COLLABORATIONS AND LICENSING AGREEMENTS
One of our business strategies is to establish alliances with industry
leaders to access their unique technologies and capabilities. To date, we have
established the following collaborations and licensing agreements:
ELAN CORPORATION, PLC AND ELAN INTERNATIONAL SERVICES, LTD.
In January 1999, we created a joint venture with Elan to develop controlled
release formulations of bicifadine for the treatment of pain and ocinaplon for
the treatment of anxiety disorders and epilepsy. We granted a non-exclusive
license and sublicense to use the oral formulations of these two product
candidates and Elan granted a non-exclusive license to use its proprietary
controlled release technologies. After payments to our licensor, Wyeth-Ayerst,
we are entitled to receive net royalties on net sales, if any, of 8.35% for
bicifadine and 4.64% for ocinaplon, and Elan is entitled to receive royalties at
the same rate. Elan and we jointly conduct the research and development work,
and the joint venture retains the commercialization rights with respect to these
two product candidates. Unless Elan elects to exchange its convertible
exchangeable promissory note, as discussed below, we have an 80.1% interest, and
Elan has a 19.9% interest, in the joint venture's net profits or net losses.
In connection with the formation of the joint venture, Elan and we formed a
management committee, which is responsible for, among other things, devising,
implementing and reviewing strategy for the joint venture's business. The
management committee consists of an equal number of members nominated by us and
Elan. Decisions of the committee are made by majority vote. Any dispute or
deadlock among the members is referred by the committee to the joint venture's
directors. While we have the right to nominate four of the five members of the
board of directors, such directors have a fiduciary duty to act in the best
interest of the joint venture. Also, resolution of certain matters such as
disputes that require amendment of the business plan require the consent of both
parties. Moreover, if Elan elects to exchange its convertible exchangeable note,
as discussed below, for additional participation in the joint venture to make
our equity interests equal, the number of directors on the joint venture's board
will be adjusted so that an equal number of members are nominated by us and
Elan.
To form the joint venture, we initially invested cash of $8.0 million for
our 80.1% interest. Elan invested $2.0 million for its 19.9% interest. Elan
provided us with both debt and equity financing to fund our investment in the
joint venture and our share of the operations of the joint venture. We issued
Elan a convertible exchangeable promissory note for $8.01 million. Elan has the
right to convert this note at any time, together with accrued unpaid interest,
into shares of our common stock at $3.98 per share. Alternatively, Elan can
exchange the principal amount of this note for additional participation in the
joint venture, to make our equity interests equal. If Elan chooses this option,
it maintains its right to convert any accrued unpaid interest of this note into
shares of our common stock at $3.98 per share and it must reimburse us for a
portion of our development expenses so that our overall development payments are
equal. Elan's choice to convert or exchange the note expires in January 2005.
Elan also purchased, for an aggregate of $3.0 million, 525,025 shares of our
common
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stock, 354,643 shares of series B preferred stock and warrants to purchase
121,500 shares of our common stock at an exercise price of $3.41 per share.
Elan and we fund the joint venture in proportion to our equity ownership.
For this purpose, we may draw down on a $7.0 million convertible line of credit
provided to us by Elan. We have drawn down on the convertible line of credit in
the past and, at December 31, 2001, $3.0 million of principal and accrued
interest was outstanding. Our ability to borrow further under the convertible
line of credit expired on March 27, 2002. This convertible line of credit may
not be prepaid without Elan's consent. Elan also has the right to convert the
amount outstanding under the convertible line of credit at any time, together
with any accrued unpaid interest, into shares of our common stock at $3.41 per
share.
Elan and we both licensed intellectual property to the joint venture. Those
licensing agreements terminate on a product-by-product basis and
country-by-country basis 15 years from the first product sale date in the
applicable country, or the last to expire of the patents covering the product,
whichever is later. Elan may terminate its license agreement if a named
technological competitor of Elan:
- directly or indirectly acquires ten percent or more of our or the joint
venture's voting stock, or otherwise controls or influences our or the
joint venture's management or business; or
- enters into any joint venture, collaborative, license or other agreement
with us or the joint venture to the extent that the competitor is
materially engaged in our or the joint venture's business or development.
Upon termination of the licenses granted to the joint venture or if the
joint venture winds-up or becomes insolvent, then, subject to the rights of
permitted third-party sublicensees, all intellectual property rights Elan and we
have licensed to the joint venture terminate. Further, the intellectual property
developed by the joint venture will be transferred to Elan and us jointly, and
we each will have the right to exploit and commercialize the intellectual
property developed by the joint venture that relates to our own intellectual
property.
BIOVAIL LABORATORIES INCORPORATED AND BIOVAIL CORPORATION
In January 2001, we entered into a license, research and development
agreement with Biovail to develop, manufacture and market DOV diltiazem. Biovail
has an exclusive, worldwide license to use DOV diltiazem. We received an upfront
license fee of $7.5 million, plus we are entitled to receive royalties on net
sales of co-developed products sold by Biovail or its sublicensees, if any.
Biovail must pay the first $6.0 million of clinical trial costs for the initial
co-developed product and 50% of the costs thereafter and 10% of all non-clinical
development costs. We are also entitled to receive up to $10.0 million in
milestone payments, a portion of which we will be entitled to receive upon the
achievement of certain clinically relevant criteria for either an angina or
hypertension indication and the remainder of which we will be entitled to
receive upon the grant of marketing authorization in the United States. Further,
we retain the right to co-promote any co-developed products, subject to a
separate co-promotion agreement to be negotiated with Biovail, utilizing our own
resources or through a third party.
Biovail and we have formed a joint oversight committee to manage our
collaborative efforts under this agreement. The committee is comprised of an
equal number of members designated by us and Biovail. Major decisions of the
committee, including all budget and other financial decisions, are taken by
majority vote of all members of the committee. Biovail will, at its expense,
perform all formulation and research work, obtain marketing authorization and
manufacture and market any co-developed products. We will be responsible for
carrying out all clinical development work and, as noted above, Biovail is
primarily responsible for funding that work. Biovail is required to enforce our
DOV diltiazem patent and the related intellectual property, including a
requirement to sue for infringement. We may
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be required to reimburse Biovail for up to $1.5 million of legal fees and
disbursements incurred in connection with such enforcement.
We can terminate our agreement with Biovail if Biovail fails to meet its
marketing or regulatory obligations, or if opposition by Biovail's joint
committee members causes clinical trials to be delayed beyond January 2003, or
causes clinical trials to be suspended for more than six months. We can also
terminate our agreement if Biovail does not perform any of its other significant
obligations, including payment of clinical development costs, milestones and
royalty payments. If we terminate our agreement under these circumstances, the
license will revert to us and Biovail must assign to us any marketing
authorizations for any co-developed products and name us as the applicant for
all drug applications. If we terminate our agreement due to Biovail's failure to
meet their marketing or regulatory obligations, we must pay Biovail royalties on
net sales by or through us of a co-developed product until Biovail has been
reimbursed for its clinical development costs.
NEUROCRINE BIOSCIENCES, INC.
In June 1998, we sublicensed NBI-34060 to Neurocrine on an exclusive,
worldwide basis for 10 years or, if later, the expiration of the patent covering
either the compound or the marketed product. Upon the occurrence of either of
these two events, Neurocrine will be deemed to have a fully-paid, royalty-free
license to the compound and the marketed product. During the term of the
agreement and after payments to our licensor, Wyeth-Ayerst, we are entitled to
receive a royalty equal to 3.5% of net sales, if any, and milestone payments of
up to approximately $4.7 million. We have received milestone payments consisting
of $1.3 million in cash, of which we have retained $845,000 following required
payments to Wyeth-Ayerst, and warrants to purchase 75,000 shares of Neurocrine's
common stock, of which we will retain warrants to purchase approximately 50,000
shares, after payments to Wyeth-Ayerst and transaction-related expenses. We
achieved the milestone in November 2001. Neurocrine also purchased shares of our
series A preferred stock at an aggregate purchase price of $440,000.
Neurocrine is responsible for the research, development and
commercialization of NBI-34060. We have the right to terminate the agreement,
with regard to the entire territory, if Neurocrine terminates the research and
development program or halts the research and development program for six months
or longer within the United States, other than for reasons relating to
regulatory constraints. Likewise, if Neurocrine halts, for six months or longer,
or terminates the research and development program in any other country, we have
the right to terminate the agreement with respect to that country. If we
terminate the agreement due to an uncured breach by Neurocrine, they must
transfer to us all information and know-how related to NBI-34060 or the marketed
product, and all governmental filings and approvals. |
