-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MZXUff5hy83AftflXVBc1IfRm/jpOq6L1gESlFPO1rvx/X2BdNr5l8bTFVerGC74 QsUc5oqf9D5KaSjfbqOCOg== 0000893220-07-000790.txt : 20070316 0000893220-07-000790.hdr.sgml : 20070316 20070316161819 ACCESSION NUMBER: 0000893220-07-000790 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070316 DATE AS OF CHANGE: 20070316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOSE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000877902 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 133549286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27718 FILM NUMBER: 07700373 BUSINESS ADDRESS: STREET 1: 102 WITMER RD CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 2154415890 MAIL ADDRESS: STREET 1: 102 WITMER ROAD CITY: HORSHAM STATE: PA ZIP: 19044 FORMER COMPANY: FORMER CONFORMED NAME: NEOSE PHARMACEUTICALS INC DATE OF NAME CHANGE: 19950817 10-K 1 w32002e10vk.htm FORM 10-K e10vk
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2006 or
     
o   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 0-27718
NEOSE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
     
Delaware   13-3549286
     
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
102 Rock Road    
Horsham, Pennsylvania   19044
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (215) 315-9000
Securities registered pursuant to Section 12(b) of the Act:
     
Common Stock, par value $0.01 per share   The NASDAQ Stock Market LLC
     
(Title of each class)   (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Preferred Share Purchase Rights
 
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy statement or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o     Accelerated filer þ      Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
As of June 30, 2006, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $76,818,298 based on the last sale price of the Common Stock on such date as reported by The NASDAQ Stock Market LLC. This calculation excludes 13,861,139 shares held on June 30, 2006 by directors, executive officers, and two holders of more than 10% of the registrant’s Common Stock.
As of March 15, 2007, there were 54,387,843 shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for its Annual Meeting of Stockholders to be held on May 4, 2007, is incorporated by reference into Part III of this Annual Report on Form 10-K.
 
 

 

 

TABLE OF CONTENTS
             
        3  
 
            
  BUSINESS     3  
  RISK FACTORS     11  
  UNRESOLVED STAFF COMMENTS     22  
  PROPERTIES     23  
  LEGAL PROCEEDINGS     23  
  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS     23  
 
            
        24  
 
            
  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS     24  
  SELECTED FINANCIAL DATA     25  
  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     27  
  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK     39  
  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA     40  
  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE     40  
  CONTROLS AND PROCEDURES     40  
  OTHER INFORMATION     42  
 
            
        43  
 
            
  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT     43  
  EXECUTIVE COMPENSATION     43  
  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT     43  
  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS     44  
  PRINCIPAL ACCOUNTANT FEES AND SERVICES     44  
 
            
        45  
 
            
  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES     45  
 
            
        49  
 Amendment No. 1 to Research, Co-Development and Commercialization Agreement
 Amended and Restated Research, Development and License Agreement
 Bioprocessing Services Agreement
 Commercial Premium Finance Agreement - Promissory Note
 Consent of KPMG LLP
 Certification of Chief Executive Officer
 Certification of Chief Financial Officer
 CEO Certification Pursuant to Section 1350
 CFO Certification Pursuant to Section 1350
NEOSE, GlycoAdvance, GlycoPEGylation and GlycoConjugation are trademarks of Neose Technologies, Inc. This Annual Report on Form 10-K also includes trademarks and trade names of other companies.

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PART I
ITEM 1. BUSINESS.
Overview
     We are a clinical–stage biopharmaceutical company focused on the development of next-generation therapeutic proteins, which we believe will be competitive with best-in-class protein drugs currently on the market. Our lead therapeutic protein candidates are GlycoPEG-EPO (NE-180) and GlycoPEG-GCSF. In 2005, the EPO and G-CSF drug categories had aggregate worldwide sales of approximately $11.2 billion and $4.0 billion, respectively.
     NE-180 is a long-acting version of erythropoietin (EPO) produced in insect cells. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for treatment of chemotherapy-induced anemia and anemia associated with chronic renal failure. NE-180 is being developed for the treatment of anemia in adult cancer patients with non-myeloid malignancies receiving chemotherapy and for the treatment of anemia associated with chronic kidney disease, including patients on dialysis and patients not on dialysis. During 2006, we completed a Phase I clinical trial for NE-180 in Switzerland. In January 2007, we received approval from Swissmedic, the Swiss Agency for Therapeutic Products, for the initiation of a Phase II human trial to evaluate the safety, tolerability and dose response of NE-180 in cancer patients receiving platinum-based chemotherapy. In March 2007, we received approval from the U.S. Food and Drug Administration (FDA) to initiate clinical trials in the U.S. in response to our amended Investigational New Drug application (IND).
     Our second proprietary protein, GlycoPEG-GCSF, is a long-acting version of granulocyte colony stimulating factor (G-CSF) that we are co-developing with BioGeneriX AG, a company of the ratiopharm Group. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood cell) and is approved for sale in major markets around the world for treatment of neutropenia associated with myelosuppressive chemotherapy. In November 2006, BioGeneriX initiated the first of two planned Phase I clinical trials for GlycoPEG-GCSF. We expect BioGeneriX to initiate and complete the second Phase I trial during 2007.
     We believe that our enzymatic pegylation technology, GlycoPEGylation™, can improve the drug properties of therapeutic proteins by building out, and attaching polyethylene glycol (PEG) to, carbohydrate structures on the proteins. We are using our technology to develop proprietary versions of protein drugs with proven safety and efficacy and to improve the therapeutic profiles of proteins being developed by our partners. We expect these modified proteins, such as NE-180 and GlycoPEG-GCSF, to offer significant advantages, including less frequent dosing and possibly improved efficacy, over the original versions of the drugs now on the market, as well as to meet or exceed the pharmacokinetic profile of next-generation versions of the drugs now on the market. We believe this strategy of targeting drugs with proven safety and efficacy allows us to lower the risk profile of our proprietary development portfolio as compared to de novo protein drug development. We intend to continue to focus our research and development resources on therapeutic proteins that we believe have the highest probability of clinically meaningful therapeutic profile improvements from our technology and are in commercially attractive categories.
Opportunities in the Therapeutic Protein Market
     Worldwide sales of protein drugs in 2006 have been reported at over $47 billion, and by some estimates are expected to grow to over $55 billion by 2011. We believe that many of the proteins now on the market will lose the protection of certain patent claims over the next 15 years. In addition, many marketed proteins are facing increased competition from next-generation versions or from other drugs approved for the same disease indications. Although not every protein drug is a candidate for the use of our technologies, we believe our technologies can be applied to many of these marketed drugs to create products with improved clinical profiles. We are pursuing opportunities in this field through our own proprietary drug development portfolio, our exploratory research program and our partnering and licensing program. We will continue our efforts to build a portfolio of commercially attractive partnerships in a blend of co-developments and licenses. Where possible, we will seek partnerships that allow us to participate significantly in the commercial success of each of the compounds.
Our Technology
     Our GlycoPEGylation technology involves the use of enzymes to attach PEG to carbohydrate structures that we have introduced or modified on proteins. We have developed a special expertise and an extensive intellectual property position in this area. Our technologies may permit the development of therapeutic proteins with improved clinical profiles. In

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some cases, these improvements to therapeutic proteins may also allow us to create new intellectual property relating to our core technologies, as well as new compositions of matter. In addition, our technology can be applied to proteins produced in a variety of cell expression systems, including Chinese hamster ovary (CHO) cells, E. coli, and insect cells. We continue to make significant investments in research and development and legal services to protect and expand our intellectual property position. We believe our core technologies have broad application to protein drug development and can be extended to provide an opportunity for sustainable growth. We are using our GlycoPEGylation technology in our drug development portfolio, in our partnering and licensing program, and in our exploratory research.
     Improved Clinical Profiles. Common protein drug delivery problems include poor solubility and stability, proteolysis (rapid degradation), rapid clearance, and immunogenicity. For some proteins, one approach to these problems has been conventional chemical pegylation — the attachment of the large, water-soluble polymer, PEG, directly to the amino acid backbone of the protein. Pegylation may improve the solubility, stability, half-life and immunogenicity profile of a protein drug. Pegylation has been used in marketed drugs, such as PEG-INTRON®, PEGASYS® and Neulasta®.
     For some protein drugs, it has been difficult to achieve the benefits of pegylation by the conventional approach of attaching PEG directly to the protein backbone. A possible explanation is that the sites for the attachment of PEG occur at positions where the bulky PEG molecules block access to the active site on the protein or alter the conformation of the protein. This may diminish or eliminate drug activity.
     By employing GlycoPEGylation, we are able to attach PEG efficiently and selectively to the carbohydrate structures on proteins, rather than attaching PEG directly to the protein backbone. By linking PEG to carbohydrate structures that are remote from the protein’s active site, GlycoPEGylation may preserve the bioactivity of the drug and extend its half-life. We believe that significant clinical benefits may be achieved through the application of our GlycoPEGylation technology to proteins. By using our GlycoPEGylation technology, we have been able to demonstrate with several drug candidates a prolonged drug effect in animals, including drug candidates that have not shown biological activity following chemical pegylation.
     Enabling Multiple Expression Systems. In addition to attaching PEG to carbohydrate structures, our enzymes also modify or introduce carbohydrate structures on proteins. We refer to this as our GlycoAdvance® technology. Currently, recombinant glycoprotein drugs are often produced in mammalian cell culture expression systems, primarily Chinese hamster ovary (CHO) cells. Generally, carbohydrates are added to proteins during the process of expression. CHO cells, and many other expression systems used for commercial manufacturing of proteins, tend to produce protein molecules with incomplete or inconsistent carbohydrate structures. In the human body, these incompletely glycosylated proteins may be cleared too rapidly, thus compromising the half-life and effectiveness of these proteins.
     Our technology addresses these problems by employing enzymes to modify the carbohydrate structures on proteins that have inadequate carbohydrate structures and to introduce carbohydrate structures on proteins that have none. Proteins may have inadequate carbohydrate structures as a result of the cell expression systems used, or may have no carbohydrate structures in their native state. Our ability to modify or introduce carbohydrate structures allows our GlycoPEGylation technology to be applied to proteins produced in a variety of cell expression systems, including CHO cells, E. coli, and insect cells.
GlycoPEGylated Products in Development
     There are currently three next-generation therapeutic protein candidates in development using our GlycoPEGylation technology: NE-180, GlycoPEG-GCSF, and a long-acting version of Factor VIIa (GlycoPEG-FVIIa).
     NE-180. We are developing NE-180, a long-acting version of EPO that is produced in insect cells. NE-180 is being developed for the treatment of anemia in adult cancer patients with non-myeloid malignancies receiving chemotherapy and for the treatment of anemia associated with chronic kidney disease, including patients on dialysis and patients not on dialysis. During 2006, we completed a Phase I clinical trial for NE-180 in Switzerland. We concluded from that trial that single doses of NE-180, up to 1.5 µg/kg, were generally well-tolerated with no serious adverse events and demonstrated potent, dose-dependent erythropoietic activity. The results from the Phase I study support a Phase II program in patients with anemia associated with chronic kidney disease, dosed every four weeks, and in cancer patients receiving chemotherapy, dosed every three weeks.
     In January 2007, we received approval from Swissmedic, the Swiss Agency for Therapeutic Products, for the initiation of a Phase II human trial. The Phase II trial is designed as an open label, sequential, ascending dose study to evaluate the safety, tolerability and dose response of NE-180 in cancer patients receiving platinum-based chemotherapy. In

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March 2007, we received clearance from the U.S. Food and Drug Administration (FDA) to initiate clinical trials in the U.S. in response to our amended Investigational New Drug application (IND).
     EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for the treatment of chemotherapy-induced anemia and anemia associated with chronic renal failure. EPO accounts for more sales worldwide than any other glycoprotein drug. Worldwide sales in the EPO category in 2005 were approximately $11.2 billion. Of these sales, approximately $6.8 billion were in the U.S. and approximately $4.4 billion were outside the U.S.
     We believe that the expiration of key patents covering EPO will provide commercial opportunities in time frames consistent with our development timeline. While we expect to pursue early entry opportunities in the U.S., we expect to pursue regulatory and marketing approval first in Europe, where the key patents, along with those in Japan, have expired.
     In the U.S., we believe that the key patents surrounding EPO expressed in non-vertebrate systems will expire by the end of 2013, and that the remaining key patents will expire by the end of 2015. Accordingly, we believe that our use of an insect cell expression system will allow NE-180 to enter the U.S. market sooner than EPO products expressed in vertebrate or mammalian cells. In addition, we believe that the use of an insect cell expression system may allow us to enter the U.S. market before even the non-vertebrate patents expire. Some of the issues relevant to the analysis of our freedom to operate in the U.S. are the subject of ongoing litigation between other parties. We continue to monitor these matters, as well as evaluate whether the applicable patent claims would block our entry into the U.S. market prior to expiration. In the meantime, we expect to continue development in the U.S. of NE-180 under the protection of a statutory safe harbor.
     GlycoPEG-GCSF. We are developing GlycoPEG-GCSF, a long-acting version of G-CSF, in collaboration with our partner BioGeneriX. In November 2006, BioGeneriX initiated in a Western European jurisdiction the first of two planned Phase I clinical trials for GlycoPEG-GCSF. We expect BioGeneriX to initiate and complete the second Phase I trial during 2007. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood cell), and is approved for sale in major markets around the world for treatment of neutropenia associated with myelosuppressive chemotherapy. Worldwide sales in the G-CSF category in 2005 were approximately $4.0 billion. Of these sales, approximately $2.7 billion were in the U.S. and approximately $1.3 billion were outside the U.S.
     We believe that the expiration of key patents covering G-CSF will provide commercial opportunities in a time frame consistent with our development timeline. We expect that regulatory approval for GlycoPEG-GCSF will be sought both in and outside the U.S. We believe that key patents covering G-CSF have expired in Europe, and will expire in the U.S. in late 2013 and in other jurisdictions between these times. We expect BioGeneriX to pursue regulatory and marketing approval for GlycoPEG-GCSF first in Europe.
     GlycoPEG-FVIIa (Long-acting rFVIIa). A long-acting form of recombinant Factor VIIa is being developed by our partner, Novo Nordisk, utilizing our GlycoPEGylation technology. In 2006, we successfully completed technical transfer of the process to Novo Nordisk, who performed preclinical pharmacokinetic and pharmacodynamic studies, and conducted other preclinical activities. Novo Nordisk has announced that they plan to initiate Phase I clinical studies in 2007. Factor VIIa is used in the treatment of bleeding episodes and for the prevention of bleeding during surgery or invasive procedures in patients with congenital hemophilia with inhibitors to coagulation factors VIII or IX. The worldwide market for recombinant Factor VIIa was approximately $1 billion in 2006, with all of the sales being generated by Novo Nordisk. Novo Nordisk is also investigating other applications for Factor VIIa, including its use in hemophilia prophylaxis, intracerebral hemorrhage, trauma, traumatic brain injury, and spinal and cardiac surgery.
Partnering And Licensing Program
     Currently we have the following collaborations:
     BioGeneriX. In 2004, we entered into an agreement with BioGeneriX to use our proprietary GlycoAdvance and GlycoPEGylation technologies to develop a long-acting version of G-CSF. In October 2006, we entered into an amendment of this agreement. Under the agreement, as amended, we and BioGeneriX shared the expenses of preclinical development. BioGeneriX is responsible for supplying the protein and funding the clinical development program and we are responsible for supplying enzyme reagents and sugar nucleotides. As of January 1, 2007, BioGeneriX is responsible for the cost of reagent supply. If we and BioGeneriX proceed to commercialization, we will have commercial rights in the U.S., Canada, Mexico and Japan, and BioGeneriX will have commercial rights in Europe and the rest of the world. Each company has the ability to search for its own marketing partner for its territories and will receive significant royalties on product sales in the other company’s territory. Each party has the right, in various circumstances, to terminate the agreement by giving the required

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notice to the other party, subject to the other party’s right to continue working on the development and commercialization of a long-acting version of G-CSF, as provided in the agreement. In addition, we have immediate termination rights, in which case we will have all rights to the product candidate, including supply of protein from BioGeneriX or its contract manufacturer, in the event BioGeneriX does not meet certain Phase I and Phase II diligence requirements. In November 2006, BioGeneriX initiated a Phase I clinical trial for GlycoPEG-CGSF in a Western European jurisdiction, and we expect BioGeneriX to conduct a second Phase I trial during 2007.
     In 2005, we entered into a research, co-development and commercialization agreement with BioGeneriX for a GlycoPEGylated erythropoietin made in CHO cells (GlycoPEG-CHO-EPO). We received a non-refundable payment in connection with the execution of this agreement. The agreement provided for us to conduct research on behalf of BioGeneriX for up to 12 months and grant BioGeneriX the right to obtain an exclusive, worldwide license to use our enzymatic technologies to develop and commercialize a long-acting version of the target protein. Under an amendment to the agreement entered into in October 2006, BioGeneriX had until December 31, 2006 to exercise the option. BioGeneriX did not exercise the option and all rights to Neose’s GlycoPEGylation technology as it applies to GlycoPEG-CHO-EPO reverted to Neose.
     Novo Nordisk. In 2003, we entered into two agreements with Novo Nordisk A/S to use our GlycoPEGylation technology to develop and commercialize next-generation versions of Factors VIIa, VIII and IX, one of which, Factor VIIa, is currently marketed by Novo Nordisk. Under these agreements, we received a $4.3 million upfront fee, and Novo Nordisk funds our research and development activities for these three proteins. We may also receive up to $52 million in development milestones under these agreements, as amended, as well as significant royalties on sales of the licensed products.
     In October 2006, we entered into an amended and restated agreement with Novo Nordisk, which supersedes one of the original agreements entered into in November 2003. The amended and restated agreement incorporates the prior amendments to the original agreement and further amends the original agreement to clarify certain terms and conditions related to intellectual property. Under these agreements, as amended, Novo Nordisk’s license with respect to each protein continues until the expiration of the last Neose patent covering a licensed product, or until the earlier termination of the applicable agreement. Novo Nordisk has the right to terminate each of the agreements without cause. We have the right to terminate the agreement with respect to Factors VIII and IX if there are no commercial sales of licensed products within a specified period, subject to Novo Nordisk’s ability to extend by paying minimum royalties.
Exploratory Research Program
     We conduct exploratory research, both independently and with collaborators, on therapeutic candidates, primarily proteins, using our enzymatic technologies. Successful therapeutic candidates may be advanced for development through our own drug development program, our partnering and licensing program, or a combination of the two.
Intellectual Property
     Our success depends on our ability to protect and use our intellectual property rights in the continued development and application of our technologies, to operate without infringing the proprietary rights of others, and to prevent others from infringing on our proprietary rights. In connection with our proprietary protein drug program, we have devoted significant resources to investigating the patent protection for currently marketed proteins. We also devote significant resources to obtaining and maintaining patents, and we expect to aggressively enforce our rights if necessary, although we recognize that the scope and validity of patents is never certain.
     Our patent strategy has two main components, the pursuit of a patent portfolio protecting our technologies and their anticipated applications, and the evaluation of patent protection for proteins we may target for development.
     Patents and Proprietary Rights. We have continued to file patent applications covering new developments in our technologies, including compositions and methods for enzymatically introducing and modifying sugar chains on a multitude of proteins to form stable linkages between a sugar attached to a polypeptide and a water soluble polymer, therapeutic compound, targeting agent, or other biologically active molecule.
     In addition to developing our own intellectual property, we have obtained and continue to seek complementary intellectual property from others. We have entered into license agreements with various institutions and individuals for certain patent rights, as well as sponsored research and option agreements for the creation and possible license to us of additional intellectual property rights. We are obligated to pay royalties at varying rates based upon, among other things, levels of revenues from the sale of licensed products under our existing license agreements, and we expect to pay royalties

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under new license agreements for intellectual property. Generally, these agreements continue for a specified number of years or as long as any licensed patents remain in force, unless the agreements are terminated earlier.
     We own 28 issued U.S. patents, and have licensed 78 issued U.S. patents from various institutions. In addition, we own or have licensed over 124 patent applications pending in the U.S. There are also 522 foreign patent applications pending or granted related to our owned and licensed patents. Additionally, we have assigned four issued U.S. patents and seven granted or pending foreign counterparts to Magnolia Nutritionals, our joint venture with McNeil Nutritionals (a subsidiary of Johnson & Johnson).
     We recently received five U.S. patents and five Notices of Allowance from the U.S. Patent and Trademark Office from and for our patent applications related to our GlycoConjugation and GlycoPEGylation technologies. The granted U.S. claims broadly cover glycosyl-linked polyethylene glycol conjugates of therapeutic peptides, methods of GlycoConjugating a Factor VIII polypeptide, and GlycoConjugates comprising more than one peptide. These recently granted U.S. patents and U.S. allowances belong to a series of pending patent applications directed toward our broad GlycoConjugation technology platform and proprietary proteins.
     Proprietary Protein Drugs. To pursue our strategy of developing proprietary protein drugs, we must ascertain the nature, scope and expiration of existing patent claims covering the proteins we may target for development, and our methods of improving them, such as adding PEG. The patent coverage on these proteins and methods of making them is complex. These patents must be analyzed on a claim-by-claim basis, and we must make decisions based on our analysis of these varied claims. The patents and their expiration dates often vary from the U.S. to Europe to Japan. It is possible that we are unaware of issued patents or pending patent applications that are relevant to our product candidates, either because our search did not find them or because they are not yet publicly available.
     In order to market proprietary versions of currently marketed proteins, it is necessary to determine the expiration dates of existing patent claims that could cover a product candidate by analyzing numerous, complex patent claims and, in some cases, judicial opinions. The analysis of patents is subject to different interpretations. Our analysis of the patent coverage surrounding EPO in the U.S. has encouraged us that there may be opportunities to enter the U.S. market with NE-180 sooner than our competitors whose products would have different characteristics or manufacturing processes. If we pursue a strategy of early entry in the U.S., litigation could result, and would be costly regardless of whether we were successful. Litigation could also result in delays in the launch of a product, even if we ultimately were to prevail in the litigation.
     Nature of Protection. The nature of patent protection in the pharmaceutical and biotechnology industry is complex, uncertain and unpredictable, and expensive. The patents we seek may not issue, or may issue with a narrower scope than originally sought, and may not be valid or effectively enforceable. Even if our patents are enforceable, enforcement of our patents could be time consuming and expensive. If the claims in our pending patent applications are narrowed prior to issuance, others will have greater opportunity to circumvent or design around our patent protection.
     We also have proprietary trade secrets and know-how that are not patentable or that we have chosen to maintain as secret rather than filing for patent protection. We seek to protect our secret information by entering into confidentiality agreements with employees, consultants, licensees, and potential collaboration partners. These agreements generally provide that all confidential information developed by us, or made known by us to the other party, during the relationship shall be kept confidential and may not be disclosed to third parties, except in specific circumstances. Our agreements with employees also provide that inventions made by the employee during the period of employment will be solely owned by us if they are the result of tasks assigned by us or the use of property (including intellectual property) owned or used by us. Our agreements with consultants generally provide that inventions conceived by the consultant while rendering consulting services to us will be our exclusive property.
     We are aware of numerous pending and issued U.S. and foreign patent rights and other proprietary rights owned by third parties in fields related to our technologies. We will continue to expend resources to protect our own technology and seek to avoid infringing the technology of others. Patent protection obtained by others may interfere with our ability to obtain patents, or our ability to effectively employ our technologies.
     Others may claim that our technology infringes on their patents. Even if successful, the process of defending against such claims could result in substantial costs and delay our ability to commercialize our product candidates that utilize the challenged technology.

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Government Regulation
     Our research and development activities, the future manufacture of reagents and products incorporating our technologies, and the marketing of these products are subject to regulation for safety and efficacy by numerous governmental authorities in the U.S. and other countries.
     Regulation of Pharmaceutical Product Candidates. The research and development, clinical testing, manufacture and marketing of products using our technologies are subject to regulation by the FDA and by comparable regulatory agencies in other countries. Product development and approval within this regulatory framework take a number of years and involve the expenditure of substantial resources. We anticipate that the development of our next-generation proprietary proteins will involve a traditional development program, including clinical trials.
     After laboratory analysis and preclinical testing in animals, a regulatory filing is required to be submitted to the appropriate authorities before human testing may begin. In the U.S., an IND filing is made to the FDA. In Europe, a Clinical Trial Application, including an Investigational Medicinal Product Dossier (IMPD) in a country requiring adherence to guidance of the European Agency for the Evaluation of Medicinal Products (EMEA), or other country-specific filing, such as is the case in Switzerland, is submitted to the national health authority (Competent Authority) in each country in which a clinical trial is planned. Typically, a sequential three-phase human clinical testing program is then undertaken, but the phases may overlap or be combined. Certain phases may not be necessary for a particular product. Each clinical study is conducted according to an approved protocol after written approval is obtained from an independent Institutional Review Board (IRB) in the U.S, or Independent Ethics Committee (IEC) in Europe. During Phase I, small clinical trials are conducted to determine the safety of the product in healthy volunteers. During Phase II, clinical trials are expanded in size and are conducted to assess safety, establish an acceptable dose, and gain preliminary evidence of the efficacy of the product in a subset of the target population. During Phase III, clinical trials are further expanded in size and conducted to obtain sufficient data to establish statistically significant proof of safety and efficacy in the target population. The time and expense required to perform this clinical testing vary and can be substantial. The results of the non-clinical and clinical testing of a biological pharmaceutical product are then submitted to the appropriate authority in the form of a Biologics License Application (BLA), or New Drug Application (NDA) in the U.S., or a Marketing Authorization Application (MAA) or equivalent in Europe. If the application contains all pertinent information and data, the appropriate regulatory authority will formally accept the file for review. In responding to this filing, the regulatory authority may grant marketing approval, request additional information, or deny the application.
     No action may be taken to market any new drug or biologic product in either the U.S. or Europe until an appropriate marketing application has been approved by the responsible regulatory authority. Even after initial regulatory approval is obtained, further clinical trials may be required to provide additional data on safety and effectiveness or to gain clearance for the use of a product as a treatment for indications other than those initially approved. Side effects or adverse events that are reported during clinical trials may delay, impede, or prevent marketing approval. Similarly, adverse events that are reported after obtaining marketing approval may result in additional limitations being placed on the use of a product and, potentially, withdrawal of the product from the market.
     The regulatory requirements and approval processes of countries in Europe (including Switzerland, where we conducted the Phase I clinical trial for NE-180) are similar to, but not the same as, those in the U.S. The European clinical trials are being performed in a manner consistent with FDA requirements, which would potentially allow the data generated from the European trials to be used to support an IND or NDA in the United States.
     In addition to regulating and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, and processes used in the manufacture and control of products prior to providing approval to market a product. Among other conditions for marketing approval in the U.S., the prospective manufacturer’s quality control and manufacturing procedures must conform on an ongoing basis with current Good Manufacturing Practices (cGMP). Before granting marketing approval, the FDA will perform a pre-licensing inspection of the facility to determine its compliance with cGMP and other rules and regulations. In complying with cGMP, manufacturers must continue to expend time, money and effort in the area of production, training and quality control to ensure full compliance. After approval of a BLA or NDA, manufacturers are subject to periodic inspections by the FDA. If, as a result of FDA inspections relating to our products or reagents, the FDA determines that equipment, facilities, or processes do not comply with applicable FDA regulations or conditions of product approval, the FDA may seek civil, criminal, or administrative sanctions and remedies against us, such as the suspension of manufacturing operations, the seizure of products, and the suspension of sales of our products.
     Products manufactured in the U.S. for distribution abroad are subject to FDA regulations regarding export, as well as to the requirements of the country to which they are shipped. Products distributed to European countries that are members

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of the EU are also subject to EU regulations. The requirements of the EU and foreign countries generally cover the conduct of clinical trials, the submission, review and approval of marketing applications, and all aspects of product manufacture and marketing. These requirements may vary significantly from country to country.
     We expect to enter into agreements with third parties for the manufacture of enzymes, sugar nucleotides and other reagents that are used in the production of next-generation GlycoPEGylated protein therapeutics using our technology. Any third parties we contract with will be subject to substantially the same regulatory requirements as we are with regard to the items they manufacture for us.
     Other Regulations Affecting our Business. We are subject to various other laws and regulations, such as those relating to safe working conditions, employee relations, employee benefits, the environment (including the use and disposal of hazardous or potentially hazardous substances), antitrust and international trade, securities law and taxation. We endeavor to comply with applicable laws and regulations. However, we recognize that this is a complex and expensive process, and that we cannot predict when changes will occur or whether they would have a material adverse effect on our operations.
     We contract with third parties for supplies and services that are critical to our business. These third parties are also subject to government regulation. The failure of any of these third parties to comply with applicable laws and regulations could cause substantial delays to our drug development timelines and have a material adverse effect on our operations.
     Third-Party Reimbursement. Our ability and the ability of each of our collaborators to successfully commercialize drug products may depend in part on the extent to which coverage and reimbursement for the cost of such products will be available from government health administration authorities, private health insurers, and other organizations. Uncertainty continues within the pharmaceutical and biotechnology industries as to the reimbursement status of new therapeutic products, and we cannot be sure that third-party reimbursement would be available for any therapeutic products that we or our collaborators may develop. Healthcare reform, especially as it relates to prescription drugs, is an area of increasing attention and a priority of many governmental officials.
Competition
     The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and significant competition. Our competitors include pharmaceutical and biotechnology companies. In addition, many specialized biotechnology companies have formed collaborations with large, established companies to support research, development and commercialization of products that may be competitive with our current and future product candidates and technologies. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize competitive products or technologies on their own or through collaborations with pharmaceutical and biotechnology companies.
     First-Generation EPO and G-CSF Products. In the U.S., first-generation EPO products are marketed by Amgen as Epogen`® for kidney disease and Ortho Biotech as Procrit® for cancer-related anemia. In Europe, Ortho Biotech’s Eprex® and Roche’s NeoRecormon® are marketed for both kidney and cancer indications. In Japan, Amgen’s and Roche’s products are sold respectively by Kirin Brewery (ESPO®) and Chugai (Epogin®) for kidney disease. 2005 worldwide sales of these first generation EPO products were approximately $8.0 billion. Shire’s Dynepo™ was approved for marketing in the European Union, and has been launched in Germany.
     First-generation G-CSF products are marketed in the U.S. and Europe by Amgen as Neupogen®, in Europe by Sanofi Aventis as Granocyte®, and in Japan by Kirin Brewery (GRAN®), Chugai (Neutrogin®) and Kyowa Hakko Kogyo (Neu-up®®). 2005 worldwide sales of these first generation G-CSF products were approximately $1.7 billion.
     Competitive Next-Generation EPO and G-CSF Products. Other companies have programs focused on developing next-generation or improved versions of EPO and G-CSF, and some are already marketing improved versions of these products.
     Amgen currently markets Aranesp®, its improved version of EPO, which has a longer circulating half-life than Amgen’s first-generation EPO product, Epogen. Amgen launched Aranesp in the last quarter of 2001 and has reported that global sales of Aranesp were approximately $4.1 billion during 2006. Roche is developing an improved EPO known as Mircera. In April 2006, Roche filed a BLA with the FDA and EMEA for certain renal indications for Mircera. Roche has indicated that it plans to seek regulatory approval for cancer-related anemia indications in 2009. In late 2005, Amgen filed a lawsuit against Roche alleging that Mircera infringes on Amgen’s patents. Besides Amgen, Ortho Biotech and Roche, other companies are applying their technologies to develop improved EPO compounds. Syntonix (which announced in January

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2007 that it has signed a definitive agreement to be acquired by Biogen Idec) has tested its EPO-Fc fusion protein in a Phase I proof-of-principle study and has announced it is developing a different candidate. Fibrogen is developing FG-2216 and FG-4592, its small molecule promoter of endogenous EPO, which are in Phase II and Phase I respectively. Affymax is developing Hematide, its synthetic EPO-like peptide, which is currently in Phase II.
     Amgen currently markets Neulasta®, which is a modified version of its original G-CSF product, Neupogen®. Neulasta is a chemically pegylated compound, with a longer circulating half-life than Neupogen. Amgen launched Neulasta in the first quarter of 2002 and has reported that global sales of Neulasta were approximately $2.3 billion during 2005. Other companies are also applying their technologies to develop long-acting competitors to G-CSF.
     Next-Generation Protein Development. We are aware that other companies are working on the development of other next-generation protein therapeutics to which we are also applying our technology. Our product candidates will face competition from products already established in the marketplace and new therapies that may be developed by our competitors or may result from advances in biotechnology or other fields.
     Follow-on Biologics (Biogenerics). Several companies are pursuing the opportunity to develop and commercialize follow-on versions of currently marketed biologic products, including EPO, G-CSF and others. These companies include Novartis (Sandoz), BioGeneriX, Stada (Bioceuticals), BioPartners, Teva Sicor USA and Pliva (which has been acquired by Barr Pharmaceuticals). In the U.S. and Japan, a clear development and regulatory path does not currently exist for biologic products that are, or soon will be, off-patent, although a bill was recently introduced in the U.S. Senate to authorize the FDA to approve generic versions of biologics. In Europe, the first guidelines regarding the quality, preclinical and clinical development of follow-on biologics was adopted in September 2005.
     Research and Development Services. Although we are focused on the development of proprietary protein drugs, we also use our GlycoPEGylation technology to provide collaborative research services and product improvement opportunities to other pharmaceutical and biotechnology companies. These services may compete with efforts within these companies to improve therapeutic protein profiles and expression, and with services provided by other companies to improve proteins, such as chemical pegylation technology.
Manufacturing
     We used our former Witmer Road pilot manufacturing facility (Witmer Road Facility), which we sold in September 2006, to develop manufacturing processes for NE-180, enzyme reagents and key sugar nucleotides (including our sugar-PEG nucleotides). We manufactured NE-180 in sufficient quantities to meet the needs of our expected preclinical development and early clinical trials. In 2006, we began to engage third-party contract manufacturing organizations (CMOs) to supply NE-180, enzyme reagents and sugar nucleotides for late Phase II and Phase III clinical development.
     Our partners currently manufacture or otherwise provide the native proteins that are subsequently remodeled using GlycoPEGylation and will incorporate the remodeling processes at their facilities. Our supply chain obligations, outside of NE-180, are therefore confined to the supply of enzyme reagents and sugar nucleotides. We use CMOs for the supply of our enzyme reagents and sugar nucleotides, except those that are available commercially.
Marketing, Distribution, and Sales
     We intend to capitalize on the significant experience and resources of our collaborative partners to commercialize proprietary products made using our technologies. These partners generally would be responsible for much of the development, regulatory approval, sales, marketing, and distribution activities for products incorporating our technologies. However, we intend to retain some commercial rights to some proteins in select territories, as we did in our collaboration with BioGeneriX. If we commercialize any products on our own, we will have to establish or contract for regulatory, sales, marketing, and distribution capabilities, and we may have to supplement our development capabilities. The marketing, advertising, and promotion of any product manufactured using our technology would be subject to regulation by the FDA or other governmental agencies.
Employees
     As of December 31, 2006, we employed 78 individuals, consisting of 59 employees engaged in research and development activities, and 19 employees devoted to corporate and administrative activities. None of our employees is covered by collective bargaining agreements. We believe we have good relations with our employees.

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Restructurings and Employee Severance Costs
     In March 2007, we initiated a restructuring of operations designed to allow for significantly higher clinical development costs for NE-180, while keeping anticipated 2007 net cash spending consistent with 2006 levels. The restructuring, which will be implemented over the next few months, will result in a workforce reduction of approximately 40%. We estimate that we will incur cash restructuring costs of approximately $1.0 million, most of which will be reflected in our operating results during the first half of 2007. We have not yet determined if we will incur any contract termination or non-cash impairment charges in connection with the restructuring.
     In September 2006, we implemented a restructuring of operations in connection with the sale of the Witmer Road Facility. The employee severance costs incurred for this restructuring were payable pursuant to an employee severance plan established in August 2005. Therefore, these costs did not meet the definition for classification as a restructuring charge on our Statements of Operations. Our net loss for the year ended December 31, 2006 included $0.7 million of employee severance costs related to this restructuring, of which $0.6 million was included in research and development expenses and $0.1 million was included in general and administrative expenses.
     In August 2005, we implemented a restructuring of operations to enable an enhanced focus on next-generation proteins, to allow for the transfer of production of proteins and reagents to our collaborative partners and CMOs, and to reduce cash burn. Our net loss for 2005 included $14.2 million of charges related to this restructuring, including $13.2 million of non-cash property and equipment impairment charges, most of which related to the Witmer Road Facility and related equipment, and $1.0 million of payments for employee severance and costs to close our leased facility in San Diego, California.
Internet Address and Securities Exchange Act Filings
     Our internet address is www.neose.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. We make these reports and amendments available on our website as soon as practicable after filing them electronically with, or furnishing them to, the Securities and Exchange Commission (SEC).
ITEM 1A. RISK FACTORS.
Financial Risks
  We require additional capital to fund our operations. Any additional financing could result in equity dilution.
     To date, we have funded our operations primarily through proceeds from the public and private placements of equity securities. We have also funded our operations to a lesser extent from proceeds from the sale of the Witmer Road Facility, property and equipment financing, interest earned on investments, corporate collaborations, and the sale of investments. In March 2007, we sold 21.4 million shares of our common stock and warrants to purchase 9.6 million shares of common stock through a private placement at a price of $2.02 per unit, generating net proceeds of approximately $40.5 million. The warrants have a five-year term and an exercise price of $1.96 per share. We believe that our existing cash and cash equivalents (including the net proceeds from our March 2007 financing), expected proceeds from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through the second quarter of 2008, although changes in our collaborative relationships or our business, whether or not initiated by us, may affect the rate at which we deplete our cash and cash equivalents. Our present and future capital requirements depend on many factors, including:
  •   level of research and development investment required to develop our therapeutic proteins, and maintain and improve our technology position;
 
  •   the costs of process development and scale-up of proteins and reagents for research, development and at commercial scale;
 
  •   the results of non-clinical and clinical testing, which can be unpredictable in drug development;
 
  •   the time and costs involved in obtaining regulatory approvals;

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  •   changes in product candidate development plans needed to address any difficulties that may arise in process development, scale-up, manufacturing, non-clinical activities, clinical studies or commercialization;
 
  •   our ability to enter into new agreements with collaborators and to extend or maintain our existing collaborations, and the terms of these agreements;
 
  •   the timing of milestone and royalty payments from our collaborators;
 
  •   the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights, and the costs of investigating patents that might block us from developing potential drug candidates;
 
  •   the costs of recruiting and retaining qualified personnel;
 
  •   the timing, willingness, and ability of our collaborators to commercialize products incorporating our technologies;
 
  •   our need or decision to acquire or license complementary technologies or new drug targets; and
 
  •   the evolution of the competitive landscape.
     We will require significant amounts of additional capital in the future, and we do not have any assurance that funding will be available when we need it on terms that we find favorable, if at all. We may seek to raise these funds through public or private equity offerings, debt financings, credit facilities, or corporate collaborations and licensing arrangements. In addition, the investors in our March 2007 financing have the right to participate in future capital raising transactions by us until June 2008. The existence of this participation right may reduce or diminish our ability to establish terms with respect to, or enter into, any capital raising transaction with parties other than those investors until this participation right expires in June 2008.
     If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced and they may experience substantial dilution. We may also issue equity securities that provide for rights, preference and privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or drug candidates, or to grant licenses on terms that are not favorable to us. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products and technologies, and otherwise respond to competitive pressures could be significantly delayed or limited, and we may need to downsize or halt our operations.
  We have a history of losses, and we may incur continued losses for some time.
     We have incurred losses each year of our existence, including net losses of $27.1 million for the year ended December 31, 2006, $51.8 million for the year ended December 31, 2005, and $41.6 million for the year ended December 31, 2004. Given our planned level of operating expenses, we expect to continue incurring losses for some time. As of December 31, 2006, we had an accumulated deficit of $266.3 million. To date, we have derived substantially all of our revenue from corporate collaborations, license agreements, and investments. We expect that substantially all of our revenue for the foreseeable future will result from these sources and from the licensing of our technologies. We also expect to spend significant amounts to expand research and development on our proprietary drug candidates and technologies, maintain and expand our intellectual property position, and expand our business development and commercialization efforts. Our level of operating expenditures will vary depending upon the stage of development of our proprietary proteins and the number and nature of our collaborations. We may continue to incur substantial losses even if our revenues increase.
  We have not yet commercialized any products or technologies, and we may never become profitable.
     We have not yet commercialized any products or technologies, and we may never be able to do so. Since we began operations in 1990, we have not generated any revenues, except from corporate collaborations, license agreements, and investments. We do not know when or if we will complete any of our product development efforts, obtain regulatory approval for any product candidates incorporating our technologies, or successfully commercialize any approved products. Even if we are successful in developing products that are approved for marketing, we will not be successful unless these products gain market acceptance. The degree of market acceptance of these products will depend on a number of factors, including:

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  •   the timing of regulatory approvals in the countries, and for the uses, we seek;
 
  •   the competitive environment;
 
  •   the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products;
 
  •   the adequacy and success of distribution, sales and marketing efforts; and
 
  •   the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators.
     Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products or products incorporating our technologies. As a result, we are unable to predict the extent of future losses or the time required to achieve profitability, if at all. Even if we or our collaborators successfully develop one or more products that incorporate our technologies, we may not become profitable.
     If the estimates we make and the assumptions on which we rely in preparing our financial statements prove inaccurate, our actual results may vary significantly.
     Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges taken by us and related disclosure. Such estimates and judgments include the carrying value of our property, equipment and intangible assets, revenue recognition and the value of certain liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, these estimates and judgments, or the assumptions underlying them, may change over time, which could require us to restate some of our previously reported financial information. A restatement of previously reported financial information could cause our stock price to decline and could subject us to securities litigation. For a further discussion of the estimates and judgments that we make and the critical accounting policies that affect these estimates and judgments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” elsewhere in this annual report on Form 10-K.
Risks Related to Development of Products and Technologies
  We may be unable to develop next-generation therapeutic proteins.
     We are seeking to use our enzymatic technologies to develop proprietary next-generation proteins, generally in collaboration with a partner. The development of protein drugs involves a range of special challenges at various stages of the process.
     In the preclinical phase of product development, we and our partners will face several potential problems, including producing or obtaining supplies of the protein on commercially reasonable terms, successfully modifying the protein using our enzymatic technologies, and achieving adequate yields of the next-generation protein. Even if a protein development program appears to be proceeding well in the early phases, a product candidate may fail in clinical trials for several reasons, such as results indicating that the product candidate is less effective than desired (e.g., the trial failed to meet its primary objectives) or that it has harmful or problematic side effects. If clinical trials are successful, it is possible that problems may arise later during commercialization. For example, we are aware that certain marketed EPO products were associated with pure red cell aplasia that arose after marketing authorization. This highlights the fact that even after a product is approved for marketing, problems may arise that can negatively affect sales and increase costs.
     Our failure to solve any of these problems could delay or prevent the commercialization of products incorporating our technologies and could negatively impact our business.
  Non-clinical and clinical trial results for our products may not be favorable.
     In order to obtain regulatory approval for the commercial sale of any of our product candidates, we must conduct both non-clinical studies and human clinical trials that demonstrate the product is safe and effective for the use for which we are seeking approval. We may suffer significant setbacks in clinical trials, even after promising results in earlier trials. For

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example, Phase II activity may not replicate Phase I results or Phase III efficacy data may not replicate Phase II data. Adverse results from studies, including clinical trials, could have a negative effect on our ability to obtain the approval of the FDA or other regulatory agencies.
          We and our collaboration partners also may not be permitted to undertake or continue clinical trials for any of our product candidates in the future or may otherwise be unable to do so because acceptable candidates to participate in such trials are unavailable. Even if we or our collaboration partners are able to conduct such trials, we or our collaboration partners may not be able to demonstrate satisfactorily that the products are safe and effective and thus qualify for the regulatory approvals necessary to commercialize them.
          Safety and efficacy results from non-clinical studies involving animals and other models and from early clinical trials are often not accurate indicators of results of later-stage clinical trials that involve larger human populations, and, moreover, may not always be representative of results obtained while marketing an approved drug, particularly with regard to safety.
          Unfavorable results of clinical trials conducted by our competitors or other biotechnology companies may also adversely affect our ability to gain regulatory approval of our product candidates by increasing government scrutiny of our clinical trials and reducing the number of treatments receiving approval from the FDA. Government and public concerns over safety issues associated with pharmaceutical and biological products could potentially result in termination of clinical trials on entire classes of drug candidates, lengthen the trial process and increase costs relating to certain drug categories, and/or expand the safety labeling for approved products. For example, we are aware that the FDA has scheduled a meeting of the Oncologic Drugs Advisory Committee (ODAC) for May 2007 to review the safety of erythropoiesis-stimulating agents (ESAs) based on the results of recent clinical studies. Invitees to the meeting include Amgen Inc. and Ortho Biotech Products, L.P., who market Aranesp® and Procrit®, respectively. On March 9, 2007, the FDA announced revised product labeling for ESAs, including updated warnings, a new boxed warning and modifications to dosing instructions. The changes in product labeling and the outcome of the ODAC meeting, which could include further revisions to labeling, could adversely affect the conduct of the clinical trials or commercialization opportunities for our drug candidates, although we cannot speculate at this time on the impact to us or the ESA drug category in general.
     We depend on third parties to conduct our clinical trials.
  We are highly dependent on third parties to conduct our clinical trials. We contract with these third parties, generally referred to as clinical research organizations or CROs, to oversee the operations of such clinical trials and to perform data collection and analysis, including finding investigators to conduct the clinical study; encouraging patient enrollment in the study; collecting the data and entering the data into computer systems; cleaning, outputting and analyzing the data from the study; and writing the Clinical Study Report(s). We are subject to the risk that these third parties could fail to perform their obligations properly, in a timely fashion, and/or in compliance with applicable FDA and other governmental regulations. The failure of any of these third parties to perform all of their obligations to us could substantially delay our development efforts, and delay or prevent regulatory approval of our product candidates.
  Our clinical trials may be delayed.
  One potential cause of a delay in product development is a delay in clinical trials. Many factors could delay clinical trials, including, without limitation:
  •   the failure to obtain or maintain regulatory clearance to conduct clinical trials;
 
  •   insufficient supplies of clinical trial materials;
 
  •   slow rate of patient enrollment and early discontinuation of patient participation;
 
  •   adverse events occurring during clinical trials;
 
  •   adverse results from non-clinical studies; and
 
  •   changes in regulatory requirements.

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     Proteins are uniquely susceptible to neutralizing antibodies that could result in diminished efficacy of our products.
          Proteins that are foreign to a living body often provoke an immune response. Protein drugs produced by recombinant technology, even though they have the same primary amino acid sequence as a native human protein, sometimes provoke formation of antibodies that bind to the protein drug. Some such antibodies bind so as to prevent the protein drug from engaging its receptor, and thus neutralize the drug activity of the protein. Furthermore, neutralizing antibodies provoked by administration of a protein drug may react with endogenous proteins whose natural activity the drug was intended to supplement, thereby inducing a total lack of both therapeutic and natural activities in the patient. Such a condition can prove fatal. We will not know if the proteins we develop as product candidates will provoke neutralizing antibody responses in humans until they are evaluated in clinical trials. It is possible that our product candidates may be rendered ineffective for the therapeutic purpose for which they are intended or could induce harm to patients because of the neutralizing effect of antibodies to endogenous proteins in humans in response to our proteins.
          Additionally, all protein drugs expressed by recombinant technology retain some trace of contaminating proteins from the host cells used to express the protein drug. These host cell proteins may increase the chances of an immunogenic response that could diminish the therapeutic efficacy of the protein. Our GlycoAdvance technology enables the use of protein drugs produced in insect cells, an expression system which has certain technical advantages in enabling the application of our technology to this protein, but for which no product to date has received marketing authorization in the U.S. or Europe. It is possible that NE-180 may be rendered ineffective for the therapeutic purpose for which it is intended because of the neutralizing effects of antibodies provoked by the presence of trace amounts of insect cell proteins in our drug preparations.
     We have no commercial manufacturing capability and rely on third parties to manufacture our product candidates and the materials used to make them.
          Completion of our clinical trials and commercialization of our product candidates require access to, or the development of, facilities to manufacture a sufficient supply of our proteins, enzymes, sugar nucleotides and other reagents needed to produce and commercialize our technologies. Since we currently have no manufacturing capability of our own, we are highly dependent on contract manufacturers to produce these materials for us for non-clinical, clinical and/or commercial purposes. Our success depends on our ability to have these compounds manufactured on a commercial scale or to obtain commercial quantities, in either case, at reasonable cost. We may not be able to procure sufficient quantities of the products we develop to meet our needs for non-clinical or clinical development or commercialization. We may compete with other parties for access to manufacturing facilities and suitable alternatives may be unavailable to us. As a result, our products candidates may suffer delays in manufacture if our CMOs give other products greater priority than our product candidates. It is time-consuming and expensive to change contract manufacturers for pharmaceutical products, particularly when the products are under regulatory review in a New Drug Application (NDA) process. If we fail to maintain essential manufacturing and service relationships, we may not be able to replace an important CMO or to develop our own manufacturing capabilities, either of which could impede our ability to obtain regulatory approval for our products candidates and delay or prevent our product development and commercialization. If we do find replacement CMOs, we may not be able to enter into agreements with them on terms and conditions favorable to us and, there could be a considerable delay before a new facility could be qualified and registered with the appropriate authorities. If we encounter delays or difficulties in connection with manufacturing, commercialization of our products and technologies could be delayed, we could breach our obligations under our collaborative agreements and we could have difficulty obtaining necessary financing.
     The manufacture of our product candidates is_a complex and highly-regulated process. If any of our CMOs encounters problems manufacturing materials for us, our business could suffer.
          The FDA and foreign regulators require manufacturers to register manufacturing facilities. The FDA and foreign regulators also inspect these facilities to confirm compliance with current Good Manufacturing Practices (cGMP) or similar requirements that the FDA or foreign regulators establish. The manufacture of products and key reagents at any facility will be subject to strict quality control, testing, and record keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. Ultimately, we, our CMOs, or other suppliers may not meet these requirements. Our CMOs may face manufacturing or quality control problems causing product production and shipment delays or a situation where we or they may not be able to maintain compliance with the FDA’s cGMP requirements, or those of foreign regulators, necessary to continue manufacturing our product candidates and materials. Any failure to comply with cGMP requirements or other FDA or foreign regulatory requirements could adversely affect our clinical research activities and our ability to market and develop our products candidates.

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     We face challenges unique to proteins.
          We and the third parties with whom we contract to manufacture our proteins face the significant, normal scale-up risks associated with protein manufacturing: proteins are difficult to produce; it is difficult to scale up protein manufacturing processes; and it is expensive to produce proteins. We also face special risks in connection with our first product, NE-180, an EPO protein. Our success with this program will depend on our ability to have this protein manufactured, at commercial scale, in the insect cell expression system (the production source of NE-180), by a collaborator or supplier. We do not know if we will be able to locate a CMO outside of the U.S. that will be able to manufacture this protein at commercial scale and on economically feasible terms. To our knowledge, no therapeutic protein produced in this expression system has yet received marketing authorization in the U.S. or Europe, which means that we may face previously unidentified problems resulting from the use of this expression system and related regulatory challenges.
     Our long-term success depends upon our ability to develop, receive regulatory approval for and commercialize drug product candidates.
          All of our product candidates are in the development stage and have not received regulatory approval, an important requirement to the commercialization of any product candidate. If we or our collaboration partners fail to complete the development, receive regulatory approvals for and/or commercialize our product candidates, we will not be able to generate revenues from the sale of products resulting from our product candidates. As we or our collaboration partners continue our product development, there is a high risk that testing will demonstrate that our product candidates are not suitable for commercialization, either because they are unsafe, inefficient, or too costly to manufacture, or because third party competitors market a more clinically effective, safer, or more cost-effective product
          Moreover, even if we believe that the clinical data demonstrates the safety and efficacy of a product candidate, regulators may disagree with us, and we could be delayed, limited or prevented from obtaining the required regulatory approval of such product candidate. In addition, regulatory approval may take longer than we expected. Although we have received approval from Swissmedic for the initiation of a Phase II human trial for NE-180, the FDA or foreign regulators could at any point forbid us to initiate or continue testing of our product candidates in human clinical trials. There is also the risk that one of our product candidates is later discovered to cause adverse effects that prevent widespread use, require withdrawal from the market, or serve as the basis for product liability claims.
          If we or our collaboration partners are unable to successfully develop and commercialize our product candidates, we will not have a sufficient source of revenue. Moreover, the failure of one or more of our product candidates in clinical development could harm our ability to raise additional capital.
     Our ability to enter into new collaborations and to achieve success under existing collaborations is uncertain.
          A material component of our business strategy is to establish and maintain collaborative arrangements with third parties to co-develop our products and to commercialize products made using our technologies. We also intend to establish collaborative relationships to obtain domestic or international sales, marketing and distribution capabilities for product candidates receiving regulatory approval. In fact, it is very likely that we will require a partner to develop our first product, NE-180, beyond the Phase II clinical trial stage given the scale and cost associated with late-stage clinical development. We currently have collaborative agreements with Novo Nordisk, BioGeneriX and MacroGenics, Inc. We anticipate that substantially all of our revenues during the next several years will continue to be generated from collaboration or license agreements.
          The process of establishing collaborative relationships is difficult, time-consuming and involves significant uncertainty. Our partnering strategy entails many risks, including:
  •   we may be unsuccessful in entering into or maintaining collaborative agreements for the co-development of our products or the commercialization of products incorporating our technologies;
 
  •   we may not be successful in applying our technologies to the needs of our collaborative partners;
 
  •   our collaborators may not be successful in, or may not remain committed to, co-developing our products or commercializing products incorporating our technologies;
 
  •   our collaborators may seek to develop other proprietary alternatives to our products or technologies;

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  •   our collaborators may not commit sufficient resources to incorporating our technologies into their products;
 
  •   our collaborators are not obligated to market or commercialize our products or products incorporating our technologies, and they are not required to achieve any specific commercialization schedule;
 
  •   our collaborative agreements may be terminated by our partners on short notice; and
 
  •   continued consolidation in our target markets may limit our ability to enter into collaboration agreements, or may result in terminations of existing collaborations.
     Furthermore, even if we do establish collaborative relationships, it may be difficult for us to maintain or perform under such collaboration arrangements, as our funding resources may be limited or our collaborators may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, a change in business strategy, or other reasons. If we or any collaborator fails to fulfill any responsibilities in a timely manner, or at all, our research, clinical development or commercialization efforts related to that collaboration could be delayed or terminated. It may also become necessary for us to assume responsibility for activities that would otherwise have been the responsibility of our collaborator. Further, if we are unable to establish and maintain collaborative relationships on acceptable terms, we may have to delay or discontinue further development of one or more of our product candidates, undertake development and commercialization activities at our own expense or find alternative sources of funding.
  We may be exposed to product liability and related risks.
     The use in humans of compounds developed by us or incorporating our technologies may result in product liability claims. Product liability claims can be expensive to defend, and may result in large settlements of claims or judgments against us. Even if a product liability claim is not successful, the adverse publicity, time, and expense involved in defending such a claim may interfere with our business. We may not be able to obtain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.
Risks Related to Intellectual Property
  Blocking patents or claims of infringement may stop or delay the development of our proprietary products.
     Our commercial success depends in part on avoiding claims of infringement of the patents or proprietary rights of third parties. We have devoted significant resources to investigating the patent protection surrounding the proteins that are the subject of our development programs. The numerous patents, each with multiple claims, may be difficult to uncover and interpret, leading to uncertainty about our freedom to operate. It is possible that we will not be aware of issued patents or pending patent applications that are relevant to our product candidates because our searches do not find them, or pending patent applications because they are not yet publicly available. Our interpretation of patents could be challenged, leading to litigation, and we could face claims of infringement of rights of which we are unaware.
     There have been significant litigation and interference proceedings regarding patent rights, and the patent situation regarding particular products is often complex and uncertain. For example, with respect to EPO, the target of our first development program, the status of issued patents is currently being litigated by others and these patents could delay our ability to market a long-acting EPO in the U.S. As we proceed with this program and other targets, we may face uncertainty and litigation could result, which could lead to liability for damages, prevent our development and commercialization efforts, and divert resources from our business strategy.
     The cost of any litigation challenging our right to pursue our target proteins or technologies could be substantial. Others seeking to develop next-generation versions of proteins, or the holders of patents on our target proteins, may have greater financial resources, making them better able to bear the cost of litigation. In particular, one company that produces products that will likely be in direct competition with our current product candidates has aggressively defended the patents related to its products and this could increase the likelihood of litigation or the cost of litigation. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to develop, manufacture, and market products, form strategic alliances, and compete in the marketplace.
     Third parties from time to time may assert that we are infringing their patents, trade secrets or know-how. In addition, patents may issue in the future to third parties that our technology may infringe. We could incur substantial costs in defending ourselves and our partners against any such claims. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability or our partners’ ability to further develop or commercialize some or all of our products or technologies in the U.S. and abroad, and could result in the award of substantial

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damages. If we are found to infringe, we may be required to obtain one or more licenses from third parties or be unable to proceed. There can be no assurance that we will be able to obtain such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any such required license could have a material adverse effect on us.
     The failure to obtain, maintain or protect patents and other intellectual property could impact our ability to compete effectively.
          To compete effectively, we need to develop and maintain a proprietary position with regard to our own technologies, products and business. We are seeking to develop patent protection for therapeutic proteins that include numerous claims for composition of matter, methods of use, and methods of making. Legal standards relating to the validity and scope of claims in our technology field are still evolving. Therefore, the degree of future protection in the U.S. and other countries for our proprietary rights in our core technologies and products made using these technologies is also uncertain. The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:
  •   the pending patent applications we have filed, or to which we have exclusive rights, may not result in issued patents, or may take longer than we expect to result in issued patents;
 
  •   we may be subject to interference proceedings;
 
  •   we may be subject to opposition proceedings in foreign countries;
 
  •   the claims of any patents that are issued may not provide meaningful protection;
 
  •   we may not be able to develop additional proprietary technologies that are patentable;
 
  •   the patents licensed or issued to us or our customers may not provide a competitive advantage;
 
  •   other companies may challenge patents licensed or issued to us or our customers;
 
  •   other companies may independently develop similar or alternative technologies, or duplicate our technologies;
 
  •   other companies may design around technologies we have licensed or developed; and
 
  •   enforcement of patents is complex, uncertain and expensive.
          We cannot be certain that patents will be issued as a result of any of our pending applications, and we cannot be certain that any of our issued patents will give us adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications covering those inventions. In the event that another party has also filed a patent application relating to an invention claimed by us, we may be required to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome were favorable to us. It is also possible that others may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so. Furthermore, patent protection available to us may vary in different jurisdictions. In particular, the laws in some countries provide little patent protection.
          The cost to us of any patent litigation or other proceeding relating to our patents or applications, even if resolved in our favor, could be substantial. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays. If we are unable to effectively enforce our proprietary rights, or if we are found to infringe the rights of others, we may be in breach of our license agreements with our partners.
          In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We require our employees, consultants, advisors, and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We require our employees and consultants to disclose and assign to us their ideas, developments, discoveries, and inventions. These agreements may not,

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however, provide adequate protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use or disclosure.
     We may have to develop or license alternative technologies if we are unable to maintain or obtain key technology from third parties.
          We have licensed patents and patent applications from a number of institutions. Some of our proprietary rights have been licensed to us under agreements that have performance requirements or other contingencies. The failure to comply with these provisions could lead to termination or modifications of our rights to these licenses. Additionally, we may need to obtain additional licenses to patents or other proprietary rights from other parties to facilitate development of our proprietary technology base. The ownership of patents exclusively licensed to us may be subject to challenge if inventorship was not adequately investigated and represented. If our existing licenses are terminated or if we are unable to obtain such additional licenses on acceptable terms, our ability to perform our own research and development and to comply with our obligations under our collaborative agreements may be delayed while we seek to develop or license alternative technologies.
Risks Related to Competition
     Our competitors may develop better or more successful products.
          Our business is characterized by extensive research efforts and rapid technological progress. New developments in molecular biology, medicinal chemistry and other fields of biology and chemistry are expected to continue at a rapid pace in both industry and academia. Our potential competitors include both public and private pharmaceutical and biotechnology companies, as well as academic institutions, governmental agencies and other public and private research organizations that are also conducting research activities and seeking patent protection.
          A number of these competitors are working on the development of next-generation protein therapeutics. Some companies have programs focused on developing next-generation or improved versions of EPO and G-CSF, and some are already marketing improved versions of these products. These companies include Amgen, Ortho Biotech (Johnson & Johnson), Roche, Shire, Maxygen, Fibrogen, Affymax, CoGenesys and Syntonix. Other companies are active in this area, and we expect that competition will increase.
          In addition, we may compete with companies commercializing first-generation protein therapeutics, as a result of pricing practices or reimbursement limitations. Even if we succeed in developing and marketing products that have significant advantages over first-generation products, if first-generation products are available at a lower out-of-pocket cost to the consumer, health-care providers and consumers may choose first-generation products instead of next-generation versions.
          Compared to us, many of our likely and potential competitors have more:
  •   financial, scientific and technical resources;
 
  •   product development, manufacturing and marketing capabilities;
 
  •   experience conducting non-clinical studies and clinical trials of new products; and
 
  •   experience in obtaining regulatory approvals for products.
          Competitors may succeed in developing products and technologies that are more effective or less costly than ours and that would render our products or technologies, or both, obsolete or noncompetitive. We know that other companies with substantial resources are working on the development of next-generation proteins, and they may achieve better results in enzymatically modifying our target proteins or the target proteins of our potential collaborators.
          Competitors also may prove to be more successful in designing, manufacturing and marketing products. If we are successful in developing our own drug candidates or versions of drugs that are no longer patented, we will compete with other drug manufacturers for market share. If we are unable to compete successfully, our commercial opportunities will be diminished.
          In addition, while there is no proven abbreviated regulatory pathway for follow-on biologics, this possibility is under discussion in the U.S. and other jurisdictions and has been adopted in part in Europe. A bill has recently been introduced in the U.S. Senate to authorize the FDA to approve generic versions of biologics. If an abbreviated regulatory process is

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adopted for the approval of follow-on biologics in any major market, competition could increase in related segments of the therapeutic protein market.
     We may be unable to retain key employees or recruit additional qualified personnel.
          Because of the specialized scientific nature of our business, we are highly dependent upon qualified scientific, technical and managerial personnel, including our research and development team. The advancement of our business is dependent upon our management team‘s ability to evaluate collaboration opportunities and on their ability to focus our company’s efforts. Our anticipated research and development efforts will require additional expertise and the addition of new qualified personnel.
          There is intense competition for qualified management and research and development personnel in the pharmaceutical field. Therefore, we may not be able to attract and retain the qualified personnel necessary for our business. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, could harm our research and development programs and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees, and generate revenues. We do not maintain “key person” life insurance on any of our employees.
Risks Related to Government Regulation
     We are subject to extensive government regulation, and we or our collaborators may not obtain necessary regulatory approvals or may encounter long delays and large expenditures in obtaining such approvals.
          The research, development, manufacture and control, marketing, and sale of our reagents and product candidates manufactured using our technologies are subject to significant, but varying, degrees of regulation by a number of government authorities in the U.S. and other countries.
          Pharmaceutical product candidates manufactured using our technologies must undergo an extensive regulatory approval process before commercialization. This process is regulated by the FDA and by comparable agencies in Europe and in other countries. The U.S. and foreign regulatory agencies have substantial discretion to delay or withhold approval of the initiation of clinical trials, terminate clinical trials, require additional testing, delay or withhold registration and marketing approval, and mandate product withdrawals. In addition, the U.S. or other regulatory agencies could, at any time in the regulatory approval process, place the regulatory submission for a product candidate on “hold” pending the receipt, review and approval of additional information.
          We and our collaborators intend to base our submissions for regulatory approval and the information contained in such submissions on our understanding of the requirements of the FDA and its foreign counterparts. If additional information is required in other jurisdictions, including EMEA countries, or if the submitted information is deemed insufficient, we may face delays and additional costs.
          The specific risks of protein drugs may result in the application of more stringent regulatory requirements prior to approval of our product candidates. We face special challenges in connection with the development of proteins produced in the insect cell expression system. To our knowledge, no therapeutic protein for human use produced in this expression system has been submitted for marketing authorization in the U.S. or Europe, and we may encounter long delays and large expenditures or other regulatory hurdles in connection with the approval process for a product produced in this expression system.
          Neither we nor our collaborators have submitted any product candidates incorporating our technologies for marketing approval to the FDA or any other regulatory authority. If any product candidate manufactured using our technology is submitted for regulatory approval, it may not receive the approvals necessary for commercialization, the desired labeling claims, or adequate levels of reimbursement. Any delay in receiving, or failure to receive, these approvals would adversely affect our ability to generate product revenues or royalties, and we will have already spent significant sums in pursuing approval.
          We anticipate that the development of our next-generation proprietary proteins will involve a traditional development program, including clinical trials. Any new governmental regulations may delay or alter regulatory approval of any product candidate manufactured using our technology. If an abbreviated regulatory process is adopted for the approval of follow-on biologics in any major market, competition could increase in related segments of the therapeutic protein market. We cannot predict the impact of adverse governmental action that might arise from future legislative and administrative action.

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          Even if we or our collaborators are successful in obtaining regulatory approvals for any of our products, our or their manufacturing processes will be subject to continued review by the FDA and other regulatory authorities. Any later discovery of unknown problems with our products, products incorporating our technologies, or manufacturing processes could result in restrictions on such products or manufacturing processes, including potential withdrawal of the products from the market. In addition, if regulatory authorities determine that we or our collaborators have not complied with regulations in the research and development of a product candidate or the manufacture and control of our reagents, then we or our collaborators may not obtain necessary approvals to market and sell the product candidate.
     Third-party reimbursement for our collaborators’ or our future product candidates may not be adequate.
          Even if regulatory approval is obtained to sell any product candidates incorporating our technologies, our future revenues, profitability, and access to capital will be determined in part by the price at which we or our collaborators can sell such products. There are continuing efforts by governmental and private third-party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state, and foreign proposals to control the cost of drugs through governmental regulation. We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign, and private payors may take in response to the proposed reforms. Therefore, we cannot predict the effect of any implemented reform on our business.
          Our and our collaborators’ ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the U.S., private health insurers, and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product research and development. Inadequate coverage and reimbursement levels provided by government and third-party payors for use of our or our collaborators’ products may cause these products to fail to achieve market acceptance and would cause us to lose anticipated revenues and delay achievement of profitability. It is possible that reimbursement may be limited to that which is available for first-generation versions of one or more of our or our collaborator’s products, making it harder for us and our collaborators to realize an appropriate return.
Risks Related to Facilities, Business Interruption, and the Environment
     The use of hazardous materials in our operations may subject us to environmental claims or liability.
          Our research and development processes involve the controlled use of hazardous materials, chemicals, and radioactive compounds. We conduct experiments that are quite common in the biotechnology industry, in which we use small quantities of corrosive, toxic and flammable chemicals, and trace amounts of radioactive materials. The risk of accidental injury or contamination from these materials cannot be entirely eliminated. We do not maintain a separate insurance policy for these types of risks. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, and any liability could exceed our resources. We are subject to federal, state, and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations could be significant.
     Destructive actions by activists or terrorists could damage our facilities, interfere with our research activities, and cause ecological harm.
          Activists and terrorists have shown a willingness to injure people and damage physical facilities, equipment and biological materials to publicize or otherwise further their ideological causes. Our or our collaborators’ operations and research activities, and services conducted for us by third parties, could be adversely affected by such acts. Any such damage could delay our research projects and decrease our ability to conduct future research and development. Damage caused by activist or terrorist incidents could also cause the release of hazardous materials, including chemicals, radioactive and biological materials.
          Any significant interruption to our ability to conduct our business operations, research and development activities, or manufacturing operations could reduce our revenue and increase our expenses.

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Risk Related to Stock Market and Foreign Exchange Rates
     Our stock price may continue to experience fluctuations.
          The market prices of securities of thinly-traded biotechnology companies such as ours generally are highly volatile. For example, since March 1, 2006, the price of our common stock reached a high of $4.34 per share in July 2006 and a low of $1.56 per share in March 2007.
          In this market environment, the sale of a substantial number of shares of our common stock in the public market or the perception that such a sale might occur would likely have an adverse effect on the market price of our common stock, at least for the short term. We have a number of investors who hold relatively large positions in our securities. A decision by any of these investors to sell all or a block of their holdings of our common stock could cause our stock price to drop significantly.
          The market also continues to experience significant price and volume fluctuations, some of which are unrelated to the operating performance of particular companies. In recent years, the price of our common stock has fluctuated significantly and may continue to do so in the future. Many factors could have a significant effect on the market price for our common stock, including:
  •   non-clinical and clinical trial results;
 
  •   product development delays;
 
  •   regulatory delays;
 
  •   an announcement or termination of a collaborative relationship by us or any of our partners or competitors;
 
  •   developments relating to our patent position or other proprietary rights;
 
  •   announcements of technological innovations or new therapeutic products;
 
  •   government regulations;
 
  •   public concern as to the safety of products developed by us or others; and
 
  •   general market conditions.
          Any litigation brought against us as a result of this volatility could result in substantial costs and a diversion of our management’s attention and resources, which could negatively impact our financial condition, revenues, results of operations, and the price of our common stock.
          If we raise additional capital by issuing equity securities in a fluctuating market, many or all of our existing stockholders may experience substantial dilution, and if we need to raise capital by issuing equity securities at a time when our stock price is down, we may have difficulty raising sufficient capital to meet our requirements. If any of the risks described in these “RISK FACTORS” occurred, of if any unforeseen risk affected our performance, it could have a dramatic and adverse impact on the market price of our common stock.
     Changes in foreign currency exchange rates could result in increased costs.
          We have entered into some agreements denominated, wholly or partly, in Euros or other foreign currencies, and, in the future, we may enter into additional, significant agreements denominated in foreign currencies. If the values of these currencies increase against the dollar, our costs would increase. To date, we have not entered into any contracts to reduce the risk of fluctuations in currency exchange rates. In the future, depending upon the amounts payable under any such agreements, we may enter into forward foreign exchange contracts to reduce the risk of unpredictable changes in these costs. However, due to the variability of timing and amount of payments under any such agreements, foreign exchange contracts may not mitigate the potential adverse impact on our financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
          None.

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ITEM 2. PROPERTIES.
     In September 2006, we sold our Witmer Road Facility for approximately $21.0 million. In February 2007, we consolidated our operations into a 40,000 square foot facility that we currently lease in Horsham, Pennsylvania (Rock Road Facility). We entered into the lease agreement for the Rock Road Facility in February 2002. The initial term of the lease ends in July 2022, at which time we have an option to extend the lease for an additional five years, followed by another option to extend the lease for an additional four and one-half years. We also lease warehouse space nearby in Horsham.
ITEM 3. LEGAL PROCEEDINGS.
     We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
     We did not submit any matters to a vote of security holders during the fourth quarter of 2006.

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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
     Our common stock is listed on the Global Market of The NASDAQ Stock Market LLC under the symbol NTEC. We commenced trading on NASDAQ on February 15, 1996. The following table sets forth the high and low sale prices of our common stock for the periods indicated.
                 
    Common Stock Price
    High   Low
Year Ended December 31, 2005
                
First Quarter
   $ 7.25     $ 2.49  
Second Quarter
     3.23       1.95  
Third Quarter
     4.49       2.15  
Fourth Quarter
     2.85       1.70  
Year Ended December 31, 2006
                
First Quarter
     3.95       1.85  
Second Quarter
     4.18       2.18  
Third Quarter
     4.34       1.90  
Fourth Quarter
     2.89       1.78  
     As of March 15, 2007, there were approximately 200 record holders and 3,400 beneficial holders of our common stock. We have not paid any cash dividends on our common stock and we do not anticipate paying any in the foreseeable future.
Common Stock Performance Graph
     The following Common Stock Performance Graph shall not be deemed incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference therein.
     The following graph assumes that $100 was invested on December 31, 2001 in our common stock. The graph compares the cumulative return, which includes the reinvestment of dividends, of this investment with an equivalent investment on that date in the NASDAQ Stock Market – U.S. Index (the “NASDAQ Composite”) and the NASDAQ Stock Market Biotech Index (the “NASDAQ Biotech Index”)
(PERFORMANCE GRAPH)

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ITEM 6. SELECTED FINANCIAL DATA.
     The following Statements of Operations and Balance Sheet Data for each of the years in the five-year period ended December 31, 2006 are derived from our audited financial statements. The financial data set forth below should be read in conjunction with the sections of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and notes included elsewhere in this Annual Report on Form 10-K.
                                         
    Year Ended December 31,  
    2006     2005     2004     2003     2002  
            (in thousands, except per share data)          
Statements of Operations Data:
                                        
 
                                        
Revenue from collaborative agreements
   $ 6,184     $ 6,137     $ 5,070     $ 1,435     $ 4,813  
 
                              
 
                                        
Operating expenses:
                                        
 
                                        
Research and development
     29,013       33,136       34,672       26,821       21,481  
General and administrative
     11,551       10,878       11,711       11,148       12,510  
Restructuring charges
     —       14,206       —       —       —  
     
 
                                        
Total operating expenses
     40,564       58,220       46,383       37,969       33,991  
 
                                        
Gain on sale of Witmer Road Facility
     7,333       —       —       —       —  
 
                              
 
                                        
Operating loss
     (27,047 )     (52,083 )     (41,313 )     (36,534 )     (29,178 )
 
                                        
Other income
     —       22       —       —       1,653  
 
                                        
Impairment of equity securities
     —       —       —       (1,250 )     —  
 
                                        
Interest income (expense), net
     (60 )     222       (329 )     103       1,108  
 
                              
 
                                        
Net loss
   $ (27,107 )   $ (51,839 )   $ (41,642 )   $ (37,681 )   $ (26,417 )
 
                              
 
                                        
Basic and diluted net loss per share
   $ (0.82 )   $ (1.64 )   $ (1.82 )   $ (2.14 )   $ (1.85 )
 
                              
 
                                        
Weighted-average shares outstanding used in computing basic and diluted net loss per share
     32,857       31,590       22,898       17,611       14,259  
 
                              
 
                                        
Balance Sheet Data:
                                        
 
                                        
Cash, cash equivalents and marketable securities
   $ 16,388     $ 37,738     $ 45,048     $ 53,060     $ 41,040  
Total assets
     31,243       65,363       90,731       94,845       83,092  
Total debt and capital lease obligations
     1,831       14,454       18,345       10,601       7,411  
Accumulated deficit
     (266,327 )     (239,220 )     (187,381 )     (145,739 )     (108,058 )
Total stockholders’ equity
     15,559       40,117       60,854       72,213       70,685  

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
     This report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and include, but are not limited to, statements about our plans, objectives, representations and contentions that typically may be identified by use of terms such as “anticipate,” “believe,” “estimate,” “plan,” “may,” “expect,” “intend,” “could,” “potential,” and similar expressions, although some forward-looking statements are expressed differently. These forward-looking statements include, among others, the statements about our:
  •   estimate that our existing cash and cash equivalents (including the net proceeds from our March 2007 financing), expected proceeds from collaborations and license agreements, and interest income should be sufficient to meet our operating and capital requirements at least through the second quarter of 2008;
 
  •   expected losses;
 
  •   expectations for future capital requirements;
 
  •   expectations for increases in operating expenses;
 
  •   expectations for increases in research and development, and marketing, general and administrative expenses in order to develop products, procure commercial quantities of reagents and products, and commercialize our technology;
 
  •   expectations regarding the scope and expiration of patents;
 
  •   expectations regarding the timing of non-clinical activities, regulatory meetings and submissions, as well as the progression of clinical trials, for NE-180 and GlycoPEG-GCSF;
 
  •   expectations for the development of long-acting versions of EPO and G-CSF, and subsequent proprietary drug candidates;
 
  •   expectations regarding net cash utilization;
 
  •   expectations for generating revenue; and
 
  •   expectations regarding the timing and character of new or expanded collaborations and for the performance of our existing collaboration partners in connection with the development and commercialization of products incorporating our technologies.
     You should be aware that the forward-looking statements included in this report represent management’s current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements. Potential risks and uncertainties that could affect our actual results include the following:
  •   our ability to obtain the funds necessary for our operations;
 
  •   our ability to meet forecasted timelines due to internal or external causes;
 
  •   unfavorable non-clinical and clinical results for our products;
 
  •   our ability to develop commercial-scale manufacturing processes for our products and reagents, either independently or in collaboration with others;
 
  •   the performance of our CROs and CMOs;
 
  •   our ability to enter into and maintain collaborative arrangements;
 
  •   our ability to obtain adequate sources of proteins and reagents;

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  •   our ability to develop and commercialize products without infringing the patent or intellectual property rights of others;
 
  •   our ability to expand and protect our intellectual property and to operate without infringing the rights of others;
 
  •   our ability and our collaborators’ ability to develop and commercialize therapeutic proteins and our ability to commercialize our technologies;
 
  •   our ability to attract and retain key personnel;
 
  •   our ability to compete successfully in an intensely competitive field; and
 
  •   general economic conditions.
     These and other risks and uncertainties that could affect our actual results are discussed in this report, particularly in Item 1A of Part I of this Annual Report on Form 10-K in the section entitled “Risk Factors.”
     Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements other than as required by applicable law. We do not undertake any duty to update any of the forward-looking statements after the date of this report to conform them to actual results, except as required by the federal securities laws.
ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
     The following discussion should be read in conjunction with our financial statements and related notes included in this Annual Report on Form 10-K.
Overview
     We are a clinical-stage biopharmaceutical company focused on the development of next-generation therapeutic proteins that we believe will be competitive with best-in-class protein drugs currently on the market. Our lead therapeutic protein candidates are NE-180 and GlycoPEG-GCSF. In 2005, the EPO and G-CSF drug categories had aggregate worldwide sales of approximately $11.2 billion and $4.0 billion, respectively.
     NE-180 is a long-acting version of EPO produced in insect cells. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for treatment of chemotherapy-induced anemia and anemia associated with chronic renal failure. NE-180 is being developed for the treatment of anemia in adult cancer patients with non-myeloid malignancies receiving chemotherapy and for the treatment of anemia associated with chronic kidney disease, including patients on dialysis and patients not on dialysis. During 2006, we completed a Phase I clinical trial for NE-180 in Switzerland. In January 2007, we received approval from Swissmedic, the Swiss Agency for Therapeutic Products, for the initiation of a Phase II human trial to evaluate the safety, tolerability and dose response of NE-180 in cancer patients receiving platinum-based chemotherapy. In March 2007, we received clearance from the U.S. Food and Drug Administration (FDA) to initiate clinical trials in the U.S. in response to our amended Investigational New Drug application (IND).
     Our second proprietary protein, GlycoPEG-GCSF, is a long-acting version of G-CSF that we are co-developing with BioGeneriX AG, a company of the ratiopharm Group. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood cell) and is approved for sale in major markets around the world for treatment of neutropenia associated with myelosuppressive chemotherapy. In November 2006, BioGeneriX initiated the first of two planned Phase I clinical trials for GlycoPEG-GCSF. We expect BioGeneriX to initiate and complete the second Phase I trial during 2007.
     We believe that our enzymatic pegylation technology, GlycoPEGylation™, can improve the drug properties of therapeutic proteins by building out, and attaching PEG to, carbohydrate structures on the proteins. We are using our technology to develop proprietary versions of protein drugs with proven safety and efficacy and to improve the therapeutic profiles of proteins being developed by our partners. We expect these modified proteins to offer significant advantages,

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including less frequent dosing and possibly improved efficacy, over the original versions of the drugs now on the market, as well as to meet or exceed the pharmacokinetic profile of next-generation versions of the drugs now on the market. We believe this strategy of targeting drugs with proven safety and efficacy allows us to lower the risk profile of our proprietary development portfolio as compared to de novo protein drug development. We intend to continue to focus our research and development resources on therapeutic proteins that we believe have the highest probability of clinically meaningful therapeutic profile improvements from our technology and are in commercially attractive categories.
     In March 2007, we sold 21.4 million shares of common stock and warrants to purchase 9.6 million shares of common stock through a private placement, including 5.0 million shares of common stock and warrants to purchase 2.2 million shares of common stock to investment funds affiliated with certain members of our board of directors, at a price of $2.02 per unit, generating net proceeds of approximately $40.5 million. The warrants have a five-year term and an exercise price of $1.96 per share.
     In March 2007, we initiated a restructuring of operations designed to allow for significantly higher clinical development costs for NE-180, while keeping anticipated 2007 net cash spending consistent with 2006 levels. The restructuring, which will be implemented over the next few months, will result in a workforce reduction of approximately 40%. We estimate that we will incur cash restructuring costs of approximately $1.0 million, most of which will be reflected in our operating results during the first half of 2007. We have not yet determined if we will incur any contract termination or non-cash impairment charges in connection with the restructuring.
     In September 2006, we sold our Witmer Road Facility for approximately $21.0 million. We owned the Witmer Road Facility subject to mortgages supporting our term loan and industrial development authority bond.. After payment of selling fees and expenses, we received net proceeds of approximately $19.3 million. Concurrent with the closing, we repaid outstanding debt associated with the facility and related equipment of approximately $9.6 million, which included accrued interest and prepayment penalties. The remaining net proceeds from the sale of the Witmer Road Facility of approximately $9.7 million will be used to further our research, preclinical development, and clinical development objectives and to fund the capital expenditures described below to the extent such expenditures are not financed through the issuance of new debt. In conjunction with the sale of the Witmer Road Facility, we reduced the size of our workforce by approximately 25 employees. We anticipate cash severance and retention costs of approximately $1.0 million, of which $0.6 million had been paid as of December 31, 2006.
     In February 2007, we consolidated our operations into our Rock Road Facility, a 40,000 square foot facility that we currently lease in Horsham, Pennsylvania. We anticipate total costs for construction of additional laboratory and office space in the Rock Road Facility of approximately $3.7 million, of which $2.1 million was included in construction-in-progress as of December 31, 2006.
     We have incurred operating losses each year since our inception. As of December 31, 2006, we had an accumulated deficit of $266.3 million. We expect additional losses over the next several years as we continue product research and development efforts and expand our intellectual property portfolio. We have financed our operations through private and public offerings of equity securities, proceeds from debt financings, and revenues from our collaborative agreements.
     We believe that our existing cash and cash equivalents (including the net proceeds from our March 2007 financing), expected proceeds from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through the second quarter of 2008, although changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to deplete our cash and cash equivalents sooner than the above estimate.
Liquidity and Capital Resources
  Overview
     We had $16.4 million in cash and cash equivalents as of December 31, 2006, compared to $37.7 million as of December 31, 2005. The decrease for 2006 was primarily attributable to the use of cash to fund our operating activities, capital expenditures, and debt repayments, which were partly offset by net proceeds received from the sale of the Witmer Road Facility. In March 2007, we sold 21.4 million shares of our common stock and warrants to purchase 9.6 million shares of our common stock at $2.02 per unit, generating net proceeds of approximately $40.5 million. The warrants have a five-year term and an exercise price of $1.96 per share.

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     The development of next-generation proprietary protein therapeutics, which we are pursuing both independently and in collaboration with selected partners, will require substantial expenditures by us and our collaborators. We plan to continue financing our operations through private and public offerings of equity securities, proceeds from debt financings, and proceeds from existing and future collaborative agreements. Because our 2007 revenues could be substantially affected by entering into new collaborations and on the financial terms of any new collaborations, we cannot estimate our 2007 revenues. Other than proceeds from our collaborations with Novo Nordisk and BioGeneriX, and any future collaborations with others, we do not expect to generate significant revenues until such time as products using our technologies are commercialized, which is not expected during the next several years. We expect an additional several years to elapse before we can expect to generate sufficient cash flow from operations to fund our operating and investing requirements. We believe that our existing cash and cash equivalents (including the net proceeds from our March 2007 financing), expected revenue from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through the second quarter of 2008. Accordingly, we will need to raise substantial additional funds to continue our business activities and fund our operations until we are generating sufficient cash flow from operations. If we are unable to raise additional capital when required, we may need to delay, scale back, or eliminate some or all of our research and development programs.
  Operating Activities
     Net cash used in operating activities during 2006 and 2005 was $26.8 million and $33.1 million, respectively. The decrease of $6.3 million in net cash used in operating activities during 2006 was substantially the result of a $4.1 million reduction in research and development costs from 2005 to 2006. In addition, during 2006, $2.0 million of cash was provided by changes in operating assets and liabilities compared to $0.6 million for 2005. Fluctuations in operating items vary period-to-period due to, among other factors, the timing of research and development activities, such as the initiation and progress of clinical trials and non-clinical studies.
  Investing Activities
     Net cash provided by investing activities during 2006 was $18.5 million, compared to net cash used in investing activities during 2005 of $0.5 million. In September 2006, we sold our Witmer Road Facility for approximately $21.0 million. After payment of selling fees and expenses, we received net proceeds of approximately $19.3 million. Concurrent with the closing, we repaid outstanding debt associated with the facility and related equipment of approximately $9.6 million, which included accrued interest and prepayment penalties. The remaining net proceeds from the sale of the Witmer Road Facility of approximately $9.7 million will be used to further our research, preclinical development, and clinical development objectives and to fund the capital expenditures described below to the extent such expenditures are not financed through the issuance of new debt. In February 2007, we consolidated our operations into our Rock Road Facility. We anticipate total costs for construction of additional laboratory and office space in our Rock Road Facility of approximately $3.7 million, of which $2.1 million was included in construction-in-progress as of December 31, 2006.
     During 2006 and 2005, cash expenditures for property and equipment were $0.9 million and $0.8 million, respectively. The improvements to our Rock Road Facility contributed significantly to our capital expenditures during 2006. In 2007, we expect our investment in capital expenditures to be approximately $3.5 million to $4.0 million, which includes approximately $3.2 million to complete the construction at our Rock Road Facility. We may finance some or all of these capital expenditures through capital leases or the issuance of new debt or equity. The terms of any new debt could require us to maintain a minimum cash and investments balance, or to transfer cash into an escrow account to collateralize some portion of the debt, or both.
  Financing Activities
     Equity Financing Activities
     In March 2007, we sold 21.4 million shares of common stock and warrants to purchase 9.6 million shares of common stock through a private placement, including 5.0 million shares of common stock and warrants to purchase 2.2 million shares of common stock to investment funds affiliated with certain members of our board of directors, at a price of $2.02 per unit, generating net proceeds of approximately $40.5 million. The warrants have a five-year term and an exercise price of $1.96 per share.

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     In February 2005, we offered and sold 8.1 million shares of our common stock at a public offering price of $4.00 per share, generating net proceeds of $30.0 million. In May 2004, we sold 4.7 million shares of common stock in a registered direct offering to a number of institutional and individual investors, including 0.8 million shares sold to officers and an investment fund affiliated with a director, at a price of $6.77 per share, generating net proceeds of $29.9 million.
     Debt Financing Activities
     Our total debt decreased by $12.6 million to $1.8 million at December 31, 2006, compared to $14.4 million at December 31, 2005. This decrease primarily resulted from $9.3 million of early repayments of principal in connection with the sale of our Witmer Road Facility in September 2006. During 2006, we also made planned debt principal repayments of $3.8 million, which were partially offset by $0.5 million in proceeds from the issuance of debt to finance insurance policy premiums.
          Note Payable Secured by Insurance Policies
     In March 2006, we borrowed $0.5 million to finance insurance policy premiums due on certain insurance policies. We made the last payment in November 2006, and, therefore, there was no outstanding principal balance under this agreement as of December 31, 2006. The interest was calculated based on an annual percentage rate of 5.4%. To secure payment of the amounts financed, we granted the lender a security interest in all of our right, title and interest to the insurance policies.
          Term Loan from Bank and Industrial Development Authority Bond
     In September 2006, we repaid the outstanding balance of the term loan from a bank and the Industrial Development Authority bond in connection with the sale of the Witmer Road Facility. In connection with these repayments, we incurred $0.1 million of prepayment penalties and included this amount in interest expense during 2006.
          Term Loan from Landlord
     In May 2004, we borrowed $1.5 million from the landlord of our Rock Road Facility in Horsham, Pennsylvania. As of December 31, 2006, we owed the landlord $0.6 million. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 13%. During 2007, we expect to make principal and interest payments totaling $0.5 million under this agreement.
          Notes Payable to Equipment Lender
     As of December 31, 2006, we owed $1.1 million to an equipment lender that financed the purchase of certain equipment and facility improvements, which collateralize the amounts borrowed. We made $1.6 million of early principal repayments in September 2006 upon the closing of the sale of the Witmer Road Facility. In connection with these early principal payments, we incurred $0.1 million of prepayment penalties and included this amount in interest expense during 2006. In October 2006, we amended six promissory notes with our equipment lender in connection with the early repayment of a portion of the outstanding debt as a result of the sale of the Witmer Road Facility. Under the amended promissory notes, our last payment is scheduled for September 2008, and interest rates applicable to the equipment loan range from 8.1% to 9.5%. During 2007, we expect to make principal and interest payments totaling $0.8 million under these agreements.
          Capital Lease Obligations
     We did not enter into any agreements with capital lease obligations during 2006 and 2005. We entered into agreements with capital lease obligations during 2004 for equipment with a value of $0.2 million. The terms of existing leases require us to make monthly payments through August 2009. As of December 31, 2006, the present value of aggregate minimum lease payments under these agreements was $0.1 million. During 2007, we expect to make lease payments totaling $50,000 under these agreements.
  Operating Leases
     We lease laboratory, office, warehouse facilities, and equipment under operating lease agreements. In 2002, we entered into a lease agreement for our Rock Road Facility. The initial term of this lease ends 2022, at which time we have an option to extend the lease for an additional five years, followed by another option to extend the lease for an additional four and one-half years. This lease contains escalation clauses, under which the base rent increases annually by 2%. We lease

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approximately 5,000 square feet of office and warehouse space in Horsham, Pennsylvania under a lease agreement that expires April 2007. In January 2007, we entered into a five-year lease agreement for approximately 6,800 square feet of office and warehouse space in Horsham, Pennsylvania to replace similar space subject to the expiration described above. Our rental expense was $1.0 million for each of the years ended December 31, 2006, 2005, and 2004.
  Summary of Contractual Obligations
     The following table summarizes our obligations to make future payments under current contracts as of December 31, 2006:
                                         
    Payments due by period
     
            Less than            
    Total   1 Year   1 - 3 Years   4 - 5 Years   After 5 Years
     
Long-term debt obligations1
                                        
Debt maturities
   $ 1,723,000     $ 1,201,000     $ 522,000     $ —     $ —  
Contractual interest
     139,000       122,000       17,000       —       —  
Capital lease obligations2
                                        
Debt maturities
     108,000       50,000       58,000       —       —  
Contractual interest
     11,000       8,000       3,000       —       —  
Operating leases3
     8,121,000       519,000       917,000       955,000       5,730,000  
Purchase obligations4
     800,000       796,000       4,000       —       —  
     
 
                                        
Total contractual obligations
   $ 10,902,000     $ 2,696,000     $ 1,521,000     $ 955,000     $ 5,730,000  
     
 
1.   See “Financing Activities – Debt Financing Activities” in this Liquidity and Capital Resources section and Note 7 of the Notes to Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of the material features of our long-term debt. Contractual interest is the interest we contracted to pay on the long-term debt obligations.
 
2.   See “Financing Activities – Capital Lease Obligations” in this Liquidity and Capital Resources section and Note 13 of the Notes to Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of the material features of our capital lease obligations. At December 31, 2006, the present value of our capital lease obligations was $108,000 and the amount of imputed interest, calculated using an assumed incremental borrowing rate at the time we entered into the capital lease obligations, was $11,000.
 
3.   See Note 13 of the Notes to Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of our significant operating leases.
 
4.   See Note 13 of the Notes to Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of our commitments as of December 31, 2006 to purchase goods and services from various suppliers.
Off-Balance Sheet Arrangements
     We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Estimates
     Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) focuses on our liquidity, capital resources, and financial statements. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of financial statements requires management to make estimates and assumptions that affect the carrying amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are developed and adjusted periodically by management based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

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     Our summary of significant accounting policies is described in Note 2 of the Notes to Financial Statements included in Item 8 of this Annual Report on Form 10-K. Management considers the following policies and estimates to be the most critical in understanding the more complex judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial position, and cash flows. Management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors, and the audit committee has reviewed our disclosure relating to it in this MD&A.
  Revenue Recognition
     We have entered into collaborative agreements with other companies for the development and commercialization of our product candidates. The terms of the agreements typically include non-refundable up-front license fees, funding of research and development, payments based upon achievement of development milestones, and royalties on product sales.
     License Fees and Multiple Element Arrangements
     Non-refundable license fees are recognized as revenue when we have a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured, and we have no further performance obligations under the license agreement.
     Multiple element arrangements, such as license and development arrangements are analyzed to determine whether the deliverables, which often include a license and performance obligations, such as research and development services, can be separated or whether they must be accounted for as a single unit of accounting in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. If the fair value of the undelivered performance obligations can be determined, such obligations would then be accounted for separately as performed. However, if the license is considered to either (i) not have stand-alone value or (ii) have stand-alone value but the fair value of any of the undelivered performance obligations cannot be determined, the arrangement would then be accounted for as a single unit of accounting and the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed. In our collaborative arrangements with Novo Nordisk and BioGeneriX, we have determined the license to each does not have stand-alone value.
     Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed and revenue will be recognized. Significant management judgment is required in determining the period over which we are expected to complete our performance obligations under an arrangement.
     Substantive Milestone Payments
     Our collaboration agreements may also contain substantive milestone payments. Substantive milestone payments are considered to be performance bonuses that are recognized upon achievement of the milestone only if all of the following conditions are met:
  •   the milestone payments are non-refundable;
 
  •   achievement of the milestone involves a degree of risk and was not reasonably assured at the inception of the arrangement;
 
  •   substantive effort is involved in achieving the milestone;
 
  •   a reasonable amount of time passes between the up-front license payment and the first milestone payment as well as between each subsequent milestone payment; and
 
  •   the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with achievement of the milestone.
     Determination as to whether a payment meets the aforementioned conditions involves management’s judgment. If any of these conditions are not met, the resulting payment would not be considered a substantive milestone, and therefore the resulting payment would be considered part of the consideration for the single unit of accounting and be recognized as revenue as such performance obligations are performed.

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     Reimbursement of Research and Development Costs
     Reimbursement of research and development costs is recognized as revenue provided the provisions of EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, are met, the amounts are fixed and determinable, and collection of the related receivable is reasonably assured. In our collaborative arrangements with Novo Nordisk and BioGeneriX, we recognize revenue as such costs are incurred because we have evidence of fair value for these delivered items.
     Deferred Revenue
     Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets. Determination as to the classification of deferred revenue as current or long-term on our balance sheets involves management’s judgment. For example, in connection with our existing collaboration agreements, we have recorded on our balance sheet current and long-term deferred revenue based on our best estimate of when such revenue will be recognized. The current portion of deferred revenue consists of amounts that are expected to be recognized as revenue during 2007. Amounts that we expect will not be recognized during 2007 are classified as long-term deferred revenue. This estimate is based on our estimate of the periods of our involvement in certain of our collaborations. In certain instances, the timing of satisfying these obligations can be difficult to estimate. Accordingly, our estimates may change in the future. Any change to the estimated performance period would be recognized on a prospective basis. If these estimates and judgments change over the course of these agreements, it may affect the timing and amount of revenue that we recognize and record in future periods.
  Stock-based Employee Compensation
     We adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R), effective January 1, 2006. SFAS No. 123R requires all share-based payments to employees to be recognized in the financial statements based on their fair values at the date of grant. Prior to January 1, 2006, we followed Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations in accounting for our stock-based compensation. We elected to use the modified prospective transition method for adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption and to that portion of awards not fully vested as of the date of adoption. Accordingly, prior periods have not been restated.
     The fair value of stock options is determined using the Black-Scholes valuation model, which is the same model we previously utilized for valuing stock options for footnote disclosures required under SFAS No. 123, Accounting for Stock Based Compensation (SFAS No. 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure (SFAS No. 148).
     The fair value of share-based awards is recognized as expense over the requisite service period, net of estimated forfeitures. We rely primarily on historical experience to estimate expected forfeitures for stock options. We have not assumed any expected forfeitures for restricted stock units (RSUs) because those awards have been granted to a small number of individuals. For all unvested share-based awards outstanding as of December 31, 2005, the previously measured but unrecognized compensation expense, based on the fair value at the original grant date, will be recognized on an accelerated basis in our statement of operations over the remaining vesting period, consistent with our recognition policy under SFAS No. 123. For share-based awards granted subsequent to December 31, 2005, we have elected to recognize compensation expense in the statement of operations on a straight-line basis from the date of grant. The following table contains the assumptions used in the Black-Scholes option-pricing model in each year to value stock-based compensation:
                         
    Year Ended December 31,
    2006   2005   2004
Weighted average expected volatility
     75 %     75 %     80 %
Expected term (years)
     4.7 – 7.8       0.7 – 9.1       4.4 – 10.0  
Risk-free interest rate
     4.4% – 5.1 %     3.9% – 4.3 %     2.5% – 4.3 %
Expected dividend yield
     0 %     0 %     0 %

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  Impairment of Long-Lived Assets
     We evaluate our long-lived assets for impairment at least annually and whenever indicators of impairment exist. Because our history of negative operating cash flows is an indicator of impairment, we annually compare the market value of our equity and debt to the carrying value of our net assets. During 2006 we recorded a non-cash impairment charge of $0.1 million for equipment that was no longer in use. The market value of our equity and debt exceeded the carrying value of our net assets as of December 31, 2006 and, therefore, we did not record any impairment of long-lived assets other than the impairment of the equipment mentioned above.
  Estimating Expenses from Contract Research and Development Service Providers
     Some of our research and development is conducted by third parties, including contract research and development service providers. At the end of each quarter, we compare the payments made to each service provider to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the estimated service provided, we record net prepaid or accrued expense relating to these costs.
Results of Operations
  Years Ended December 31, 2006 and 2005 and Outlook for 2007
     Our net loss for the year ended December 31, 2006 was $27.1 million compared to $51.8 million for the corresponding period in 2005. The following section explains the trends within each component of net loss for 2006 compared to 2005 and provides our estimate of trends for 2007 for each component.
     Revenue from Collaborative Agreements. Our revenues from collaborative agreements have historically been derived from a few major collaborators. Our collaborative agreements provide for some or all of the following elements: license fees, research and development funding, milestone revenues, and royalties on product sales. A summary of revenue recognized under our collaborative agreements for the years ended December 31, 2006 and 2005 is presented in the following table (in thousands).
                 
    Year Ended December 31,  
    2006     2005  
Novo Nordisk
                
 
                
Research and development funding
   $ 3,577     $ 2,027  
 
                
Substantive milestones
     750       —  
 
                
License fees
     457       769  
 
            
 
                
 
     4,784       2,796  
 
            
 
                
BioGeneriX
                
 
                
Research and development funding
     1,191       2,939  
 
                
License fees
     209       402  
 
            
 
                
 
     1,400       3,341  
 
            
 
                
 
   $ 6,184     $ 6,137  
 
            
     Revenue from collaborative agreements increased slightly in 2006 from 2005. Increased research and development funding and milestone revenue recognized during 2006 under our Novo Nordisk agreements were largely offset by decreased research and development funding during 2006 from BioGeneriX.
     Because our 2007 revenues could be substantially affected by entering into new collaborations and on the financial terms of any new collaborations, we cannot estimate our 2007 revenues. Material cash inflows from proprietary drug development projects are highly uncertain, and we cannot reasonably estimate the period in which we will begin to receive, if

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ever, material net cash inflows from our major research and development projects. Cash inflows from development-stage products are dependent on several factors, including entering into collaborative agreements, the achievement of certain milestones, and regulatory approvals. We may not receive milestone payments from any existing or future collaborations if a development-stage product fails to meet technical or performance targets or fails to obtain the required regulatory approvals. Further, our revenues from collaborations will be affected by the levels of effort committed and made by our collaborative partners. Even if we achieve technical success in developing drug candidates, our collaborative partners may discontinue development, may not devote the resources necessary to complete development and commence marketing of these products, or they may not successfully market potential products.
     Research and Development Expense. Our lead therapeutic protein candidates are NE-180 and GlycoPEG-GCSF. NE-180 is a long-acting version of EPO produced in insect cells. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for treatment of chemotherapy-induced anemia and anemia associated with chronic renal failure. NE-180 is being developed for the treatment of anemia in adult cancer patients with non-myeloid malignancies receiving chemotherapy and for the treatment of anemia associated with chronic kidney disease, including patients on dialysis and patients not on dialysis. During 2006, we completed a Phase I clinical trial for NE-180 in Switzerland. In January 2007, we received approval from Swissmedic, the Swiss Agency for Therapeutic Products, for the initiation of a Phase II human trial to evaluate the safety, tolerability and dose response of NE-180 in cancer patients receiving platinum-based chemotherapy. In March 2007, we received clearance from the U.S. Food and Drug Administration (FDA) to initiate clinical trials in the U.S. in response to our amended Investigational New Drug application (IND).
     Our second proprietary protein, GlycoPEG-GCSF, is a long-acting version of G-CSF that we are co-developing with BioGeneriX AG, a company of the ratiopharm Group. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood cell) and is approved for sale in major markets around the world for treatment of neutropenia associated with myelosuppressive chemotherapy. In November 2006, BioGeneriX initiated the first of two planned Phase I clinical trials for GlycoPEG-GCSF. We expect BioGeneriX to initiate and complete the second Phase I trial during 2007.
     We conduct exploratory research, both independently and with collaborators, on therapeutic candidates, primarily proteins, for development using our enzymatic technologies. Successful candidates may be advanced for development through our own proprietary drug program or through our partnering and licensing program, or a combination of the two. Although our primary focus is the development of long-acting proteins, we are also conducting research to assess opportunities to use our enzymatic technologies in other areas, such as glycopeptides and glycolipids. We expect to continue this research during 2007.
     Our current research and development projects are divided between two categories: (i) GlycoPEGylation and (ii) Other Glycotechnology Programs, which includes projects investigating opportunities to use our enzymatic technologies in other areas, such as glycolipids. The following chart sets forth our projects in each of these categories and the stage to which each has been developed:
         
    Development Stage   Status
GlycoPEGylation:
        
 
        
NE-180
  Clinical (Phase II)   Active
GlycoPEG-GCSF
  Clinical (Phase I)   Active
Other protein projects
  Research   Active
 
        
Other Glycotechnology Programs:
        
 
        
Non-protein therapeutic applications
  Research   Active
Nutritional applications
  N/A   Evaluating
 
      outlicensing
 
      opportunities
     The process of bringing drugs from the preclinical research and development stage through Phase I, Phase II, and Phase III clinical trials to FDA or other regulatory approval is time consuming and expensive. Because our announced product candidates are currently in the early clinical and preclinical stages, and there are a variety of potential intermediate clinical and non-clinical outcomes that are inherent in drug development, we cannot reasonably estimate either the timing or costs we will incur to complete these research and development projects. In addition, the timing and costs to complete our research and development projects will be affected by the timing and nature of any collaboration agreements we may enter into with a third party, neither of which we can currently estimate.

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     For each of our research and development projects, we incur both direct and indirect expenses. Direct expenses include salaries and other costs of personnel, raw materials, and supplies for each project. We may also incur third-party costs related to these projects, such as contract research, consulting and non-clinical development costs. Indirect expenses include depreciation expense and the costs of operating and maintaining our facilities, property, and equipment, to the extent used for our research and development projects, as well as the costs of general management of our research and development projects.
     Our research and development expenses decreased to $29.0 million in 2006 from $33.1 million in 2005. During 2007, we expect our research and development expenses to be significantly higher than they were in 2006 as a result of anticipated clinical trial, non-clinical study, and process development costs associated with NE-180. The following table illustrates research and development expenses incurred during 2006 and 2005 in each period for our significant groups of research and development projects (in thousands):
                 
Year ended December 31,   2006   2005
 
GlycoPEGylation
   $ 18,846     $ 18,170  
Other Glycotechnology Programs
     435       978  
Indirect expenses
     9,732       13,988  
     
 
   $ 29,013     $ 33,136  
     
          GlycoPEGylation
     Our GlycoPEGylation research and development expenses increased during 2006, compared to 2005, primarily due to increased non-clinical study costs associated with NE-180 and GlycoPEG-GCSF, as well as increased clinical trial costs associated with NE-180. These increases were partially offset by lower payroll and related personnel costs due to reduced headcount in 2006. Increased purchases of laboratory services and research supplies also contributed to the overall increase.
          Other Glycotechnology Programs
     Research and development expenses related to our other glycotechnology programs decreased during 2006, compared to 2005, primarily due to reduced research efforts during 2006 for early stage research.
          Indirect expenses
     Our indirect research and development expenses decreased during 2006, compared to 2005, primarily due to decreased depreciation resulting from the August 2005 impairment of our Witmer Road Facility and the closure of our leased facility in San Diego. Further contributing to the decrease during 2006 were lower amounts spent for indirect outside laboratory services and consulting, and was partially offset by $0.8 million of non-cash compensation costs for share-based payment arrangements accounted for under SFAS No. 123R.
     General and Administrative Expense. General and administrative expenses for the year ended December 31, 2006 were $11.6 million, compared to $10.9 million for the corresponding period in 2005. The increase in 2006 was primarily attributable to $1.6 million of non-cash compensation costs for share-based payment arrangements accounted for under SFAS No. 123R, and was partially offset by lower consulting costs, lower patent legal expenses and reduced depreciation resulting from the August 2005 impairment of our Witmer Road Facility and the closure of our leased facility in San Diego. During 2007, we expect our general and administrative expenses to remain relatively consistent with the 2006 expense amounts.

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     Gain on Sale of Witmer Road Facility. During 2006, we recognized a gain from the sale of the Witmer Road Facility of $7.3 million. In September 2006, we sold the Witmer Road Facility for approximately $21.0 million. After payment of selling fees and expenses, we received net proceeds of approximately $19.3 million. The carrying value of the property and equipment sold was $12.4 million. We continued to occupy a portion of the facility on a rent-free basis for six months after the closing. We estimated the rental fair value for the space we continued to occupy to be $0.4 million, which was included in the calculation of the $7.3 million gain on the sale of the Witmer Road Facility and is being amortized as rent expense to our Statements of Operations over the expected period of our occupancy.
     Restructuring Charges. Restructuring charges for the year ended December 31, 2005 were $14.2 million, which included $13.2 million of non-cash property and equipment impairment charges and $1.0 million of payments for employee severance and facility closure costs. We did not incur any restructuring charges during 2006.
     Interest Income. Interest income for the year ended December 31, 2006 was $1.2 million, compared to $1.5 million for the corresponding period in 2005. The decrease was due to lower available cash balances during 2006. Our interest income during 2007 is difficult to project, and will depend largely on whether we enter into any new collaborative agreements, complete any equity or debt financings, and prevailing interest rates during 2007.
     Interest Expense. Interest expense for each of the years ended December 31, 2006 and 2005 was $1.3 million. Our interest expense during 2007 is difficult to project and will depend largely on whether we complete any new debt financings and prevailing interest rates during 2007. See “Financing Activities – Debt Financing Activities” in the Liquidity and Capital Resources section of this Annual Report on Form 10-K for a description of the material features of our debt financings.
  Years Ended December 31, 2005 and 2004
     Our net loss for the year ended December 31, 2005 was $51.8 million compared to $41.6 million for the corresponding period in 2004. The following section explains the trends within each component of net loss for 2005 compared to 2004.
     Revenue from Collaborative Agreements. A summary of revenue recognized under our collaborative agreements for the years ended December 31, 2005 and 2004 is presented in the following table (in thousands).
                 
    Year ended December 31,  
    2005     2004  
Novo Nordisk
                
 
                
Research and development funding
   $ 2,027     $ 2,490  
 
                
Substantive milestones
     —       —  
 
                
License fees
     769       842  
 
            
 
                
 
     2,796       3,332  
 
            
 
                
BioGeneriX
                
 
                
Research and development funding
     2,939       1,699  
 
                
License fees
     402       39  
 
            
 
                
 
     3,341       1,738  
 
            
 
                
 
   $ 6,137     $ 5,070  
 
            
     Revenue from collaborative agreements increased to $6.1 million in 2005 from $5.1 million in 2005 primarily due to increased research and development funding and license fee revenue from BioGeneriX.
     Research and Development Expense. Our research and development expenses decreased to $33.1 million in 2005 from $34.7 million in 2004. The following table illustrates research and development expenses incurred during 2005 and 2004 in each period for our significant groups of research and development projects (in thousands).

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Year ended December 31,   2005   2004
 
GlycoPEGylation
   $ 18,170     $ 16,650  
Other Glycotechnology Programs
     978       196  
Indirect expenses
     13,988       17,826  
     
 
   $ 33,136     $ 34,672  
     
          GlycoPEGylation
     Our GlycoPEGylation research and development expenses increased during 2005, compared to 2004, primarily due to increased non-clinical development costs associated with NE-180 and GlycoPEG-GCSF, and increased purchases of laboratory services and research supplies.
          Other Glycotechnology Programs
     Research and development expenses related to our Other Glycotechnology Programs increased during 2005, compared to 2004, primarily due to increased research during 2005 to assess opportunities to use our enzymatic technologies in glycolipids.
          Indirect expenses
     Our indirect research and development expenses decreased during 2005, compared to 2004, primarily due to decreased depreciation resulting from the August 2005 impairment of the Witmer Road Facility and the closure of our leased facility in San Diego. Further contributing to the decrease during 2005 were lower amounts spent for indirect outside laboratory services and consulting.
     General and Administrative Expense. General and administrative expenses for the year ended December 31, 2005 were $10.9 million, compared to $11.7 million for the corresponding period in 2004. The decrease in 2005 was attributable to lower salaries and personnel-related expenses, lower consulting costs, and reduced depreciation, which resulted from the August 2005 impairment of the Witmer Road Facility and the closure of our leased facility in San Diego. Partially offsetting these decreases were an increase in patent legal expenses as well as higher non-cash compensation expenses due to the issuance of restricted stock units.
     Restructuring Charges. Restructuring charges for the year ended December 31, 2005 were $14.2 million, which included $13.2 million of non-cash property and equipment impairment charges and $1.0 million of expected payments for employee severance and facility closure costs. We did not incur any restructuring charges during 2004.
     Interest Income. Interest income for the year ended December 31, 2005 was $1.5 million, compared to $0.7 million for the corresponding period in 2004. The increase was due to higher interest rates during 2005.
     Interest Expense. Interest expense for the year ended December 31, 2005 was $1.3 million, compared to $1.0 million for the corresponding period in 2004, primarily due to higher interest rates during 2005. The increase was also partially attributable to the fact that we did not capitalize any interest expense during 2005. During 2004, we capitalized $0.1 million of interest expense associated with leasehold improvements that we placed in service in April 2004.

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Recent Accounting Pronouncements
     In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which is applicable for fiscal years beginning after November 15, 2007. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Although SFAS No. 157 does not require any new fair value measurements, its application may, for some entities, change current practices related to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. We are currently evaluating the impact of the adoption of SFAS No.157 on our financial statements and related disclosures.
     In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108, Topic 1N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB No. 108). SAB No. 108 requires the evaluation of prior-year misstatements using both the balance sheet approach and the income statement approach. In the initial year of adoption, should either approach result in quantifying an error that is material in light of quantitative and qualitative factors, SAB No. 108 guidance allows for a one-time cumulative-effect adjustment to beginning-of-year retained earnings. In years subsequent to adoption, previously undetected misstatements deemed material shall result in the restatement of previously issued financial statements in accordance with SFAS No. 154, Accounting Changes and Error Corrections (SFAS No. 154). SAB No. 108 is effective for material errors in existence at the beginning of the first fiscal year ended after November 15, 2006, with earlier adoption encouraged. The adoption of SAB No. 108 did not have any impact on our financial statements and related disclosure.
     In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which is applicable for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position reported or expected to be reported on a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We do not believe the adoption of FIN 48 will have any impact on our financial statements and we are evaluating the impact it may have on the related disclosures.
     In May 2005, the FASB issued SFAS No. 154, which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principles. SFAS No. 154 applies to all voluntary changes in accounting principle, and also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 became effective for accounting changes and corrections of errors made by us after January 1, 2006. SFAS No. 154 does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. The adoption of SFAS No. 154 did not have any impact on our financial statements and related disclosure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
     Interest Rate Risk
     We are exposed to market risk from changes in interest rates. We are currently not engaged in hedging activities and we do not use derivative financial instruments for speculation or trading purposes. We do not believe that our exposure to interest rate risk is material to our results of operations. The analysis below presents the sensitivity of our interest income and expense to selected changes in market interest rates.
     The primary objective of our investment activities is to preserve our capital to fund operations and maximize income from our investments without assuming significant risk. We seek the safety of principal and market liquidity by investing in high credit quality institutional money market funds and fixed income securities. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. Because our investments are short-term in duration, we believe our exposure to interest rate risk is not significant. We held no marketable securities as of December 31, 2006. The approximate principal amount of our investment portfolio as of December 31, 2006 was $16.4 million, and the weighted-average annualized interest rate and interest income earned on the portfolio during the year ended December 31, 2006 were 4.9% and $1.2 million, respectively. The sensitivity analysis as it

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relates to our investment activities assumes an instantaneous 100 basis point move in interest rates from their weighted-average levels during the year ended December 31, 2006. A 100 basis point move up or down in market interest rates would have caused a corresponding change of $0.2 million in interest income during the year ended December 31, 2006.
     As of December 31, 2006, the principal components of our debt portfolio were (1) a term loan from our landlord of $0.6 million that accrues interest at a fixed annual rate of 13.0%; (2) aggregate equipment financing of $1.1 million that accrues interest at fixed annual rates ranging from 8.1% to 9.5%; and (3) capital lease obligations with a present value of $0.1 million, for which we imputed interest at fixed annual rates ranging from 8.7% to 11.5%. Our aggregate interest expense for the year ended December 31, 2006 was $1.3 million. By modifying the interest expense associated with variable rate debt while it was outstanding during the year ended December 31, 2006, as well as for fixed rate debt entered into during the year ended December 31, 2006, a 100 basis point move up or down in market interest rates would have caused a corresponding change of $0.1 million in interest expense during the year ended December 31, 2006.
     Foreign Exchange Risk
     We have entered into some agreements denominated, wholly or partly, in Euros or other foreign currencies, and, in the future, we may enter into additional, significant agreements denominated in foreign currencies. If the values of these currencies increase against the dollar, our costs would increase. To date, we have not entered into any contracts to reduce the risk of fluctuations in currency exchange rates. In the future, depending upon the amounts payable under any such agreements, we may enter into forward foreign exchange contracts to reduce the risk of unpredictable changes in these costs. However, due to the variability of timing and amount of payments under any such agreements, foreign exchange contracts may not mitigate the potential adverse impact on our financial results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
     The financial statements and supplementary data required by this item are attached to this Annual Report on Form 10-K beginning on page F-1.
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
     None.
ITEM 9A. CONTROLS AND PROCEDURES.
     Disclosure Controls and Procedures
     We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2006. Based on that evaluation, our principal executive officer and principal financial officer concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported as specified in SEC rules and forms. There were no changes in these controls or procedures identified in connection with the evaluation of such controls or procedures that occurred during our last fiscal quarter, or in other factors that have materially affected, or are reasonably likely to materially affect, these controls or procedures.
     Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. These disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
     Management’s Report on Internal Control Over Financial Reporting
     Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial and accounting officers and effected

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by our board of directors and management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
  •   pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
 
  •   provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and board of directors; and
 
  •   provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, our management believes that, as of December 31, 2006, our internal control over financial reporting is effective. In addition, no changes in our internal control over financial reporting have occurred during the three months ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The following is the audit report on our assessment of our internal control over financial reporting issued by our independent registered public accounting firm.
     Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Neose Technologies, Inc.:
     We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Neose Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Neose Technologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of Neose Technologies, Inc.’s internal control over financial reporting based on our audit.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     In our opinion, management’s assessment that Neose Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the COSO. Also, in our opinion, Neose Technologies, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the COSO.
     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Neose Technologies, Inc. as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated March 16, 2007 expressed an unqualified opinion on those financial statements.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 16, 2007
ITEM 9B. OTHER INFORMATION.
     None.

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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
     The information concerning directors and executive officers, appearing under the caption “Governance of the Company” in our Proxy Statement (the Proxy Statement) to be filed with the SEC in connection with our Annual Meeting of Stockholders to be held on May 4, 2007; the information concerning executive officers, appearing under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement; the information concerning stockholder nominations for director candidates, appearing under the captions “Governance of the Company – Committees of our Board of Directors – Corporate Governance Committee” and “Requirements for Advance Notification of Nominations and Stockholder Proposals” in the Proxy Statement; and the information concerning the Audit Committee of our Board of Directors and the audit committee financial expert thereon, appearing under the caption “Governance of the Company – Committees of our Board of Directors – Audit Committee” in the Proxy Statement are incorporated herein by reference in response to this Item 10.
Code of Conduct
     We have a Code of Business Conduct and Ethics, which can be viewed on our website at www.neose.com (under “About Neose”). We require all employees to adhere to the Code in addressing the legal and ethical issues encountered in conducting their work. The Code of Business Conduct and Ethics requires that our employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity and in our best interest. All of our employees were required to certify that they reviewed and understood the Code when they received it during 2003 or upon their later hire date, and are required to renew this certification annually thereafter and when the Code is changed. The Code of Business Conduct and Ethics is intended to comply with Item 406 of the SEC’s Regulation S-K and the rules of NASDAQ.
     The Code of Business Conduct and Ethics includes procedures for reporting violations of the Code, which are applicable to all employees. The Sarbanes-Oxley Act of 2002 requires companies to have procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Code of Business Conduct and Ethics also includes these required procedures.
     Any waiver or amendment of the Code of Business Conduct and Ethics for designated senior officers, including our chief executive officer and chief financial officer, will be disclosed promptly on our Internet website.
     Copies of the Code of Business Conduct and Ethics, which appears on our website, are also available upon request by any stockholder addressed to our Corporate Secretary, 102 Rock Road, Horsham, PA 19044.
ITEM 11. EXECUTIVE COMPENSATION.
     The information contained in the sections titled “Executive Compensation” and “Governance of the Company — Compensation of Directors” in the Proxy Statement is incorporated herein by reference in response to this Item 11.
Compensation Committee Interlocks and Insider Participation
     The current members of the Compensation Committee of our Board of Directors are Douglas J. MacMaster, Jr., Patrick L. Gage and H. Stewart Parker. None of these individuals has ever been an officer or employee of ours. In addition, none of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or the Compensation Committee of our Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
     The information contained in the section titled “Stock Ownership of our Directors, Executive Officers and 5% Beneficial Owners” in the Proxy Statement is incorporated herein by reference in response to this Item 12.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
     The information contained in the section titled “Certain Relationships and Related Transactions” in the Proxy Statement, and the information concerning director independence under the captions “Governance of the Company – Independence of Directors and – Committees of our Board of Directors” in the Proxy Statement is incorporated herein by reference in response to this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
     The information contained in the section titled “Relationship with Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference in response to this Item 14.

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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
     (a) 1. Financial Statements.
     The Financial Statements filed as part of this Annual Report on Form 10-K are listed on the Index to Financial Statements on page F-1.
          2. Financial Statement Schedules.
     All financial statement schedules have been omitted here because they are not applicable, not required, or the information is shown in the Financial Statements or Notes thereto.
          3. Exhibits.
     The following is a list of exhibits filed as part of this Annual Report on Form 10-K. We are incorporating by reference to our previous SEC filings each exhibit that contains a footnote. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.
     
Exhibit    
Number   Description
 
    
2.1
  Purchase and Sale Agreement and Joint Escrow Instructions by and between ARE-PA Region No.6, LLC and Neose Technologies, Inc. dated September 1, 2006. (Exhibit 2.1)(25)
 
    
3.1
  Fourth Amended and Restated Certificate of Incorporation. (Exhibit B)(21)
 
    
3.2
  Second Amended and Restated By-Laws. (Exhibit 3.2)(4)
 
    
4.1
  See Exhibits 3.1 and 3.2 for instruments defining rights of holders of common stock.
 
    
4.2
  Amended and Restated Rights Agreement, dated as of December 3, 1998, between American Stock Transfer & Trust Company, as Rights Agent, and Neose Technologies, Inc. (Exhibit 4.2)(13)
 
    
4.3
  Amendment No. 1, dated November 14, 2000, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(1)
 
    
4.4
  Amendment No. 2, dated June 13, 2002, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(3)
 
    
4.5
  Amendment No. 3, dated October 30, 2002, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(5)
 
    
10.1††
  1995 Amended and Restated Stock Option/Stock Issuance Plan, as amended. (Appendix B)(7)
 
    
10.2††
  Non-Qualified Stock Option Agreement, dated March 29, 2002, between C. Boyd Clarke and Neose Technologies, Inc. (Exhibit 10.2)(2)
 
    
10.3††
  Form of Change of Control Agreement between Neose Technologies, Inc. and Certain Officers. (Exhibit 10.1)(4)
 
    
10.4††
  Tuition Reimbursement Agreement between A. Brian Davis and Neose Technologies, Inc., dated May 24, 2001. (Exhibit 10.44)(1)
 
    
10.5††
  Change of Control Agreement, dated October 7, 2002, between Debra J. Poul and Neose Technologies, Inc. (Exhibit 10.2)(4)
 
    
10.6
  Agreement of Lease, dated as of February 15, 2002, between Liberty Property Leased Partnership and Neose Technologies, Inc. (Exhibit 10.40)(1)
 
    
10.7
  Master Security Agreement between General Electric Capital Corporation and Neose Technologies, Inc., dated as of December 19, 2002. (Exhibit 10.33)(6)
 
    
10.8
  Amendment to Master Security Agreement between General Electric Capital Corporation and Neose Technologies, Inc., dated as of December 19, 2002. (Exhibit 10.34)(6)
 
    
10.9
  Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated September 17, 2003. (Exhibit 10.1)(8)

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Exhibit    
Number   Description
 
    
10.10†
  Research, Development and License Agreement between Neose Technologies, Inc. and Novo Nordisk A/S dated as of November 17, 2003. (Exhibit 10.39)(9)
 
    
10.11†
  Amendment to Research, Development and License Agreement between Neose Technologies, Inc. and Novo Nordisk A/S dated December 18, 2003. (Exhibit 10.41)(9)
 
    
10.12
  Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated December 18, 2003. (Exhibit 10.43)(9)
 
    
10.13
  Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated March 30, 2004. (Exhibit 10.1)(10)
 
    
10.14†
  Research, Co-Development and Commercialization Agreement between BioGeneriX AG and Neose Technologies, Inc., dated April 20, 2004. (Exhibit 10.5)(11)
 
    
10.15
  First Amendment to Lease between Liberty Property Limited Partnership and Neose Technologies, Inc., dated May 18, 2004. (Exhibit 10.7)(11)
 
    
10.16
  Promissory Note of Neose Technologies, Inc. to Liberty Property Limited Partnership, dated May 7, 2004. (Exhibit 10.8)(11)
 
    
10.17††
  Neose Technologies, Inc. 2004 Equity Incentive Plan. (Exhibit 99.1)(17)
 
    
10.18
  Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation dated August 20, 2004. (Exhibit 10.11)(12)
 
    
10.19††
  Form of Incentive Stock Option Award Agreement under the Neose Technologies, Inc. 2004 Equity Incentive Plan. (Exhibit 10.12)(12)
 
    
10.20††
  Form of Non-Qualified Stock Option Award Agreement under the Neose Technologies, Inc. 2004 Equity Incentive Plan. (Exhibit 10.13)(12)
 
    
10.21††
  Form of Annual Director Grant Agreement under the Neose Technologies, Inc. 2004 Equity Incentive Plan. (Exhibit 10.14)(12)
 
    
10.22††
  Form of Director Fee Option Grant Agreement under the Neose Technologies, Inc. 2004 Equity Incentive Plan. (Exhibit 10.15)(12)
 
    
10.23†
  Letter dated October 12, 2004 (effective November 9, 2004) amending Research, Development and License Agreement Between Neose Technologies, Inc. and Novo Nordisk A/S dated as of November 17, 2003, as amended. (Exhibit 10.46)(13)
 
    
10.24
  Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated December 16, 2004. (Exhibit 10.47)(13)
 
    
10.25
  Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated December 16, 2004. (Exhibit 10.48)(13)
 
    
10.26††
  Form of Restricted Stock Unit Agreement (cliff vesting) between Neose Technologies, Inc. and Certain Employees, Officers and Directors. (Exhibit 10.1)(14)
 
    
10.27††
  Form of Restricted Stock Unit Agreement (quarterly vesting) between Neose Technologies, Inc. and Certain Employees, Officers and Directors. (Exhibit 10.2)(14)
 
    
10.28††
  Letter Agreement dated March 3, 2005 by and between Neose Technologies, Inc and C. Boyd Clarke. (Exhibit 10.3)(14)
 
    
10.29†
  Letter dated February 16, 2005 amending the Research, Development and License Agreement by and between Neose Technologies, Inc. and Novo Nordisk A/S dated as of November 17, 2003, as amended. (Exhibit 10.2)(15)
 
    
10.30†
  Research, License and Option Agreement by and between BioGeneriX AG and Neose Technologies, Inc. dated April 28, 2005. (Exhibit 10.1)(16)
 
    
10.31
  Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation dated July 12, 2005. (Exhibit 10.1)(18)
 
    
10.32
  Separation Agreement between Neose Technologies, Inc. and Joseph J. Villafranca, dated October 31, 2005. (Exhibit 10.51)(19)
 
    
10.33
  Separation Agreement between Neose Technologies, Inc. and Marjorie A. Hurley, dated October 31, 2005. (Exhibit 10.52)(19)
 
    
10.34
  Amendment No. 2 to the Credit Agreement by and between Neose Technologies, Inc. and Brown Brothers Harriman & Co. dated March 1, 2006. (Exhibit 10.1)(20)

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Exhibit    
Number   Description
 
    
10.35
  Premium Finance Agreement, Disclosure Statement and Security Agreement by and between Neose Technologies, Inc. and AICCO, Inc. dated March 9, 2006. (Exhibit 10.2)(22)
 
    
10.36
  Omnibus Amendment No. 1 to Loan Documents by and between Neose Technologies, Inc. and Brown Brothers Harriman & Co. dated March 10, 2006. (Exhibit 10.3)(22)
 
    
10.37††
  Employment Agreement by and between Neose Technologies, Inc. and George J. Vergis, Ph.D. dated May 4, 2006. (Exhibit 10.1)(23)
 
    
10.38
  Post-Closing Property Access Agreement by and between Auxilium Pharmaceuticals, Inc. and Neose Technologies, Inc. dated September 1, 2006. (Exhibit 10.1)(25)
 
    
10.39
  Consent to Property Access Agreement by and among ARE-PA Region No.6, LLC, Auxilium Pharmaceuticals, Inc. and Neose Technologies, Inc. dated September 1, 2006. (Exhibit 10.2)(25)
 
    
10.40
  Modification Agreement by and between Neose Technologies, Inc. and General Electric Capital Corporation dated October 31, 2006. (Exhibit 10.1)(26)
 
    
10.41* #
  Amendment Number 1 to Research, Co-Development and Commercialization Agreement and Research License and Option Agreement between Neose Technologies, Inc. and BioGeneriX AG dated October 20, 2006.
 
    
10.42* #
  Amended and Restated Research, Development and License Agreement among Neose Technologies, Inc. and Novo Nordisk A/S and Novo Nordisk Health Care AG dated October 31, 2006.
 
    
10.43* #
  Bioprocessing Services Agreement by and between Neose Technologies, Inc. and Diosynth RTP Inc. dated December 7, 2006.
 
    
10.44*
  Commercial Premium Finance Agreement and Promissory Note from Neose Technologies, Inc. to AFCO Credit Corporation dated March 6, 2007.
 
    
10.45
  Securities Purchase Agreement by and among Neose Technologies, Inc. and the purchasers appearing on the signature pages thereto dated March 8, 2007. (Exhibit 10.1)(27)
 
    
10.46
  Registration Rights Agreement by and among Neose Technologies, Inc. and the purchasers appearing on the signature pages thereto dated March 8, 2007. (Exhibit 10.2)(27)
 
    
10.47
  Form of Common Stock Purchase Warrant (U.S.), dated March 8, 2007. (Exhibit 10.3)(27)
 
    
10.48
  Form of Common Stock Purchase Warrant (Non-U.S.), dated March 8, 2007. (Exhibit 10.4)(27)
 
    
23.1*
  Consent of KPMG LLP.
 
    
24*
  Powers of Attorney (included as part of signature page hereof).
 
    
31.1*
  Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
31.2*
  Certification by Chief Financial Officer pursuant to Rule 13-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
32.1*
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
    
32.2*
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*   Filed herewith.
 
†   Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to an order of the SEC granting our application for confidential treatment filed pursuant to Rule 24b-2 under the Exchange Act.
 
††   Compensation plans and arrangements for executives and others.
 
#   Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.
 
(1)   Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2001 (Commission File No. 000-27718).
 
(2)   Filed as an Exhibit to our Current Report on Form 8-K/A filed with the SEC on April 30, 2002.
 
(3)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on June 13, 2002.
 
(4)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002.
 
(5)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on November 1, 2002.
 
(6)   Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2002.
 
(7)   Filed as an Exhibit to our Proxy Statement filed with the SEC on April 7, 2003.
 
(8)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003.
 
(9)   Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2003.
 
(10)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004.

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(11)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004.
 
(12)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004.
 
(13)   Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2004.
 
(14)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on March 4, 2005.
 
(15)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005.
 
(16)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005.
 
(17)   Filed as an Exhibit to our Post-Effective Amendment No. 1 to Form S-8 filed with the SEC on August, 19, 2005.
 
(18)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005.
 
(19)   Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2005.
 
(20)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on March 3, 2006.
 
(21)   Filed as an Exhibit to our Proxy Statement filed with the SEC on March 30, 2006.
 
(22)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006.
 
(23)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on May 8, 2006.
 
(24)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on September 6, 2006.
 
(25)   Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006.
 
(26)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on November 2, 2006.
 
(27)   Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on March 13, 2007.

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.
         
 
  NEOSE TECHNOLOGIES, INC.    
 
Date: March 16, 2007
  By: /s/ George J. Vergis    
 
       
 
  George J. Vergis    
 
  Chief Executive Officer    
     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Neose and in the capacities and on the dates indicated.
     Each person, in so signing also makes, constitutes, and appoints George J. Vergis and A. Brian Davis, and each of them acting alone, as his or her true and lawful attorneys-in-fact, with full power of substitution, in his name, place, and stead, to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report.
         
Name   Capacity   Date
 
        
/s/ George J. Vergis
 
George J. Vergis
  Chief Executive Officer (Principal Executive Officer)   March 16, 2007
 
        
/s/ A. Brian Davis
 
A. Brian Davis
  Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)   March 16, 2007
 
        
/s/ C. Boyd Clarke
 
C. Boyd Clarke
  Director   March 16, 2007
 
        
/s/ Brian H. Dovey
 
Brian H. Dovey
  Director   March 16, 2007
 
        
/s/ L. Patrick Gage
 
L. Patrick Gage
   Chairman   March 16, 2007
 
        
/s/ William F. Hamilton
 
William F. Hamilton
  Director   March 16, 2007
 
        
/s/ Douglas J. MacMaster, Jr.
 
Douglas J. MacMaster, Jr.
  Director   March 16, 2007
 
        
/s/ H. Stewart Parker
 
H. Stewart Parker
  Director   March 16, 2007
 
        
/s/ Mark H. Rachesky
 
Mark H. Rachesky
  Director   March 16, 2007
 
        
/s/ Lowell E. Sears
 
Lowell E. Sears
  Director   March 16, 2007
 
        
/s/ Elizabeth H.S. Wyatt
 
Elizabeth H.S. Wyatt
  Director   March 16, 2007

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Neose Technologies, Inc.:
We have audited the accompanying balance sheets of Neose Technologies, Inc. as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2006. These financial statements are the responsibility of the management of Neose Technologies, Inc. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neose Technologies, Inc. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective January 1, 2006, the Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Neose Technologies, Inc.’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 16, 2007

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Neose Technologies, Inc.
Balance Sheets
(in thousands, except per share amounts)
                 
    December 31,  
    2006     2005  
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 16,388     $ 37,738  
Accounts receivable
     286       1,076  
Prepaid expenses and other current assets
     1,284       892  
 
            
Total current assets
     17,958       39,706  
Property and equipment, net
     13,104       24,708  
Intangible and other assets, net
     181       949  
 
            
Total assets
   $ 31,243     $ 65,363  
 
            
Liabilities and Stockholders’ Equity
                
Current liabilities:
                
Current portion of long-term debt and capital lease obligations
   $ 1,251     $ 4,031  
Accounts payable
     1,848       722  
Accrued compensation
     1,772       1,618  
Accrued expenses
     4,749       2,697  
Deferred revenue
     645       1,527  
 
            
Total current liabilities
     10,265       10,595  
Long-term debt and capital lease obligations, net of current portion
     580       10,423  
Deferred revenue, net of current portion
     4,329       3,765  
Other liabilities
     510       463  
 
            
Total liabilities
     15,684       25,246  
 
            
 
                
Commitments and contingencies (See Note 13)
                
 
                
Stockholders’ equity:
                
Preferred stock, par value $.01 per share, 5,000 shares authorized, none issued
     —       —  
Common stock, par value $.01 per share, 75,000 and 50,000 shares authorized; 32,972 and 32,782 shares issued and outstanding
     330       328  
Additional paid-in capital
     281,556       279,015  
Deferred compensation
     —       (6 )
Accumulated deficit
     (266,327 )     (239,220 )
 
            
Total stockholders’ equity
     15,559       40,117  
 
            
Total liabilities and stockholders’ equity
   $ 31,243     $ 65,363  
 
            
The accompanying notes are an integral part of these financial statements.

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Neose Technologies, Inc.
Statements of Operations
(in thousands, except per share amounts)
                         
    Year ended December 31,  
    2006     2005     2004  
Revenue from collaborative agreements
   $ 6,184     $ 6,137     $ 5,070  
 
                  
 
                        
Operating expenses:
                        
Research and development
     29,013       33,136       34,672  
General and administrative
     11,551       10,878       11,711  
Restructuring charges
     —       14,206       —  
 
                  
Total operating expenses
     40,564       58,220       46,383  
Gain on sale of Witmer Road Facility (see Note 5)
     7,333       —       —  
 
Operating loss
     (27,047 )     (52,083 )     (41,313 )
 
                        
Other income
     —       22       —  
Interest income
     1,211       1,536       652  
Interest expense
     (1,271 )     (1,314 )     (981 )
 
 
                  
Net loss
   $ (27,107 )   $ (51,839 )   $ (41,642 )
 
                  
 
                        
Basic and diluted net loss per share
   $ (0.82 )   $ (1.64 )   $ (1.82 )
 
                  
Weighted-average shares outstanding used in computing basic and diluted net loss per share
   32,857       31,590       22,898  
 
                  
The accompanying notes are an integral part of these financial statements.

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Neose Technologies, Inc.
Statements of Stockholders’ Equity and Comprehensive Loss
(in thousands)
                                                 
                    Additional                     Total  
    Common stock     paid-in     Deferred     Accumulated     stockholders’  
    Shares     Amount     capital     compensation     deficit     equity  
Balance, January 1, 2004
     19,935     $ 199     $ 217,849     $ (96 )   $ (145,739 )   $ 72,213  
Net and total comprehensive loss
     —       —       —       —       (41,642 )     (41,642 )
Sale of common stock in a registered offering
     4,733       47       29,881       —       —       29,928  
Exercise of stock options
     25       1       73       —       —       74  
Shares issued pursuant to employee stock purchase plan
     24       —       175       —       —       175  
Deferred compensation related to grants of employee stock options
     —       —       56       (56 )     —       —  
Deferred compensation related to non-employee stock options
     —       —       (8 )     8       —       —  
Stock-based compensation related to modification of options
     —       —       1       —       —       1  
Amortization of deferred compensation related to:
                                                
Employee stock options
     —       —       —       101       —       101  
Non-employee stock options
     —       —       —       4       —       4  
 
                                    
Balance, December 31, 2004
     24,717       247       248,027       (39 )     (187,381 )     60,854  
Net and total comprehensive loss
     —       —       —       —       (51,839 )     (51,839 )
Sale of common stock in a registered offering
     8,050       81       29,925       —       —       30,006  
Shares issued pursuant to employee stock purchase plan
     15       —       86       —       —       86  
Restricted stock units:
                                                
Conversion of liability-classified awards to equity-classified awards
     —       —       382       —       —       382  
Compensation cost recognized in the statement of operations
     —       —       609       —       —       609  
Deferred compensation related to non-employee stock options
     —       —       (14 )     14       —       —  
Amortization of deferred compensation related to:
                                                
Employee stock options
     —       —       —       28       —       28  
Non-employee stock options
     —       —       —       (9 )     —       (9 )
 
                                    
Balance, December 31, 2005
     32,782       328       279,015       (6 )     (239,220 )     40,117  
Net and total comprehensive loss
     —       —       —       —       (27,107 )     (27,107 )
Reclassification of deferred compensation upon the adoption of SFAS No. 123R
                     (6 )     6               —  
Exercise of stock options
     5       —       14       —       —       14  
Restricted stock units:
                                                
Restricted stock units issued at vesting date for compensation costs recognized in the Statement of Operations
     185       2       (2 )     —       —       —  
Payment of withholding taxes related to restricted stock units
     —       —       (175 )     —       —       (175 )
Conversion of liability-classified awards to equity-classified awards
     —       —       129       —       —       129  
Compensation costs recognized in the Statement of Operations:
                                                
Employee stock options
     —       —       2,438       —       —       2,438  
Non-employee stock options
     —       —       14       —       —       14  
Restricted stock units
     —       —       129       —       —       129  
 
                                    
Balance, December 31, 2006
     32,972     $ 330     $ 281,556     $ —     $ (266,327 )   $ 15,559  
 
                                    
The accompanying notes are an integral part of these financial statements.

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Neose Technologies, Inc.
Statements of Cash Flows
(in thousands)
                         
    Year ended December 31,  
    2006     2005     2004  
Cash flows from operating activities:
                        
Net loss
   $ (27,107 )   $ (51,839 )   $ (41,642 )
Adjustments to reconcile net loss to cash used in operating activities:
                        
 
Impairment of property and equipment and assets held for sale
     121       13,187       104  
Depreciation and amortization expense
     2,209       4,322       6,063  
Non-cash compensation expense
     2,581       628       106  
Non-cash rent expense
     260       —       —  
Loss (gain) on disposition of equipment and assets held for sale, net
     (7,272 )     (4 )     95  
Premiums paid on early repayment of debt
     215       —       —  
Accelerated amortization of debt issuance costs on early repayment of debt
     133       —       —  
Changes in operating assets and liabilities:
                        
Accounts receivable
     790       1,809       (1,438 )
Prepaid expenses and other current assets
     (75 )     (150 )     330  
Intangible and other assets
     —       —       47  
Accounts payable
     481       (1,043 )     (559 )
Accrued compensation
     283       84       (594 )
Accrued expenses
     818       698       411  
Deferred revenue
     (318 )     (691 )     213  
Other liabilities
     47       (70 )     120  
 
                  
Net cash used in operating activities
     (26,834 )     (33,069 )     (36,744 )
 
                  
Cash flows from investing activities:
                        
Purchases of property and equipment
     (898 )     (792 )     (9,844 )
Proceeds from sale of property and equipment and assets held for sale
     19,373       110       —  
Proceeds from settlement of property and equipment dispute
     —       75       —  
Purchases of marketable securities
     —       (9,845 )     —  
Proceeds from maturities of marketable securities
     —       10,000       5,000  
 
                  
Net cash provided by (used in) investing activities
     18,475       (452 )     (4,844 )
 
                  
Cash flows from financing activities:
                        
Proceeds from issuance of debt
     539       1,484       14,112  
Repayments of debt
     (13,154 )     (5,365 )     (6,552 )
Premiums paid on early repayment of debt
     (215 )     —       —  
Debt issuance costs
     —       —       (103 )
Restricted funds related to debt
     —       —       901  
Proceeds from issuance of common stock, net
     14       30,092       30,177  
Payment of withholding taxes related to restricted stock units
     (175 )     —       —  
 
                  
Net cash provided by (used in) financing activities
     (12,991 )     26,211       38,535  
 
                  
Net decrease in cash and cash equivalents
     (21,350 )     (7,310 )     (3,053 )
Cash and cash equivalents, beginning of year
     37,738       45,048       48,101  
 
                  
Cash and cash equivalents, end of year
   $ 16,388     $ 37,738     $ 45,048  
 
                  
The accompanying notes are an integral part of these financial statements.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
Note 1. Background
          We are a clinical-stage biopharmaceutical company focused on the development of next-generation therapeutic proteins that are competitive with best-in-class protein drugs currently on the market. Our lead therapeutic protein candidates are GlycoPEG-EPO (NE-180) and GlycoPEG-GCSF.
          NE-180 is a long-acting version of erythropoietin (EPO) produced in insect cells. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for treatment of chemotherapy-induced anemia and anemia associated with chronic renal failure. NE-180 is being developed for the treatment of anemia in adult cancer patients with non-myeloid malignancies receiving chemotherapy and for the treatment of anemia associated with chronic kidney disease, including patients on dialysis and patients not on dialysis. During 2006, we completed a Phase I clinical trial for NE-180 in Switzerland. In January 2007, we received approval from Swissmedic, the Swiss Agency for Therapeutic Products, for the initiation of a Phase II human trial to evaluate the safety, tolerability and dose response of NE-180 in cancer patients receiving platinum-based chemotherapy. In March 2007, we received approval from the U.S. Food and Drug Administration (FDA) to initiate clinical trials in the U.S. in response to our amended Investigational New Drug application (IND).
          Our second proprietary protein, GlycoPEG-GCSF, is a long-acting version of granulocyte colony stimulating factor (G-CSF) that we are co-developing with BioGeneriX AG, a company of the ratiopharm Group. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood cell) and is approved for sale in major markets around the world for treatment of neutropenia associated with myelosuppressive chemotherapy. In November 2006, BioGeneriX initiated the first of two planned Phase I clinical trials for GlycoPEG-GCSF. We expect BioGeneriX to initiate and complete the second Phase I trial during 2007.
          We believe that our enzymatic pegylation technology, GlycoPEGylation™, can improve the drug properties of therapeutic proteins by building out, and attaching polyethylene glycol (PEG) to, carbohydrate structures on the proteins. We are using our technology to develop proprietary versions of protein drugs with proven safety and efficacy and to improve the therapeutic profiles of proteins being developed by our partners. We expect these modified proteins, such as NE-180 and GlycoPEG-GCSF, to offer significant advantages, including less frequent dosing and possibly improved efficacy, over the original versions of the drugs now on the market, as well as to meet or exceed the pharmacokinetic profile of next-generation versions of the drugs now on the market. We believe this strategy of targeting drugs with proven safety and efficacy allows us to lower the risk profile of our proprietary development portfolio as compared to de novo protein drug development. We intend to continue to focus our research and development resources on therapeutic proteins that we believe have the highest probability of clinically meaningful therapeutic profile improvements from our technology and are in commercially attractive categories.
          We have incurred losses each year since inception. As of December 31, 2006, we had an accumulated deficit of $266,327. We expect to spend significant amounts to expand our research and development on our proprietary drug candidates and technologies, maintain and expand our intellectual property position, and expand our business development and commercialization efforts. Given our planned level of operating expenses, we expect to continue incurring losses for some time. In March 2007, we sold 21,415 shares of our common stock and warrants to purchase 9,637 shares of common stock through a private placement at a price of $2.02 per unit, generating net proceeds of approximately $40,459. The warrants have a five-year term and an exercise price of $1.96 per share. In March 2007, we initiated a restructuring of operations designed to allow for significantly higher clinical development costs for NE-180, while keeping anticipated 2007 net cash spending consistent with 2006 levels. The restructuring, which will be implemented over the next few months, will result in a workforce reduction of approximately 40%. We have not yet determined if we will incur any contract termination or non-cash impairment charges in connection with the restructuring.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
          We believe that our existing cash and cash equivalents (including the net proceeds from our March 2007 financing), expected proceeds from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through the second quarter of 2008, although changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to deplete our cash and cash equivalents sooner than the above estimate. We will require significant amounts of additional capital in the future to fund our operations, and we do not have any assurance that funding will be available when we need it on terms that we find favorable, if at all. If we are unable to raise additional capital when required, we may need to delay, scale back, or eliminate some or all of our research and development programs.
          We have not yet developed any products or commercialized any products or technologies, and we may never be able to do so. Even if we are successful in developing products that are approved for marketing, we will not be successful unless our products, and products incorporating our technologies, gain market acceptance. Our operations are subject to risks and uncertainties other than mentioned above including, among others, the uncertainty of product development, including our dependence upon third parties to conduct our clinical trials and to manufacture our product candidates and the materials used to make them; our limited product development and manufacturing experience; our dependence upon collaborative partners to develop and commercialize products incorporating our technologies and the success of collaborative relationships; the uncertainty of intellectual property rights; technological uncertainty and the risk of technological obsolescence; the risk of development and commercialization of competitive products by others that are more effective, less costly, or otherwise gain greater market acceptance; and the uncertainty of achieving regulatory approvals for our products, or products incorporating our technologies.
Note 2. Summary of Significant Accounting Policies
     Use of Estimates
          The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires us to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the repor ted amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
     Cash and Cash Equivalents
          We consider all highly liquid investments with a maturity of three months or less on the date of purchase to be cash equivalents. As of December 31, 2006 and 2005, cash equivalents consisted of money market investments. Our cash balances have been kept on deposit primarily at one bank and in amounts greater than $100, which is the limit of insurance provided by the Federal Deposit Insu rance Corporation.
     Marketable Securities
          Marketable securities consist of investments that have a maturity of more than three months on the date of purchase. To help maintain the safety and liquidity of our marketable securities, we have established guidelines for the concentration, maturities, and credit ratings of our investments. We determine the appropriate classification of our debt securities at the time of purchase and re-evaluate such designation as of each balance sheet date. Marketable securities that we have the positive intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost.
          As of December 31, 2006 and 2005, we held no marketable securities. We held no securities that matured during the year ended December 31, 2006. Securities maturing during the years ended December 31, 2005 and 2004 earned interest of $155 and $55, respectively.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
     Property and Equipment
          Property and equipment are stated at cost. Property and equipment capitalized under capital leases are recorded at the present value of the minimum lease payments due over the lease term. Expenditures for additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. Laboratory and office equipment are depreciated over three to seven years. For assets acquired under capital leases and for leasehold improvements, depreciation and amortization are calculated on the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter. Upon the disposition of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included on our Statements of Operations.
     Impairment of Long-lived Assets
          Long-lived assets and certain identifiable intangibles are reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As described in Note 5, we recognized during the third quarter of 2005 non-cash impairment charges on our property and equipment as a result of the restructuring we announced in August 2005 (see Note 12). During the year ended December 31, 2006, we recognized additional non-cash impairment charges on our property and equipment. Because our history of negative operating cash flows is an indicator of impairment, we annually compare the market value of our equity and debt to the carrying value of our net assets. The market value of our equity and debt exceeded the carrying value of our net assets as of December 31, 2006 and, therefore, we did not recognize any impairment of long-lived assets other than the impairment of property and equipment mentioned above.
     Financing Costs Related to Long-term Debt
          Costs associated with obtaining long-term debt are deferred and amortized to interest expense over the term of the related debt. During the year ended December 31, 2006, the remaining amount of deferred financing costs was amortized to interest expense in our Statements of Operations due to the repayment in full of the related debt (see Note 6).
     Deferred Rent and Landlord Incentive
          We have entered into various operating lease arrangements for laboratory, office and warehouse space which contain escalation clauses, under which the base rent increases annually (see Note 13).We record monthly rent expense equal to the total of the payments due over the lease term, divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent, which is included in other liabilities on our Balance Sheets. In addition we received an incentive from the landlord for partial reimbursement for improvements we made to the facility. This incentive is also included in other liabilities on our Balance Sheets and is being amortized ratably as a reduction to rent expense over the lease term.
     Revenue Recognition
          We have entered into collaborative agreements with other companies for the development and commercialization of our product candidates. The terms of the agreements typically include non-refundable up-front license fees, funding of research and development, payments based upon achievement of development milestones,

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
and royalties on product sales.
          License Fees and Multiple Element Arrangements
          Non-refundable license fees are recognized as revenue when we have a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured, and we have no further performance obligations under the license agreement.
          Multiple element arrangements, such as license and development arrangements are analyzed to determine whether the deliverables, which often include a license and performance obligations, such as research and development services, can be separated or whether they must be accounted for as a single unit of accounting in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. If the fair value of the undelivered performance obligations can be determined, such obligations would then be accounted for separately as performed. However, if the license is considered to either (i) not have stand-alone value or (ii) have standalone value but the fair value of any of the undelivered performance obligations cannot be determined, the arrangement would then be accounted for as a single unit of accounting and the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed. In our collaborative arrangements with Novo Nordisk and BioGeneriX, we have determined the license to each does not have stand-alone value.
          Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed and revenue will be recognized. Significant management judgment is required in determining the period over which we are expected to complete our performance obligations under an arrangement.
          Substantive Milestone Payments
          Our collaboration agreements may also contain substantive milestone payments. Substantive milestone payments are considered to be performance bonuses that are recognized upon achievement of the milestone only if all of the following conditions are met:
  •   the milestone payments are non-refundable;
 
  •   achievement of the milestone involves a degree of risk and was not reasonably assured at the inception of the arrangement;
 
  •   substantive effort is involved in achieving the milestone;
 
  •   a reasonable amount of time passes between the up-front license payment and the first milestone payment as well as between each subsequent milestone payment; and
 
  •   the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with achievement of the milestone.
          Determination as to whether a payment meets the aforementioned conditions involves management’s judgment. If any of these conditions are not met, the resulting payment would not be considered a substantive milestone, and therefore the resulting payment would be considered part of the consideration for the single unit of accounting and be recognized as revenue as such performance obligations are performed.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
          Reimbursement of Research and Development Costs
          Reimbursement of research and development costs is recognized as revenue provided the provisions of EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, are met, the amounts are fixed and determinable, and collection of the related receivable is reasonably assured. In our collaborative arrangements with Novo Nordisk and BioGeneriX, we recognize revenue as such costs are incurred because we have evidence of fair value for these delivered items.
          Deferred Revenue
          Amounts received prior to satisfying the above revenue recognition criteria are recorded as Deferred Revenue in the accompanying balance sheets. Determination as to the classification of deferred revenue as current or long-term on our Balance Sheets involves management’s judgment. For example, in connection with our existing collaboration agreements, we have recorded on our balance sheet current and long-term deferred revenue based on our best estimate of when such revenue will be recognized. The current portion of deferred revenue consists of amounts that are expected to be recognized as revenue during 2007. Amounts that we expect will not be recognized during 2007 are classified as long-term deferred revenue. This estimate is based on our estimate of the periods of our involvement in certain of our collaborations. In certain instances, the timing of satisfying these obligations can be difficult to estimate. Accordingly, our estimates may change in the future. Any change to the estimated performance period would be recognized on a prospective basis. If these estimates and judgments change over the course of these agreements, it may affect the timing and amount of revenue that we recognize and record in future periods.
     Research and Development
          Research and development costs are charged to expense as incurred. For each of our research and development projects, we incur both direct and indirect expenses. Direct expenses include salaries and other costs of personnel, raw materials, and supplies for each project. We may also incur third-party costs related to these projects, such as consulting and contract research, development, and manufacturing costs. Indirect expenses include depreciation expense and the costs of operating and maintaining our facilities, property, and equipment, to the extent used for our research and development projects, as well as the costs of general management of our research and development projects.
          Some of our research and development is conducted by third parties, including contract research and development service providers. At the end of each quarter, we compare the payments made to each service provider to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the estimated service provided, we may record net prepaid or accrued expense relating to these costs.
     Accounting for Restructuring Costs
          In September 2006 and August 2005, we implemented a restructuring of operations (see Note 12). Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146), addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 requires a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 does not apply to costs associated with a disposal activity covered by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).
          The employee severance costs incurred for the 2006 Restructuring were payable pursuant to an employee severance plan established in August 2005. Therefore, these costs did not meet the definition for classification as a restructuring charge on our Statements of Operations. The restructuring charges recorded by us during 2005 were

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
comprised primarily of costs to reduce property and equipment to fair value and to reduce our workforce.
          Under SFAS No. 144, any impairment of property and equipment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. To determine the fair value of assets that are not likely to be used over their remaining useful economic life, we use a probability-weighted approach of estimated cash flows to be received upon a range of possible disposition outcomes. In August 2005, we announced we would evaluate alternatives relative to our headquarters and pilot manufacturing facility (Witmer Road Facility), which we owned subject to a mortgage, including the potential disposition of the facility and further consolidation of our research, development and administrative operations into a currently leased facility also located in Horsham, Pennsylvania. As a result of the announcement, we concluded that identifiable cash flows could be assigned to the Witmer Road Facility and related equipment. We based our estimates of potential cash flows related to possible disposition outcomes on conversations with commercial real estate firms that have both knowledge of recent history of sales and expertise in marketing and selling similar facilities.
          Under SFAS No. 146, employee severance costs are determined based on the estimated severance and fringe benefit charge for identified employees. In calculating the cost to exit our leased facility in San Diego, California, we estimated the future lease and operating costs to be paid until the lease is terminated, the amount, of any sublease receipts, and real estate broker fees. SFAS No. 146 also required us to estimate the timing and the amount of operating costs and the timing and rate at which we might be able to sublease the facility. To form our estimates for these costs, we performed an assessment of the affected facility and considered the current market conditions.
     Interest Expense
          During the years ended December 31, 2006 and 2004, we incurred significant capital expenditures related to improving our owned and leased facilities. See Note 5 for a description of our property and equipment. Accordingly, we capitalized a portion of interest incurred during each reporting period in accordance with SFAS No. 34, Capitalization of Interest Cost, as amended. We did not capitalize any interest incurred during the year ended December 31, 2005.
     Income Taxes
          We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We provide a valuation allowance for the full amount of our net deferred tax assets because there is no assurance they will be realized.
     Stock-based Employee Compensation
          We adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R), effective January 1, 2006. SFAS No. 123R requires all share-based payments to employees to be recognized in the financial statements based on their fair values at the date of grant. Prior to January 1, 2006, we followed Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations in accounting for our stock-based compensation. We elected to use the modified prospective transition method for adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption and to that portion of awards not fully vested as of the date of adoption. Accordingly, prior periods have not been restated.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
          The fair value of stock options is determined using the Black-Scholes valuation model, which is the same model we previously utilized for valuing stock options for footnote disclosures required under SFAS No. 123, Accounting for Stock Based Compensation (SFAS No. 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure (SFAS No. 148).
          The fair value of share-based awards is recognized as expense over the requisite service period, net of estimated forfeitures. We rely primarily on historical experience to estimate expected forfeitures for stock options. We have not assumed any expected forfeitures for restricted stock units (RSUs) because those awards have been granted to a small number of individuals. For all unvested share-based awards outstanding as of December 31, 2005, the previously measured but unrecognized compensation expense, based on the fair value at the original grant date, will be recognized on an accelerated basis in our statement of operations over the remaining vesting period, consistent with our recognition policy under SFAS No. 123. For share-based awards granted subsequent to December 31, 2005, we have elected to recognize compensation expense in the statement of operations on a straight-line basis from the date of grant. Our deferred stock compensation balance of $6 as of December 31, 2005 was reclassified into additional paid-in capital upon the adoption of SFAS No. 123R.
          SFAS No. 123R requires us to present pro forma information for comparative periods prior to the adoption as if we had accounted for all our stock-based employee compensation under the fair value method of SFAS No. 123. The following table illustrates the effect on our net loss and basic and diluted net loss per share if we had recorded compensation expense for the estimated fair value of our stock-based employee compensation, consistent with SFAS No. 123:
                 
    Year ended December 31,  
    2005     2004  
Net loss – as reported
   $ (51,839 )   $ (41,642 )
 
                
Add: Stock-based employee compensation expense included in reported net loss
     788       101  
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards
     (4,607 )     (9,869 )
 
            
 
                
Net loss – pro forma
   $ (55,658 )   $ (51,410 )
 
            
 
                
Basic and diluted net loss per share – as reported
   $ (1.64 )   $ (1.82 )
 
            
 
                
Basic and diluted net loss per share – pro forma
   $ (1.76 )   $ (2.25 )
 
            
     Net Loss Per Share
          Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing net loss by the sum of weighted-average number of common shares outstanding for the period and the number of additional shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares are excluded from the calculation of diluted net loss per share if the effect on net loss per share is antidilutive. Our diluted net loss per share is equal to basic net loss per share for all reporting periods presented because giving effect in the computation of diluted net loss per share to the exercise of outstanding options or granting of restricted stock

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
units would have been antidilutive. See Note 10 for a summary of outstanding options and a description of our restricted stock units.
     Comprehensive Loss
          SFAS No. 130, Reporting Comprehensive Income, requires disclosure of comprehensive income (loss) in the financial statements. Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes changes to equity that are not included in net income (loss). Our comprehensive loss for the years ended December 31, 2006, 2005, and 2004 was comprised only of our net loss and is reported on our Statements of Stockholders’ Equity and Comprehensive Loss.
     Fair Value of Financial Instruments
          The fair value of our financial instruments is the amount for which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 2006, the carrying values of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and accrued compensation equaled or approximated their respective fair values because of the short duration of these instruments. The fair value of our long-term debt was estimated by discounting the future cash flows of each instrument at rates recently offered to us for similar debt instruments offered by our lenders. As of December 31, 2006, the fair and carrying values of our long-term debt and capital lease obligations were $1,838 and $1,831, respectively.
     Recent Accounting Pronouncements
          In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which is applicable for fiscal years beginning after November 15, 2007. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Although SFAS No. 157 does not require any new fair value measurements, its application may, for some entities, change current practices related to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. We are currently evaluating the impact of the adoption of SFAS No.157 on our financial statements and related disclosures.
          In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, Topic 1N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB No. 108). SAB No. 108 requires the evaluation of prior-year misstatements using both the balance sheet approach and the income statement approach. In the initial year of adoption should either approach result in quantifying an error that is material in light of quantitative and qualitative factors. SAB No. 108 guidance allows for a one-time cumulative-effect adjustment to beginning-of-year retained earnings. In years subsequent to adoption, previously undetected misstatements deemed material shall result in the restatement of previously issued financial statements in accordance with SFAS No. 154, Accounting Changes and Error Corrections (SFAS No. 154). SAB No. 108 is effective for material errors in existence at the beginning of the first fiscal year ended after November 15, 2006, with earlier adoption encouraged. The adoption of SAB No. 108 did not have any impact on our financial statements and related disclosures.
          In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which is applicable for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
statement recognition and measurement of a tax position reported or expected to be reported on a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We do not believe the adoption of FIN 48 will have any impact on our financial statements and we are evaluating the impact it may have on the related disclosures.
          In May 2005, the FASB issued SFAS No. 154, which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principles. SFAS No. 154 applies to all voluntary changes in accounting principle, and also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 became effective for accounting changes and corrections of errors made by us after January 1, 2006. SFAS No. 154 does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. The adoption of SFAS No. 154 did not have any impact on our financial statements and related disclosures.
     Reclassification
          Certain prior year amounts have been reclassified to conform to our current year presentation.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
Note 3. Supplemental Disclosure of Cash Flow Information
     The following table contains additional cash flow information for the periods reported.
                         
    Year ended December 31,  
    2006     2005     2004  
Supplemental disclosure of cash flow information:
                        
 
                        
Cash paid for interest, net of amounts capitalized (see Note 5)
   $ 1,164     $ 1,302     $ 958  
 
                        
Non-cash operating activities:
                        
 
                        
Non-cash rent included in gain on sale of Witmer Road Facility (see Note 5)
   $ 390     $ —     $ —  
 
                  
Increase in prepaid expenses and other current assets included in accounts payable
   $ 228     $ —     $ —  
 
                  
 
                        
Non-cash investing activities:
                        
 
                        
Increase (decrease) in property and equipment included in accounts payable and accrued expenses
   $ 1,651     $ 45     $ (792 )
 
                  
 
Assets acquired under capital leases
   $ —     $ —     $ 184  
 
                  
 
Decrease in acquisition value of property and equipment related to cancellation of a vendor invoice as partial settlement of dispute (see Note 5)
   $ —     $ 116     $ —  
 
                  
Decrease in acquisition value of property and equipment due to decrease in amount of remaining minimum lease payments under capital lease
   $ —     $ 10     $ —  
 
                  
 
                        
Non-cash financing activities:
                        
 
                        
Conversion of accrued compensation from liability to equity classified award upon grant of restricted stock units (see Note 10)
   $ 129     $ 382     $ —  
 
                  

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
Note 4. Prepaid Expenses and Other Current Assets
     Prepaid expenses and other current assets consisted of the following:
                 
December 31,   2006     2005  
Prepaid contract research and development services
   $ 228     $ —  
Prepaid rent
     195       61  
Prepaid maintenance agreements
     162       276  
Prepaid clinical trials and non-clinical studies
     124       141  
Prepaid insurance
     86       96  
Other prepaid expenses
     262       144  
Other current assets
     227       174  
 
            
 
   $ 1,284     $ 892  
 
            
     Receivable from Related Party
          In 2001, we entered into a tuition reimbursement agreement with an employee who subsequently became an executive officer. Under the agreement, we agreed to lend the amounts necessary to pay for the employee’s tuition payments and related costs and fees. Interest accrues on the loan at 4.71% per year, and has been payable annually since May 2002. We agreed to forgive repayment of the principal amount outstanding, in four equal, annual installments, commencing in May 2004, if the employee remains employed by us on each forgiveness date. We also agreed to forgive the accrued interest on each annual due date and, if the employee is terminated without cause, we also agreed to forgive all outstanding principal and interest. We forgave principal and accrued interest of $31, $33 and $34 during the years ended December 31, 2006, 2005, and 2004, respectively. As of December 31, 2006 and 2005, the amounts outstanding under the agreement, including accrued interest, were $29 and $59, respectively. Of these amounts, $29 and $30 were included in prepaid expenses and other current assets on our Balance Sheets as of December 31, 2006 and 2005, respectively.
Note 5. Property and Equipment
     Property and equipment consisted of the following:
                 
December 31,   2006     2005  
Leasehold improvements
   $ 9,817     $ 9,964  
Laboratory, manufacturing, and office equipment
     5,874       9,606  
Building, facility improvements, and land
     —       9,522  
Construction-in-progress
     2,142       —  
 
            
 
     17,833       29,092  
Less accumulated depreciation and amortization
     (4,729 )     (4,384 )
 
            
 
   $ 13,104     $ 24,708  
 
            
          In September 2006, we sold the Witmer Road Facility for $21,043. After payment of selling fees and expenses, we received net proceeds of approximately $19,322. The carrying value of the property and equipment

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
sold was $12,379. We owned the Witmer Road Facility subject to mortgages supporting our term loan and industrial development authority bond (see Note 7). We were permitted to occupy a portion of the facility on a rent-free basis for up to six months after closing. We have estimated the rental fair value for the space we occupied to be $390, which was included in the calculation of the $7,333 gain on the sale of the Witmer Road Facility and will be amortized as rent expense to our Statements of Operations over the expected period of our occupancy. As of December 31, 2006, the unamortized balance of the estimated rental fair value was $130 and was included in prepaid expenses and other current assets on our Balance Sheets (see Note 4).
          Concurrent with the closing, we repaid outstanding debt associated with the Witmer Road Facility and related equipment of $9,647, which included accrued interest and prepayment penalties. The remaining net proceeds of $9,675 will be used to further our research, non-clinical development, and clinical development objectives and to fund the capital expenditures described below to the extent such expenditures are not financed through the issuance of new debt.
          In February 2007, we consolidated our operations into a 40,000 square foot facility that we currently lease in Horsham, Pennsylvania (Rock Road Facility). We anticipate total costs for construction of additional laboratory and office space in the Rock Road Facility of approximately $3,650, of which $2,111 was included in construction-in-progress as of December 31, 2006. Approximately $3,100 of the estimated total construction costs relate to leasehold improvements that will be amortized over the remaining lease term of approximately 15 years. The remaining estimated construction costs relate to laboratory and office equipment that will be amortized over three to seven years.
          Laboratory, manufacturing, and office equipment as of December 31, 2006 and 2005 included $122 and $530 respectively, of assets acquired under capital leases. Accumulated depreciation and amortization as of December 31, 2006 and 2005 includes $47 and $293, respectively, related to assets acquired under capital leases. During the years ended December 31, 2006 and 2004, we capitalized $8 and $139, respectively, of interest expense in connection with our facility improvement projects. We did not capitalize any interest incurred during the year ended December 31, 2005.
          Depreciation expense, which includes amortization of assets acquired under capital leases, was $1,606, $3,751, and $5,047 for the years ended December 31, 2006, 2005, and 2004, respectively. During the years ended December 31, 2006 and 2005, we disposed of fully depreciated assets that had original acquisition values of $99 and $129, respectively. We did not dispose of any fully depreciated assets during the year ended December 31, 2004. During the year ended December 31, 2006, we recorded a gain on the sale of Witmer Road Facility of $7,333. During the years ended December 31, 2006, 2005 and 2004, we recorded losses on disposition of property and equipment of $13, $17, and $95, respectively. In addition, during the years ended December 31, 2006 and 2005, we recorded a loss of $48 and a gain of $21, respectively, on the disposition of assets held for sale. The aggregate proceeds from the disposition of property and equipment and assets held for sale, excluding the Witmer Road Facility, was $51 and $110, respectively, for the years ended December 31, 2006 and 2005. We did not receive any proceeds from the disposition of property and equipment and assets held for sale during the year ended December 31, 2004.
          During 2006, we evaluated cash flows that could be assigned to equipment that was no longer in use. We based our estimates of potential cash flows on possible disposition outcomes if the equipment was sold at auction. Based on those estimates, we recorded a non-cash impairment charge of $121, which was included in research and development expenses in our Statements of Operations. The aggregate acquisition value of the impaired assets was reduced by $586 and the related accumulated depreciation was reduced by $465.
     2005 Activity
          As part of the restructuring announced in August 2005 (see Note 12), we centralized research activities in Horsham, Pennsylvania by ending operations in our leased facility in San Diego, California. We recorded a non-cash

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
impairment charge of $187 related to property and equipment located in the San Diego facility. The aggregate acquisition value of the impaired assets was reduced by $745 and the related accumulated depreciation and amortization was reduced by $558. This impairment charge was included in restructuring charges on our Statements of Operations.
          We also announced that we would evaluate alternatives relative to our Witmer Road Facility, including the potential disposition of the facility and further consolidation of our research, development and administrative operations into Rock Road Facility. As a result of the announcement, we concluded that identifiable cash flows could be assigned to the Witmer Road Facility and related equipment. To determine the appropriate carrying value of these assets, we used a probability-weighted approach of estimated cash flows to be received upon a range of possible disposition outcomes. We based our estimates of potential cash flows related to possible disposition outcomes on conversations with commercial real estate firms that had both knowledge of recent history of sales and expertise in marketing and selling similar facilities. Based on those estimates, we recorded during the third quarter of 2005 a non-cash impairment charge of $13,000, which was included in restructuring charges on our Statements of Operations, on our Witmer Road Facility and related equipment. The aggregate acquisition value of the impaired assets was reduced by $29,007 and the related accumulated depreciation and amortization was reduced by $16,007.
          During 2005, we settled a dispute with a vendor from which we had purchased property and equipment. Pursuant to the settlement agreement, the vendor canceled an outstanding invoice of $116, which we had previously included in accounts payable, and paid us $75. Therefore, we reduced the acquisition cost of the property and equipment by $191.
Note 6. Intangible and Other Assets
     Intangible and other assets consisted of the following:
                 
December 31,   2006     2005  
Acquired intellectual property, net of accumulated amortization of $4,427 and $3,836 as of December 31, 2006 and 2005, respectively
   $ 123     $ 714  
 
                
Deferred financing costs, net of accumulated amortization of $181 and $36 as of December 31, 2006 and 2005, respectively
     —       145  
 
                
Receivable from related party (see Note 4)
     —       29  
 
                
Deposits
     58       61  
 
            
 
   $ 181     $ 949  
 
            
     Acquired Intellectual Property
          In 1999, we acquired the carbohydrate-manufacturing patents, licenses, and other intellectual property of Cytel Corporation for aggregate consideration of $4,750, of which $200 was charged to research and development expense on our Statements of Operations in 1998. The acquired intellectual property consists of core technology with alternative future uses. The acquired intellectual property balance is being amortized using the straight-line method to research and development expense on our statement of operations over eight years, which is the estimated useful life of the technology. Amortization expense relating to the acquired intellectual property was $591, $598, and $598 for the years ended December 31, 2006, 2005, and 2004, respectively. The remaining carrying value of $123 as of December 31, 2006 will be amortized during the year ending December 31, 2007.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
     Deferred Financing Costs
          During 2004, we entered into agreements with a bank. In connection with entering into these agreements, we incurred $181 of legal and other costs. We recorded this amount as an asset, and began amortizing the asset to interest expense in our Statements of Operations over the ten-year repayment term to the bank. Upon the repayment of the term loan from a bank and the Industrial Development Authority bond in September 2006 (see Note 7), we accelerated the amortization of the remaining carrying value of $133 of deferred financing costs to interest expense. Amortization expense, including the acceleration of amortization in 2006, relating to the deferred financing costs was $145, $18, and $18 for the years ended December 31, 2006, 2005, and 2004, respectively.
Note 7. Long-Term Debt and Capital Lease Obligations
     Long-term debt and capital lease obligations consisted of the following:
                 
December 31,   2006     2005  
Term loan from bank
   $ —     $ 7,111  
Industrial development authority bond
     —       1,000  
 
                
Notes payable to equipment lender
     1,101       5,075  
 
                
Term loan from landlord
     622       997  
 
            
Subtotal
     1,723       14,183  
Capital lease obligations (see Note 13)
     108       271  
 
            
Total debt
     1,831       14,454  
Less current portion
     (1,251 )     (4,031 )
 
            
Total debt, net of current portion
   $ 580     $ 10,423  
 
            
          Minimum principal repayments of long-term debt and capital lease obligations as of December 31, 2006 were as follows: 2007¾$1,251; 2008¾$573; and 2009¾$7. Interest expense during the years ended December 31, 2006, 2005, and 2004 was $1,271, $1,314, and $981, respectively. See Note 5 for the amounts of interest capitalized during each of the three years ended December 31, 2006.
     Term Loan from Bank and Industrial Development Authority Bond
          In September 2006, we repaid the outstanding balance of the term loan from a bank and the Industrial Development Authority bond in connection with the sale of the Witmer Road Facility (see Note 5). In connection with the early repayment of this debt, we paid $153 of premiums to the bank, which premiums were included in interest expense for the year ended December 31, 2006.
     Notes Payable to Equipment Lender
          As of December 31, 2006, we owed an equipment lender $1,101 under various borrowings. The amounts owed were secured by equipment and facility improvements that had a carrying value of $1,654 as of December 31, 2006. In September 2006, we repaid $1,626 of the outstanding debt as a result of the sale of the Witmer Road Facility (see Note 5), and in October 2006, we amended six promissory notes with our equipment lender. Under the amended promissory notes, our last payment is scheduled for September 2008, and interest rates applicable to the

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
equipment loans range from 8.1% to 9.5%. In connection with the early repayment of this debt, we paid $62 of premiums to the equipment lender, which premiums were included in interest expense during the year ended December 31, 2006.
     Term Loan from Landlord
In May 2004, we borrowed $1.5 million of unsecured debt from the landlord of our Rock Road Facility. As of December 31, 2006, we owed the landlord $622. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 13%. The final payment is due June 2008.
     Note Payable Secured by Insurance Policies
In March 2006, we borrowed $539 to finance insurance policy premiums due on certain insurance policies. In November 2006, we paid in full the outstanding balance of the borrowing. The insurance policy premiums, net of amortization, were included in prepaid expenses and other current assets on our Balance Sheets at December 31, 2006 (see Note 4). The interest was calculated based on an annual percentage rate of 5.4%. To secure payment of the amounts financed, we granted the lender a security interest in all of our right, title and interest to the insurance policies. Upon a default by us, the lender could have demanded, and would have had the right to receive from us, immediate payment of the total unpaid balance of the loan. In the event of default and the demand for immediate payment by the lender, interest would have accrued on any unpaid amounts at the highest rate allowed by applicable law.
Note 8. Accrued Expenses
     Accrued expenses consisted of the following:
                 
December 31,   2006     2005  
Professional fees
   $ 1,469     $ 1,346  
Contract research and development services
     1,283       650  
Property and equipment
     1,244       10  
Clinical trials and non-clinical studies
     625       183  
Other expenses
     128       508  
 
            
 
   $ 4,749     $ 2,697  
 
            
Note 9. Stockholders’ Equity
     Common Stock
          In March 2007, we sold 21,415 shares of our common stock and warrants to purchase 9,637 shares of common stock through a private placement, including 4,950 shares of common stock and warrants to purchase 2,228 shares of our common stock to investment funds affiliated with certain members of our board of directors, at a price of $2.02 per unit, generating net proceeds of approximately $40,459. The warrants have a five-year term and an exercise price of $1.96 per share.
          In February 2005, we offered and sold 8,050 shares of our common stock at a public offering price of $4.00 per share, generating net proceeds of $30,006.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
          In May 2004, we sold 4,733 shares of common stock in a registered offering to a number of institutional and individual investors, including 812 shares sold to officers and an investment fund affiliated with a director, at a price of $6.77 per share, generating net proceeds of $29,928.
     Shareholder Rights Plan
          In September 1997, we adopted a Shareholder Rights Plan. Under this Shareholders Rights Plan, which was amended in December 1998, holders of common stock are entitled to receive one right for each share of common stock held. Separate rights certificates would be issued and become exercisable if any acquiring party either accumulates or announces an offer to acquire at least 15% of our common stock. Each right will entitle any holder who owns less than 15% of our common stock to buy one one-hundredth share of the Series A Junior Participating Preferred Stock at an exercise price of $150. Each one one-hundredth share of the Series A Junior Participating Preferred Stock is essentially equivalent to one share of our common stock. If an acquiring party accumulates at least 15% of our common stock, each right entitles any holder who owns less than 15% of our common stock to purchase for $150 either $300 worth of our common stock or $300 worth of the 15% acquirer’s common stock. In November 2000, the Shareholders Rights Plan was amended to increase the threshold from 15% to 20% for Kopp Investment Advisors, Inc. and related parties. In June 2002 and October 2002, the Shareholders Rights Plan was amended to increase the threshold to 20% and 25%, respectively, for Eastbourne Capital Management, LLC and related parties. The rights expire in September 2007 and may be redeemed by us at a price of $.01 per right at any time up to ten days after they become exercisable.
Note 10. Compensation Plans
     Equity Incentive Plans
          We have two equity incentive plans, under which a total of 7,374 shares of common stock have been authorized. In addition, we granted nonqualified stock options in 2002 outside of these plans to purchase 488 shares. The 2004 Equity Incentive Plan (Plan) incorporates a predecessor plan. The following types of awards are available under the Plan: incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted stock units (RSUs). All employees, non-employee directors, and consultants are eligible to receive awards under the Plan.
          The Plan allows us to grant restricted shares and RSUs with complete discretion as to: when grants are made; the consideration, if any, to be paid for restricted shares; and when the restrictions applicable to each restricted share and RSU will lapse. The Plan also allows us to grant stock options and stock appreciation rights to eligible individuals, with complete discretion as to: when grants are made; the number of shares subject to vesting and the vesting schedule; the designation as either an incentive or a non-qualified stock option; the maximum term to remain outstanding, which term, for an incentive stock option, may not exceed ten years (and for an incentive stock option granted to a person who owns more than 10% of our voting power may not exceed five years); and the exercise price, which for a non-qualified stock option may not be less than 85% of the fair market value of the stock on the date of grant and for an incentive stock option must be at least 100% of the fair market value on the date of grant (unless the recipient owns more than 10% of our voting power, in which case the exercise price must be at least 110% of the fair market value on the date of grant). During the years ended December 31, 2006, 2005, and 2004, we granted no options at an exercise price in excess of the market price on the date of grant. We normally issue new shares to satisfy stock option exercises and the delivery of shares pursuant to RSUs. There were no modifications to stocks options during the year ended December 31, 2006.

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
          The following table summarizes the status of stock options as of December 31, 2006 and changes during the year then ended:
                                 
                            Weighted-  
            Weighted-             average  
            average     Aggregate     remaining  
            exercise     intrinsic     contractual life  
    Shares     price     value     (years)  
Outstanding at January 1, 2006
     4,995     $ 14.01                  
Granted
     1,420       2.60                  
Exercised
     (5 )     2.58                  
Forfeited
     (306 )     4.25                  
Expired
     (823 )     13.41                  
 
                            
Outstanding at December 31, 2006
     5,281     $ 11.61     $ 2       6.7  
 
                        
Vested at December 31, 2006 and expected to vest
     4,993     $ 12.07     $ 2       6.6  
 
                        
Exercisable at December 31, 2006
     3,280     $ 16.09     $ 2       5.5  
 
                        
     Fair Value Disclosures
          We adopted SFAS No. 123R effective January 1, 2006. Prior to January 1, 2006, we applied the intrinsic value method of accounting for all stock-based employee compensation in accordance with APB No. 25 and related interpretations. We elected to use the modified prospective transition method for adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption and to awards not fully vested as of the date of adoption. Accordingly, prior periods have not been restated. For the year ended December 31, 2006, we recorded $2,602 of compensation cost for share-based payment arrangements in our Statements of Operations, of which $21 related to liability-classified awards. The effect of the adoption of SFAS No. 123R was to increase our 2006 operating and net loss by $2,438 and our basic and diluted loss per share by $0.07. The adoption of SFAS No. 123R had no effect on our cash flows from operations or cash flows from financing activities. No tax benefit was recorded as of December 31, 2006 in connection with compensation cost due to the uncertainty regarding ultimate realization of our net operating loss carryforwards (see Note 14). The weighted-average fair value per share of stock options granted during the years ended December 31, 2006, 2005, and 2004 was $1.83, $2.49, and $7.91, respectively. The weighted-average fair value per share of employee purchase rights granted under our employee stock purchase plan (see below) in 2004 was $7.52. There were no employee purchase rights granted in 2006 or 2005. The total intrinsic value of stock options exercised during the years ended December 31, 2006 and 2004 was $5 and $31, respectively. There were no stock options exercised during the year ended December 31, 2005.
          The fair value of stock options is determined using the Black-Scholes valuation model, which is the same model we previously utilized for valuing stock options for footnote disclosures required under SFAS No. 123 as amended by SFAS No. 148 for the years ended December 31, 2005 and 2004. During the years ended December 31, 2006, 2005, and 2004 the fair value of each stock option award was determined as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
                         
    Year ended December 31,
    2006   2005   2004
Weighted average expected volatility
     75 %     75 %     80 %
Expected term (years)
                        
Stock options
     4.7 ¾  7.8       0.7 ¾  9.1       4.4 ¾  10.0  
Employee stock purchase plan
     N/A       N/A       1.3  
Risk-free interest rate
                        
Stock options
     4.4% ¾  5.1 %     3.9% ¾  4.3 %     2.5% ¾  4.3 %
Employee stock purchase plan
     N/A       N/A       1.6 %
Expected dividend yield
     0 %     0 %     0 %
          Expected volatility is based solely on historical volatility of our common stock over the period commensurate with the expected term of the stock options. We rely solely on historical volatility because our traded options do not have sufficient trading activity to allow us to incorporate the mean historical implied volatility from traded options into our estimate of future volatility. The expected term calculation for stock options granted to directors and officers is based on the observed and expected time to post-vesting exercise and forfeitures of stock options by those individuals. The expected term calculation for stock options granted to all other individuals is based on the “simplified” method described in SAB No. 107, Share-Based Payment. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield of zero is based on the fact that we have never paid cash dividends on our common stock, and we have no present intention to pay cash dividends.
          The fair value of share-based awards is recognized as expense over the requisite service period, net of estimated forfeitures. Based on our historical experience of option pre-vesting cancellations, we have assumed an annualized forfeiture rate of 13% for our stock options granted to individuals not terminated as a result of a restructuring of our operations in connection with the sale of the Witmer Road Facility (2006 Restructuring) (see Note 12). For employees terminated as a result of the 2006 Restructuring, we have assumed an annualized forfeiture rate of 100%. We have not assumed any expected forfeitures for RSUs because those awards have been granted to a small number of individuals. Under the provisions of SFAS No. 123R, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated. We rely primarily on historical experience to estimate expected forfeitures.
          For all unvested awards outstanding as of December 31, 2005, the previously measured but unrecognized compensation expense, based on the fair value at the original grant date, is being recognized on an accelerated basis in our Statements of Operations over the remaining vesting period, consistent with our recognition policy under SFAS No. 123. For share-based awards granted subsequent to December 31, 2005, we have elected to recognize compensation expense in our Statements of Operations on a straight-line basis from the date of grant. Our deferred stock compensation balance of $6 as of December 31, 2005 was reclassified into additional paid-in capital upon the adoption of SFAS No. 123R.
          As of December 31, 2006, there was $1,938 of total unrecognized compensation cost, which includes the impact of expected forfeitures, related to unvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.2 years.
     Non-employee Stock Options
          During the years ended December 31, 2006, 2005, and 2004 we recognized $14, $(9), and $4, respectively, of compensation expense (gain), in connection with the vesting of stock options granted to non-employees. The compensation expense or gain was based on each option’s estimated fair value, which was calculated using the

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
Black-Scholes option-pricing model. Because we re-value each option over the related vesting term in accordance with Emerging Issues Task Force 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services, increases in our stock price result in increased expense while decreases in our stock price result in a gain.
     Restricted Stock Units
          In May 2005, RSUs were granted to members of our board of directors in lieu of cash payment for services. Because these RSUs vested immediately, we charged the fair value of $107 relating to these RSUs to operating expenses on the date of grant.
          In March 2005, the Compensation Committee of our board of directors (Compensation Committee) modified our 2004 bonus program for officers, adjusted salaries for officers to reduce cash payments, granted RSUs to officers, and decided to pay any 2005 bonuses for officers by the award of RSUs instead of cash. In March 2005, the aggregate value of liability-classified awards of $382 related to the payment of a portion of 2004 officer bonuses in RSUs instead of cash was reclassified to additional paid-in capital. In January 2006, the aggregate value of liability-classified awards of $129 related to the payment of 2005 officer bonuses in RSUs instead of cash was reclassified to additional paid-in capital. During the years ended December 31, 2006 and 2005, we recorded $150 and $653, respectively, of expense for RSUs, of which $21 and $151, respectively, were recorded while the RSUs were liability-classified. A summary of the status of RSUs as of December 31, 2006, and changes during the year then ended, is presented in the following table:
                                 
                            Weighted-  
            Weighted-             average  
            average     Aggregate     remaining  
            grant-date     intrinsic     contractual  
    Shares     fair value     value     life (years)  
Outstanding at January 1, 2006
     290     $ 3.68                  
 
                                
Awarded
     84       2.29                  
Settled
     (246 )     3.90                  
Forfeited
     ¾       ¾                  
 
                            
 
                                
Outstanding at December 31, 2006
     128     $ 2.34     $ 285       0.1  
 
                        
 
                                
Vested at December 31, 2006 and expected to vest
     128     $ 2.34     $ 285       0.1  
 
                        
          The number of shares and aggregate intrinsic value of the vested portion of RSUs outstanding at December 31, 2006 were 108 and $241, respectively. The number of shares and aggregate fair value of RSUs that vested during the year ended December 31, 2006 were 199 and $674, respectively. In connection with the settlement of RSUs in shares during 2006, 47 shares, with an aggregate fair value of $175 were withheld to satisfy the award holders’ minimum tax withholding obligations. In accordance with the terms of the RSUs, vested awards will be settled in shares upon the earlier to occur of 18 months after the grant date or six months after the grantee’s separation from service, subject to certain conditions.
     Employee Stock Purchase Plan
          Effective January 31, 2005, we terminated our employee stock purchase plan, or ESPP, under which 183 shares had been reserved for issuance. The ESPP allowed any eligible employee the opportunity to purchase shares of our common stock through payroll deductions. The ESPP provided for successive, two-year offering periods,

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
each of which contained four semiannual purchase periods. The purchase price at the end of each purchase period was 85% of the lower of the market price per share on the employee’s entry date into the offering period or the market price per share on the purchase date. Any employee who owned less than 5% of our common stock could have purchased up to the lesser of:
  •   10% of his or her eligible compensation;
 
  •   1 share per purchase; or
 
  •   the number of shares per year that does not exceed the quotient of $25 divided by the market price per share on the employee’s entry date into the offering period.
          A total of 4 shares of common stock remained available for issuance under the ESPP immediately prior to the termination of the plan. The total purchases of common stock under the ESPP during the years ended December 31, 2005 and 2004 were 15 shares at a total purchase price of $86 and 24 shares at a total purchase price of $175, respectively. We have not recorded any compensation expense for the ESPP.
     401(k) Savings Plan
          We maintain a 401(k) Savings Plan (Savings Plan) for our employees. Employee contributions are voluntary, determined on an individual basis, and limited to the maximum amount allowable under federal income tax regulations. We match employee contributions up to specified limits. We contributed $189, $266, and $181 to the Savings Plan for the years ended December 31, 2006, 2005, and 2004, respectively. In addition, during 2006, 2005 and 2004, we allocated $23, $15 and $79, respectively, of prior year Savings Plan forfeitures to match employee contributions.
Note 11. Collaborative Agreements and Significant Customer Concentration
          A summary of revenue recognized under our collaborative agreements for the years ended December 31, 2006, 2005, and 2004 is presented in the following table.
                         
    Year Ended December 31,  
    2006     2005     2004  
Novo Nordisk
                        
 
Research and development funding
   $ 3,577     $ 2,027     $ 2,490  
 
Substantive milestones
     750       —       —  
 
License fees
     457       769       842  
 
                  
 
 
     4,784       2,796       3,332  
 
                  
BioGeneriX
                        
 
Research and development funding
     1,191       2,939       1,699  
 
License fees
     209       402       39  
 
                  
 
 
     1,400       3,341       1,738  
 
                  
 
 
   $ 6,184     $ 6,137     $ 5,070  
 
                  

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Table of Contents

Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
     Novo Nordisk A/S Agreements
     In November 2003, we entered into two agreements with Novo Nordisk A/S to use GlycoPEGylation technology to develop and commercialize next-generation versions of Factors VIIa, VIII and IX, one of which, Factor VIIa, is currently marketed by Novo Nordisk. Under these agreements, we received a non-refundable, upfront fee of $4,300, which is being amortized to revenue over the expected performance period. Novo Nordisk is responsible for funding our research and development activities under the agreements, and we may receive up to $52,200 in milestone payments based on the progress of the programs. In addition, we could receive additional milestones and royalties on new indications for next-generation versions of Factors VIII and IX. We will receive royalties on sales of any products commercialized under the agreements.
     In November 2004, we amended our agreements with Novo Nordisk to provide an amended work plan for one of the proteins, a method of applying some of the project-related funds to tasks that are mutually agreed upon by the parties, a change in the timing of one milestone payment, and the addition of a new milestone payment. We also received from Novo Nordisk a payment, which is being amortized to revenue over the expected remaining performance period. In December 2005, we further amended our agreements with Novo Nordisk to provide for an additional project related to one protein and two additional milestone payments to be made to us upon the occurrence of certain events related to the additional project. In 2006, we received two payments upon the occurrence of substantive events related to the additional project. In October 2006, we entered into an Amended and Restated Research, Development and License Agreement with Novo Nordisk, which supersedes one of the original agreements entered into in November 2003. The Amended and Restated Research, Development and License Agreement incorporates the prior amendments to the original agreement and further amends the original agreement to clarify certain terms and conditions related to intellectual property.
     Under these agreements, as amended, Novo Nordisk’s license with respect to each protein continues until the expiration of the last Neose patent covering a licensed product, or until the earlier termination of the applicable agreement. Novo Nordisk has the right to terminate each of the agreements without cause. We have the right to terminate the agreement with respect to Factors VIII and IX if there are no commercial sales of licensed products within a specified period, subject to Novo Nordisk’s ability to extend by paying minimum royalties. After entering into the amendment in December 2005, we changed our estimate of the expected performance period from six years to ten years.
     BioGeneriX A/G Agreements
     In April 2004, we entered into an agreement with BioGeneriX to use our proprietary GlycoAdvance and GlycoPEGylation technologies to develop a long-acting version of granulocyte colony stimulating factor (G-CSF). In connection with the agreement, we received from BioGeneriX a non-refundable, upfront fee, which is being recognized to revenue over the expected performance period of eighteen years. In October 2006, we entered into an amendment of this agreement. Under the agreement, as amended, we and BioGeneriX shared the expenses of preclinical development. BioGeneriX is responsible for supplying the protein and funding the clinical development program and we are responsible for supplying enzyme reagents and sugar nucleotides. As of January 1, 2007, BioGeneriX is responsible for the cost of reagent supply.
     If we and BioGeneriX proceed to commercialization, we will have commercial rights in the U.S., Canada, Mexico and Japan, and BioGeneriX will have commercial rights in Europe and the rest of the world. Each company has the ability to search for its own marketing partner for its territories and will receive significant royalties on product sales in the other company’s territory. Each party has the right, in various circumstances, to terminate the agreement by giving the required notice to the other party, subject to the other party’s right to continue working on the development and commercialization of a long-acting version of G-CSF, as provided in the agreement. In addition, we have immediate termination rights, in which case we will have all rights to the product candidate,

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
including supply of protein from BioGeneriX or its contract manufacturer, in the event BioGeneriX does not meet certain Phase I and Phase II diligence requirements.
          In April 2005, we entered into a research, co-development and commercialization agreement with BioGeneriX for a GlycoPEGylated erythropoietin made in CHO cells (GlycoPEG-CHO-EPO). We received a non-refundable payment in connection with the execution of this agreement. The agreement provided for us to conduct research on behalf of BioGeneriX for up to 12 months and grant BioGeneriX the right to obtain an exclusive, worldwide license to use our enzymatic technologies to develop and commercialize a long-acting version of the target protein. Under an amendment to the agreement entered into in October 2006, BioGeneriX had until December 31, 2006 to exercise the option. BioGeneriX did not exercise the option and all rights to Neose’s GlycoPEGylation technology as it applies to GlycoPEG-CHO-EPO reverted to Neose.
Note 12. Restructurings and Employee Severance Costs
     2006 Restructuring
          In September 2006, we implemented a restructuring of operations in connection with the sale of the Witmer Road Facility (2006 Restructuring). The employee severance costs incurred for the 2006 Restructuring were payable pursuant to an employee severance plan established in August 2005. Therefore, these costs did not meet the definition for classification as a restructuring charge on our Statements of Operations. Our net loss for the year ended December 31, 2006 included $710 of employee severance costs related to the 2006 Restructuring, of which $575 is included in research and development expenses and $135 is included in general and administrative expenses. Of these amounts, $67 remained unpaid and was included in accrued compensation on our Balance Sheets as of December 31, 2006. We expect to pay the remaining obligations under the 2006 Restructuring by the end of the first quarter of 2007.
          In connection with the 2006 Restructuring we committed to pay future cash retention bonuses to certain employees who were not given notice of termination in September 2006, contingent on their not voluntarily terminating their employment prior to the payment date. In connection with this commitment, we expect to pay $280 of retention bonuses in the first half of 2007, of which $160 was included in accrued compensation on our Balance Sheets as of December 31, 2006. We also granted stock options to certain employees as part of an employee retention program. These options will vest in full on July 1, 2007 for all holders who have not terminated their employment prior to the vesting date. The aggregate fair market value of the options was $605, which is being recognized ratably as compensation expense over the vesting period.
     2005 Restructuring
          In August 2005, we implemented a restructuring of operations to enable an enhanced focus on next-generation proteins, to allow for the transfer of production of proteins and reagents to our collaborative partners and contract manufacturers, and to reduce cash burn (2005 Restructuring). Upon completion of the 2005 Restructuring, we reduced the size of our workforce by approximately 25% compared to the end of the first quarter of 2005. Our net loss for 2005 included $14,206 of charges related to the 2005 Restructuring, including $13,187 of non-cash property and equipment impairment charges (see Note 5), $867 of payments for employee severance costs, and $152 of payments for facility closure costs.
          As part of the 2005 Restructuring we centralized research activities in Horsham, Pennsylvania by ending operations in our leased facility in San Diego, California. During 2005, we recorded a charge of $152 in our Statements of Operations for the operating lease related to the San Diego facility. The charge was based on an estimate of the present value of the loss we would incur over the remaining term of the lease. Because the remaining

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
lease term extended for only five months beyond our cease-use date of the facility, we assumed no sublease income in our calculation.
          Of the $1,019 accrued during 2005 for employee severance and facility closure costs for the 2005 Restructuring, we paid $932 during 2005 and the remaining $87 was included in accrued expenses as of December 31, 2005. As of December 31, 2006, all of our obligations related to the 2005 Restructuring have been satisfied.
Note 13. Commitments and Contingencies
     Leases
     Our future minimum lease payments as of December 31, 2006 under capital leases and under non-cancelable operating leases, with initial or remaining lease terms in excess of one year, were as follows:
                 
    Capital     Operating  
    leases     leases  
2007
   $ 58     $ 519  
2008
     54       454  
2009
     7       463  
2010
     —       473  
2011
     —       482  
Thereafter
     —       5,730  
 
            
Total minimum lease payments
     119     $ 8,121  
 
              
Less amounts representing imputed interest
     (11 )        
 
              
Present value of minimum lease payments
     108          
Less current portion of capital lease obligations
     (50 )        
 
              
Capital lease obligations, excluding current portion
   $ 58          
 
              
     Capital Lease Obligations
          In February 2004, we entered into a capital lease obligation for equipment with a book value of $184, which was calculated using an assumed incremental annual borrowing rate of 8.7%. The terms of the lease require us to make monthly payments through February 2009. This equipment had an aggregate net book value of $54 as of December 31, 2006.
          In September 2003, we entered into a capital lease obligation for software with a book value of $60, which was calculated using an assumed incremental annual borrowing rate of 11.5%. The terms of the lease require us to make monthly payments through September 2008. As of December 31, 2006, this software had a net book value of $21.
     Operating Leases
          We lease laboratory, office, warehouse facilities, and equipment under operating lease agreements. In February 2002, we entered into a lease agreement for our Rock Road Facility, which consists of approximately

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Table of Contents

Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
40,000 square feet of laboratory and office space. The initial term of the lease ends in July 2022, at which time we have an option to extend the lease for an additional five years, followed by another option to extend the lease for an additional four and one-half years. Pursuant to the lease, we received $250 from the landlord in September 2004 as a partial reimbursement for improvements we made to the facility. This landlord incentive, which is included in other liabilities on our balance sheet, is being amortized ratably as a reduction to rental expense over the lease term. In April 2001, we entered into a lease agreement for approximately 10,000 square feet of laboratory and office space in San Diego, California. As part of the 2005 Restructuring, we centralized research activities in Horsham, Pennsylvania by ending operations in our leased facility in San Diego. As of October 31, 2005, we ceased operations at our San Diego facility. The initial term of the San Diego lease ended in March 2006, at which time we terminated the lease. We lease approximately 5,000 square feet of office and warehouse space in Horsham, Pennsylvania under a lease agreement that expires April 2007. In January 2007, we entered into a five-year lease agreement for approximately 6,800 square feet of office and warehouse space in Horsham, Pennsylvania to replace similar space subject to the expiration described above. Our laboratory, office, and warehouse facility leases contain escalation clauses, under which the base rent increases annually by 2%. Our rental expense for the years ended December 31, 2006, 2005, and 2004 was $967, $951, and $981, respectively.
     Purchase Obligations and Employment Agreements
          As of December 31, 2006, we had non-cancelable purchase obligations for 2007 in the amount of $796, which all relate to goods or services. As of December 31, 2006, our non-cancelable purchase obligations for 2008 were $4, and we had no non-cancelable purchase obligations for 2009 and thereafter.
          In May 2006, we entered into an employment agreement with our chief executive officer, George J. Vergis, Ph.D. Under the terms of the agreement we are required to pay Dr. Vergis an annual base salary of at least $350 for continuing his employment with us. In addition, if Dr. Vergis remains employed by us through the earlier of (i) the date of payment by us of fiscal 2006 annual bonuses to senior executives or (ii) March 15, 2007, Dr. Vergis’ annual bonus for the 2006 calendar year will not be less than $105.

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Table of Contents

Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
Note 14. Income Taxes
          We had no income taxes payable as of December 31, 2006 and 2005. As of December 31, 2006, we had $115,475 of federal and $60,777 of state net operating loss (NOL) carryforwards potentially available to offset future taxable income. As of December 31, 2006, our federal NOL carryforward included $8,999 related to equity-based compensation, which will be recorded as additional paid-in capital upon recognition of the tax benefit associated with these deductions. As of December 31, 2006, we had federal and state research and development tax credit carryforwards of $7,716 and $1,172, respectively, potentially available to offset future taxable income.
          The Tax Reform Act of 1986 (Tax Reform Act) provided for a limitation on the annual use of NOL and research and development tax credit carryforwards following certain ownership changes. Because we may have experienced various ownership changes, as defined by the Tax Reform Act, as a result of past equity financings, our ability to utilize federal NOL and credit carryforwards in any given year may be limited. In addition, federal tax law limits the time during which carryforwards may be applied against future taxes, and Pennsylvania tax law limits the utilization of state NOL carryforwards to $3,000 annually. Therefore, we may not be able to take full advantage of these carryforwards to offset future taxable income. The federal and state NOL and tax credit carryforwards will expire as follows:
                                 
    Net operating loss     Research and development  
    carryforwards     tax credit carryforwards  
    Federal     State     Federal     State  
2007
   $ 2,147     $ 777     $ 41     $ ¾  
2008
     638       ¾       146       ¾  
2009
     385       ¾       207       ¾  
2010
     110       ¾       83       ¾  
2011
     150       ¾       104       ¾  
Thereafter
     112,045       60,000       7,135       1,172  
 
                        
 
   $ 115,475     $ 60,777     $ 7,716     $ 1,172  
 
                        

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Table of Contents

Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
     We have incurred a loss in each period since our inception. Due to the uncertainty surrounding the realization of the tax benefit associated with our federal and state carryforwards, we have provided a full valuation allowance against these tax benefits. The approximate income tax effect of each type of carryforward and temporary difference is as follows:
                         
    Current     Noncurrent     Total  
December 31, 2006
                        
Net operating loss carryforwards
   $ ¾     $ 43,269     $ 43,269  
Research and development tax credit carryforwards
     ¾       8,888       8,888  
Capitalized research and development expenses
     ¾       51,862       51,862  
Property and equipment
     ¾       1,448       1,448  
Capitalized start-up costs
     3,404       ¾       3,404  
Deferred revenue
     262       1,757       2,019  
Deferred compensation
     ¾       1,461       1,461  
Impairment of equity securities
     ¾       647       647  
Accrued expenses not currently deductible
     538       219       757  
 
                  
Total deferred tax assets
     4,204       109,551       113,755  
Less valuation allowance
     (4,204 )     (109,551 )     (113,755 )
 
                  
Net deferred tax assets
   $ ¾     $ ¾     $ ¾  
 
                  
 
                        
December 31, 2005
                        
Net operating loss carryforwards
   $ ¾     $ 36,145     $ 36,145  
Research and development tax credit carryforwards
     ¾       7,491       7,491  
Capitalized research and development expenses
     ¾       42,058       42,058  
Capitalized start-up costs
     ¾       6,808       6,808  
Property and equipment
     ¾       8,587       8,587  
Deferred revenue
     254       1,528       1,782  
Deferred compensation
     ¾       1,283       1,283  
Impairment of equity securities
     ¾       647       647  
Accrued expenses not currently deductible
     401       198       599  
 
                  
Total deferred tax assets
     655       104,745       105,400  
Less valuation allowance
     (655 )     (104,745 )     (105,400 )
 
                  
Net deferred tax assets
   $ ¾     $ ¾     $ ¾  
 
                  

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Neose Technologies, Inc.
Notes to Financial Statements
(in thousands, except per share amounts)
Note 15. Quarterly Data (unaudited)
          The following tables summarize our quarterly results of operations for each of the quarters in 2006 and 2005. Our operating expenses and net loss for the third quarter of 2005 included $14,002 of restructuring charges (see Note 12), including $13,187 of non-cash property and equipment impairment charges (see Note 5) and $815 of payments for employee severance costs. These quarterly results are unaudited, but in the opinion of management have been prepared on the same basis as our audited financial information and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our results of operations.
                                         
    2006 Results  
    First     Second     Third     Fourth     Full  
    quarter     quarter     quarter     quarter     year  
Revenue from collaborative agreements
   $ 2,396     $ 1,715     $ 1,477     $ 596     $ 6,184  
Operating expenses
     10,239       10,145       9,839       10,341       40,564  
Gain on sale of Witmer Road Facility
     ¾       ¾       7,335       (2 )     7,333  
 
                              
Operating loss
     (7,843 )     (8,430 )     (1,027 )     (9,747 )     (27,047 )
Interest income (expense), net
     58       (17 )     (323 )     222       (60 )
 
                              
Net loss
   $ (7,785 )   $ (8,447 )   $ (1,350 )   $ (9,525 )   $ (27,107 )
 
                              
Basic and diluted net loss per share
   $ (0.24 )   $ (0.26 )   $ (0.04 )   $ (0.29 )   $ (0.82 )*
 
                              
Weighted-average shares outstanding used in computing basic and diluted net loss per share
     32,783       32,804       32,866       32,972       32,857  
 
                              
                                         
    2005 Results  
    First     Second     Third     Fourth     Full  
    quarter     quarter     quarter     quarter     year  
Revenue from collaborative agreements
   $ 1,348     $ 1,420     $ 1,503     $ 1,866     $ 6,137  
Operating expenses
     12,603       11,793       24,208       9,616       58,220  
 
                              
Operating loss
     (11,255 )     (10,373 )     (22,705 )     (7,750 )     (52,083 )
Other income
     22       ¾       ¾       ¾       22  
Interest income (expense), net
     (34 )     88       84       84       222  
 
                              
Net loss
   $ (11,267 )   $ (10,285 )   $ (22,621 )   $ (7,666 )   $ (51,839 )
 
                              
Basic and diluted net loss per share
   $ (0.40 )   $ (0.31 )   $ (0.69 )   $ (0.23 )   $ (1.64 )*
 
                              
Weighted-average shares outstanding used in computing basic and diluted net loss per share
     27,947       32,782       32,782       32,782       31,590  
 
                              
 
*   The net loss per share in each quarter is computed using the weighted-average number of shares outstanding during the quarter. The net loss per share for the full year, however, is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the quarterly net loss per share amounts does not equal the full-year net loss per share.

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Table of Contents

Exhibit Index
     
Exhibit   Description
 
 
    
10.41 #
  Amendment Number 1 to Research, Co-Development and Commercialization Agreement and Research License and Option Agreement between Neose Technologies, Inc. and BioGeneriX AG dated October 20, 2006.
 
    
10.42 #
  Amended and Restated Research, Development and License Agreement among Neose Technologies, Inc. and Novo Nordisk A/S and Novo Nordisk Health Care AG dated October 31, 2006.
 
    
10.43 #
  Bioprocessing Services Agreement by and between Neose Technologies, Inc. and Diosynth RTP Inc. dated December 7, 2006.
 
    
10.44
  Commercial Premium Finance Agreement and Promissory Note from Neose Technologies, Inc. to AFCO Credit Corporation dated March 6, 2007.
 
    
23.1
  Consent of KPMG LLP.
 
    
24
  Powers of Attorney (included as part of signature page hereof).
 
    
31.1
  Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
31.2
  Certification by Chief Financial Officer pursuant to Rule 13-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
32.1
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
    
32.2
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
#   Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.

EX-10.41 2 w32002exv10w41.htm AMENDMENT NO. 1 TO RESEARCH, CO-DEVELOPMENT AND COMMERCIALIZATION AGREEMENT exv10w41
 

Exhibit 10.41
Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Such portions are marked by a series of asterisks.
Amendment Number 1
to Research, Co-Development
and Commercialization Agreement and Research License and Option
Agreement
     This Amendment Number 1 (the “Amendment”) to the Collaboration Agreement and the License Agreement (both as defined below) is effective as of October 20, 2006 (the “Effective Date”), and is by and between BioGeneriX AG, a corporation organized under the laws of the Federal Republic of Germany (“BioGeneriX”), and Neose Technologies, Inc., a corporation organized and existing under the laws of the state of Delaware (“Neose”).
Background
     BioGeneriX and Neose entered into a Research, Co-Development and Commercialization Agreement dated April 20, 2004 (the “Collaboration Agreement”), pursuant to which BioGeneriX and Neose are collaborating to develop a next-generation G-CSF. BioGeneriX and Neose entered into a Research, License and Option Agreement dated April 27, 2005 (the “License Agreement”), pursuant to which BioGeneriX has the option to license certain technology for the development and commercialization of an undisclosed protein. The Collaboration Agreement and the License Agreement are sometimes referred to collectively as the “Agreements.”
     Neose and BioGeneriX desire to amend both Agreements as set forth herein. All capitalized terms used in this Amendment and not otherwise defined shall have the meanings set forth in the Collaboration Agreement, unless otherwise indicated.
Terms
     Now, therefore, intending to be legally bound, the parties hereto agree as follows:
1. Extension of BioGeneriX Decision Date.
     1.1. Section 1.4. Section 1.4 of the Collaboration Agreement is hereby amended and restated in full to read as follows:
“BioGeneriX Decision Date” means December 31, 2006.
     1.2. Section 24.2. Section 24.2 of the Collaboration Agreement is hereby amended by deleting the first sentence and replacing it with the following:
 
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          “This Agreement may be terminated by BioGeneriX by written notice to Neose on the BioGeneriX Decision Date.”
     1.3. Section 24.4.2. Section 24.4.2 of the Collaboration Agreement is hereby deleted.
2. Extension of Option Expiration Date. Section 1.30 of the License Agreement is hereby amended and restated in full to read as follows:
          “1.30. “Option Expiration Date” means December 31, 2006.”
3. Diligence Requirements.
     3.1. Termination by Neose. Neose shall have the right to terminate either or both of the Collaboration Agreement and the License Agreement (provided that the License Agreement may be so terminated only if the Option, as defined therein, has not been exercised in accordance with the License Agreement), effective immediately upon notice to BioGeneriX, if any of the events listed in Section 3.1.1 through Section 3.1.6 occurs. In the event Neose terminates the Collaboration Agreement, Neose shall, at its election and upon written notice to BioGeneriX, be a “Continuing Licensee” for purposes of Section 24 of the Collaboration Agreement, with the rights and obligations set forth therein.
            3.1.1. The first patient in the first Phase I clinical trial is not dosed on or before the earlier of (i) the 30th day following ****** approval and (ii) December 31, 2006.
            3.1.2. The first ******.
            3.1.3. The safety ******.
            3.1.4. The ******.
            3.1.5. A full and complete ******.
            3.1.6. The first ******.
     3.2. Effect of Termination. If the Agreement is terminated for any reason, including without limitation a termination by Neose pursuant to Section 3.1 of this Amendment or by BioGeneriX on the BioGeneriX Decision Date, the diligence requirements listed in Section 3.1 and BioGeneriX’s obligation in Section 4 of this Amendment will terminate effective upon such termination.
     3.3. Effect of Failure to Meet Diligence Requirements. The failure of BioGeneriX to meet any diligence requirement will not constitute a breach of the Agreement.
 
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     3.4. Effect of Delay in Process Reagents. If a diligence requirement is missed because of the failure of Neose to supply reasonable quantities of process reagents of appropriate quality as described below:
         
Reagent   Supplier   Quality
******
  ******   ******
******
  ******   ******
******
  ******   ******
******
  ******   ******
the date for completion of the diligence requirement will be extended by the amount of the delay caused by the delay in delivery.
4. Cost of Process Reagents. From and after January 1, 2007, BioGeneriX will pay for the cost of the process reagents to be supplied by Neose pursuant to Section 6.2.4 of the Collaboration Agreement. For the purpose of this Section 4, “cost” shall mean ******
5. Sharing of Information. With respect to Next-Generation G-CSF, BioGeneriX will provide to Neose copies of (i) all preclinical data and reports not already provided to Neose within 10 days after receipt; (ii) all clinical data, including all raw data and data tables, and reports within 10 days after receipt at BioGeneriX, ******, whichever occurs first; (iii) all written correspondence and minutes of oral communications with regulatory authorities; (iv) serious adverse event reports either within 2 working days after receipt at BioGeneriX, or simultaneous with notice to BioGeneriX by ******, whichever occurs first; and (v) copies of all regulatory authority correspondence from BioGeneriX, ****** within 5 working days after submission.
6. Confirmation of Preclinical Development Completion Date. With respect to Next-Generation G-CSF Neose and BioGeneriX agree that Preclinical Development shall have been completed as of ******.
7. Notices. Any notice, consent or report (each, a “Notice”) required or permitted to be given by either Party under this Agreement shall be in writing and shall be either personally delivered or sent by facsimile (confirmed by internationally-recognized express courier), or by internationally-recognized express courier (such as Federal Express or DHL), to the other Party at its address set forth below, or such new address as may from time to time be supplied under this Agreement by a Party. Except as otherwise set forth in this Agreement, any Notice shall be effective upon receipt by the addressee. Provided that all postage or delivery charges are prepaid in full by the sender and the Notice has been addressed as set forth in this Agreement:
     7.1. if such Notice is sent by facsimile (confirmed by internationally recognized express courier, which confirmation includes a copy of the report showing the
 
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date and time of transmission), then the Notice shall be deemed to be received upon transmission (if transmitted on a business day) or the next business day following transmission; and
     7.2. if such Notice is personally delivered or sent by internationally-recognized express courier, then the Notice shall be deemed to be received three business days after deposit with the courier service.
 
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If to BioGeneriX:
  BioGeneriX AG
 
  High-Tech-Park Neckarau
 
  Janderstrasse 3
 
  D-68199 Mannheim
 
  Germany
 
  Attention: Chief Financial Officer
 
    
If to Neose:
  Neose Technologies, Inc.
 
  102 Witmer Road
 
  Horsham, PA 19044
 
  USA
 
  Attention: General Counsel
8. No Other Changes. Except as expressly modified in this Amendment or as is inconsistent with the terms of this Amendment, the Collaboration Agreement and License Agreement shall remain unchanged and in full force and effect.
9. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be an original and all of which, together, shall constitute the same document.
[signature page follows]
 
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          In witness whereof, the parties have executed this Amendment as of the Effective Date.
             
    Neose Technologies, Inc.
 
            
 
  By:   /s/ George J. Vergis    
 
      George J. Vergis, Ph.D.    
 
      President and Chief Executive Officer    
 
            
 
            
    BioGeneriX AG
 
            
 
  By:   /s/ Elmar Schäfer    
 
      Name: Elmar Schäfer    
 
      Title: CEO    
 
            
 
  By:   /s/ Klaus Maleck    
 
      Name: Dr. Klaus Maleck, MBA    
 
      Title: CFO and Vice President Bus. Dev.    

 

EX-10.42 3 w32002exv10w42.htm AMENDED AND RESTATED RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT exv10w42
 

Exhibit 10.42
Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Such portions are marked by a series of asterisks.
Execution Copy
AMENDED AND RESTATED
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
AMONG
NEOSE TECHNOLOGIES, INC.
AND
NOVO NORDISK A/S
AND
NOVO NORDISK HEALTH CARE AG
DATED AS OF OCTOBER 31, 2006
 
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Table of Contents
         
    Page  
1. DEFINITIONS
     1  
2. CONDUCT OF THE PROJECT AND COMMERCIALIZATION EFFORTS
     8  
3. FEES AND DEVELOPMENT PAYMENTS
     10  
4. PRODUCT PAYMENTS AND ROYALTIES
     13  
5. INTELLECTUAL PROPERTY GRANTS AND RIGHT OF NEGOTIATION
     15  
6. OWNERSHIP OF INTELLECTUAL PROPERTY
     17  
7. BLOCKING PATENTS
     27  
8. SUPPLY AGREEMENT
     28  
9. CONFIDENTIALITY
     28  
10. REPRESENTATIONS AND WARRANTIES
     30  
11. INDEMNIFICATIONS AND LIMITED LIABILITY
     31  
12. TERM AND TERMINATION
     33  
13. DISPUTE RESOLUTION
     35  
14. GOVERNMENT APPROVAL
     35  
15. NEGATIVE COVENANTS
     36  
16. MUTUAL COOPERATION
     37  
17. MISCELLANEOUS
     37  
 
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AMENDED AND RESTATED
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
     This AMENDED AND RESTATED RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT (“Agreement”), is dated as of October 31, 2006 (the “Restatement Date”), among Neose Technologies, Inc., a Delaware corporation (“Neose”), and Novo Nordisk A/S, a Danish corporation, and Novo Nordisk Health Care AG, a Swiss Corporation (collectively, “Novo”).
BACKGROUND
     Neose and Novo are parties to two Research, Development and License Agreements, dated September 30, 2002 and October 28, 2002, respectively, relating to the use of Neose’s technologies on Novo’s recombinant human Factor VII and Factor VIIa. Additionally, Novo and Neose entered into a Research, Development and License Agreement dated November 17, 2003, as amended by letter agreements dated December 18, 2003 and October 12, 2004 and by Amendment Number 3 dated December 15, 2005 (collectively, the “Amendments”), respectively (as so amended, the “Original Agreement”), pursuant to which Novo and Neose are collaborating to develop a long-acting Factor VII compound.
     Novo and Neose desire to amend and restate the Original Agreement to further amend the Original Agreement and to incorporate all of the Amendments into one document.
     Contemporaneously with the execution and delivery of the Original Agreement, Neose and Novo entered into another Research, Development and License agreement regarding coagulation Factors VIII and IX.
TERMS
     NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained in this Agreement, and intending to be legally bound hereby, Novo and Neose agree as follows:
     1. DEFINITIONS. Capitalized terms not otherwise defined shall have the meaning set forth in this Section 1.
          1.1 “******” means any New Product that incorporates a ******.
          1.2 “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. Without limiting the foregoing, a Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, more than fifty percent (50%) of the voting stock or other ownership interest of the other Person.
          1.3 “Blocking Patent” means any Patent Rights claimed to be owned or Controlled by a Third Party with respect to which Patent Rights an assertion is being made by or on behalf of the Third Party that the use of the Neose Technology under this Agreement infringes such Person’s Patent Rights.
 
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          1.4 “Calendar Quarter” means any of the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31 during the Term.
          1.5 “Calendar Year” shall mean the respective periods of twelve (12) consecutive calendar months ending on December 31 during the Term.
          1.6 “Carved Factor VII Claims” shall mean any Potential Carved Factor VII Claim with respect to which the parties have filed, in accordance with Section 6.4.2, a separate patent application.
          1.7 “Commercially Reasonable Efforts” shall mean efforts and resources normally used by a Party in similar undertakings, taking into account the proprietary position of the product or technology involved, the regulatory structure involved, the profitability of such undertaking, the competitiveness of the relevant marketplace, and other relevant factors.
          1.8 “Commercial Sale” means any sale of a New Product by Novo, its Affiliates, or Sublicensees to a Person other than their respective Affiliates or Neose.
          1.9 “Confidential Information” shall mean any of the Disclosing Party’s proprietary or confidential information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, the identity of the Novo Materials, information relating to the Novo Materials, service plans, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, distribution and sales methods and systems, sales and profit figures, finances and other business information disclosed to the Recipient by or on behalf of the Disclosing Party, either directly or indirectly, in writing, orally or by drawings or inspection of documents or other tangible property.
          1.10 “Control” or “Controlled” means possession of the ability of one party to grant the licenses or sublicenses to the other party as provided for herein without violating the terms of an agreement or other arrangement with a Third Party existing before or after the Effective Date.
          1.11 “Designated Representative” means, in the case of Neose, its President and Chief Executive Officer, or such other person designated by Neose in writing from time to time to Novo, and, in the case of Novo, its Executive Vice President and Chief Science Officer, or other such other person designated by Novo in writing from time to time to Neose.
          1.12 “Disclosing Party” is used as defined in Section 9.1.
          1.13 “Effective Date” shall mean the date of execution of the Original Agreement by both Parties.
 
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          1.14 “Factor VIII and IX Agreement” means the Research, Development and License Agreement between Neose and Novo with respect to coagulation Factor VIII and IX, entered into contemporaneously with the execution of the Original Agreement.
          1.15 “FDA” means the United States Food and Drug Administration and any successor agency.
          1.16 “Field of Use” means the development and commercial manufacture of New Product for ******.
          1.17 “GMPs” shall mean current good manufacturing practices for the methods to be used in, and the facilities and controls to be used for, the manufacture, processing, packing and holding of biological products, all as set forth from time to time by the FDA, including all amendments and supplements thereto throughout the term of this Agreement.
          1.18 “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
          1.19 “Improvements” means any and all developments, discoveries, inventions, additions, amendments, modifications, ideas, processes, methods, compositions, formulae, techniques, information and data, whether or not patentable, conceived, developed or reduced to practice, that improve or beneficially change, or enhance the economic and technical attributes of, any Know-How or Patent Rights or any process, device or composition.
          1.20 “IND” means an application for an Investigational Exemption for a New Drug filed with the FDA, or any comparable filing made with a regulatory authority outside the United States.
          1.21 “Joint Improvements” means any and all Improvements made, conceived or reduced to practice jointly by Neose and Novo in the conduct of the Work Plan under this Agreement, whether patentable or not, other than Neose Improvements and Novo Improvements.
          1.22 “Know-How” means any and all formulae, procedures, processes, methods, designs, know-how, show-how, trade secrets, discoveries, inventions (whether or not patentable), patent applications, licenses, software and source code, programs, prototypes, designs, discoveries, techniques, methods, ideas, concepts, data, engineering and manufacturing information, electronic control circuits, specifications, diagrams, drawings, schematics, blueprints and parts lists and other proprietary information, rights and works of authorship, whether or not reduced to writing.
          1.23 “M1 Profile for the New Product” means the parameters for candidate selection required for PEG-F7a set forth on Exhibit 1.23, as amended from time to time in accordance with Section 2.2.
          1.24 “Mutual Nondisclosure Agreement” means the Amended and Restated Mutual Nondisclosure Agreement between the Parties dated November 25, 2002.
          1.25 “Neose Exclusive Compounds” shall mean any and all forms of ****** including, but not limited to, with respect to either of the foregoing: full length proteins, truncated proteins, fusion proteins, analogs, mutants, splice variants, and conjugates with other molecular entities such as proteins, peptides, organic or inorganic substances.
 
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          1.26 “Neose Improvements” means any and all Improvements relating to the Neose Technology made, conceived, or reduced to practice by (i) either Neose or Novo or both in the conduct of the Work Plan under this Agreement, (ii) either Neose or Novo or both under this Agreement, (iii) Novo in the practice of any Neose Technology under the licenses granted to Novo in Section 5.1, or (iv) Novo in the conduct of any activity using any Ownership Rights assigned to Novo pursuant to Section 6.4.1, in each case of (i), (ii), (iii) or (iv), other than the Novo Materials, the Novo Materials modified using the Neose Technology and New Product. Specifically excluded from “Neose Improvements” are (1) formulations, combinations and methods of treatment to the extent relating to Novo Materials, the Novo Materials modified using the Neose Technology and New Products and (2) analytical techniques and purification methods invented, developed or reduced to practice solely by Novo that did not originate from or are not derived from Neose (collectively, the “Techniques”)
          1.27 “Neose Improvement Claim” shall mean any Neose License Claim that relates to a Neose Improvement.
          1.28 “Neose Intellectual Property” means Neose Technology and the Neose Improvements.
          1.29 “Neose License Claim” shall mean a claim in or supportable by Patent Rights listed in Section 16.2 (including any Patent Rights claiming priority to such listed rights) and Controlled by Novo encompassing within its scope: (i) any methods of ******; (ii) any compositions-of-matter or methods of treatment specifically naming Neose Exclusive Compounds derived from or used in the practice of such methods described in clause (i) above; (iii) any compositions-of-matter or methods of treatment related to any compound other than the Neose Exclusive Compounds, any and all forms of ******, or Novo Materials derived from or used in the practice of such methods described in clause (i) above; wherein any claim encompassed by clauses (i), (ii) or (iii) must also be encompassed within the scope of a claim supportable by any Patent Right listed in the listing of patents and patent applications dated October 13, 2006 which has been certified by Neose and delivered to Novo prior to the date hereof; or (iv) any Neose Improvements made or reduced to practice by Novo.
          1.30 “Neose Patents” means (a) all Patent Rights relating to methods and processes for glycosylation design and remodeling of proteins, peptides and antibodies that are Controlled by Neose, including, but not limited to: (i) the Patent Rights listed in Exhibit 1.30, (ii) the Patent Rights developed by Neose in the conduct of the Work Plan during the Term of this Agreement, and (iii) any later acquired Patent Rights Controlled by Neose and used to develop any New Product, and (b) all Patent Rights Controlled by Neose that would be infringed by the research, development (including clinical development), manufacture, making, use, marketing, promotion, sale, offer for sale, distribution, import and export of New Products in the Territory.
 
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          1.31 “Neose Project-Related Costs” means Neose’s costs of conducting the Work Plan, which shall be determined in accordance with this Agreement and calculated as follows: (i) with respect to personnel, at the rate of ******; and (ii) with respect to materials, at the ******.
          1.32 “Neose Technology” means the Neose Patents and any Know-How Controlled by Neose relating to methods and processes for the ******, including, without limitation, its GlycoAdvance®, GlycoPEGylation™ and GlycoConjugation™ technologies, and other ****** processes, and all Know-How resulting from work conducted by Neose during the Term.
          1.33 “Net Sales” means proceeds from Commercial Sales of New Products by Novo, its Affiliates or Sublicensees to Third Parties, after deducting (to the extent actually incurred or reasonably estimated and accrued in accordance with Generally Accepted Accounting Principles in the United States and to the extent not already deducted in the amount invoiced): (i) reasonable trade, cash and quantity discounts or rebates (other than price discounts granted at the time of sale), reasonable service allowances and reasonable required agent’s commissions, if any, allowed or paid, (ii) credits or allowances actually given or made for rejection or return of previously sold products or for retroactive price reductions (including Medicare, Medicaid, and/or discounts and similar types or rebates and/or discounts), (iii) taxes, duties or other governmental charges levied on or measured by the billing amount (excluding income and franchise taxes), as adjusted for rebates and refunds, and (iv) charges actually incurred for freight and insurance directly related to the distribution of New Products (excluding amounts reimbursed by Third Party customers). A “Commercial Sale of a New Product” is deemed to occur when the invoice is issued, or if no invoice is issued, upon the earlier of shipment or transfer of title in the New Product to a Third Party. In the event that New Product is sold or distributed for use in combination with or as a component of another product or products (a “Combination Product”), the calculation of Net Sales from such Combination Product shall be determined as set forth below:
If all of the active ingredient components of a Combination Product are also sold separately and in identical strengths to those contained in the Combination Product, then the following shall apply: Net Sales shall be calculated as set forth above on the basis of the gross invoice price of a New Product containing the same weight of the licensed active ingredient constituent sold independently [A], divided by the sum of the gross invoice price of all of the active ingredient constituents sold independently [B + A], multiplied by the gross invoice price of the Combination Product, as shown by the following formula:
             
 
  Net Sales =   [A]   x [gross invoice price of the Combination Product]
 
           
 
      [B + A]    
The distribution costs associated with any Combination Product will be allocated in the same proportion among the licensed active ingredient components and all other active ingredient components.
 
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If the active ingredient components of a Combination Product are not sole separately in identical strengths to those contained in the Combination Product, then the parties agree to negotiate in good faith the calculation of Net Sales with regard to such Combination Product.
          1.34 “New Product” shall mean the following: (a) any of the Novo Materials modified using either (i) the Neose Technology, (ii) any Neose Improvements, or (iii) any combination of all or some of (i) and (ii) above, and (b) any Novo Materials covered by any Carved Factor VII Claims (except to the extent such claims constitute Novo Improvements) .
          1.35 “Novo Improvements” means any and all Improvements that are related to the Novo Materials and/or any of the New Products made, conceived or reduced to practice by Novo or Neose or both, other than Neose Improvements.
          1.36 “Novo Materials” means any and all forms of Factor VII and Factor VIIa, including, but not limited to, full length rFVII, truncated rFVII, ****** such as ****** substances.
          1.37 “Novo Technology” means the Patent Rights and Know-How Controlled by Novo relating to the Novo Materials .
          1.38 “Ownership Rights” means any and all right, title and interest under patent, copyright, trade secret and trademark law, or any other intellectual property or other law, in and to any Know-How, Patent Rights, or Improvements.
          1.39 “Parties” means Neose and Novo, collectively.
          1.40 “Party” means Neose or Novo, as the context requires, or each of Neose and Novo, individually.
          1.41 “Patent Rights” shall mean individually and collectively any and all patents and/or patent applications and provisional applications, all inventions disclosed therein, and any and all continuations, continuations-in-part, continued prosecution applications, divisions, renewals, patents of addition, reissues, confirmations, registrations, revalidations, revisions and re-examinations thereof, utility models, petty patents, design registrations and any and all patents issuing therefrom and any and all foreign counterparts thereof and extensions of any of the foregoing including without limitation extensions under the U.S. Patent Term Restoration Act, extensions under the Japanese Patent Law, and Supplementary Protection Certificates (SPCs) according to Counsel Regulation (EEC) No. 1768/92 and similar extensions for other patents under any applicable law in any country of the world.
          1.42 “Permit” means any governmental or regulatory filing, submission, approval, permit or license that is required by applicable law in any jurisdiction worldwide for clinical trials, Commercial Sales or other use of any of the New Products.
          1.43 “Person” means an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, government, governmental agency, authority or instrumentality, or any other form of entity not specifically listed in this Agreement.
 
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          1.44 “Potential Carved Factor VII Claims” shall mean ******.
          1.45 “Product-Candidate” means any new ****** product-candidate Controlled by Neose during the Term.
          1.46 “Project” means the project to be conducted hereunder by the Parties in accordance with the Work Plan.
          1.47 “Project Manager” means the project managers described in Section 2.4.1.
          1.48 “Reagents” means the enzymes and sugar nucleotides required to use the Neose Technology in the manufacture of New Products.
          1.49 “Recipient” is used as defined in Section 9.1.
          1.50 “Regulated Market” means any jurisdiction worldwide that requires a Permit for clinical trials, Commercial Sales or any other use of a New Product.
          1.51 “Regulatory Approval” means any marketing authorization (including authorizations approving a Biologics License Application) required for a New Product, exclusive of any pricing or third-party reimbursement approval.
          1.52 “Required Agreement” means any agreement with a Sublicensee required under Section 5.1.3.
          1.53 “******”******.
          1.54 “Steering Committee” means the steering committee established pursuant to Section 2.4.2, or any successor group appointed by the Parties.
          1.55 “Sublicensee” means a sublicensee of Novo’s rights under Section 5.
          1.56 “Supply Agreement” means the supply agreement to be entered into between Neose and Novo in accordance with Section 8.
          1.57 “Territory” means the world.
          1.58 “Term” means the term of this Agreement, which shall commence on the Restatement Date and shall expire or terminate as described in Section 12.
          1.59 “Third Party” means any Person other than Novo, Neose, or their respective Affiliates.
          1.60 “Valid Patent Claim” means a claim of an issued and unexpired patent forming part of the Neose Patents or the Carved Factor VII Claims that has not been held revoked, unenforceable or invalid by a decision of a court or other government agency of competent jurisdiction, or unappealable or unappealed within the time allowed for appeal, or which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. For the purposes of determining royalties due and payment obligations under this Agreement, any claim being prosecuted in a pending patent application included in the Neose Patents or the Carved Factor VII Claims shall be deemed a Valid Patent Claim, provided that such claim is not pending, other
 
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than because of any action taken by Novo or Affiliate of Novo, ****** in which the subject matter of the claim is disclosed, after which period it shall cease to be considered a Valid Patent Claim until the patent issues.
          1.61 “Work Plan” means the Work Plan attached hereto as Exhibit 2.2, and, unless otherwise specified, as amended from time to time in accordance with Section 2.2.
     2. CONDUCT OF THE PROJECT AND COMMERCIALIZATION EFFORTS
          2.1 Conduct. Commencing promptly after the Restatement Date, Neose and Novo will continue to use Commercially Reasonable Efforts to carry out their respective obligations under the Work Plan.
          2.2 Creation and Modification of Work Plan. Attached hereto as Exhibit 2.2 is the Work Plan, setting forth a project summary and timetable for the research and development, scale-up and technology transfer activities to be conducted under this Agreement. Neose shall be responsible for the development of validated, GMP processes for the production of Reagents for use in the manufacture of New Products and protocols for the use of the Reagents in the manufacture of New Products by Novo, all as set forth in Exhibit 2.2. The Work Plan may be amended or modified from time to time, but only in a writing signed by each Party’s Designated Representative and specifying the Parties’ estimate of any additional Neose Project-Related Costs that will be paid by Novo as a result of such amendment.
          2.3 Funding.
               2.3.1 Estimate. The Neose Project-Related Costs are estimated to be ******, plus the cost of materials. This estimate is based upon the Work Plan set forth in Exhibit 2.2. If the Parties amend the Work Plan in a manner that requires any new product or service to be provided by Neose (e.g., a new Reagent, expression system, scale up activity) which is not currently incorporated in the Work Plan, the Parties shall agree in writing on any increase in the Neose Project-Related Costs that are authorized in connection with such amendment.
               2.3.2 Payment. Novo will pay for the Neose Project-Related Costs ******. No earlier than thirty (30) days before the beginning of each Calendar Quarter following the Restatement Date, Neose will invoice Novo for such amount based on a budgeted estimate of Neose Project-Related Costs for such Calendar Quarter. Within thirty (30) days after the end of each Calendar Quarter, Neose shall submit to Novo a written report setting forth the actual Neose Project-Related Costs for such Calendar Quarter, and shall, as applicable, pay to Novo any amounts paid by Novo for such Calendar Quarter in excess of the actual Neose Project-Related Costs shown in such report, or invoice Novo for any additional amounts owed hereunder. Novo will pay all invoices delivered under this Section 2.3 within ****** days after receipt.
 
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          2.4 Management of Project
               2.4.1 Project Managers. The Project Managers existing as of the Restatement Date are Henning Stennicke for Novo and Megan Townsend for Neose and each shall remain the Project Managers immediately following the Restatement Date. The Project Managers shall keep each other reasonably informed of the progress under the Work Plan and shall be responsible for maintaining appropriate records of the deliberations and decisions of the Project Managers and the Steering Committee. The Project Managers shall be responsible for overseeing and directing the day-to-day activities conducted at their respective sites in accordance with the Work Plan and suggesting changes for consideration by the Steering Committee. A Party may change its Project Manager at any time, and from time to time, effective upon notice to the other Party of such change.
               2.4.2 Establishment and Responsibilities of Steering Committee. As of the Restatement Date the Steering Committee will consist of Søren Bjørn, Peter Nielsen and Ulla Grove Sidelman representing Novo and David A. Zopf, M.D., Kathryn J. Gregory and Elliot Morales, Jr. representing Neose. The responsibilities of the Steering Committee are to monitor the progress of the Work Plan, to evaluate and recommend to the Parties any proposed amendments or modifications to the Work Plan and the costs thereof, to approve and monitor compliance with any publication policy provided to it by Novo, and to carry out all other obligations assigned to it under this Agreement or by the Parties. Each Party may designate a co-chairperson and secretary of the Steering Committee.
               2.4.3 Action by Steering Committee and Dispute Resolution. The Steering Committee shall consist of such number of members and alternate members as the Parties may determine from time to time. Each Party shall appoint fifty percent (50%) of the permanent and alternate members of the Steering Committee. The members of the Steering Committee shall include members of senior management of each Party. The members of the Steering Committee representing a Party and present at a meeting shall have one vote, collectively. If the Steering Committee cannot reach agreement on any matter, ****** shall be entitled to ******; provided, however, that if the Steering Committee cannot reach agreement on any matter involving a change in the scope of work to be conducted by ****** under the Work Plan, the schedule of the work to be conducted by ****** under the Work Plan, or the ******, such dispute shall resolved in accordance with Section 13.
               2.4.4 Changes to Steering Committee. Each Party may remove and replace its representatives on the Steering Committee at any time, without cause, upon written notice to the other Party. An alternate member designated by a Party shall be entitled to participate in the absence of a permanent member designated by such Party. All references to “members” in this Agreement refer to the then permanent members of the Steering Committee and any alternate member acting in the place of a permanent member.
               2.4.5 Meetings. Regular meetings of the Steering Committee shall be scheduled by the Project Managers or the secretary of the Steering Committee designated by either Party. Special meetings of the Steering Committee may be called by the Project Managers or by
 
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any two or more members, at least one of whom represents each Party. Meetings may be in person or by teleconference or videoconference, and notice of meetings may be by email. Each Party will bear its own costs in connection with the management of the Project and the Steering Committee.
               2.4.6 No Waiver. No action, nor any failure to act, by the Steering Committee shall alter, amend, waive or otherwise affect the obligations of the Parties under this Agreement. The Parties may amend this Agreement only in accordance with Section 15.6, and a Party may waive any of its rights under this Agreement only in accordance with Section 15.9.
          2.5 Cooperation. Throughout the Project, each Party shall cooperate with the other in the conduct of the Work Plan, and will provide such information in its possession or under its Control to the other Party as is reasonably necessary for the other Party to comply with and satisfy the requirements of any and all international, national, state, local or other laws, treaties, rules, procedures or regulations for purposes of this Agreement, or to carry out its obligations under this Agreement.
          2.6 Permits. Prior to the commencement of any clinical trials, Commercial Sales or other use of any New Product in a Regulated Market, Novo shall obtain at its expense all Permits required for such activity in the applicable jurisdictions. Novo shall submit all applications for Permits for the New Products in the name of Novo or its Affiliates. Novo shall hold all such Permits, if and when granted, in its name alone. Neose, at Novo’s expense, shall provide reasonable assistance and technical support to Novo in obtaining the Permits for the New Products. Novo shall pay all expenses with respect to obtaining the Permits for the New Products including, without limitation, the cost of clinical trials and preparation and prosecution of permit applications. Novo shall be solely responsible for renewing any Permits at its expense. Neose shall supply Novo, at Novo’s expense, with Reagents for producing New Products under the terms and conditions of the Supply Agreement.
          2.7 Additional Development and Commercialization Activities. Except as set forth in the Work Plan or the Supply Agreement, Neose shall not have any obligation to perform any further research, development, technology transfer, technical support, improvements, modifications, or other activities. Novo shall use Commercially Reasonable Efforts to obtain Regulatory Approvals for, and Commercial Sales of, each New Product.
     3. FEES AND DEVELOPMENT PAYMENTS
          3.1 License Fee. In consideration of the licenses granted by Neose under this Agreement and the Factor VIII and IX Agreement, Novo paid Neose a one-time, nonrefundable upfront fee of ****** within ten (10) days after the Effective Date.
          3.2 Milestone Payments Relating to Development of the New Product. In consideration of the development efforts of Neose under the Work Plan, Novo shall pay Neose the amount of each milestone payment set forth in this Section 3.2 with respect to the development of the New Product. With respect to the milestone payment described in Section 3.2.1 the Parties agree that Neose shall have earned the right to receive a milestone payment solely as a result of the achievement of the milestone event. With respect to the milestone payments described in Sections 3.2.2 through 3.2.8, the Parties agree that Neose shall have earned the right to receive a milestone
 
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payment, and Novo shall be obligated to pay the milestone payment and shall have met its diligence obligations with respect to the milestone, in each case, as a result of either (i) the achievement of the milestone event prior to the occurrence of the corresponding anniversary date or (ii) the occurrence, alone, of the corresponding anniversary date.
               3.2.1 ****** for the achievement of In Vivo Biological Success, defined as improved pharmacokinetics of New Product (modified) in dogs when compared to Novo Materials (unmodified) as follows: ******, using the assay attached hereto as Exhibit 3.2.1. The New Product and Novo Materials will be administered in equi-molar concentrations.
               3.2.2 ****** upon the earlier to occur of: (i) the first date on which there shall be a candidate which has been shown to meet the ****** for the New Product, and Neose shall have delivered to Novo ****** for the production of such candidate; and (ii) the ****** anniversary of the Effective Date.
               3.2.3 ****** upon the earlier to occur of ****** of an ****** with respect to the New Product or the ****** anniversary of the achievement of the milestone (or occurrence of the date) described in Section 3.2.2 above.
               3.2.4 ****** upon the earlier of ****** of the ****** of the New Product ****** or the ****** anniversary of the achievement of the milestone (or occurrence of the date) described in Section 3.2.3 above.
               3.2.5 ****** upon the earlier to occur of ****** of the ****** of the New Product or the ****** anniversary of the achievement of the milestone (or occurrence of the date) described in Section 3.2.4 above.
               3.2.6 ****** upon the earlier to occur of the first ****** for the New Product or the ****** anniversary of the achievement of the milestone (or occurrence of the date) described in Section 3.2.5 above.
               3.2.7 ****** upon the ****** of the New Product in ******.
               3.2.8 ****** upon the ****** of the New Product in ******.
          3.3 Restriction on Multiple Milestone Payments. The Parties acknowledge and agree that at anytime prior to the ****** for the New Product, the Steering Committee may decide to continue the development of the New Product solely with a back-up candidate if a candidate initially taken into development should fail for ****** reasons, including, but not limited to, ******, or the occurrence of ******. In the event that the Steering Committee makes such a decision, this Agreement shall be amended to reflect, among other things, the resulting changes to the Work Plan and the Neose Project-Related Costs mutually agreed upon by the Parties. In such event, Novo ****** be required to ****** each of the milestone payments set forth in Sections 3.2.2 through 3.2.5.
          3.4 Coordination with Factor VIII and IX Agreement. The Parties agree that it may be appropriate to adjust one or more of the anniversary dates set forth in Sections 3.2.2 through 3.2.5 as a result of ****** limitations (e.g., ******) that may be encountered by Novo if the
 
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New Product and either or both of the products being developed under the Factor VIII and IX Agreement are scheduled to pass through the same ****** at the same time. Novo may request such an adjustment at any time, and from time to time, by providing notice of the proposed adjustment to Neose. Promptly after receipt of such a notice, the Steering Committee shall meet to evaluate the request. Within thirty (30) days after Novo provides such notice, the Steering Committee shall provide a written recommendation to both Parties with respect to such request. Within fifteen (15) days after receipt of any such recommendation, the Steering Committee shall meet to discuss the recommendation and, if mutually agreeable, to negotiate and propose to the Parties the terms of amendment(s) to the Work Plan and this Agreement which would permit Novo to continue developing the New Product and the ****** Factor VIII and IX ****** in a practical and efficient manner, with the goal of minimizing the aggregate time to market for the New Product and the ****** Factor VIII and IX ******.
          3.5 Milestone Payments Relating to Development of the ******. In consideration of the development efforts of Neose under the Work Plan related to the ******, Novo shall pay Neose the amount of each milestone payment set forth in this Section 3.5. The Parties agree that Neose shall have earned the right to receive each respective milestone payment set forth in this Section 3.5, and Novo shall be obligated to pay such milestone payment, in each case, as a result of either (i) the achievement of the milestone set forth for such payment, or (ii) the failure by Novo to inform Neose within 30 days after the receipt of the material, results or data provided by Neose that the applicable milestone set forth in Sections 3.5.1 or 3.5.2 was not achieved. For each milestone set forth in Sections 3.5.1 and 3.5.2, upon the occurrence of (i) or (ii) above, Neose shall issue an invoice to Novo and payment of the respective milestone payment shall be due upon the later of (a) 30 days following the receipt of such invoice by Novo and (b) January 1, 2006.
               3.5.1 Novo will pay Neose ****** upon delivery of approximately ****** of ****** (******) meeting the ****** criteria set forth in Exhibit 3.5 or as provided in clause (i) of Section 3.5. The Parties acknowledge that the amount set forth in this Section 3.5.1 has been paid prior to the Restatement Date.
               3.5.2 Novo will pay Neose ****** upon the delivery of approximately ****** of ****** meeting the ****** criteria set forth in Exhibit 3.5 or as provided in clause (ii) of Section 3.5.
               3.5.3 In the event that, notwithstanding good faith efforts on the part of Neose to meet the milestones set forth in Section 3.5.1 and 3.5.2, neither milestone has been met by Neose, Novo will pay the milestone payments provided for in Sections 3.5.1 and 3.5.2 upon delivery by Neose to Novo of ****** for use in the production by Novo of ******.
 
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     4. PRODUCT PAYMENTS AND ROYALTIES
          4.1 Royalties on Net Sales. Novo will pay to Neose royalties as a percentage of annual Net Sales of each New Product during the Term at the applicable rates set forth in this Section 4.1 and in accordance with this Section 4:
               4.1.1 ****** of annual Net Sales of the New Product up to ******.
               4.1.2 ****** of annual Net Sales of the New Product over ******.
          4.2 Minimum Royalties. Commencing with the first ****** of the ****** full Calendar Year following the First Commercial Sale of New Product, Novo will pay minimum royalties in respect of the New Product for such Calendar Year and ****** during the Term, in the amounts set forth in this Section 4.2 and in accordance with this Section 4:
               4.2.1 For the ****** Calendar Year following the First Commercial Sale of the New Product: ******.
               4.2.2 For the ****** Calendar Year following the First Commercial Sale of the New Product: ******.
               4.2.3 For the ****** Calendar Year following the First Commercial Sale of the New Product and ****** thereafter: ******.
All minimum royalty payments made in accordance with this Section 4.2 shall be ****** against royalties payable under Section 4.1 in respect of the New Product in the same or any subsequent Calendar Quarter during the same Calendar Year.
          4.3 Competitive Product(s). If a Competitive Product (as defined below in this Section 4.3) reaches a ****** equal to or greater than ****** percent (******%) of the market for a New Product marketed by Novo, then the royalties otherwise payable in accordance with Section 4.1, and the minimum royalties otherwise payable in accordance with Section 4.2, with respect to the New Product shall be ****** by the applicable percentage set forth below:
     Market Share of Competitive Product ****** Royalty Rate Otherwise Payable
          More than ******
          More than ******
          More than ******
          More than ******
For purposes of this Section 4.3, “Competitive Product” means any product marketed by a Third Party that is not a Sublicensee of Novo, which product is a ****** Factor VIIa with a ****** substantially equivalent to or better than the ****** of the New Product marketed by Novo.
          4.4 Royalty Payments. Novo shall make royalty payments to Neose on a quarterly basis, within forty-five (45) days after the end of each Calendar Quarter. Royalty payments due under Section 4.1 shall commence, with respect to each New Product in each country, on the date of first Commercial Sale in such country.
 
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          4.5 Currency Conversion. If any currency conversion from a foreign currency into United States Dollars shall be required in connection with the calculation of Net Sales, such conversion shall be made using the average exchange rate for the applicable Calendar Quarter, as reported by the Wall Street Journal.
          4.6 Payment Reports. Within forty-five (45) days after the close of each Calendar Quarter, Novo shall furnish to Neose a written report showing in reasonably specific detail, on a country-by-country basis for each New Product:
               4.6.1 All Net Sales of the New Product during such quarter expressed in United States Dollars.
               4.6.2 The exchange rates used in determining Net Sales of the New Product in United States Dollars in accordance with Section 4.5.
               4.6.3 Royalties payable in United States Dollars based upon such Net Sales of the New Product during such quarter.
          4.7 Payment Method. Novo shall make all payments under this Agreement in United States Dollars by bank wire transfer in immediately available funds to Hudson United Bank, ABA #******, Acct Name: Neose Technologies, Inc., Acct # ******, or to such other account as Neose shall designate to Novo in writing before such payment is due.
          4.8 Records; Audits. Novo shall, and shall cause its Affiliates and Sublicensees, if any, to keep complete, true, and accurate books of account and records in connection with the production and Commercial Sales of New Products in sufficient detail to permit accurate determination of all figures necessary for verification of payments required to be made by Novo under this Agreement. Novo shall, and shall cause its Affiliates and Sublicensees, if any, to, maintain such records for at least ****** years following the end of the quarter to which such books and records pertain. Neose shall have the right, at its expense, through a certified public accounting firm reasonably acceptable to Novo, to examine the records required to be maintained by Novo, its Affiliates and Sublicensees under this Section 4.8 upon reasonable notice and during regular business hours prior to the termination or expiration of this Agreement and for ****** years thereafter for the purpose of verifying the reports delivered pursuant to Section 4.6 provided that such examination shall not take place more often than once a year. Novo may require such certified public accounting firm to sign a confidential disclosure agreement prior to permitting such certified public accounting firm to have access to its books, records or facilities. Such accounting firm shall report to Neose only whether or not the reports submitted by Novo are accurate for the period covered and the details concerning any identified discrepancies. If any such audit uncovers an underpayment, Novo shall promptly pay to Neose the amount of such underpayment. If any such underpayment exceeds ****** of the amount due, Novo shall pay the entire expense of such audit within ****** after invoice.
 
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          4.9 Taxes. Novo may deduct the amount of any taxes imposed on Neose which are required to be withheld or collected by Novo or its Sublicensees under the laws of any country from amounts owing to Neose hereunder to the extent Novo, its Affiliates or Sublicensees pay such withholding taxes to the appropriate governmental authority on behalf of Neose and promptly deliver to Neose a receipt or other proof of payment of such taxes.
     5. INTELLECTUAL PROPERTY GRANTS AND RIGHT OF NEGOTIATION
          5.1 Neose Technology. Subject to the terms and conditions of this Agreement, Neose hereby grants, and agrees to grant, to Novo, as of the Effective Date, the following rights and licenses:
               5.1.1 Exclusive License. As of the Effective Date, Neose hereby grants, and agrees to grant, to Novo an exclusive (even as to Neose), royalty-bearing license under the Neose Intellectual Property in the Field of Use during the Term, (i) to conduct research, sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export New Products in the Territory, and (ii) to use the Reagents in the Territory solely for the purpose of making New Products. Such license does not permit Novo (x) to practice or use the Neose Intellectual Property outside the Field of Use or (y) to sublicense any of its rights without the prior written approval of Neose, except as provided in Section 5.1.2.
               5.1.2 Limited Sublicense Rights. Novo shall be entitled to grant full sublicenses to its Affiliates and limited sublicenses to its distribution, marketing and/or sales partners, in each case, in compliance with the provisions of this Section 5.1.2 and Section 5.1.3. In any sublicense granted under this Section 5.1.2 to a Third Party that is not an Affiliate of Novo, Novo may grant the Sublicensee only the following rights: to market, promote, sell, offer for sale, have sold, distribute, import and export New Products for Novo. Novo shall not be entitled to disclose any Confidential Information of Neose to a non-Affiliate Sublicensee under a sublicense permitted to be granted under this Section 5.1.2. Novo shall include in each sublicense granted under this Section 5.1.2 all of the terms and conditions necessary to ensure Novo’s compliance with this Agreement, and the provisions of Section 5.1.4 shall apply to each sublicense granted under this Section 5.1.2.
               5.1.3 Required Agreement for Certain Proposed Sublicensees. Prior to entering into discussions with any proposed sublicensee, Novo shall identify the proposed sublicensee to Neose. If the proposed sublicensee is not an Affiliate of Novo, Novo shall obtain the approval of Neose prior to entering into such discussions and shall obtain the proposed sublicensee’s execution and delivery to Neose of a non-disclosure and non-use agreement substantially in the form attached hereto as Exhibit 5.1.3. If the proposed sublicensee is an Affiliate of Novo, Novo may enter into the proposed sublicense without obtaining the approval of Neose if: (i) the sublicense between Novo and the Sublicensee/Affiliate provides that Neose is a third-party beneficiary of the Sublicense, and (ii) Neose receives an original fully executed copy of the sublicense between Novo and the Sublicensee/Affiliate within five (5) business days after its execution.
 
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               5.1.4 Liability. Novo shall remain primarily liable to Neose for the performance by each Affiliate and Sublicensee in accordance with the terms and conditions of this Agreement, and each sublicense shall terminate upon the termination of this Agreement or any breach by the Sublicensee of the Required Agreement between Neose and the Sublicensee, if any.
               5.1.5 Reservation of Rights. Neose hereby reserves to itself all right, title and interest in and to the Neose Intellectual Property not expressly granted in Section 5.1. Without limiting the foregoing, in no event shall this Agreement be construed to prohibit Neose from engaging in any of the following activities: (a) practicing the processes, methods and Know-How of the Neose Intellectual Property outside of the Field of Use, including, without limitation, with proteins that may be considered competitive with any of the New Products, subject, however, to Novo’s rights with respect to Product-Candidates under Section 5.3; (b) developing, making, using or selling proteins or Reagents, whether in conjunction with the Neose Intellectual Property or otherwise, outside of the Field of Use; or (c) entering into and performing agreements with Third Parties regarding any of the foregoing including, without limitation, research agreements, development agreements and licensing agreements.
               5.1.6 Carved Factor VII Claim Licenses. Neose hereby grants, and agrees to grant, to Novo a worldwide, exclusive (even as to Neose), perpetual, irrevocable, and royalty-bearing (subject only to the payment of royalties in accordance with Section 4) license, with the right to sublicense, to any Carved Factor VII Claims that do not constitute Novo Improvements for any and all purposes. The royalties due with regard to the foregoing license shall be determined in accordance with Section 4 of this Agreement. In addition to the foregoing, Neose hereby grants, and agrees to grant, to Novo a worldwide, exclusive (even as to Neose), perpetual, irrevocable, and royalty-free license, with the right to sublicense, to any Carved Factor VII Claims that constitute Novo Improvements for any and all purposes.
          5.2 Novo Technology. Subject to the terms and conditions of this Agreement, and solely to the extent necessary to enable Neose to carry out its obligations under the Work Plan, Novo hereby grants to Neose, for the term of the Work Plan, a non-exclusive, royalty free, license under the Novo Technology to use such Novo Technology for the sole purpose of carrying out its obligations under the Work Plan. Novo shall retain at all times all of its rights, title and interest to the Novo Technology.
          5.3 Licenses to Neose. Novo hereby grants, and agrees to grant, to Neose, a worldwide, exclusive (even as to Novo) as to Neose Exclusive Compounds and non-exclusive as to all other compounds, perpetual, irrevocable and royalty free license, with the right to sublicense, to Neose License Claims as defined in clauses (i)-(iii) of Section 1.29, for any and all purposes, except in connection with any and all forms of insulin or Novo Materials. Novo hereby grants, and agrees to grant, to Neose, a worldwide, exclusive (even as to Novo), perpetual, irrevocable and royalty free license, with the right to sublicense, to Neose License Claims as defined in clause (iv) of Section 1.29, for any and all purposes.
          5.4 Option and Right of First Negotiation
               5.4.1 Option. Neose hereby grants to Novo an option to negotiate a worldwide license under the Neose Technology to conduct research,
 
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sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export each and every Product-Candidate. The option granted under this Section 5.4.1 shall be exercisable by Novo, from time to time during the Term with respect to each Product-Candidate, within fifteen (15) days after Novo receives notice of the Product-Candidate from Neose.
               5.4.2 Negotiations. If Novo duly exercises its option under Section 5.4.1 with respect to a Product-Candidate, the Parties shall enter into negotiations to consummate an agreement, which would grant to Novo the license described in Section 5.4.1 with respect to such Product-Candidate, upon commercially reasonable terms, to be negotiated promptly, diligently and in good faith by the Parties. If the Parties shall not have entered into such a license within ****** after Novo’s exercise of its option with respect to such Product-Candidate, Neose shall be free to proceed with the development and/or commercialization of the Product-Candidate, whether alone or with a Third Party or Third Parties, without any further obligation to Novo with respect to such Product-Candidate, except as provided in Section 5.4.3.
               5.4.3 Right of First Negotiation. During the Term, Neose shall not enter into an agreement with a Third Party relating to the use of the Neose Technology for the further development and commercialization of a Product-Candidate without first allowing Novo to enter into an agreement with respect to such Product-Candidate upon substantially the same terms. If Neose shall not have already offered (and Novo shall not have already refused) substantially the same terms to Novo under Section 5.4.2, Neose shall provide notice to Novo of the proposed terms and conditions of any such agreement, and Novo may exercise its right of first refusal under this Section 5.4.3 by notice to Neose within ****** after receiving the proposed terms and conditions from Neose. If Novo does not exercise its right of first refusal with respect to the terms proposed by Neose, or exercises its right of first refusal but does not enter into an agreement with Neose upon substantially the proposed terms within ****** after receipt thereof, Neose shall be free to proceed with the further development and/or commercialization of such Product-Candidate with a Third Party or Third Parties, upon terms no more favorable to the Third Party or Third Parties than those offered to Novo, without any further obligation to Novo with respect to such Product-Candidate.
          5.5 No Other Right or Licenses. Except for the rights and licenses expressly granted in this Agreement, nothing in this Agreement shall be deemed to grant to any Party any other rights or licenses, including, without limitation, any implied licenses.
     6. OWNERSHIP OF INTELLECTUAL PROPERTY
          6.1 No Transfer of Title. All Ownership Rights in and to the Neose Intellectual Property and the Reagents shall remain at all times with Neose. All Ownership Rights in the Novo Materials, any New Product, and the Novo Technology shall remain at all times with Novo, subject to Novo’s obligation to assign certain Ownership Rights to Neose under Section 6.3.
          6.2 Improvements
               6.2.1 Neose Improvements. Subject to Section 6.3.1, any and all Neose Improvements shall be owned by Neose and shall be deemed to be part of the Neose Intellectual Property for all purposes, including, without limitation, the license granted in Section 5.1. Except as provided in Section 6.4, any and all Improvements made, conceived, or reduced to practice solely by Neose shall be owned solely by Neose.
 
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               6.2.2 Novo Improvements. Subject to Section 6.4.1, except as otherwise provided in Section 6.3, any and all Novo Improvements shall be owned by Novo for all purposes. Except as set forth in Section 6.3, any and all Improvements made, conceived, or reduced to practice, solely by Novo shall be owned solely by Novo.
               6.2.3 Joint Improvements. Each of Neose and Novo shall own a one-half undivided interest in any and all Joint Improvements. Neither Party shall be permitted to license or sublicense its one-half undivided interest in any Joint Improvement(s) to a Third Party that is not an Affiliate of Novo for use in connection with any blood factor products VII, VIII or IX, except with the prior written approval of the other Party.
               6.2.4 Other Improvements. If any Improvements, other than Neose Improvements, Novo Improvements and Joint Improvements, are made, conceived or reduced to practice jointly by Neose and Novo under this Agreement, each Party shall own a one-half undivided interest in and to any and all such Improvements and the Parties shall not have any restriction with respect to the use thereof or any requirement to report or account to the other Party with respect to any such use, unless and except to the extent that the Parties may agree otherwise in writing.
          6.3 Assignment by Novo.
               6.3.1 Neose Improvements. To the extent that Novo may retain any Ownership Rights in any Neose Improvements during the Term, Novo hereby irrevocably assigns and transfers, and agrees to assign and transfer, to Neose, at the request of Neose, any and all such Ownership Rights that have not been licensed to Neose under Section 5.3, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name all such Ownership Rights, subject to Neose’s obligations to assign certain rights to Novo under Section 6.4.
               6.3.2 Joint Improvements. If and when Novo terminates the development of New Product during the Term, Novo hereby irrevocably assigns and transfers, and agrees to assign and transfer to Neose, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name all Ownership Rights in and to the Joint Improvements. With respect to any Ownership Rights and licenses that Novo is required to assign and transfer to Neose under this Section 6.3.2, at the request of Neose, and at Neose’s expense, either before or after termination of the Term, Novo shall assist Neose in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Neose’s title in and to, any such respective Ownership Rights, and Novo shall provide Neose appropriate documentation evidencing the licenses to which Neose is entitled. Novo’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, providing executed license documents, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Neose. For the purpose of facilitating the above
 
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assignments, Novo agrees that any and all employees and contractors employed or engaged by Novo and providing any service in connection with the Project, prior to providing such service, shall have agreed in writing to covenants consistent with Novo’s covenants set forth in this Section 6.3.
          6.4 Assignment by Neose.
               6.4.1 Ownership Rights. To the extent that Neose may retain any Ownership Rights in any Novo Improvements during the Term, Neose hereby irrevocably assigns and transfers, and agrees to assign and transfer, to Novo, at the request of Novo, any and all such Ownership Rights that have not been licensed to Novo in accordance with Section 5.1.6, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Novo shall be entitled to receive and hold in its own name all such Ownership Rights, subject to Novo’s obligations to assign or license certain rights to Neose under Section 6.3. With respect to any Ownership Rights that Neose is required to assign and transfer to Novo under this Section 6.4.1, at the request of Novo, and at Novo’s expense, either before or after the Term, Neose shall assist Novo in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Novo’s title in and to, any such respective Ownership Rights. Neose’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Novo. For the purpose of facilitating the above assignments, Neose agrees that any and all employees and contractors employed or engaged by Neose and providing any service in connection with the Project, prior to providing such service, shall have agreed in writing to covenants consistent with Neose’s covenants set forth in this Section 6.4.1.
               6.4.2 Carved Factor VII Claims. The parties will cooperate in good faith with each other in identifying Potential Carved Factor VII Claims, and in drafting, filing and prosecuting Carved Factor VII Claims.
                    6.4.2.1 The parties will each appoint a patent representative (“Patent Representative”) for the purpose of communicating with the other party regarding this Section 6.4.2 and Section 6.4.3, and carrying out the purposes of these Sections. The Patent Representatives as of the Restatement date are Carsten Hansen, Karin Nilsson, and Reza Green for Novo, and Rachel Rondinelli, Ph.D. for Neose. The Patent Representatives will meet in person or by phone at least quarterly and will attend Steering Committee meetings as appropriate.
                    6.4.2.2 Each party shall, at least once in each Calendar Year, during the Term of this Agreement, provide the other party with a list of public Patent Rights (Neose Patent Rights or Patent Rights within Novo Technology supporting Neose License Claims, as the case may be) providing relevant filing, priority, and status information (the “Patent Report”).
                    6.4.2.3 Each party shall provide the other party with timely notification regarding any information it becomes aware of during the Term of this Agreement that may reasonably considered to impact the validity, enforceability, scope or term of any Neose Patent Rights or Patent Rights within Novo Technology supporting Neose License Claims. Nothing in this
 
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Section 6.4.2.3 shall impose an obligation on either party to search, investigate or actively discover any such information nor shall it obligate either party to perform any investigation or inquiry with regard to any information it does become aware of.
                    6.4.2.4 Within thirty (30) days after the Restatement Date, the Patent Representatives will hold a meeting (in person or otherwise) to discuss the timing, logistics and other details regarding the identification, in Neose Patents, of any Potential Carved Factor VII Claims and, as soon as is practicable thereafter, will agree on any Carved Factor VII Claims to be filed and the language therefor (the “Carved Claim Meeting”), and will hold such other meetings as appropriate at the request of either party to agree upon future Carved Factor VII Claims. Unless otherwise requested by Novo, Neose will notify Novo in a timely manner of the publication of any new patent application containing subject matter supporting Potential Carved Factor VII Claims. Nothing in this Section 6.4.2 creates an obligation for Neose to disclose any inventions to Novo other than as would be required by other terms of this Agreement.
                    6.4.2.5 As soon as commercially practicable following the Carved Claim Meeting and the agreement upon Carved Factor VII Claims, Neose will, at Novo’s sole cost and expense, with respect to any agreed-upon Carved Factor VII Claim, subject to this Section 6.4.2, file, prosecute, maintain, and extend, in the jurisdictions chosen by Novo, one or more new or continuation/divisional applications consisting of only composition-of-matter claims explicitly and solely reciting and claiming Novo Materials with respect to the agreed-upon Carved Factor VII Claims, claiming priority (each a “Carved Factor VII Claim Application”), as appropriate, to one or more pending Neose patent applications.
                    6.4.2.6 Each Carved Factor VII Claim Application will be owned by Neose and licensed to Novo pursuant to Section 5.1.6 and, subject to Neose’s obligations in this Sections 6.4.2, managed by Neose throughout its prosecution and prosecuted by patent counsel appointed by Neose.
                    6.4.2.7 With respect to all Carved Factor VII Claims, the parties shall agree on the scope and language of the claims to be filed. Neose will, within fourteen (14) calendar days after receipt, provide Novo with copies of all correspondence from any patent authority or regulatory agency, and any proceedings (including, but not limited to, opposition proceedings, interference proceedings, protests in re-examination proceedings, and inter partes re-examination proceedings, and the like), relating to filed Carved Factor VII Claims, and shall notify Novo in writing of any oral communications regarding filed Carved Factor VII Claims within fourteen (14) days of any such communications. Notwithstanding this Section 6.4.2 and 6.4.3, with respect to Restriction Requirements, Neose will provide Novo with a copy of the patent authority communication and Neose’s proposed response as soon as is commercially reasonable.
                    6.4.2.8 In connection with any proceedings before a patent authority regarding any Carved Factor VII Claims, Neose shall use Commercially Reasonable Efforts to (i) provide Novo with a copy of any proposed filing with such patent authority regarding any Carved
 
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Factor VII Claims, and, (ii) inform Novo of any planned, non-written substantive communication to such patent authority in connection with any Carved Factor VII Claims, at least fourteen (14) calendar days before the submission thereof or, where applicable, at least fourteen (14) calendar days from the close of the initial (non-extended) response period therefor. The Parties agree that notifications under this Section shall be subject to receipt of information from outside patent counsel, and that Neose shall use Commercially Reasonable Efforts to effectuate these notifications, but in no case shall Novo be notified less than fourteen (14) calendar days before the final non-extendable response deadline.
                    6.4.2.9 Novo may provide to Neose proposals for (i) additions, modifications, or deletions in Neose’s proposed responses and (i) adoption of a strategy in prosecution, such as acceleration of prosecution, with respect to Carved Factor VII Claims. Neose will include, in any future-filed patent applications that could support Potential Carved Factor VII Claims, any general Factor VII-related disclosure provided and periodically updated by Novo.
                    6.4.2.10 Neose shall provide Novo with copies of all written submissions to Patent Authorities in connection with Carved Factor VII Claims in a timely manner and shall provide, upon Novo’s reasonable request, any or all materials previously filed with any patent authority in connection with the subject matter of Carved Factor VII Claims.
                    6.4.2.11 Neose shall not disclaim any subject matter in any Patent Right solely and specifically reciting Carved Factor VII Claims without Novo’s written consent, which shall not be unreasonably withheld.
                    6.4.2.12 Neose and Novo will continue to cooperate during the prosecution of each Carved Factor VII Claim Application, and endeavor to agree on prosecution strategy. The Patent Representatives will discuss, consider and agree on additions, modifications or deletions with respect to filed Carved Factor VII Claims. All of the activities undertaken by the parties pursuant to this Section 6.4.2, including the prosecution of all Carved Factor VII Claim Applications, shall be at Novo’s sole expense. Neose shall invoice Novo for any expenses incurred in the conduct of any activity and Novo shall pay Neose within thirty (30) days after the date of such invoice.
                    6.4.2.13 Novo may, at its sole discretion, seek, or direct Neose (at the sole cost and expense of Novo) to seek where appropriate, an extension of the term of any Carved Factor VII Claim covering a New Product (including, without limitation, filing for patent term restoration under the U.S. Patent Statutes (35 U.S.C. §§1-376) and seeking supplementary protection certificates in the member states of the European Union or European Economic Area, or Switzerland). Neose will not seek an extension of the term of any Carved Factor VII Claims without Novo’s prior written consent.
                    6.4.2.14 Novo hereby authorizes Neose to act as its agent before any patent authority in connection with seeking an extension under Section 6.4.2.13 and agrees that Neose is entitled to rely on any activities of Novo as a marketing applicant before any regulatory
 
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agency in any seeking of an extension of any patent for a New Product. The Parties shall, at Novo’s sole cost and expense, cooperate with any efforts to extend the term of such patent for a New Product, including diligently supplying all information relating to such extension, and executing supporting documents required to comply with all laws pertaining to the extension of patent term.
                    6.4.2.15 In the event the Patent Representatives are unable to agree upon (i) a Carved Factor VII Claim, (ii) the scope, language or prosecution strategy therefor, or (iii) any other matter under this Section 6.4.2, the parties will do the following to resolve the dispute:
                         (a) Any disagreement will be referred to the Steering Committee for a period of 15 business days.
                         (b) If the Steering Committee is unable to resolve the dispute within such 15 business day period, the dispute will be referred to the Designated Representatives of the parties for resolution. If the dispute is not resolved by the Designated Representatives within 15 business days, the dispute may be referred to arbitration in accordance with Section 13.2.
               6.4.3 Neose License Claims. The parties will cooperate in good faith with each other in identifying Neose License Claims, and in drafting, filing and prosecuting Neose Improvement Claims.
                    6.4.3.1 Novo will notify Neose of any Patent Rights containing Neose License Claims not constituting Neose Improvement Claims (each an “Other Neose License Claim”) promptly upon publication of any patent application containing Neose License Claims. Novo’s Patent Representative will keep Neose’s Patent Representative fully-informed about the status of any filing containing Other Neose License Claims.
                    6.4.3.2 The Patent Representatives will meet in person or by phone at least quarterly, but more often if necessary, (each such meeting a “Neose Improvement Meeting”) to discuss the timing, logistics and other details regarding the identification, of any Neose Improvement Claims and, as soon as is practicable thereafter, will agree on the specific claims to be filed and the language therefor.
                    6.4.3.3 As soon as commercially practicable following each Neose Improvement Meeting and the agreement upon Neose Improvement Claims to be filed, Novo will, at Neose’s sole cost and expense, with respect to any agreed-upon Neose Improvement Claim, subject to this Section 6.4.3, file, prosecute, maintain, and extend, in the jurisdictions chosen by Neose, one or more new or continuation/divisional applications consisting only of the agreed-upon Neose Improvement Claims, claiming priority (each a “Neose Improvement Claim Application”), as appropriate, to one or more pending Novo patent applications.
 
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                    6.4.3.4 Each Neose Improvement Claim Application will be owned by Novo and licensed to Neose pursuant to Section 5.3 and, subject to Novo’s obligations in this Section 6.4., managed by Novo throughout its prosecution and prosecuted by patent counsel appointed by Novo.
                    6.4.3.5 With respect to all Neose License Claims, the parties shall agree on the scope and language of the claims to be filed. Novo will, within fourteen (14) calendar days after receipt, provide Neose with copies of all correspondence from any patent authority or regulatory agency, and any proceedings (including, but not limited to, opposition proceedings, interference proceedings, protests in re-examination proceedings, and inter partes re-examination proceedings, and the like), relating to filed Neose Improvement Claims, and shall notify Neose in writing of any oral communications regarding filed Neose License Claims within fourteen (14) days of any such communications. Notwithstanding this Section 6.4.2 and 6.4.3, with respect to Restriction Requirements, Novo will provide Neose with a copy of the patent authority communication and Novo’s proposed response as soon as is commercially reasonable.
                    6.4.3.6 In connection with any proceedings before a patent authority regarding any Neose License Claims, Novo shall use Commercially Reasonable Efforts to (i) provide Neose with a copy of any proposed filing with such patent authority regarding any Neose License Claims, and, (ii) inform Neose of any planned, non-written substantive communication to such patent authority in connection with any Neose License Claims, at least fourteen (14) calendar days before the submission thereof or, where applicable, at least fourteen (14) calendar days from the close of the initial (non-extended) response period therefor. The Parties agree that notifications under this Section shall be subject to receipt of information from outside patent counsel, and that Novo shall use Commercially Reasonable Efforts to effectuate these notifications but in no case shall Neose be notified less than fourteen (14) calendar days before the final non-extendable response deadline.
                    6.4.3.7 Neose may provide to Novo proposals for (i) additions, modifications, or deletions in Novo’s proposed responses and (i) adoption of a strategy in prosecution, such as acceleration of prosecution, with respect to Neose License Claims. Novo will include, in any future-filed patent applications that could support Neose License Claims, any general Neose Technology-related disclosure provided and periodically updated by Neose.
                    6.4.3.8 Novo shall provide Neose with copies of all written submissions to Patent Authorities in connection with Neose License Claims in a timely manner and shall provide, upon Neose’s reasonable request, any or all materials previously filed with any patent authority in connection with the subject matter of Neose License Claims.
                    6.4.3.9 Novo shall not disclaim any subject matter in any Patent Right solely and specifically reciting Neose Improvement Claims without Neose’s written consent, which shall not be unreasonably withheld.
 
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                    6.4.3.10 Novo and Neose will continue to cooperate during the prosecution of each Neose Improvement Claim Application, and endeavor to agree on prosecution strategy. The Patent Representatives will discuss, consider and agree on additions, modifications or deletions with respect to filed Neose License Claims. All of the activities undertaken by the parties pursuant to this Section 6.4.3, including the prosecution of all Neose Improvement Claim Applications, shall be at Neose’s sole expense. Novo shall invoice Neose for any expenses incurred in the conduct of any activity and Neose shall pay Novo within thirty (30) days after the date of such invoice.
                    6.4.3.11 Neose may, at its sole discretion, seek, or direct Novo (at the sole cost and expense of Neose) to seek where appropriate, an extension of the term of any Other Neose License Claim solely and specifically reciting a Neose Exclusive Compound or any Neose Improvement Claim (including, without limitation, filing for patent term restoration under the U.S. Patent Statutes (35 U.S.C. §§1-376) and seeking supplementary protection certificates in the member states of the European Union or European Economic Area, or Switzerland). Novo will not seek an extension of the term of any Neose License Claim to which Neose has an exclusive license under Section 5.3 without Neose’s prior written consent.
                    6.4.3.12 Neose hereby authorizes Novo to act as its agent before any patent authority in connection with seeking an extension under Section 6.4.3.11 and agrees that Novo is entitled to rely on any activities of Neose as a marketing applicant before any regulatory agency in any seeking of an extension of any patent for a product containing a Neose Exclusive Compound. The Parties shall cooperate, at Neose’s sole cost and expense, with any efforts to extend the term of such patent for a product containing a Neose Exclusive Compound, including diligently supplying all information relating to such extension, and executing supporting documents required to comply with all laws pertaining to the extension of patent term.
                    6.4.3.13 In the event the Patent Representatives are unable to agree upon (i) a Neose License Claim, (ii) the scope, language or prosecution strategy therefor, or (iii) any other matter under this Section 6.4.3, the parties will do the following to resolve the dispute:
                         (a) Any disagreement will be referred to the Steering Committee for a period of 15 business days.
                         (b) If the Steering Committee is unable to resolve the dispute within such 15 business day period, the dispute will be referred to the Designated Representatives of the parties for resolution. If the dispute is not resolved by the Designated Representatives within 15 business days, the dispute may be referred to arbitration in accordance with Section 13.2.
          6.5 Prosecution and Maintenance of Patent Rights
               6.5.1 Solely Owned Patent Rights. Subject to Sections 6.4.2 and 6.4.3, each Party shall, in its sole discretion, prepare, file, prosecute and maintain all patent applications
 
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and patents covering its Patent Rights and Improvements that the Party owns pursuant to Section 6. Neose shall use reasonable commercial efforts to provide to Novo for review and comment, at least ten (10) days prior to filing, all patent claims relating specifically to the New Product to be filed by Neose, and Neose shall give due consideration to all comments thereon that are made by Novo within the period ending two days before the proposed filing date.
               6.5.2 Patent Rights with Respect to Joint Improvements. With respect to Joint Improvements, the Parties shall meet to determine whether patent protection is appropriate and, if so, in which countries, if any, patent applications claiming such joint inventions and discoveries should be filed. Novo shall file, prosecute, and maintain, at its expense, such joint patent applications. Novo may at any time, in its sole discretion, discontinue the preparation, prosecution or maintenance of such joint patent applications, in which case Novo will give Neose sufficient notice to enable Neose to, and Neose may, file, prosecute and maintain such applications.
     6.6 Enforcement of Ownership Rights
               6.6.1 Reports of Infringement. Each Party shall promptly report in writing to the other during the Term any infringement or misappropriation or suspected infringement or misappropriation of any of the Neose Technology, Neose License Claims or Carved Factor VII Claims of which such Party becomes aware and shall provide the other Party with its full cooperation in the protection and enforcement of the affected intellectual property and all available evidence supporting said infringement, misappropriation, suspected infringement or unauthorized use or misappropriation. Neose shall reimburse Novo for its reasonable, documented costs of such cooperation with regard to Neose Technology and Neose License Claims, unless such infringement or misappropriation is by an Affiliate or Sublicensee of Novo and Novo shall reimburse Neose for its reasonable, documented costs of such cooperation with regard to Carved Factor VII Claims, unless such infringement or misappropriation is by an Affiliate or Sublicensee of Neose.
               6.6.2 Right to Institute Suit. Neose shall have the sole right to initiate an infringement or other appropriate suit against any Third Party who at any time has infringed or is suspected of infringing or misappropriating, the Neose Technology and any Neose Improvement Claims and Novo shall have the sole right to initiate an infringement or other appropriate suit against any Third Party who at any time has infringed or is suspected of infringing or misappropriating, the Carved Factor VII Claims and any Other Neose License Claims. Prior to initiating any such suit, the Designated Representatives shall consult with each other on an expedited basis, and the party initiating such suit (as such the “Enforcing Party”) shall give due consideration to any reasonable requests the other party may make relating to the advisability of bringing the suit. The Enforcing Party shall not enter into any settlement, consent judgment or other voluntary final disposition of such suit that would adversely affect the other party’s rights under this Agreement without the other party’s prior written consent, which consent shall not be unreasonably withheld with the proviso that no such consent will be required in the case of a settlement by Novo related to Carved Factor VII Claims unless such settlement could have an adverse effect on any of Neose’s Patent Rights. In the event that the Enforcing Party recovers any sums in such suit by way of damages or in settlement thereof, the Enforcing Party shall be entitled to retain the same.
 
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               6.6.3 Cooperation. In a suit initiated by one party, if it is legally required for the other party to join any such suit, or if failure of the other party to join such suit would result in dismissal thereof, the other party shall waive any objection to such joinder on the grounds of personal jurisdiction, venue or forum non conveniens and shall execute all papers and perform such other acts as may be reasonably required to permit the litigation to be conducted.
               6.6.4 Continued Infringement.
                    6.6.4.1 If Neose fails to either bring suit against or enter into negotiations for settlement with such Third Party within six (6) months after receipt of notice of such infringement and Novo is of the opinion that the alleged infringement or misappropriation of Neose Technology is occurring in the Field of Use then, upon Novo’s written request, the Parties shall seek the opinion of patent counsel acceptable to both Parties as to whether there has been or continues to be a misappropriation or infringement of the Neose Technology in the Field of Use by such Third Party. If such patent counsel concurs with Novo’s opinion, Novo shall have the right, but not the obligation, to bring suit against such Third Party under the Neose Technology and to join Neose as a party plaintiff. Neose will cooperate with Novo in any such suit brought against a Third Party and shall have the right to consult with Novo and to participate in and be represented by counsel in such suit at its own expense. In the event that Novo recovers any sums in such suit by way of damages or in settlement thereof, such sums shall be used first to reimburse each of Novo and Neose for their documented, out-of-pocket legal expenses, with Novo retaining any remaining amounts.
                    6.6.4.2 If Novo fails to either bring suit against or enter into negotiations for settlement with such Third Party within six (6) months after receipt of notice of such infringement and Neose is of the opinion that the alleged infringement or misappropriation of the relevant Neose License Claims is occurring with regard to a Neose Exclusive Compound then, upon Neose’s written request, the Parties shall seek the opinion of patent counsel acceptable to both Parties as to whether there has been or continues to be a misappropriation or infringement of the Neose License Claims that affects a Neose Exclusive Compound by such Third Party. If such patent counsel concurs with Neose’s opinion, Neose shall have the right, but not the obligation, to bring suit against such Third Party under the Neose License Claims and to join Novo as a party plaintiff. Novo will cooperate with Neose in any such suit brought against a Third Party and shall have the right to consult with Neose and to participate in and be represented by counsel in such suit at its own expense. In the event that Neose recovers any sums in such suit by way of damages or in settlement thereof, such sums shall be used first to reimburse each of Neose and Novo for their documented, out-of-pocket legal expenses, with Neose retaining any remaining amounts.
     6.7 Novo Trademarks. Subject to its assignment obligations under Section 6.3.2, Novo shall select and own the trademarks for marketing the New Products in the Territory. All expenses for (i) registration of such trademarks, and (ii) bringing, maintaining and prosecuting any action to protect or defend such trademarks, shall be borne by Novo, and Novo shall retain all recoveries therefrom.
 
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     7. BLOCKING PATENTS
          7.1 Mutual Information. Each Party shall immediately notify the other if a claim or other proceedings are brought against either Party alleging that the use of the Neose Technology in making, using or selling the New Product infringes upon the Patent Rights of a Third Party.
          7.2 Defense of Third Party Action. If claims or proceedings are brought against Novo by a Third Party alleging that the use of the Neose Technology to produce a New Product infringes upon the Patent Rights of a Third Party, the Designated Representatives shall consult on an expedited basis, and Neose shall give due consideration to any reasonable request of Novo relating to the proposed defense or settlement of such claims or proceedings. Subject to Section 7.4, the final decision whether or not and, as the case may be, how to defend or settle such claims or proceedings shall be with Neose. Neose shall immediately notify Novo of such decision sufficiently in advance of any deadlines by which formal responses are due in any such proceedings to enable Novo to undertake its own defense and Novo shall have the right to join any such proceedings as a party thereto at its own expense by counsel of its own choice. Each Party shall provide the other with such assistance as is reasonably necessary and shall cooperate in the defense of any such action or proceeding. Neose shall not enter into any settlement, consent judgment, or other voluntary final disposition of such suit that would adversely affect Novo’s rights under this Agreement or which would result in Novo being liable for damages, without Novo’s prior written consent, which consent shall not be unreasonably withheld.
          7.3 Declaratory Judgment Action. Neose shall have the right, but not the obligation, to file any declaratory judgment action in any court of competent jurisdiction as to questions of validity or infringement of any Third Party patent relating to the use of the Neose Technology.
               7.3.1 Cooperation. The Parties shall closely cooperate in any such declaratory judgment action. In conducting such action, the Parties shall render each other all reasonable assistance, free of charge. The final strategy in such action shall be determined by Neose and Neose’s legal counsel in coordination with Novo and any additional legal counsel of Novo.
               7.3.2 Costs. Subject to Article 11 hereof, each Party shall bear its own costs and expenses incurred in connection with actions pursuant to Sections 7.2 and 7.3.
 
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          7.4 Third-Party Licenses
               7.4.1 Novo Third-Party Licenses. In the event that Novo is of the opinion, at any time during the Term, that a license under any Blocking Patent is necessary or advisable for purposes of enabling Novo to exercise its license rights under Section 5.1.1, it shall notify Neose. The Parties shall then seek an opinion of patent counsel acceptable to both Parties. If such patent counsel concurs with Novo’s opinion, Novo and Neose shall co-operate to obtain such a license for the benefit of Novo and, as the case may be, also for Neose, in accordance with the following provisions:
                    7.4.1.1 Neose shall be primarily responsible for obtaining any such Third Party license at its own expense. The matter shall be deemed resolved if Neose is granted a license, ******, under the relevant Blocking Patent that would make the continued exercise of the rights granted to Novo by Neose hereunder non-infringing with respect to ******. ****** shall be solely responsible for ****** under such license.
                    7.4.1.2 However, in the event that Neose is unable to resolve the matter in accordance with Section 7.4.1.1 within one hundred twenty (120) days from receipt of notice from Novo upon terms that are commercially reasonable to Neose at Neose’s discretion, then Novo shall be entitled to negotiate a license in favor of Novo under such Blocking Patents; provided that to the extent that Novo must ****** under such license, Novo may ****** payments owed under Sections 4.1 or 4.2, provided that no payment owed under Section 4.1 or 4.2 shall be ****** more than ****** as a result of the operation of this Section 7.4.1.2.
                    7.4.1.3 In relation to the negotiation and contracting of any such Blocking Patent license, the provisions of this Section 7.4 shall prevail over the provisions of Sections 7.2 and 7.3.
     8. SUPPLY AGREEMENT
     No later than ****** after Novo accepts the ****** , the Parties will execute and deliver the Supply Agreement under which Neose will be a supplier to Novo of the Reagents needed to produce New Products in the Field of Use. Pricing for Reagents will be based on Neose’s ******. The Parties acknowledge and agree that Novo plans to have two production sites for the supply of Reagents and that the costs of technology transfer to Novo or any approved Sublicensee will be borne by Novo.
     9. CONFIDENTIALITY
          9.1 Confidential Information. With respect to any and all Confidential Information received by one Party under this Agreement and/or during the course of the Project, (the “Recipient”) from the other Party (the “Disclosing Party”) at any time and from time to time prior to the Effective Date or during the Term, the Recipient for a period of five (5) years from the expiration or earlier termination of this Agreement: (a) shall maintain the secrecy of, and hold in strict
 
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confidence, the Confidential Information received hereunder; (b) shall not use such Confidential Information for any other purpose other than in furtherance of this Agreement; and (c) shall not, without express written authorization from the Disclosing Party, use, disclose or grant the use of such Confidential Information to any other Persons except to those of the Recipient’s directors, officers, employees, and advisors to whom such disclosure is reasonably necessary in furtherance of this Agreement and each of whom is otherwise bound to Recipient by contract or legal or fiduciary obligation at the time of such disclosure to maintain the secrecy of, and hold in confidence, such Confidential Information. The Recipient shall notify the Disclosing Party promptly upon discovery of any unauthorized use or disclosure of the Disclosing Party’s Confidential Information.
          9.2 Permitted Disclosures. The obligations set forth in Section 9.1 shall not apply to the extent that the Recipient: (a) is required to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, provided that the Recipient shall provide written notice thereof and sufficient opportunity to the Disclosing Party to object to any such disclosure or to request confidential treatment thereof; or (b) can demonstrate that: (i) the information was public knowledge or generally known by publication in scientific or other journals or other public media at the time of such disclosure to the Recipient or thereafter became public knowledge or generally known other than as a result of acts directly or indirectly attributable to the Recipient in violation hereof; (ii) the information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the Disclosing Party under this Agreement; (iii) the information was disclosed to the Recipient on an unrestricted basis by a Third Party not under a duty of confidentiality to the Disclosing Party, or (iv) the information was independently developed by Recipient (as shown by its written records) without any use of or access to information of the Disclosing Party. In addition, provided that Neose maintains the confidentiality of Novo’s name, with the prior approval of Novo, which approval will not be unreasonably withheld, Neose will have the right to use data about Novo Materials and New Product (i) to support a patent application by Neose, and (ii) for promotional purposes, subject to compliance with any publication plan for the development of the New Product that shall have been approved by the Steering Committee.
          9.3 Enforcement. Both Parties agree that it would be impossible or inadequate to measure and calculate the other Party’s damages from any breach of the covenants set forth in this Agreement. Accordingly, the Disclosing Party agrees that if the Recipient breaches any of such covenants, the Disclosing Party will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Agreement. Both Parties further agrees that no bond or other security shall be required in obtaining such equitable relief and each Party hereby consents to the issuance of such injunction and to the ordering of specific performance.
          9.4 Publicity. Except as required by law, all publicity, press releases and other announcements relating to this Agreement or the transactions contemplated hereby, shall be reviewed in advance by, and shall be subject to the reasonable approval of, both Parties.
 
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     10. REPRESENTATIONS AND WARRANTIES
          10.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other that:
                 10.1.1 The execution, delivery and performance of this Agreement by it have been duly authorized by all requisite corporate action, and this Agreement has been duly executed and delivered by and on behalf of such Party.
                 10.1.2 The execution, delivery and performance by such Party of this Agreement does not (i) conflict with or violate any applicable statute, law, rule or regulation, (ii) conflict with or violate its charter, bylaws or other organizational document, or (iii) conflict with or constitute a default under any contract or agreement of such Party.
          10.2 Representations and Warranties of Neose. Neose warrants to Novo, as of the Effective and Restatement Date, that:
                10.2.1 It is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.
                10.2.2 It is the sole and exclusive owner of the Neose Patents, or otherwise Controls the Neose Patents, and has the full corporate power and authority to grant the licenses granted hereunder.
                 10.2.3 To Neose’s knowledge, the use of the Neose Technology pursuant to the terms of this Agreement does not infringe upon the rights of any Third Party.
                 10.2.4 To Neose’s knowledge, there is no Blocking Patent that, if asserted by Third Parties, would prevent Novo from using the Neose Technology to make New Products hereunder.
                 10.2.5 To Neose’s knowledge, no claims or proceedings have been brought by Third Parties alleging the invalidity in whole or in part of any of the Neose Patents.
          10.3 Representations and Warranties of Novo. Novo warrants to Neose, as of the Effective and Restatement Date, that:
                 10.3.1 Novo Nordisk A/S is a corporation duly incorporated, validly existing and in good standing under the laws of the Kingdom of Denmark, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.
                 10.3.2 Novo Nordisk Health Care AG is a corporation duly incorporated, validly existing and in good standing under the laws of Switzerland, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.
                 10.3.3 It is the sole and exclusive owner of the Novo Technology, and has the full corporate power and authority to grant the licenses granted hereunder.
                 10.3.4 To Novo’s knowledge, the use of the Novo Technology pursuant to the terms of this Agreement does not infringe upon the rights of any Third Party.
 
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               10.3.5 To Novo’s knowledge, there is no Blocking Patent that, if asserted by Third Parties, would prevent Neose from using the Novo Technology to perform its activities under the Work Plan.
               10.3.6 To Novo’s knowledge, no claims or proceedings have been brought by Third Parties alleging the invalidity in whole or in part of any of the Novo Technology.
               10.3.7 To Novo’s knowledge, Novo has disclosed to Neose, and Section 16.2 lists, all Patent Rights of Novo supporting any claims relating to any of (i) any methods of ******; and (ii) any ****** derived from or used in the practice of such methods described in clause (i) above, as well as all patent claims arising out of, enabled by, infringing or otherwise covering the Neose Technology or Neose Improvements filed by Novo.
          10.4 Disclaimer of Warranties. EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 11.3, EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT.
          10.5 Acknowledgment by Novo. Novo acknowledges and hereby agrees that Neose makes no representations or warranties as to the outcome of the Project, including without limitation whether the application of the Neose Technology will improve any of the Novo Materials.
     11. INDEMNIFICATIONS AND LIMITED LIABILITY
          11.1 Indemnification by Neose. Neose shall indemnify, defend and hold harmless Novo and its Affiliates, and each of their respective employees, officers, directors and agents (each, a “Novo Indemnified Party”) from and against any and all claims, suits, losses, obligations, damages, deficiencies, costs, penalties, liabilities (including strict liabilities), assessments, judgments, amounts paid in settlement, fines, and expenses (including court costs and reasonable fees of attorneys and other professionals) (individually and collectively, “Losses”) resulting from or arising in connection with (i) the breach by Neose of any of its representations or warranties contained in Section 10, (ii) any claim by a Third Party alleging that the use of the Neose Technology infringes upon the Patent Rights of such Third Party, and (iii) any activities of Neose under this Agreement. Notwithstanding the foregoing, Neose shall have no obligation to indemnify, defend or hold harmless a Novo Indemnified Party for any Losses to the extent that such Losses were caused by (x) the negligence or willful misconduct of any of the Novo Indemnified Parties, or (y) a breach by Novo of any of its representations and warranties set forth in Section 10.
          11.2 Indemnification by Novo. Novo shall indemnify, defend and hold harmless Neose and its Affiliates, and each of their respective employees, officers, directors and agents (each, a “Neose Indemnified Party”) from and against any and all Losses resulting from or arising in connection with (i) the breach by Novo of any of its representations and warranties set forth in Section 10, (ii) the failure of any Affiliate to comply with any obligation of Novo applicable to the
 
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Affiliate under this Agreement, (iii) the failure of any Sublicensee to comply with any obligation under a sublicense granted by Novo hereunder, (iv) the promotion, distribution, use, testing, marketing, sale, or other disposition of any New Product, (v) any claim by a Third Party alleging that the use of the Novo Technology or the manufacture, sale or use of New Products infringes upon the Patent Rights of such Third Party, except to the extent such claims arise solely as a result of the use of Neose Technology, and (vi) any activities of Novo under this Agreement. Notwithstanding the foregoing, Novo shall have no obligation to indemnify, defend or hold harmless a Neose Indemnified Party for any Losses to the extent that such Losses were caused by (x) the negligence or willful misconduct of Neose, its Affiliates, sublicensees, or any of their respective employees, officers, directors, or agents, or (y) a breach by Neose of any of its representations and warranties set forth in Section 10.
               11.3 Indemnification Procedure. Each Party shall provide prompt written notice to the other of any actual or threatened Loss or claim therefor of which the other becomes aware; provided that the failure to provide prompt written notice shall only be a bar to recovering Losses to the extent that a Party was prejudiced by such failure. In the event of any such actual or threatened Loss or claim therefor, each Party shall provide the other information and assistance as the other shall reasonably request for purposes of defense and each Party shall receive from the other all necessary and reasonable cooperation in such defense including, but not limited to, the services of employees of the other Party who are familiar with the transactions or occurrences out of which any such Loss may have arisen. Each Party shall have the right to participate in and with respect to the defense of any Loss or Losses with counsel of its choosing whose fees shall be borne by the Party with liability for indemnification under Sections 11.1 or 11.2, as the case may be, and no Party shall have the right to settle any claim or agree to the entry of any judgment or other relief without the prior consent of the other Party, which consent shall not be withheld unreasonably.
               11.4 Consequential Damages. NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR INCIDENTAL DAMAGES SUFFERED BY SUCH OTHER PARTY AND ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), INCLUDING, WITHOUT LIMITATION, LOST PROFITS, AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
               11.5 Insurance. During the term of the Supply Agreement, Neose agrees to obtain and maintain commercial general liability insurance with reputable and financially secure insurance carriers to cover the use of the Neose Technology in New Products, with limits of not less than ****** per occurrence and ****** in the aggregate. Novo agrees to maintain during the Term commercial general liability insurance with limits of not less than ****** per occurrence and ****** in the aggregate to cover its indemnification obligations under Section 11.2. In addition, Novo agrees to maintain during the Term clinical trials insurance and product liability insurance with limits reasonable to cover its indemnification obligations under Section 11.2. All insurance shall be procured with reputable and financially secure insurance carriers.
 
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     12. TERM AND TERMINATION
          12.1 Term. The term of this Agreement (the “Term”) shall commence on the Effective Date and, unless sooner terminated in accordance with Section 12.2, shall terminate on the expiration of the last to expire patent included in the Neose Technology incorporating a Valid Patent Claim that would be infringed by making, using, selling, offering to sell, importing or exporting New Product, after which Novo shall have a perpetual, fully paid up, royalty free, exclusive (even as to Neose) license to commercialize New Product.
          12.2 Termination
               12.2.1 Termination of Project Plan. If the Project is terminated by mutual agreement, this Agreement will automatically terminate.
               12.2.2 No Commercial Sale. If after achievement of the milestone described in Section 3.2.2, Novo ceases to exert Commercially Reasonable Efforts toward the development or commercialization of New Product or wishes to terminate the development of New Product before Regulatory Approval of New Product for reasons other than toxicology findings, lack of clinical efficacy, side effects, lack of stability of formulation of the New Product, or regulatory restrictions relating, in each case, to New Product, Novo shall provide notice thereof to Neose, specifying the reasons therefor, together with a termination fee of ******, and this Agreement will terminate upon receipt by Neose of such notice and payment from Novo.
               12.2.3 Termination for Cause.
                    12.2.3.1 Breach. A Party shall have the right to terminate this Agreement at any time for a material breach of this Agreement by the other Party upon written notice by the non-breaching Party to the other Party describing such breach in reasonable detail and stating the non-breaching Party’s intention to terminate this Agreement, provided that the other Party shall have a period of ****** from the date of such notice to cure the breach, or, if such breach is not susceptible of being cured within such ****** period, and the breaching Party utilizes diligent good faith efforts to cure such breach, then such period shall be extended to ******. If such breach is cured within the applicable period, the termination notice shall become ineffective. Otherwise, the termination shall become effective upon the expiration without cure of the applicable period.
                    12.2.3.2 Bankruptcy. A Party shall have the right to terminate this Agreement at any time upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets of the benefit of creditors by the other Party, or in the event a receiver or custodian is appointed for such Party’s business, or if a substantial portion of such Party’s business is subject to attachment or similar process; provided, however, that in the case of any involuntary bankruptcy proceeding, such right to terminate shall only become effective if the proceeding is not dismissed within ****** after the filing thereof.
                    12.2.3.3 Termination by Novo. Novo may terminate this Agreement at any time without cause upon ****** prior written notice to Neose of such termination, provided that Novo shall pay to Neose one hundred percent (100%) of all documented Neose Project-Related Costs and any other costs incurred or accrued by Neose prior to the effective date of such termination for the conduct of the Work Plan through the date of termination.
 
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          12.3 Effect of Termination or Expiration
               12.3.1 Prior Obligations. Termination or expiration of this Agreement shall not relieve the Parties of any obligation arising prior to the effective date of such termination or expiration and shall not constitute a waiver of any right of the Parties under this Agreement as a result of breach or default.
               12.3.2 Confidential Information. Upon the termination or expiration of this Agreement, each Recipient shall, as the Disclosing Party may direct, destroy or return to the Disclosing Party promptly all tangible materials provided to Recipient by the Disclosing Party that embody the Disclosing Party’s Confidential Information and shall erase or delete all of the Disclosing Party’s Confidential Information embodied in any magnetic, optical or intangible medium or stored or maintained on any information storage and/or retrieval device, and deliver to the Disclosing Party a certification of such destruction, return, erasure or deletion signed by an officer of the Disclosing Party.
               12.3.3 Survival. No termination under this Agreement shall constitute a waiver of any rights or causes of action that either Party may have for any acts or omissions or breach under this Agreement by the other Party prior to the termination date. The following Sections of this Agreement shall survive the expiration or any termination of this Agreement in accordance with their respective meanings: Sections 4.8, 5.1.2, 5.1.6, 5.2.2, 5.3, 5.5, 6, 9, 11, 12, 13, 15.1, 15.2, 17.1, 17.2, 17.3, 17.4, 17.5, 17.6, 17.7, 17.8, 17.9, 17.10, 17.11, 17.13, 17.14 and any other provision required to interpret this Agreement or any of the surviving provisions.
               12.3.4 Effect on Sublicensees. Any sublicenses granted by Novo hereunder shall automatically terminate or expire at the same time this Agreement terminates or expires.
          12.4 Alternate or Similar Products.
               12.4.1 In the event this Agreement is terminated by Novo prior to the commercialization of any New Product, other than (i) by reason of a Preclinical or Clinical Failure, or (ii) due to material breach by Neose, and Novo, alone or in conjunction with a third party, develops a product based on the Novo Materials and using any methods of ****** any New Product developed and tested in animals or humans under this Agreement (a “Similar Product”), Novo shall pay Neose within ****** after the first filing in any Nation or Region for Regulatory Approval for the Similar Product the amount of ******.
               12.4.2 In the event this Agreement is terminated by Novo prior to the commercialization of any New Product, other than (i) by reason of a Preclinical or Clinical Failure, or (ii) due to material breach by Neose, and Novo, alone or in conjunction with a third party, develops a product based on the Novo Materials and using any methods of ****** any New Product developed and tested in animals or humans under this Agreement (an “Alternate Product”), Novo shall pay Neose within ****** after the first filing in any Nation or Region for Regulatory Approval for the Alternate Product the amount of ******.
 
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               12.4.3 For the purpose of this Section 12.4, “Preclinical or Clinical Failure” means that due to safety or toxicity reasons or due to a lack of efficacy, it is clear that all New Products have reached their furthest clinical trial and cannot be approved.
     13. DISPUTE RESOLUTION
          13.1 By Senior Officers. Except as otherwise provided in Section 9.3, all disputes arising under this Agreement will first be submitted in writing for dispute resolution to the Designated Representative of each Party. If the dispute is not resolved within forty-five (45) days, the dispute shall be referred to arbitration in accordance with Section 13.2.
          13.2 Arbitration
               13.2.1 Rules and Location. Except with respect to disputes arising under Section 9.3, all disputes arising between the Parties under this Agreement that have not been resolved in accordance with Section 13.1 shall be settled by arbitration conducted in accordance with the procedures of the International Chamber of Commerce (“ICC”). The version of the arbitration rules which are in force when the dispute occurs shall be decisive. The arbitration tribunal shall have one arbitrator, who shall be selected from the panels of the ICC by agreement of the Parties, provided, however that if the parties cannot agree on the arbitrator, the arbitration tribunal shall consist of three arbitrators, one selected by Neose, one selected by Novo, and the third selected by the other two arbitrators. The arbitration tribunal may also decide on the validity of the arbitration agreement. The place of the arbitration tribunal shall be Philadelphia, Pennsylvania. The arbitration proceedings, orders and writs shall be in the English language.
               13.2.2 Judgments. Any award rendered by the arbitrators shall be binding upon the Parties hereto and shall be final. Judgment upon the award may be entered in any court of record of competent jurisdiction.
               13.2.3 Expenses. Each Party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be equally shared unless otherwise ordered by the arbitrators.
     14. GOVERNMENT APPROVAL
          14.1 HSR Filing. Novo, in consultation with Neose, shall make the determination as to whether filing under the HSR Act is required. If any HSR filing is required, to the extent necessary, each Party shall file, as soon as practicable after the date this Agreement is executed, with the Federal Trade Commission (the “FTC”) and the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) the notification and report form (the “Report”) required under the HSR Act with respect to the transactions as contemplated hereby and shall reasonably cooperate with the other Party to the extent necessary to assist the other Party in the preparation of its Report and to proceed to obtain necessary approvals under the HSR Act, including but not limited to the expiration or earlier termination of any and all applicable waiting periods required by the HSR Act. Each Party shall bear its own expenses, including, without limitation, legal fees, incurred in connection with preparing such filings.
 
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          14.2 Obligations. Each Party shall use its good faith efforts to eliminate any concern on the part of any court or government authority regarding the legality of the proposed transaction, including, if required by federal or state antitrust authorities, promptly taking all steps to secure government antitrust clearance, including, without limitation, cooperating in good faith with any government investigation including the prompt production of documents and information demanded by a second request for documents and of witnesses if requested.
          14.3 Additional Approvals. Each Party will cooperate and use respectively all reasonable efforts to make all other registrations, filings and applications, to give all notices and to obtain as soon as practicable all governmental or other consents, transfers, approvals, orders, qualifications authorizations, permits and waivers, if any, and to do all other things necessary or desirable for the consummation of the transactions as contemplated hereby. Neither Party shall be required, however, to divest or out-license products or assets or materially change its business if doing so is a condition of obtaining approval under the HSR Act or other governmental approvals of the transactions contemplated by this Agreement.
          14.4 Termination. If a Report is required to be filed under the HSR Act, either Party hereto may terminate this Agreement by written notice to the other Party, if, within one hundred twenty (120) days after this Agreement is signed by the Parties, approval of the transactions contemplated by this Agreement under the HSR Act has not been obtained or the notice and waiting period, as may be extended by the FTC, under the HSR Act has not expired without adverse action regarding this Agreement or the transactions contemplated hereby. If this Agreement is terminated pursuant to this Section 14.4, then, notwithstanding any provision in this Agreement to the contrary, neither Party hereto shall have any further obligation to the other Party with respect to the subject matter of this Agreement.
     15. COVENANTS. From and after the Restatement Date, each party covenants as follows:
          15.1 Novo Covenants. Novo agrees to not take any affirmative action, by itself or via a Third Party, to contest, limit or in any manner diminish the scope of Neose’s issued patents in any Nation or Region, or any of Neose’s current or future pending patent applications, each to the extent claiming Neose Intellectual Property, in any National or Regional Patent Office, and particularly agrees without limitation:
               15.1.1 Not to provoke an interference, or participate in an interference initiated by the United States Patent and Trademark Office (the “USPTO”) or file any application, or claim in any application under prosecution before the USPTO ,any claim that could reasonably be used to provoke an interference, against any Neose patent application or patent to the extent that such patent or patent application includes claims relating to Neose Intellectual Property, and further agrees to withdraw from prosecution any claim in a patent application owned or controlled by Novo
 
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upon which an examiner in the USPTO proposes to base such an interference. Novo shall ensure that this covenant is binding on any assignee, purchaser, or transferee of a Novo Patent Right that could be used to provoke an interference with any of Neose’s current or future pending patent applications, each to the extent claiming Neose Intellectual Property.
               15.1.2 Not to initiate or participate in any ex parte or inter partes reexamination proceeding before the USPTO for any Neose patent including claims relating to Neose Intellectual Property.
               15.1.3 Not to initiate or participate in any opposition before any National or Regional Patent Office against any Neose patent including claims relating to Neose Intellectual Property.
               15.1.4 Not to file any third party observation or participate in any filing of a third party observation in any National or Regional Patent Office against any Neose patent application to the extent that such patent application includes claims relating to Neose Intellectual Property.
          15.2 Neose Covenants. Neose covenants that, to the extent that any Carved Factor VII Claims are subject to terminal disclaimers over any Neose Patent Rights, Neose shall not assign, sell, or otherwise transfer such Carved Factor VII Claims and such Neose Patent Rights in a manner resulting in separation of ownership between such Carved Factor VII Claims and such Neose Patent Rights. Neose shall ensure that this covenant is binding on any assignee, purchaser, or transferee of a Neose Patent Right, to the extent such assigned, purchased or transferred Patent Right contains any Carved Factor VII Claims.
     16. MUTUAL COOPERATION
          16.1 Novo shall use reasonable commercial efforts to notify Neose of, and to provide to Neose for review and comment, at least ten (10) days prior to filing, all patent claims arising out of, enabled by, to Novo’s knowledge infringing or otherwise covering the Neose Technology or Neose Improvements to be filed by Novo.
          16.2 ******:
          ******
          16.3 Novo shall use reasonable commercial efforts to fully disclose to Neose all pending patent applications of which it has knowledge that are based on the Novo Materials and would support any Neose License Claims.
 
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     17. MISCELLANEOUS
          17.1 Release. ******
          17.2 Force Majeure. Any delays in or failures of performance by either Party under this Agreement (other than failure to pay amounts due) shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including but not limited to: acts of God, earthquake, new regulations or laws of any government, strikes or other concerted acts of workers; fire, floods, explosions; riots; wars; rebellion; and, sabotage, and any time for performances under this Agreement shall be extended by the time of delay reasonably occasioned by such occurrence. Each Party agrees to notify the other promptly of any factor, occurrence or event coming to its attention that may affect its ability to meet its obligations under this Agreement.
          17.3 Notices. Any notice, consent or report (each, a “Notice”) required or permitted to be given by either Party under this Agreement shall be in writing and shall be either personally delivered or sent by facsimile (confirmed by internationally-recognized express courier), or by internationally-recognized express courier (such as Federal Express or DHL), to the other Party at its address set forth below, or such new address as may from time to time be supplied under this Agreement by a Party. Except as otherwise set forth in this Agreement, any Notice shall be effective upon receipt by the addressee. Provided that all postage or delivery charges are prepaid in full by the sender and the Notice has been addressed as set forth in this Agreement:
               17.3.1 if such Notice is sent by facsimile (confirmed by internationally recognized express courier which includes a copy of the report showing the date and time of transmission), then the Notice shall be deemed to be received upon transmission (if received on a business day) or the next business day following transmission; and
               17.3.2 if such Notice is sent by internationally-recognized express courier, then the Notice shall be deemed to be received two (2) business days after deposit with the courier service.
     If to Neose:
Neose Technologies, Inc.
102 Witmer Road
Horsham, PA 19044
Attention: General Counsel
Fax: 215-315-9100
     If to Novo Nordisk A/S:
Novo Nordisk A/S
Novo Allé
2880 Bagsvaerd
Denmark
Attention: Vice President, Business Development
 
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Fax: 011-45-4442-1830
With a copy to the same address:
Attention: General Counsel
Fax: 011-45-4498-0670
     If to Novo Nordisk Health Care AG:
Novo Nordisk Health Care AG
Andreasstrasse 15
CH - 8050 Zurich Oerlikon
Switzerland
Attention: Head of Hematology Business Unit
Fax: 011-41-43-222-4404
          17.4 Governing Law. This Agreement and any controversy, claim or dispute arising under this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, United States of America, without regard to the conflicts of law principles of any jurisdiction.
          17.5 U.S. Export Laws and Regulations. The Parties hereby acknowledge that their rights and obligations under this Agreement may be subject to the laws and regulations of the United States of America relating to the export of products and technical information. Without limitation, each Party shall comply, and assist the other Party in complying, with all such laws and regulations.
          17.6 Assignment.
               17.6.1 Consent of Other Party. Neither Party may assign any of its rights or obligations under the Agreement, in whole or in part, by operation of law or otherwise, without the prior written consent of the other Party, which consent shall not be unreasonably withheld, provided that either Party may assign (i) any of its rights or obligations under this Agreement in any country to any of its Affiliates, for so long as they remain Affiliates, and (ii) all of its rights or obligations under this Agreement in connection with the merger or similar reorganization or sale of all or substantially all of its assets or a sale of that part of its business relating to the subject matter of the Agreement. A Party shall notify the other Party in writing upon making such assignment.
               17.6.2 Certain Assignments by Neose. In the event that Neose assigns all of its rights or obligations under this Agreement in connection with the merger or similar reorganization or sale of all or substantially all of its assets or a sale of that part of its business relating to the subject matter of this Agreement, Novo may, within the thirty (30)-day period following receipt of notice from Neose of such assignment, elect to proceed under this Section 15.5.2 with respect to the provision of any reports required under this Agreement and/or other disclosure of Confidential Information by Novo hereunder. Novo shall make such election by notice in writing addressed to Neose and its successor at the address of Neose set forth in Section
 
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15.2.3(as amended). From and after an election by Novo under this Section 15.5.2, Novo shall be entitled to provide reports required under this Agreement, and/or to provide any other Confidential Information hereunder, to an independent certified public auditing firm selected by Neose’s successor and reasonably acceptable to Novo, in lieu of providing such reports and/or Confidential Information to Neose’s successor. Such auditing firm shall report to Neose’s successor only (i) whether or not the reports submitted by Novo are accurate and conform to any related payments made to Neose’s successor and (ii) whether or not, in respect of other matters relating to such reports and/or Confidential Information, Novo has complied with its obligations under this Agreement. Novo shall be responsible for and promptly shall pay all fees and expenses of the auditing firm in connection with its services rendered in accordance with this Section 15.5.2.
               17.6.3 Binding Effect. Any purported assignment in violation of this Section 15.5 shall be null and void. This Agreement shall bind and inure to the benefit of each Party and its respective permitted successors and assigns.
          17.7 Amendments. No change, modification, extension, termination or waiver of the Agreement, or any of the provisions in this Agreement contained, shall be valid unless made in writing and signed by duly authorized representatives of the Parties to this Agreement.
          17.8 Independent Contractors. The Parties to this Agreement are acting as independent contractors and shall not be considered partners, joint venturers or agents of the other. Neither Party shall have the right to act on behalf of, or to bind, the other.
          17.9 Severability. The provisions of this Agreement are intended to be severable. If any one or more of the provisions of this Agreement is or becomes invalid, is ruled illegal by a court of competent jurisdiction or is deemed unenforceable under the current applicable law from time to time in effect during the Term, it is the intention of the Parties that the remainder of the Agreement shall not be affected thereby and shall continue to be construed to the maximum extent permitted by law at such time. It is further the intention of the Parties that in lieu of each such provision which is invalid, illegal, or unenforceable, there shall be substituted or added as part of this Agreement by such court of competent jurisdiction or any arbitrator(s) appointed pursuant to Section 13.2, a provision which shall be as similar as possible, in economic and business objectives as intended by the Parties to such invalid, illegal or unenforceable provision, but shall be valid, legal and enforceable.
          17.10 Waiver. The waiver by either Party to this Agreement of any right under this Agreement or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right under this Agreement or of any other breach or failure by said other Party whether of a similar nature or otherwise.
          17.11 No Third Party Beneficiaries. Each of Neose and Novo intend that only Neose and Novo will benefit from, and are entitled to enforce the provisions of, this Agreement and that no Third Party beneficiary is intended under this Agreement.
          17.12 Descriptive Headings; Section and Exhibit References. The headings of the several sections of this Agreement are intended for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. All references in this Agreement to a Section or Exhibit shall be interpreted as references to the respective Section or Exhibit of this Agreement unless the context requires otherwise.
 
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          17.13 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.
          17.14 Entire Agreement. This Agreement, including all exhibits to this Agreement (the “Attachments”), and the Research and Development Collaboration Agreement between the Parties dated October 28, 2002 embody the entire understanding between the Parties and supersede any prior understanding and/or other agreements between and among them respecting the development of the New Product. Both this Agreement and the Research and Development Collaboration Agreement between the Parties dated October 28, 2002 shall remain in effect in accordance with their respective terms from and after the date on which this Agreement is executed and delivered by the Parties. There are no representations, agreements, arrangements or understandings, oral or written, between the Parties to this Agreement relating to the subject matter of this Agreement, which are not fully expressed in this Agreement. If any provisions of any such Attachment conflict with any provisions set forth in this Agreement, the provisions of this Agreement shall take precedence. The Parties acknowledge and agree that the Mutual Nondisclosure Agreement remains in full force and effect with respect to any and all subject matter other than the subject matter of this Agreement or the Factor VIII and IX Agreement.
                    IN WITNESS WHEREOF, the undersigned Parties, acting through their duly authorized representatives, have executed this Agreement in multiple counterparts.
         
NEOSE TECHNOLOGIES, INC.    
 
        
By:
 
/s/ George J. Vergis
    
Name:
  George J. Vergis    
Title:
  President & CEO    
 
        
NOVO NORDISK A/S    
 
        
By:
 
/s/ Mads Krosgaard Thomsen
    
Name:
  Mads Krosgaard Thomsen    
Title:
  Executive Vice President    
 
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NOVO NORDISK HEALTH CARE AG    
 
        
By:
 
/s/ Kåre Schultz
    
Name:
  Kåre Schultz    
Title:
  Chief Operating Officer    
 
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Exhibit 1.23
******
 
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Exhibit 1.30
******
 
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Exhibit 2.2
******
 
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Exhibit 3.2.1
******
 
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Exhibit 3.5
******
 
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Exhibit 5.1.3
NEOSE TECHNOLOGIES, INC.
FORM OF REQUIRED AGREEMENT FOR PROPOSED SUBLICENSEES
     This CONFIDENTIALITY AGREEMENT (this “Agreement”) is made as of this ___ day of                     , 200_, by and between Neose Technologies, Inc., a Delaware corporation (“Neose”), and                                          , a                      corporation (“Recipient”).
BACKGROUND
     Neose has developed and continues to develop proprietary technologies and related know-how for the glycosylation, design and remodeling of proteins, peptides and antibodies, including, but not limited to its GlycoAdvanceTM, GlycoPEGylation™ and GlycoConjugation™ technologies (collectively, the “Technology”). Pursuant to a Research, Development and License Agreement dated ___, 2003 (the “License Agreement”), Neose has granted Novo Nordisk A/S, a Danish corporation, and Novo Nordisk Health Care AG, a Swiss corporation (collectively,“Novo”), certain exclusive worldwide rights under the Technology throughout the world, including certain rights to sublicense. Novo desires to sublicense to Recipient certain rights granted to Novo under the License Agreement. Novo, therefore, desires to disclose to Recipient confidential and proprietary information, which is a part of the Technology and is considered valuable by Neose. As a condition to Novo disclosing such confidential and valuable proprietary information to Recipient, Recipient is entering into this Agreement for Neose’s benefit.
     NOW, THEREFORE, in consideration of the foregoing premises and in consideration of Novo disclosing Neose’s confidential and proprietary information to Recipient, and intending to be legally bound hereby, Recipient agrees as follows:
Definitions
     “Confidential Information” means any and all proprietary or confidential information of Neose disclosed to Recipient, including, without limitation, all technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, service plans, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, distribution and sales methods and systems, sales and profit figures, finances and other business information disclosed to Recipient related to Neose, either directly or indirectly, in writing, orally or by drawings or
 
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inspection of documents or other tangible property. The fact that a given piece of information is marked or identified as confidential or proprietary shall conclusively indicate that such information is considered Confidential Information, but the failure to so mark information shall not conclusively determine that such information was or was not considered Confidential Information.
     “Neose Know-How” means any and all formulae, procedures, processes, methods, designs, know-how, show-how, trade secrets, discoveries, inventions (whether or not patentable), patent applications, licenses, software and source code, programs, prototypes, designs, discoveries, techniques, methods, ideas, concepts, data, engineering and manufacturing information, electronic control circuits, specifications, diagrams, drawings, schematics, blueprints and parts lists and other proprietary information, rights and works of authorship, whether or not reduced to writing, controlled by Neose and relating to the Technology
     “Neose Patents” means all patents and patent applications (including all corresponding foreign patents and patent applications, all divisions, continuations, continuations-in-part, reissues, renewals, extensions and additions to any such patents or patent applications) relating to the Technology licensed by Neose to Novo under the License Agreement.
     “Neose Technology” means the Neose Know-How and Neose Patents.
     “Person” means an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, syndicate, sole proprietorship, unincorporated organization, government, governmental agency, authority or instrumentality, or any other form of entity not specifically listed in this Agreement.
     “Product” means any of the “Novo Materials” (as defined in the License Agreement modified by using the Neose Technology.
     “Sublicense Agreement” means the agreement under which Novo sublicenses to Recipient certain rights granted by Neose to Novo under the License Agreement.
     “Third Party” means any Person other than Recipient, Neose or Novo.
Non-Disclosure; Non-Use; Reasonable Care
     Non-Disclosure. Without the prior written consent of an authorized officer of Neose, Recipient shall not, directly or indirectly, disclose to any Third Party any Confidential Information or Neose Know-How.
     Non-Use. Without the prior written consent of an authorized officer of Neose, Recipient shall not, directly or indirectly, use any of the Confidential Information or Neose Technology for its own benefit or for the benefit of any Third Party.
 
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     Reasonable Care. Recipient shall take all reasonable measures to protect the secrecy of, and avoid the unauthorized disclosure or use of, the Confidential Information and Neose Technology, including, without limitation, the following: (i) Recipient shall exercise the highest degree of care that Recipient uses to protect Recipient’s own confidential and proprietary information of a similar nature; (ii) Recipient shall disclose Confidential Information and/or Neose Know-How only to its employees and contractors who have a need to know; and (iii) Recipient shall require anyone who has access to any of the Confidential Information and/or Neose Know-How to sign or be a party to an effective agreement with Recipient, applicable to the Confidential Information and Neose Know-How, containing provisions that are substantially similar to the terms of this Agreement. Recipient shall notify Neose in writing of any disclosure, misuse or misappropriation of any Confidential Information or Neose Technology that may come to Recipient’s attention.
Acknowledgements. Recipient acknowledges and agrees that: (i) this Agreement is necessary for the protection of the legitimate business interests of Neose; (ii) the execution of this Agreement by an authorized representative of Recipient and delivery of this Agreement to Neose is a mandatory condition precedent to Novo disclosing any Confidential Information and any information concerning the Neose Technology to Recipient, without which Neose would not permit Novo to disclose such information; (iii) neither Neose nor Novo has granted to Recipient any rights under the Neose Technology in any manner; and (iv) because of the unique nature of the Confidential Information and Neose Technology and its broad applicability to the manufacture and remodeling of glycoproteins, Neose will not have an adequate remedy at law if Recipient breaches any term of this Agreement.
Return of Materials. Upon the earlier of termination of Novo’s license to the Neose Technology under the License Agreement or termination of the Sublicense Agreement, Recipient shall: (i) discontinue all use of the Confidential Information and Neose Technology; (ii) destroy any and all items in its possession containing any Confidential Information or Neose Technology; and (iii) certify in writing to Neose, within ten (10) days after Neose’s request therefor, that Recipient has taken all actions described in this Section 4.
Intellectual Property
     Ownership Rights. All right, title and interest under patent, copyright, trade secret and trademark law and any other intellectual property or other law (collectively, “Ownership Rights”), in and to the Confidential Information and Neose Technology shall remain at all times with Neose. Any and all Ownership Rights to developments, discoveries, inventions, additions, amendments, modifications, ideas, processes, methods, compositions, formulae, techniques, information and data, whether or not patentable, relating to the Neose Technology, which is made, conceived or reduced to practice by Neose, Novo or Recipient or any combination of them (“Neose Improvements”) shall be owned by Neose and shall be deemed to part of the Neose Technology for all purposes.
 
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     Assignment. To the extent that Recipient may retain any Ownership Rights in any Neose Improvements, Recipient hereby irrevocably assigns and transfers to Neose any and all such Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name all such Ownership Rights. With respect to any Ownership Rights that Recipient may assign and transfer to Neose under this Section 5.2, at the request of Neose, and at Neose’s expense, either before or after termination of this Agreement, Recipient shall assist Neose in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Neose’s title in and to, any such Ownership Rights. Recipient’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Neose. For the purpose of facilitating the above assignment, Recipient agrees that any and all employees and contractors employed or engaged by Recipient and providing any service in connection with the use of the Neose Technology, prior to providing such service, shall have agreed in writing to covenants consistent with Recipient’s covenants set forth in this Section 5.2
Exceptions. The non-disclosure obligations with respect to Confidential Information and Neose Know-How set forth in Section 2.1 shall not apply to any information that: (i) at the time of disclosure by or on behalf of Novo or Neose to Recipient is in, or after disclosure by or on behalf of Novo or Neose becomes part of, the public domain through no improper act on the part of Recipient or on the part of any of Recipient’s employees, independent contractors, advisors or consultants; (ii) is disclosed, published or disseminated by Neose without any confidentiality constraints; (iii) was in Recipient’s possession free of any obligation of non-disclosure or non-use at the time of disclosure to Recipient, as shown by written evidence; (iv) Recipient receives from a Third Party free of any obligation of non-disclosure or non-use, but only if such Third Party had no direct or indirect obligation to Neose not to disclose such information; (v) was developed by Recipient independent of information received hereunder, as shown by its written records; or (vi) subject to Section 7, is required to be disclosed by law or pursuant to legal, judicial or administrative process.
Notice of Required Disclosure. If Recipient is required by judicial or administrative process to disclose any Confidential Information or Neose Know-How, then Recipient shall promptly notify Neose and, before disclosing such Confidential Information or Neose Know-How, allow Neose a reasonable time to oppose such process.
Successors; Assignment. This Agreement shall be binding upon Recipient and Recipient’s successors and assigns and inure to the benefit of Neose and its successors and assigns. Recipient may not assign its rights or delegate its obligations under this Agreement, in whole or in part, except with the prior written consent of Neose, which consent shall not be unreasonably withheld. Neose may assign this Agreement without seeking or obtaining Recipient’s consent.
 
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Governing Law. This Agreement and any controversy, claim or dispute arising under this Agreement shall be governed by, and construed in accordance with the laws of the Commonwealth of Pennsylvania, United States of America, without regard to the conflicts of law principles of any jurisdiction.
Remedies. In addition to any other remedies that may be available, at law, in equity or otherwise, Neose shall be entitled to obtain injunctive relief to enforce the provisions of this Agreement without necessity of posting bond.
Entire Agreement. This Agreement contains the entire agreement and understanding relating to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings. This Agreement may not be changed or modified, except in a writing signed by both Neose and Recipient. The failure or delay of Neose to exercise any right under this Agreement shall not be deemed a waiver of any rights under this Agreement.
     IN WITNESS WHEREOF, each party has caused its authorized representative to execute this Agreement as of the date first written above.
                     
NEOSE TECHNOLOGIES, INC.       [INSERT NAME OF RECIPIENT]    
 
                    
By:
          By:        
 
 
 
          
 
    
Name:
          Name:        
 
 
 
          
 
    
Title:
          Title:        
 
 
 
          
 
    
 
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Exhibit 17.1
******
 
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EX-10.43 4 w32002exv10w43.htm BIOPROCESSING SERVICES AGREEMENT exv10w43
 

Exhibit 10.43
Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Such portions are marked by a series of asterisks.
Bioprocessing Services Agreement
     This Bioprocessing Services Agreement dated this 7th day of December, 2006 (the “Effective Date”) is between Neose Technologies, Inc., a Delaware corporation (“Neose”) having its principal place of business at 102 Witmer Road, Horsham, PA, 19044 and Diosynth RTP Inc., a Delaware corporation (“Diosynth”), having its principal place of business at 101 J. Morris Commons Lane, Morrisville, NC 27560, (each a “Party”, collectively, the “Parties”).
Background
     Whereas, Neose desires Diosynth to perform services in accordance with the terms of this Agreement and the Scope (as hereinafter defined) related to the production of the material known as bulk GlycoPEGylated erythropoietin, NE-180 drug substance (“Product”) along with any intermediate bulk erythropoietin (“Intermediate”) and Diosynth desires to perform such services;
     Whereas, Neose and Diosynth executed a Letter Agreement dated September 7, 2006 (“Letter Agreement”) that provided for certain activities relating to the joint development of the Scope (as defined below); and,
     Whereas, the Parties agree that this Agreement shall replace and supersede the provisions of the Letter Agreement, and that upon execution of this Agreement the Letter Agreement shall be of no further effect.
     Now, therefore, in consideration of the mutual covenants and promises contained herein and intending to be legally bound, the Parties agree as follows:
1. Definitions.
  1.1   “Agreement” shall mean this Bioprocessing Services Agreement, including the attached Appendices, effective as of the date first written above and any Approved Change Orders effective as of the dates written therein.
 
  1.2   “Approved Change Order” shall mean any Change Order that has been approved, or that is deemed to be approved, pursuant to Section 3.3 of this Agreement.
 
  1.3   “Assumptions” shall mean (i) assumptions that relate to the Program design and objectives, manpower requirements, timing, capital expenditure requirements, if any and other matters relating to the
 
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      completion of the Program as set forth in the Scope, and (ii) the assumption that there will be no changes in Law that affect the Program.
 
  1.4   “Change Order” shall mean either a Process Modification Request, a Scope Modification Request, or a Neose Requested Change Order as the context requires.
 
  1.5   “Claim” shall mean any third party lawsuit, action, claim, demand, assessment or proceeding.
 
  1.6   “Confidential Information” shall mean any information provided by one party to the other party that would be included in the definition of “Information” in the Confidentiality Agreement.
 
  1.7   “Confidentiality Agreement” shall mean that certain Confidentiality Agreement by and between Neose and Diosynth dated July 6, 2004, as amended, a copy of which is attached hereto as Appendix 4 to this Agreement.
 
  1.8   “Diosynth” shall have the meaning set forth in the preamble.
 
  1.9   “Documentation” shall mean materials, documents, information, programs, experimental records, experimental descriptions, data, results, syntheses, and suggestions of any kind and description generated as a result of the performance of the Program wherever located including, but not limited to, within laboratory notebooks. Copies of any of the items listed above shall also be considered to be Documentation.
 
  1.10   “Field” shall mean the research, manufacture, development and commercialization of GlycoPEGylated erythropoietin expressed in ****** cells using a baculovirus expression system.
 
  1.11   “Impasse Notice” shall have the meaning set forth in Section 3.4.1.
 
  1.12   “Impasse Termination” shall have the meaning set forth in Section 3.4.1.
 
  1.13   “Indemnifiable Event” shall mean an event or occurrence that causes a party (to this Agreement or otherwise) to incur Losses and which is indemnified under Section 8.1, 8.2 or 8.3.
 
  1.14   “Indemnified Party” shall mean a party seeking indemnification.
 
  1.15   “Indemnifying Party” shall mean a party other than the Indemnified Party.
 
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  1.16   “Indemnity Claim” shall mean a demand in writing by an Indemnified Party seeking indemnification for a Loss or Losses incurred as a result of an Indemnifiable Event or a potential Loss or Losses as a result of a Claim.
 
  1.17   “Intermediate” shall have the meaning set forth in the Background section.
 
  1.18   “Invention” shall mean any Process Improvement or Product Invention.
 
  1.19   “Irrevocable Commitments” shall mean irrevocable commitments entered into by Diosynth for Process Consumables that cannot be reallocated or applied to other Diosynth operations in the event of the termination of the Program.
 
  1.20   “Law” shall mean any and all federal, state and local laws, regulations, ordinances, rules, judicial and administrative orders, injunctions, decrees or other legal requirements applicable to the Program or the Product or applicable to Neose due to its undertaking of the Program. Law shall include all U.S., EU, and Switzerland current good manufacturing practice regulations.
 
  1.21   “Loss” shall mean any third party loss, claim, damage, liability or expense. Reasonable attorney’s fees, disbursements and other expenses incurred in connection with investigating, preparing, settling and defending any pending or threatened action, claim or proceeding brought by a third party resulting from an Indemnifiable Event, shall also be considered to be Losses for the purposes of indemnification under this Agreement.
 
  1.22   “Neose” shall have the meaning set forth in the preamble.
 
  1.23   “Neose Deliverables” shall mean materials to be provided by Neose pursuant to the Scope including, but not limited to, process and analytical information, technical data, reports, documents as well as information related to cell line, virus stock and banks, process material, Intermediate and Product, and Neose-Supplied Raw Materials as specified in the Scope.
 
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  1.24   “Neose Process” shall mean the process described and delivered by Neose for the production of GlycoPEGylated erythropoietin in ****** cells using a baculovirus expression system, including but not limited to all Neose Deliverables and intellectual property associated with the creation or implementation of such process.
 
  1.25   “Neose Requested Change Order” shall have the meaning set forth in Section 3.2.
 
  1.26   “Neose-Supplied Raw Materials” shall mean ****** which will be supplied to Diosynth from Neose.
 
  1.27   “Non-Owning Party” shall mean the Party who is not an Owning Party in relation to a particular Invention.
 
  1.28   “Owning Party” shall mean Neose in the case of Product Inventions and Diosynth in the case of Process Improvements.
 
  1.29   “Party” or “Parties” shall have the meaning set forth in the preamble.
 
  1.30   “Process Consumables” shall have the meaning set forth in the Scope.
 
  1.31   “Process Modification” shall mean a material change to the Scope or Program that is identified by Diosynth, but which is not necessary for the successful completion of the Program pursuant to the Scope. The definition of Process Modification shall include, but not be limited to, any Process Improvements Diosynth desires to implement during the course of the Program and any changes to analytical methods applied to the Program.
 
  1.32   “Process Improvement” shall mean any idea, invention, discovery, technique, method, process, trade secret or other know-how, whether patentable or not, related to the manufacture of biological compounds and arising out of the conduct by Diosynth of, or as a result Diosynth’s performance of the Program except any process improvement that relates specifically to the Product that is invented by Neose.
 
  1.33   “Process Modification Request” shall mean a written request for a Process Modification sent by Diosynth to Neose.
 
  1.34   “Product Invention” shall mean any idea, invention, discovery, trade secret or other know-how, whether patentable or not, related to (i) the Product and arising out of the conduct of, or as a result of, the Program or (ii) the manufacture of biological materials related specifically to the Product and invented by Neose.
 
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  1.35   “Program” shall mean the services performed by Diosynth under this Agreement.
 
  1.36   “Raw Materials” shall mean any ingredient intended for use in the manufacture of an Intermediate or Product, including those that may not appear in the final formulation and any chemicals used directly or indirectly in the manufacturing process.
 
  1.37   “Scope” shall mean the Program design, information desired, estimated duration of the Program and all other matters pertinent to the completion of the Program as set forth in Appendix 1, as may be amended or modified from time to time by any Approved Change Orders.
 
  1.38   “Scope Modification” shall mean a change to the Scope or Program required as a result of the determination by Diosynth that its ability to complete the Program as originally set forth is materially hindered absent such change, including as a result of a change in Assumptions.
 
  1.39   “Scope Modification Request” shall mean a written request for a Scope Modification sent by Diosynth to Neose.
 
  1.40   “******” shall mean ******.
 
  1.41   “Work Output” shall mean all documentation, reports or technical summaries, Intermediate, Product and samples provided or generated by Diosynth pursuant to the Scope.
2. Scope of Work and Performance of the Program.
  2.1   Diosynth will perform the Program for Neose in accordance with the terms and conditions of this Agreement, the Scope (attached as Appendix 1) and the Quality Agreement (attached as Appendix 2). Terms defined in the terms and conditions of this Agreement shall have the same meaning when used in the Scope or Quality Agreement. In the event of any conflict among the components of this Agreement, the following order of precedence shall apply:
  2.1.1   the terms and conditions of this Agreement;
 
  2.1.2   the Quality Agreement (except capitalized terms defined in the Quality Agreement shall have such meanings as assigned in the Quality Agreement); and
 
  2.1.3   the Scope.
 
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  2.2   Diosynth shall use commercially reasonable efforts to dedicate adequate resources to the performance of the Program as set forth in the Scope.
 
  2.3   Neose shall use commercially reasonable efforts to perform its obligations as set forth in the Scope and Quality Agreement and shall cooperate with the execution of the Program.
 
  2.4   As further set forth in the Scope, Neose will timely provide Diosynth with Neose Deliverables (as defined in the Scope). Failure by Neose to provide Neose Deliverables within the timeframe set forth in the Scope to execute the program without delay may result at Diosynth’s reasonable discretion in additional charges to Neose and a delay in meeting Program objectives.
 
  2.5   Diosynth will perform the Program in compliance in all material respects with applicable Law (including, but not limited to, those regulations of the FDA, the EMEA and Swissmedic applicable to the manufacture of biological materials as therapeutic compounds for use in human beings). Diosynth shall prevent any debarred persons from participating in the Program.
 
  2.6   Neose acknowledges that Diosynth has consulted with Neose in designing the Program in a manner consistent with current U.S. regulatory guidelines. Notwithstanding the foregoing, Diosynth does not warrant that the Program and/or the Program results will satisfy the requirements of any regulatory agencies at the time of submission of Program results to such agencies. Neose shall have responsibility for determining regulatory strategy and for all regulatory decisions except for those matters that Diosynth, in its sole discretion, deems contrary to regulatory requirements or commitments made by Diosynth to regulatory authorities.
 
  2.7   Neose shall have the right to audit Diosynth’s facilities in accordance with the terms of the Quality Agreement and in accordance with the Standard Operating Procedure entitled “Requirements for Facility Access by Client Representations”, a copy of which has been provided to Neose (the “Facility Access SOP”). Neose shall also have the right to otherwise visit Diosynth’s facilities in accordance with the Facility Access SOP. Further, Neose shall have the right to additional audits, agreed by Diosynth, which shall be arranged and compensated via a Change Order.
3.   Change Orders.
  3.1   Change Order Requests by Diosynth. If Diosynth identifies a Scope Modification or a Process Modification, Diosynth shall notify Neose as
 
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      soon as is reasonably possible. Diosynth shall thereafter provide Neose’s Alliance Manager or designee with a Change Order as soon as it is reasonably possible, but in no event more than ten business days following the identification of the requested Scope Modification or Process Modification. Neose, through its Alliance Manager or designee, shall respond in writing to any Change Order within five business days after receipt of such Change Order indicating whether or not it approves the proposed Change Order.
 
  3.2   Change Order Request by Neose. If Neose requests any commercially reasonable modifications of the Scope activities during performance of the Program, Neose shall notify Diosynth in writing of such request. Diosynth shall use commercially reasonable efforts to accommodate Neose’s request through a Change Order (a “Neose Requested Change Order”). In the event that Diosynth believes such request can be accommodated based on Diosynth’s then existing resources and capacity, Diosynth shall draft a Change Order as soon as reasonably possible but in no event more than 10 business days after receipt of the request from Neose. Neose, through its Alliance Manager or designee, shall respond in writing to any such Change Order within five business days after receipt of such Change Order indicating whether or not it approves the proposed Change Order.
 
  3.3   Approved Change Orders. If a Change Order is approved, Diosynth shall work on the Program as modified by the Approved Change Order and the Approved Change Order shall serve as an amendment to this Agreement with respect to any other obligations of the Parties modified by the Approved Change Order.
 
  3.4   Unapproved Change Orders.
  3.4.1   Scope Modification Requests. If the Change Order proposed pursuant to Section 3.1 is a Scope Modification Request and Neose does not approve such Change Order, Neose and Diosynth shall negotiate in good faith to agree on a Change Order that is mutually acceptable. If the Parties cannot agree on a mutually acceptable Change Order within 30 days after the issuance of the initial Change Order and it would not be commercially reasonable for Diosynth to continue the Program without the requested Scope Modification, then Diosynth shall deliver to Neose a written notice of its inability to perform in the absence of the requested Scope Modification (an “Impasse Notice”). If Neose does not give notice to Diosynth of its approval of such Change Order on or before the tenth day following Neose’s
 
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      receipt of an Impasse Notice, this Agreement shall automatically terminate (an “Impasse Termination”).
 
  3.4.2   Process Modification Requests and Neose Requested Change Orders. If the Change Order proposed pursuant to Section 3.1 is a Process Modification Request or if the Change Order is a Neose Requested Change Order and Neose does not approve such Change Order, Diosynth shall continue the work on the Program without regard to the unapproved Change Order.
  3.5   To the extent possible, Diosynth shall continue work on the Program without regard to any proposed Change Order during the course of any negotiations or waiting periods pursuant to this Section 3, provided that Diosynth will not enter into any Irrevocable Commitments during negotiations by the Parties pursuant to Section 3.4.1 without the prior consent of Neose.
 
  3.6   In the event of an Impasse Termination, this Agreement shall terminate immediately, and the parties shall have no further obligation to each other except as set forth in this Section 3 and Section 14. The foregoing notwithstanding, Neose shall have no obligation to Diosynth with regard to Section 14.5 if the Impasse Termination is the result of:
  3.6.1   a Change Order initiated by Diosynth in bad faith;
 
  3.6.2   an Impasse Notice initiated by Diosynth in bad faith;
 
  3.6.3   Diosynth’s failure to negotiate the terms of any Change Order in good faith;
 
  3.6.4   Diosynth’s bad faith in negotiating any Change Order;
 
  3.6.5   the inclusion of commercially unreasonable terms in any Change Order.
4. Compensation.
  4.1   Neose shall make payments to Diosynth in such amounts as are set forth in the “Program Price and Payment Schedule” attached hereto as Appendix 3. In addition, Neose shall make payments to Diosynth for Process Consumables and Raw Materials purchased by Diosynth for this program in the amounts set forth in Section 4.3 below.
 
  4.2   Neose shall supply Diosynth with Neose-Supplied Raw Materials required for implementation of the Program.
 
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  4.3   Process Consumables and Raw Materials purchased for the Program will be invoiced separately as such costs are incurred by Diosynth. Neose agrees to pay Diosynth’s purchase price for the Process Consumables and Raw Materials purchased for the Program plus a fee equal to ****** of such purchase price.
 
  4.4   Invoices related to Process Consumables and Raw Materials purchased by Diosynth shall be issued after Diosynth takes possession of the Process Consumables and/or Raw Materials purchased and shall include an accounting, in reasonable detail, of such Process Consumables and Raw Materials and their intended use.
 
  4.5   Payments are due 30 days from the date of any invoice issued by Diosynth unless the payment set forth in the invoice is subject to a good faith dispute. In the event that Neose has a good faith basis for disputing a particular invoice, Neose shall notify Diosynth immediately and payment shall not be due until 15 days after resolution of the dispute. Except for those invoices that are the subject of a good faith dispute, failure to pay an invoice within 90 days from the date of invoice shall, for the purposes of Section 14.4, constitute a default of a material obligation of Neose.
 
  4.6   Late payments are subject to an interest charge of ****** per month.
 
  4.7   Diosynth has allocated resources to the Program that may be difficult or impractical to reallocate to other programs in the event of a delay attributable to Neose. In recognition of this, Neose agrees to pay the amounts set forth in and in accordance with the estimated dates set forth in Program Price and Payment Schedule during such delay. Such amounts shall apply to completion of any components of the Program that are delayed. In addition to the payment of the amounts set forth in the Program Price and Payment Schedule, Neose and Diosynth shall negotiate a Change Order to compensate Diosynth for any idled personnel or capacity not reallocated. Diosynth shall use commercially reasonable efforts to mitigate its losses by moving forward existing programs or securing new programs to minimize idled personnel and capacity.
5.   Confidential Information. All Confidential Information will be governed by, and subject to, the terms and conditions of Confidentiality Agreement. Attached to this document as Appendix 4. If the Confidentiality Agreement should expire or is terminated prior to the expiration or termination of this Agreement, the terms and conditions of the Confidentiality Agreement shall automatically be incorporated herein by reference effective upon such expiration or termination of the Confidentiality Agreement.
 
******   — Material has been omitted and filed separately with the Commission.

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6.   Work Output
  6.1   All Work Output documents, reports or technical summaries and other cGMP documentation will be prepared using Diosynth’s standard format(s) unless otherwise specified in the Scope.
 
  6.2   Diosynth agrees to grant and hereby grants to Neose an exclusive, worldwide, perpetual, non-revocable, fully-paid, royalty-free license to use the reports with the right to sublicense for uses reasonably related to Neose’s business.
 
  6.3   Neose will be supplied with copies of all Work Output documents, reports or technical summaries, all other documentation generated as a result of the Program as set forth in the Scope or Quality Agreement and all other items generated by Diosynth as a result of the Program and reasonably requested by Neose. Unless instructed by Neose to destroy or return all Work Output, all Work Output will be archived by Diosynth for a period of five years following completion of the Program. Five years after completion of the Program, Work Output will be destroyed at Neose’s cost, or, at Neose’s request and expense, sent to Neose. Neose may elect to have the Work Output retained in the Diosynth archives for an additional period of time not to exceed an additional five years at a cost to Neose. Notwithstanding the foregoing, if required by Law, Diosynth will retain such Work Output, without charge to Neose, for such a period as is required by the applicable Law (which period may be more than 10 years). In addition, Diosynth may retain one copy of documentation for archival purposes.
7.   Intellectual Property.
  7.1   The Neose Process, Work Output, Neose Deliverables, all other documentation generated as a result of the Program as set forth in the Scope or Quality Agreement and all other Documentation generated by Diosynth as a result of the Program and any Documentation that has been provided by Neose shall be the sole and exclusive property of Neose. Nothing contained herein shall constitute the grant of a license to Diosynth for any use of the Neose Process, Work Output and Neose Deliverables other than such uses as are necessary to allow Diosynth to complete the Program.
 
  7.2   Product Inventions.
  7.2.1   All Product Inventions shall be the sole and exclusive property of Neose, and Diosynth hereby assigns and agrees to take all action necessary to assign or cause to be assigned all rights thereto to Neose. Diosynth shall notify Neose of the discovery of any
 
******   — Material has been omitted and filed separately with the Commission.

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      Product Invention as promptly as possible, but in no event later than within 30 days following such discovery.
 
  7.2.2   In consideration of the foregoing, Neose agrees to grant to Diosynth a non-exclusive, non-assignable, royalty-free license, without right to sublicense, to any of the Product Inventions necessary for the completion of the Program for the term of this Agreement.
  7.3   Process Improvements.
  7.3.1   All Process Improvements shall be the sole and exclusive property of Diosynth. Diosynth shall notify Neose of the discovery of any Process Improvement as promptly as possible, but in no event later than within 30 days following such discovery.
 
  7.3.2   In consideration of the foregoing, for each Process Improvement, Diosynth agrees to grant and hereby grants to Neose an exclusive, worldwide, perpetual, non-revocable, fully-paid, royalty-free license to use such Process Improvements, with the right to sublicense, in the Field. Diosynth agrees to grant and hereby grants to Neose a non-exclusive, worldwide, perpetual, non-revocable, fully-paid, royalty-free license to use such Process Improvements outside the Field, solely for research purposes. Upon Neose’s request, Diosynth agrees to grant to Neose a non-exclusive, worldwide, license to use such Process Improvements outside the Field for clinical development and commercialization purposes, on commercially reasonable financial terms to be negotiated in good faith.
 
  7.3.3   Diosynth may not abandon any Process Improvement without notifying Neose in writing of the decision to do so and giving Neose the exclusive right to assume ownership of such Process Improvement for a period of 90 days following Neose’s receipt of such notice.
  7.4   For each Invention, the Owning Party shall be responsible for and shall have sole control over the preparation and prosecution of all patent applications (including, without limitation, all substitutions, divisionals, reissues, reexaminations, continuations, continuations-in-part, inventors’ certificates, renewals, extensions of additions to any such patent or patent application, and all foreign counterparts thereof) that claim priority to any of the patent applications or patents of Invention and the maintenance of all such patent applications, patents and equivalents in the United States and in any foreign country related to the Invention.
 
******   — Material has been omitted and filed separately with the Commission.

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      The Non-Owning Party shall cooperate, and shall use all reasonable efforts to cause its affiliates, officers, directors and employees to cooperate, with the Owning Party in taking all steps which the Owning Party believes necessary or desirable to secure its rights in and to the Invention, at the expense of the Owning Party. Furthermore, the Non-Owning Party shall provide access to, or copies of, any of the items listed in Section 7.1 which the Owning Party believes necessary or desirable to secure its rights in and to the Invention.
8.   Indemnification.
  8.1   Each Party shall indemnify the other and its affiliates, officers, directors and employees from any Loss as a result of Indemnifying Party’s negligence, gross negligence, intentional misconduct or inaction (including violation or non-performance of this Agreement).
 
  8.2   Neose shall indemnify Diosynth and its affiliates, officers, directors and employees from any Loss arising from (i) Neose’s breach of any of its representations and warranties set forth in Section 12; and (ii) the infringement, or alleged infringement, of the intellectual property rights of a third party resulting from the use by Diosynth in accordance with the Scope, of the Neose Deliverables, the Neose Process, Intermediate, or the Product as described or delivered by Neose for application to the Program; and (iii) personal injury or other Losses caused directly or indirectly by Neose or by the proper use by Diosynth of the Neose Deliverables, Neose-Supplied Raw Materials, Intermediate, Product or the Neose Process.
 
  8.3   Diosynth shall indemnify Neose and its affiliates, officers, directors and employees from any Loss arising from Diosynth’s breach of any of its representations and warranties set forth in Section 12.
 
  8.4   If any Claim for which an Indemnified Party is seeking indemnification pursuant to this Section 8 arises in whole or in part from the Indemnified Party’s negligence, gross negligence or intentional misconduct or inaction, then the amount of such Loss shall be reduced by an amount in proportion to the percentage of the Indemnified Party’s responsibilities for such Loss.
 
  8.5   Upon receipt of notice of any Claim from a third party which may give rise to a right of indemnification pursuant to this Section 8, the Indemnified Party shall make an Indemnity Claim. Any delay or failure to give notice shall not discharge the duty of the Indemnifying Party to indemnify except to the extent it is prejudiced by such delay or failure. Such Claim for indemnity shall indicate the nature of the Claim and the basis therefor.
 
******   — Material has been omitted and filed separately with the Commission.

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  8.6   Promptly after an Indemnity Claim is made the Indemnified Party shall permit the Indemnifying Party, at its option and expense, to assume the complete defense of the underlying Claim, provided that (i) the Indemnified Party will have the right to participate in the defense of any such Claim at its own cost and expense, (ii) the Indemnifying Party will conduct the defense of any such Claim with due regard for the business interests and potential related liabilities of the Indemnified Party, (iii) the Indemnifying Party will consult with the Indemnified Party prior consenting to the entry of any judgment or entry into any settlement of such Claim and (iv) the Indemnifying Party will obtain the written consent of the Indemnified Party prior to consenting to the entry of any judgment or entry into any settlement of such Claim that does not include as an unconditional term thereof, the giving by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect thereof. After notice to the Indemnified Party of the Indemnifying Party’s election to assume the defense of such Claim, the Indemnifying Party shall be liable to the Indemnified Party for such legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof at the request of the Indemnifying Party. The Indemnified Party shall have complete control over the defense of any Claim that the Indemnifying Party does not elect to assume control of the defense.
 
  8.7   Section 8.6 notwithstanding, the Indemnified Party shall have the right, at its election, to release and hold harmless the Indemnifying Party from its obligations under this Section 8 with respect to a Claim underlying an Indemnity Claim and assume the complete defense of such Claim in return for payment by the Indemnifying Party to the Indemnified Party of the amount of the Indemnifying Party’s settlement offer.
9.   Insurance.
  9.1   Prior to commencement of any work under this Agreement, Diosynth shall, at its sole expense, maintain the following insurance on its own behalf, with insurance companies having an A. M. Best Rating of “A-, VII” or better and furnish to Neose, certificates of insurance evidencing same and reflecting the effective date of such coverage as follows:
  9.1.1   Workers Compensation (Statutory Benefits) and Employers Liability in the state in which the work is to be performed and elsewhere as may be required and shall include coverage for:
 
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  (a)   Bodily injury by accident: ****** per accident;
 
  (b)   Bodily injury by disease: ****** per occurrence; and
 
  (c)   Employee bodily injury by disease: ****** policy limit.
  9.1.2   Commercial General Liability (including premises operations, products/completed operations and modified professional liability) with the following limits:
  (a)   Each occurrence: ******;
 
  (b)   General aggregate: ******;
 
  (c)   Product completed operations aggregate: ******; and
 
  (d)   Personal & advertising injury: ******.
      The policy or a specific coverage within the policy may be on a claims made policy form and must be kept in force at least 2 years following the termination of this agreement.
  9.1.3   Commercial Automobile Liability for all owned, hired and non-owned vehicles with a per accident limit of ******.
      The amount of insurance required above shall not be construed to be a limitation of the liability on the part of Diosynth. The policies will not be cancelled, materially changed or non-renewed without at least 30 days advance written notice to Neose.
 
  9.2   Neose shall secure and maintain in full force and effect throughout the performance of the Program a policy of insurance for general liability and product liability having policy limits, deductibles and other terms appropriate to the conduct of Neose’s business in Neose’s reasonable judgment.
10.   Limitation of Warranty.
  10.1   Not withstanding anything herein to the contrary, under no circumstances shall either party, or their respective affiliates, officers, directors, employees or other representatives, be entitled to incidental, indirect, consequential or special damages arising in connection with the default or breach of any obligation of the other party under this agreement, the scope or any documents or appendices related thereto. Diosynth’s maximum liability for damages in connection with a claim
 
******   — Material has been omitted and filed separately with the Commission.

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      related to this Agreement (other than the Claim of a third party for which Diosynth is responsible for pursuant to Section 8.3), regardless of the cause of action, will not exceed the fees paid and/or due hereunder. Diosynth’s maximum liability for a Claim of a third party for which Diosynth is responsible for pursuant to Section 8.3 shall not exceed ******.
 
  10.2   Except as expressly stated herein, neither party provides to the other party hereto any warranties, express or implied, with respect to the materials and services provided hereunder, and all such warranties, express or implied, including without limitation any implied warranties of merchantability or fitness for a particular purpose are waived. Diosynth makes no warranties that the execution of the Scope will result in any specific quantity or quality of Product. Diosynth does not guarantee the availability of future manufacturing capacity for the Product or any other product.
11.   Dispute Resolution.
  11.1   Except as provided in the Confidentiality Agreement with respect to Confidential Information, in the event any dispute shall arise between Neose and Diosynth with respect to any of the terms and conditions of this Agreement or the Program, senior executives of Neose and Diosynth shall meet as promptly as practicable after notice of such dispute to resolve in good faith such dispute.
 
  11.2   If Neose and Diosynth are unable to satisfactorily resolve the dispute, then such dispute shall be finally settled by a panel of three arbitrators in accordance with this Section 11. The arbitration will be held in or around New York City, in the State of New York, and except as noted below, shall be conducted in accordance with the rules of the American Arbitration Association by a neutral arbitrator agreeable to both Parties. The panel of arbitrators shall consist of one arbitrator selected by each Party and a third arbitrator selected mutually by each of the other two arbitrators. If the a third arbitrator is not selected within 30 days of the selection of the first two, the American Arbitration Association shall appoint an arbitrator to hear the case in accordance with its rules. The arbitrators shall have no authority to award consequential, punitive or exemplary damages or to vary from or ignore the terms of this Agreement and shall be bound by controlling law.
12.   Representations and Warranties.
  12.1   Neose hereby represents and warrants to Diosynth that, to the best of its knowledge, the delivery and use of the Neose Process will not constitute
 
******   — Material has been omitted and filed separately with the Commission.

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      infringement of the patents, or a violation of trademarks, trade names, service marks or copyrights, of any other party.
 
  12.2   Neose hereby represents and warrants to Diosynth that it has legal title and/or a valid license to the cell line (****** (“******”) and viral bank (******), Neose-Supplied Raw Materials, Intermediate and the Product necessary to conduct the Program and that Diosynth’s use of the foregoing will not violate or infringe on the patents, trademarks, trade names, service marks or copyrights of any other party.
 
  12.3   Diosynth hereby represents and warrants to Neose that, to the best of its knowledge, the acquisition and use of any Process Consumable or Raw Material (excluding Neose-Supplied Raw Materials) not received from Neose, the application of any process other than, or in addition to, the Neose Process in connection with the performance of the Program and the delivery and use of Work Output provided by Diosynth to Neose pursuant to this Agreement will not constitute infringement of the patents, or a violation of trademarks, trade names, service marks or copyrights, of any other party, except to the extent any such infringement results from the use of bulk intermediate erythropoietin.
 
  12.4   Diosynth represents and warrants that it will notify Neose prior to implementing any process modification hereunder that to its knowledge would infringe on the patents or violate the trademarks, trade names, service marks or copyrights of any other party.
 
  12.5   Neose represents and warrants that the Intermediate and the Product produced or manufactured as part of the Program will be used solely in clinical trials, in support of clinical trials and in all other activities required for, or contemplated by, the process of attaining regulatory approval to commercialize the Product.
13.   Allocation of Resources. If delays in the agreed commencement or performance of the Program occur because of Neose’s request or inability to supply Diosynth with agreed Neose Deliverables required to begin or perform the Program, Diosynth may, after 30 days prior notice to Neose and if Neose does not cure such delay following the receipt of such notice, reallocate resources being held for performance of the Program without incurring liability to Neose. In addition, in such event Diosynth shall be relieved of its obligation to perform the Program as set forth in the Scope until the cause of such delay has been removed or remedied or the Program has been modified so as to no longer require the Neose Deliverables or information that caused the delay. After the elimination of the delay, Diosynth will use commercially reasonable efforts to allocate resources to performance of the Program as set forth in the Scope.
14.   Term/Termination.
 
******   — Material has been omitted and filed separately with the Commission.

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  14.1   This Agreement shall take effect on the date first written above and, unless terminated earlier pursuant to an Impasse Termination or this Section 14, shall automatically terminate upon the completion of the Program.
 
  14.2   If Diosynth is in default of its material obligations under this Agreement, then Neose shall promptly notify Diosynth in writing of any such default. Diosynth shall have a period of 45 days from the date of receipt of such notice within which to cure or to commence to cure such default. If Diosynth fails to so cure or commence to cure, then this Agreement shall, at Neose’s option, immediately terminate.
 
  14.3   In addition to the rights set forth in Section 14.2, Neose may at any time terminate this Agreement prior to completion of the Program by giving 45 days written notice to Diosynth.
 
  14.4   If Neose is in default of its material obligations under this Agreement, Diosynth shall promptly notify Neose in writing of any such default. Neose shall have a period of 45 days from the date of receipt of such notice within which to cure such default; provided that if Neose fails to cure such breach within the specified cure period, this Agreement may, at Diosynth’s option, immediately terminate.
 
  14.5   In the event (i) Neose elects to terminate this Agreement or any particular manufacturing Scope activity for reasons other than pursuant to Section 14.2, (ii) Diosynth terminates this Agreement pursuant to Section 14.4 or, subject to Section 3.6, (iii) of an Impasse Termination, Neose shall pay Diosynth upon receipt of Diosynth’s invoice (i) all amounts owed for work completed but not yet invoiced; plus (ii) all unpaid costs incurred or committed for Process Consumables and Raw Materials; plus (iii) a termination fee calculated as follows:
  14.5.1   ******;
 
  14.5.2   ******;
 
  14.5.3   ******;
 
  14.5.4   ******.
The termination of this Agreement shall not relieve either Party of its obligation to the other for obligations contained in Sections 5, 6, 7, 8 and 15 (along with those terms defined in Section 1 and used in the listed sections).
  14.6   Within 10 days following the termination of this Agreement for any reason and subject to Section 6.3 and the Quality Agreement, Diosynth
 
******   — Material has been omitted and filed separately with the Commission.

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      shall, at Neose’s option, return or destroy all Work Output and all other documentation generated that (i) is, (ii) as a result of the Program is, or (iii) would become in its final form, the property of Neose under this Agreement and provide Neose with a written certification that such return or destruction has occurred.
15.   Use of Names and Disclosures.
  15.1   Neither Party shall use the name of the other Party or the names of the employees of the other Party in any advertising or sales promotional material or in any publication without prior written permission of such Party, provided that, Neose may (i) disclose a redacted copy of this Agreement and Diosynth’s role to any party and (ii) to the extent the following parties have entered into a non-disclosure agreement with Neose, disclose this Agreement and Diosynth’s role to investors, prospective partners who are not competitors of Diosynth, and to prospective partners who are competitors of Diosynth and with whom a letter or intent or term sheet has been produced.
 
  15.2   Nothing in this Agreement shall prevent or restrict either Party’s ability (i) to make any announcement or public disclosure which includes the name of the other Party; or (ii) to include in any of its filings with the Securities and Exchange Commission (“SEC”) any information related to the Program or this Agreement that it is required to disclose (including the name of the other Party) pursuant to its obligations as a public company in the United States under the Exchange Act. Neose shall provide Diosynth with the opportunity to comment on the proposed redactions from the Agreement to be filed with the SEC.
 
  15.3   Neither Party may include any Confidential Information in any disclosure or public announcement made pursuant to this Section 15 unless the other Party has consented to such disclosure in writing.
16.   Force Majeure. Either Party shall be excused from performing its respective obligations under this Agreement if its performance is delayed or prevented by any unforeseeable event beyond such Party’s reasonable control, including, but not limited to, acts of God, fire, explosion, weather, disease, war, insurrection, civil strife, riots, government action or acts of terrorism, provided that such performance shall be excused only to the extent of and during such disability. The Party subject to such event shall promptly notify the other Party of the occurrence thereof and, if known, the expected duration. Any time specified or estimated for completion of performance in the Scope falling due during or subsequent to the occurrence of any or such events shall be automatically extended for a period of time to recover from such disability. Diosynth will promptly notify Neose if, by reason of any of the events referred to in this Section 16, Diosynth is unable to
 
******   — Material has been omitted and filed separately with the Commission.

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    meet any such time for performance specified or estimated in the Scope. If any part of the Program is invalid as a result of such disability, Diosynth will, upon written request from Neose repeat that part of the Program affected by the disability at Neose’s expense.
17.   Shipping. Diosynth shall package for shipment and ship Product, samples or other materials at Neose’s expense and in accordance with Neose’s full written and reasonable instructions with Neose bearing all packaging, shipping and insurance charges. Freight terms shall be Ex Works according to INCO terms 2000. Diosynth shall retain representative samples of Product for record keeping, testing and regulatory purposes.
18.   Program Management.
  18.1   Joint Steering Committee. Effective on the Effective Date, Neose and Diosynth shall establish a Joint Steering Committee (the “Joint Steering Committee”) comprised of 3 representatives designated by Neose and 3 representatives designated by Diosynth, each of whom shall have experience and seniority sufficient to enable him or her to make decisions on behalf of the party he or she represents.
 
  18.2   Alliance Managers. Each party shall appoint one person to serve as an Alliance Manager (each, an “Alliance Manager”) with responsibility for overseeing the day-to-day activities of the parties with respect to the Program and for being the primary point of contact between the parties with respect to the Program. The Diosynth customer Project Leader will serve as the Diosynth Alliance Manager. The Alliance Managers shall report to the Joint Steering Committee.
 
  18.3   Replacement of Joint Steering Committee Representatives and Alliance Managers. Each party shall be free to replace its representative members on the Joint Steering Committee or its Alliance Manager with new appointees who have authority to act on behalf of such party, on notice to the other party.
 
  18.4   Responsibilities of Joint Steering Committee. The Joint Steering Committee shall be responsible for overseeing and directing the parties’ interaction and performance of their respective obligations under this Agreement. Without limiting the generality of the foregoing, its duties shall include:
  18.4.1   Monitoring the performance of the Program; and
 
  18.4.2   Resolving disagreements that arise under the Agreement.
 
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  18.5   Meetings. The Joint Steering Committee shall meet at such times as the Joint Steering Committee determines to resolve issues arising hereunder and to perform its responsibilities under this Agreement, provided that the Joint Steering Committee shall meet not less than 4 times per calendar year unless otherwise mutually agreed. Such meetings may be in person or by telephone as agreed by the Joint Steering Committee. To the extent that meetings are held in person, they shall alternate between the offices of the parties unless the parties agree otherwise. The Alliance Managers shall attend all meetings of the Joint Steering Committee. All decisions of the Joint Steering Committee shall be unanimous.
 
  18.6   Administration. A chairperson of the Joint Steering Committee shall be designated every six months on an alternating basis between the parties. The initial chairperson will be selected by Diosynth. The chairperson shall be responsible for calling meetings, sending notices of meetings and for leading such meetings. The position of chairperson is an administrative position and the chairperson shall have no more authority than any other member of the Joint Steering Committee.
 
  18.7   Minutes. Within 15 days after each Joint Steering Committee meeting, the Alliance Manager for the party whose representative chaired the Joint Steering Committee meeting shall prepare and distribute minutes of the meeting, which shall provide a description in reasonable detail of the discussions had at the meeting and a list of any actions, decisions or determinations approved by the Joint Steering Committee. Minutes shall be distributed and revised, as necessary, prior to the next meeting. At the next meeting, the minutes of the immediately prior meeting shall be approved or disapproved. Final minutes shall be distributed to the members of the Joint Steering Committee.
 
  18.8   Dispute Resolution. In the event that the Joint Steering Committee cannot reach agreement with respect to any material issue, then the issue shall be resolved in accordance with the dispute resolution provisions in Section 11.
 
  18.9   Limitations. The Joint Steering Committee is not empowered to amend the terms of this Agreement.
19.   Miscellaneous.
  19.1   Notice. All notices to be given as required in this Agreement shall be in writing and shall be delivered personally, sent by e-mail, sent by telecopies, or mailed either by a reputable overnight carrier or first class mail, postage prepaid to the Parties at the addresses set forth below or such other addresses as the Parties may designate in writing. Such
 
******   — Material has been omitted and filed separately with the Commission.

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      notice shall be effective on the date sent, if delivered personally, by e-mail or sent by telecopier, the date after delivery if sent by overnight carrier and on the date received if mailed first class.
         
 
  If to Neose:   Neose Technologies, Inc.
 
      102 Witmer Road
 
      Horsham, PA 19044
 
      Attention: General Counsel
 
      Phone: 215-315-9000
 
      Fax: 215-315-9100
 
      E-Mail: dpoul@neose.com
 
        
 
  If to Diosynth:   Chief Operating Officer
 
      Diosynth RTP Inc.
 
      101 J. Morris Commons Lane
 
      Morrisville, NC 27560
 
      Phone: 919-337-4404
 
      Fax: 919-337-0899
 
      E-Mail: chris.vaneekelen@diosynth-rtp.com
 
        
 
  With a copy to:   General Counsel
 
      Diosynth RTP Inc.
 
      101 J. Morris Commons Lane
 
      Morrisville, NC 27560
 
      Phone: 919-337-4415
 
      Fax: 919-337-0911
 
      E-Mail: anne.showalter@diosynth-rtp.com
  19.2   Independent Contractor. Diosynth shall perform the Program as an independent contractor of Neose and shall have complete and exclusive control over its facilities, equipment, employees and agents. The provisions of this Agreement shall not be construed to establish any form of partnership, agency or other joint venture of any kind between Diosynth and Neose, nor to constitute either Party as the agent, employee or legal representative of the other. All persons furnished by either Party to accomplish the intent of this Agreement shall be considered solely as the furnishing Party’s employees or agents and the furnishing Party shall be solely responsible for compliance with all laws, rules and regulations involving, but not limited to, employment of labor, hours of labor, working conditions, workers’ compensation, payment of wages, and withholding and payment of applicable taxes, including, but not limited to income taxes, unemployment taxes, and social security taxes.
 
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  19.3   Choice of Law. This Agreement shall be construed and enforced in accordance with the laws of and in the venue of the State of New York except for its rules regarding conflict of laws.
 
  19.4   Entire Agreement. This agreement, including the attached Appendices, together with the Confidentiality Agreement, sets forth the entire agreement between the Parties hereto with respect to the performance of the Program by Diosynth for Neose and as such, supersedes all prior and contemporaneous negotiations, agreements (including the Letter Agreement), representations, understandings, and commitments with respect thereto and shall take precedence over all terms, conditions and provisions on any purchase order form or form of order acknowledgment or other document purporting to address the same subject matter.
 
  19.5   Amendments. This Agreement shall not be waived, released, discharged, changed or modified in any manner except by an instrument signed by the duly authorized officers of each of the Parties hereto, which instrument shall make specific reference to this Agreement and shall express the plan or intention to modify same.
 
  19.6   Assignment. This Agreement may not be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, either Party shall be entitled, without the prior written consent of the other Party, to assign all or a part of its rights under this Agreement to a purchaser of all or substantially all of its assets or business, or an entity with which it may merge where it is not the surviving company, provided that the assignee agrees in writing to assume all obligations undertaken by its assignor in this Agreement. No assignment shall relieve the assigning party of responsibility for the performance of any of its obligations hereunder accrued prior to the date of assignment.
 
  19.7   Nonsolicitation. For the term of this Agreement and for twelve (12) months following termination of this Agreement for any reason, neither Neose nor Diosynth nor any of their employees or agents shall, directly or indirectly, solicit, hire, or attempt to solicit or hire, any employees of the other Party who were involved in the Program, unless otherwise approved by the other Party.
 
  19.8   Counterparts. This Agreement may be executed by facsimile and in one or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
[signature page follows]
 
******   — Material has been omitted and filed separately with the Commission.

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          In witness whereof, the parties hereto have caused this Agreement to be signed as of the Effective Date.
         
    Neose Technologies, Inc.
 
        
 
  By:   /s/ Kathryn J. Gregory
 
      Name: Kathryn J. Gregory
Title: Vice President, Business
          Development and Licensing
 
        
    Diosynth RTP Inc.
 
        
 
  By:   /s/ Chris van Eekelen
 
      Name: Chris van Eekelen
Title: Chief Operating Officer
 
        
 
  By:   /s/ Juliens
 
      Name: Juliens
 
      Title: President
 
******   — Material has been omitted and filed separately with the Commission.

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Appendix 1
Scope
*****
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 1-1

 

Appendix 2
Form of Quality Agreement
Clinical Material Quality Agreement
     This clinical material quality agreement (“Quality Agreement”) is dated December 7, 2006 (the “Effective Date”) and is by and between Neose Technologies, Inc., a Delaware corporation (“Neose”) having its principal place of business at 102 Witmer Road, Horsham, PA, 19044 and Diosynth RTP Inc., a Delaware corporation (“Diosynth”), having its principal place of business at 101 J. Morris Commons Lane, Morrisville, NC 27560, (each a “Party”, collectively, the “Parties”).
Background
     Whereas, the Parties have entered into a certain Bioprocessing Services Agreement on December 7, 2006 (the “BSA”) pursuant to which Diosynth will perform services related to the production of the material known as bulk *GlycoPEGylated erythropoietin, NE-180 drug substance (“Product”) along with any intermediate bulk erythropoietin (“Intermediate”).
     Whereas, this Quality Agreement shall govern the roles, responsibilities, deliverables and time requirements with respect to the quality of the Intermediate and Product.
Terms
     Now, therefore, in consideration of the mutual covenants and promises contained herein and intending to be legally bound, the Parties agree as follows:
1.   Definitions
  1.1.   “Analytical Raw Data” shall have the meaning set forth in Section 12.1.
 
  1.2.   “Approved Vendor” shall mean a vendor who has met minimum approval standards and who has been approved to provide required items or services that may impact product quality.
 
  1.3.   “Authorized Quality Representative” shall have the meaning set forth in Section 3.1.
 
  1.4.   “Batch” shall mean a specific quantity of Intermediate or Product in a process or fraction of a process. Batches are defined as the material represented at the end of the intermediate processing steps and the material represented at the end of the processing step for Product.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-1

 

  1.5.   “BPRs” shall have the meaning set forth in Section 9.2.1.
 
  1.6.   “BSA” shall have the meaning set forth in the Background.
 
  1.7.   “Certificate of Analysis,” “C of A” or “COA” shall mean an authentic document that certifies that a specific batch of material has been evaluated in accordance with the Item Specification for that material.
 
  1.8.   “Certificate of Conformance” or “COC” shall mean a Neose supplied document that certifies a specific lot of material has been evaluated by Neose and meets all product and regulatory requirements for further manufacturing or release.
 
  1.9.   “CMC” shall have the meaning set forth in Section 5.1.
 
  1.10.   “Critical Change” shall mean any change that (i) impacts the quality of Product; (ii) impacts the regulatory commitments or reporting requirements of the Intermediate; (iii) requires re-qualification or re-validation of Neose’s methods, process or reference standards; or (iii) results in changing or modifying Item Specifications or test methods.
 
  1.11.   “Critical Deviation” shall mean any departure that (i) impacts the regulatory commitments and/or reporting requirements of the Intermediate; (ii) requires re-qualification of methods, process or reference standards (where already qualified); and (iii) results in changing or modifying the specifications or methods.
 
  1.12.   “Critical Raw Materials” shall mean raw materials that are critical to a Neose specific process which typically comprise final formulation components (excipients) and raw materials that combine structurally or chemically with the therapeutic protein. Critical raw materials should be defined in the scope of work.
 
  1.13.   “Date of Manufacturing” shall mean the date of fill into final container or packaging for Intermediate or Product.
 
  1.14.   “Diosynth” shall have the meaning set forth in the First paragraph of this Agreement.
 
  1.15.   “Effective Date” shall have the meaning set forth in the First paragraph of this Agreement.
 
  1.16.   “Final Release” shall have the meaning set forth in Section 14.1.
 
  1.17.   “Intermediate” shall have the meaning set forth in the Background.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-2

 

  1.18.   “Item Specification” shall mean a set of criteria to which a material must conform to be considered acceptable for its intended use.
 
  1.19.   “Master Batch Record” or “MBR” shall mean a detailed description of Neose specific production process outlining the different actions an operator has to perform to complete the drug substance production process. A scaled copy of the master batch record is the batch production record.
 
  1.20.   “Neose” shall have the meaning set forth in the First paragraph of this Agreement
 
  1.21.   “OOS” shall have the meaning set forth in Section 10.1.
 
  1.22.   “Party” or “Parties” shall have the meaning set forth in the First paragraph of this Agreement.
 
  1.23.   “Product” shall have the meaning set forth in the Background.
 
  1.24.   “Quality Agreement” shall have the meaning set forth in the First paragraph of this Agreement.
 
  1.25.   “Release Package” shall mean the relevant documentation to be transferred to Neose to facilitate the release of a Batch. This package consists of copies of quality assurance reviewed, executed processing batch records, deviation summaries, in-process and release assay results, Certificate of Analysis or analytical results, QA disposition of product statement and where applicable batch genealogy, and facility deviations.
 
  1.26.   “SSTM” shall have the meaning set forth in Section 7.1.
 
  1.27.   “TSE” shall have the meaning set forth in the heading to Section 6.3.
 
  1.28.   “Validation Master Plan” shall mean a document defining the scope of validation work including equipment/systems or processes to be validated and the overall validation approach.
 
  1.29.   All capitalized terms not defined in the Quality Agreement shall have the same meaning as is assigned to such terms in the BSA. Any terms not defined in this Quality Agreement or in the BSA will be interpreted in accordance with, in the following order of precedence: (i) the Diosynth Quality Policy, QMS 5 (a copy of which has been provided to Neose prior to the Effective Date); (ii) ICH Q7 GMP Guidance for Active Pharmaceutical Ingredients; and (iii) 21 CFR Parts 210, 211, 600, 601, & 610. If (i) is amended after the Effective Date, Diosynth shall provide copies of such amendments or amended documents to Neose.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-3

 

2.   General
  2.1.   This Quality Agreement sets forth the roles, responsibilities, deliverables and time requirements with respect to the quality of the Intermediate and Product. If any terms or conditions of this Quality Agreement conflict with the terms or conditions of the BSA, such terms and conditions contained in the BSA shall control.
 
  2.2.   Any amendments to this Quality Agreement must be in writing executed by both Parties and reviewed and approved by Authorized Quality Representatives from each Party.
3.   Authorized Quality Representatives
  3.1.   Each Party shall designate an authorized representative of quality assurance (“Authorized Quality Representative”). Neose’s initial Authorized Quality Representative shall be Joan Gavaghan, Director, Quality Assurance. Diosynth’s initial Authorized Quality Representative shall be Mark Zemler, Senior Director, Quality Assurance.
 
  3.2.   Each Party may change their Authorized Quality Representative at any time. In the event of such a change, the Party changing their Authorized Quality Representative shall notify the other Party in writing of such change.
 
  3.3.   In addition to other duties set forth in this Quality Agreement, the Authorized Quality Representatives will resolve any disputes or conflicts relating to this Quality Agreement. Such resolutions shall be in writing, signed by each Authorized Quality Representative, and shall not conflict with any applicable Law, regulatory requirements of the Parties, or any quality requirements of Neose. If any issue remains unresolved for more than twenty (20) business days, the most senior officers of each Party with a responsibility for quality will be contacted to resolve this issue. To the extent such senior officers cannot resolve the issue, the issue shall be resolved pursuant to the dispute resolution provisions of the BSA.
4.   Change Control
  4.1.   Change is controlled through Diosynth approved procedures. All changes to approved manufacturing processes or Neose specific analytical methods shall be communicated to Neose in writing and approved in writing by Neose, prior to implementation. Critical Change control procedures are utilized for changes to validated procedures, methods, facilities, utilities, equipment and Critical Raw Materials. Document change control procedures are utilized to track documentation changes to batch records, release specifications, or Neose specific test methods and shall be subject
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-4

 

      to Neose’s prior approval. Neose initiated requests for changes shall be communicated to Diosynth’s quality management in writing using Neose’s change control documentation, and upon mutual agreement, shall be implemented by Diosynth using Diosynth’s current approved change control procedure.
 
  4.2.   Neose will review changes prior to implementation for conformance to registration commitments, and advise Diosynth on any actions to take to assure compliance.
5.   Regulatory
  5.1.   All updates to regulatory applications related to Intermediate or Product are the responsibility of Neose. Diosynth will provide Neose all necessary information which it may possess, pertinent to Intermediate or Product, to keep the global regulatory filings current and up-to-date. Prior to submitting, Neose will provide copies of all of the Chemistry Manufacturing Control (“CMC”) sections or other relevant sections submissions and regulatory applications to Diosynth related to activities to be performed by Diosynth for review and opportunity to comment to support compliance with filed regulatory requirements. Diosynth cannot assure conformance to filings if (i) Diosynth is not notified of the applicable parts of these documents or (ii) the applicable parts of such documents are determined to be incorrect or (iii) is inconsistent with mutually agreed upon activities. Neose will promptly provide copies to Diosynth of all communications about and updates to regulatory applications as they pertain to manufacturing at Diosynth.
 
  5.2.   Complaints and Adverse Event Reporting.
  5.2.1.   Diosynth shall promptly notify Neose of any information coming into its possession concerning the quality of previously released Batch(es). Any determinations on how to address the information impacting product quality and safety including communication with regulatory authorities shall be the responsibility of Neose.
 
  5.2.2.   Neose shall promptly notify Diosynth of any complaint or adverse event affecting the quality of Product made from previously released Batch(es).
  5.3.   Recalls.
  5.3.1.   In the event that either Party determines that Intermediate or Product violates applicable laws, regulations, agreed upon specifications, or is deemed unacceptable for some other reason, whether or not such action is requested by any governmental
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-5

 

      agency, Diosynth and Neose have the responsibility to notify each other within one (1) business day. Within two (2) business days after such notice, the Parties’ representatives from business, medical, regulatory, quality assurance, legal functions, and any others deemed necessary will consult to determine if any Product should be withdrawn or recalled. The final decision to recall or withdraw Product or to withdraw Intermediate resides with Neose. Performance of all activities associated with recalls and withdrawals are the responsibility of Neose. Diosynth shall be responsible for the quarantine of any Intermediate or Product at any Diosynth location or otherwise under Diosynth control at the time of any recall.
 
  5.3.2.   Diosynth will investigate the Intermediate or Product issue using its deviation handling procedure to the extent the issue directly relates to Diosynth’s activities. Neose will be responsible for formal notification of the regulatory authorities as well as determining the impact of such decision on any Neose Product.
6.   Process Consumables and Raw Materials
  6.1.   Procurement and Delivery of Process Consumables and Raw Materials.
  6.1.1.   Diosynth is responsible for determining suitable source(s) of all Process Consumables and Raw Materials (excluding Neose-Supplied Raw Materials). Diosynth is responsible for procuring such materials and developing/approving test methods and specifications. Diosynth will use commercially reasonable efforts to obtain material that conforms to agreed-upon specifications from approved vendors. Should the primary supply source become unavailable, Neose agrees to cooperate with Diosynth in identifying an alternative supply. If a satisfactory alternative supply can not be identified, the parties agree to jointly determine in writing how to proceed.
 
  6.1.2.   Diosynth vendor quality and raw material program requirements will apply to all material sourced by Diosynth. Diosynth will maintain a process specific complete list of materials to be utilized in Neose process and will notify Neose of any Critical Raw Material vendor change prior to implementation.
  6.2.   Inspection and Testing of Critical Raw Materials.
  6.2.1.   Diosynth and Neose will agree upon which Raw Materials (including Neose-Supplied Raw Materials) will be designated as critical. The testing procedures for the Critical Raw Materials will
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-6

 

      be developed by Diosynth or may be provided by Neose as appropriate. Changes to compendial methods are acceptable, if in accordance with current compendia.
 
  6.2.2.   Diosynth shall store retains of Critical Raw Material samples according to Diosynth policy for each batch or lot of Critical Raw Materials for a minimum of three (3) years. Upon the expiration of this period or any termination of this Agreement, Diosynth shall offer such Critical Raw Material retains to Neose.
  6.3.   Transmissible Spongiform Encephalopathy (“TSE”) Compliance.
  6.3.1.   Diosynth will source relevant Raw Materials from non-animal derived sources whenever possible. If animal derived Raw Materials are necessary, then Diosynth will comply with U.S. and European regulations (EP, latest edition, Chapter 5.2.8 Minimizing the Risk of Transmitting Animal Spongiform Encephalopathy Agents via Medicinal Products) by obtaining Country of Origin certification and verifying that the source country is not a known BSE-contaminated country (in accord with 9CFR94.18) or by ensuring the processing methods are know to inactivate TSE agents, per CHMP guidelines. If required, Neose and Diosynth may make an application for a TSE Certificate of Suitability in accordance with European Directive(s) and EMEA Notes for Guidance.
7.   Master Batch Records, Product Specification(s) and Analytical Test Methods
  7.1.   Master Batch Records and Sponsor Specific Test Methods (“SSTM”) will be mutually agreed upon. Administrative revisions to batch records that improve clarity, formatting, typos or other changes that do not change the sequence of events or processing steps may be made by Diosynth without client approval of that revision. Changes to operating parameters, process steps, or other instructions that impact how the material is manufactured will be approved by both parties. It is expected that, cycle time for document reviews and approvals will be limited to two rounds of substantial re-drafts between Diosynth and Neose. Minor edits, typo corrections and other non-substantive or non-material revisions shall not be considered to be a “substantial re-draft” for the purpose of this Section 7.1. Neose is entitled to copies of the approved MBRs, and SSTMs. Any other documentation is maintained by and available for review on Diosynth premises. Notwithstanding the foregoing, any Analytical Raw Data specifically set forth in the Scope shall be made available to Neose. Diosynth shall address Neose’s comments on all MBRs and SSTMs within a reasonable timeframe.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-7

 

  7.2.   Intermediate and Product Specifications.
  7.2.1.   Neose and Diosynth will jointly agree upon specifications and/or procedures for manufacturing, packaging, labeling and handling for the Intermediate and Product. The Intermediate and Product will be manufactured, packaged, labeled and handled in accordance with the written specification(s) and to written procedures provided by Neose and agreed to by Diosynth. Where Neose provides no written procedure, current Diosynth procedures and practices will be used.
 
  7.2.2.   Neose will notify Diosynth in writing using Neose Change Control documentation, or similar, of the intent to change a specification and provide supporting documentation to Diosynth. Diosynth will initiate the change control documentation and must agree on the achievability and practicality of such specifications.
 
  7.2.3.   Where no manufacturing history is available from early stage clinical material, it will be appropriate to use “Target” specifications documented with “Report Result”. If adequate data is available, Diosynth and Neose will mutually agree upon appropriate specifications.
  7.3.   Analytical Methods/Standard Test Methods.
  7.3.1.   Analytical test methods for the Intermediate or Product will be transferred from Neose to Diosynth using mutually agreed upon processes, or are developed by Diosynth. Neose will be responsible for providing documentation to facilitate effective transfer of analytical methods and will provide support and clarification when necessary. Diosynth will perform qualification and validation, when applicable, of any new test methods as required by the scope of work. Diosynth will be responsible for generating mutually agreed upon protocols to evaluate the methods. Diosynth will provide a final report to Neose for any method transfer, qualification, or validation performed.
 
  7.3.2.   Diosynth is responsible for performing any analytical method transfers to or from other sites. Diosynth will not change any Neose specific test methods without the appropriate approved change control documentation. Compendial updates to methods are acceptable and will not require Neose pre-approval.
 
  7.3.3.   Changes to test methods and procedures for the Intermediate or Product will be consistent with Section 4 of this Quality Agreement. Deviations to the test methods and procedures and
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-8

 

      OOS test results will be handled in a manner consistent with Section 10 of this Quality Agreement.
8.   Manufacturing and Packaging of Intermediate and Product
  8.1.   The manufacturing, packaging, and labeling of the Intermediate or Product will be done according to the specific cGMP documentation as mutually agreed upon by the parties.
 
  8.2.   Neose and the Diosynth project team will provide an adequate process description which will be used as the basis for batch record development and CMC section development. Diosynth will manufacture the Intermediate or Product in accordance with this description. As the process is developed and optimized, all relevant documents will be revised by Diosynth in accordance with Section 4 of this Quality Agreement.
9.   Inspection and Testing of the Intermediate and Product
  9.1.   Diosynth will carry out the inspection and testing of the Intermediate or Product as set forth by Neose in the anticipated or actual regulatory filings, and in cGMP documentation mutually agreed upon by both Diosynth and by Neose.
 
  9.2.   Inspection (Batch Production Record Review).
  9.2.1.   A Release Package will be transferred to Neose to facilitate the release of each batch. Batch Production Records (“BPRs”) must be complete and have all batch related deviation issues finalized and approved by Diosynth. Neose may concurrently review batch records, pending the closure of outstanding deviations, OOSs, or laboratory results to facilitate timely disposition of material by Diosynth to Neose.
 
  9.2.2.   Copies of all completed BPRs, all batch related documents identified above, and the COA will be sent to Neose, targeting delivery within forty (40) business days from batch completion. Neose shall respond with comments and provide Diosynth with release documentation such as a Certificate of Conformance, or similar, within twenty (20) business days after receipt of the records.
 
  9.2.3.   In addition to any retention requirements set forth in the BSA (including without limitation Section 6.3), Diosynth will supply Neose with complete copies of the Release Package. Diosynth will retain all original batch production records and batch related documents for a minimum of five (5) years from Date of
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-9

 

      Manufacture. These documents will be readily accessible for review and inspection by Neose and/or regulatory authorities if requested. At the end of the document retention period, Diosynth will notify Neose and offer these records to Neose.
  9.3.   Analytical Testing to Support cGMP Manufacture.
  9.3.1.   Diosynth follows written procedures describing the identification, quarantine, handling, sampling, testing and approval or rejection of materials. Diosynth will perform testing per established methods/procedures and review against defined specifications as detailed in regulatory submissions. Changes to these methods and procedures will be consistent with the Change Control section of this Quality Agreement. Deviations to the test methods and procedures and OOS test results will be handled in a manner consistent with the Deviation section.
 
  9.3.2.   Neose will be responsible for characterizing and providing an adequate supply of reference standards of the Intermediate and Product to Diosynth on a timely basis. Diosynth will be responsible for proper maintenance and inventory of reference standards in its possession, and for requesting additional quantities of reference standards in a timely manner with adequate notice to Neose.
 
  9.3.3.   Analytical samples for testing to be performed by Neose, or a contract laboratory, will be shipped by Diosynth within ten (10) days from the date of sample collection and Diosynth shall notify Neose of its planned timing for shipment. The foregoing notwithstanding, if the timing of the shipment pursuant to this Section 9.3.3 will cause damage, sample degradation or otherwise compromise the integrity of the samples, or as specified in the Scope, the samples will be shipped as agreed to by the parties. Samples will be packaged and shipped in accordance with mutually agreed upon procedures approved by both parties.
10.   Deviations and Out-of-Specification Results
  10.1.   Deviations and Out-of Specification (“OOS‘) results will be managed according to Diosynth’s procedures for deviation control and the extent of investigation and corrective action implementation is dependent on the stage of process and product development at Diosynth.
 
  10.2.   Diosynth will notify Neose of any Critical Deviations or suspected or confirmed OOS within three (3) business days after Diosynth notification. Critical Deviations will be investigated for product quality impact and
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-10

 

      fully documented by Diosynth, targeting completion within twenty (20) business days after the date of Diosynth notification. Investigations will include appropriate justification, scientific rationale and supporting data. In the event a Critical Deviation cannot be resolved within the twenty (20) business day period, Diosynth will provide Neose with written updates of the investigation’s progress and target completion dates at mutually agreed upon intervals.
 
  10.3.   Copies of all final completed and approved deviation reports will be promptly supplied to Neose. In cases where Neose and Diosynth cannot agree to a resolution of a Critical Deviation, provisions for conflict resolution per the Quality Agreement and the Agreement shall apply.
 
  10.4.   Non-critical deviations will be documented according to established Diosynth procedures and will also be retained according to relevant SOPs. Summaries of all completed and approved Non-Critical Deviations will be supplied to Neose with the Release Package.
11.   Audits
  11.1.   Regulatory Audits
  11.1.1.   Diosynth will notify Neose of any inspections, notifications, or actions by a regulatory agency or other enforcement body that impacts Neose’s Intermediate or Product. Notification should not be any later than next day of an unannounced agency inspection or prior to a pre-announced, scheduled agency inspection. Diosynth will provide support for all regulatory inspections and regulatory filings, as appropriate. Neose may be present at a regulatory inspection at Diosynth if the inspection pertains to Neose’s process. Diosynth will provide Neose with the observations from such regulatory audits, as they apply to Neose’s process, within ten (10) business days of the occurrence of the audit observation.
 
  11.1.2.   Neose is responsible for all reporting requirements to the respective regulatory agency(ies) with regard to Neose registration documentation. Diosynth is responsible for all reporting requirements with regard to manufacturing site registration that may be required to support Neose related activities, and will notify Neose upon doing so.
  11.2.   Neose Audits. Neose has the right to audit all Diosynth facilities and systems as they relate to the manufacturing, testing and stability laboratories supporting production of Intermediate or Product on an annual basis. Neose will provide timely notification for scheduling an audit. The annual audit shall not exceed two (2) auditors and three (3)
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-11

 

      business days in duration. Additional audits are referenced in the BSA, section 2.7.
  11.3.   For Cause Visit. Neose may visit particular functions/areas on a “For Cause” basis for product quality reasons as they apply to product manufacturing. Timing for a “for-cause” Visit must be mutually agreed upon.
 
  11.4.   Vendor Audits. Where applicable, the auditing of the vendors of all Critical Raw Materials utilized in the manufacture and packaging of Intermediate or Product will be the responsibility of the party (Neose or Diosynth) that sources the materials. Neose will share audit summaries with Diosynth for any audits of vendors required to support Diosynth’s vendor qualification program.
12.   Analytical Data Reporting Requirements
  12.1.   Analytical raw data (including chromatograms and gel scans) and reports generated by Diosynth (collectively “Analytical Raw Data”) will be stored and retained in accordance with cGMPs and internal Diosynth guidelines and will be made accessible for on site review within a reasonable timeframe. Notwithstanding the foregoing, any Analytical Raw Data specifically set forth in the Scope shall be made available to Neose .
13.   Person-in-the-Plant
  13.1.   When authorized by Neose, if the Person-in-the-Plant is granted quality assurance oversight, they may make quality-related decisions and authorizations for Neose. When observing activities in the manufacturing or testing areas, the Person-in-the Plant must adhere to Section 2.7 of the BSA regarding access and behavior while in the production areas.
 
  13.2.   Diosynth shall provide adequate and reasonable workspace and facilities for Person-in-the-Plant.
14.   Release and Shipment of the Intermediate and Product
  14.1.   Diosynth has the responsibility for disposition of Intermediate or Product Batches to Neose. The release for further processing or use in formulation of DP (“Final Release”) is the responsibility of Neose.
 
  14.2.   Neose will identify the destination to which Intermediate or Product Batches are to be shipped. Diosynth will not ship any material to any destination until that material has been released by Neose, unless prior written approval is received from Neose to perform such a shipment.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-12

 

15.   Retained Samples of Intermediates
  15.1.   Diosynth agrees to store retained samples for all Intermediate or Product Batches. The amount of retained samples must be of sufficient quantity to conduct at least full specification analyses in duplicate.
 
  15.2.   Diosynth agrees to store the retained samples under storage conditions defined by Neose and in a secure area for a minimum of five (5) years from the Date of Manufacture. Diosynth shall offer all such samples to Neose upon the expiration of this period or any termination of this Quality Agreement.
16.   Storage of Materials, the Intermediate and Product
  16.1.   Diosynth shall store all Raw Materials, Process Consumables, Intermediate and Product under storage conditions set forth in the specifications related to such materials.
17.   Facilities, Equipment, and Utilities Validation and Qualification
  17.1.   Diosynth is responsible for maintaining the validated state of equipment, facilities, and utilities. Documentation relevant to the client’s processes is available for review during audits.
18.   Use of Subcontractors
  18.1.   Diosynth may use Sub-contractors for any portion of the manufacturing, testing, holding, packaging or labeling of the Intermediate or Product only with the prior written approval by Neose. Sub-contractors will meet Diosynth requirements for Approved Vendors. Neose recognizes Diosynth’s vendor compliance program.
19.   Returned Goods
  19.1.   Diosynth uses a cGMP compliant system for handling returned goods and/or rejected materials.
20.   Product Testing
  20.1.   Where Diosynth is responsible for testing of Product, changes to test plans, sampling plans, test methods, and other associated documentation will be managed through Diosynth’s change control process. Neose initiates such change by providing written notification through Neose change control system to Diosynth at least thirty (30) days prior to the requested change.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-13

 

  20.2.   Suspected or confirmed OOSs will be notified to Neose within three (3) days of Diosynth notification and managed according to Diosynth standard operating procedures.
21.   Stability Testing
  21.1.   If any stability testing is carried out by Diosynth, Diosynth shall use mutually agreed upon protocols in accordance with the international Committee on Harmonization Stability Testing Guidelines. Neose receives copies of test results at following each time point. Changes to test plans, sampling plans, test methods, and other associated documentation will be managed through Diosynth’s change control process. Neose initiates such change by providing written notification through Neose change control system to Diosynth at least thirty (30) days prior to the requested change.
 
  21.2.   Suspected and/or confirmed OOSs will be notified to Neose within three (3) days from Diosynth notification and managed according to Diosynth standard operating procedures.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-14

 

               In witness whereof, the parties hereto have caused this Quality Agreement to be signed as of the Effective Date.
             
    Neose Technologies, Inc.    
 
            
 
  By        
 
     
 
Name:
Title: 		   
 
            
    Diosynth RTP Inc.    
 
            
 
  By:        
 
     
 
Name:
Title:		    
 
         
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 2-15

 

Appendix 3
Program Price and Payment Schedule
******
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 3-1

 

Appendix 4
Confidentiality Agreement
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 4-1

 

CONFIDENTIALITY AGREEMENT
Effective as of this 4th day of April, 2006, Neose Technologies, Inc. with offices at 102 Witmer Road, Horsham, PA 19044 (Customer) and Diosynth RTP Inc. with offices at 101 J. Morris Commons Lane, Morrisville, NC 27560 together with its affiliates, (Diosynth) agree that the following terms apply when one of the parties (Discloser) discloses confidential information (Information) to the other (Recipient). Customer and Diosynth agree that the objective is to provide appropriate protection for Information while maintaining the ability to conduct their respective business activities.
1.   DISCLOSURE
Information to be disclosed is intended to assist in the evaluation of the provision by Diosynth to Customer of the development, scale-up. and cGMP manufacturing of an EPO baculovirus program and related matters, which may be disclosed :
  a)   in writing;
 
  b)   by delivery of items;
 
  c)   by access to Information, such as may be contained in a data base; or
 
  d)   by oral and/or visual presentation.
Information disclosed in writing shall be marked with a restrictive legend of the Discloser. Information that is not marked with such legend or is disclosed orally; (i) must be identified as confidential at the time, and (ii) the Discloser must provide the Recipient with written confirmation within thirty (30) days after its disclosure.
2.   OBLIGATION OF CONFIDENTIALITY
The Recipient will maintain Information as confidential, using the same care and discretion to avoid disclosure, publication or dissemination of Information as it uses with its own similar information that it does not wish to disclose, publish or disseminate. The Recipient may use Information solely for the purpose set forth in this Agreement. The Recipient may disclose Information only to:
  a)   its employees, subcontractors and employees and its affiliate companies which have a need to know; and
 
  b)   any other party with the Discloser’s prior written consent.
Before disclosure to any of the above parties, the Recipient will have a written agreement with such party sufficient to require that party to treat Information in accordance with this Agreement. The Receiving Party shall be responsible for any breach of this Agreement by its Representatives.
The Recipient may disclose Information to the extent required by law if it provides the Discloser with prompt notice and a reasonable opportunity to secure a protective order.
3.   CONFIDENTIALITY PERIOD
Disclosed Information continues to be subject to this Agreement for five (5) years following the disclosure date.
4.   EXCEPTIONS
No obligation of confidentiality applies to Information that:
  a)   the Recipient possessed prior to disclosure without obligation of confidentiality to Discloser;
 
  b)   is required to be disclosed pursuant to applicable laws, rules, regulations, government requirement or court order (provided, however, that Recipient shall promptly advise Discloser of its notice of any such requirement or order and shall cooperate with the Discloser’s reasonable efforts to limit such disclosure)
 
  c)   the Recipient develops independently, as documented by it’s written records;
 
  d)   the Recipient rightfully receives from a third party who is under no obligation of confidentiality to the Disclosing Party to keep the same confidential.; or
 
  e)   is or becomes publicly known through no fault of the Recipient.
Information that is combined with information that falls within one or more of these exceptions shall remain confidential regardless of such combination.
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 4-1

 

Neither this Agreement nor any disclosure of Information grants the Recipient any license under any patents, copyrights or other intellectual property rights.
5. Remedies. Both parties agree that it would be impossible or inadequate to measure and calculate the other party’s damages from any breach of the covenants set forth in this Agreement. Accordingly, the Recipient agrees that if it breaches any of such covenants, the Discloser will have available, in addition to any other right or remedy available, the right to seek an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to seek specific performance of any such provision of this Agreement. . Both parties further agree that no bond or other security shall be required in obtaining such equitable relief.
5.   DISCLAIMERS
THE DISCLOSER PROVIDES INFORMATION ON AN “AS IS” BASIS. The Discloser will not be liable for any damages arising out of use of Information. Disclosure of Information containing business plans is for planning purposes only. The Discloser may change or cancel its plans at any time. Therefore, use of Information is at the Recipient’s own risk.
6.   GENERAL
Neither party shall be required either to disclose or to receive Information.
Neither party may assign its rights or delegate its duties or obligations under this Agreement without prior written consent. Any attempt to do so is void.
The Recipient will comply with all applicable United States and foreign export laws and regulations.
Either party may terminate this Agreement by providing written notice to the other. Any provisions of this Agreement which by their nature extend beyond its termination will remain in effect beyond such termination until fulfilled and will apply to either party’s successors and assigns. Upon the Discloser’s written request, the Recipient, at its option, will return or destroy and certify the destruction of all Information, including copies.
The terms and conditions of this Agreement remain in full force and effect unless modified in writing and signed by both parties.
Except as provided in paragraph 5, disputes hereunder shall be attempted to be resolved first through mediation and then binding arbitration. This Agreement will be governed by the laws of the State of New York, without regard to its conflicts of law provisions.
The parties acknowledge that they have read this Agreement, understand it, and agree to be bound by its terms and conditions. Further they agree that this Agreement is the complete and exclusive statement of the agreement between the parties relating to this subject, superseding all proposals or other prior agreements, oral or written, and all prior communications between the parties relating to this subject.
         
Neose Technologies, Inc.    
By:
  /s/ Jeremy Middleton
 
    
Name:
  Jeremy Middleton    
Title:
  Vice President    
 
        
DIOSYNTH RTP INC.    
By:
  /s/ Karen O’Malley
 
    
Name:
  Karen O’Malley    
Title:
  Director, Commercial Development    
 
        
DIOSYNTH RTP INC.    
By:
  /s/ Richard Basile
 
    
Name:
  Richard Basile    
Title:
  VP M&S    
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 4-1

 

[AKZO NOBEL]
May 18, 2006
Neose Technologies, Inc.
102 Witmer Road
Horsham, PA 19044
Attn: Kathryn Gregory
By Facsimile:     215-315-9400
Dear Kathryn:
This letter confirms the agreement between Neose Technologies, Inc. and Diosynth RTP Inc. to amend the Confidentiality Agreement (Mutual) between Neose Technologies, Inc. and Diosynth RTP Inc. dated April 4. 2006 (“the Agreement”) to expand the purpose of exchange of confidential information under the Agreement to include discussions concerning a potential licensing, development and/or commercialization collaboration with Diosynth RTP Inc. or one of its affiliates.
Sincerely,
/s/ Karen O’Malley
Karen O’Malley
Director, Commercial Development
Accepted and Agreed to by Neose Technologies, Inc.
     
By:
  /s/ Kathryn Gregory
Title:
  V.P. Business Dev. & Lic.
Date:
  May 23, 2006
Diosynth RTP Inc.
101 J Morris Commons Lane
Morrisville, NC 27560
Tel: (919) 337-4400
Fax: (919) 337-0900
 
******   — Material has been omitted and filed separately with the Commission.

Appendix 4-2

EX-10.44 5 w32002exv10w44.htm COMMERCIAL PREMIUM FINANCE AGREEMENT - PROMISSORY NOTE exv10w44
 

Exhibit 10.44
         
(AFCO LOGO)   Commercial Premium Finance Agreement - Promissory Note
102 W Pennsylvania Ave, Suite 204, Towson, MD 21204
TEL. NOS. 410-296-5000 800-288-4217 		 

Page 1 of 3

    Agent (Name and Address)   10054613    
    AON Risk Services Inc. of PA    
    One Liberty Place    
    1650 Market St Ste 1000    
    Philadelphia, PA 19103    
 

Insured (Name and Address as shown on the policy)
Neose Technologies, Inc.
102 Rock Road
Horsham, PA 19044

 


                 
A) Total Premiums   B) Down Payment   C) Amount Financed   D) Finance Charge   E) Total Payments
                 
$458,693.00   $91,739.00   $366,954.00   $9,544.44   $376,498.44
                 
                 
F) Annual Percentage Rate   No. of Payments   Amount of Payments   First Installment Due   Installment Due Dates
                 
6.200%   9 (Monthly)     $41,833.16   03/15/2007   15th 
SCHEDULE OF POLICIES
                                           
                                   
  Policy Prefix and     Effective Date of     Name of Insurance Company and Name and Address of     Type of     Months     Premium $  
  Numbers     Policy/Inst.     General or Policy Issuing Agent or Intermediary     Coverage     Covered            
                                   
 
35787589
    02/15/2007     FEDERAL INS CO     PKG       12         94,439.00    
 
 
          Fee     FEE     NRef       2.00    
 
 
                                        
 
35852317
    02/15/2007     FEDERAL INS CO     PROD       12         39,473.00    
 
 
                                        
 
71634788
    02/15/2007     FEDERAL INS CO     WC       12*         53,856.00    
 
 
                                        
 
 
          TME = $9,868.25                            
 
 
          Policy Detail Continued...                            
                                   
          (1) DEFINITIONS: The above named Insured is the borrower. AFCO Credit Corporation (“AFCO”) is the lender. “Insurance company” or “company”, “insurance policy” or “policy” and “premium” refer to those items listed under the “Schedule of Policies”. Singular words mean plural and vice-versa as may be required in order to give the agreement meaning.
NOTICE TO INSURED: 1. Do not sign this agreement before you read it or if it contains any blank space. 2. You are entitled to a completely filled in copy of this agreement at the time you sign. 3. Under the law, you have the right to pay off in advance the full amount due and under certain conditions to obtain a partial refund of the service charge. 4. Keep your copy of this agreement to protect your legal rights.
        INSURED AGREES TO ALL TERMS SET FORTH ON ALL PAGES OF THIS AGREEMENT AND ANY ADDENDA THERETO.
             
/s/ A. Brian Davis
  A. Brian Davis   CFO   3/5/07
 
           
SIGNATURE OF INSURED(S) OR AUTHORIZED REPRESENTATIVE
  PRINT NAME   TITLE   DATE
AGENT OR BROKER REPRESENTATIONS
The undersigned warrants and agrees: (A) The policies are in full force and effect and the information in the Schedule of Policies has been verified and is correct. (B) The Insured authorized this transaction, recognizes the security interest assigned herein and has received a copy of this agreement. (C) To hold in trust for AFCO any payments made or credited to the Insured through or to the undersigned, directly or indirectly, actually or constructively by any party and to pay the monies as well as any unearned commissions to AFCO promptly to satisfy the outstanding indebtedness of the Insured. (D) There are not and will not be any other liens given against the listed policies and the premiums are not and will not be financed by any other lender. (E) The policies comply with AFCO’s eligibility requirements. (F) No audit or reporting form policies, policies subject to retrospective rating or minimum earned premium are included. The deposit or provisional premiums are not less than anticipated premiums to be earned for the full term of the policies. (G) The Insured can cancel the policies and the unearned premiums will be computed on the standard short-rate or pro-rata table. (H) No proceeding(s) in bankruptcy, receivership, or insolvency have been instituted by or against the Insured. (I) All premiums shall be paid to the insurer(s). (J) No additional authority, acts, approvals or licenses are or will be necessary as a prerequisite to the enforceability of this Agreement. (K) AFCO will rely upon these representations in determining whether to accept this Agreement.
IF THERE ARE ANY EXCEPTIONS TO THE ABOVE STATEMENTS, PLEASE LIST BELOW:
* : Subject to Audit
THE UNDERSIGNED FURTHER WARRANTS THAT IT HAS RECEIVED THE DOWN PAYMENT AND ANY OTHER SUMS DUE AS REQUIRED BY THE AGREEMENT AND IS HOLDING SAME OR THEY ARE ATTACHED TO THIS AGREEMENT
             
Raymond M. Subers
  /s/ Raymond M. Subers   Sr. V. P.   3/6/07
 
           
AGENT OR BROKER
  SIGNATURE OF AGENT OR BROKER   TITLE   DATE

 

 

         
(AFCO LOGO)   Commercial Premium Finance Agreement - Promissory Note
102 W Pennsylvania Ave, Suite 204, Towson, MD 21204
TEL. NOS. 410-296-5000 800-288-4217 		 

Page 2 of 3
SCHEDULE OF POLICIES
                                           
                                   
  Policy Prefix and     Effective Date of     Name of Insurance Company and Name and Address of     Type of     Months     Premium $  
  Numbers     Policy/Inst.     General or Policy Issuing Agent or Intermediary     Coverage     Covered            
                                   
 
 
          Tax     TAX     Ref       2,638.00    
 
 
                                        
 
73243156
    02/15/2007     GREAT NORTHERN INS CO     FRLB       12         3,500.00    
 
 
                                        
 
74985874
    02/15/2007     FEDERAL INS CO     AUTO       12         8,185.00    
 
 
                                        
 
79813718
    02/15/2007     FEDERAL INS CO     UMB       12         11,615.00    
 
 
                                        
 
CR03800094
    02/15/2007     ST PAUL FIRE & MARINE INS CO     CRIM       12         9,470.00    
 
 
                                        
 
DOC364951411
    02/15/2007     ZURICH AMERICAN INS CO     DO       24         115,000.00    
 
 
                                        
 
EC06400294
    02/15/2007     ST PAUL MERCURY INSURANCE COMPANY     FBND       12         4,000.00    
 
 
                                        
 
EC06400295
    02/15/2007     ST PAUL MERCURY INSURANCE COMPANY     EPL       12         13,500.00    
 
 
                                        
 
 
    02/15/2007     ZURICH AMERICAN INS CO     XSDO       12         100,000.00    
 
 
          Aon Risk Services Inc                            
 
 
          Attn: Aon Risk Services Inc of Pennsylvania                            
 
 
          One Liberty Place                            
 
 
          1650 Market St #1000                            
 
 
          Philadelphia, PA 19103                            
 
 
          USA                            
 
 
          Fee     FEE     NRef       15.00    
 
 
          Tax     TAX     Ref       3,000.00    
 
 




                                       
                                   
 

 

 

Page 3 of 3
(2) PROMISE OF PAYMENT: The Insured (i) requests that AFCO pay the premiums in the Schedule of Policies, less the Down Payment and any installments paid prior to acceptance of this Agreement and (ii) promises to pay to AFCO at 110 William Street, New York, NY 10038 (or at any other address it may designate) the amount stated in Block E above according to the payment schedule, subject to the remaining terms of this agreement. No additional authority, acts, approvals or licenses are or will be necessary as a prerequisite to the enforceability of this Agreement. AFCO may, at its option, pay loan proceeds to any agent, broker, general agent, managing general agent or insurer set forth herein. Payments to AFCO are deemed made only upon receipt in good funds. Checks are accepted, subject to collection.
(3) SECURITY INTEREST AND POWER OF ATTORNEY: The insured assigns and hereby gives a security interest to AFCO as collateral for the total amount payable in this agreement and any other past, present or future extension of credit: (a) any and all unearned premiums or dividends which may become payable for any reason under all insurance policies financed by AFCO, (b) loss payments which reduce the unearned premiums, subject to any mortgagee or loss payee interests and (c) any interest in any state guarantee fund relating to any financed policy. If any option may enforce payment of this debt without recourse to the security given to AFCO. The insured irrevocably appoints AFCO as its attorney in fact with full authority to (i) cancel all insurance financed by AFCO for the reason set forth in paragraph 12, whether pursuant to this or any other agreement, (ii) receive all sums hereby assigned to AFCO and (iii) execute and deliver on the Insured’s behalf all documents, instruments of payment, forms and notices of any kind relating to the insurance in furtherance of this agreement.
(4) WARRANTY OF ACCURACY: The Insured (i) warrants that all listed Insurance policies have been issued to it and are in full force and effect and that it has not and will not assign any interest in the policies except for the interest of mortgagees and loss payees and (ii) authorizes AFCO to insert or correct on this agreement, if omitted or incorrect, the insurer’s name, the policy numbers, and the due date of the first installment and to correct any obvious errors. In the event of any such change, correction or insertion, AFCO will give the Insured written notice thereof.
(5) REPRESENTATION OF SOLVENCY: The Insured represents that it is not insolvent or the subject of any insolvency proceeding.
(6) ADDITIONAL PREMIUMS: The money paid by AFCO is only for the premium as determined at the time the insurance policy is issued. AFCO’s payment shall not be applied by the insurance company to pay for any additional premiums owed by the Insured resulting from any type of misclassification of the risk. The Insured shall pay to the insurer any additional premiums or any other sums that become due for any reason. If AFCO assigns the same account number to any additional extension or extensions of credit, (i) this Agreement and any agreement or agreements identified by such account number shall be deemed to comprise a single and indivisible loan transaction, (ii) any default with respect to any component of such transaction shall be deemed a default with respect to all components of such transaction and (iii) any unearned premiums relating to any component of such transaction may be collected and applied by AFCO to the totality of such transaction.
(7) SPECIAL INSURANCE POLICIES: If the insurance policy is auditable or is a reporting form policy or is subject to retrospective rating, then the Insured promises to pay to the insurance company the earned premium computed in accordance with the policy provisions which is in excess of the amount of premium advanced by AFCO which the insurance company retains.
(8) NAMED INSURED: If the insurance policy provides that the first named insured in the policy shall be responsible for payment of premiums and shall act on behalf of all other insureds regarding the policy, then the same shall apply to this Agreement and the Insured represents that it is authorized to sign on behalf of all insureds. If not, then all insureds’ names must be shown on this agreement unless a separate agreement appoints an insured to act for the others.
(9) FINANCE CHARGE: The finance charge shown in Block D begins to accrue as of the earliest policy effective date, unless otherwise indicated in the Scheduled of Policies, and shall continue to accrue until the balance due AFCO is paid in full or until such other date as required by law, notwithstanding any cancellation of coverage. If AFCO issues a Notice of Cancellation, AFCO may recalculate the total finance charge payable pursuant to this Agreement, and the insured agrees to pay Interest, on the Amount Financed set forth herein, from the first effective date of coverage, at the highest lawful rate of interest. For Arizona Insureds, interest will be calculated on a daily basis and each day shall count as 1/360th of a year,
(10) AGREEMENT BECOMES A CONTRACT: This Agreement becomes a binding contract when AFCO mails the Insured its acceptance and is not a contract until such time. The insured agrees that (i) this Agreement may be transmitted by facsimile, E-mail or other electronic means to AFCO, (ii) any such transmitted Agreement shall be deemed a fully enforceable duplicate original document and (iii) such Agreement, when accepted by AFCO, shall constitute a valid and enforceable contract.
(11) DEFAULT AND DISHONORED CHECK CHARGES: If the Insured is late in making a loan payment to AFCO by more than the number of days specified by law (5 days in Wisconsin), the Insured will pay to AFCO a delinquency charge equal to the maximum charge permitted by law (5%of any delinquent installment, subject to a minimum default charge of $1.00, in Wisconsin). If a check is dishonored, the Insured will pay a check processing fee not to exceed the lesser of $25 or the amount permitted by law.
(12) CANCELLATION: AFCO may cancel all insurance policies financed by AFCO after giving statutory notice and the full balance due to AFCO shall be immediately payable if the insured does not pay any installment according to the terms of this or any other agreement with AFCO. Payment of unearned premiums shall not be deemed to be payment of installments to AFCO, in full or in part.
(13) CANCELLATION CHARGES: If AFCO cancels any insurance policy in accordance with the terms of this agreement, then the Insured will pay AFCO a cancellation charge, if permitted, up to the limit specified by law ($15.00 in Wisconsin).
(14) MONEY RECEIVED AFTER NOTICE OF CANCELLATION: Any payments made to AFCO after mailing of AFCO’s Notice of Cancellation may be credited to the Insured’s account without affecting the acceleration of this agreement and without any liability or obligation to request reinstatement of a canceled policy. Any money AFCO receives from an insurance company shall be credited to the amount due AFCO with any surplus paid over to whomever is entitled to the money. No refund of less than $1.00 shall be made. In the event that AFCO requests, on the Insured’s behalf, reinstatement of the policy, such request does not guarantee that coverage will be reinstated.
(15) ATTORNEY FEES — COLLECTION EXPENSE: If, for collection, this agreement is referred to an attorney and/or other party who is not a salaried employee of AFCO, the Insured agrees to pay any reasonable attorney fees and costs as well as other reasonable collection expenses, as permitted by law or granted by the court (in Wisconsin, statutory attorneys’ fees and statutory court costs).
(16) REFUND CREDITS: The Insured will receive a refund of the finance charge if the account is voluntarily prepaid in full before the last installment due date as required or permitted by law (in Wisconsin, calculated according to the Rule of 78s) and AFCO may retain an additional non-refundable service charge of $10.00. Any minimum or fully earned fees will be deducted as permitted by law.
(17) INSURANCE AGENT OR BROKER: The insurance agent or broker named in this agreement is the Insured’s agent, not AFCO’s and AFCO is not legally bound by anything the agent or broker represents to the insured orally or in writing. AFCO has not participated in the choice, placement, acquisition or underwriting of any financed insurance. Any disclosures made by the agent are made in its capacity as the insured’s agent and AFCO makes no representations with respect to the accuracy of any such disclosures.
(18) NOT A CONDITION OF OBTAINING INSURANCE: This agreement is not required as a condition for obtaining insurance coverage.
(19) SUCCESSORS AND ASSIGNS: All legal rights given to AFCO shall benefit AFCO’s successors and assigns. The Insured will not assign this Agreement and/or the policies without AFCO’s written consent except for the interest of mortgagees and loss payees.
(20) LIMITATION OF LIABILITY — CLAIMS AGAINST AFCO: The Insured hereby irrevocably waives and releases AFCO from any claims, lawsuits and causes of action which may be related to any prior loans and/or to any act or failure to act prior to the time that this Agreement becomes a binding contract, pursuant to paragraph 10. AFCO’s liability for breach of any of the terms of this agreement or the wrongful exercise of any of its powers shall be limited to the amount of the principal balance outstanding, except in the event of gross negligence or willful misconduct. Any claims against AFCO shall be litigated exclusively in the Supreme Court of the State of New York, County of New York.
(21) DISCLOSURE: The insurance company or companies and their agents, any intermediaries and the insurance agent or broker named in this agreement and their successors are authorized and directed to provide AFCO with full and complete information regarding all financed Insurance policy or policies, Including, without limitation, the status and calculation of unearned premiums.
(22) ENTIRE DOCUMENT • GOVERNING LAW • ENFORCEMENT VENUE: This document is the entire agreement between AFCO and the Insured and can only be changed in a writing signed by both parties except as stated in paragraph (4). The laws of the state indicated in the Insured’s address as set forth herein will govern this agreement (for Wisconsin Insureds, Wisconsin). AFCO may, at its option, prosecute any action to enforce its rights hereunder in the Supreme Court of the Stale of New York, County of New York, and the Insured (i) waives any objection to such venue and (ii) will honor any order issued by or judgement entered in such Court.
(23) WAIVER OF SOVEREIGN IMMUNITY: The Insured hereby certifies that it is empowered to enter into this agreement without any restrictions and that the individual signing it has been fully empowered to do so. To the extent that the Insured either possesses or claims sovereign immunity for any reason, such sovereign immunity is expressly waived and the Insured agrees to be subject to the jurisdiction of the laws and courts set forth in the preceding paragraphs.

 

EX-23.1 6 w32002exv23w1.htm CONSENT OF KPMG LLP exv23w1
 

EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Neose Technologies, Inc.:
We consent to the incorporation by reference in the Registration Statements (No. 333-01410, No. 333-35283, No. 333-88913, No. 333-47718, No. 333-73340, No. 333-97593, No. 333-107888, and No. 333-116438) on Form S-8 and Registration Statements (No. 333-83925, No. 333-103883, No. 333-106327, and No. 333-121112) on Form S-3 of Neose Technologies, Inc. of our reports dated March 16, 2007, with respect to the balance sheets of Neose Technologies, Inc. as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of Neose Technologies, Inc.
Our report dated March 16, 2007 on the financial statements refers to the Company’s adoption of the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, effective January 1, 2006.
/s/ KPMG
Philadelphia, Pennsylvania
March 16, 2007

EX-31.1 7 w32002exv31w1.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER exv31w1
 

Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, George J. Vergis, certify that:
     1. I have reviewed this annual report on Form 10-K of Neose Technologies, Inc.;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the registrant, particularly during the period in which this report is being prepared; and
          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
          a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
             
3/16/07
      /s/ George J. Vergis    
 
           
Date
      George J. Vergis    
 
      Chief Executive Officer and President    

EX-31.2 8 w32002exv31w2.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER exv31w2
 

Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, A. Brian Davis, certify that:
     1. I have reviewed this annual report on Form 10-K of Neose Technologies, Inc.;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
          a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the registrant, particularly during the period in which this report is being prepared; and
          b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
          c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
          d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

1

 

          a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
          b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
                 
 
  3/16/07       /s/A. Brian Davis    
 
               
 
  Date       A. Brian Davis    
 
          Senior Vice President and Chief Financial Officer    

2

EX-32.1 9 w32002exv32w1.htm CEO CERTIFICATION PURSUANT TO SECTION 1350 exv32w1
 

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Neose Technologies, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George J. Vergis, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
/s/ George J. Vergis
 
 
   
George J. Vergis
    
Chief Executive Officer and President
    
Date: 3/16/07

EX-32.2 10 w32002exv32w2.htm CFO CERTIFICATION PURSUANT TO SECTION 1350 exv32w2
 

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Neose Technologies, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, A. Brian Davis, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
/s/ A. Brian Davis
 
 
   
A. Brian Davis
    
Senior Vice President and Chief Financial Officer
    
Date: 3/16/07

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