In addition, we expect
operating expenses to increase significantly during the next year. Accordingly,
if our revenues decline or do not grow as anticipated due to the expiration of
existing contracts or our failure to obtain new contracts, our inability to meet
milestones or other factors, we may not be able to correspondingly reduce our
operating expenses. Failure to achieve anticipated levels of revenues could
therefore significantly harm our operating results for a particular fiscal
period.
Due to the possibility of fluctuations in our revenues and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. As a result, in some future quarters, our
operating results may not meet the expectations of stock market analysts and
investors, which could result in a decline in the price of our stock.
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.
We believe the trading price of our common stock will remain highly volatile and
may fluctuate substantially due to factors such as the following:
- the announcement of new products or services by us or our competitors;
- quarterly variations in our or our competitors' results of operations;
- failure to achieve operating results projected by securities analysts;
- changes in earnings estimates or recommendations by securities analysts;
- developments in the biotechnology industry;
- acquisitions of other companies or technologies; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
These factors and fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of our
common stock.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs and
divert management's attention and resources, which could have a material and
adverse effect on our business.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH ACQUISITIONS.
We have made, and may in the future make, acquisitions of, or significant
investments in, businesses with complementary products, services and/or
technologies. Acquisitions involve numerous risks, including, but not limited
to:
- difficulties and increased costs in connection with integration of the
personnel, operations, technologies and products of acquired
companies;
- diversion of management's attention from other operational matters;
- the potential loss of key employees of acquired companies;
- the potential loss of key collaborators of the acquired companies;
- lack of synergy, or the inability to realize expected synergies,
resulting from the acquisition; and
- acquired intangible assets becoming impaired as a result of
technological advancements or worse-than-expected performance of the
acquired company.
Mergers and acquisitions, are inherently risky, and the inability to effectively
manage these risks could materially and adversely affect our business, financial
condition and results of operations.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE COULD FACE
SUBSTANTIAL LIABILITIES THAT EXCEED OUR RESOURCES.
We may be held liable if any product our collaborators or we develop causes
injury or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. Although we intend to obtain general liability and product
liability insurance, this insurance may be prohibitively expensive, or may not
fully cover our potential liabilities. Inability to obtain sufficient insurance
coverage at an acceptable cost or to otherwise protect ourselves against
potential product liability claims could prevent or inhibit the
commercialization of products developed by our collaborators or us.
OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND THE OCCURRENCE
OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO OUR
FACILITIES AND EQUIPMENT, WHICH COULD REQUIRE US TO CEASE OR CURTAIL OPERATIONS.
Given our location, our facilities are vulnerable to damage from earthquakes. We
are also vulnerable to damage from other types of disasters, including fire,
floods, power loss, communications failures and similar events. If any disaster
were to occur, our ability to operate our business at our facilities would be
seriously, or potentially completely, impaired. In addition, the unique nature
of our research activities could cause significant delays in our programs and
make it difficult for us to recover from a disaster. The insurance we maintain
may not be adequate to cover our losses resulting from disasters or other
business interruptions. Accordingly, an earthquake or other disaster could
materially and adversely harm our ability to conduct business.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market, the market price of our common stock could fall. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deemed appropriate. In
October 2000, a significant number of shares of our common stock held by
existing stockholders became freely tradable, subject in some instances to the
volume and other limitations of Rule 144. Sales of these shares and other
shares of common stock held by existing stockholders could cause the market
price of our common stock to decline.
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND MAY NOT MAKE
DECISIONS THAT ARE IN THE BEST INTERESTS OF ALL STOCKHOLDERS.
Due to their combined stock holdings, our officers, directors and principal
stockholders (stockholders holding more than 5% of our common stock) acting
together, may be able to exert significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, this concentration of ownership
may delay or prevent a change in control of our company, even when a change may
be in the best interests of our stockholders. In addition, the interests of
these stockholders may not always coincide with our interests as a company or
the interests of other stockholders. Accordingly, these stockholders could cause
us to enter into transactions or agreements that you would not approve.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference (as stated therein) as part of this Quarterly
Report on Form 10-Q.
(b) Reports on Form 8-K
On May 15, 2001, the Company filed a Reg FD, Item 9 Current Report on
Form 8-K, in connection with the announcement of the Company's first
quarter financial results.
On May 15, 2001, the Company filed an Item 2 Current Report on Form 8-K
in connection with the Company's acquisition of Artemis.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 14, 2001
EXELIXIS, INC.
/s/ Glen Y. Sato
-------------------
Glen Y. Sato
Chief Financial Officer, Vice President of
Legal Affairs and Secretary
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- ------ -------------------------
2.1 Share Exchange and Assignment Agreement, dated April 23, 2001, by and
among Exelixis, Inc. and the Artemis stockholders named therein. (1)
3.1 Amended and Restated Certificate of Incorporation (2)
3.2 Amended and Restated Bylaws (2)
4.1 Specimen Common Stock Certificate (2)
4.2 Form of Convertible Promissory Note, dated May 22, by and between
Exelixis,Inc. and Protein Design Labs, Inc.
4.3 Form of Note Purchase Agreement, dated May 22, by and between
Exelixis, Inc.and Protein Design Labs, Inc.
10.28* Collaboration Agreement, dated May 22, 2001, by and between Exelixis,
Inc. and Protein Design Labs, Inc.
- -------------------------------
(1) Filed with Exelixis' Item 2 Current Report on Form 8-K filed on May
15, 2001 and incorporated herein by reference.
(2) Filed with Exelixis' Registration Statement on Form S-1, as amended
(No. 333-96335), declared effective by the Securities and Exchange
Commission on April 10, 2000, and incorporated herein by reference.
* Confidential treatment requested for certain portions of this exhibit.
NEITHER THIS CONVERTIBLE NOTE NOR THE UNDERLYING SHARES HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
(AS DEFINED BELOW) MAY NOT TRANSFER THIS CONVERTIBLE NOTE, OR ANY SHARES ISSUED
PURSUANT TO ITS CONVERSION PROVISION, UNLESS (i) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT COVERING SUCH NOTE OR SUCH SHARES UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, (ii) THE COMPANY FIRST RECEIVES A
LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE COMPANY OR ITS AGENTS, STATING THAT
IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR
(iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.
EXELIXIS, INC.
5.75% CONVERTIBLE
NOTE DUE MAY 22, 2006
South San Francisco, California
FOR VALUE RECEIVED, Exelixis, Inc., a Delaware corporation (the "Company"),
hereby promises to pay, subject to the conversion provisions in Section 6
herein, to Protein Design Labs, Inc., a Delaware corporation, or its permitted
transfers and assigns (the "Lender" or "Holder") the principal sum of THIRTY
MILLION DOLLARS ($30,000,000) plus interest plus enforcement costs (including,
but not limited to, reasonable attorney fees) thereon (collectively, the
"Obligations") on the earlier of (i) a "Change in Control" (as hereinafter
defined) of the Company; and (ii) May 22, 2006 (such earlier date being the
"Maturity Date"). A "Change in Control" of the Company would occur if the
Company sells, conveys or otherwise disposes of all or substantially all of its
property or business, or merges or consolidates with any other corporation or
business entity (other than a wholly-owned subsidiary of the Company) or effects
any other transaction or series of transactions in which (I) the members of the
Board of Directors of the Company prior to the transaction or series of
transactions constituting the putative Change in Control event do not constitute
a majority of the members of the Board of Directors of the enterprise following
completion of the transaction or series of transactions constituting the
putative Change in Control event (and in any event excluding from any such
calculation any members of the Board of Directors who prior to such
transaction(s) were members of the Board of both the Company and such other
company or entity); and (II) the stockholders of the Company immediately prior
thereto own less than a majority of the outstanding voting securities of the
Company (or its successor or parent) immediately thereafter.
SECTION 1. INTEREST. Interest on the outstanding principal amount shall be
cumulative, accrue at the rate of 5.75% per annum (or, if lower, the maximum
rate permitted by law), and be paid in cash annually in arrears from and after
the date hereof until and including the Maturity Date, unless this convertible
note ("Note") is converted pursuant to Section 6 hereof, in which case accrued
interest thereon (whether or not yet payable) shall be payable in cash to Lender
within thirty (30) days of such date of conversion. Any interest not paid when
due shall accrue interest at a rate of 10% per annum (or, if lower, the maximum
rate permitted by law) and shall be treated as principal for the purposes of
Section 6 hereof until paid.
SECTION 2. NOTE PURCHASE AGREEMENT. This Note has been issued pursuant to a
Note Purchase Agreement (the "Note Purchase Agreement") dated as of the date
hereof by and among the Company and the Holder. The Company shall keep or cause
to be kept at its principal office appropriate records for the recordation of
the name and address of the Holder, which address may be changed from time to
time effective ten (10) days after receipt of written notice of such change from
the Holder.
SECTION 3. DEFAULT. The occurrence of one or more of the following events
shall constitute an event of default ("Event of Default"):
3.1 The Company shall fail to pay any of the Obligations when the same shall
have become due and payable.
3.2 The Company shall fail to pay any of its material debts or other
material obligations (other than the Obligations under this Note) when the same
shall have become due and payable.
3.3 The entry of a decree or order by a court having jurisdiction adjudging
the Company as bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization arrangement, adjustment, or composition of or in respect
of the Company under the Bankruptcy Act, as amended, or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee, or trustee
of the Company, or any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of sixty (60) consecutive days.
3.4 The institution by the Company of proceedings to be adjudicated as
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the Bankruptcy Act, as
amended, or any other applicable federal or state law, or the consent by it to
the filing of any such petition or to the appointment of a receiver, liquidator,
assignee, or trustee of the Company, or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company in furtherance of
any such action.
3.5 The Company shall (a) be in breach of any material term or provision of
this Note; (b) be in breach under Section 12.2 of the Collaboration Agreement of
even date herewith ("Collaboration Agreement"), which breach shall remain
uncured as provided thereunder; or (c) be in breach of any material term or
provision of the Note Purchase Agreement.
SECTION 4. ACCELERATION. Upon an Event of Default, all Obligations shall
become immediately due and payable to the Holder without presentment, demand,
protest or other notice of any kind, all of which are expressly waived by the
Company.
SECTION 5. PREPAYMENTS. The Company may not prepay the amounts due hereunder
prior to the third anniversary of this Note. After the third anniversary of
this Note, and subject to Holder's right of conversion under Section 6 herein,
the Company shall have the right to prepay the amounts due hereunder in whole or
in part; provided that the Company meets the following conditions: (a) the
Company shall provide the Holder not less than thirty (30) days prior written
notice of each prepayment ("Prepayment Notice"), specifying the principal amount
or amounts to be prepaid and the prepayment date, and (b) the Company shall pay
on the prepayment date the interest accrued to date on the principal amount
paid. Any Prepayment Notice shall be irrevocable and binding on the Company;
provided any Prepayment Notice shall be deemed rescinded upon notice prior to
the prepayment date that Holder intends to exercise its conversion rights.
SECTION 6. CONVERSION.
6.1 The Holder of this Note shall have the right, at the Holder's option, at
any time after the first anniversary of this Note, upon written notice, to
convert all of the principal amounts outstanding from time to time under this
Note into the Company's common stock ("Common Stock") at a price per share
("Original Conversion Price") equal to the lower of: (x) $28.175; and (y) 110%
of the Fair Market Value (as hereinafter defined) of a share of Common Stock.
"Fair Market Value" of a share of Common Stock means: (i) if the Company's stock
is traded on NASDAQ or a national securities exchange, the average closing price
for such share of Common Stock on such exchange for the twenty (20) trading days
immediately prior to the applicable date of conversion, or (ii) if the Company's
stock is not traded on NASDAQ or a national securities exchange, the fair market
value of the Company's stock on the applicable date of conversion as determined
in good faith by the Company's Board of Directors.
6.2 In the event of an exercise of the Holder's rights of conversion under
this Section 6, the Holder shall irrevocably be obligated to convert all of the
principal amounts then outstanding under this Note and the Company shall, as
promptly as practicable after the surrender, but in no event more than fourteen
(14) days after the delivery of the Note for conversion, deliver to the Holder a
certificate or certificates representing the number of fully paid and
nonassessable shares of Common Stock of the Company into which this Note shall
be converted.
6.3 The number of shares of Common Stock which shall be delivered on
conversion of principal under this Note shall be an amount determined by
dividing the principal under this Note by the Original Conversion Price (or the
Conversion Price (as defined below), as determined in accordance with this
Section 6), and rounding the result down to the nearest share. The conversion
price from time to time specified in Section 6.1 above may be adjusted from time
to time as provided in Section 9, and any adjusted conversion price shall be the
"Conversion Price."
6.4 No fractional shares of stock or scrip shall be issued upon conversion
of this Note. Instead of any fractional shares of stock which would otherwise be
issuable upon conversion of this Note, the Company shall pay in cash an amount
equal to the fractional share multiplied by the Conversion Price in respect of
such fractional interest.
SECTION 7. ASSIGNMENT, EXCHANGE, OR LOSS OF NOTE. Subject to any transfer
restrictions herein, upon presentation and surrender of this Note to the Company
at its principal office with a duly executed request for assignment and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Note in the name of the assignee named in such instrument of
assignment and this Note shall promptly be canceled.
SECTION 8. RIGHTS OF THE HOLDER. The Holder shall not, by virtue of the
provisions in this Note, be entitled to any rights of a stockholder in the
Company, either at law or equity.
SECTION 9. ADJUSTMENTS. In case the Company shall, after the receipt of
notice pursuant to Section 6.1 but prior to the conversion thereunder: (i) pay a
dividend or make a distribution on the Common Stock payable in common shares,
(ii) subdivide the outstanding Common Stock into a greater number of shares,
(iii) combine the outstanding Common Stock into a lesser number of shares, or
(iv) issue by reclassification of the Common Stock any common shares of the
Company, the Holder of this Note shall thereafter be entitled, upon conversion,
to receive the number and kind of shares which, if this Note had been converted
immediately prior to the happening of such event, the Holder would have owned
upon such conversion and been entitled to receive upon such dividend,
distribution, subdivision, combination, or reclassification. Such adjustment
shall become effective on the day next following (x) the record date of such
dividend or distribution or (y) the day upon which such subdivision,
combination, or reclassification shall become effective.
SECTION 10. RESTRICTIONS ON TRANSFER. This Note has not been registered under
the Securities Act. This Note, or any right hereunder, may not be enforced
against the Company by any Holder, except the original Holder herein, (i) unless
there is an effective registration covering such note or underlying shares under
the Securities Act and applicable state securities laws, (ii) unless the Company
receives an opinion of an attorney acceptable to the Company or its agents, that
the proposed transfer of the Note complies with the requirements of the
Securities Act and any relevant state securities law, or (iii) unless the
transfer is made pursuant to Rule 144 under the Securities Act.
SECTION 11. NOTICES. All notices and other communications required or
permitted under this Note shall be validly given, made, or served if in writing
and delivered personally, via overnight courier or sent by registered mail, to
the Company at the following address:
Exelixis, Inc.
170 Harbor Way
P.O. Box 511
South San Francisco, California 94083-0511
Attn: Chief Executive Officer
With a copy to:
Exelixis, Inc.
170 Harbor Way
P.O. Box 511
South San Francisco, California 94083-0511
Attn: General Counsel
All notices and other communications required or permitted under this Note shall
be validly given, made or served if in writing and delivered personally, via
overnight courier or sent by registered mail, to the Holder at the following
address:
Protein Design Labs, Inc.
34801 Campus Drive
Fremont, California 94555-3606
Attn: Chief Executive Officer
With a copy to:
Protein Design Labs, Inc.
34801 Campus Drive
Fremont, California 94555-3606
Attn: General Counsel
Changes to a party's address information provided herein shall be effected by
notice to the other party as provided herein.
SECTION 12. LAW GOVERNING. This Note shall be governed by and construed in
accordance with the internal laws of the State of California.
SECTION 13. TITLES AND CAPTIONS; PRESUMPTION. All section titles or captions
contained in this Note are for convenience only and shall not be deemed part of
the context nor affect the interpretation of this Note. This Note or any
section thereof shall not be construed against any party due to the fact that
said Note or any section thereof was drafted by said party.
SECTION 14. COMPUTATION OF TIME. In computing any period of time pursuant to
this Note, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday, or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
SECTION 15. FURTHER ASSURANCES. The Company shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Note.
SECTION 16. PARTIES IN INTEREST. Nothing herein shall be construed to be to
the benefit of any third party, nor is it intended that any provision shall be
for the benefit of any third party.
IN WITNESS WHEREOF, a duly authorized officer of Exelixis, Inc. has executed
this Note to be effective on this 22nd day of May 2001.
EXELIXIS, INC.
_______________________
George A. Scangos
Chief Executive Officer
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (the "Agreement") is dated as of May 22, 2001
(the "Effective Date") by and between EXELIXIS, INC., a Delaware corporation
having its principal place of business at 170 Harbor Way, P.O. Box 511, South
San Francisco, California 94083-0511 (the "Company") and PROTEIN DESIGN LABS,
INC., a Delaware corporation having its principal place of business at 34801
Campus Drive, Fremont, California 94555-3606 (the "Holder").
RECITALS
A. Pursuant to the terms of the Convertible Note (the "Note"), dated as of
even date herewith between the Company and the Holder, the Holder has loaned to
the Company the principal sum of Thirty Million Dollars ($30,000,000) (the
"Principal Amount").
B. The Company has agreed to issue the Note pursuant to the terms set forth
in this Agreement.
NOW, THEREFORE, in consideration of the premises and promises herein
contained and in order to induce the Holder to loan to the Company the Principal
Amount, the Company agrees with the Holder as follows:
1. AUTHORIZATION AND SALE OF NOTES
1.1 AUTHORIZATION OF NOTES. On or before the date hereof the Company shall
authorize the issuance of the Note in the form attached to this Agreement as
Exhibit A in the Principal Amount.
1.2 SALE OF NOTE. Subject to the terms and conditions hereof, the Company
will issue and sell to the Holder, and the Holder will purchase from the Company
for the Principal Amount, the Note. The Note and the shares of common stock of
the Company (the "Shares") issued upon conversion of the Note are sometimes
collectively referred to herein as the "Securities."
2. CLOSING DATE; DELIVERY
2.2 CLOSING DATE. Subject to the terms and conditions of this
Agreement, the purchase and sale of the Note hereunder shall take place at 3:00
p.m. local time at the offices of the Company, on the date hereof or at such
other time and place as the Company and the Holder may agree (the "Closing").
The date of the Closing is hereinafter referred to as the "Closing Date."
2.3 DELIVERY. At the Closing, the Company will deliver to the Holder the
Note against payment of the Principal Amount therefor by wire transfer in
immediately available funds:
Bank: Silicon Valley Bank, Santa Clara, CA
ABA Routing: 121-140-399
Acct Number: 33001-60643
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Holder as follows:
3.1 ORGANIZATION AND STANDING. The Company:
(a) is a corporation duly organized, validly existing, authorized to
exercise all its corporate powers, rights, and privileges, and in good standing
under the laws of the State of Delaware; and
(b) has the corporate power and corporate authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted.
3.2 AUTHORIZATION AND VALIDITY. All corporate action on the part of the
Company, its officers, directors, and stockholders necessary for the
authorization, execution, delivery, and performance of all of the Company's
obligations under this Agreement, the Note and all documents, instruments and
agreements executed in connection therewith (the "Loan Documents") and for the
authorization, issuance, and delivery of the Note has been taken and the Loan
Documents constitute legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.
3.3 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver the Loan Documents, to sell and issue
the Note hereunder, and to carry out and perform its obligations under the Loan
Documents.
3.4 VALIDITY OF SECURITIES. The Securities, when issued, sold, and
delivered in compliance with the terms and for the consideration expressed in
this Agreement, will be duly authorized and validly issued (including without
limitation, but subject to the accuracy of the representations of Holder herein,
issued in compliance with all applicable federal and state securities laws),
fully paid and nonassessable. The Securities will be free and clear of all liens
and encumbrances other than any liens or encumbrances created by or imposed
thereon by the Holder; provided, however, that the Securities shall be subject
to restrictions on transfer under state and/or federal securities laws. The
Securities are not subject to any preemptive rights or rights of first refusal.
The Shares have been duly authorized and reserved for issuance upon conversion
of the Note. The certificate evidencing the Shares will be in due and proper
form.
3.5 SECURITIES LAW COMPLIANCE. Subject to the accuracy of the
representations and warranties of the Holder set forth in Section 4, the offer,
issue, and sale of the Securities are exempt from the registration requirements
of Section 5 of the Securities Act of 1933, as amended, (the "Securities Act")
and the qualification requirements, if any, of applicable state securities laws.
3.6 NO CONFLICT. The execution, delivery, and performance of the Loan
Documents, the sale and issuance of the Note and the consummation of the
transactions contemplated hereby and thereby will not (a) 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: (i) any provision of the
Company's Certificate of Incorporation or Bylaws; (ii) any provision of any
judgment, decree, or order to which the Company is a party or by which it is
bound; (iii) any material contract, obligation, or commitment to which the
Company is a party or by which it is bound; or (iv) any material statute, rule,
or governmental regulation applicable to the Company, (b) (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under
applicable securities laws), or (ii) result in the imposition or creation of (or
the obligation to create or impose) a lien under, any agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound.
3.7 PROPERTIES. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them that is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens and defects,
except as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
3.8 SEC FILINGS, FINANCIAL STATEMENTS. The Company has filed with the
Securities and Exchange Commission (the "SEC") all required quarterly reports on
Form 10-Q and annual reports on Form 10-K, registration statements, documents,
and reports required to be filed by it with the SEC or, if not required to be
filed, such other reports and documents as have otherwise been filed by the
Company (collectively, the "SEC Reports"). To the knowledge of the Company, all
of the SEC Reports complied as to form, when filed, in all material respects
with the applicable provisions of the Securities Act, and the Securities
Exchange Act of 1934, as amended. As of their respective dates, the SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated financial statements (including notes
thereto) contained in the SEC Reports (a) was prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods involved (except as indicated in the notes thereto) and
(b) fairly presented the financial position of the Company as at the respective
dates thereof.
3.9 NO MATERIAL ADVERSE CHANGES. Since the filing of the Company's
Registration Statement on Form S-4, other than as set forth in the Company's SEC
Reports, (a) there has not occurred any material adverse change: (i) in the
financial condition or operations of the Company and its subsidiaries, taken as
a whole, or (ii) in the capital stock or long-term debt of the Company or any of
its subsidiaries, taken as a whole, except as contemplated under this Agreement
or development, that would reasonably be expected to involve a material adverse
change in the financial condition or operations of the Company and its
subsidiaries, taken as a whole; (b) the Company and its subsidiaries, taken as a
whole, have not sustained any material loss or interference with its assets,
businesses or properties (whether owned or leased) from fire, explosion,
earthquake, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental action,
order or decree; and (c) since the date of the latest consolidated balance sheet
included in the SEC Reports, except as reflected therein, the Company has not
(A) issued any securities other than the issuance of securities pursuant to the
grant of or the exercise of options granted under stock option plans or
agreements existing prior to the date of the latest consolidated balance sheet
included in the SEC Reports, or (B) declared or paid any dividend or made any
distribution on any shares of its capital stock or redeemed, purchased or
otherwise acquired or agreed to redeem, purchase or otherwise acquire any shares
of capital stock, except to the extent provided under any stock option plans or
agreements existing prior to the latest date of the consolidated balance sheet
included in the SEC Reports.
4. REPRESENTATIONS AND WARRANTIES OF THE HOLDER
Holder hereby represents and warrants to the Company as follows:
4.1 AUTHORIZATION. When executed and delivered by the Holder, and assuming
execution and delivery by the Company, the Agreement will constitute a valid
obligation of such Holder, enforceable in accordance with its terms.
4.2 BROKERS AND FINDERS. Holder has not retained any investment banker,
broker, or finder in connection with the transactions contemplated by this
Agreement.
4.3 INVESTMENT. This Agreement is made with the Holder in reliance upon its
representations to the Company, which by the Holder's execution of this
Agreement Holder hereby confirms, that the Securities to be received by the
Holder will be acquired for investment for the Holder's own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that the Holder has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Holder further represents that it has no contract, undertaking,
agreement, or arrangement with any person to sell, transfer, or grant
participation to such person or to any third person, with respect to any of the
Securities.
4.4 NO REGISTRATION. Holder understands and acknowledges that the offering
of the Securities pursuant to this Agreement will not be registered under the
Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the Company's reliance upon such exemption
is predicated upon Holder's representations set forth in this Agreement
4.5 LIMITATIONS ON TRANSFERABILITY. Holder covenants that in no event will
it dispose of any of the Securities (other than pursuant to Rule 144 promulgated
by the SEC under the Securities Act ("Rule 144") or any similar or analogous
rule) unless and until (i) Holder shall have notified the Company of the
proposed disposition, and (ii) if requested by the Company, Holder shall have
furnished the Company with an opinion of counsel satisfactory in form and
substance to the Company and the Company's counsel, in the reasonable exercise
of their judgment, to the effect that (x) such disposition will not require
registration under the Securities Act and (y) appropriate action necessary for
compliance with the Securities Act and any applicable state, local, or foreign
law has been taken. Notwithstanding the limitations set forth in the foregoing
sentence, if Holder is a limited liability company or a partnership it may
transfer Securities to its members or constituent partners or a retired partner
of such partnership who retires after the date hereof, or to the estate of any
such member or partner or retired partner or transfer by gift, will, or
intestate succession to any such member's or partner's spouse or lineal
descendants or ancestors without the necessity of registration or opinion of
counsel if the transferee agrees in writing to be subject to the terms of this
Agreement to the same extent if such transferee were a Holder; provided,
however, that Holder hereby covenants not to effect such transfer if such
transfer either would invalidate the securities laws exemptions pursuant to
which the Securities were originally offered and sold or would itself require
registration under the Securities Act or applicable state securities laws. Each
certificate evidencing the Securities transferred as above provided shall bear
the appropriate restrictive legends set forth in Sections 7.6 and 7.7(a) below,
except that such certificate shall not bear such legend if the transfer was made
in compliance with Rule 144 or if the opinion of counsel referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act.
4.6 EXPERIENCE. Holder represents that: (i) it has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its prospective investment in the Securities; (ii) it has
received all the information it has requested from the Company and considers
necessary or appropriate for deciding whether to purchase the Securities; (iii)
it has had the opportunity to discuss the Company's business management, and
financial affairs with its management, (iv) it has the ability to bear the
economic risks of its prospective investment; and (v) it is able, without
materially impairing its financial condition, to hold the Securities for an
indefinite period of time and to suffer a complete loss on its investment.
4.7 ACCREDITED HOLDER. Holder presently qualifies, and will as of the
Closing Date qualify, as an "accredited investor" within the meaning of
Regulation D of the rules and regulations promulgated under the Securities Act.
5. CONDITIONS OF THE HOLDER'S OBLIGATIONS AT CLOSING
The obligations of the Holder under Section 1 of this Agreement are subject to
the fulfillment at or before the Closing of the following conditions, any of
which may be waived by the Holder:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 3 shall be true on and as of the Closing with
the same effect as if made on and as of the Closing.
5.2 PERFORMANCE. The Company shall have performed or fulfilled all
agreements, obligations, and conditions contained in the Loan Documents and
required to be performed or fulfilled by the Company before the Closing.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company under Section 1 of this Agreement are
subject to the fulfillment at or before the Closing of the following condition,
which may be waived in writing by the Company:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Holder contained in Section 4 shall be true on and as of the Closing with
the same effect as if made on and as of the Closing.
7. MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed by, and be construed in
accordance with, the laws of the State of California, excluding those laws that
direct the application of the laws of another jurisdiction.
7.2 SURVIVAL; TERMINATION. The warranties and representations of the
parties contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing for until the earlier
of: (a) the payment in full of all outstanding principal and interest under the
Note, or (b) the conversion of the Note into Shares, provided, however, that
such representations and warranties need only be accurate as of the date of such
execution and delivery and as of the Closing. This Agreement shall be
terminated and of no further force and effect upon earlier of: (a) the payment
in full of all outstanding principal and interest under the Note, or (b) the
conversion of the Note into Shares.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise 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.
7.4 ENTIRE AGREEMENT; INDEMNITY; WAIVER.
(A) ENTIRE AGREEMENT. This Agreement and the exhibits hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and supersede any and all prior
and contemporaneous agreements, understandings, discussions and correspondence.
(B) WAIVER. Holder's failure, at any time or times hereafter, to
requirestrict performance by the Company of any provision of this Agreement
shall not waive, affect or diminish any right of the Holder thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by the
Holder of a default under the Agreement or a default under any of the other Loan
Documents shall not suspend, waive or affect any other default under this
Agreement or any other default under any of the other Loan Documents, whether
the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants and representations of the Company contained in this Agreement or any
of the other Loan Documents and no default under this Agreement or default under
any of the other Loan Documents shall be deemed to have been suspended or waived
by the Holder unless such suspension or waiver is in writing signed by an
officer of the Company, and directed to the Holder.
7.5 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, sent by Federal Express or other national overnight
delivery service or otherwise delivered by hand or by messenger, addressed (a)
if to the Holder, at Holder's address set forth below or at such other address
as the Holder shall have furnished to the Company in writing or (b) if to any
other holder of any Note, at such address as such holder shall have furnished
the Company in writing or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Note who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth below, or at such other address as the Company shall have furnished to
the Holder.
Holder: Company:
Protein Design Labs, Inc. Exelixis, Inc.
34801 Campus Drive 170 Harbor Way
Fremont, CA 94555-3606 P. O. Box 511
Attn: General Counsel South San Francisco, CA 94083-0511
Attn: General Counsel
7.6 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE.
7.7 LEGENDS.
(A) All certificates for the Securities shall bear a legend
substantially similar to the following:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended ("Securities Act"). Such securities may
not be transferred unless a Registration Statement under the Act is in
effect as to such transfer or, in the opinion of counsel for the Company,
registration under the Act is unnecessary in order for such transfer to
comply with the Act or unless sold pursuant to Rule 144 of the Act."
(B) The certificates evidencing the Securities shall also bear any
legend required pursuant to any state, local, or foreign law governing such
securities.
7.8 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. IN WITNESS WHEREOF, the parties have
executed this Agreement as of the day and year first above written.
COMPANY:
EXELIXIS, INC.,
a Delaware corporation
_________________________________
George A. Scangos
Chief Executive Officer
HOLDER:
PROTEIN DESIGN LABS, INC.,
a Delaware corporation
_________________________________
Laurence Jay Korn
Chairperson and Chief Executive
Officer
38.
1.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.28
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT (the "Agreement") is dated as of May 22, 2001
(the "Effective Date") by and between EXELIXIS, INC., a Delaware corporation
having its principal place of business at 170 Harbor Way, P.O. Box 511, South
San Francisco, California 94083-0511 ("EXEL"), and PROTEIN DESIGN LABS, INC., a
Delaware corporation having its principal place of business at 34801 Campus
Drive, Fremont, California 94555-3606 ("PDL"). EXEL and PDL are sometimes
referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
A. PDL has expertise and capability in developing antibodies, in
particular humanized antibodies, as pharmaceuticals.
B. EXEL has expertise and proprietary technology relating to drug
discovery focused particularly on genetic model systems, genomics and
computational biology and is applying such technology to discover and validate
targets and products for drug discovery in a variety of disease areas.
C. PDL and EXEL desire to establish a collaboration to utilize the
technology and expertise of PDL and EXEL to identify and characterize targets
for the treatment of cancer and precancerous conditions, controlling cell
growth, apoptosis, and proliferation, to generate antibodies directed against
such targets, and to develop and commercialize novel antibody products for
diagnostic, prophylactic and therapeutic uses.
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS
The following terms shall have the following meanings as used in this
Agreement:
1.1 "AFFILIATE" means, with respect to a particular Party, a person,
corporation, partnership, or other entity that controls, is controlled by, or is
under common control with such Party. For the purposes of the definition in
this Section 1.1, the word "control" (including, with correlative meaning, the
terms "controlled by" or "under the common control with") means the actual
power, either directly or indirectly through one or more intermediaries, to
direct or cause the direction of the management and policies of such entity,
whether by the ownership of at least fifty percent (50%) of the voting stock of
such entity, or by contract or otherwise.
1.2 "ANTIBODY" means a Humanized Antibody or Precursor Antibody.
1.3 "ANTIBODY INVENTIONS" means an Invention directed to Antibodies,
including without limitation, composition of matter, methods of manufacture,
methods of use, formulations, dosing regimens, etc.
1.4 "ANTIBODY TARGET" means [ * ].
1.5 "ANTIBODY TARGET CANDIDATE" means [ * ].
1.6 "BLA" means a Biologics License Application as defined in the current
Federal Food, Drug and Cosmetic Act, and applicable regulations promulgated
thereunder by the FDA or the equivalent application to the equivalent agency of
any other regulatory jurisdiction, as amended from time to time during the term
of this Agreement.
1.7 "CO-FUNDED PRODUCT" means a Product for which EXEL has made an
effective election to co-fund pursuant to Section 5.1 and which has not ceased
to be a Co-Funded Product pursuant to Section 5.9.
1.8 "COLLABORATION" means all of the research activities performed by, or
on behalf of, EXEL or PDL during the Research Term pursuant to the Research
Plan, through the stage of evaluation of Precursor Antibodies.
1.9 "COMBINATION PRODUCT" means any product containing both (i)
substantially all of at least one variable region of an Antibody, and (ii) one
or more other therapeutically active ingredients.
1.10 "COMMERCIALIZATION PLAN" shall have the meaning set forth in Section
3.4(b).
1.11 "CONTROLLED" means, with respect to all or any portion of any gene,
protein, compound, material, Information or intellectual property right, that
the Party owns or has a license to such gene, protein, compound, material,
Information or intellectual property right and has the ability to grant to the
other Party access, a license or a sublicense (as applicable) to such gene,
protein, compound, material, Information or intellectual property right as
provided for herein 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, license or sublicense.
1.12 "COST OF GOODS SOLD" means [ * ].
1.13 "COST OF MANUFACTURE" means [ * ].
1.14 "DEVELOPMENT" means those activities undertaken with respect to a
Product that are directed toward obtaining Regulatory Approval and the
pre-marketing, marketing research, marketing and sale of such Product, including
without limitation, humanization, cell line optimization, pre-clinical testing
and toxicology studies, human clinical trials, formulation, bulk production,
fill/finish, manufacturing process development, manufacturing scale-up costs and
validation, qualification and certification costs and preparation of regulatory
filings.
1.15 "DEVELOPMENT PLAN" means the plan describing the Development intended
to be conducted for a given Co-Funded Product, including an estimated schedule
and budget, as such plan may be amended by the relevant Joint Development
Committee from time to time.
1.16 "DEVELOPMENT COSTS" means [ * ].
1.17 "DILIGENT EFFORTS" means the carrying out of obligations or tasks in a
sustained manner consistent with the efforts a Party devotes to a product or a
research, development or marketing project of similar market potential, profit
potential or strategic value resulting from its own research efforts, based on
conditions then prevailing and taking into account its relative risk profile,
time to market, and other factors considered in portfolio management. Diligent
Efforts requires that the Party: (i) promptly assign responsibility for such
obligations to specific employee(s) who monitor such progress on an on-going
basis, (ii) set and consistently seek to achieve specific and meaningful
objectives for carrying out such obligations, and (iii) allocate resources
designed to advance progress with respect to such objectives.
1.18 "DRUG APPROVAL APPLICATION" means an application for Regulatory
Approval required before commercial sale of a Product as a pharmaceutical
product in a regulatory jurisdiction.
1.19 "EXEL DIAGNOSTIC PRODUCT" means [ * ].
1.20 "EXEL KNOW-HOW" means all Information Controlled by EXEL during the
term of the Agreement that is necessary or reasonably useful for PDL (a) to
fulfill its obligations under the Research Plan, or (b) to research, develop,
use, import, manufacture, market or sell Antibodies or Products, but excluding
the EXEL Patents.
1.21 "EXEL PATENTS" means all (i) unexpired letters patent (including
inventor's certificates) which have not been held invalid or unenforceable by a
court of competent jurisdiction from which no appeal can be taken or has been
taken within the required time period, including without limitation any
substitution, extension, registration, confirmation, reissue, re-examination,
renewal, patent of addition or any like filing thereof and (ii) pending
applications for letters patent, including without limitation any continuation,
division, or continuation-in-part thereof and any provisional applications
Controlled by EXEL related to Targets or Antibodies, including the
identification and generation of Antibody Target Candidates and Antibody Targets
for use in identifying and generating Antibodies, including but not limited to
issued patents and pending applications that claim the composition of matter,
manufacture, import or use of a Target, Antibody Target Candidate, Antibody
Target, Antibody or Product, which are filed prior to or during the term of this
Agreement in the United States or any foreign jurisdiction. "EXEL Patents" shall
not include Joint Patents or PDL Patents or, after assignment to PDL, Antibody
Patents.
1.22 "EXEL PRODUCTS" means those Products which previously were Co-Funded
Products, but which EXEL has assumed responsibility for Development and
commercialization as described in Section 5.9(c).
1.23 "FIRST COMMERCIAL SALE" means the first sale of the applicable Product
to a Third Party following Regulatory Approval of the Product in the country
where sold.
1.24 "HUMANIZED ANTIBODY" means [ * ] pursuant to this Agreement by [ * ].
The term "Humanized Antibody" shall include, without limitation [ * ].
1.25 "INDEPENDENT RESEARCH" means [ * ].
1.26 "IND" means an Investigational New Drug Application as defined in the
current Federal Food, Drug and Cosmetic Act and applicable regulations
promulgated thereunder by the FDA or the equivalent application to the
equivalent agency in any other regulatory jurisdiction, as amended from time to
time during the term of this Agreement, and any equivalent application or filing
for diagnostics or medical devices.
1.27 "INFORMATION" means information, results and data of any type
whatsoever, in any tangible or intangible form whatsoever, including without
limitation, databases, inventions, practices, methods, techniques,
specifications, formulations, formulae, knowledge, know-how, skill, experience,
test data including pharmacological, 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.
1.28 "INVENTIONS" means any and all inventions, results, know-how and other
Information, and all intellectual property relating thereto, made, discovered or
developed by one or more Parties and their employees or agents (including,
without limitation, consultants or contractors who have assigned rights to
inventions to a Party) pursuant to work performed under the Collaboration or in
the course of developing a Pre-Opt-In Product or developing or marketing a
Co-Funded Product.
1.29 "JOINT INVENTIONS" means any and all Inventions (other than Antibody
Inventions) made jointly by employees or agents of both Parties (including,
without limitation, consultants or contractors who have assigned rights to
inventions to a Party), as determined in accordance with United States patent
laws.
1.30 "JOINT PATENTS" means all (i) unexpired letters patent (including
inventor's certificates) which have not been held invalid or unenforceable by a
court of competent jurisdiction from which no appeal can be taken or has been
taken within the required time period, including without limitation any
substitution, extension, registration, confirmation, reissue, re-examination,
renewal, patent of addition or any like filing thereof, and (ii) pending
applications for letters patent, including without limitation any continuation,
division, or continuation-in-part thereof and any provisional applications
claiming Joint Inventions, which are filed during the term of this Agreement in
the United States or any foreign jurisdiction. "Joint Patents" shall not include
EXEL Patents or PDL Patents or Antibody Patents.
1.31 "MODEL SYSTEM TARGETS" means [ * ].
1.32 "NET SALES" means [ * ]. In the case of Combination Products for which
a Product and each of the other therapeutically active ingredients contained in
the Combination Product have established market prices when sold separately, Net
Sales shall be determined by multiplying the Net Sales for each such Combination
Product by a fraction, the numerator of which shall be the established market
price for the Product(s) contained in the Combination Product, and the
denominator of which shall be the sum of the established market prices for the
Product(s) plus the other active ingredients contained in the Combination
Product. When such separate market prices are not established, then the Parties
shall negotiate in good faith to determine the method of calculating Net Sales
for Combination Products.
If PDL, its Affiliates or sublicensees receive non-cash consideration for
any Product sold or otherwise transferred to a Third Party, the fair market
value of such non-cash consideration on the date of the transfer as known to
PDL, or as reasonably estimated by PDL if unknown, shall be included in the
definition of Net Sales. EXEL shall have a right to review the basis of such
determination and upon written notice, audit such estimates as provided in
Section 9.16.
1.33 "ONCOLOGY SCREENS" shall have the meaning [ * ].
1.34 "OPT-IN PERIOD" shall have the meaning set forth in Section 5.1.
1.35 "PATENTS" means EXEL Patents, PDL Patents and/or Joint Patents as the
context requires.
1.36 "PDL DIAGNOSTIC PRODUCT" means a product that is being or has been
developed for [ * ] for use with a [ * ].
1.37 "PDL KNOW-HOW" means all Information Controlled by PDL during the term
of the Agreement that is necessary or reasonably useful for EXEL to (a) fulfill
its obligations under the Research Plan, or (b) develop, import, use,
manufacture, market or sell EXEL Products, but excluding the PDL Patents and
excluding all Information Controlled by PDL that relates to antibodies other
than EXEL Products (including, without limitation, general methods for the
humanization or manufacture of antibodies), except to the extent the Parties
agree pursuant to Section 5.9(c).
1.38 "PDL PATENTS" means all (i) unexpired letters patent (including
inventor's certificates) which have not been held invalid or unenforceable by a
court of competent jurisdiction from which no appeal can be taken or has been
taken within the required time period, including without limitation any
substitution, extension, registration, confirmation, reissue, re-examination,
renewal, patent of addition or any like filing thereof and (ii) pending
applications for letters patent, including without limitation any continuation,
division, or continuation-in-part thereof and any provisional applications,
Controlled by PDL related to the development of Antibodies, including but not
limited to applications that claim the composition of matter, manufacture, or
use of a Target, Antibody or Product, which are issued or filed prior to or
during the term of this Agreement in the United States or any foreign
jurisdiction. "PDL Patents" shall not include Joint Patents or EXEL Patents or,
until assigned to PDL, Antibody Patents.
1.39 "PDL PRODUCT" means any Product developed under this Agreement which
(a) [ * ], or (b) [ * ].
1.40 "PHASE III CLINICAL TRIAL" means a trial on sufficient numbers of
patients that is designed to establish that a pharmaceutical product is safe and
efficacious for its intended use, and to define warnings, precautions and
adverse reactions that are associated with the pharmaceutical product in the
dosage range to be prescribed, and to support Regulatory Approval of such
pharmaceutical product or label expansion of such pharmaceutical product.
1.41 "PRECURSOR ANTIBODY" means [ * ] pursuant to this Agreement from [ *
]. The term "Precursor Antibody" shall include, without limitation [ * ].
1.42 "PRE-OPT-IN PRODUCT" means a Product for which EXEL has not made a
decision under Section 5.1 whether to co-fund and for which the Opt-In Period
has not expired.
1.43 "PRODUCT" means any therapeutic or prophylactic product developed
under this Agreement, for [ * ], incorporating [ * ].
1.44 "PRODUCT PROFIT" means the profit or loss for a particular Co-Funded
Product for a particular period calculated as described in Exhibit B.
1.45 "REGULATORY APPROVAL" means any and all approvals (including
supplements, amendments, pre- and post-approvals, pricing and reimbursement
approvals), licenses, registrations or authorizations of any national,
supra-national (e.g., the European Commission or the Council of the European
Union), regional, state or local regulatory agency, department, bureau,
commission, council or other governmental entity, that are necessary for the
manufacture, distribution, use and sale of a Product in a regulatory
jurisdiction.
1.46 "RESEARCH FUNDING" means the research funding and license payments
made by PDL to EXEL as described in Section 9.2.
1.47 "RESEARCH PLAN" means the research plan describing the goals and
activities to be conducted through the stage of Precursor Antibody evaluation
during the Research Term, including initially a detailed description of such
goals and activities for the first year of the Research Term and a general
description of the goals and intended activities for the remainder of the
Research Term, as such plan is amended from time to time during the Research
Term in accordance with Section 3.1(b). The Research Plan, including any amended
Research Plan, shall be attached as Exhibit A.
1.48 "RESEARCH TERM" means the period commencing on [ * ] and ending on the
termination [ * ].
1.49 "SOLE INVENTIONS" means any and all Inventions (other than Antibody
Inventions) made, discovered or developed solely by one Party and its employees
or agents (including, without limitation, consultants or contractors who have
assigned rights to inventions to a Party).
1.50 "TARGET(S)" means [ * ]. The term "Target(s)" shall include [ * ], but
shall exclude [ * ].
1.51 "TARGET POOL" means [ * ] whenever identified, [ * ].
1.52 "THIRD PARTY" means any entity other than (i) EXEL, (ii) PDL or (iii)
an Affiliate of either of them.
1.53 "THIRD PARTY ROYALTY" means any royalty paid by a Party or an
Affiliate to a Third Party in respect of the manufacture, importation, use or
sale of a Product.
2. THE COLLABORATION RELATIONSHIP
2.1 OVERVIEW. PDL and EXEL will collaborate to identify, develop,
market and sell antibodies for use in the diagnosis, prophylaxis and treatment
of one or more [ * ] cancerous conditions. EXEL will conduct activities under
the Research Plan to identify Targets and will present all such Targets to PDL [
* ]. Targets will be analyzed [ * ]. [ * ] conduct preclinical testing in
preparation for an IND and develop a Development Plan for any Product for which
PDL intends to file an IND. If EXEL elects to co-fund one or more Products [ *
]
3. MANAGEMENT OF THE COLLABORATION
3.1 JOINT SCIENTIFIC COMMITTEE.
(A) MEMBERSHIP. [ * ] the Effective Date, the Parties shall establish
a Joint Scientific Committee (the "JSC") to oversee the research activities of
EXEL and PDL under the Research Plan. The JSC shall be composed of four
representatives, two members appointed by each of the Parties. One
representative from each Party on the JSC shall be the individual at the Party
with primary responsibility for the management of the Collaboration. Initial
designees shall be Geoff Duyk and Greg Plowman on behalf of EXEL and William
Benjamin and Max Vasquez on behalf of PDL. Each Party may replace its appointed
JSC representatives at any time upon written notice to the other Party. EXEL
shall designate one of its representatives as Chairperson of the JSC, and PDL
shall designate one of its representatives as Vice-Chairperson. The Chairperson
shall be responsible for scheduling meetings and preparing and circulating a
draft agenda in advance of each meeting. Any member may add topics to the
agenda. The Vice-Chairperson shall be responsible for preparing and issuing
minutes of each meeting within thirty (30) days thereafter.
(B) RESPONSIBILITIES. During the [ * ], the JSC shall meet on a
quarterly basis as provided in Section 3.5. Following the Research Term, the JSC
shall meet on a quarterly basis for [ * ] for the purposes of winding down or
completing work [ * ]. [ * ] may elect to continue to work in the same manner as
described in the Research Plan on [ * ] and [ * ] on a case-by-case basis. For
those [ * ] for which [ * ] continues to conduct such work and that complete the
stage of in vitro and in vivo validation as described in Section 2.7 of the
Research Plan (to the extent specified by the JSC), for each such resulting
Product, the Opt-In Decision as set forth in Section 5.1 (i.e., EXEL's right to
co-fund) shall survive; otherwise, such rights shall terminate. The JSC shall
operate [ * ] and in accordance with the principles set forth in this Article 3.
The JSC shall: (i) evaluate the data generated by the Parties in the course of
the Collaboration, (ii) decide what research activities the Parties shall
perform on Targets or Precursor Antibodies under the Collaboration, except as
provided in Section 4.2, and (iii) review and amend the Research Plan from time
to time as appropriate, including not less than an annual review to detail the
activities and goals for the upcoming year; provided that any amendment of the
Research Plan that varies any material terms of this Agreement shall be subject
to Section 15.4, which requires that any such amendment shall be reduced to
writing and signed by an authorized officer of each Party.
3.2 JOINT PATENT COMMITTEE. Within [ * ] the Effective Date, a Joint
Patent Committee (the "JPC") shall be formed. The JPC, in consultation with the
JSC, will devise a strategy for the protection of intellectual property arising
from the Collaboration, including Antibody Target Candidates, Antibody Targets
and Antibody Inventions, and will supervise and direct the filing, prosecution
and maintenance of all Patents covering the Joint Inventions, as further
described in Article 10. This committee will consist of one member from each
Party's management team or the Party's designated alternate. The PDL
representative will serve as the Chairperson of the JPC. During the term of this
Agreement, the JPC will meet at [ * ], as provided in Section 3.5, and may hold
additional meetings at the request of either Party.
3.3 JOINT DEVELOPMENT COMMITTEE.
(A) MEMBERSHIP. [ * ] as EXEL exercises its option to co-fund a
Product, as provided in Section 5.1, the Parties promptly shall establish a
Joint Development Committee (a "JDC") to oversee the development and
commercialization of that Co-Funded Product. The JDC shall be composed of four
representatives, two members appointed by each of the Parties. One JDC
representative from PDL shall be the individual at PDL with primary
responsibility for the management of the development of the Product. Each Party
may replace its appointed JDC representatives at any time upon written notice to
the other Party. PDL shall designate one of its representatives as Chairperson
of the JDC, and EXEL shall designate one of its representatives as
Vice-Chairperson. The Chairperson shall be responsible for scheduling meetings
and preparing and circulating an agenda in advance of each meeting. The
Vice-Chairperson shall be responsible for preparing and issuing minutes of each
meeting within thirty (30) days thereafter.
(B) RESPONSIBILITIES. During the Development of a Co-Funded Product,
the JDC for that Co-Funded Product shall meet on a quarterly basis as provided
in Section 3.5. Each JDC shall operate [ * ] and in accordance with the
principles set forth in this Article 3. Each JDC shall: (i) oversee the progress
of the Development conducted by PDL for its Co-Funded Product, and (ii) review
and approve any material amendments to the Development Plan for its Co-Funded
Product.
3.4 JOINT COMMERCIALIZATION COMMITTEE.
(A) MEMBERSHIP. [ * ] for each Co-Funded Product, the Parties shall
establish a Joint Commercialization Committee ("JCC") for that Co-Funded
Product. The JCC shall be composed of four representatives, two members
appointed by each of the Parties. One representative from PDL on the JCC shall
be the individual at PDL with primary responsibility for the commercialization
of the Product. Each Party may replace its appointed JCC representatives at any
time upon written notice to the other Party. PDL shall designate one of its
representatives as Chairperson of the JDC, and EXEL shall designate one of its
representatives as Vice-Chairperson. The Chairperson shall be responsible for
scheduling meetings and preparing and circulating an agenda in advance of each
meeting. The Vice-Chairperson shall be responsible for preparing and issuing
minutes of each meeting within thirty (30) days thereafter.
(B) RESPONSIBILITIES. Each JCC shall meet on a quarterly basis as
provided in Section 3.5. Each JCC shall operate [ * ] and in accordance with the
principles set forth in this Article 3. Each JCC shall: (i) prepare a basic
commercialization plan, including a launch and marketing plan and budget for the
commercialization of its Co-Funded Product (the "Commercialization Plan"), (ii)
oversee the implementation of the Commercialization Plan by PDL, and (iii)
review and approve any material amendments to the Commercialization Plan. In any
event, the Commercialization Plan shall not include detailed Information
regarding PDL's implementation of the Plan, including without limitation, sales
force incentives, which shall be in PDL's sole discretion. The Commercialization
Plan shall be prepared taking into consideration such factors as: (i) the use of
Third Party collaborators to develop, market and sell in particular countries or
territories, (ii) market conditions, (iii) regulatory factors, and (iv)
competition. The Commercialization Plan budget will include all projected
additional Regulatory Approvals, and sales and marketing expenses for the
Co-Funded Product.
3.5 MEETINGS. All meetings of the JSC, JPC, JDCs and JCCs shall be
held at the headquarters of either EXEL or PDL (or at any other mutually agreed
upon location), on an alternating basis. Either Party may bring additional
representatives to attend meetings of a particular committee as nonvoting
observers. A meeting of a committee may be held by audio or video
teleconference with the consent of each Party, provided that at least half of
the minimum number of meetings for that committee shall be held in person.
Meetings of a committee shall be effective only if at least one representative
of each Party is present or participating.
3.6 OBLIGATIONS OF PARTIES. EXEL and PDL shall provide the JSC, JPC, JDCs
and JCCs and their authorized representatives with reasonable access during
regular business hours to all records, documents, and Information relating to
the Collaboration which any such committee may reasonably require in order to
perform its obligations hereunder; provided, however, that if such documents are
under a bona fide obligation of confidentiality to a Third Party, then EXEL or
PDL, as the case may be, may withhold access thereto to the extent necessary to
satisfy such obligation, such access not to be unreasonably withheld. EXEL and
PDL may also withhold documents relating to any evaluations of the
Collaboration, including documents relating to evaluating the activities under
this Agreement or relating to a decision whether to continue a Collaboration
project.
3.7 COLLABORATION GUIDELINES.
(A) GENERAL. In all matters related to the Collaboration and the
development and marketing of Co-Funded Products, the Parties shall be guided by
standards of reasonableness in economic terms and fairness to each of the
Parties, striving to balance as best they can the legitimate interests and
concerns of the Parties to further the goals of the Collaboration and to realize
the economic potential of the Products.
(B) [ * ]; DEADLOCKS. The JSC, JPC, JDCs and JCCs shall operate [ * ].
In the event of a deadlock within the JSC, the JPC, a JDC or a JCC concerning
anydecision, such deadlock shall be resolved as follows:
(I) JSC DEADLOCKS. If a deadlock arises between the members of
the JSC, a non-JSC-member officer of each party shall be advised of the deadlock
in writing and shall attempt to provide the JSC with a mutually agreed upon
resolution within one (1) month. If such resolution is not timely provided, the
Chief Executive Officer ("CEO") of each Party shall be advised of the deadlock
in writing and the deadlock shall be resolved by mutual agreement of the
Parties' CEOs within one (1) month after they have been so advised. If the CEOs
do not agree on a resolution, [ * ] regarding any deadlock concerning target
selection (i.e., whether a Target meets the Antibody Target Candidate or
Antibody Target criteria) and all other deadlocks shall be submitted to and
resolved by binding arbitration pursuant to the Commercial Arbitration Rules of
the American Arbitration Association (the "AAA Rules"). In any event, each Party
shall submit a briefing document detailing its position in the deadlock not to
exceed 25 double-spaced 8.5"x11" pages within 10 business days of the selection
of the arbitrator, and the arbitrator shall be instructed to make such
determination within 30 days of submission of both position papers, but in any
event not later than 40 days following submission of the matter to arbitration.
The arbitration shall be held in San Francisco, California and shall be
conducted by one arbitrator who is knowledgeable in the subject matter at issue
and who is selected by mutual agreement of the Parties or, failing such
agreement, shall be selected according to the AAA Rules. In conducting the
arbitration, the arbitrator shall apply the California Rules of Evidence, and
shall be able to decree any and all relief of an equitable nature, including
without limitation such relief as a temporary restraining order, a preliminary
injunction, a permanent injunction, and specific performance. Each Party shall
bear its respective costs and expenses and the fees of the arbitrator shall be
shared equally.
(II) JPC Deadlocks. If a deadlock arises between the members of
the JPC, the General Counsel of each Party shall be advised of the deadlock in
writing and shall attempt to provide the JPC with a mutually agreed upon
resolution within one (1) month. If such resolution is not timely provided by
the General Counsels of the Parties, the CEO of each Party shall be advised of
the deadlock in writing and the deadlock shall be resolved by mutual agreement
of the Parties' CEOs within one (1) month after they have been so advised. If
the CEOs do not agree on a resolution, then [*].
(III) JDC DEADLOCKS. If a deadlock arises between the members of
a JDC, the CEO of each Party shall be advised of the deadlock in writing and
shall attempt to provide the JDC with a mutually agreed upon resolution within
one (1) month. If such resolution is not timely provided by the CEOs of the
Parties, the deadlock shall be resolved by mutual agreement of the Parties' CEOs
within one (1) month after they have been so advised. If the CEOs do not agree
on a resolution, then [ * ].
(IV) JCC Deadlocks. If a deadlock arises between the
members of a JCC, the CEO of each Party shall be advised of the deadlock in
writing and shall attempt to provide the JCC with a mutually agreed upon
resolution [*]. If such resolution is not timely provided by [*]
(C) INDEPENDENCE. Subject to the terms of this Agreement, the
activities and resources of each Party shall be managed by such Party,
acting independently and in its individual capacity. The relationship
between EXEL and PDL is that of independent contractors and neither Party
shall have the power to bind or obligate the other Party in any manner,
other than as is expressly set forth in this Agreement.
4. COLLABORATION; HUMANIZATION
4.1 COLLABORATION.
(A) GENERAL. [ * ], the Parties shall conduct collaborative research
with the general goals and objectives of: (a) applying EXEL technology to
discover and characterize Targets that may be useful as tools for the discovery
and development of therapeutic and diagnostic Antibodies for controlling cell
growth, apoptosis and proliferation in the diagnosis, prevention, treatment or
cure of cancer or pre-cancerous conditions, and (b) applying PDL technology [ *
]. Subject to [ * ], the obligations of EXEL described in [ * ] shall terminate
[ * ]. The rights and obligations of PDL in [ * ] shall terminate as provided
for in [ * ]. The obligations of PDL in [ * ] shall continue until the later of
(i) the [ * ] or (ii) the time [ * ]. The details of the Collaboration are set
forth below and in the Research Plan. In the event of any conflict between the
provisions of this Agreement and those of the Research Plan, the provisions of
this Agreement shall govern.
(B) PRESENTATION OF TARGETS. Promptly after the Effective Date, EXEL
shall present to the JSC all Model System Targets and Targets identified prior
to the Research Term. During the Research Term, EXEL will conduct activities as
described in Sections 2.1 and 2.2 of the Research Plan to identify additional
Model System Targets and Targets and, promptly after identification, will
present all such additional Model System Targets and Targets to the JSC. [ * ].
(C) ALLOCATION OF TARGETS TO [ * ]. As described in Section 2.3 of the
Research Plan, [ * ] shall conduct [ * ] for each [ * ]. After presentation to
the JSC of the [ * ] and results of such [ * ] for a [ * ], the JSC shall
determine whether the [ * ] is to be designated an [ * ] and pursued in
accordance with the Research Plan. All [ * ] shall be included in and shall
constitute the "Work Pool." For each [ * ] determined not to be designated an [
* ], then, promptly following such determination by the JSC, and in no event
later than the quarterly JSC meeting following the JSC meeting at which such
determination was made, [ * ] shall elect, by notifying the JSC, whether such [
* ] shall be included in the [ * ] (in which case it shall be a [ * ]) or the [
* ] (in which case it shall be an [ * ]).
(D) [ * ] [ * ] shall be reserved for possible future inclusion by the
JSC in the Work Pool. [ * ] shall have [ * ] license with respect to the [ * ]
as set forth in [ * ]. [ * ] may designate a maximum number of [ * ] equal to [
* ]. [ * ] may at any time, by notifying the JSC, elect to re-designate a [ * ]
as an [ * ], in which event it shall no longer count against the maximum number
of [ * ]. The JSC may designate a [ * ] for out-licensing, in which case it
shall continue to count as a [ * ] until such time as it is either out-licensed
or re-designated by [ * ] as an [ * ] or re-designated by the JSC to be included
in the Work Pool.
(E) [ * ] [ * ] shall be available for possible future inclusion by
the JSC in the Work Pool or by [ * ] in the [ * ] at [ * ] , subject to the
following limitation: If [ * ] [ * ] in one or more model organisms, other than
[ * ], either on its own behalf or pursuant to an agreement with a Third Party
Antibody Collaborator (as defined below) and if [ * ] identifies through such [
* ] that is also a [ * ], then [ * ] shall promptly notify the JSC in writing
that such [ * ] was identified in a screen outside the Collaboration. If such [
* ] is an [ * ], and if there is a reasonable basis to believe such [ * ] may
have potential in cancer, then no later than the quarterly JSC meeting following
the JSC meeting at which such notice was provided, the JSC may elect to include
such [ * ] in the Work Pool or [ * ] may elect to include such [ * ]. If neither
the JSC nor [ * ] so elects, then such [ * ] shall be remain in the [ * ] and
shall be deemed an [ * ] [ * ] shall have [ * ] license with respect to the [ *
] as set forth in Section 8.1(b), except that it shall have [ * ] license with
respect to any [ * ] in the [ * ] as set forth in Section 8.1(a). "Third Party
Antibody Collaborator" shall mean a Third Party providing average annual
research funding or other non-cash consideration (which shall be fair market
value on the date of transfer if known to [ * ] or, as reasonably estimated by [
* ] if unknown) of not less than [ * ] in a designated therapeutic area.
(F) [ * ] Each [ * ] shall be available for selection by the JSC for
inclusion in the Work Pool until such time as [ * ] notifies [ * ] and the JSC
in writing that either [ * ] or the Third Party Antibody Collaborator has made a
decision (as documented by written records of [ * ]) to begin work to express
and purify the protein expressed by such [ * ] for purposes of developing a [ *
]. Upon receipt of such notice, [ * ] shall have no further rights to that [ * ]
and it shall cease to be a [ * ].
4.2 HUMANIZED ANTIBODY GENERATION AND PRECLINICAL TESTING. [ * ] will
determine which Precursor Antibodies should be humanized. If [ * ] decides not
to humanize a particular Precursor Antibody, then the provisions of Section 7.1
shall apply to that Precursor Antibody and the provisions of Section 7.2, if
applicable, shall apply to its Target. [ * ] will generate Humanized Antibodies
for each Precursor Antibody selected by [ * ] and will conduct appropriate
preclinical testing, as determined by [ * ], for preparation of the IND. If [ *
] decides not to file an IND for any particular Humanized Antibody, then the
provisions of Section 7.3 shall apply to that Humanized Antibody.
4.3 CONDUCT OF RESEARCH. Each Party shall use Diligent Efforts to conduct:
(i) their respective tasks, as contemplated under the Research Plan and by the
JSC (the "Research"), and (ii) the Collaboration and the Research in good
scientific manner, and in compliance in all material respects with the
requirements of applicable laws, rules and regulations and all applicable good
laboratory practices to attempt to achieve their objectives efficiently and
expeditiously.
4.4 RECORDS. Each Party shall maintain complete and accurate records of all
work conducted by it or on its behalf under the Collaboration or pursuant to the
Research and all Information generated in connection with its efforts under the
Collaboration or pursuant to the Research. Each Party shall maintain such
records for a period of [ * ] after the later to occur of (a) the end of the
Research Term, or (b) the termination of all efforts to develop, license, market
or sell the Product to which such records pertain. Such records shall fully and
properly reflect all work done and all Information generated in the performance
of the Collaboration or the Research in sufficient detail and in good scientific
manner appropriate for patent and regulatory purposes. Each Party shall have the
right to review and copy such records of the other Party at reasonable times to
the extent necessary for such Party to conduct its research, development or
other obligations under this Agreement.
4.5 REPORTS. [ * ], each Party shall report to the JSC not less than [ * ]
and will periodically submit to the other Party and the JSC a written progress
report summarizing the Research.
4.6 SHARING OF BIOLOGICAL DATA. PDL shall provide EXEL with copies of all
Information that is Controlled by PDL and that is generated by or on behalf of
PDL in the course of the Collaboration. EXEL may use such PDL Information for [
* ]. EXEL shall not [ * ]. EXEL shall provide PDL with copies of all Information
that is Controlled by EXEL and that is generated by or on behalf of EXEL in the
course of the Collaboration. PDL may use such Information for [ * ].
4.7 RIGHT TO ENGAGE THIRD PARTIES FOR COLLABORATION EFFORTS. [ * ] shall
have the right to grant licenses and sublicenses to Third Parties of its rights
with respect to the conduct of its portion of the Collaboration, as it deems
necessary or advisable, provided that [ * ].
5. DEVELOPMENT AND MARKETING OF CO-FUNDED PRODUCTS; EXEL PRODUCTS
5.1 DEVELOPMENT DECISION. At such time as PDL has substantially
completed the IND and Development Plan for a Product, PDL shall deliver to EXEL
(i) such IND and Development Plan, and (ii) documentation of historical
Development Costs described in Section 5.2(a), and the budget for such costs, if
any, for that Product. EXEL shall have [ * ] from the date of PDL's delivery of
the IND and the Development Plan to review and comment on the IND and
Development Plan ("Opt-In Period") [ * ] and to determine whether EXEL will
elect to co-fund the development and commercialization of that Product ("Opt-In
Decision"). If EXEL decides to co-fund such Product, EXEL shall provide written
notice to PDL of its Opt-In Decision, accompanied by the payments specified in
Section 5.2(a) prior to the expiration of the Opt-In Period. Effective as of the
date of such notice, such Product shall become a "Co-Funded Product" and the
Development Plan provided to EXEL shall be deemed agreed to by EXEL unless the
Parties mutually agree in writing on a revised Development Plan. The Parties
then shall establish a Joint Development Committee to oversee the Development of
the Co-Funded Product, in accordance with Section 3.3. If EXEL does not so
notify PDL and make such payments within the Opt-In Period, then EXEL
immediately shall return all copies of the IND and Development Plan for that
Product to PDL. Thereafter, that Product shall be deemed a PDL Product, as
provided in Section 6.1.
5.2 PAYMENTS FOR CO-FUNDED PRODUCTS. EXEL shall make the following
payments for each Co-Funded Product:
(A) INITIAL PAYMENTS. [ * ] reimbursement of fifty percent (50%) of
the Development Costs incurred by PDL through the end of PDL's most recently
ended fiscal quarter prior to PDL's delivery to EXEL of the IND and Development
Plan for that Product under Section 5.1.
(B) REIMBURSEMENT OF DEVELOPMENT COSTS. Following the initial payments
under Section 5.2(a), EXEL shall reimburse PDL [ * ] for fifty percent (50%) of
the Development Costs incurred by PDL for each Co-Funded Product. All such
reimbursement payments shall be due within thirty (30) days after invoicing by
PDL.
5.3 DEVELOPMENT PLAN FOR CO-FUNDED PRODUCTS. [ * ] shall provide [ * ] for
all Co-Funded Products. [ * ] shall [ * ] of each Co-Funded Product as described
in the [ * ]. [ * ] shall have the right to [ * ]. [ * ] shall have [ * ]. The
JDC for each Co-Funded Product shall carry out its responsibilities, as
described in Section 3.3.
5.4 COMMERCIALIZATION PLAN FOR CO-FUNDED PRODUCTS. The marketing and sale
of each Co-Funded Product will be governed by its Commercialization Plan,
prepared as described in Section 3.4. PDL shall have the authority and
responsibility to implement each Commercialization Plan. The JCC for each
Co-Funded Product shall carry out its responsibilities, as described in Section
3.4.
5.5 RIGHT TO ENGAGE THIRD PARTIES FOR [ * ]. PDL may use Third Parties to
perform portions of its obligations relating to [ * ]. In any material agreement
with a Third Party relating to the Development of a Product, the Party retaining
such Third Party shall provide for terms that are consistent with the terms of
this Agreement and the Party shall remain liable for the performance of any
obligations hereunder which it delegates to Third Parties. [ * ] shall have the
right to grant licenses and sublicenses to Third Parties of its rights with
respect to Co-Funded Products as it deems necessary or advisable for the
Development and/or commercialization of Co-Funded Products. [ * ] shall [ * ].
5.6 INDS AND DRUG APPROVAL APPLICATIONS. [ * ] shall be responsible for
the preparation and filing of, and shall own all regulatory submissions relating
to, [ * ] filed in any regulatory jurisdiction. [ * ] shall keep the relevant
JDC and JCC informed regarding the schedule and process for the preparation of
Drug Approval Applications for Co-Funded Products. [ * ] shall provide a draft
copy of the initial Drug Approval Application for each Major Market (as defined
in Section 9.3), and all supplemental Drug Approval Applications for each Major
Market (e.g., for a new indication) for each Co-Funded Product to EXEL for
review, to the extent practical, prior to their submission to the appropriate
regulatory authority, provided, however, that [ * ] shall be required to
promptly review such submission and in any event shall have [ * ] to comment on
such documents, [ * ].
5.7 RECORDS. Each Party shall maintain complete and accurate records of
all research and development work conducted by it or on its behalf related to
Co-Funded Products and Pre-Opt-In Products, and all Information generated and
Development Costs incurred by it or on its behalf in connection with Development
under this Agreement with respect to Co-Funded Products and Pre-Opt-In Products.
Each Party shall maintain such records for a period of [ * ] after the later to
occur of (a) the end of the Research Term, or (b) the termination of all efforts
to develop, license, market or sell the Product to which such records pertain.
Such records shall fully and properly reflect all work performed and all
Information generated in sufficient detail and in good scientific manner
appropriate for patent and regulatory purposes. Each Party shall have the right
to review and copy such records of the other Party at reasonable times to the
extent necessary for such Party to conduct its research, development or other
obligations under this Agreement.
5.8 REPORTS. During the term of the Agreement, [ * ] will provide reports
at the relevant JDC and JCC meetings summarizing the recent Development and
commercialization activities relating to each Co-Funded Product. [ * ] will
provide [ * ] with summary reports for Pre-Opt-In Products through the JSC or,
after the Research Term, upon request by [ * ], but not more frequently than [ *
].
5.9 TERMINATION OF CO-FUNDING; OUT-LICENSE OF CO-FUNDED PRODUCTS.
(A) VOLUNTARY TERMINATION BY [ * ]. [ * ] shall have the right to
terminate its co-funding obligation for any Co-Funded Product effective [ * ]
after providing irrevocable, written notice to [ * ] of such election to
terminate. Upon the effective date of such termination: (i) such Product shall
be deemed a [ * ] Product, rather than a Co-Funded Product, (ii) the JDC for
such Product shall be disbanded, and (iii) [ * ] shall no longer have any rights
pursuant to Section 9.9 to receive a share of Product Profit with respect to
such Product but instead shall receive prospective milestones for events that
occur after the effective date of such termination and royalties on Net Sales of
such Product pursuant to Article 9. [ * ]
(B) COMPULSORY TERMINATION BY [ * ]. If [ * ] fails to make a payment
under Section 5.2 and such payment is not received within [ * ] after notice of
failure to pay by [ * ], then at [ * ] option, [ * ] shall be deemed to have
terminated co-funding effective [ * ] after the end of such [ * ] period. The
effect of such termination shall be as described in Section 5.9(a).
(C) VOLUNTARY TERMINATION BY [ * ]; [ * ] PRODUCTS. If [ * ] decides
to terminate the development and/or commercialization of a particular Co-Funded
Product and not to attempt to out-license such Co-Funded Product to a Third
Party, [ * ] shall have the right to terminate its obligations to develop and
commercialize that Co-Funded Product effective [ * ] after providing
irrevocable, written notice to [ * ] of such election to terminate. Within [ * ]
after receipt of such notice, [ * ] shall notify [ * ] in writing whether or not
it elects to assume sole responsibility for, and all costs and obligations of,
the continued development and commercialization of such Product. If [ * ] so
elects, then upon the effective date of [ * ] termination: (i) such Product
shall be deemed an "[ * ]" rather than a Co-Funded Product, (ii) the JDC for
such Product shall be disbanded, and (iii) promptly after [ * ] election, [ * ]
and [ * ] shall work together to transfer and assign all regulatory documents,
contracts, materials and Information to [ * ] or its designees to the extent
necessary for [ * ] to assume such responsibility. [ * ].
(D) OUT-LICENSING DECISION FOR PRODUCTS AND DIAGNOSTIC PRODUCTS. [ * ]
shall provide [ * ] with written notice of its intent to out-license some or all
of the rights for a particular Co-Funded Product and/or its related Diagnostic
Product to a Third Party (whether or not accompanied by a decision to terminate
the development and/or commercialization of a particular Co-Funded Product
and/or its Diagnostic Product). [ * ] shall have [ * ] from receipt of such
notice to notify [ * ] in writing that it wishes to exercise its right of
negotiation. If [ * ] exercises such right, the Parties shall negotiate for a
period of up to [ * ] to enter into a license agreement, the terms of which
shall include customary terms and conditions, including, without limitation,
appropriate signing and licensing fees, milestone payments and royalties. If [ *
] do not enter into a license agreement within such time, [ * ] thereafter shall
have the right to out-license such rights to a Third Party, subject to [ * ].
Upon [ * ] entering into such a license or sublicense with a Third Party, [ * ]
shall have [ * ] and [ * ] shall have [ * ]. All compensation received by the
Parties from such Third Party under such license or sublicense (including, but
not limited to, all license fees, milestone payments and royalty payments) shall
be shared as [ * ] by the Parties in accordance with [ * ], provided that all
such compensation shall be calculated after deductions for Development Costs
incurred by either Party under the agreement with the Third Party.
6. DEVELOPMENT AND MARKETING OF PDL PRODUCTS
6.1 PDL PRODUCTS. If EXEL does not elect to co-fund a Product as provided
in Article 5, such Product shall be deemed a PDL Product. PDL shall have sole
control and responsibility for the development and commercialization of PDL
Products, and EXEL shall have no further rights with respect to such PDL Product
except (a) the right to receive milestone and royalty payments as described in
Sections 9.3, 9.4 and 9.5, and (b) [ * ].
6.2 REPORTS. Upon written request by EXEL to PDL during the term of the
Agreement, but not more frequently than once per calendar year, PDL will submit
to EXEL a written progress report summarizing the status of each PDL Product.
6.3 RIGHT OF NEGOTIATION. [ * ].
7. COMMERCIALIZATION OF TARGETS AND EARLY-STAGE PRODUCTS
7.1 TARGETS AND PRECURSOR ANTIBODIES. In the event that (a) any
Targets result from the Collaboration for which Antibodies are not generated for
any reason, or (b) any Precursor Antibodies to a given Antibody Target Candidate
or Antibody Target result from the Collaboration, but PDL determines not to
select any Precursor Antibodies to that Antibody Target Candidate or Antibody
Target for humanization, then the JSC may designate such Targets and/or
Precursor Antibodies for out-licensing ("Out-Licensing Candidates"), [ * ] [ *
] shall have [ * ]. All consideration received or to be received from any such
license, including, without limitation, all license fees, milestone payments and
royalties shall be treated as [ * ].
7.2 [ * ] REVERSION TARGETS. Each Target identified by [ * ] during the
[ * ] that (a) [ * ] or (b) [ * ], shall revert to [ * ] ("Reversion Targets")
and shall not be treated as Out-Licensing Candidates pursuant to Section 7.1.
Upon a Target becoming a Reversion Target, [ * ] shall have no further rights to
that Reversion Target, it shall cease to be a Target and [ * ] licenses under
this Agreement to that Reversion Target shall terminate.
7.3 HUMANIZED ANTIBODIES NOT SELECTED BY [ * ] FOR IND. In the event that
[ * ] creates a Humanized Antibody, but decides not to proceed with an IND
filing for such Humanized Antibody, then such Humanized Antibody shall be
treated in the same manner as a [ * ] Product is treated under [ * ].
7.4 GENERAL LICENSING. Subject to Sections 5.9(d) and 6.3, [ * ] shall
have the right to enter into a license or sublicense with any Third Party for
any or all rights to any Antibody Target Candidates, Antibodies or Products [ *
], including without limitation any Out-Licensing Candidates. All consideration
received or to be received from any such license, including, without limitation,
all license fees, milestone payments and royalties shall be treated as [ * ],
except that any consideration for [ * ] shall be allocated as provided in
Sections 5.9 and 6.3. Upon [ * ] or the Parties' entering into such a license or
sublicense with a Third Party with respect to any Target, Antibody or Pre-Opt-In
Product, all rights under Article 5 shall terminate with respect to the
applicable Product licensed to the Third Party.
7.5 [ * ] REVERSION. Effective [ * ], all [ * ] shall revert to [ * ]. [ *
] shall have no further rights with respect to such [ * ].
8. LICENSES AND RELATED RIGHTS
8.1 LICENSES TO PDL.
(A) RESEARCH. Subject to the terms of this Agreement, EXEL hereby
grants PDL a non-exclusive, worldwide, non-transferable, royalty-free license
for internal use under the EXEL Patents, EXEL Know-How and EXEL's interest in
the Joint Patents to the extent necessary (i) to permit PDL to conduct its
obligations under Article 4 and (ii) to use and characterize Targets, including,
without limitation, the Overlap Targets. The license set forth above includes
the right to sublicense, subject to Sections 4.7 and 5.5.
(B) PRE-OPT-IN PRODUCTS AND PDL PRODUCTS. Subject to the terms of this
Agreement, EXEL hereby grants PDL a worldwide, exclusive license, including the
right to sublicense, under the EXEL Patents, EXEL Know-How and EXEL's interest
in the Joint Patents (i) to use the Targets [ * ] for the purpose of creating,
developing and marketing antibodies for commercial purposes, (ii) to use
Antibody Target Candidates and Antibody Targets to make, have made, use, develop
and test Antibodies, and (iii) to make, have made, use, develop, test, sell,
offer to sell, have sold and import Pre-Opt-In Products and PDL Products. Such
license shall include all human prophylactic and therapeutic indications for
Pre-Opt-In Products and PDL Products and shall be milestone and royalty-bearing
as set forth in Article 9. The exclusivity of the license set forth in 8.1(b) is
subject to EXEL's retained rights under Sections 8.2 (a) and 8.5.
(C) CO-FUNDED PRODUCTS. Subject to the terms of this Agreement, EXEL
hereby grants PDL a worldwide, co-exclusive license (with EXEL), including the
right to sublicense, under the EXEL Patents, EXEL Know-How and EXEL's interest
in the Joint Patents to make, have made, use, develop, test, sell, offer to
sell, have sold and import Co-Funded Products. Such license shall include all
human prophylactic and therapeutic indications and shall involve profit-sharing
with respect to any such Product in lieu of royalties and milestones as set
forth in Article 9.
(D) PDL DIAGNOSTIC PRODUCTS. Subject to the terms of this Agreement,
EXEL hereby grants PDL a worldwide, co-exclusive license, including the right to
sublicense, under the EXEL Patents, EXEL Know-How and EXEL's interest in the
Joint Patents to make, have made, use, develop, test, sell, offer to sell, have
sold and import PDL Diagnostic Products. At the time PDL identifies a Third
Party manufacturer for any such PDL Diagnostic Product, PDL may request the
co-exclusive license be converted to an exclusive license. [ * ].
(E) ANTIBODY INVENTIONS. Subject to the terms of this Agreement, EXEL
hereby grants PDL a worldwide, exclusive license, including the right to
sublicense, under the Antibody Patents that claim Antibody Inventions invented
solely or jointly by PDL to practice such Antibody Inventions for all purposes.
8.2 LICENSES TO EXEL.
(A) RESEARCH. Subject to the terms of this Agreement, PDL hereby
grants EXEL a non-exclusive, worldwide, non-transferable, royalty-free license
(without the right to sublicense) for internal use under the PDL Patents, PDL
Know-How and PDL's interest in the Joint Patents to the extent necessary (i) to
permit EXEL to conduct its obligations under the Research Plan, and (ii) [ * ].
(B) EXEL PRODUCTS. Subject to the terms of this Agreement, effective
upon a Product becoming an EXEL Product pursuant to Sections 5.9(c) or 12.2(b),
PDL hereby grants to EXEL, a worldwide, license (with the right to sublicense)
under the PDL Patents, PDL Know-How and PDL's interest in the Joint Patents to
develop, make, have made, use, sell, offer to sell, have sold and import such
EXEL Products. This license shall be subject to any licenses or sublicenses
granted by PDL in accordance with Section 5.9 prior to the license under this
Section 8.2(b) becoming effective. Such license shall include all human
prophylactic and therapeutic indications and any Diagnostic Products developed
for use in connection with such prophylactic and therapeutic indications and
shall be milestone and royalty-bearing as set forth in Section 5.9(c). Such
license shall be exclusive to the extent of PDL's interest in an Antibody Patent
covering the EXEL Product and to the extent any PDL Patent or Joint Patent
relates solely to such EXEL Product; otherwise such license shall be
non-exclusive.
(C) EXEL DIAGNOSTIC PRODUCTS. Subject to the terms of this Agreement,
effective upon a Product becoming an EXEL Product pursuant to Section 5.9(c) or
12.2(b), and to the extent PDL then has rights to a EXEL Diagnostic Product
developed for use with such EXEL Product, PDL hereby grants to EXEL, a worldwide
license (with the right to sublicense) under the PDL Patents, PDL Know-How and
PDL's interest in the Joint Patents to develop, make, have made, use, sell,
offer to sell, have sold and import such EXEL Diagnostic Product. This license
shall be subject to any licenses or sublicenses granted by PDL, in accordance
with Section 5.9, prior to the license under this Section 8.2(c) becoming
effective. Such license shall include all human diagnostic indications and shall
be milestone and royalty-bearing as set forth in Section 5.9(c). Such license
shall be consistent with the license granted pursuant to Section 8.2(b) with
respect to the EXEL Product for which the EXEL Diagnostic Product is intended to
be used.
8.3 NEGATIVE COVENANTS. Each Party hereby covenants that it will not
practice any technology licensed to it under this Agreement outside the scope of
the licenses granted herein. Specifically and without limitation, EXEL shall
not, unless expressly permitted elsewhere in this Agreement [ * ], provided that
this covenant shall not be interpreted to prevent EXEL from [ * ].
8.4 EXCLUSIVITY. EXEL shall not research, develop or commercialize
Products, except under the terms of this Agreement. Specifically and without
limitation, unless expressly permitted elsewhere in this Agreement, neither EXEL
nor its Affiliates shall: (a) [ * ]; (b) make, have made, use, sell, offer to
sell, have sold or import such [ * ]; or (c) develop, make, have made, sell,
offer to sell, have sold or import, a [ * ] until the earlier of either (i) [ *
], or (ii) if at any time [ * ] following the selection of [ * ]. [ * ].
8.5 INDEPENDENT RESEARCH. The Parties acknowledge and agree that EXEL may
use Information and materials that EXEL generates in the course of performing
its obligations under this Agreement that constitutes general know-how relating
to [ * ] for Independent Research. For clarification, EXEL may use the following
Information generated by EXEL in the course of performing its obligations under
this Agreement, for Independent Research: [ * ] EXEL shall have no rights under
this Agreement to use PDL Information or materials, or to use or operate under
any rights licensed by PDL from Third Parties, for Independent Research or for
development or commercialization of any product or for any purpose other than as
expressly provided under this Agreement.
9. COMPENSATION
9.1 LOAN. Concurrently with the execution of this Agreement, the
Parties are entering into a Note Purchase Agreement of even date herein pursuant
to which PDL will loan EXEL thirty million dollars ($30,000,000) pursuant to a
Convertible Note. The terms of such Convertible Note shall be governed
exclusively by the Note Purchase Agreement and related documents executed
pursuant thereto.
9.2 RESEARCH FUNDING. Subject to Sections 12.2 and 12.3, for the first two
(2) years of this Agreement, PDL shall make research funding and license
payments totaling four million dollars ($4,000,000) per year. This initial
Research Term shall be deemed to begin on [ * ]. Research Funding shall be
payable in equal [ * ] installments within [ * ] after the beginning of each [ *
] during the term of the Research Funding. The annual Research Funding at the
rate of four million dollars ($4,000,000) per year shall be [ * ]. If the
Research Term has been [ * ], then the research funding shall [ * ] at the rate
of [ * ] for the following [ * ]. The Research Term and Research Funding
thereafter shall be [ * ] at the rate of four million dollars ($4,000,000) per
year for the [ * ].
9.3 MILESTONE PAYMENTS. For each PDL Product, PDL shall pay EXEL the
following amounts within thirty (30) days after each PDL Product achieves the
stated milestone:
(A) [ * ] [ * ]
(B) [ * ] [ * ]
(C) Upon first filing of a BLA for the PDL Product [ * ]
(D) Upon first Regulatory Approval of the PDL Product in a Major
Indication in a Major Market [ * ]
(E) If the PDL Product has not achieved Milestone 9.3(d), upon such
PDL Product achieving sales resulting in cumulative royalty payments
from PDL to EXEL under this Agreement of at least [ * ] [ * ]
[ * ] as used in (b) above shall occur at such time as a draft final report
for the trial has been written [ * ].
Milestone payments shall be payable only once, which shall be the first
time a milestone is achieved. If a milestone for a PDL Product is skipped or
avoided by advancing to what would normally be expected to be a later
development or regulatory step, then the milestone that was expected to occur
earlier shall be deemed to have been achieved at the same time as such later
milestone is achieved, and the corresponding payment for both milestones shall
be due. For the purposes of milestone payments, all dosage forms, formulations
and constructs containing an Antibody against the same Antibody Target shall be
deemed a single Product.
"Major Indication" as used in (d) above means the following: cancers in any
of the following: [ * ]; provided, however, that the PDL Product is [ * ] in the
target cancer.
"Major Market" as used in (d) above means the United States, United
Kingdom, Germany, France, Italy or Japan.
9.4 Royalty Payments. For sales of each PDL Product for a prophylactic
or therapeutic indication by PDL, its Affiliates or sublicensees, PDL shall pay
EXEL royalties at the following rates:
Annual Net Sales of a given PDL Product Royalty Rate
--------------------------------------- ------------
[ * ]
Except as set forth in Section 9.6, the foregoing royalty rates shall not be
subject to adjustment or reduction for any reason. For the purposes of royalty
payments, all dosage forms, formulations and constructs containing the same
Antibody shall be deemed a single Product. The measure of annual Net Sales set
forth in this Section 9.4 shall be the sum of Net Sales of a particular PDL
Product in all countries for each fiscal year of PDL.
By way of example, if in a particular fiscal year, PDL sells two PDL Products,
with one PDL Product having [ * ] in annual Net Sales and the other PDL Product
having [ * ] in annual Net Sales, then PDL shall make royalty payments to EXEL
during that year totaling [ * ] with respect to the first PDL Product and [ * ]
with respect to the second PDL Product for that fiscal year, assuming no
adjustments are required pursuant to Section 9.6.
9.5 ROYALTY PAYMENT FOR PDL PRODUCT FOR A DIAGNOSTIC INDICATION. For
sales of each Diagnostic Product by PDL, its Affiliates or sublicensees, PDL
shall pay EXEL royalties at a rate equal to [ * ] of the rate that would
otherwise apply under Sections 6.3 or 9.4 after all adjustments under this
Agreement to such rates.
9.6 ROYALTY CREDITS AND ADJUSTMENTS.
(A) The milestone payments set forth in Section 9.3(b) - (d) shall be
[ * ]. In addition, the amount of [ * ] shall be creditable against royalty
payments beginning in the quarter of the [ * ] as set forth in Section 9.4 and
Section 9.5 as provided in Section 9.6(b).
(B) [ * ]. Amounts paid by PDL to Third Parties for intellectual
property applicable to products in addition to PDL Products shall be reasonably
allocated among the products covered under the applicable licenses from Third
Parties. In any event, royalty credits shall not apply to license fees and other
amounts paid under Third Party licenses prior to the Effective Date. Royalty
credits may be applied against royalties due under Section 9.4 or Section 9.5
with respect to PDL Products, provided that the royalty paid by PDL after the
application of any credit under this Section 9.6(b) shall not, as a result of
such adjustment, be less than [ * ] of the royalty rate which would otherwise
apply under Section 9.4 or Section 9.5 to such Products.
(C) [ * ].
(D) In no event shall the royalty rate under Section 9.4 for a PDL
Product be reduced pursuant to this Section 9.6 to less than [ * ].
9.7 TERM OF ROYALTIES. EXEL's right to receive royalties under Section 9.4
and Section 9.5 shall expire on a country-by-country basis upon the later of (i)
[ * ] from the First Commercial Sale of such PDL Product in such country, or
(ii) the expiration of the last to expire issued patent within the EXEL Patents
or Joint Patents in such country covering the PDL Product or the manufacture,
use or sale of such PDL Product.
9.8 ROYALTY PAYMENT REPORTS. All royalty payments under this Agreement
shall be made to EXEL or its designee quarterly within [ * ] following the end
of each calendar quarter for which royalties are due or, in the case of
royalties from the sales of sublicensees, within [ * ] following the end of the
quarter in which PDL receives the royalty report from the sublicensee. Each
royalty payment shall be accompanied by a statement stating the Net Sales, by
country, of each PDL Product sold during the relevant calendar quarter.
9.9 PROFIT SHARING FOR CO-FUNDED PRODUCTS.
(A) SHARE OF PROFITS. PDL shall be entitled to [ * ] of Product Profit
from the sale of Co-Funded Products and EXEL shall be entitled to [ * ] of such
Product Profit until such time as, and so long as, [ * ] of the cumulative
Product Profit for all Co-Funded Products equals [ * ] of the amount paid to
EXEL under Section 9.2 (i.e., [ * ]). Whenever cumulative Product Profit exceeds
such amount, each Party shall be entitled to [ * ] of the subsequent Product
Profit from the sale of Co-Funded Products. The respective shares of Product
Profit are referred to below as the "PDL Share" and the "EXEL Share." The
respective profit sharing described in this Section 9.9(a) may be adjusted for
particular Co-Funded Products pursuant to Section 3.7(b).
(B) DETERMINATION OF PRODUCT PROFIT. Within [ * ] after the end of
each calendar quarter following the First Commercial Sale of a Co-Funded
Product, PDL shall provide EXEL with a statement detailing (i) PDL's Net Sales
and the Product Profit incurred or received, as applicable, in the previous
calendar quarter with respect to each Co-Funded Product, (ii) the cumulative
Product Profit for all Co-Funded Products and (iii) the PDL Share and the EXEL
Share for that quarter (the "Quarterly Report"). Such statement shall be
accompanied by appropriate supporting information.
(C) PAYMENTS. If the Product Profit for such calendar quarter was
negative, then EXEL shall pay the EXEL Share to PDL within [ * ] after receipt
of the Quarterly Report. If the Product Profit for such calendar quarter was
positive, then PDL shall pay the EXEL Share to EXEL within [ * ] after sending
the Quarterly Report to EXEL.
9.10 NONREFUNDABLE PAYMENTS. Except as expressly provided in this
Agreement, all payments made by a Party to the other shall be non-refundable and
non-creditable.
9.11 PAYMENT METHOD. All payments due under this Agreement to a Party
shall be made by bank wire transfer in immediately available funds to an account
designated by the receiving Party. All payments hereunder shall be made in
United States dollars.
9.12 TAXES. Each Party shall pay any and all taxes levied on account of
all payments it receives under this Agreement. If laws or regulations require
that taxes be withheld, the Party required to withhold will (i) deduct those
taxes from the remittable payment, (ii) pay the taxes to the proper taxing
authority, and (iii) send evidence of the obligation together with proof of tax
payment to the other Party within [ * ] following that tax payment.
9.13 BLOCKED CURRENCY. In each country where the local currency is blocked
and cannot be removed from the country, royalties or profit share payments
accrued in that country shall be paid to the receiving Party in the country in
local currency by deposit in a local bank designated by the receiving Party,
unless the Parties otherwise agree.
9.14 SUBLICENSES. In the event PDL grants licenses or sublicenses to
others to sell PDL Products which are subject to royalties under Section 9.4,
such licenses or sublicenses shall include an obligation for the licensee or
sublicensee to account for and report its sales of Products on substantially the
same basis as if such sales were Net Sales by PDL, and PDL shall pay to EXEL,
with respect to such sales, royalties as if such sales of the licensee or
sublicensee were Net Sales of PDL. With respect to such sales of PDL Products by
licensees or sublicensees, PDL shall be required only to include information
regarding Net Sales reflected in reports received by PDL during the calendar
quarter in question. PDL shall use commercially reasonable efforts to cause its
sublicensees to report sales of PDL Products in a manner that will enable PDL to
report such Net Sales by licensees and sublicensees on a quarterly basis.
9.15 FOREIGN EXCHANGE. Conversion of sales recorded in local currencies to
United States dollars will be performed in a manner consistent with PDL's normal
practices used to prepare its audited financial statements for internal and
external reporting purposes, which uses a mutually agreed upon generally
accepted source of published exchange rates. It is agreed that the exchange
rates published by Citibank or the Wall Street Journal for the last banking day
of the quarter shall be acceptable exchange rates; provided that, in the case of
sales by sublicensees, the Parties will use the exchange rates provided in the
agreements between PDL and such sublicensees.
9.16 RECORDS; INSPECTION. Each Party shall keep complete and accurate
books of account and records for PDL Products, EXEL Products and Co-Funded
Products, to be made under this Agreement. Such books and records shall be kept
for at least [ * ] following the end of the calendar year to which they pertain.
Such records will be open for inspection during such three year period by
independent accountants, solely for the purpose of verifying payment statements
hereunder. Such inspections shall be made no more than once each calendar year,
at reasonable times and on reasonable notice. Inspections conducted under this
Section 9.16 shall be conducted by an independent Third Party reasonably
acceptable to both Parties. The audit shall be at the expense of the Party
requesting the audit, except in the event that the results of the audit reveal
that the audited Party underpaid the Party requesting the audit by [ * ] or more
for any period covered by the audit, in which case the audit fees, and any
unpaid amounts (plus interest) that are discovered will be paid promptly by the
audited Party, and in any event no later than [ * ] following delivery of the
audit results to the audited Party.
9.17 LATE PAYMENTS. Any overdue payments under this Agreement shall bear
interest at the rate of [ * ], or the highest rate allowed by law, whichever is
less, commencing on the date such payment is due until paid.
10. INTELLECTUAL PROPERTY
10.1 OWNERSHIP.
(A) Except as otherwise described herein and subject to the licenses
granted under this Agreement, each Party shall own the entire right, title and
interest in and to any and all of its Sole Inventions, and Patents covering such
Sole Inventions, except that all Antibody Inventions initially shall be assigned
to EXEL. The Parties intend that during patent prosecution [ * ] (such patent
applications and any patents that issue with respect to such applications being
referred to as "Antibody Patents"). At the time PDL notifies EXEL pursuant to
Section 5.1 and thus commences the Opt-In Period for a particular Product
containing a particular Antibody, EXEL shall assign to PDL the Antibody Patents
that cover that Antibody. Following such assignment to PDL, the assigned
Antibody Patents shall be treated as PDL Patents under this Agreement. (B)
Subject to Section 10.1(a) and the licenses granted under this Agreement, PDL
and EXEL shall each own an undivided one-half interest in and to any and all
Joint Inventions and Joint Patents. The Parties shall have the right to grant
licenses under such Joint Patents only to the extent provided in this Agreement.
10.2 STRATEGY; DISCLOSURE. During the Research Term, each Party shall
submit a written report to the JPC within [ * ] after the end of each quarter
describing any Sole Invention or Joint Invention or Antibody Inventions of which
it became aware during the prior quarter that it believes may be patentable. The
JPC, in consultation with the JSC, shall decide whether to file a patent
application for each such Joint Invention, as discussed in Section 10.3. The JPC
shall establish the patent strategy for all Joint Inventions, Antibody
Inventions and Inventions pertaining to Antibody Target Candidates and Antibody
Targets arising from the Collaboration, considering in good faith EXEL's
obligations to PDL and Third Parties relating to patent strategy for Targets.
10.3 PATENT PROSECUTION AND MAINTENANCE; ABANDONMENT.
(A) SOLE INVENTIONS. Each Party shall direct the filing, prosecution
and maintenance of all Patents covering its Sole Inventions, to the extent
possible consistent with the strategy established by the JPC for Joint
Inventions and consistent with the remaining provisions, as applicable, of this
Section 10.3.
(B) EXEL PRODUCT PATENTS. EXEL shall prosecute and reasonably maintain
all of the patents and applications that qualify as EXEL Patents that claim or
cover any Co-Funded Product or PDL Product or the Antibody Target of any such
Product ("EXEL Product Patents"). If EXEL decides not to continue the
prosecution or maintenance of an EXEL Product Patent in any country, it shall
promptly advise PDL thereof and, at the request of PDL, EXEL and PDL shall
negotiate in good faith to determine an appropriate course of action in the
interests of both Parties. If the Parties determine that it would be [ * ] for
PDL to assume responsibility for such prosecution or maintenance, then PDL shall
have the right but not the obligation to assume such prosecution or maintenance.
If the Parties do not determine that it would be [ * ] for PDL to assume
responsibility for such prosecution or maintenance, then, at PDL's request, EXEL
shall continue such prosecution or maintenance, provided that, [ * ].
(C) PDL PRODUCT PATENTS. PDL shall prosecute and reasonably maintain
all of the patents and applications that qualify as PDL Patents that claim or
cover any Co-Funded Product or EXEL Product or the Antibody Target of any such
Product ("PDL Product Patents"). If PDL decides not to continue the prosecution
or maintenance of a PDL Product Patent in any country, it promptly shall advise
EXEL thereof and, at the request of EXEL, PDL and EXEL shall negotiate in good
faith to determine an appropriate course of action in the interests of both
Parties. If the Parties determine that it would be [ * ] for EXEL to assume
responsibility for such prosecution or maintenance, then EXEL shall have the
right but not the obligation to assume such prosecution or maintenance. If the
Parties do not determine that it would be [ * ] for EXEL to assume
responsibility for such prosecution or maintenance, then, at EXEL's request, PDL
shall continue such prosecution or maintenance, provided that, [ * ].
(D) JOINT INVENTIONS. Each Party will use reasonable efforts to advise
the other of a Joint Invention as provided in Section 10.2 or promptly upon such
Party becoming aware of such Joint Invention. If the Invention is an Antibody
Invention, it shall be assigned as provided in Section 10.1(a) and shall be
prosecuted as provided in Section 10.3(e). As soon as one of the Parties
concludes that it wishes to file a patent application covering a Joint
Invention, it immediately shall inform the other Party thereof, consult about
the filing procedures concerning such patent application, and file such patent
applications for the Joint Inventions in such countries as the JPC determines.
For this purpose, such Party will provide the other Party with the determination
of inventors and scope of claims as early as possible. If a Party is faced with
possible loss of rights resulting from the delay necessary for such
communication, such communications may take place promptly after filing a
provisional or convention application. PDL will have the first right of election
to file patent applications for Joint Inventions in any country in the world. If
PDL declines to file any such application within [ * ] after receipt of a
written request to do so from EXEL, then EXEL may do so. Regardless of which
Party files a patent application, however, any claims covered by such
applications shall be considered as part of the Joint Patents. If the Party who
initially files a patent application covering a Joint Invention decides not to
continue the prosecution or maintenance of such patent application or patent in
general or in any particular country, it promptly shall notify the other Party
in writing in reasonably sufficient time for such other Party to assume such
prosecution and maintenance, and shall take the necessary steps and execute the
necessary documents to permit such other Party to assume such prosecution or
maintenance. The other Party shall have the right but not the obligation to
assume such prosecution or maintenance.
(E) ANTIBODY INVENTIONS. Antibody Inventions initially shall be
assigned to EXEL as provided in Section 10.1(a). Unless the Parties agree
otherwise, EXEL shall file patent applications for the Antibody Inventions in
such countries as the JPC determines. If EXEL declines to file any such
application within [ * ] after receipt of a written request to do so from PDL,
then PDL may do so. At the time that an application constituting an Antibody
Patent is filed, EXEL shall promptly notify PDL in writing in reasonably
sufficient time for PDL to assume the prosecution and maintenance of that
Antibody Patent, and shall take the necessary steps and execute the necessary
documents to permit PDL to assume such prosecution or maintenance. If PDL
subsequently decides not to continue the prosecution or maintenance of an
Antibody Patent directed to a Pre-Opt-In Product, in general or in any
particular country, it promptly shall notify EXEL in writing in reasonably
sufficient time for EXEL to assume such prosecution and maintenance, and shall
take the necessary steps and execute the necessary documents to permit EXEL to
assume such prosecution or maintenance. EXEL shall have the right but not the
obligation to assume such prosecution or maintenance.
(F) COOPERATION. At the request of the Party performing the
prosecution of any patent application under this Section 10.3, the other Party
will cooperate, in all reasonable ways, in connection with the prosecution and
maintenance of all such patent applications. Each Party shall make available to
the other Party or its respective authorized attorneys, agents or
representatives such of its employees or consultants as the other Party in its
reasonable judgment deems necessary in order to assist such other Party with the
prosecution and maintenance of such patents. Each Party shall sign or use
commercially reasonable efforts to have signed at no charge to the other Party
all legal documents necessary in connection with such prosecution and
maintenance.
(G) UPDATES ON DEVELOPMENTS. The Party performing the prosecution of
any patent application under this Section 10.3 shall advise the other Party of
any substantial action or development in the prosecution of such patent
applications and patents, in particular those involving the question of scope or
the issuance, rejection, or revocation, of an interference involving, or an
opposition to any such patent application or patent. In addition, the Party
filing a patent application on a Joint Invention shall provide the other Party
with (a) a draft of such new patent application prior to filing that
application, allowing adequate time for review and comment by the other Party if
possible; provided, however, the filing Party shall not be obligated to delay
the filing of any patent application; and (b) copies of material correspondence
from patent offices concerning patent applications covering such Joint Invention
and a reasonable opportunity to comment on any material responses, amendments or
submissions to be made to such patent offices. Notwithstanding the foregoing,
PDL (with respect to PDL Patents directed to PDL Products) and EXEL (with
respect to EXEL Patents directed to EXEL Products) shall have no obligation to
advise or confer with the other Party with respect to such Patents and shall
prosecute, maintain or abandon such Patents in their sole discretion.
(H) EXPENSES. For any Patents that relate solely to Co-Funded
Products, all costs and expenses for the filing, prosecution (including any
interferences, reissue proceedings and reexaminations) and maintenance of such
Patents shall be [ * ]. For any other Patents, all such costs and expenses shall
be [ * ].
10.4 ENFORCEMENT OF PATENT RIGHTS.
(A) ENFORCEMENT OF PDL PRODUCT PATENTS.
(I) ENFORCEMENT BY PDL. In the event either Party becomes aware
of a suspected infringement of a PDL Product Patent or the institution by a
Third Party of any proceedings for the revocation of, or to invalidate or render
unenforceable, any PDL Product Patent due to the Third Party having an antibody
product against the same target as a Co-Funded Product or an EXEL Product, such
Party shall notify the other Party promptly, and following such notification,
the Parties shall confer. PDL shall have the right, but shall not be obligated,
to bring an infringement action or to defend such proceedings at its own
expense, in its own name and entirely under its own direction and control. EXEL
will reasonably assist PDL in such actions or proceedings if so requested, and
will lend its name to such actions or proceedings if requested by PDL or
required by law [ * ]. EXEL shall have the right to participate and be
represented in any such suit by its own counsel at its own expense. No
settlement of any such action or defense which restricts the scope or affects
the enforceability of a PDL Product Patent that covers an EXEL Product may be
entered into by PDL without the prior consent of EXEL, which consent shall not
be unreasonably withheld.
(II) ENFORCEMENT BY EXEL. If PDL elects not to bring any action
for infringement or to defend any proceeding described in Section 10.4(a)(i) and
so notifies EXEL, then, subject to the rights of any Third Party licensors of
such Patent to PDL, EXEL may bring such action or defend such proceeding at its
own expense, in its own name and entirely under its own direction and control.
PDL will reasonably assist EXEL in any action or proceeding being prosecuted or
defended by EXEL, if so requested by EXEL or required by law at [ * ]. PDL shall
have the right to participate and be represented in any such suit by its own
counsel at its own expense. No settlement of any such action or defense which
restricts the scope or affects the enforceability of PDL Patents may be entered
into by EXEL without the prior consent of PDL, which consent shall not be
unreasonably withheld.
(B) ENFORCEMENT OF EXEL PRODUCT PATENTS.
(I) ENFORCEMENT BY EXEL. In the event either Party becomes aware
of a suspected infringement of an EXEL Product Patent or the institution by a
Third Party of any proceedings for the revocation of, or to invalidate or render
unenforceable, any EXEL Product Patent due to the Third Party having an antibody
product against the same target as a Co-Funded Product or a PDL Product, such
Party shall notify the other Party promptly, and following such notification,
the Parties shall confer. EXEL shall have the right, but shall not be obligated,
to bring an infringement action or to defend such proceedings at its own
expense, in its own name and entirely under its own direction and control. PDL
will reasonably assist EXEL in such actions or proceedings if so requested, and
will lend its name to such actions or proceedings if requested by EXEL or
required by law [ * ]. PDL shall have the right to participate and be
represented in any such suit by its own counsel at its own expense. No
settlement of any such action or defense which restricts the scope or affects
the enforceability of an EXEL Product Patent that covers a Co-Funded Product or
PDL Product may be entered into by EXEL without the prior consent of PDL, which
consent shall not be unreasonably withheld.
(II) ENFORCEMENT BY PDL. If EXEL elects not to bring any action
for infringement or to defend any proceeding described in Section 10.4(b)(i) and
so notifies PDL, then, subject to the rights of any Third Party licensors of
such Patent to EXEL, PDL may bring such action or defend such proceeding at its
own expense, in its own name and entirely under its own direction and control.
EXEL will reasonably assist PDL in any action or proceeding being prosecuted or
defended by PDL, if so requested by PDL or required by law [ * ]. EXEL shall
have the right to participate and be represented in any such suit by its own
counsel at its own expense. No settlement of any such action or defense which
restricts the scope or affects the enforceability of EXEL Patents may be entered
into by PDL without the prior consent of EXEL, which consent shall not be
unreasonably withheld.
(C) ENFORCEMENT OF JOINT PATENTS.
(I) ENFORCEMENT BY PDL. In the event either Party becomes aware
of a suspected infringement of a Joint Patent or the institution by a Third
Party of any proceedings for the revocation of, or to invalidate or render
unenforceable, any Joint Patent, such Party shall notify the other Party
promptly, and following such notification, the Parties shall confer. PDL shall
have the right, but shall not be obligated, to prosecute an infringement action
or to defend such proceedings at its own expense, in its own name and entirely
under its own direction and control. EXEL will reasonably assist PDL in such
actions or proceedings if so requested, and will lend its name to such actions
or proceedings if requested by PDL or required by law [ * ]. EXEL shall have the
right to participate and be represented in any such suit by its own counsel at
its own expense. No settlement of any such action or defense which restricts the
scope or affects the enforceability of a Joint Patent that covers an EXEL
Product may be entered into by PDL without the prior consent of EXEL, which
consent shall not be unreasonably withheld.
(II) ENFORCEMENT BY EXEL. If PDL elects not to bring any action
for infringement or to defend any proceeding described in Section 10.4(c)(i) and
so notifies EXEL, then EXEL may bring such action or defend such proceeding at
its own expense, in its own name and entirely under its own direction and
control. PDL will reasonably assist EXEL in any action or proceeding being
prosecuted or defended by EXEL, if so requested by EXEL or required by law [ *
]. PDL shall have the right to participate and be represented in any such suit
by its own counsel at its own expense. No settlement of any such action or
defense which restricts the scope or affects the enforceability of a Joint
Patent that covers a Co-Funded Product or PDL Product may be entered into by
EXEL without the prior consent of PDL, which consent shall not be unreasonably
withheld.
(D) GENERAL PROVISIONS RELATING TO ENFORCEMENT OF PATENTS.
(I) WITHDRAWAL. If either Party brings such an action or defends
such a proceeding under this Section 10.4 and subsequently ceases to pursue or
withdraws from such action or proceeding, it shall promptly notify the other
Party and the other Party may substitute itself for the withdrawing Party under
the terms of this Section 10.4 at its own expense.
(II) RECOVERIES. In the event either Party exercises the rights
conferred in this Section 10.4 and recovers any damages or other sums in such
action, suit or proceeding or in settlement thereof, such damages or other sums
recovered shall first be applied to all out-of-pocket costs and expenses
incurred by the Parties in connection therewith, including attorneys fees. If
such recovery is insufficient to cover all such costs and expenses of both
Parties, it shall be shared [ * ]. If after such reimbursement any funds shall
remain from such damages or other sums recovered, such funds shall be [ * ].
(E) EXCLUDED PATENTS. Certain patents as identified in Exhibits D-1
and D-2 relating to background technologies of either EXEL or PDL, shall not be
subject to the provisions of Sections 10.3 and 10.4 (a-d).
10.5 TRADEMARKS; PRODUCT PRESENTATION.
(A) CO-FUNDED PRODUCTS. PDL shall own all right title and interest in
and to all trademarks, trade names, service marks and trade dress specifically
developed for and used on or in connection with all Co-Funded Products. PDL
shall be responsible for all decisions regarding the trademarks, service marks
and trade dress used on and in connection with all Co-Funded Products. PDL and
EXEL shall each retain sole and exclusive ownership of their own respective and
independently developed and pre-existing trademarks, trade names, service marks
and trade dress, regardless of whether such trademarks, trade names, service
marks and trade dress are used on or in connection with any Co-Funded Product.
The JCC shall approve all trademarks and service marks used on or in connection
with any Co-Funded Products. Subject to applicable laws, rules and regulations,
any written or visual promotional or educational materials intended for use in
conjunction with Co-Funded Products shall refer to both Parties (where
practical) with substantially equal prominence, and all product labeling and
promotional material regarding the detailing and promoting of such Products
shall display the names and logos of PDL and EXEL (where practical) with
substantially equal prominence.
(B) PDL PRODUCTS. PDL shall own all right title and interest in and to
all trademarks, service marks and trade dress specifically developed by PDL for
and used on or in connection with all PDL Products. PDL shall be responsible for
all decisions regarding the trademarks, service marks and trade dress used on or
in connection with all PDL Products.
(C) EXEL PRODUCTS. EXEL shall own all right title and interest in and
to all trademarks, service marks and trade dress specifically developed by EXEL
for and used on or in connection with all EXEL Products. EXEL shall be
responsible for all decisions regarding the trademarks, service marks and trade
dress used on or in connection with all EXEL Products. PDL agrees to assign
promptly any trademark rights for an EXEL Product to EXEL.
11. CONFIDENTIALITY
11.1 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. All written and oral
Information disclosed by one Party to the other Party pursuant to this Agreement
and characterized as confidential to the receiving Party shall be "Confidential
Information." The Parties agree that during the term of this Agreement, and for
a period of [ * ] after this Agreement expires or terminates, a Party receiving
Confidential Information of the other Party will (i) maintain in confidence such
Confidential Information to the same extent such Party maintains its own
proprietary information of similar kind and value (but at a minimum each Party
shall use commercially reasonable efforts), (ii) not disclose such Confidential
Information to any Third Party without prior written consent of the other Party,
and (iii) not use such Confidential Information for any purpose except those
permitted by this Agreement.
11.2 EXCEPTIONS. The obligations in Section 11.1 shall not apply with
respect to any portion of the Confidential Information that the receiving Party
can show by competent written proof:
(A) Is publicly disclosed by the disclosing Party, either before or
after it is disclosed to the receiving Party hereunder; or
(B) Was known to the receiving Party, without obligation to keep it
confidential, prior to disclosure by the disclosing Party; or
(C) Is subsequently disclosed to the receiving Party by a Third Party
lawfully in possession thereof and without obligation to keep it confidential;
or
(D) Has been published by a Third Party; or
(E) Has been independently developed by the receiving Party without
the aid, application or use of Confidential Information.
11.3 AUTHORIZED DISCLOSURE. A Party may disclose the Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary in any of the following instances:
(A) Filing or prosecuting Patents relating to Sole Inventions, Joint
Inventions or Products;
(B) Regulatory filings relating to Products;
(C) Prosecuting or defending litigation;
(D) Complying with applicable governmental regulations; or
(E) Disclosure, in connection with the performance of this Agreement,
to Affiliates, sublicensees, prospective licensees, research collaborators,
employees, consultants, or agents, each of whom prior to disclosure must be
bound by similar obligations of confidentiality and non-use at least equivalent
in scope to those set forth in this Article 11.
The Parties acknowledge that the terms of this Agreement shall be treated
as Confidential Information of both Parties. Such terms may be disclosed by a
Party to investment bankers, investors, prospective business partners (including
potential acquirers or acquisition targets) and potential investors, each of
whom prior to disclosure must be bound by similar obligations of confidentiality
and non-use at least equivalent in scope to those set forth in this Article 11.
In addition, if required, a copy of this Agreement may be filed by either Party
with the Securities and Exchange Commission. In connection with any such
filing, the filing Party shall endeavor to obtain confidential treatment of
economic and trade secret information and shall consult with the other Party
prior to such filing with respect to determining for which information
confidential treatment should be sought.
11.4 PUBLICITY. The Parties agree that the public announcement of the
execution of this Agreement shall be substantially in the form of the press
release attached as Exhibit C. Any other news release relating to this Agreement
or to the performance hereunder, shall first be reviewed and approved by both
Parties; provided, however, that any disclosure which is required by law as
advised by the disclosing Party's counsel may be made without the prior consent
of the other Party, although the other Party shall be given prompt notice of any
such legally required disclosure and to the extent practicable shall provide the
other Party an opportunity to comment on the proposed disclosure.
11.5 PUBLICATIONS. Neither Party shall publish or present the results of
studies carried out under this Agreement without the opportunity for prior
review by the other Party. Subject to Section 11.3, each Party agrees to provide
the other Party the opportunity to review any proposed abstracts, manuscripts or
presentations (including verbal presentations) which relate to any Target,
Antibody or Product (excluding any Product that has become a PDL Product) at
least [ * ] prior to its intended submission for publication and agrees, upon
request, not to submit any such abstract or manuscript for publication until the
other Party is given a reasonable period of time to secure patent protection for
any material in such publication which it believes to be patentable. Both
Parties understand that a reasonable commercial strategy may require delay of
publication of information for filing of patent applications. The Parties agree
to review and consider delay of publication and filing of patent applications
under certain circumstances. The JSC and JPC will review such requests and
recommend subsequent action. Neither Party shall have the right to publish or
present Confidential Information of the other Party that is subject to Section
11.1. Nothing contained in this Section 11.5 shall prohibit the inclusion of
information necessary for a patent application, except for Confidential
Information of the nonfiling Party, provided the nonfiling Party is given a
reasonable opportunity to review the information to be included prior to
submission of such patent application. Any disputes between the Parties
regarding delaying a publication or presentation to permit the filing of a
patent application shall be referred to the JSC or, for a Co-Funded Product, the
relevant JDC.
12. TERM AND TERMINATION
12.1 TERM. This Agreement shall become effective on the Effective Date and
shall remain in effect until the expiration of the last royalty or profit
sharing payment obligation with respect to any Product, as provided in this
Agreement.
12.2 TERMINATION FOR MATERIAL BREACH.
(A) ENTIRE AGREEMENT. If either Party breaches any material agreement,
condition or covenant of this Agreement, the Note Purchase Agreement or the
Note, or makes any materially false report to the other Party, the Party not in
breach may terminate this Agreement at its option on [ * ] written notice,
subject to the remaining provisions of this Section 12.2; provided however, that
any breach that relates only to a particular Product(s) or only to the
activities under the Collaboration shall be governed by Section 12.2(b) instead
of this Section 12.2(a).
(B) PARTICULAR PRODUCTS OR COLLABORATION. In the case of a breach that
relates only to a particular Product(s) or only to the activities under the
Collaboration, the non-breaching Party, at its option on [ * ] written notice
and subject to the remaining provisions of this Section 12.2, may terminate this
Agreement as to the particular Product(s) to which such breach relates,
(provided, however, that after such time as the breaching Party has first filed
for Regulatory Approval of a Product, the non-breaching Party may terminate the
breaching Party's rights to such Product only in those countries to which such
breach relates) or in the case of a breach relating only to the activities under
the Collaboration, the non-breaching Party may terminate the Collaboration under
this Agreement, but this Agreement shall continue in full force and effect with
respect to all Products. In the event of a breach by PDL with respect to a
particular Co-Funded Product, then EXEL, as an alternative to terminating the
Agreement as to such Product as provided above, may instead, on providing [ * ]
written notice to PDL, elect to terminate PDL's rights to such Co-Funded Product
on the same terms as if PDL had voluntarily terminated its rights to such
Co-Funded Product under Section 5.9(c).
(C) RIGHT TO CURE. In any notice of breach under this Section 12.2,
the non-breaching Party shall identify the actions or conduct that such Party
considers to be a material breach and specify conduct or actions that the
notifying Party would consider to be an acceptable cure of such breach. No
termination of this Agreement or the Collaboration or of rights relating to a
particular Product or country pursuant to Section 12.2(a) or (b) shall become
effective unless such breach shall not have been remedied, or steps initiated to
remedy the same to the non-breaching Party's reasonable satisfaction, within [ *
] after written notice thereof to the breaching Party, or, in case the breach is
a failure to make any payment when due, within [ * ] after such notice.
(D) DISPUTES. If a Party gives notice of termination under this
Section 12.2 and the other Party disputes whether such notice was proper, then
the issue of whether this Agreement has been terminated shall be resolved in
accordance with Section 15.1. If, as a result of such dispute resolution process
it is determined that the notice of termination was proper, then such
termination shall be deemed to have been effective on the effective date of the
notice of termination. If as a result of such dispute resolution process it is
determined that the notice of termination was improper, then no termination
shall have occurred and this Agreement shall have remained in effect.
12.3 TERMINATION OR EXPIRATION OF RESEARCH FUNDING/COLLABORATION. PDL and
EXEL shall have their respective rights to terminate Research Funding as
described in Section 9.2, which shall have the effect of terminating the
Research Term. Upon such termination or upon expiration of the Research Term,
the Collaboration under this Agreement shall terminate, but all other rights and
obligations under this Agreement shall continue. If either Party terminates the
Collaboration pursuant to Section 12.2, any Research Funding paid by PDL for any
time period beyond the effective date of such termination shall be immediately
refunded by EXEL to PDL. The termination or expiration of the Collaboration
shall not affect any rights of PDL to any Targets, Antibodies or Products
resulting from the Collaboration prior to its termination or expiration.
12.4 EFFECT OF TERMINATION OF ENTIRE AGREEMENT OR RIGHTS TO PARTICULAR
PRODUCT. Upon termination of this Agreement in its entirety pursuant to Section
12.2(a), all licenses granted to the breaching Party under this Agreement shall
terminate and the breaching Party shall return to the non-breaching Party all
materials and Information delivered under this Agreement by the non-breaching
Party to the breaching Party, except as provided in Section 12.5. Upon
termination of this Agreement pursuant to Section 12.2(b) with respect to a
particular Product, all licenses granted to the breaching Party under this
Agreement with respect to that Product (for the countries in which such rights
are being terminated) shall terminate and, if such termination is for all
countries, the breaching Party shall return to the non-breaching Party all
materials and Information delivered under this Agreement by the non-breaching
Party to the breaching Party relating to that Product, except as provided in
Section 12.5.
12.5 INVENTORY. Upon termination of this Agreement in its entirety or with
respect to a particular Product for which Regulatory Approval has been obtained,
the breaching Party shall have all rights necessary to sell within [ * ] of such
termination any such Product in its or its Affiliates' or sublicensee's
inventory on the date of such termination, which have not previously been sold
("Inventory"); provided, however that the breaching Party shall pay the
royalties due on such Inventory and provide related reports in the amounts and
manner provided for in Article 9.
12.6 SURVIVAL.
(A) In the event of termination of this Agreement for any reason other
than material breach pursuant to Section 12.2, in addition to those Sections
which by their terms survive, the following provisions of this Agreement shall
also survive: Articles 1, 5, 6, 7, 8 10, 11, 12, and 15 and Sections 9.3 - 9.17,
14.1 and 14.2.
(B) In the event of termination of this Agreement pursuant to Section
12.2, the provisions of this Agreement referenced in Section 12.6(b) shall
survive, provided, however, that any licenses granted under this Agreement in
favor of the breaching Party shall terminate. In such case, the non-breaching
Party shall continue to hold the licenses granted hereunder, subject to the
royalties set forth herein.
(C) In any event, termination of this Agreement shall not relieve the
Parties of any liability or obligation which accrued hereunder prior to the
effective date of such termination, nor preclude either Party from pursuing all
rights and remedies it may have hereunder or at law or in equity with respect to
any breach of this Agreement, nor prejudice either Party's right to obtain
performance of any obligation.
13. REPRESENTATIONS AND COVENANTS
13.1 MUTUAL AUTHORITY. EXEL and PDL each represents and warrants to the
other that (a) it has the authority and right to enter into and perform this
Agreement and (b) its execution, delivery and performance of this Agreement will
not conflict in any material fashion with the terms of any other agreement to
which it is or becomes a party or by which it is or becomes bound.
13.2 REPRESENTATIONS BY EXEL.
(A) EXEL [ * ].
(B) To its knowledge, EXEL, as of the Effective Date, owns or has a
valid license to use all technology it anticipates using in the Collaboration.
13.3 RIGHTS IN TECHNOLOGY. During the term of this Agreement, each Party
will use Diligent Efforts not to diminish the rights under its Patents or Joint
Patents granted to each other herein, including without limitation by not
committing or permitting any acts 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
Products. Each Party agrees to provide promptly the other Party with notice of
any such alleged breach. As of the Effective Date, each Party is in compliance
in all material respects with any aforementioned agreements with Third Parties.
13.4 PERFORMANCE BY AFFILIATES. The Parties recognize that each may
perform some or all of its obligations under this Agreement through Affiliates,
provided, however, that each Party shall remain responsible and be guarantor of
the performance by its Affiliates and shall cause its Affiliates to comply with
the provisions of this Agreement in connection with such performance.
14. INDEMNIFICATION AND LIMITATION OF LIABILITY
14.1 INDEMNIFICATION.
(A) PDL PRODUCTS. PDL hereby agrees to defend and hold harmless EXEL
and its agents and employees from and against any and all suits, claims,
actions, demands, liabilities, expenses and/or loss, including reasonable legal
expenses and reasonable attorneys' fees ("Losses") resulting directly or
indirectly from the manufacture, use, testing, handling, storage, sale or other
disposition of PDL Products by PDL or its Affiliates, agents or sublicensees
except to the extent such Losses result from the negligence or wrongdoing of
EXEL.
(B) EXEL PRODUCTS. EXEL hereby agrees to defend and hold harmless PDL
and its agents and employees from and against any and all Losses resulting
directly or indirectly from the manufacture, use, testing, handling, storage,
sale or other disposition of EXEL Products by EXEL or its Affiliates, agents or
sublicensees except to the extent such Losses result from the negligence or
wrongdoing of PDL.
(C) GENERAL INDEMNIFICATION PROVISIONS. In the event that a Party is
seeking indemnification under this Section 14.1, it shall inform the other Party
of a claim as soon as reasonably practicable after it receives notice of the
claim, shall permit the other Party to assume direction and control of the
defense of the claim (including the right to settle the claim solely for
monetary consideration), and shall cooperate as requested by the other Party (at
the expense of the other Party) in the defense of the claim.
(D) CO-FUNDED PRODUCTS. In the event of any Losses to either Party
resulting directly or indirectly from the manufacture, use, testing, handling,
storage, sale or other disposition of Co-Funded Products by either Party or
their Affiliates, agents or sublicensees, such [ * ] or if no Regulatory
Approval has occurred for the Co-Funded Product, then such [ * ] for that
Co-Funded Product.
14.2 LIMITATION OF LIABILITY. EXCEPT AS SPECIFICALLY PROVIDED IN SECTION
14.1, IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS
OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, EXEMPLARY 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. For clarification, the foregoing
sentence shall not be interpreted to limit or to expand the express rights
specifically granted in the sections of this Agreement.
14.3 PRODUCT LIABILITY INSURANCE. Any Party developing a Product shall
carry product liability insurance of not less than [ * ]. Such product liability
insurance shall be in effect not later than the first administration of a
Product in humans. Notwithstanding the foregoing, a Party may self-insure for
product liability claims if the Party then has current assets of at least [ * ].
15. MISCELLANEOUS
15.1 DISPUTE RESOLUTION. In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, other
than a dispute addressed in Sections 3.7 or 15.3, the Parties shall try to
settle their differences amicably between themselves first, by referring the
disputed matter to an appropriate Vice President (or higher level officer) of
each Party and, if not resolved by such officers, by referring the disputed
matter to the respective Chief Executive Officers of each Party. Either Party
may initiate such informal dispute resolution by sending written notice of the
dispute to the other Party, and, within twenty (20) days after such notice, such
representatives of the Parties shall meet for attempted resolution by good faith
negotiations. If such personnel are unable to resolve such dispute within thirty
(30) days of their first meeting of such negotiations, either Party may seek to
have such dispute resolved in any United States federal court of competent
jurisdiction and appropriate venue. The Parties hereby consent to jurisdiction
in the United States federal courts. If, notwithstanding such consent, United
States federal courts would not have proper jurisdiction over a dispute, then
such dispute may be submitted to any state court in the United States with
proper jurisdiction and venue. The Parties agree that, except as provided in
Section 15.3, any dispute under this Agreement shall be submitted exclusively to
a state or federal court in the United States.
15.2 GOVERNING LAW. Resolution of all disputes arising out of or related to
this Agreement or the performance, enforcement, breach or termination of this
Agreement and any remedies relating thereto, shall be governed by and construed
under the substantive laws of the State of California, as applied to agreements
executed and performed entirely in the State of California by residents of the
State of California, without regard to conflicts of law rules.
15.3 PATENTS AND TRADEMARKS. Any dispute, controversy or claim relating to
the scope, validity, enforceability or infringement of any Patent rights
covering the manufacture, use or sale of any Product or of any trademark rights
related to any Product shall be submitted to a court of competent jurisdiction
in the territory in which such Patent or trademark rights were granted or arose.
15.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth the complete,
final and exclusive agreement and all the covenants, promises, agreements,
warranties, representations, conditions and understandings between the Parties
hereto and supersedes and terminates all prior agreements and understandings
between the Parties. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between
the Parties other than as are set forth herein and therein. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon the Parties unless reduced to writing and signed by an authorized officer
of each Party.
15.5 EXPORT CONTROL. This Agreement is made subject to any restrictions
concerning the export of products or technical information from the United
States or other countries which may be imposed upon or related to EXEL or PDL
from time to time. Each Party agrees that it will not export, directly or
indirectly, any technical information acquired from the other Party under this
Agreement or any products using such technical information to a location or in a
manner that at the time of export requires an export license or other
governmental approval, without first obtaining the written consent to do so from
the appropriate agency or other governmental entity.
15.6 BANKRUPTCY.
(A) All rights and licenses granted under or pursuant to this
Agreement, including amendments hereto, by each 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 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 either Party (the "Bankrupt
Party") under Title 11, then, unless and until this Agreement is rejected as
provided in Title 11, the Bankrupt Party (in any capacity, including
debtor-in-possession) and its successors and assigns (including, without
limitation, a Title 11 Trustee) shall, at the election of the Bankrupt Party
made within sixty (60) days after the commencement of the case (or, if no such
election is made, immediately upon the request of the non-Bankrupt Party) either
(i) perform all of the obligations provided in this Agreement to be performed by
the Bankrupt Party including, where applicable and without limitation, providing
to the non-Bankrupt Party portions of such intellectual property (including
embodiments thereof) held by the Bankrupt Party and such successors and assigns
or otherwise available to them or (ii) provide to the non-Bankrupt Party all
such intellectual property (including all embodiments thereof) held by the
Bankrupt Party and such successors and assigns or otherwise available to them.
(B) If a Title 11 case is commenced by or against the Bankrupt Party
and this Agreement is rejected as provided in Title 11 and the non-Bankrupt
Party elects to retain its rights hereunder as provided in Title 11, then the
Bankrupt Party (in any capacity, including debtor-in-possession) and its
successors and assigns (including, without limitations, a Title 11 Trustee)
shall provide to the non-Bankrupt Party all such intellectual property
(including all embodiments thereof) held by the Bankrupt Party and such
successors and assigns or otherwise available to them immediately upon the
non-Bankrupt Party's written request therefor. Whenever the Bankrupt Party or
any of its successors or assigns provides to the non-Bankrupt Party any of the
intellectual property licensed hereunder (or any embodiment thereof) pursuant to
this Section 15.6, the non-Bankrupt Party shall have the right to perform the
obligations of the Bankrupt Party hereunder with respect to such intellectual
property, but neither such provision nor such performance by the non-Bankrupt
Party shall release the Bankrupt Party from any such obligation or liability for
failing to perform it.
(C) All rights, powers and remedies of the non-Bankrupt 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 Bankrupt Party. The non-Bankrupt 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, under Title 11) in such event. The Parties agree that they intend
the foregoing non-Bankrupt Party rights to extend to the maximum extent
permitted by law and any provisions of applicable contracts with Third Parties,
including without limitation for purposes of Title 11, (i) the right of access
to any intellectual property (including all embodiments thereof) of the Bankrupt
Party or any Third Party with whom the Bankrupt Party contracts to perform an
obligation of the Bankrupt Party under this Agreement, and, in the case of the
Third Party, which is necessary for the development, registration and
manufacture of Products, and (ii) the right to contract directly with any Third
Party described in Section 15.6(c)(i) to complete the contracted work. Any
intellectual property provided pursuant to the provisions of this Section 15.6
shall be subject to the licenses set forth in this Agreement and the payment
obligations of this Agreement, which shall be deemed to be royalties for
purposes of Title 11.
15.7 FORCE MAJEURE. Both Parties shall be excused from the performance of
their obligations under this Agreement to the extent that such performance is
prevented by force majeure and the nonperforming Party promptly provides notice
of the prevention to the other Party. Such excuse shall be continued so long as
the condition constituting force majeure continues and the nonperforming Party
takes reasonable efforts to remove the condition. For purposes of this
Agreement, force majeure shall include conditions beyond the control of the
Parties, including without limitation, an act of God, voluntary or involuntary
compliance with any regulation, law or order of any government, war, civil
commotion, labor strike or lock-out, epidemic, failure or default of public
utilities or common carriers, destruction of production facilities or materials
by fire, earthquake, storm or like catastrophe; provided, however, the payment
of invoices due and owing hereunder shall not be delayed by the payer because of
a force majeure affecting the payer.
15.8 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 deemed to have been sufficiently given for all purposes if sent by
express delivery service or personally delivered, or by facsimile or electronic
mail and confirmed by first class mail. Unless otherwise specified in writing,
the mailing addresses of the Parties shall be as described below.
For EXEL: Exelixis, Inc.
170 Harbor Way
P.O. Box 511
South San Francisco, CA 94083-0511
Attention: Chief Executive Officer
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Robert L. Jones, Esq.
For PDL: Protein Design Labs, Inc.
34801 Campus Drive
Fremont, CA 94555-3606
Attention: Chief Executive Officer
With a copy to: Protein Design Labs, Inc.
34801 Campus Drive
Fremont, CA 94555-3606
Attention: General Counsel
15.9 CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever provision is
made in this Agreement for either Party to secure the consent or approval of the
other, that consent or approval shall not unreasonably be withheld or delayed,
and whenever in this Agreement provisions are made for one Party to object to or
disapprove a matter, such objection or disapproval shall not unreasonably be
exercised.
15.10 UNITED STATES DOLLARS. References in this Agreement to "Dollars" or
"$" shall mean the legal tender of the United States.
15.11 NO STRICT CONSTRUCTION. This Agreement has been prepared jointly and
shall not be strictly construed against either Party.
15.12 ASSIGNMENT. Neither Party may assign or transfer this Agreement or
any rights or obligations hereunder without the prior written consent of the
other, except a Party may make such an assignment without the other Party's
consent to an Affiliate or to a successor to substantially all of the business
of such Party, whether in a merger, sale of stock, sale of assets or other
transaction. Any permitted successor or assignee of rights and/or obligations
hereunder shall, in writing to the other Party, expressly assume performance of
such rights and/or obligations. Any permitted assignment shall be binding on the
successors of the assigning Party. Any assignment or attempted assignment by
either Party in violation of the terms of this Section 15.12 shall be null and
void and of no legal effect.
15.13 ELECTRONIC DATA INTERCHANGE. If both Parties elect to facilitate
business activities hereunder by electronically sending and receiving data in
agreed formats (also referred to as Electronic Data Interchange or "EDI") in
substitution for conventional paper-based documents, the terms and conditions of
this Agreement shall apply to such EDI activities.
15.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.15 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 this
Agreement.
15.16 SEVERABILITY. If any one or more of the provisions of this Agreement
is held to be invalid or unenforceable by any court of competent jurisdiction
from which no appeal can be or is taken, the provision shall be considered
severed from this Agreement and shall not serve to invalidate any remaining
provisions hereof. The Parties shall make a good faith effort to replace any
invalid or unenforceable provision with a valid and enforceable one such that
the objectives contemplated by the Parties when entering this Agreement may be
realized.
15.17 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.
15.18 HEADINGS. The headings for each article and section in this Agreement
have been inserted for convenience of reference only and are not intended to
limit or expand on the meaning of the language contained in the particular
article or section.
15.19 NO WAIVER. Any delay in enforcing a Party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.
IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate
originals by their proper officers as of the date and year first above written.
PROTEIN DESIGN LABS, INC. EXELIXIS, INC.
By: /s/ Laurence Jay Korn By: /s/ George Scangos
------------------------ --------------------
Laurence Jay Korn George A. Scangos
Chairperson and Chief Chief Executive Officer
Executive Officer
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
LIST OF EXHIBITS
Exhibit A - Research Plan
Exhibit B - Product Profit Calculation
Exhibit C - Form of Press Release
Exhibit D-1 - EXEL Background Patents
Exhibit D-2 - PDL Background Patents
D-2.
A-1.
EXHIBIT A
RESEARCH PLAN
[ * ]
A1
EXHIBIT A1
Entrypoints for Genetic Screens -
Proposed or Initiated in Oncology Program
[ * ]
EXHIBIT B
PRODUCT PROFIT CALCULATION
[ * ]
EXHIBIT C
For Immediate Release
-----------------------
Contacts: Robert L. Kirkman, M.D. Glen Y. Sato
Vice President, Business Development Chief Financial Officer
and Corporate Communications Exelixis, Inc.
Protein Design Labs, Inc. (650) 837-7565
(510) 574-1419, rkirkman@pdl.com gsato@exelixis.com
PROTEIN DESIGN LABS AND EXELIXIS ANNOUNCE
ONCOLOGY ANTIBODY DRUG DISCOVERY COLLABORATION
FREMONT and SOUTH SAN FRANCISCO, CA - May 22, 2001 - Protein Design Labs,
Inc. (Nasdaq: PDLI) (PDL) and Exelixis, Inc. (Nasdaq: EXEL) (Exelixis) announced
today a collaboration to discover and develop humanized antibodies for the
diagnosis, prevention and treatment of cancer. The collaboration will utilize
Exelixis' model organism genetics technology for the identification of new
cancer drug targets, and PDL's antibody and clinical development expertise to
create and develop new antibody drug candidates. PDL will provide Exelixis with
$4.0 million in annual research funding for two or more years, and has purchased
a $30.0 million note convertible after the first year of the collaboration into
shares of Exelixis common stock.
George A. Scangos, Ph.D., President and Chief Executive Officer of
Exelixis, said, "We're pleased to be working with PDL, a leader in the
development of humanized antibodies, and are already in a position to deliver
our first targets under this collaboration. PDL is committed to a high-quality
pipeline of anti-cancer antibody products, and I am pleased that PDL has
recognized the value in our oncology target portfolio. The direct cash value to
Exelixis is substantial, and there is considerably more value in the
co-development rights that Exelixis has in this program, and in the resources
that PDL will bring to the collaboration. This relationship is consistent with
Exelixis' strategy of moving towards the market and capturing increasing value
from the results of our research, and is a strong complement to our internal
efforts directed towards finding small molecule therapeutics for cancer."
Laurence Jay Korn, Ph.D., Chief Executive Officer and Chairperson of
Protein Design Labs, said, "PDL has seven antibodies in clinical development,
including Zamyl (anti-CD33) and Remitogen (anti-HLA-DR) for potential cancer
indications, and Nuvion (anti-CD3) for the treatment of graft versus host
disease. This collaboration provides PDL with an opportunity to expand our
pipeline of oncology drugs with new antibodies that specifically block the
initiation or progression of cancer, using the model organism genetic approach
of Exelixis to identify novel targets. The Exelixis technology is designed to
provide information about the function of a target at an early stage, which mav
be quite valuable, as we believe antibodies for cancer are likely to work best
when they interfere with a function necessary for cell growth or proliferation,
or when they induce apoptosis."
Under the terms of the collaborative agreement, PDL will receive an
exclusive, worldwide license to develop antibodies against certain targets
identified by Exelixis that are involved in cell growth, apoptosis (cell death)
and proliferation. This approach may provide potential targets for developing
novel humanized antibodies for the treatment of cancer using PDL's proprietary
SMART antibody technology. Exelixis will have the right to co-fund and
co-develop antibodies resulting from the collaboration. For antibody products
developed by PDL that Exelixis elects not to co-develop, Exelixis will be
entitled to specified milestone payments and royalty payments on any product
sales.
Protein Design Labs, Inc. is a leader in the development of humanized
antibodies to prevent or treat various disease conditions. PDL currently has
antibodies under development for autoimmune and inflammatory conditions, asthma
and cancer. PDL holds fundamental patents in the U.S., Europe and Japan for its
antibody humanization technology. Further information is available at
www.pdl.com.
Exelixis, Inc. is a leading life sciences biotechnology company focused on
product development through its expertise in comparative genomics and model
system genetics. These technologies provide a rapid, efficient and
cost-effective way to move from DNA sequence data to knowledge about the
function of genes and the proteins that they encode. Exelixis' technology is
broadly applicable to all life science industries including pharmaceutical,
diagnostic, agricultural biotechnology and animal health. Exelixis has
partnerships with Aventis, Bayer, Pharmacia, Bristol-Myers Squibb and Dow
AgroSciences and is building its internal development program in the area of
oncology. For more information, please visit Exelixis' web site at
www.exelixis.com.
This press release contains certain forward-looking statements that involve
risks and uncertainties that may affect our business, as more fully discussed in
the "Risk Factors" section of our filings with the U.S. Securities and Exchange
Commission. These risks and uncertainties include, but are not limited to, our
ability successfully to collaborate and identify novel targets and develop
potential products from the collaboration. Exelixis and PDL direct the reader to
our respective SEC filings, including our respective Annual Reports on Form 10-K
for the year ended December 31, 2000. The information in this press release is
current as of its release date. Neither party assumes responsibility to update
the information.
Exelixis and the Exelixis logo are registered U.S. trademarks of Exelixis, Inc.
Protein Design Labs, the PDL logo and SMART are registered U.S. trademarks and
Zamyl, Remitogen and Nuvion are U.S. trademarks of Protein Design Labs, Inc.
EXHIBIT D-1
THIRD PARTY TECHNOLOGY
[ * ]
EXHIBIT D-2
PDL EXCLUDED PATENTS
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.