-----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, B80WVWf++E/mmtHuCixdWCp+vnlqqg8tySIOLw/sUIpDs/+tRjTAhAsL4jMw+z6C bGuIclHctoIps9neoHn2FA== 0001005477-99-005191.txt : 19991115 0001005477-99-005191.hdr.sgml : 19991115 ACCESSION NUMBER: 0001005477-99-005191 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIANGLE PHARMACEUTICALS INC CENTRAL INDEX KEY: 0001022622 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 561930728 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21589 FILM NUMBER: 99749557 BUSINESS ADDRESS: STREET 1: 4 UNIVERSITY PLACE STREET 2: 4611 UNIVERSITY DRIVE CITY: DURHAM STATE: NC ZIP: 27707 BUSINESS PHONE: 9194935980 MAIL ADDRESS: STREET 1: 4 UNIVERSITY PLACE STREET 2: 4611 UNIVERSITY DRIVE CITY: DURHAM STATE: NC ZIP: 27707 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________. Commission File Number: 000-21589 TRIANGLE PHARMACEUTICALS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 56-1930728 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4 University Place 4611 University Drive Durham, North Carolina 27707 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (919) 493-5980 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of October 15, 1999, there were 37,576,695 shares of Triangle Pharmaceuticals, Inc. Common Stock outstanding. Triangle Pharmaceuticals, Inc. Table of Contents PART I. FINANCIAL INFORMATION
Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 1999 (unaudited) and December 31, 1998 ......... 3 Condensed Consolidated Statements of Operations (unaudited) - Three and Nine Months Ended September 30, 1999 and September 30, 1998 and Period From Inception (July 12, 1995) Through September 30, 1999 ................................... 4 Condensed Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 1999 and September 30, 1998 and Period From Inception (July 12, 1995) Through September 30, 1999 ........................................... 5 Condensed Consolidated Statements of Stockholders' Equity - Period From Inception (July 12, 1995) Through December 31, 1995, 1996, 1997, 1998 and the Nine Months Ended September 30, 1999 (unaudited) ......... 6 Notes to Condensed Consolidated Financial Statements (unaudited). 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 9-24 Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 25 Part II. Other Information Item 2. Changes in Securities and Use of Proceeds ....................... 26 Item 6. Exhibits and Reports on Form 8-K ................................ 27 Signatures ............................................................... 28
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Triangle Pharmaceuticals, Inc. (A Development Stage Company) Condensed Consolidated Balance Sheets (In thousands, except per share amounts)
September 30, December 31, Assets 1999 1998 - ------ ------------- ------------ (unaudited) Current assets: Cash and cash equivalents ............................... $ 72,319 $ 77,653 Restricted deposits ..................................... 39 49 Investments ............................................. 89,181 22,933 Interest receivable ..................................... 1,346 612 Prepaid expenses ........................................ 3,798 769 --------- --------- Total current assets ................................. 166,683 102,016 --------- --------- Property, plant and equipment, net .......................... 5,167 4,164 Investments ................................................. -- 18,106 Restricted deposits ......................................... -- 27 --------- --------- Total assets ......................................... $ 171,850 $ 124,313 ========= ========= Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Accounts payable ........................................ $ 6,026 $ 11,778 Capital lease obligation-current ........................ 134 126 Long-term debt-current .................................. 16 158 Accrued expenses ........................................ 19,336 10,147 --------- --------- Total current liabilities ............................ 25,512 22,209 --------- --------- Capital lease obligation-noncurrent ......................... 43 153 --------- --------- Total liabilities .................................... 25,555 22,362 --------- --------- Commitments and contingencies (See notes 4 and 5) ........... -- -- Stockholders' equity: Convertible Preferred Stock, $0.001 par value; 5,000 shares authorized; 0 and 170 shares, issued and outstanding, respectively ................. -- -- Common Stock, $0.001 par value; 75,000 shares authorized; 37,577 and 28,871 shares, issued and outstanding, respectively ......................................... 38 29 Warrants ................................................ -- 114 Additional paid-in capital .............................. 336,646 218,683 Accumulated deficit during development stage ............ (190,246) (116,823) Accumulated other comprehensive (loss) income ........... (114) 18 Deferred compensation ................................... (29) (70) --------- --------- Total stockholders' equity ........................... 146,295 101,951 --------- --------- Total liabilities and stockholders' equity ........... $ 171,850 $ 124,313 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)
Period from Inception Three Months Ended September 30, Nine Months Ended September 30, (July 12, 1995) ------------------------------- ------------------------------- Through 1999 1998 1999 1998 September 30, 1999 ------------- -------------- ------------- ------------- ------------------- Operating expenses: License fees ............................ $ 210 $ 167 $ 9,655 $ 6,333 $ 20,032 Development ............................. 19,660 14,472 56,129 35,906 138,454 Purchased research and development ...... -- -- 1,247 -- 12,508 Selling, general and administrative ..... 4,640 2,170 10,889 7,207 32,296 --------- --------- --------- --------- --------- Loss from operations ...................... (24,510) (16,809) (77,920) (49,446) (203,290) Interest income, net ...................... 1,947 1,190 4,497 3,163 13,044 --------- --------- --------- --------- --------- Net loss .................................. $ (22,563) $ (15,619) $ (73,423) $ (46,283) $(190,246) ========= ========= ========= ========= ========= Basic and diluted net loss per common share ............................ $ (0.64) $ (0.65) $ (2.34) $ (2.06) ========= ========= ========= ========= Shares used in computing basic and diluted net loss per common share ....... 35,157 24,058 31,354 22,511 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Period from Inception Nine Months Ended September 30, (July 12, 1995) ------------------------------- Through 1999 1998 September 30, 1999 --------- --------- ------------------ Cash flows from operating activities: Net loss ...................................................... $ (73,423) $ (46,283) $(190,246) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization ............................... 905 632 2,209 Purchased research and development .......................... 1,247 -- 12,508 Stock-based compensation: license fees ...................... -- -- 636 Stock-based compensation: development ....................... 33 33 467 Stock-based compensation: general and administrative ............................................. 128 27 396 Change in assets and liabilities: Receivables ................................................ (734) (101) (1,346) Prepaid expenses ........................................... (3,029) 24 (3,798) Accounts payable ........................................... (5,752) 193 6,026 Accrued expenses ........................................... 9,174 6,564 19,200 --------- --------- --------- Net cash used by operating activities ......................... (71,451) (38,911) (153,948) --------- --------- --------- Cash flows from investing activities: Sale (purchase) of restricted deposits ...................... 37 33 (39) Purchase of investments ..................................... (76,158) (29,273) (194,317) Proceeds from sale and maturity of investments .............. 27,884 22,845 105,022 Purchase of property, plant and equipment ................... (1,908) (1,739) (7,200) Acquisition of Avid Corporation, net of cash acquired ................................................... -- -- (3,053) --------- --------- --------- Net cash used by investing activities ......................... (50,145) (8,134) (99,587) --------- --------- --------- Cash flows from financing activities: Sale of stock, net of related issuance costs ................ 116,218 56,309 325,445 Sale of options under salary investment option grant program .............................................. 73 73 240 Proceeds from stock options/warrants exercised .............. 215 1 242 Proceeds from notes payable ................................. -- -- 374 Equipment financing ......................................... -- -- 354 Principal payments on capital lease obligations and notes payable .......................................... (244) (321) (801) --------- --------- --------- Net cash provided by financing activities ..................... 116,262 56,062 325,854 --------- --------- --------- Net (decrease) increase in cash and cash equivalents ................................................. (5,334) 9,017 72,319 Cash and cash equivalents at beginning of period .............. 77,653 34,698 -- --------- --------- --------- Cash and cash equivalents at end of period .................... $ 72,319 $ 43,715 $ 72,319 ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Condensed Consolidated Statements of Stockholders' Equity (In thousands)
Convertible Preferred Stock Common Stock Additional --------------- ------------ Paid-In Accumulated Shares Amount Warrants Shares Amount Capital Deficit ------ ------ -------- ------ ------ ------- ------- Initial sale of stock ............... 933 $ 1 $ -- 1,175 $ 1 $ 710 $ -- Additional sale of stock ............ 4,249 4 -- 1,495 2 3,137 -- Stock-based compensation ............ -- -- -- -- -- 12 -- Comprehensive loss: Net loss .......................... -- -- -- -- -- -- (967) --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1995 .......... 5,182 5 -- 2,670 3 3,859 (967) Sale of stock ....................... 3,756 4 -- 4,943 5 59,506 -- Stock-based compensation ............ -- -- 152 700 1 1,127 -- Stock options exercised ............. -- -- -- 317 -- 57 -- Conversion of Preferred to Common Stock .................... (8,938) (9) -- 8,938 9 -- -- Comprehensive loss: Net loss .......................... -- -- -- -- -- -- (10,917) --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1996 .......... -- -- 152 17,568 18 64,549 (11,884) Sale of stock ....................... -- -- -- 2,014 2 29,521 -- Acquisition of Avid Corp. ........... -- -- -- 400 -- 8,117 -- Sale of stock options ............... -- -- -- -- -- 70 -- Stock-based compensation ............ -- -- (38) -- -- -- -- Stock options exercised ............. -- -- -- 13 -- 3 -- Comprehensive loss: Net loss .......................... -- -- -- -- -- -- (37,668) --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1997 .......... -- -- 114 19,995 20 102,260 (49,552) Sale of stock ....................... 170 -- -- 8,868 9 116,325 -- Sale of stock options ............... -- -- -- -- -- 97 -- Stock-based compensation ............ -- -- -- -- -- -- -- Stock options exercised ............. -- -- -- 8 -- 1 -- Comprehensive loss: Change in unrealized gains/(losses) on investments .... -- -- -- -- -- -- -- Net loss .......................... -- -- -- -- -- -- (67,271) --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1998 .......... 170 -- 114 28,871 29 218,683 (116,823) (Unaudited) Sale of stock ....................... -- -- -- 6,605 7 116,211 -- Sale of stock options ............... -- -- -- -- -- 73 -- Stock-based compensation ............ -- -- -- 6 -- 101 -- Stock options/warrants exercised ......................... -- -- (114) 295 -- 333 -- Conversion of Preferred to Common Stock ...................... (170) -- -- 1,700 2 (2) -- Additional purchase consideration Avid Corp. ........................ -- -- -- 100 -- 1,247 -- Comprehensive loss: Reclassification adjustment for gains/(losses) in net loss ....... -- -- -- -- -- -- -- Change in unrealized gains/(losses) on investments ................... -- -- -- -- -- -- -- Net loss .......................... -- -- -- -- -- -- (73,423) --------- --------- --------- --------- --------- --------- --------- Balance, September 30, 1999 ........ -- $ -- $ -- 37,577 $ 38 $ 336,646 $(190,246) ========= ========= ========= ========= ========= ========= =========
Accumulated Comprehensive Other (Loss) Comprehensive Deferred Income Income/(Loss) Compensation Total ------ ------------- ------------ ----- Initial sale of stock ............... $ -- $ -- $ -- $ 712 Additional sale of stock ............ -- -- -- 3,143 Stock-based compensation ............ -- -- (12) -- Comprehensive loss: Net loss .......................... (967) -- -- (967) --------- --------- --------- --------- Balance, December 31, 1995 .......... (967) -- (12) 2,888 Sale of stock ....................... -- -- -- 59,515 Stock-based compensation ............ -- -- (141) 1,139 Stock options exercised ............. -- -- (26) 31 Conversion of Preferred to Common Stock .................... -- -- -- -- Comprehensive loss: Net loss .......................... (10,917) -- -- (10,917) --------- --------- --------- --------- Balance, December 31, 1996 .......... (10,917) -- (179) 52,656 Sale of stock ....................... -- -- -- 29,523 Acquisition of Avid Corp. ........... -- -- -- 8,117 Sale of stock options ............... -- -- -- 70 Stock-based compensation ............ -- -- 48 10 Stock options exercised ............. -- -- 6 9 Comprehensive loss: Net loss .......................... (37,668) -- -- (37,668) --------- --------- --------- --------- Balance, December 31, 1997 .......... (37,668) -- (125) 52,717 Sale of stock ....................... -- -- -- 116,334 Sale of stock options ............... -- -- -- 97 Stock-based compensation ............ -- -- 48 48 Stock options exercised ............. -- -- 7 8 Comprehensive loss: Change in unrealized gains/(losses) on investments .... 18 18 -- 18 Net loss .......................... (67,271) -- -- (67,271) --------- --------- --------- --------- Balance, December 31, 1998 .......... (67,253) 18 (70) 101,951 (Unaudited) Sale of stock ....................... -- -- -- 116,218 Sale of stock options ............... -- -- -- 73 Stock-based compensation ............ -- -- 36 137 Stock options/warrants exercised ......................... -- -- 5 224 Conversion of Preferred to Common Stock ...................... -- -- -- -- Additional purchase consideration Avid Corp. ........................ -- -- -- 1,247 Comprehensive loss: Reclassification adjustment for gains/(losses) in net loss ....... (14) (14) -- (14) Change in unrealized gains/(losses) on investments ................... (118) (118) -- (118) Net loss .......................... (73,423) -- -- (73,423) --------- --------- --------- --------- Balance, September 30, 1999 ........ $ (73,555) $ (114) $ (29) $ 146,295 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands, except per share amounts) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Triangle Pharmaceuticals, Inc. and its wholly-owned subsidiary (the "Company" or "Triangle") have been prepared in accordance with generally accepted accounting principles and applicable Securities and Exchange Commission regulations for interim financial information. These financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is presumed that users of this interim financial information have read or have access to the audited financial statements for the preceding fiscal year contained in the Company's Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. 3. Net Loss Per Common Share Basic net loss per common share is computed using the weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per common share is computed using the weighted average number of shares of common and dilutive potential common shares outstanding during the period. Potential common shares consist of stock options, warrants and convertible preferred stock using the treasury stock method and are excluded if their effect is antidilutive. For the three month and nine month periods ended September 30, 1999 and 1998, the weighted average shares outstanding used in the calculation of net loss per common share do not include potential shares outstanding because they have the effect of reducing net loss per common share. 4. Licensing Agreements The Company's existing license agreements require future payments of up to $74,250 contingent upon the achievement of certain development milestones and up to $30,000 upon the achievement of certain sales milestones. One of the Company's licensors has the option to receive $2,000 of such future milestone payments in shares of Common Stock (based on the then current market price) in lieu of a cash payment. The Company is also obligated to issue up to 2,000 shares of Common Stock upon the achievement of certain development milestones relating to DMP-450 acquired in the acquisition of Avid Corporation ("Avid"). Additionally, the Company will pay royalties based on a percentage of net sales of each licensed product incorporating these drug candidates. Substantially all of the agreements require minimum royalty payments commencing three years after regulatory approval. Depending on the Company's success and timing in obtaining regulatory approval, aggregate annual minimum royalties and annual license preservation fees could range from $50 (if only a single drug candidate is approved for one indication) to $46,500 (if all drug candidates are approved for all indications) under the Company's existing license agreements. 7 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands, except per share amounts) 5. Strategic Alliance On August 3, 1999, the Company closed its worldwide strategic alliance (the "Abbott Alliance") with Abbott Laboratories ("Abbott") covering six antiviral compounds for the prevention and treatment of HIV and hepatitis B virus. In the United States, Abbott and Triangle will co-promote four Triangle drug candidates currently in active development for HIV and/or hepatitis B, Coactinon(R), Coviracil(R), DAPD and L-FMAU. In addition, Triangle has rights to co-promote two Abbott HIV compounds in the United States, Norvir(R), also known as ritonavir, and ABT-378. Outside the United States, Abbott has exclusive sales and marketing rights to promote the four Triangle drug candidates and Abbott's two HIV compounds. Triangle and Abbott will share profits and losses for the four Triangle drug candidates. Triangle will receive detailing fees and commissions on incremental sales they generate for Abbott's two HIV compounds. In addition, Abbott will have the right of first discussion to co-promote future Triangle compounds. Under the terms of the Abbott Alliance, Abbott purchased approximately 6,571 shares of Triangle Common Stock at $18.00 per share. The net proceeds of this issuance, after deducting issuance costs, were approximately $115,900. Additionally, the Abbott Alliance provides for non-contingent research funding of $31,700 to be received by January 15, 2000, up to $185,000 of contingent milestone payments and the sharing of future commercialization costs and overall profits and losses from the four Triangle compounds. 6. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting For Derivative Instruments And Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS 133 is effective for financial statements for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company intends to adopt SFAS 133 when required; however, SFAS 133 is not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION This Quarterly Report on Form 10-Q may contain certain projections, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed below at "--Risks and Uncertainties." While this outlook represents management's current judgment on the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested below. The Company undertakes no obligation to release publicly the results of any revisions to these forward-looking statements or to reflect events or circumstances arising after the date hereof. The following discussion and analysis should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's 1998 Annual Report on Form 10-K as well as with the Company's condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. OVERVIEW Triangle is engaged in the development of new drug candidates primarily in the antiviral area. Since its inception on July 12, 1995, the Company's operating activities have related primarily to recruiting personnel, negotiating license and option arrangements for its drug candidates, raising capital and developing its drug candidates. The Company has not received any revenues from the sale of products and does not expect any of its drug candidates to be commercially available until at least the year 2000. As of September 30, 1999, the Company's accumulated deficit was approximately $190.2 million. The Company requires substantial capital expenditures relating to the development and potential commercialization of its drug candidates, including expenditures for preclinical testing, chemical synthetic scale-up, manufacture of drug substance for clinical trials and toxicology studies, clinical trials of drug candidates, sales and marketing expenses and payments to the Company's licensors. The Company has been unprofitable since its inception and expects to incur substantial and increasing losses for at least the next several years, due substantially to the expansion of its drug development programs and the addition of infrastructure necessary to commercialize its drug candidates. The Company will require substantial capital expenditures relating to activities many of which may need to occur prior to, and in anticipation of, the potential regulatory approval of its drug candidates, including expenditures associated with the establishment of a sales and marketing organization, the manufacture of drug substance, and other administrative expenditures necessary to support the Company. Many of these capital expenditures may be incurred irrespective of whether the Company's drug candidates are approved when anticipated or at all. The Company expects that losses will fluctuate from period to period and that such fluctuations may be substantial. See "--Risks and Uncertainties--We have incurred losses since inception and may never achieve profitability." The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. The risks, expenses and difficulties encountered by companies at an early stage of development must be considered when evaluating the Company's prospects. To address these risks, the Company must, among other things, successfully develop and commercialize its drug candidates, secure all necessary proprietary rights, respond to competitive developments, continue to attract, retain and motivate qualified personnel and it may need to obtain additional financing to fund future capital requirements. There can be no assurance that the Company will be successful in addressing these risks. See "--Risks and Uncertainties--All of our products are in development and may never be successfully commercialized which would have an adverse impact on your investment and our business, and --We have incurred losses since inception and may never achieve profitability." The operating expenses of the Company will depend on several factors, including the level of development expenses and the potential commercialization of its drug candidates. Development expenses will depend on the progress and results of the Company's drug development efforts, which the Company cannot predict. Management may in some cases be able to control the timing of development expenses in part by accelerating or decelerating preclinical testing and clinical trial activities. The level of expenses relating to the establishment of a sales and marketing organization, the manufacture of drug substance, and other administrative expenditures will depend on the success of the development of the Company's drug candidates; however, many of these capital expenditures may 9 be incurred irrespective of whether the Company's drug candidates are approved when anticipated or at all. As a result of these factors, the Company believes that period to period comparisons are not necessarily meaningful and should not be relied upon as an indication of future performance. Due to all of the foregoing factors, it is possible that the Company's consolidated operating results will be below the expectations of market analysts and investors. In such event, the prevailing market price of the Company's Common Stock could be materially adversely affected. See "--Risks and Uncertainties--The market price of our stock may be adversely affected by market volatility." RESULTS OF OPERATIONS Three Months ended September 30, 1999 and 1998 Interest Income, Net The Company had net interest income of $1.9 million for the three months ended September 30, 1999, compared to $1.2 million for the same period in 1998. The increase in net interest income is due primarily to higher average cash and investment balances. See "--Liquidity and Capital Resources." License Fees License fees totaled $210,000 for the three months ended September 30, 1999, compared to $167,000 for the same period in 1998. License fees in both periods relate primarily to the expense of license preservation fees for the Company's drug candidates. Development Expenses Development expenses totaled $19.7 million for the three months ended September 30, 1999, compared to $14.5 million for the same period in 1998. The increase in 1999 development expenses, as compared to the same period in 1998, is the result of the Company's continued and more extensive drug development activities on compounds under active development as these compounds move into later stages of clinical development, including the addition of development personnel necessary to perform these activities. The Company expects its development expenses to continue to increase in the future due to the continued expansion of drug development activities, especially as more drug candidates enter later stages of clinical development. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses totaled $4.6 million for the three months ended September 30, 1999, compared to $2.2 million for the same period in 1998. The increase in 1999 SG&A expenses, as compared to the same period in 1998, is predominantly attributable to continued development of the Company's sales and marketing organization and other administrative growth to support expanded clinical and development activities. Nine Months ended September 30, 1999 and 1998 Interest Income, Net The Company had net interest income of $4.5 million in the nine months ended September 30, 1999 compared to $3.2 million for the same period in 1998. The increase in interest income is due primarily to an increase in the average investment balance for the nine month period ended September 30, 1999, associated with proceeds from financing activities in the fourth quarter of 1998 and from the sale of Common Stock associated with the closing of the Abbott Alliance, partially offset by a small decline in low-risk, short-term interest rates. See "--Liquidity and Capital Resources." License Fees License fees totaled $9.7 million for the nine months ended September 30, 1999, as compared to $6.3 million for the same period in 1998. License fees in 1999 relate to the expense of license preservation fees, the 10 recognition of milestone obligations required under the Company's license agreements and license initiation payments, whereas in 1998, fees were predominantly associated with a license initiation payment for L-FMAU. The increase in license fees relates primarily to the recognition of milestone obligations as the Company continues to achieve development and other milestones. Development Expenses Development expenses totaled $56.1 million for the nine months ended September 30, 1999, as compared to $35.9 million for the same period in 1998. Development expenses for the nine month period ended September 30, 1999 consisted primarily of expenses for development work relating to clinical trials, drug synthesis, compensation expense, preclinical testing, outside professional services and toxicology studies. Development expenses for the nine months ended September 30, 1998 consisted primarily of expenses for development work relating to drug synthesis, clinical trials, compensation expense, toxicology studies, patent related activities and preclinical testing. The substantial increase in 1999 development expenses, as compared to the same period in 1998, is the result of the Company's continued and more extensive drug development activities on its compounds as they move into the later stages of clinical development, including the addition of development personnel necessary to perform those activities. The Company expects its development expenses to continue to increase in the future due to continued expansion of drug development activities, including preclinical testing, clinical trials, toxicology studies, the manufacture of drug substance for preclinical tests and clinical trials as well as the continued pursuit of proprietary rights to its drug candidates, especially as more drug candidates enter later stages of clinical development. In addition, if the Company in-licenses or otherwise acquires rights to additional drug candidates, development expenses would increase as a result. Purchased Research and Development Purchased research and development expenses totaled $1.2 million for the nine months ended September 30, 1999, as compared to none for the nine months ended September 30, 1998. On April 1, 1999, the Company issued 100,000 shares of Common Stock as consideration to former stockholders of Avid for extending the payment date of certain contingent consideration from February 28, 1999 to February 28, 2000. Additional purchase price and related purchased research and development expense was recorded based upon the fair market value of the Company's Common Stock at the date on which the extension was granted as this compound is still at an early stage of clinical development and has no alternative future use. Selling, General and Administrative Expenses SG&A expenses totaled $10.9 million for the nine months ended September 30, 1999 compared to $7.2 million for the same period in 1998. SG&A expenses for the nine months ended September 30, 1999 consisted primarily of compensation expenses, amounts paid for outside professional services, marketing and advertising, and rent expense. SG&A expenses for the nine months ended September 30, 1998 consisted primarily of compensation expenses, amounts paid for outside professional services and rent expense. The increase in 1999 SG&A expenses, as compared to the same period in 1998, is primarily due to the continued development of the Company's sales and marketing organization, increases in compensation and general operating expenses associated with increased development activities, and overall corporate growth. The Company expects that its SG&A expenses will continue to increase in future periods, especially as the Company continues development of its sales and marketing organization. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations since inception (July 12, 1995) through September 30, 1999 primarily with the net proceeds received from private placements of equity securities, which provided aggregate net proceeds of approximately $227.7 million (net of offering costs), and the Company's initial and secondary public offerings, which provided aggregate net proceeds to the Company totaling approximately $96.8 million (net of offering costs). In addition, the Company has received approximately $2.0 million as reimbursement of certain development expenses under a license agreement for one of its drug candidates. 11 At September 30, 1999 the Company had net working capital of approximately $141.2 million, an increase of approximately $61.4 million over working capital at December 31, 1998. The increase is principally the result of the August 3, 1999 closing of the Abbott Alliance which provided $115.9 million in net proceeds from the sale of Triangle Common Stock. Additionally, the Abbott Alliance will provide another $31.7 million in non-contingent research funding payments to be received by January 15, 2000 and potentially up to $185.0 million in contingent milestone payments. At September 30, 1999, the Company's principal source of liquidity was $72.3 million in cash and cash equivalents and $89.2 million in investments which are "available for sale," reflecting an approximate $42.8 million increase of cash, cash equivalent and investment balances over those at December 31, 1998. The Company expects that its capital requirements will increase in future periods as the Company funds its drug development programs, pays obligations under its license and/or option agreements, continues to develop a sales and marketing organization, acquires drug substance from third party manufacturers, and incurs other administrative expenditures necessary to support the Company. The Company's future capital requirements will depend on many factors, including the progress of the Company's drug development programs, the magnitude of these programs, the scope and results of preclinical testing and clinical trials, the cost, timing and outcome of regulatory reviews, the costs under the license and/or option agreements relating to the Company's drug candidates (including costs of obtaining patent protection for the Company's drug candidates), the timing and terms of the acquisition of any additional drug candidates, the rate of technological advances, determinations as to the commercial potential of the drug candidates, administrative and legal expenses, the establishment of internal capacity and third party arrangements for sales and marketing functions, the establishment of third party arrangements for manufacturing, including Abbott, and other factors. Amounts payable by the Company in the future under its existing license agreements are uncertain due to a number of factors, including the progress of the Company's drug development programs, the Company's ability to obtain approval to commercialize any drug candidate and the commercial success of any approved drug. The Company's existing license agreements require future payments of up to $74.3 million contingent upon the achievement of certain development milestones and up to $30.0 million upon the achievement of certain sales milestones. One of the Company's licensors has the option to receive $2.0 million of such future milestone payments in shares of Common Stock (based on the then current market price) in lieu of a cash payment. The Company is also obligated to issue up to 2.0 million shares of Common Stock contingent upon the achievement of certain development milestones relating to DMP-450 acquired in the acquisition of Avid. Additionally, the Company will pay royalties based on a percentage of net sales of each licensed product incorporating these drug candidates. Most of the Company's license agreements require minimum royalty payments commencing three years after regulatory approval. Depending on the Company's success and timing in obtaining regulatory approval, aggregate annual minimum royalties and annual license preservation fees could range from $50,000 (if only a single drug candidate is approved for one indication) to $46.5 million (if all drug candidates are approved for all indications) under the Company's existing license agreements. The Company believes that its existing cash, cash equivalents, investments, and expected non-contingent and contingent future cash payments associated with the Abbott Alliance will be adequate to satisfy its anticipated capital requirements through June 2001. The Company expects that it may be required to raise additional funds through equity or debt financings or from other sources. There can be no assurance that additional funding will be available on favorable terms from any of these sources or at all. See "--Risks and Uncertainties--If we need additional funds and are unable to raise them, we would have to curtail or cease operations." ABBOTT ALLIANCE On August 3, 1999, Triangle closed its worldwide alliance with Abbott. The Abbott Alliance gives Triangle access to Abbott's international and domestic infrastructure to market and distribute the products receiving regulatory approval, global manufacturing capabilities, United States co-promotion rights to two Abbott compounds and financial support to help fund the continued development of Triangle's portfolio of drug candidates. The terms of the Abbott Alliance provided for the sale of approximately 6.571 million shares of Triangle Common Stock at $18.00 per share, non-contingent research funding of $31.7 million to be received by January 15, 2000, up to $185.0 million of contingent milestone payments as well as the sharing of commercialization costs and overall profits and 12 losses from the four Triangle compounds covered by the Abbott Alliance. The completion of the Abbott Alliance generated approximately $115.9 million of net proceeds, after deducting issuance costs, related to the sale of Triangle Common Stock. "See--Liquidity and Capital Resources." LITIGATION AND OTHER CONTINGENCIES As discussed below in "Risks and Uncertainties," the Company is indirectly involved in several patent opposition and adversarial proceedings and one lawsuit filed in Australia regarding the patent rights related to two of its licensed drug candidates, including Coviracil. Although the Company is not a named party in any of these proceedings, it is obligated to reimburse its licensors for certain legal expenses associated with these proceedings. The Company cannot predict the outcome of these proceedings. The Company believes that an adverse judgment in these pending proceedings would not result in a material financial obligation to the Company, nor would the Company have to recognize an impairment under Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets," as no amounts have been capitalized related to these drug candidates. However, any development of these proceedings adverse to the Company's interests, including but not limited to any adverse development related to the patent rights licensed to the Company for these two drug candidates or the Company's rights or obligations related thereto, could have a material adverse effect on the Company's future consolidated financial position, results of operations and cash flows. YEAR 2000 COMPLIANCE The Company recognizes the need to ensure that Year 2000 hardware and software issues will not adversely impact its operations. The Company has completed an assessment of its internal informational systems which support business applications and has completed the modification or replacement of these portions of software, hardware and other equipment that it has determined are non-compliant. Testing and verification of all critical and significant systems, by internal and/or external experts, has been completed. Additionally, the Company has confirmed compliance regarding Year 2000 issues for the information systems of its key business vendors. This process entailed communicating with significant suppliers, financial institutions, insurance companies and other parties that provide significant services to the Company. The Company has completed its evaluation of key business vendors and has developed contingency plans for all key vendors, regardless of their state of preparedness. In addition, the Company will periodically monitor each key vendor's Year 2000 campaign throughout 1999 to reevaluate each vendor's Year 2000 readiness. Expenditures required to make the Company Year 2000 compliant have been expensed as incurred and have not been, and any future expenses are not expected to be, material to the Company's consolidated financial position or results of operations. See "--Risks and Uncertainties--If we fail to be Year 2000 compliant, it could disrupt our business activities." RISK AND UNCERTAINTIES In addition to the other information contained herein, the following risks and uncertainties should be carefully considered in evaluating Triangle and its business. All of our products are in development and may never be successfully commercialized which would have an adverse impact on your investment and our business. Many of our drug candidates are at an early stage of development and all of our drug candidates will require expensive and lengthy testing and regulatory clearances. None of our drug candidates has been approved by regulatory authorities. We do not expect any of our drug candidates to be commercially available until at least the year 2000. There are many reasons that we may fail in our efforts to develop our drug candidates, including that: o our drug candidates will be ineffective, toxic or will not receive regulatory clearances, o our drug candidates will be too expensive to manufacture or market or will not achieve broad market acceptance, o third parties will hold proprietary rights that may preclude us from marketing our drug candidates, or o third parties will market equivalent or superior products. 13 The success of our business depends upon our ability to successfully develop and market our drug candidates. We have incurred losses since inception and may never achieve profitability. We formed Triangle in July 1995 and we have only a limited operating history for you to review in evaluating our business. We have incurred losses since our inception. At September 30, 1999, our accumulated deficit was $190.2 million. Our historical costs relate primarily to the acquisition and development of our drug candidates and selling, general and administrative costs. We have not generated any revenue to date and do not expect to do so until at least the year 2000. In addition, we expect annual losses to increase over the next several years as we expand our drug development and commercialization efforts. To become profitable, we must successfully develop and obtain regulatory approval for our drug candidates and effectively manufacture, market and sell any products we develop. We may never generate significant revenue or achieve profitable operations. If we need additional funds and are unable to raise them, we would have to curtail or cease operations. Our drug development programs and potential commercialization of our drug candidates require substantial capital expenditures, including expenses for preclinical testing, chemical synthetic scale-up, manufacture of drug substance for clinical trials and toxicology studies, clinical trials of drug candidates, sales and marketing expenses and payments to our licensors. We expect our capital requirements to continue to increase. Our future capital needs will depend on many factors, including: o the progress and magnitude of our drug development programs, o the scope and results of preclinical testing and clinical trials, o the cost, timing and outcome of regulatory reviews, o the costs under license and option agreements for our drug candidates, including the costs of obtaining patent protection for our drug candidates, o the costs of acquiring any additional drug candidates, o the rate of technological advances, o the commercial potential of our drug candidates, o the magnitude of our administrative and legal expenses, o the costs of establishing sales and marketing functions, and o the costs of establishing third party arrangements for manufacturing. We have incurred negative cash flow from operations since we incorporated Triangle and do not expect to generate positive cash flow from our operations for at least the next several years. Although the Abbott Alliance provided us with significant additional funding, there can be no assurance that such funding will be sufficient to meet our future needs. In addition, there can be no assurance that we will receive the contingent future research funding payments under the Abbott Alliance. Therefore, we may need additional future financings to fund our operations. We may not be able to obtain adequate financing to fund our operations, and any additional financing we obtain may be on terms that are not favorable to us. In addition, any future financings could substantially dilute our stockholders. If adequate funds are not available, we will be required to delay, reduce or eliminate one or more of our drug development programs, to enter into new collaborative arrangements or to modify the Abbott Alliance on terms that are not favorable to us. These collaborative arrangements or modifications could result in the transfer to third parties of rights that we consider valuable. In addition, we often consider the acquisition of technologies and drug candidates that would increase our capital requirements. Because our products may not successfully complete clinical trials required for commercialization, our business may never achieve profitability. To obtain regulatory approvals needed for the sale of our drug candidates, we must demonstrate through preclinical testing and clinical trials that each drug candidate is safe and effective. The clinical trial process is complex and uncertain and varies widely from country to country. Positive results from preclinical testing and early clinical trials do not ensure positive results in pivotal clinical trials. Many companies in our industry have suffered significant setbacks in pivotal clinical trials, even after promising results in earlier trials. Any of our drug candidates 14 may produce undesirable side effects in humans. These side effects could cause us or regulatory authorities to interrupt, delay or halt clinical trials of a drug candidate. These side effects could also result in the U.S. Food and Drug Administration, FDA, or foreign regulatory authorities refusing to approve the drug candidate for any and all targeted indications. We, the FDA or foreign regulatory authorities may suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks. Clinical trials may not demonstrate that our drug candidates are safe or effective. Clinical trials are lengthy and expensive. They require adequate supplies of drug substance and sufficient patient enrollment. Patient enrollment is a function of many factors, including: o the size of the patient population, o the nature of the protocol, o the proximity of patients to clinical sites, and o the eligibility criteria for the clinical trial. Delays in patient enrollment can result in increased costs and longer development times. Even if we successfully complete clinical trials, we may not be able to file any required regulatory submissions in a timely manner and we may not receive regulatory approval for the drug candidate. In addition, if the FDA or foreign regulatory authorities require additional clinical trials, we could face increased costs and significant development delays. Changes in regulatory policy or additional regulations adopted during product development and regulatory review of information we submit could also result in delays or rejections. The FDA has notified us that three of our drug candidates, Coactinon, Coviracil for the treatment of HIV, and DAPD for the treatment of HIV, qualify for designation as "fast track" products under provisions of the Food and Drug Administration Modernization Act of 1997. The fast track provisions are designed to expedite the review of new drugs intended to treat serious or life-threatening conditions and essentially codified the criteria previously established by the FDA for accelerated approval. These drug candidates may not, however, continue to qualify for expedited review and our other drug candidates may fail to qualify for expedited review. Even though some of our drug candidates have qualified for expedited review, the FDA may not approve them at all or any sooner than other drug candidates that do not qualify for expedited review. If we or our licensors are not able to obtain and maintain adequate patent protection for our products, we may be unable to commercialize our products or to prevent other companies from using our technology in competitive products. Our success will depend on our ability and the ability of our licensors to obtain and maintain patents and proprietary rights for our drug candidates and to avoid infringing the proprietary rights of others, both in the United States and in foreign countries. We have no patents in our own name and we have a small number of patent applications of our own pending. One of our patent applications is a joint application with co-inventors from another institution. We have, however, licensed or we have an option to license patents, patent applications and other proprietary rights from third parties for each of our drug candidates. If we breach our licenses, we may lose rights to important technology and drug candidates. Our patent position, like that of many pharmaceutical companies, is uncertain and involves complex legal and factual questions for which important legal principles are unresolved. We may not develop or obtain rights to products or processes that are patentable. Even if we do obtain patents, they may not adequately protect the technology we own or have in-licensed. In addition, others may challenge, seek to invalidate, infringe or circumvent any patents we own or in-license, and rights we receive under those patents may not provide competitive advantages to us. Further, the manufacture, use or sale of our products or processes may infringe the patent rights of others. Several pharmaceutical and biotechnology companies, universities and research institutions have filed patent applications or received patents that cover our technologies or technologies similar to ours. Others have filed patent applications and received patents that conflict with patents or patent applications we own or have in-licensed, either by claiming the same methods or compounds or by claiming methods or compounds that could dominate those owned by or licensed to us. In addition, we may not be aware of all patents or patent applications that may impact our ability to make, use or sell any of our drug candidates. For example, United States patent applications 15 are confidential while pending in the Patent and Trademark Office, PTO, and patent applications filed in foreign countries are often first published six months or more after filing. Any conflicts resulting from third party patent applications and patents could significantly reduce the coverage of our patents and limit our ability to obtain meaningful patent protection. If other companies obtain patents with conflicting claims, we may be required to obtain licenses to these patents or to develop or obtain alternative technology. We may not be able to obtain any such license on acceptable terms or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or commercialization of our drug candidates, which would adversely affect our business. There are significant risks regarding the patent rights of two of our in-licensed drug candidates. We may not be able to commercialize Coviracil or DAPD due to patent rights held by third parties other than our licensors. Third parties have filed numerous patent applications and have received numerous issued patents in the United States and many foreign countries that relate to these drug candidates and their use alone or coactively to treat HIV and hepatitis B. As a result, our patent position regarding the use of Coviracil and DAPD to treat HIV and/or hepatitis B is highly uncertain and involves numerous complex legal and factual questions that are unknown or unresolved. If any of these questions is resolved in a manner that is not favorable to us, we would not have the right to commercialize Coviracil and/or DAPD in the absence of a license from one or more third parties, which may not be available on acceptable terms or at all. In addition, even if any of these questions is favorably resolved, we may still attempt to obtain licenses from one or more third parties to reduce or eliminate the risks relating to some or all of these matters. Such licenses may not be available on acceptable terms or at all. Our inability to commercialize either of these drug candidates could adversely affect our business. Coviracil (emtricitabine) Coviracil, a purified form of FTC, belongs to the same general class of nucleosides as lamivudine, also known as 3TC. In the United States, the FDA has approved 3TC for the treatment of hepatitis B and for use in combination with zidovudine, also known as AZT, for the treatment of HIV. Regulatory authorities have approved 3TC for the treatment of hepatitis B in several other countries and for use in combination with other nucleoside analogues for the treatment of HIV in a number of other countries. Glaxo Wellcome plc, Glaxo, currently sells 3TC for the treatment of HIV and hepatitis B under a license agreement with BioChem Pharma Inc., BioChem Pharma. We obtained rights to Coviracil under a license from Emory University, Emory. In 1990 and 1991, Emory filed in the United States and thereafter in numerous foreign countries patent applications with claims to compositions of matter and methods to treat HIV and hepatitis B with Coviracil. In 1991, Yale University, Yale, filed in the United States patent applications on FTC, including Coviracil and its use to treat hepatitis B, and subsequently licensed its rights under those patent applications to Emory. Our license arrangement with Emory includes all rights to Coviracil and its uses claimed in the Yale patent applications. HIV. Emory received a United States patent in 1993 covering a method to treat HIV with Coviracil. Emory has also received United States and European patents containing composition of matter claims that cover Coviracil. BioChem Pharma filed a patent application in the United States in 1989 and received a patent in 1991 covering a group of nucleosides in the same general class as Coviracil, but which did not include Coviracil. BioChem Pharma filed foreign patent applications in 1990, which expanded upon its 1989 United States patent application to include FTC among a large class of nucleosides. The foreign patent applications are pending in many countries and have issued in a number of countries with claims directed to FTC that may cover Coviracil and its use to treat HIV. In addition, BioChem Pharma filed a United States patent application in 1991 specifically directed to Coviracil. BioChem Pharma has received two patents in the United States based on this patent application, one directed to Coviracil and the other directed to a method for treating viral diseases with Coviracil. The PTO has determined that there is a conflict between the latter BioChem Pharma patent and a patent application filed by Emory because they have overlapping claims to the same technology. The PTO is conducting an adversarial proceeding to determine whether BioChem Pharma or Emory is entitled to the patent claims in dispute. Emory may not prevail in the adversarial proceeding, and the proceeding may also delay the decision of the PTO regarding Emory's patent application. BioChem Pharma also filed patent applications in many foreign countries based upon its 1991 United States patent application and has received patents in certain countries. BioChem Pharma may have additional patent applications pending in the United States. In the United States, the first to invent a technology is entitled to patent protection on that technology. For patent applications filed prior to January 1, 1996, United States patent law provides that a party who invented a 16 technology outside the United States is deemed to have invented the technology on the earlier of the date it introduced the invention in the United States or the date it filed its patent application. In a filing with the SEC, BioChem Pharma stated that prior to January 1, 1996, it conducted substantially all of its research activities outside the United States. BioChem Pharma also stated that it considered this to be a disadvantage in obtaining United States patents based on patent applications filed before January 1, 1996 as compared to companies that mainly conducted research in the United States. We do not know whether Emory or BioChem Pharma was the first to invent the technology claimed in their respective United States patent applications or patents. We also do not know whether BioChem Pharma invented the technology disclosed in its patent applications in the United States or introduced that technology in the United States before the date of its patent applications. In foreign countries, the first party to file a patent application on a technology, not the first to invent the technology, is entitled to patent protection on that technology. We believe that Emory filed patent applications disclosing Coviracil as a useful anti-HIV agent in many foreign countries before BioChem Pharma filed its foreign patent applications on that technology. However, BioChem Pharma has received patents in several foreign countries. In addition, BioChem Pharma has filed patent applications on Coviracil and its uses in certain countries in which Emory did not file patent applications. Emory has opposed or otherwise challenged patent claims on Coviracil granted to BioChem Pharma in Australia, Japan and Norway. Emory may not initiate patent opposition proceedings in any other countries or be successful in any foreign proceeding attempting to prevent the issuance of, revoke or limit the scope of patents issued to BioChem Pharma. BioChem Pharma has opposed patent claims on Coviracil granted to Emory in Europe, Japan, Australia and South Korea. BioChem Pharma may make additional challenges to Emory patents or patent applications, which Emory may not succeed in defending. Our sales, if any, of Coviracil for the treatment of HIV may be held to infringe United States and foreign patent rights of BioChem Pharma. Under the patent laws of most countries, a product can be found to infringe a third party patent either if the third party patent expressly covers the product or method of treatment using the product, or if the third party patent covers subject matter that is substantially equivalent in nature to the product or method, even if the patent does not expressly cover the product or method. If it is determined that the sale of Coviracil for the treatment of HIV infringes a BioChem Pharma patent, we would not have the right to make, use or sell Coviracil for the treatment of HIV in one or more countries in the absence of a license from BioChem Pharma. We may be unable to obtain such a license from BioChem Pharma on acceptable terms or at all. Hepatitis B. Burroughs Wellcome Co., Burroughs Wellcome, filed patent applications in March 1991 and May 1991 in Great Britain on a method to treat hepatitis B with FTC and purified forms of FTC, that include Coviracil. Burroughs Wellcome filed similar patent applications in other countries, including the United States. Glaxo subsequently acquired Burroughs Wellcome's rights under those patent applications. Those patent applications were filed in foreign countries prior to the date Emory filed its patent application on the use of Coviracil to treat hepatitis B. Burroughs Wellcome's foreign patent applications, therefore, have priority over those filed by Emory. In July 1996, Emory instituted litigation against Glaxo in the United States District Court to obtain ownership of the patent applications filed by Burroughs Wellcome, alleging that Burroughs Wellcome converted and misappropriated Emory's invention and property and that an Emory employee is the inventor or a co-inventor of the subject matter covered by the Burroughs Wellcome patent applications. In May 1999, Emory and Glaxo settled the litigation, and we became the exclusive licensee of the United States and all foreign patent applications and patents filed by Burroughs Wellcome on the use of Coviracil to treat hepatitis B. Under the license and settlement agreements, Emory and we were also given access to development and clinical data and drug substance held by Glaxo relating to Coviracil. BioChem Pharma filed a patent application in May 1991 in Great Britain also directed to a method to treat hepatitis B with FTC. BioChem Pharma filed similar patent applications in other countries. In January 1996, BioChem Pharma received a patent in the United States, which included a claim to treat hepatitis B with Coviracil. The PTO has determined that there is a conflict between the BioChem Pharma patent and patent applications filed by Yale and Emory. The PTO is conducting an adversarial proceeding to determine which parties are entitled to the patent claims in dispute. Yale licensed all of its rights relating to FTC, including Coviracil, and its uses claimed in this patent application to Emory, which subsequently licensed these rights to us. Neither Emory nor Yale may prevail in the adversarial proceeding, and the proceeding may delay the decision of the PTO regarding Yale's and Emory's patent applications. In addition, the PTO may determine that it will conduct adversarial proceedings with respect to a patent application filed by Burroughs Wellcome. Emory may not pursue or succeed in any such proceedings. We will not be able to sell Coviracil for the treatment of hepatitis B in the United States unless a 17 United States court or administrative body determines that the BioChem Pharma patent is invalid or unless we obtain a license from BioChem Pharma. We may be unable to obtain such a license on acceptable terms or at all. In July 1991, BioChem Pharma received a United States patent on the use of 3TC to treat hepatitis B and has corresponding patent applications pending or issued in foreign countries. If it is determined that the use of Coviracil to treat hepatitis B is not substantially different from the use of 3TC to treat hepatitis B, a court could hold that the use of Coviracil to treat hepatitis B infringes these BioChem Pharma 3TC patents. In addition, BioChem Pharma has filed in the United States and foreign countries several patent applications on manufacturing methods relating to a class of nucleosides that includes Coviracil, from which BioChem Pharma has received several patents in the United States and many foreign countries. If we use a manufacturing method that is covered by patents issued on any of these applications, we will not be able to manufacture Coviracil without a license from BioChem Pharma. We may not be able to obtain such a license on acceptable terms or at all. DAPD We obtained our rights to DAPD under a license from Emory and the University of Georgia Research Foundation, Inc., University of Georgia. Our rights to DAPD include a number of issued United States patents that cover composition of matter, a method for the synthesis of DAPD, methods for the use of DAPD alone or in combination with certain other agents for the treatment of hepatitis B, and a method to treat HIV with DAPD. We also have rights to several foreign patents and patent applications that cover methods for the use of DAPD alone or in combination with certain other anti-hepatitis B agents for the treatment of hepatitis B. Additional foreign patent applications are pending which contain claims for the use of DAPD to treat HIV. Emory and the University of Georgia filed patent applications claiming these inventions in the United States in 1990 and 1992. BioChem Pharma filed a patent application in the United States in 1988 on a group of nucleosides in the same general class as DAPD and their use to treat HIV, and has filed corresponding patent applications in foreign countries. The PTO issued a patent to BioChem Pharma in 1993 covering a class of nucleosides that includes DAPD and its use to treat HIV. Corresponding patents have been issued to BioChem Pharma in many foreign countries. Emory has filed an opposition to patent claims granted to BioChem Pharma by the European Patent Office based, in part, upon Emory's assertion that BioChem Pharma's patent does not disclose how to make DAPD. In a patent opposition hearing held at the European Patent Office on March 4, 1999, the Opposition Division ruled that the BioChem Pharma European patent covering DAPD is valid. Emory has informed Triangle that it has appealed this decision to the European Patent Office Technical Board of Appeal. If the Technical Board of Appeal affirms the decision of the Opposition Division, or if Emory or Triangle do not pursue the appeal, we would not be able to sell DAPD in Europe without a license from BioChem Pharma, which may not be available on acceptable terms or at all. Patent claims granted to Emory on a portion of the DAPD technology by the Australian Patent Office have also been opposed by BioChem Pharma. We cannot assure you that a court or administrative body would invalidate BioChem Pharma's patent claims. Further, a sale of DAPD by us may infringe BioChem Pharma's patents. If Emory, the University of Georgia and we do not challenge, or are not successful in any challenge to, BioChem Pharma's issued patents, pending patent applications, or patents that may issue from such applications, we will not be able to manufacture, use or sell DAPD in the United States and any foreign countries in which BioChem Pharma receives a patent without a license from BioChem Pharma. We may not be able to obtain such a license from BioChem Pharma on acceptable terms or at all. With respect to any of our drug candidates, litigation, patent opposition and adversarial proceedings, including the currently pending proceedings, could result in substantial costs to us. We expect the costs of the currently pending proceedings to increase significantly during the next several years. We anticipate that additional litigation and/or proceedings will be necessary or may be initiated to enforce any patents we own or in-license, or to determine the scope, validity and enforceability of other parties' proprietary rights and the priority of an invention. Any of these activities could result in substantial costs and/or delays to us. The outcome of any of these proceedings may significantly affect our drug candidates and technology. United States patents carry a presumption of validity and generally can be invalidated only through clear and convincing evidence. As indicated above, the PTO is conducting two adversarial proceedings in connection with the emtricitabine technology. We cannot assure you that a court or administrative body would hold our in-licensed patents valid or would find an alleged infringer to be infringing. Further, the license and option agreements with Emory, the University of Georgia, The Regents of the University of California, The DuPont Pharmaceuticals Company, and Mitsubishi Chemical Corporation provide that 18 each of these licensors is primarily responsible for any patent prosecution activities, such as litigation, patent conflict proceeding, patent opposition or other actions, for the technology licensed to us. These agreements also provide that in general we are required to reimburse these licensors for the costs they incur in performing these activities. Similarly, Yale and the University of Georgia, the licensors of L-FMAU to Bukwang Pharm. Ind. Co., Ltd., are primarily responsible for patent prosecution activities with respect to L-FMAU at our expense. As a result, we generally do not have the ability to institute or determine the conduct of any such patent proceedings unless our licensors elect not to institute or to abandon such proceedings. If our licensors elect to institute and prosecute patent proceedings, our rights will depend in part upon the manner in which these licensors conduct the proceedings. In any proceedings they elect to initiate and maintain, these licensors may not vigorously pursue or defend or may decide to settle such proceedings on terms that are unfavorable to us. An adverse outcome of these proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using such technology, any of which could adversely affect our business. Moreover, the mere uncertainty resulting from the initiation and continuation of any technology related litigation or adversarial proceeding could adversely affect our business pending resolution of the disputed matters. We also rely on unpatented trade secrets and know-how to maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with employees, consultants and others. These parties may breach or terminate these agreements, and we may not have adequate remedies for any breach. Our trade secrets may also be independently discovered by competitors. We rely on certain technologies to which we do not have exclusive rights or which may not be patentable or proprietary and thus may be available to competitors. We have filed an application for, but have not obtained, a trademark registration for our corporate name and corporate logo. An opposition to the European Community trademark application for the mark Coviracil has been filed by Orsem and Les Laboratories Serveir based on registrations in certain countries for the mark Coversyl(R) for pharmaceuticals. We do not believe that the marks Coviracil and Coversyl are confusingly similar. However, if we do not prevail in the opposition, we may need to adopt a different product name for emtricitabine. Several other companies use trade names that are similar to our name for their businesses. If we are unable to obtain any licenses that may be necessary for the use of our corporate name, we may be required to change our name. Our management personnel were previously employed by other pharmaceutical companies. The prior employers of these individuals may allege violations of trade secrets and other similar claims relating to their drug development activities for us. We are subject to extensive government regulation and may fail to receive regulatory approval which could prevent or delay the commercialization of our products. In addition to preclinical testing, clinical trials and other approval procedures for human pharmaceutical products, we are subject to numerous other regulations covering the development of pharmaceutical products. These regulations include, for example, domestic and international regulations relating to the manufacturing, safety, labeling, storage, record keeping and reporting of pharmaceutical products. We are also regulated with respect to laboratory practices, safe working conditions and the use and disposal of hazardous substances, including radioactive compounds and infectious disease agents used in connection with our development work. The requirements vary widely from country to country. We expect the process of obtaining these approvals and complying with appropriate government regulations to be time consuming and expensive. Even if our drug candidates receive regulatory approval, we may still face difficulties in marketing and manufacturing those drug candidates. Further, any approval may require postmarketing studies or other conditions. The approval of any of our drug candidates may limit the indicated uses of the drug candidate. A marketed product, its manufacturer and the manufacturer's facilities are subject to continual review and periodic inspections. The discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on the product or manufacturer, including withdrawal of the product from the market. The failure to comply with applicable regulatory requirements can, among other things, result in: o fines, o suspended regulatory approvals, o refusal to approve pending applications, o refusal to permit exports from the United States, o product recalls, o seizure of products, 19 o injunctions, o operating restrictions, and o criminal prosecutions. In addition, adverse clinical results by others could negatively impact the development and approval of our drug candidates. Some of our drug candidates are intended for use as coactive therapy with one or more other drugs, and adverse safety, effectiveness or regulatory developments in connection with such other drugs will also have an adverse effect on our business. Intense competition may render our drug candidates noncompetitive or obsolete. We are engaged in segments of the drug industry that are highly competitive and rapidly changing. Any of our current drug candidates that we successfully develop will compete with numerous existing therapies. In addition, many companies are pursuing novel drugs that target the same diseases we are targeting. We believe that a significant number of drugs are currently under development and will become available in the future for the treatment of HIV and hepatitis B. We anticipate that we will face intense and increasing competition as new products enter the market and advanced technologies become available. Our competitors' products may be more effective, or more effectively marketed and sold, than any of our products. Competitive products may render our products obsolete or noncompetitive before we can recover the expenses of developing and commercializing our drug candidates. Furthermore, the development of a cure or new treatment methods for the diseases we are targeting could render our drug candidates noncompetitive, obsolete or uneconomical. Many of our competitors: o have significantly greater financial, technical and human resources than we have and may be better equipped to develop, manufacture and market products, o have extensive experience in preclinical testing and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products, and o have products that have been approved or are in late stage development and operate large, well-funded research and development programs. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies. Academic institutions, governmental agencies and other public and private research organizations are also becoming increasingly aware of the commercial value of their inventions and are more actively seeking to commercialize the technology they have developed. If we successfully develop and obtain approval for our drug candidates, we will face competition based on the safety and effectiveness of our products, the timing and scope of regulatory approvals, the availability of supply, marketing and sales capability, reimbursement coverage, price, patent position and other factors. Our competitors may develop or commercialize more effective or more affordable products, or obtain more effective patent protection, than we do. Accordingly, our competitors may commercialize products more rapidly or effectively than we do, which could hurt our competitive position. Because we face risks related to our license and option agreements, we could lose our rights to our drug candidates. We have in-licensed or obtained an option to in-license our drug candidates under agreements with our licensors. These agreements permit our licensors to terminate the agreements under certain circumstances, such as our failure to achieve certain development milestones or the occurrence of an uncured material breach by us. The termination of any of these agreements could result in the loss of our rights to a drug candidate. Upon termination of most of our license agreements, we are required to return the licensed technology to our licensors. In addition, most of these agreements provide that our licensors are primarily responsible for any patent prosecution activities, such as litigation, patent conflict, patent opposition or other actions, for the technology licensed to us. These agreements also provide that in general we are required to reimburse our licensors for the costs they incur in performing these activities. We believe that these costs as well as other costs under our license and option agreements will be substantial and may increase significantly during the next several years. Our inability or failure 20 to pay any of these costs with respect to any drug candidate could result in the termination of the license or option agreement for the drug candidate. Because we may be unable to successfully manufacture our drug candidates, our business may never achieve profitability. We do not have any internal manufacturing capacity and we rely on third party manufacturers for the manufacture of all of our clinical trial material. We plan to expand our existing relationships or to establish relationships with additional third party manufacturers for products that we successfully develop. The terms of the Abbott Alliance provide that Abbott will manufacture all or a portion of our product requirements for those products that are or become covered by the Abbott Alliance. We may be unable to maintain our relationship with Abbott or to establish or maintain relationships with other third party manufacturers on acceptable terms, and third party manufacturers may be unable to manufacture products in commercial quantities on a cost effective basis. Our dependence upon third parties for the manufacture of our products may adversely affect our profit margins and our ability to develop and commercialize products on a timely and competitive basis. Further, third party manufacturers may encounter manufacturing or quality control problems in connection with the manufacture of our products and may be unable to maintain the necessary governmental licenses and approvals to continue manufacturing our products. We may be unable to successfully market, sell or distribute our drug candidates. In the United States, we currently intend to market the drug candidates covered by the Abbott Alliance in collaboration with Abbott and to market other drug candidates that we successfully develop, that do not become part of the Abbott Alliance, through a direct sales force. Outside of the United States, we expect Abbott to market drug candidates covered by the Abbott Alliance and, for any other drug candidates that we successfully develop that do not become part of the Abbott Alliance, we intend to market and sell through arrangements or collaborations with third parties. In addition, we expect Abbott to handle the distribution and sale of drug candidates covered by the Abbott Alliance both inside and outside the United States. With respect to the United States, our ability to market the drug candidates that we successfully develop will be contingent upon recruitment, training and deployment of a sales and marketing force as well as the performance of Abbott under the Abbott Alliance. We may be unable to establish marketing or sales capabilities or to maintain arrangements or enter into new arrangements with third parties to perform those activities on favorable terms. In addition, any such third parties may have significant control or influence over important aspects of the commercialization of our drug candidates, including market identification, marketing methods, pricing, composition of sales force and promotional activities. We also may have limited control over the amount and timing of resources that a third party may devote to our drug candidates. Our business may never achieve profitability if we fail to establish or maintain a sales force and marketing, sales and distribution capabilities. Because we depend on third parties for the development and acquisition of drug candidates, we may not be able to successfully acquire additional drug candidates or commercialize or develop our current drug candidates. We have engaged and intend to continue to engage third party contract research organizations and other third parties to help us develop our drug candidates. Although we have designed the clinical trials for our drug candidates, the contract research organizations have conducted many of the clinical trials. As a result, many important aspects of our drug development programs have been and will continue to be outside of our direct control. In addition, the contract research organizations may not perform all of their obligations under arrangements with us. If the contract research organizations do not perform clinical trials in a satisfactory manner or breach their obligations to us, the development and commercialization of any drug candidate may be delayed or precluded. We do not intend to engage in drug discovery. Our strategy for obtaining additional drug candidates is to utilize the relationships of our management team and Scientific Advisory Board to identify drug candidates for in-licensing from companies, universities, research institutions and other organizations. We may not succeed in acquiring additional drug candidates on acceptable terms or at all. 21 Because we may not be able to attract and retain key personnel and advisors, we may not successfully develop our products or achieve our other business objectives. We are highly dependent on our senior management and scientific staff, including Dr. David Barry, our Chairman and Chief Executive Officer. We have entered into employment agreements with the President and each vice president of Triangle. Dr. Barry's employment agreement contains certain non-competition provisions. In addition, the employment agreements for the President and each of the vice presidents provide for certain severance payments which are contingent upon the officer's refraining from competition with Triangle. The loss of the services of any member of our senior management or scientific staff may significantly delay or prevent the achievement of product development and other business objectives. Our ability to attract and retain qualified personnel, consultants and advisors is critical to our success. In order to pursue our drug development programs and marketing plans, we will need to hire additional qualified scientific and management personnel. Competition for qualified individuals is intense and we face competition from numerous pharmaceutical and biotechnology companies, universities and other research institutions. We may be unable to attract and retain these individuals, and our failure to do so would have an adverse effect on our business. Health care reform measures and third party reimbursement practices are uncertain and may adversely impact the commercialization of our products. The efforts of governments and third party payors to contain or reduce the cost of health care will continue to affect the business and financial condition of drug companies. A number of legislative and regulatory proposals to change the health care system have been proposed in recent years. In addition, an increasing emphasis on managed care in the United States has and will continue to increase pressure on drug pricing. While we cannot predict whether legislative or regulatory proposals will be adopted or what effect those proposals or managed care efforts may have on our business, the announcement and/or adoption of such proposals or efforts could have an adverse effect on our profit margins and financial condition. Sales of prescription drugs depend significantly on the availability of reimbursement to the consumer from third party payors, such as government and private insurance plans. These third party payors frequently require that drug companies give them predetermined discounts from list prices, and they are increasingly challenging the prices charged for medical products and services. Present coactive treatment regimens for the treatment of HIV are expensive; published reports indicate the cost per patient per year can exceed $13,000, and may increase as new combinations are developed. These costs have resulted in limitations in the reimbursement available from third party payors for the treatment of HIV infection, and we expect that reimbursement pressures will continue in the future. If we succeed in bringing one or more products to the market, these products may not be considered cost effective and reimbursement to the consumer may not be available or sufficient to allow us to sell our products on a competitive basis. If our drug candidates do not achieve market acceptance, our business may never achieve profitability. Our success will depend on the market acceptance of any products we develop. The degree of market acceptance will depend upon a number of factors, including the receipt and scope of regulatory approvals, the establishment and demonstration in the medical community of the safety and effectiveness of our products and their potential advantages over existing treatment methods, and reimbursement policies of government and third party payors. Physicians, patients, payors or the medical community in general may not accept or utilize any product that we may develop. If we fail to be Year 2000 compliant, it could disrupt our business activities. The Year 2000 issue is the result of date-sensitive devices, systems and computer programs that use a two digit rather than a four digit recognition system to define an applicable year. We have initiated a program and task force to assess the Year 2000 compliance of our systems and the systems of our key business vendors. We have inventoried and assessed our significant internal information and operation systems, and we have replaced or modified those portions of our software, hardware and other equipment which we have determined are non-compliant. We have completed the required changes to, and the testing and verification of, our critical and significant internal systems. Accordingly, we expect that the Year 2000 issue will not pose significant operational problems for our internal systems and equipment. If, however, we failed to fix any critical or significant systems utilizing a two digit recognition system, we could experience system failures or miscalculations causing disruption of operations, 22 including the temporary inability to process transactions or conduct normal business activities in the new millennium. We are also assessing our key business vendors' Year 2000 compliance. We have requested information from these vendors regarding their compliance efforts and written assurances of their Year 2000 compliance. We have completed our risk assessments, readiness evaluations and action and contingency plans related to these vendors. However, it is extremely difficult to assess the likelihood of these third parties' Year 2000 compliance or the impact their noncompliance may have on our operations. If we have failed to implement successfully our Year 2000 compliance plan, our business could be adversely affected. In addition, significant delays or unanticipated Year 2000 issues with key business vendors could adversely affect the development of our drug candidates and our financial condition. Incremental expenditures associated with our Year 2000 compliance program have not been material to our consolidated financial position, results of operations, and cash flow. We have expensed all Year 2000 compliant costs as they have been incurred. We may not have adequate insurance protection against product liability. Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of drug products and we may face product liability claims in the future. We currently have only limited product liability insurance. We may be unable to maintain our existing insurance and/or obtain additional insurance in the future at a reasonable cost or in sufficient amounts to protect against potential losses. A successful product liability claim or series of claims brought against us could require us to pay substantial amounts that would decrease our profitability. We may incur substantial costs related to our use of hazardous materials. We use hazardous materials, chemicals, viruses and various radioactive compounds in our drug development programs. Although we believe that our handling and disposing of these materials comply with state and federal regulations, the risk of accidental contamination or injury still exists. In the event of such an accident, we could be held liable for any damages or fines that result and any such liability could exceed our resources. Our controlling stockholders may make decisions which you do not consider to be in your best interest. As of October 15, 1999, our directors, executive officers and their affiliates, excluding Abbott, owned approximately 18.4% of our outstanding common stock and Abbott owned approximately 17.5% of our outstanding common stock. Pursuant to the terms of the Abbott Alliance, Abbott has the right to purchase additional amounts of our common stock up to a maximum aggregate percentage of 21% of our outstanding common stock and has certain rights to purchase shares directly from the Company in order to maintain its existing level of ownership, also known as antidilution protection. In addition, we have granted Abbott the right to appoint one or more representatives to our Board of Directors, in proportion to its ownership of our common stock. As of October 31, 1999, one Abbott designee served as a member of our Board of Directors. As a result, our controlling stockholders are able to significantly influence all matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions. This concentration of ownership could also delay or prevent a change in control of Triangle that may be favored by other stockholders. The market price of our stock may be adversely affected by market volatility. The market price of our common stock is likely to be volatile and could fluctuate widely in response to many factors, including: o announcements of the results of clinical trials, o developments with respect to patents or proprietary rights, o announcements of technological innovations by us or our competitors, o announcements of new products or new contracts by us or our competitors, 23 o actual or anticipated variations in our operating results due to the level of development expenses and other factors, o changes in financial estimates by securities analysts and whether our earnings meet or exceed such estimates, o conditions and trends in the pharmaceutical and other industries, o new accounting standards, o general economic, political and market conditions and other factors, and o the occurrence of any of the risks described in these "Risk Factors." In addition, if our stockholders sell a substantial number of shares of our common stock in the public market, the market price of our common stock could be reduced. As of October 15, 1999, there were 37,576,695 shares of common stock outstanding, of which approximately 22,500,000 were immediately eligible for resale in the public market without restriction. Holders of approximately 8,500,000 shares have rights to cause us to register them for sale to the public. We have filed registration statements to register the sale of approximately 4,200,000 of these shares. In addition, Abbott will have the right on or after June 30, 2002 to cause us to register for resale in the public market the 6,571,428 shares of common stock purchased at the closing of the Abbott Alliance. Any such sales may make it more difficult for us to raise needed capital through an offering of our equity or convertible debt securities and may reduce the market price of our common stock. In the past, following periods of volatility in the market price of the securities of companies in our industry, securities class action litigation has often been instituted against those companies. If we face such litigation in the future, it would result in substantial costs and a diversion of management attention and resources, which would negatively impact our business. Antitakeover provisions in our charter documents and Delaware law could delay, defer or prevent a tender offer or takeover attempt that you consider to be in your best interest. We have adopted a number of provisions that could have antitakeover effects. On January 29, 1999, our Board of Directors adopted a preferred stock purchase rights plan, commonly referred to as a "poison pill." The rights plan is intended to deter an attempt to acquire Triangle in a manner or on terms not approved by the Board. Thus, the rights plan will not prevent an acquisition of Triangle which is approved by the Board. Our charter authorizes the Board to issue shares of undesignated preferred stock without stockholder approval on terms as the Board may determine. Moreover, the issuance of preferred stock may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, voting control of Triangle. Our bylaws divide the Board into three classes of directors with each class serving a three year term. These and other provisions of our charter and our bylaws, as well as certain provisions of Delaware law, could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving Triangle, even if the events could be beneficial to our stockholders. These provisions could also limit the price that investors might be willing to pay for our common stock. 24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Triangle is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. At September 30, 1999, Triangle had no outstanding forward foreign currency contracts to hedge anticipated foreign currency obligations but was subject to interest rate risk associated with its investment portfolio. All derivative financial instruments, when purchased, are done so in accordance with established policies and procedures and require the approval, reporting and monitoring of derivative financial instrument activities. The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. Interest Rate Sensitivity Triangle is subject to interest rate risk on its investment portfolio. We maintain an investment portfolio consisting primarily of high quality government and corporate bonds with an average maturity of less than one year. We attempt to mitigate default risk by investing in high credit quality securities and by monitoring the credit rating of investment issuers. Our investment portfolio includes only marketable securities with active secondary or resale markets to help ensure portfolio liquidity and we have implemented guidelines limiting the duration of investments. These available-for-sale securities are subject to interest rate risk and will decrease in value if market interest rates increase. If market rates were to increase by 10% from levels at September 30, 1999, the fair value of the portfolio is expected to decline by an immaterial aggregate amount primarily due to the short maturity of the portfolio. At September 30, 1999, our portfolio consisted of approximately $89.2 million of investments maturing within one year. Additionally, we generally have the ability to hold our fixed income investments to maturity and therefore do not expect our consolidated operating results, financial position or cash flows to be affected by a significant amount due to a sudden change in interest rates. Foreign Currency Exchange Risk The majority of our transactions occur in U.S. dollars and we do not have subsidiaries or investments in foreign countries. Therefore, we are not subject to significant foreign currency exchange risk. We have, however, established policies and procedures for market risk assessment, including a foreign currency hedging program. The goal of our hedging program is to economically guarantee, or lock into, exchange rates on firm foreign currency cash outflows and to minimize the impact to the Company of foreign currency fluctuations. These policies specifically provide for the hedging of firm commitments and prohibit the holding of derivative instruments for speculative or trading purposes. At September 30, 1999, Triangle had no outstanding foreign currency contracts. 25 TRIANGLE PHARMACEUTICALS, INC. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS c. Issuance of Unregistered Securities On August 3, 1999, the Company issued 6,571,428 shares of Common Stock at a price of $18.00 per share to Abbott Laboratories in connection with the closing of the Company's strategic alliance with Abbott (the "Abbott Alliance"). The net proceeds of this issuance, after deducting issuance costs, were approximately $115.9 million. Additionally, the Abbott Alliance provides for non-contingent research funding of $31.7 million to be received by January 15, 2000, up to $185.0 million of contingent milestone payments and the sharing of future commercialization costs and overall profits and losses from the four Triangle compounds. No underwriters were involved in the issuance of such Common Stock. The above securities were offered and sold by the Company in reliance upon exemptions from registration under Regulation D promulgated by the SEC or, alternatively, under Section 4(2) of the Securities Act of 1933. The Company did not use any general advertisement or solicitation in connection with the offer or sale of the securities. Appropriate legends were affixed to the certificates for the securities. 26 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits (1)3.1 Restated Certificate of Incorporation of the Company (1)3.2 Second Restated Certificate of Incorporation of the Company +10.1 Supply and Manufacturing Agreement by and between Abbott Laboratories and the Company dated August 3, 1999 +10.2 First Amendment to Option Agreement by and between The Regents of the University of California and the Company dated June 9, 1999 +10.3 Second Amendment to Option Agreement by and between The Regents of the University of California and the Company dated August 31, 1999 11.1 Computation of Net Loss Per Common Share 27.1 Financial Data Schedule (+) Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. (1) These exhibits were previously filed as part of, and are hereby incorporated by reference to, the same numbered exhibit filed with the Company's Form 10-K (No. 000-21589) filed on March 19, 1999. b. Reports on Form 8-K None 27 TRIANGLE PHARMACEUTICALS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. TRIANGLE PHARMACEUTICALS, INC. Date: November 12, 1999 By: /s/ David W. Barry ------------------------------------ David W. Barry Chairman and Chief Executive Officer TRIANGLE PHARMACEUTICALS, INC. Date: November 12, 1999 By: /s/ Thomas R. Staab, II ------------------------------------ Thomas R. Staab, II Acting Chief Financial Officer and Treasurer 28 EX-10.1 2 SUPPLY AND MANUFACTURING AGREEMENT EXHIBIT 10.1 SUPPLY AND MANUFACTURING AGREEMENT BY AND BETWEEN ABBOTT LABORATORIES AND TRIANGLE PHARMACEUTICALS, INC. THIS AGREEMENT is made as of August 3, 1999, by and between Abbott Laboratories, an Illinois corporation having a principal place of business at 100 Abbott Park Road, Abbott Park, Illinois 60064 ("Abbott"), and Triangle Pharmaceuticals, Inc., a corporation organized under the laws of Delaware, having a principal place of business at 4 University Place, 4611 University Drive, Durham, North Carolina 27707 ("Triangle"). WHEREAS, Triangle is developing and seeking regulatory approval for various proprietary drugs for the prevention and treatment of HIV, HBV and any other indications; WHEREAS, Triangle desires to collaborate with another pharmaceutical company with respect to the clinical development, manufacture, registration, distribution and marketing of such products throughout the world; WHEREAS, Abbott desires to collaborate with Triangle with respect to such products; and WHEREAS, Triangle desires to purchase from Abbott, and Abbott desires to supply Triangle's uncommitted requirements of Bulk Drug Substances (as defined below) and Finished Products (as defined below), subject to the terms and conditions set forth herein; WHEREAS, this Agreement applies to the U.S. Territory (as defined below) and the International Territory (as defined below); NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS In addition to the other terms defined elsewhere herein, the following terms and phrases shall have the following meanings when used in this Agreement (and any term defined in the singular shall have the same meaning when used in the singular shall have the same meaning when used in the plural and vice versa, unless stated otherwise). Any terms or phrases used in this Agreement and not defined herein shall have the same meanings ascribed to them in the Collaboration Agreement. 1.1 "Abbott Patents" means (a) all of Abbott's rights in any patents conceived, developed or owned by or otherwise licensed to or controlled by Abbott *** , during the Term resulting from Abbott's or its Affiliates' work with a Compound or Product and which are practiced or used in the development, manufacture, use or sale of a Compound or Product and (b) all substitutions, extensions, divisionals, continuations, continuations-in-part, reissues, reexaminations, renewals, supplementary protection certificates or foreign counterparts of such patents and patent applications identified in sub-part (a). 1.2 "Abbott Process Cost Improvements" means any cost reductions realized by Abbott in the manufacture of Product or intermediate resulting from the implementation of any process improvement that was funded solely by Abbott. If the Parties agree to jointly fund any process improvements, the Parties shall agree as to what portion of such cost reductions resulting from such improvements shall be considered an Abbott Process Cost Improvement pursuant to Section 1.2 or a Triangle Process Cost Improvement pursuant to Section 1.52. 1.3 "Abbott Technology" means all technical information, inventions, discoveries, trade secrets, information, experience, data, formulas, procedures, processes, know-how and results resulting from Abbott's or its Affiliates' or agents' work with a Compound or Product and which are used in the development, registration, manufacture, use or process development relating to the manufacture of the Compounds or Products and which are owned by or otherwise licensed to or controlled by Abbott *** during the Term. 1.4 "Affiliate" means any corporation or non-corporate business entity which controls, is controlled by, or is under common control with a party. A corporation or non-corporate business entity shall be regarded in control of another corporation if it owns or directly or indirectly controls, at least forty percent (40%) of the voting stock of the other corporation or non-corporate business entity, or (a) in the absence of the ownership of at least forty percent (40%) of the voting stock of a corporation or (b) in the case of a non-corporate business entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 2 and policies of such corporation or non-corporate business entity, as applicable. For purposes of this Agreement, TAP Holdings Inc. and its subsidiaries, which comprise Abbott's joint venture with Takeda Chemical Industries Ltd., are not Affiliates of Abbott; provided that neither TAP Holdings, Inc. nor any of its subsidiaries may manufacture the Compounds or Products. 1.5 "Bulk Drug Substance" means the bulk form of each Compound suitable for formulating into Finished Product. 1.6 "Bulk Drug Substance Specifications" means the written specifications for each Bulk Drug Substance (including any raw materials or intermediates required to manufacture such Bulk Drug Substance), to be mutually agreed upon in good faith by the Parties hereto, giving due consideration to applicable regulatory requirements and, thereafter, attached hereto as Exhibit 1.6 as modified from time to time or as subsequently agreed to by the Parties. 1.7 "cGMP" means the FDA's current good manufacturing practices, as specified in 21 CFR ss. 210 and the FDA's guidance documents applicable thereto, and all successor regulations and guidance documents thereto. 1.8 "Collaboration Agreement" means the Collaboration Agreement, dated as of June 2, 1999 by and between Triangle and Abbott. 1.9 "Compounds" means MKC-442, FTC, L-FMAU and DAPD, as well as any new compounds for which Abbott secures rights to manufacture pursuant to Section 2.5 of the Collaboration Agreement. 1.10 "Confidential Information" means Confidential Information as defined in Section 12.1. 1.11 "Contract Quarter" means for each Product, a period of three (3) consecutive calendar months commencing on the first day of each January, April, July and October. 1.12 "Contract Year" means for each Product, a calendar year, except that the initial Contract Year shall commence on the first day of the month in which the initial Launch for such Product occurs in the Territories and shall end on the next December 31st. 1.13 "Contractual Obligations" means any (a) existing contracts or agreements that Triangle has with any Third Party other than Abbott for the manufacture and/or supply of Bulk 3 Drug Substance or Finished Product, as disclosed by Triangle on Exhibit 1.13 and (b) any new contracts or agreements which are added to Exhibit 1.13 pursuant to the provisions of Section 3.3 and 3.5. Copies of all Contractual Obligations (including any subsequent amendments) listed on Exhibit 1.13 shall be provided to Abbott. 1.14 "DAPD" means [b]-D-Dioxolanyl purines of the formula set forth in Exhibit 1.16 of the Collaboration Agreement wherein R is OH, Cl, NH2, or H, and X is H, alkyl, acyl, monophosphate, diphosphate or triphosphate, including all 5' and N(6) cyclated and alkylated derivatives, salts, esters, racemic mixtures and purified enantiomers thereof. DAPD is exclusively licensed to Triangle by Emory University and the University of Georgia Research Foundation, Inc., pursuant to a License Agreement dated March 31, 1996 (the "DAPD License Agreement") for use in the prevention and treatment of HIV and HBV throughout the entire world. 1.15 [Intentionally Omitted] 1.16 "Development Project" means a project to design, adapt, improve, scale-up and validate the commercial manufacturing process for the manufacture of any Product. 1.17 "Dollars" and "$" means United States Dollars. 1.18 "Effective Date" shall mean the date upon which this Agreement becomes effective pursuant to the terms set forth in Section 16.1. 1.19 "FDA" means the United States Food and Drug Administration or any successor entity thereto. 1.20 "Field of Use" means the following: (i) for MKC-442, all pharmaceutical uses; (ii) for FTC and DAPD, the prevention and treatment of HIV and HBV; (iii) for L-FMAU, all human antiviral applications and uses; and (iv) any other uses for the Compounds to which Triangle obtains rights from the Triangle Licensors. 1.21 "Finished Product" means any finished pharmaceutical formulation containing one or more of the Compounds as active ingredients and, unless otherwise mutually agreed between the Parties, shall also include (i) Primary Packaging to the extent that Triangle is supplying such finished pharmaceutical formulation to Abbott in its capacity as purchaser under 4 the Collaboration Agreement ("Purchasing Abbott"), or (ii) both Primary Packaging and Secondary Packaging to the extent that Abbott in its capacity as manufacturer of finished pharmaceutical product under this Agreement ("Manufacturing Abbott") is supplying such finished pharmaceutical formulation to Purchasing Abbott. 1.22 "Finished Product Specifications" means the written specifications for each Finished Product (including any inactive ingredients used to manufacture such Finished Product), to be mutually agreed upon in good faith by the Parties hereto, giving due consideration to applicable regulatory requirements and, thereafter, attached hereto as Exhibit 1.22. 1.23 "FTC" means (i) the (-) enantiomer with the chemical name: (2R-cis)-4-amino-5-fluoro-1-[2-(hydroxymethyl)-1, 3-oxathiolan-5-yl]-2(1H)-pyrimidinone; (ii) any mixture of the enantiomer described in Subsection 1.23(i) and the (+) enantiomer with the chemical name: (2S-cis)-4-amino-5-fluoro-1-[2-(hydroxymethyl0-1, 3-oxathiolan-5-yl]-2(1H)-pyrimidinone, in which the ratio of such *** equal to or greater than *** to ***; or (iii) any salts, esters and N alkylated derivatives of any of the foregoing. FTC is exclusively licensed to Triangle by Emory University pursuant to a License Agreement dated April 17, 1996, as amended on May 6, 1999 (the "FTC License Agreement") for use in the prevention and treatment of HIV and HBV throughout the world. 1.24 "HIV" means the human immunodeficiency virus. 1.25 "HBV" means the hepatitis B virus. 1.26 "International Territory" means all areas of the world outside the U.S. Territory, except that the International Territory shall exclude Japan for MKC-442 and shall exclude Korea for L-FMAU. 1.27 "Launch Date" means the date upon which the first commercial sale of Finished Product (as evidenced by the date of the invoice for such sale) occurs in the U.S. Territory. 1.28 "Legal Requirements" means any and all federal, state, local, national, supranational laws, regulations, ordinances, orders and requirements applicable to the Parties and their Affiliates in performance of this Agreement, including without limitation, the Securities *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 5 Exchange Act of 1934, as amended, and the Foreign Corrupt Practices Act, as well as such laws, regulations, ordinances, orders and requirements applicable to the sale, marketing, promotion, Detailing, and distribution of the Products, including without limitation, the following within the U.S. Territory: the Prescription Drug Marketing Act of 1987, the Federal Food, Drug and Cosmetic Act, and all regulations and other requirements of the FDA. 1.29 "L-FMAU" means the compound known as L-FMAU, with the chemical name *** thereof. L-FMAU is exclusively licensed to Triangle by Bukwang Pharm. Ind. Co., Ltd. Pursuant to a License Agreement dated February 27, 1998, as amended on April 1, 1999 (the "L-FMAU License Agreement") for all human antiviral applications and uses for the entire world, excluding Korea. 1.30 "Losses" means any liabilities, costs, damages, judgments, settlements and other reasonable out-of-pocket expenses (including legal expenses). 1.31 "MKC-442" means the compound known as MKC-442, with the chemical name 6-Benzyl-1-(ethoxymethyl)-5-isopropyl uracil, including any salts and esters thereof. MKC-442 is exclusively licensed to Triangle by Mitsubishi Chemical Corporation pursuant to a license dated June 17, 1997 (the "MKC-442 License Agreement") for use as a pharmaceutical product in the entire world excluding Japan. 1.32 "NDA" means, in respect of each commercially launched Product, an approved New Drug Application filed by Triangle with the FDA and all subsequent submissions thereto. 1.33 "Primary Packaging" means the manufacturing activities and packaging components which hold the drug product and are in direct contact with the product. 1.34 "Product" means, in respect of a given Compound, any Bulk Drug Substance, Finished Product or both. 1.35 "Product Patents" means (a) the patents and patent applications licensed to Triangle under the Triangle License Agreements; (b) any patents and patent applications owned by or otherwise licensed to or controlled by (to the extent sublicensing is permissible) Triangle during the Term which contain claims covering or potentially covering the development, *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 6 registration, manufacture, use and sale of the Compounds or the Products (including any intermediates or formulations thereof) within the Field of Use; and (c) all substitutions, extensions, divisionals, continuations, continuations-in-part, reissues, reexaminations, renewals, supplementary protection certificates or foreign counterparts of such patents and patent applications identified in sub-parts (a) and (b). 1.36 "Product Technology" means the technical information, inventions, discoveries, trade secrets, information, experience, data, formulas, procedures, processes, know-how and results which (a) are licensed to Triangle under the Triangle License Agreements; or (b) are owned by or otherwise licensed to or controlled by Triangle (to the extent sublicensing is permissible) during the Term which are necessary for the development, registration, manufacture, use or sale of the Compounds or Products within the Field of Use. 1.37 "Purchase Forecast" means the Purchase Forecast as defined in Section 4.1. 1.38 "Raw Material Cost Improvements" means any cost reductions realized by Abbott in the manufacture of Product resulting from the purchase of raw materials at a lower cost than the cost assumed in the calculation of Abbott's Standard Manufacturing Cost. The parties agree that cost improvements that result from a process improvement to the manufacture of an intermediate shall not be considered a Raw Material Cost Improvement but shall be considered an Abbott Process Cost Improvement pursuant to Section 1.2 or a Triangle Process Cost Improvement pursuant to Section 1.52, as the case may be. 1.39 "Reasonable Best Efforts" means a reasonable level of effort which is consistent with that used by other pharmaceutical companies with respect to other pharmaceutical products of comparable commercial value. Each Party shall be entitled to exercise prudent and justified business judgment in fulfilling its obligation to exercise its Reasonable Best Efforts under this Agreement. 1.40 "Secondary Packaging" means the manufacturing activities and packaging materials that do not have direct product contact but are required for product distribution to Purchasing Abbott's end-users, for example, cartons, trays, and shipping containers. 1.41 "Shared Cost Improvements" shall mean any Raw Material Cost Improvements and any *** . *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 7 1.42 "Specifications" means, in respect of a given Product, the Bulk Drug Specifications and/or Finished Product Specifications applicable thereto. 1.43 "Standard Manufacturing Cost" for a Product means *** standard manufacturing cost calculated *** with respect to such Product according to *** and generally accepted accounting principles applied in a consistent manner with respect to all products of Abbott's Chemical and Agricultural Products Division, *** associated with the production of such Product; provided that in calculating Standard Manufacturing Cost for such Product Abbott shall *** of any *** Cost Improvements *** shall *** of any *** Cost Improvements. If the Parties agree to jointly fund any process improvements, the Parties shall agree as to what effect to give to cost reductions resulting from such improvement in the calculation of Standard Manufacturing Cost. 1.44 "Taxes" means any sales or use tax, excise or similar charge (other than that assessed against income), license fee, value added, import or export fees (e.g., custom duties), or other charges lawfully assessed or charged by a governmental authority on the manufacture, sale or transportation of Product. 1.45 "Term" shall have the meaning set forth in Section 16.1. 1.46 "Territories" means the U.S. Territory and the International Territory. 1.47 "Third Party" means any Person that is not a Party or an Affiliate of a Party. 1.48 "Total Price" means the total *** cost *** of manufacturing *** at which Triangle can purchase Product, including the purchase price for *** for such Product and the *** amounts of any *** between the Parties under the Collaboration Agreement. 1.49 "Triangle-Abbott Alliance Agreements" means this Agreement and the following agreements entered into between the Parties as of June 2, 1999: (i) the Co-Promotion Agreement; (ii) the Collaboration Agreement; (iii) the Common Stock Purchase Agreement; and (iv) the Stockholder Rights Agreement. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 8 1.50 "Triangle License Agreements" means the Triangle License Agreements defined in Section 1.84 of the Collaboration Agreement. 1.51 "Triangle Licensors" means Mitsubishi Chemical Corporation with respect to MKC-442, Emory University with respect to FTC, Emory University and the University of Georgia Research Foundation, Inc. with respect to DAPD, and Bukwang Pharm. Ind. Co., Ltd. with respect to L-FMAU. 1.52 "Triangle Process Cost Improvements" means any cost reductions realized by Abbott in the manufacture of Product or intermediate resulting from the implementation of any process improvement that was solely funded by Triangle. If the Parties agree to jointly fund any process improvements, the Parties shall agree as to what portion of such cost reductions resulting from such improvements shall be considered a Triangle Process Cost Improvement pursuant to Section 1.52 or an Abbott Process Cost Improvement pursuant to Section 1.2. 1.53 "Uncommitted Requirements" means *** of Triangle's and Abbott's commercial requirements of Product in the Territories less any quantities *** . 1.54 "U.S. Territory" means the United States of America, *** . 1.55 "Validation Activities" means those activities to be performed by Abbott or on behalf of Abbott, consistent with then cGMP's and the Validation Protocol, with respect to the validation of the commercial manufacturing procedures used by it with respect to a given Product, including, but not limited to installation qualification, operational qualification and process qualification, analytical testing and validation and the preparation of a validation technical report and cleaning validation. 1.56 "Validation Batches" means three (3) consecutive production batches of Product which are manufactured by Abbott or on behalf of Abbott pursuant to and in accordance with the requirements set forth in Section 9.2. 1.57 "Validation Protocol" means the protocol which has been or will be mutually agreed upon by the Parties hereto, which describes the tests and acceptance criteria used to demonstrate that a process yields a given Product which consistently meets the Specifications. A *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 9 Validation Protocol may be amended from time to time upon mutual agreement by the parties hereto with respect to a Product, giving due consideration to Legal Requirements. 1.58 "Variance" means the amount by which the actual manufacturing cost varies from the Standard Manufacturing Cost for the relevant manufacturing activity for a Product; provided that variances shall not include variances related to (i) Shared Cost Improvements (ii) Abbott Process Cost Improvements and (iii) the utilization of Abbott manufacturing facilities. ARTICLE 2. GRANT OF LICENSE 2.1 Triangle Grant. Subject to the terms of this Agreement, Triangle hereby grants Abbott a *** worldwide license (including a sub-license under the Triangle License Agreements) to utilize the Product Patents and the Product Technology to make and have made the Compounds and Products within the Field of Use in the Territories and to otherwise perform any duties and obligations that Abbott is required or permitted to perform under this Agreement in the Territories. Such license shall be exclusive except as to (i) Triangle and its Third Party manufacturers so as to perform any obligations or activities that Triangle is required or permitted to perform under this Agreement, (ii) rights retained by the Triangle Licensors as specified in the Triangle License Agreements and by Glaxo Wellcome pursuant to the GW License Agreement (as defined in the first amendment to the FTC License Agreement), (iii) rights contemplated in Sections 2.6 and 3.6 of the Collaboration Agreement, and (iv) any rights of the U.S. Government described in the Triangle License Agreements. 2.2 Abbott Grant. Abbott hereby grants Triangle, the *** a nonexclusive, royalty free *** worldwide right and license to utilize the Abbott Technology and Abbott Patents to make, have made, import, use, offer to sell and sell the Compounds and Products within the Field of Use. In the case of the ***, such license shall apply only to (i) countries outside of the Territories and (ii) any country in which the applicable Triangle License Agreement is terminated. 2.3 Use of Third Parties. Except as provided in Section 20.2, Abbott shall not have the right to grant sublicenses to the extent necessary to perform its obligations hereunder without *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 10 the prior express consent of Triangle, not to be unreasonably withheld, and, to the extent required, the applicable Triangle Licensor, in which event Triangle shall reasonably cooperate with Abbott in its efforts to obtain the consent of the applicable Triangle Licensor. No sublicense granted by Abbott shall relieve it of any obligation hereunder. ARTICLE 3. MANUFACTURE AND SUPPLY OF BULK DRUG SUBSTANCES AND FINISHED PRODUCTS 3.1 Right to Manufacture. Subject to the terms of this Agreement, it is the intent of the Parties that (i) during the Term, Abbott shall manufacture or cause to have manufactured the Uncommitted Requirements for Bulk Drug Substance and Finished Product in the Territories and (ii) the price at which such Product is supplied or manufactured by or on behalf of Abbott pursuant to this Article 3 shall be market competitive as determined pursuant to Article 8. 3.2 Abbott's Right to Manufacture Absent any Triangle Contractual Obligations. It is understood that (i) if Triangle has no Contractual Obligations with respect to the manufacture of Bulk Drug Substance for a Compound, Abbott shall manufacture or cause to have manufactured *** percent (*** %) of such Bulk Drug Substance and/or (ii) if Triangle has no Contractual Obligations with respect to the manufacture of Finished Product with respect to a Product containing one or more Compounds, Abbott shall manufacture or cause to have manufactured *** percent (*** %) of such Finished Product. The Purchase Price shall be determined pursuant to Section 8.1. 3.3 Abbott's Right to Manufacture Partial Contractual Obligations. If Triangle has one or more Contractual Obligations which require it to purchase a portion of its requirements of Bulk Drug Substance and/or Finished Product for a Compound from a Third Party, Abbott may elect as soon as it capable of doing so to manufacture or cause to have manufactured and supply the Uncommitted Requirements of such Bulk Drug Substance and/or Finished Product. Should Abbott elect to manufacture or cause to be manufactured such Uncommitted Requirements of Product, Abbott shall submit to Triangle a price proposal pursuant to Section 8.2. Should Triangle have reasonable grounds to believe that Abbott is not *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 11 capable of manufacturing or causing to have manufactured such Product in time to meet Product requirements for the proposed initial Launch of the Product, Triangle and Abbott shall meet to discuss such issue in good faith. Following such discussions if Triangle in good faith continues to believe that Abbott cannot provide such Uncommitted Requirements of Product in time for the proposed initial Launch of the Product but that another third party supplier can supply such Uncommitted Requirements of Product such that the proposed initial Launch of such Product shall not be delayed, Triangle may purchase such Uncommitted Requirements of Product from a Third Party. Triangle shall purchase such Uncommitted Requirements from such Third Party *** under this Section 3.3 shall be *** set forth on Exhibit 1.13. Notwithstanding the foregoing provisions of this Section 3.3, the Parties agree that with respect to the manufacture of both Bulk Drug Substance and Finished Product containing MKC-442, the Third Party manufacturers supplying Product under the Contractual Obligations shall supply ***% of Triangle's and Abbott's requirements for Product for a period ending *** , unless the Parties otherwise agree in writing. Following such *** period, Abbott may elect to assume manufacture of Uncommitted Requirements of MKC-442 pursuant to this Section 3.3. Triangle shall use its Reasonable Best Efforts to *** . 3.4 Abbott's Assumption of Manufacturing. Upon the expiration of any Contractual Obligation, Abbott shall manufacture or cause to have manufactured and supply ***% of the commercial requirements for such Bulk Drug Substance and/or Finished Product, as applicable, which was the subject of such Contractual Obligation, provided that Abbott submits a proposal that is market competitive and is capable of manufacturing or causing to have manufactured such Product in accordance with timelines agreed to by Abbott and Triangle at least *** prior to the expiration of such Contractual Obligation, unless otherwise waived by Triangle in its sole discretion. The price at which Abbott supplies such Product shall be determined in accordance with Section 8.3. 3.5 Triangle's Assumption of Manufacturing. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 12 (a) With respect to any Product for which Abbott obtains the right to manufacture either Bulk Drug Substance, Finished Product or both pursuant to this Article 3. Triangle may first request Abbott to *** a third party price quote effective (i) at any time after the end of *** following the *** for Product manufactured pursuant to Section 3.2 and (ii) at any time after Abbott assumes manufacturing responsibilities pursuant to Section 3.4. Triangle shall thereafter be entitled to submit a price proposal *** after the submission of its last price quote for the relevant manufacturing activity for a Product; provided however if the *** , Triangle shall not be entitled to *** . Triangle may submit a request for proposal ("RFP") to one or more Third Party manufacturers for the relevant manufacturing activity (i.e., Bulk Drug Substance, Finished Product or both). Each RFP will identify the Product, term, stage of manufacture, process chemistry, specifications and all other relevant terms regarding the manufacture of the Product which the responsive proposal should address, including the deadline for submission of any responsive proposal. Abbott shall provide Triangle with all necessary information required by Triangle in order to prepare an RFP, including without limitation access to all batch records, in process controls, specifications and stability data on raw materials, intermediates and other inactive ingredients, hazard assessments and process and cleaning validation protocols. (b) Any Third Party proposal submitted to Abbott must be a bona fide proposal to supply similar quantities of Bulk Drug Substance and/or Finished Product from one or more Third Party manufacturers (each of which is FDA approved or to manufacture at least *** at a lower Total Price than the price then being charged by Abbott. Triangle will submit a written copy or summary of such Third Party proposal to Abbott or provide Abbott with an itemization of the changes required to be made by Abbott in any responsive proposal to make the terms set forth in each proposal comparable. *** of receipt of such Third Party proposal, Abbott shall notify Triangle whether it is willing to *** such lower Total Price for the term covered by such proposal, including any price adjustments permitted by such proposal. If *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 13 Abbott notifies Triangle of Abbott's willingness to *** such Total Price, the Parties shall amend Exhibit 8.1 to reflect the new price for such Product. In the event that Abbott notifies Triangle that it is not interested in *** such price or fails to give Triangle notice of its interest within *** of receiving such proposal, Triangle shall be free to enter into an agreement for supply of such Product by any Third Party on the terms contained in such proposal upon *** prior written notice to Abbott. Thereafter, the *** of such Product shall be considered to be a Contractual Obligation and shall be set forth on Exhibit 1.13. Triangle shall notify Abbott of the date on which Abbott will no longer be required to supply Abbott's and Triangle's commercial requirements of such Product; provided that in no event shall such date be less than *** after the date of such notice. Abbott shall have no supply obligations with respect to such Product past the date specified in such notice, unless Abbott otherwise agrees in writing. (c) Should Triangle assume manufacturing from Abbott pursuant to this Section 3.5, *** . 3.6 Product Supplied Pursuant to Contractual Obligations. With respect to any Products which are now, or in the future, subject to Contractual Obligations and to the extent to which Abbott is not entitled to manufacture pursuant to Sections 3.2 and 3.3, Abbott shall exclusively purchase from Triangle or its designated Third Party manufacturers (in respect of Abbott's requirements *** ) Abbott's requirements for such Products in the Territories, in accordance with the terms and conditions set forth in Article 8 of the Collaboration Agreement. Any purchases of Product by Abbott directly from Triangle's designated Third Party manufacturers shall be subject to and consistent with the terms and conditions set forth in the applicable agreement relating to Contractual Obligation. Abbott agrees to keep Triangle fully apprised of such purchases, including contemporaneously providing copies of any purchase orders which it submits to such Third Party manufacturers to Triangle. Triangle and Abbott shall reasonably cooperate with each other so as to enable Triangle to *** an integrated forecast covering Triangle's and Abbott's anticipated needs for the applicable Product. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 14 3.7 International Markets. In the event that Abbott's rights to sell a Product outside the U.S. Territory are transferred or forfeited to Triangle, Abbott agrees to manufacture and sell to Triangle up to one hundred percent (100%) of Triangle's commercial requirements outside the U.S. Territory (to the extent Abbott is then entitled to manufacture such Product pursuant to this Article 3) under the same terms then in effect for Product sold by Abbott in the International Territory, as specified in Section 1.1 of the Collaboration Agreement. 3.8 Triangle's Right to Manufacture in the Event of Shortfalls. During the Term of this Agreement, if either of the following shall occur: (a) Abbott, for a *** period of at least *** , is unable to deliver at least ***% of Triangle's orders for a given Product placed pursuant to Section 4.3, for any reason covered by Article 19, or (b) there is a material failure or refusal by Abbott to meet Triangle's orders for Products pursuant to the terms hereof, or other fault on the part of Abbott, and with respect to this subsection (b), Triangle gives Abbott notice of such material failure or refusal and an opportunity to cure such material failure or refusal in accordance with the cure provisions set forth in Section 16.3, Triangle shall be entitled to exercise its rights under the license granted pursuant to Section 2.2 to make or have made such Product. Abbott shall also render all reasonable technical assistance to Triangle to enable Triangle to manufacture such Product. Triangle shall reimburse Abbott for its time and reasonable out-of-pocket costs incurred in rendering such technical assistance. If Abbott's inability to manufacture such Product for Triangle arose by reason of a cause specified in Article 19, Triangle's right to manufacture shall *** ; provided, however, that Triangle shall be entitled to recover from Abbott any capital investment made by Triangle in setting up the manufacture of such Product. Abbott shall have the option of (i) reimbursing Triangle for such investment and taking title to any machinery and equipment represented by such investment which is movable without damage to the premises in which it is located or (ii) permitting Triangle to manufacture or have manufactured such Product until it has recouped its capital investment, as determined in accordance with its usual and customary accounting practices. If Abbott's refusal or inability to manufacture arose by any reason other than a cause specified in Article 19, Abbott shall be deemed to be in default hereunder and any license granted herein shall be without prejudice to any other legal or equitable rights of Triangle. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 15 ARTICLE 4. FORECASTS AND ORDERS FOR U.S. TERRITORY 4.1 Initial Purchase Forecast. Within *** prior to the Launch Date of any Product in the U.S. Territory (except in the case of *** , if applicable, such period shall be *** ) which Abbott is entitled to manufacture hereunder, Triangle shall provide Abbott with a written estimate for such Product specifying anticipated requirements of such Product in the U.S. Territory for the *** period commencing approximately *** prior to the anticipated Launch Date (the "Purchase Forecast"). 4.2 Rolling Forecasts. Such Purchase Forecasts for the U.S. Territory shall be updated on quarterly basis so that at the beginning of each such calendar quarter, Abbott shall have been provided with a rolling Purchase Forecast for the *** period commencing with the *** calendar quarter after the date on which such Purchase Forecast is submitted (i.e. approximately *** ). By way of example only, at the end of the *** quarter of a calendar year (assuming a Product has been launched), Triangle shall provide Abbott with a Purchase Forecast of the anticipated requirements of Product for the *** consisting of the *** of the *** calendar year. 4.3 Firm Orders. Triangle shall purchase Products at the applicable price by means of purchase orders submitted to Abbott at least *** in advance of the requested delivery date. Each purchase order shall be governed by the terms of this Agreement and none of the terms or conditions of Triangle's purchase orders, Abbott's acknowledgment forms or any other forms exchanged by the parties shall be applicable, except those, to the extent consistent with the terms set forth herein, specifying quantity ordered, delivery locations and delivery schedule and invoice information. 4.4 Limitations on Purchase Order Quantities. All purchase orders for delivery during a calendar month that *** of the latest Purchase Forecast covering such month (excluding any amendments subsequent to the original date of such Purchase Forecast) shall be deemed accepted by Abbott. Abbott shall use its Reasonable *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 16 Best Efforts to supply Triangle with any Product *** of such Purchase Forecast. All other purchase orders must be accepted or rejected by Abbott, in writing, by facsimile or air courier, within *** receipt from Triangle. If Abbott does not provide such notice of acceptance or rejection within *** , it shall be deemed to have accepted such purchase orders in full. ARTICLE 5. MANUFACTURE OF PRODUCT 5.1 Manufacturing Standards. Abbott shall manufacture all Product in accordance with all Legal Requirements and in conformance with the Specifications. The Specifications may be modified from time to time by written agreement of the parties without the necessity of amending this Agreement. 5.2 U.S. Product Characteristics. Triangle shall not be obligated to accept from Abbott any Finished Product with less than the greater of (i) *** of approved shelf life for such Product in the United States or (ii) *** of remaining shelf life; provided, however, that a Finished Product may be shipped with a shorter shelf life of not less than *** . 5.3 Right to Audit. Abbott shall permit Triangle access during reasonable business hours and after reasonable notice, to those areas of Abbott's manufacturing facilities where Product is manufactured, stored and handled and to manufacturing records of Product manufactured by Abbott so that Triangle may perform a quality assurance audit of such facilities and activities. 5.4 Certificates of Analysis and Batch Records. Abbott shall be responsible for releasing Bulk Drug Substance supplied by it hereunder for secondary manufacturing and Finished Product supplied by it hereunder and shall provide Triangle with a certificate of analysis for each shipment of Product which is released for secondary manufacturing or Primary Packaging. Each certificate of analysis will certify that the Product covered thereby was manufactured in accord with cGMPs and meets the Specifications, and will include any out of Specification deviations or investigations which occurred during the manufacture and testing of such Product. Abbott shall provide a certificate of analysis to Triangle for each shipment of *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 17 Product delivered under this Agreement. Full batch documentation including batch production records, and manufacturing and analytical procedures shall be available for review by Triangle on site at the manufacturing facility used by Abbott, during regular business hours and upon reasonable advance notice from Triangle. 5.5 Safety or Toxicity Notification. Each party shall promptly advise the other of any safety or toxicity problem of which either party becomes aware regarding any Product in accordance with the procedures developed pursuant to Article 10 of the Collaboration Agreement. 5.6 Inspections. In the event any Abbott manufacturing facility producing Product hereunder is inspected by representatives of any federal, state, local or foreign regulatory agency in connection with the manufacture of the Product, Abbott shall notify Triangle immediately (by telephone and, if possible, in writing) upon learning of such inspection, and shall supply Triangle with copies of any correspondence or portions of correspondence which relate to the Product. Abbott will provide Triangle with daily updates of such inspection and Triangle may send one representative to such manufacturing facility to participate in that portion of the close-out visit relating to the Product, subject to Abbott's consent, not to be unreasonably withheld. In the event Abbott receives any regulatory letter or comments from any federal, state, local or foreign regulatory agency in connection with its manufacture of the Product requiring a response or action by its Subcontractor, including, but not limited to, receipt of a Form 483 (Inspectional Observations) or a Warning Letter, Abbott shall provide Triangle with a copy of each such response for Triangle review prior to submission of the response and opportunity to comment where practicable. 5.7 Quality Assurance. For each Product or Development Project hereunder, the Parties shall mutually agree upon an intercompany quality agreement which will appropriately address the following regulatory and quality issues and identify the responsible Party therefor: cGMP compliance, quality control, quality assurance, regulatory compliance, dispute resolution, change management, product and process validation, annual product review, annual report, drug listing and product returns. 18 ARTICLE 6. ACCEPTANCE OF PRODUCT 6.1 Failure to Meet Specifications. (a) Triangle shall have a period of *** from the date of receipt of the certificate of analysis for each shipment of Product to reject any shipment of Product on the grounds that it does not conform to the Specifications. Triangle shall have the right to reject any non-conforming Product. All or part of any shipment shall be held for Abbott's disposition and at Abbott's sole expense if found not to conform with the Specifications. Any Product which Triangle accepts pursuant to this Section 6.1(a) shall be deemed to be accepted by Purchasing Abbott, except to the extent, if any, that any damage occurs to such Product as a result of any manufacturing activity undertaken by a Triangle Third Party manufacturer after Triangle's acceptance under this Section 6.1(a). (b) If a dispute arises as to whether Product conforms with the Specifications and the Parties are unable to resolve the dispute, the matter shall be referred to an independent third party testing laboratory located in the United States and agreed to by the Parties. The testing laboratory shall test the Product in question for conformance with the Specifications and shall provide results to Triangle and Abbott. The decision of the testing laboratory regarding conformance with the Specifications shall be final and binding on the parties; provided, that Triangle shall not be obligated to release Product for distribution which it determines does not meet Specifications. The cost of the testing laboratory shall be paid by the party found to be in error. (c) Failure by Purchasing Abbott to notify Manufacturing Abbott in writing of rejections within the *** period shall constitute a waiver of all claims with respect to Product delivered hereunder and, in any event, any use of the Product by Purchasing Abbott shall be deemed to mean satisfactory performance on the part of Manufacturing Abbott. No claims of any kind with respect to delivered Product shall be *** . *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 19 6.2 Stability Testing and Analytical Methods. Abbott shall perform definitive stability testing (i.e., final route and source for NDA and MAA applications) on Product per FDA and International Conference for Harmonization guidelines and such ongoing stability testing as required to support commercial stability monitoring of the Product, in each circumstance using a stability protocol which has been approved by both Parties. The costs of such ongoing stability testing shall be included in Triangle's or Abbott's Cost of Goods under the Collaboration Agreement, as applicable. ARTICLE 7. SHIPMENT AND DELIVERY 7.1 Shipment. Abbott shall prepare all Product for shipment to Triangle, or its designees, including Manufacturing Abbott and/or Purchasing Abbott. All Products shall be delivered *** , as identified by Triangle. 7.2 Delivery. Abbott shall arrange and pay for shipping of Finished Product from the *** to Abbott's distribution centers *** , and the risk of loss shall pass from Manufacturing Abbott to Triangle or Purchasing Abbott, as applicable, when the Products are delivered at the *** . ARTICLE 8. PRICE 8.1 Purchase Price Absent any Triangle Contractual Obligations. (a) At the end of *** of each Abbott Development Project for Products manufactured pursuant to Section 3.2, a target price for the relevant manufacturing activity for such Products (using chemistry approved by the Technical Steering Committee (as defined herein)) shall be established based on *** Abbott's projected Standard Manufacturing Cost for such Product. (b) After the completion of the Validation Batches for each such Product, Abbott shall redetermine its projected Standard Manufacturing Cost for such Product based upon the Validation Batches. Abbott shall notify Triangle of the then current Standard Manufacturing Cost, and the initial purchase price for the first Contract Year *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 20 shall be equal to *** the then current Standard Manufacturing Cost. (c) At least *** prior to the beginning of the second and third Contract Year, and any subsequent Contract Year for which Triangle does not submit a third party quote pursuant to Section 3.5, Abbott shall recalculate the Standard Manufacturing Cost for such Product. Abbott shall notify Triangle of Abbott's current Standard Manufacturing Cost and the purchase price for the next Contract Year shall be equal to *** the current Standard Manufacturing Cost for such Product. 8.2 Abbott's Purchase Price of Partial Contractual Requirements. In the event that Triangle is subject to Contractual Obligations, Abbott may elect to manufacture any Uncommitted Requirements. The Total Price at which Abbott agrees to supply such Uncommitted Requirements shall be *** the purchase price at which the current supplier is committed to providing Product throughout the term of such Contractual Obligation. 8.3 Abbott's Assumption of Manufacturing. In the event that Abbott assumes manufacturing of any Product pursuant to Section 3.4, *** , the Total Price at which Abbott supplies Product to Triangle must be equal to the purchase price that would otherwise be paid by Triangle *** for the term covered by such quote, including any price adjustments permitted by such quote. If Triangle elects to utilize a new supplier for such Product, in order for Abbott to assume manufacturing such Product, the Total Price from Abbott must *** the Total Price quoted by such new supplier for the term covered by such quote, including any price adjustments permitted by such quote. If Triangle does not seek a Third Party quote, the price for such Product from Abbott for the *** period following Abbott's assumption of manufacturing shall be equal to *** of Abbott Standard Manufacturing Cost for such Product. 8.4 Triangle Assumption of Manufacturing. In the event that Triangle assumes manufacturing of Product pursuant to Section 3.5 and Abbott has not yet *** any Abbott Process Cost Improvements with respect to such Product, Triangle shall *** such Abbott Process Cost Improvements *** from such Abbott *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 21 Process Cost Improvements, at such time as Abbott ceases to manufacture the Product. Abbott shall *** Abbott Process Cost Improvements as well as *** . Triangle shall *** . 8.5 Variances. If at any time that the purchase price is based upon *** of Standard Manufacturing Cost and Abbott incurs negative Variances which are greater than *** of Abbott's Standard Manufacturing Cost, Triangle shall, *** the purchase price of such Product, pay to Abbott *** of Abbott's Standard Manufacturing Cost. If at any time that the purchase price is based upon *** of Standard Manufacturing Cost and Abbott incurs positive Variances which are greater that *** of Abbott's Standard Manufacturing Cost, Triangle shall receive a credit of *** of Abbott's Standard Manufacturing Cost. Abbott shall provide Triangle with an estimate of any such Variances within *** after the end of each Contract Quarter however such Variances shall be calculated and settled within *** after the end of each Contract Year. 8.6 Cost of Raw Materials and Clinical Supplies. Triangle shall pay Abbott for the costs of the key raw materials used by Abbott in Stage I *** and Stage II *** of each Development Project (approved by Triangle pursuant to Section 9.2) within *** of Triangle's receipt of each invoice for such materials. In the event that Triangle should require any pre-clinical or clinical materials, the parties agree to negotiate in good faith to determine the supply arrangements (including price) for such clinical material. Except as may be otherwise mutually agreed to by the Parties and except to the extent that any Product produced during Stage I and/or II (which shall belong to Triangle) are suitable for use as pre-clinical or clinical materials, this Agreement shall not apply to pre-clinical or clinical materials. 8.7 Non-Standard Equipment Costs. If non-standard, specialized equipment is required to manufacture Product for Triangle, Triangle shall pay the cost of such equipment, subject to Triangle's prior approval of such costs, which approval shall not be unreasonably withheld. Abbott shall advise Triangle of specialized equipment required and the estimated cost(s) associated with the purchase, installation and validation of such equipment. Such *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 22 specialized equipment shall be used exclusively for manufacturing of Products hereunder or, if utilized for other products, such cost(s) shall be prorated accordingly. Abbott shall bill Triangle for the associated costs after Abbott installs the equipment. This Section 8.7 shall not apply to any replacement equipment purchased by Abbott because of obsolescense (technical or otherwise). Depreciation on any equipment funded by Triangle shall be excluded from the calculation of Standard Manufacturing Cost and the *** of Abbott Process Cost Improvements. 8.8 Audit. Triangle shall have the right to have an accountant verify that Abbott's *** with respect to the Product's is consistent with *** for other Abbott products as well as audit Abbott's calculation of any purchase price based on Standard Manufacturing Cost, Variances, Shared Cost Improvements and *** of Abbott's cost to achieve any Abbott Process Cost Improvements. The provisions of Section 7.8 of the Collaboration Agreement (governing audit procedures) shall apply to audits performed hereunder. 8.9 Additional Development Work. All development work, including process development for the Products, shall be governed by the provisions of Section 8.2(c) of the Collaboration Agreement. 8.10 Product Specifications Modifications. The Specifications may be modified from time to time by written agreement signed by an authorized representative of each Party without the necessity of amending this Agreement. If such modifications alter Abbott's Standard Manufacturing Cost to manufacture any Product, Abbott shall submit to Triangle a revised price for such Product which reflects such changes in Standard Manufacturing Cost and the adjusted price for such Product, pursuant to the provisions of Section 8.1. If such modification results in the requirement to reprocess and/or retest otherwise acceptable Product, any additional costs incurred by Abbott in such reprocessing and/or retesting shall be included in the pricing recalculation upon submission by Abbott of documentation of such costs. The revised Specifications shall not become effective until the parties agree on any price recalculation caused by such modified specifications. 8.11 Modification of Stability Protocol. Triangle may modify the stability protocol referenced in Section 6.2. If such modifications alter Abbott's cost to manufacture or supply any *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 23 Product, Abbott shall submit to Triangle a revised price for such Product which reflects such cost changes and the adjusted price for such Product, and the Parties shall meet to determine the new price pursuant to the provision of Section 8.1(c). Such modified stability protocol shall become effective when the Parties agree upon such adjusted price. 8.12 Payment of Invoices. Triangle shall pay all invoices issued under this Agreement *** from the date of invoice, unless the Product covered by such invoice is rejected pursuant to Section 6.1. 8.13 Taxes. Any Taxes lawfully assessed or charged on the manufacture, sale or transportation of Product sold pursuant to this Agreement shall be paid by *** . ARTICLE 9. RESEARCH AND DEVELOPMENT ACTIVITIES 9.1 Transfer of Technology by Triangle. Triangle shall supply Abbott with all Product Technology as per the procedure set forth in Article 17 of the Collaboration Agreement. 9.2 Development Project and Validation Activities. (a) As of the date hereof, the Parties have agreed that Abbott will perform the Development Projects described on Exhibit 9.2, in accordance with the terms and conditions set forth therein. (b) The costs and other terms applicable to any Development Project which is to be performed by Abbott shall be incorporated into Exhibit 9.2. Triangle shall not be required to reimburse Abbott for any development expenses or costs not approved in advance by Triangle or the Technical Steering Committee. Nothing herein shall prevent Triangle from contracting, at Triangle's sole cost and expense, with another Third Party manufacturer to have a Development Project performed even if the same or a similar Development Project is being performed by Abbott. (c) As part of each Development Project Abbott must manufacture *** production batches of Product for validation purposes. Each Validation Batch of Product shall be sold, pursuant to the terms of this Agreement, by Abbott to Triangle against *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 24 Triangle's initial orders for such Product if such Validation Batches meet the Specifications and the acceptance criteria set forth in the Validation Protocol. (d) In the event any Validation Batches do not meet the Specifications or the acceptance criteria set forth in the Validation Protocol, Triangle and Abbott will work together for a reasonable period of time, *** , to make necessary modifications to Abbott's facilities, equipment, processes and procedures so that the Validation Activities with respect to the manufacture of the new Validation Batches may begin and that such new Validation Batches manufactured by Abbott will meet the Specifications and the acceptance criteria set forth in the Validation Protocol. If, at the end of such *** period, the Validation Batches do not meet the Specifications or the acceptance criteria set forth in the Validation Protocol or it is otherwise determined by Triangle that the process cannot be validated, Triangle may terminate the qualification process with respect to Abbott upon written notification without any further obligation hereunder whatsoever. 9.3 Technical Steering Committee. Pursuant to the terms of the Collaboration Agreement, the Parties will cooperate to determine development and manufacturing strategy and objectives for the production of the Products. The Parties shall form a committee (the "Technical Steering Committee") which shall oversee and direct the development and manufacture of the Products, including without limitation: process development and optimization (such as manufacturing scale-up, validation, qualification, and certification), regulatory status, and Product improvement activities (such as reformulation, optimization, management of contractors and cost reduction). The Technical Steering Committee shall review, approve and provide strategic direction for the development and manufacture of the Products, undertake the activities necessary to implement those strategies, and approve any expenditures to be incurred in connection with the development or improvement in the manufacturing processes for the Products, both before and after Product Approval. The Technical Steering Committee shall also review, *** , Abbott's calculation of Variances and Standard Manufacturing Cost. In addition, the Technical Steering Committee shall determine what process cost *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 25 improvement projects shall be undertaken ("Approved Projects"). Triangle shall be given the first opportunity to solely fund any such Approved Projects. If Triangle elects not to fund any such Approved Project, Abbott shall be given the opportunity to solely fund such Approved Project; provided, Abbott may implement without the prior approval of the Technical Steering Committee (but with prior notice to the Technical Steering Committee) any process cost improvements that would not require any modifications to Triangle's regulatory approvals and/or submissions for the Product; provided further that the Technical Steering Committee cannot direct Abbott to solely or jointly fund any such projects. Abbott shall keep the Technical Steering Committee fully apprised of its development and manufacturing activities with respect to the Products, including without limitation proposed changes to master batch records or other deviations to the manufacturing process, proposed changes to the Specifications, proposed outsourcing of development activities to Third Parties, quality assurance issues or procedural modifications. The Technical Steering Committee shall observe the following rules: (a) The Technical Steering Committee shall include an equal number of representatives from Abbott and Triangle and shall be permanently chaired by a Triangle representative. Each Party's representatives on the Technical Steering Committee shall be full-time employees of such Party, although from time to time additional personnel having specialized experience and training may be invited to assist the Technical Steering Committee. Abbott shall designate a lead representative on the Technical Steering Committee, who shall be authorized by Abbott to communicate with the Triangle chairperson between meetings of the Technical Steering Committee, to share information and make decisions as needed. Each Party shall have the right, at any time, to designate by written notice to the other Party, a replacement, on a permanent or temporary basis, for any of such Party's members on the Technical Steering Committee, including the chairperson. (b) Except with respect to the management of Abbott resources and personnel, which shall be determined by Abbott, Triangle shall be responsible for making all final decisions related to the development of the Products. The Technical Steering Committee shall endeavor to work by consensus; 26 provided that the decisions of the chairperson shall be deemed the final decisions of the Committee in all circumstances. (c) The Technical Steering Committee shall meet as necessary, but such committee shall meet at least once per calendar quarter. The site for such meetings shall alternate between Durham, North Carolina, and Abbott Park, Illinois, or such other location agreed to by the Parties. Meetings may also take place by telephonic or video conference. (d) The Technical Steering Committee shall generally follow the rules established by Section 4.2(a)(i) through (vi) of the Collaboration Agreement, with such modifications in procedure as are necessary. ARTICLE 10. TRIANGLE'S REGULATORY SUBMISSIONS 10.1 NDA. (a) To the extent applicable, Triangle shall use its Reasonable Best Efforts to submit its NDA for *** referencing Abbott as Bulk Drug Substance and Finished Product supplier and to provide the FDA with the required development and analytical reports to support the application. In the event that Abbott is not included in the original NDA for *** due to timing or other issues, to the extent applicable, Triangle will supplement/amend any such NDA as soon as possible to include Abbott as Bulk Drug Substance and Finished Product supplier. (b) With respect to the submission of any such NDA to the FDA, Triangle shall comply with the provisions set forth in Section 3.2 of the Collaboration Agreement. 10.2 Abbott Data. Abbott shall provide to Triangle, in a timely manner, all necessary data in a format suitable for regulatory submission in support of the Product's NDA and all development and analytical reports required by the FDA to support Bulk Drug Substance and Finished Product submissions and inspections. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 27 10.3 Abbott's Right to Review. Abbott shall have the right to review those portions of Triangle's proposed regulatory submissions relating to Abbott's packaging or manufacturing procedures for the Products before the submissions are filed with appropriate regulatory agencies. Abbott shall complete its review of the submissions and provide comments within *** after receipt of a proposed regulatory submission. Abbott shall consult with and advise Triangle in responding to questions from the regulatory agencies regarding Triangle's submission(s) for Product. Abbott agrees that Triangle shall be the sole owner of any regulatory submission filed in the U.S. ARTICLE 11. PROPRIETARY OWNERSHIP OF DEVELOPMENT WORK, PREEXISTING TECHNOLOGY AND LICENSE GRANTS 11.1 Pre-existing Ownership. Except as otherwise provided herein, neither party hereto shall be deemed by this Agreement to have been granted any license or other rights to patent rights existing as of the date hereof, or know-how relating to compounds, formulations, or processes which are owned or controlled by the other party. 11.2 Abbott's Ownership. With respect to any ideas, innovations or inventions (whether or not patentable) developed during the term of this Agreement and relating to the manufacturing process of each Product for which Abbott is entitled to sole ownership pursuant to Section 11.3, *** , Abbott shall own all proprietary rights to such ideas, innovations and inventions, and may obtain patent, copyright, and/or other proprietary protection relating to such ideas, innovations and inventions subject, however, to the license granted pursuant to Section 2.2. 11.3 Retention of Ownership and Joint Ownership. With respect to rights and title to inventions, discoveries and know-how developed under this Agreement, each party shall have and retain sole and exclusive right and title, with respect to the other party, to all such inventions, discoveries and know-how which are made, conceived, reduced to practice and/or otherwise generated solely by its employees, agents, or other persons acting for such party in the course of this Agreement, and such party shall, at its sole discretion and expense, without any obligation to *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 28 the other party, take such actions and obtain such protection as it deems appropriate with respect to such inventions, discoveries and know-how. *** in all such inventions, discoveries and know-how made, conceived, reduced to practice and/or otherwise generated jointly by at least one employee, agent, or other person acting for each party in the course of this Agreement. The parties shall collaborate on any actions with respect to the protection of their joint rights in such inventions, discoveries and know-how, at shared expense, and thereafter each party may make, use, sell, keep, license, assign, or mortgage such jointly-owned inventions, discoveries and know-how, and otherwise undertake all activities a sole owner might undertake with respect to such inventions, discoveries and know-how, without the consent of and without accounting to the other party, but shall inform the other party of its activities with respect to such jointly-owned property. None of the rights granted herein shall *** . ARTICLE 12. CONFIDENTIALITY AND NONDISCLOSURE 12.1 Confidentiality Obligation. Each of Abbott and Triangle (the "Receiving Party") shall keep strictly confidential any information disclosed in writing, orally, visually or in any other manner by the other Party (the "Disclosing Party") or otherwise made available to the Receiving Party which the Disclosing Party considers to be and treats as proprietary or confidential ("Confidential Information"). Without limiting the generality of the foregoing, all proprietary information concerning the Disclosing Party's business, operations, suppliers, products, product manufacture, sale, marketing or distribution, trade secrets and intellectual property shall be considered Confidential Information by the Receiving Party. Any data or other information relating to or resulting from the clinical trials of the Products shall be deemed to be Confidential Information of Triangle. The Disclosing Party shall use commercially reasonable efforts to designate any written Confidential Information disclosed to the other Party as Confidential Information by prominently marking it "confidential", "proprietary" or the like, provided, that the failure to so mark shall not exclude such written information from the provisions of this Article 12. "Confidential Information" shall not include information: *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 29 (a) which is or becomes generally available to the public other than as a result of disclosure thereof by the Receiving Party; (b) which is lawfully received by the Receiving Party on a nonconfidential basis from a Third Party that is not itself under any obligation of confidentiality or nondisclosure to the Disclosing Party or any other Person with respect to such information; (c) which by written evidence can be shown by the Receiving Party to have been independently developed by or for the Receiving Party; or (d) which the Receiving Party establishes by competent proof was in its possession at the time of disclosure by the other Party and was not acquired, directly or indirectly from the other Party. 12.2 Nondisclosure of Confidential Information. The Receiving Party shall use Confidential Information solely for the purposes of this Agreement and shall not disclose or disseminate any Confidential Information to any Third Party at any time without the Disclosing Party's prior written consent, except for disclosure to those of its directors, officers, employees, accountants, attorneys, advisers, permitted sublicensees, and agents whose duties reasonably require them to have access to such Confidential Information and, in the case of Triangle, disclosure to the Triangle Licensors, provided that such directors, officers, employees, accountants, attorneys, advisers, agents and Triangle Licensors are required to use the Confidential Information solely for purposes of this Agreement and maintain the confidentiality of such Confidential Information to the same extent as if they were Parties hereto. 12.3 Exception. The foregoing confidentiality and nondisclosure obligations shall not apply to information which is required to be disclosed by law or by regulation; provided, that (i) the Receiving Party gives the Disclosing Party reasonable advance notice of the disclosure, to the extent reasonably practicable and legally permissible; (ii) the Receiving Party uses reasonable efforts to resist disclosing the Confidential Information; (iii) the Receiving Party reasonably cooperates with the Disclosing Party on request to obtain a protective order or otherwise limit the disclosure; and (iv) upon the reasonable request of the Disclosing Party, the Receiving Party 30 shall provide a letter from its counsel confirming that the Confidential Information is, in fact, required to be disclosed. 12.4 Injunctive Relief. The Parties acknowledge that either Party's breach of this Article 12 may cause the other Party irreparable injury for which it would not have an adequate remedy at law. In the event of a breach, the non-breaching Party shall be entitled to injunctive relief in addition to any other remedies it may have at law or in equity. 12.5 Scientific and Other Publications. Notwithstanding anything herein to the contrary, it is the understanding of each Party that scientific, scholarly and other related publications or presentations concerning the development of the Compounds and the Products, including their pre-clinical and clinical development, shall emanate solely from Triangle and the trials and studies sponsored by Triangle and that, as against Abbott, Triangle shall have full control over the preparation, review and approval of such publications and presentations, which publications and presentations shall not be restricted hereunder; provided that, with respect to joint Marketing Studies, as well as Supplemental Clinical Studies conducted by Abbott or any studies involving any Abbott pharmaceutical products, any resulting publication or presentation of data therefrom shall be jointly reviewed and approved by Triangle and Abbott. 12.6 Survival. The confidentiality and nondisclosure obligations of this Article 12 shall survive the expiration or termination of this Agreement and remain in effect for a period of ten (10) years following the expiration or termination of this Agreement. ARTICLE 13. WARRANTIES 13.1 Triangle Warranty. In addition to the representations and warranties in Section 11.2 of the Collaboration Agreement, Triangle warrants to Abbott that, true and complete copies of the Third Party contracts that constitute the Contractual Obligations have been provided to Abbott and covenants that it shall promptly provide Abbott with a copy of any amendments to such contracts. 13.2 Abbott Warranty. In addition to the representations and warranties included in Section 11.1 of the Collaboration Agreement, Abbott warrants to Triangle that Products delivered to Triangle pursuant to this Agreement shall: 31 (a) at the time of shipment to Triangle or its designees (i) meet the Specifications and (ii) be owned by Triangle free from all liens and encumbrances of any kind, subject only to the payment by Triangle of the purchase price therefor; and (b) be manufactured in compliance with the requirements of all Legal Requirements, including, but not limited to, cGMPs and those relating to the management and disposal of hazardous wastes. For purposes of the immediately preceding sentence, "hazardous wastes" shall be deemed to include any hazardous or toxic waste, substance or material as defined in any federal, state or local statute, law, ordinance, code, rule or regulation. 13.3 Debarment Warranty. Abbott represents and warrants to Triangle that it is not debarred and has not and will not knowingly use in any capacity the services of any Person debarred under subsections 306(a) or (b) of the Generic Drug Enforcement Act of 1992. If at any time this representation and warranty is no longer accurate, Abbott shall immediately notify Triangle of such fact. 13.4 No Other Warranties. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, EACH PARTY MAKES NO OTHER WARRANTIES OR REPRESENTATIONS, INCLUDING FITNESS FOR PURPOSE INTENDED OR MERCHANTABILITY, WHETHER EXPRESS OR IMPLIED. ARTICLE 14. LIMITATION ON LIABILITY EXCEPT AS OTHERWISE PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL LOSSES ARISING OUT OF OR RELATING TO THIS AGREEMENT; PROVIDED HOWEVER, THIS LIMITATION SHALL NOT APPLY TO LOSSES ARISING FROM THIRD PARTY CLAIMS FOR WHICH A PARTY IS INDEMNIFIED UNDER THE TERMS OF THIS AGREEMENT. 32 ARTICLE 15. INDEMNIFICATION 15.1 Indemnification (a) Indemnification by Triangle. Except as may be otherwise provided herein, Triangle shall defend, indemnify and hold Abbott, all of its directors, officers and employees (collectively the "Abbott Indemnitees") harmless from and against all Losses incurred in connection with any Third Party suits, claims or causes of action arising out of or resulting from: (i) Triangle's breach of any representation, warranty, covenant, or other obligation provided for in this Agreement; (ii) An infringement claim arising from Abbott's use of the Triangle name or logo or a Triangle Trademark in connection with the promotion or sale of the Products, provided Abbott's use is in compliance with the terms of this Agreement; (iii) The negligence, recklessness or willful misconduct of Triangle and its directors, officers or employees, including, but not limited to, *** claims arising out of *** by Triangle, its directors, officers or employees; or (iv) Any patent infringement claim arising from the manufacture, importation, use or sale of a Product, to the extent losses exceed amounts permitted to be included as *** . Provided, however, that Triangle shall not be required to indemnify the Abbott Indemnitees to the extent that any Losses arise out of or result from: (A) the negligence, recklessness or willful misconduct of any of the Abbott Indemnitees, including, but not limited to, *** of the Products, (B) utilization of process technology for the manufacture of Products which has not been approved by Triangle, (C) continued manufacture or Promotion in a country after receipt of notice from Triangle indicating that the manufacture, sale or Promotion of such Product in such country should be terminated because such further manufacture, sale or Promotion would constitute willful infringement of a valid and issued patent in such country and/or (D) any breach by Abbott of this Agreement. Abbott shall not be considered negligent for purposes of this *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 33 Section 15.1 if such claim arises solely with respect to the content of the Product labeling or other materials provided to Abbott by Triangle as long as Abbott has distributed or employed such Product labeling or other such materials as directed herein. (b) Indemnification by Abbott. Except as may be otherwise provided herein, Abbott shall defend, indemnify and hold Triangle, its directors, officers and employees and the Triangle Licensors (collectively the "Triangle Indemnitees") harmless from and against all Losses incurred in connection with any Third Party suits, claims or causes of action arising out of or resulting from: (i) Abbott's breach of any representation, warranty, covenant, or other obligation provided for in this Agreement; (ii) An infringement claim arising from Triangle's use of the Abbott name or logo in connection with the promotion or sale of the Products, provided Triangle's use is in compliance with the terms of this Agreement; (iii) The negligence, recklessness or willful misconduct of Abbott, its directors, officers or employees, including, but not limited to, *** claims arising out of *** by Abbott, its Affiliates, their directors, officers or employees; or (iv) Any patent infringement claim arising from Abbott's or its Affiliates or permitted sublicensee's (A) utilization of process technology for the manufacture of Products which has not been approved by Triangle or (B) continued Promotion in a country after receipt of notice from Triangle indicating that the sale or Promotion of such Product in such country should be terminated because such further sale or Promotion would constitute willful infringement of a valid and issued patent in such country. Provided, however, that Abbott shall not be required to indemnify the Triangle Indemnitees to the extent that any Losses arise out of or result from: (A) the negligence, recklessness or willful misconduct of any Triangle Indemnitee including, but not limited to, *** of the Products; and/or (B) any breach by Triangle of this Agreement. 15.2 Indemnification Procedure. Any Abbott Indemnitee or Triangle Indemnitee, as the case may be, shall notify Triangle or Abbott (the "Indemnifying Party") promptly in writing *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 34 of an indemnifiable claim or cause of action under Section 15.1(a) or 15.1(b) upon receiving notice or being informed of the existence thereof. The Indemnifying Party shall assume, at its cost and expense, the sole defense of such claim or cause of action through counsel selected by the Indemnifying Party and reasonably acceptable to the other Party. The Indemnifying Party shall maintain control of such defense, including any decision as to settlement; provided that, in the event that the Indemnifying Party does not diligently defend such claim or cause of action on a timely basis, then, without prejudice to any other rights and remedies available to the other Party under this Agreement, the other Party may take over such defense with counsel of its choosing at the Indemnifying Party's cost and expense. The other Party may, at its option and expense, participate in the Indemnifying Party's defense, and if the other Party so participates, the Parties shall cooperate with one another in such defense. The Indemnifying Party shall bear the total costs of any court award or settlement of such claim or cause of action and all other costs, fees and expenses related to the resolution thereof (including reasonable attorneys' fees except for attorneys' fees for which the other Party is responsible in the event that the other Party participates in the Indemnifying Party's defense of such claim or cause of action). The indemnification obligations herein shall apply on a first dollar basis without limitation or reduction due to any deductible or self-insured retention which Triangle or Abbott respectively may have under their respective insurance coverage. 15.3 Product Liability. In the event of a product liability claim with respect to a Product which is not covered by the foregoing indemnity provisions in this Article 15, the Parties shall bear equally the amount of any awards or other losses and costs attributable directly thereto. Abbott shall maintain control of the defense of any such product liability claim with respect to the International Territory and Triangle shall maintain control of the defense of any such product liability claim with respect to the U.S. Territory. ARTICLE 16. TERM AND TERMINATION 16.1 Effective Date and Termination Date. The term of this Agreement shall commence on the Effective Date and shall continue on a Product-by-Product basis unless terminated sooner in accordance with this Article 16, until December 31, 2030 (the "Term"); 35 provided, however, that the term in respect of manufacturing activities in respect of a given Product shall be as set forth in the Exhibit applicable thereto. 16.2 Termination For Material Breach. It is the Parties' express intent that consideration shall first and foremost be given to remedying any breach of this Agreement through the payment of monetary damages or such other legal or equitable remedies as shall be appropriate under the circumstances and that there shall only be a limited right to terminate this Agreement under the following circumstances as a matter of last resort. In the event that the Neutral, in accordance with the procedures set forth in Exhibit 20.3, has rendered a ruling that a Party has materially breached this Agreement, which ruling specified the remedies imposed on such breaching Party for such breach (the "Adverse Ruling"), and the breaching Party has failed to comply with the terms of the Adverse Ruling within the time period specified therein for compliance, or if such compliance cannot be fully achieved by such date, the breaching Party has failed to commence compliance and/or has failed to use diligent efforts to achieve full compliance as soon thereafter as is reasonably possible (but in any event within 60 days), then the non-breaching Party shall have the following rights: (a) where Abbott is the breaching Party that failed to comply with the Adverse Ruling and where the basis for such breach is Abbott's failure to abide by a material obligation under this Agreement, Triangle may terminate this Agreement and/or Abbott's license rights hereunder by delivering written notice to Abbott after the expiration of the period to comply; and (b) where Triangle is the breaching party that failed to comply with the Adverse Ruling and where the basis for such breach is Triangle's failure to abide by a material obligation under this Agreement, Abbott may terminate this Agreement and/or Triangle's license rights hereunder by delivering written notice to Triangle after the expiration of the period to comply. 16.3 Effect of Termination or Expiration under Section 16.1. Upon the expiration of this Agreement under Section 16.1, Abbott shall continue to supply all outstanding orders for the terminated Product or Products pursuant to any Exhibits hereto then in effect and for so long as they are in effect. 36 16.4 Effect of Termination. If this Agreement is terminated as a result of Abbott's breach (i) other than documents required to be returned for regulatory compliance, Abbott shall use its best efforts to destroy all data, writings and other documents and tangible materials supplied to Abbott by Triangle or the Triangle Licensors; and (ii) Abbott shall further, upon Triangle's request and with no need for additional consideration, grant Triangle a nonexclusive, royalty free (other than subject to royalty obligations payable to Third Parties) license (with the right to sublicense) to all Abbott Patents and Abbott Technology. Abbott shall further provide Triangle with full and complete copies of all toxicity, efficacy, and other data generated by Abbott or its permitted sublicensees, contractors or agents in the course of Abbott's efforts to obtain governmental approval for the sale of the Products, including but not limited to any registration filings or other documents filed with any government authority. Triangle and the Triangle Licensors shall be authorized to cross-reference any such registration filings made in the International Territory where permitted by law. Triangle and the Triangle Licensors shall be authorized to provide data pertaining to such patents and technology to any Third Party with a bona fide interest in licensing such technology. Such data shall be provided on a confidential basis; provided, however, that if such Third Party enters into a license with Triangle and the Triangle Licensors, such Third Party shall be free to use such data for all purposes, including to obtain government approvals to sell Products containing any Compound. Abbott shall cooperate reasonably (at no unreimbursed expense to Abbott) with any Third Party licensee of Triangle or the Triangle Licensors in pursuing governmental approval to sell any Product containing any Compound, including but not limited to, permitting such Third Parties to cross-reference any regulatory filings filed with or any Product Approval obtained in any foreign countries; provided that any expenses incurred at the request of Triangle are reimbursed). This Agreement is subject to termination upon termination of the Collaboration Agreement pursuant to the terms of Sections 16.5(b) and 16.5(c) of the Collaboration Agreement. 16.5 Survival. All rights granted and obligations undertaken by the Parties hereunder shall terminate immediately upon the event of any termination or expiration of this Agreement, except for the following which shall survive on a Product-by-Product basis according to their terms: 37 (a) The obligation of each Party to pay to the other Party any and all payments accrued under this Agreement prior to such termination or expiration; (b) The limitations on liability of Article 14; (c) The confidentiality and nondisclosure obligations of Article 12; (d) The indemnification obligations of Article 15; (e) The insurance obligations of Article 18; and (f) The provisions of Sections 8.7, 8.12, 16.3 through 16.6, 20.3, 20.10, 20.11 and 20.12. In addition, expiration or termination of this Agreement shall not affect the remedies of the Parties otherwise available at law or in equity in relation to any rights accrued under this Agreement prior to expiration or termination. 16.6 Nonexclusive Rights and Remedies. Except as otherwise set forth in this Agreement, all rights and remedies of the Parties provided under this Agreement are not exclusive and are in addition to any other rights and remedies provided by law or under this Agreement. 16.7 Conditions to Effectiveness. The Effective Date shall be the date on which the Collaboration Agreement becomes effective. If the Effective Date has not occurred within ninety (90) days from the execution hereof or such later date as the Parties may agree, either Party may terminate this Agreement by written notice to the other Party. ARTICLE 17. RECALL All Product recalls or withdrawals shall be managed and conducted in accordance with the terms and provisions of Section 10.4 of the Collaboration Agreement. ARTICLE 18. INSURANCE On or before the Effective Date, each Party shall obtain, and each Party shall maintain throughout the Term the insurance required by the Collaboration Agreement. 38 ARTICLE 19. FORCE MAJEURE If any circumstance beyond the reasonable control of either Party occurs which delays or renders impossible the performance of certain of that Party's obligations under this Agreement on the dates herein provided (a "Force Majeure"), such obligations shall be postponed for such time as such performance necessarily has had to be suspended or delayed on account thereof, provided such Party shall notify the other Party in writing as soon as practicable, but in no event more than ten (10) business days after the occurrence of such event of Force Majeure, which notice shall reasonably attempt to identify such obligations under this Agreement and the extent to which performance thereof will be affected. In such event, the Parties shall meet promptly to determine an equitable solution to the effects of any such event, provided that such Party who fails because of an event of Force Majeure to perform its obligations hereunder shall upon the cessation of the Force Majeure event take all reasonable steps within its power to resume with the least possible delay compliance with its obligations. Events of Force Majeure shall include, without limitation, war, revolution, invasion, insurrection, riots, mob violence, sabotage or other civil disorders, acts of God, limitations imposed by exchange control regulations or foreign investment regulations or similar regulations, laws, regulations or rules of any government or governmental agency, any inordinate and unanticipated delays in the regulatory review or governmental approval process that are within the sole control of such government or governmental agency, any delay or failure in manufacture, production or supply by Third Parties of any goods or services, any withdrawal or recall of a Product at the direction of any governmental authority and any failure of a computer system. ARTICLE 20. MISCELLANEOUS 20.1 Relationship of the Parties. Each of the Parties shall be furnishing its services hereunder as an independent contractor, and nothing herein shall create any association, partnership or joint venture between the Parties or any employer-employee relationship. No agent, employee or servant of either Party shall be or shall be deemed to be the employee, agent 39 or servant of the other Party, and each Party shall be solely and entirely responsible for its acts and the acts of its employees. 20.2 Relationship with Affiliates. Unless the context otherwise indicates, (i) any reference to a Party herein shall include the Affiliates of such Party and (ii) each Party may utilize the services of its Affiliates to perform services, activities and/or obligations permitted or required under this Agreement to the same extent as if such Affiliate were a party to this Agreement; provided that any such services, activities or obligations under this Agreement permitted or required to be performed by such Party relating to the U.S. Territory will be performed only by such Party or a wholly-owned U.S. subsidiary of such Party. Any Affiliates so utilized shall be subject to all the terms and conditions applicable to such Party under this Agreement, including but not limited to provisions establishing standards for performance. With respect to the International Territory, Abbott may use its Affiliates as set forth in this Section 20.2; provided that Abbott shall make all payments required and provide all reports or data required under this Agreement. The use of any Affiliates as set forth in this Section 20.2 shall in no way relieve the applicable Party of any of its obligations or liabilities hereunder and each Party shall be liable for the actions of its Affiliates under this Agreement and the indemnification provisions of Article 15 shall apply with respect to all actions of a Party's Affiliates under this Agreement. 20.3 Dispute Resolution. (a) General. The parties recognize that a bona fide dispute as to certain matters may arise from time to time during the term of this Agreement which may relate to either Party's rights and/or obligations hereunder. The Parties agree that they shall use all reasonable efforts to resolve any dispute which may arise in an amicable manner. (b) Management Resolution. If the Parties are unable to resolve such a dispute within *** , either Party may, by notice to the other Party, have such dispute referred to the respective officers of the Parties designated below. Such officers shall attempt to resolve the referred dispute by good faith negotiations within *** after such notice is received. The said designated officers are as follows: For Abbott, *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 40 Senior Vice President, Pharmaceutical Operations, for the U.S. Territory and Senior Vice President, International Operations for the International Territory, and for Triangle, Chief Executive Officer. (c) Alternative Dispute Resolution. The Parties agree that any dispute that arises in connection with this Agreement, which cannot be amicably resolved by such management discussions shall be resolved by binding Alternative Dispute Resolution ("ADR") in the manner described in Exhibit 20.3; provided, however, that the resolution of matters for which one Party to the exclusion of the other has the authority, under the terms of this Agreement, to control the decisions or the final decisions shall not be determined by ADR; provided, further, that either Party may seek judicial relief or enforcement to pursue a claim of fraudulent or otherwise inequitable treatment under the ADR proceedings or to otherwise enforce a judgment under the ADR proceedings (including without limitation a judgment for specific performance or injunctive relief). 20.4 Counterparts. The Agreement may be executed simultaneously in any number of counterparts and may be executed by facsimile. All counterparts shall collectively constitute one and the same Agreement. 20.5 Notices. In any case where any notice or other communication is required or permitted to be given hereunder, such notice or communication shall be in writing, and sent by overnight express or registered or certified mail (with return receipt requested) and shall be sent to the following address (or such other address as either Party may designate from time to time in writing): If to Triangle: Triangle Pharmaceuticals, Inc. 4 University Place 4611 University Drive Durham, North Carolina 27707 Telephone: (919) 493-5980 Telefax: (919) 493-5925 Attention: Chief Executive Officer Copy to: General Counsel If to Abbott: 41 Abbott Laboratories Dept. 390, Bldg. A-1 1401 Sheridan Road North Chicago, IL 60064 Attention: Senior Vice President and President of The Chemical and Agricultural Products Division Copy to: General Counsel Abbott Laboratories Dept. 364; Bldg. AP6D 100 Abbott Park Road Abbott Park, IL 60064 Telephone: (847) 937-8906 Telefax: (847) 938-6277 20.6 Binding Effect; Assignment. This Agreement may not be assigned, in whole or in part, by either Party without the prior written consent of the other Party, and any attempted assignment without such consent shall be null and void; provided that no prior written consent shall be required in the event that a Third Party acquires substantially all of the assets or outstanding shares of, or merges with, the assigning Party, but only so long as such Third Party agrees to be bound by all of the assigning Party's responsibilities and obligations hereunder. No assignment of this Agreement or of any rights hereunder shall relieve the assigning party of any of its obligations or liability hereunder. This Agreement shall inure to the benefit of and be binding upon each of the Parties hereto and their respective successors and permitted assigns. 20.7 Entire Agreement. The terms and conditions contained herein and in the other Triangle-Abbott Alliance Agreements constitute the entire agreement between the Parties relating to the subject matter of hereof and thereof and shall supersede all previous communications between the Parties with respect to the subject matter hereof and thereof, respectively. Neither Party has entered into this Agreement in reliance upon any representation, warranty, covenant or undertaking of the other Party that is not set out or referred to in this Agreement. In addition, upon the request of either Party, the Parties will discuss whether they desire to enter into an agreement regarding the tax treatment of their activities under this Agreement. If the Parties mutually agree that such an agreement is necessary or desirable, they 42 will each bear their own expenses incurred in connection with the preparation of such an agreement, and (unless the Parties otherwise agree in the future), any mutually agreed out-of-pocket costs incurred in connection with the development of tax information pursuant to such an agreement shall be shared equally. If only one Party believes that such an agreement is necessary or desirable, that Party shall bear the costs of preparing such an agreement, and shall bear the out-of-pocket costs of developing tax information pursuant to such an agreement. In any event, each Party shall bear its own internal expenses in connection with the negotiation and preparation of any such tax agreement and the preparation of its own tax returns. 20.8 Amendment. The Agreement may be varied, amended or extended only by the written agreement of the Parties through their duly authorized officers or representatives, specifically referring to this Agreement. 20.9 Severability. In case any one or more of the provisions contained herein shall, for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated herein to be impossible and provided that the performance required by this Agreement with such clause deleted remains substantially consistent with the intent of the Parties. 20.10 Company Employees. Each Party shall not, directly or indirectly solicit for employment, any employee of the other Party who has been directly involved in the performance of this Agreement during the Term and for one year after the earlier of the termination or expiration of this Agreement or the termination of such individual's employment, with the other Party. It shall not be a violation of this provision if any employee responds to a Party's general advertisement of an open position. 20.11 Publicity. Except as otherwise provided herein, each Party shall maintain the confidentiality of all provisions of this Agreement and this Agreement itself and, without the prior written consent of both Parties, neither Party shall make any press release or other public announcement of or otherwise disclose to any Third Party this Agreement or any of its provisions 43 except: (i) for disclosure to those of its directors, officers, employees, accountants, attorneys, advisers and agents whose duties reasonably require them to have access to the Agreement and, in the case of Triangle, disclosure to the Triangle Licensors, provided that such directors, officers, employees, accountants, attorneys, advisers, agents and licensors are required to maintain the confidentiality of the Agreement to the same extent as if they were Parties hereto, and (ii) except for such disclosures as may be required by Legal Requirements, in which case the disclosing Party shall provide the nondisclosing Party with prompt advance notice of such disclosure so that the nondisclosing Party shall have the opportunity if it so desires to seek a protective order or other appropriate remedy and, in connection with any disclosure to the Securities and Exchange Commission, the disclosing Party shall use reasonable efforts to obtain confidential treatment for such disclosure. 20.12 Applicable Law. The Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely within such jurisdiction and without giving effect to its choice or conflict of laws rules or principles. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements, in addition to any other relief to which the party may be entitled. 20.13 Millennial Compliance. Each Party hereby covenants and agrees that it will use Reasonable Best Efforts to ensure that there will be no failure or erroneous receipt, storage, processing or production of data as a consequence of the inability to receive, store, process or output date information regardless of the date(s) utilized (including, without limitation, relating to the change of century) in any computer software, computer hardware, automation systems or other devices owned, licensed or otherwise used by such Party, its permitted sublicensees or suppliers that would result in the inability of such Party to either (i) comply with its obligations hereunder with respect to any Confidential Information or any other data or information of other Party, or (ii) successfully perform its obligations hereunder. At either Party's request, the other Party agrees to disclose in reasonable detail its millennial compliance plan and procedures, including but not limited to the applicable testing results concerning its hardware and software systems. 44 20.14 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 20.15 Interpretation. (a) Wherever any provision of this Agreement uses the term "including" (or "includes"), such term shall be deemed to mean "including without limitation" and "including but not limited to" (or "includes without limitation" and "includes but is not limited to") regardless of whether the words "without limitation" or "but not limited to" actually follow the term "including" (or "includes"). (b) Wherever any provision of this Agreement provides that a Party's consent shall not be unreasonably withheld, such provision shall be deemed to provide that such consent shall in addition not be unreasonably delayed. (c) The recitals set forth at the start of this Agreement, along with the Exhibits to this Agreement, and the terms and conditions incorporated in such recitals and Exhibits shall be deemed integral parts of this Agreement and all references in this Agreement to this Agreement shall encompass such recitals and Exhibits and the terms and conditions incorporated in such recitals and Exhibits. (d) In the event of any conflict between the terms and conditions of this Agreement and any terms and conditions that may be set forth on any order, invoice, verbal agreement or otherwise, the terms and conditions of this Agreement shall govern. (e) Unless otherwise explicitly stated, in the event of any conflict between the terms of this Agreement and the terms and conditions of any of the Exhibits hereto, the terms of this Agreement shall prevail. (f) The Agreement shall be construed as if both Parties drafted it jointly, and shall not be construed against either Party as principal drafter. (g) Unless otherwise provided, all references to Sections, Articles and Exhibits in this Agreement are to Sections, Articles and Exhibits of and to this Agreement. 45 20.16 No Waiver of Rights. No failure or delay on the part of either Party in the exercise of any power or right hereunder shall operate as a waiver thereof. No single or partial exercise of any right or power hereunder shall operate as a waiver of such right or of any other right or power. The waiver by either Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach hereunder. 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first written above. ABBOTT LABORATORIES TRIANGLE PHARMACEUTICALS, INC. By: /s/ Christopher Begley By: /s/ M. Nixon Ellis ----------------------- ---------------------- Name: Christopher Begley Name: M. Nixon Ellis --------------------- -------------------- Title: Sr. V.P. CAPO Title: President/COO ------------------- ------------------- [SIGNATURE PAGE TO SUPPLY AND MANUFACTURING AGREEMENT] 47 EXHIBIT 1.6 BULK DRUG SUBSTANCE SPECIFICATIONS To be negotiated pursuant to Section 1.6 and thereafter attached as Exhibit 1.6. Exhibit 1.13 Existing Contractual Arrangements-Bulk Drug Substance - -------------------------------------------------------------------------------- Project Current Project Phase Manufacturer Comments - -------------------------------------------------------------------------------- *** Phase III/ *** *** launch Commercial *** *** - -------------------------------------------------------------------------------- *** Phase III/ *** *** Commercial - -------------------------------------------------------------------------------- *** Phase III/ *** *** Commercial - -------------------------------------------------------------------------------- *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit 1.13 Existing Contractual Arrangements- Finished Product - -------------------------------------------------------------------------------- Project Current Project Phase Manufacturer Comments - -------------------------------------------------------------------------------- *** Phase III/ *** *** Commercial - -------------------------------------------------------------------------------- *** Phase III/ *** *** Commercial - -------------------------------------------------------------------------------- *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. EXHIBIT 1.22 FINISHED PRODUCT SPECIFICATIONS To be negotiated pursuant to Section 1.22 and thereafter attached as Exhibit 1.22. EXHIBIT 8.1 PRODUCT CONTRACT TERMS (To Be Provided) EXHIBIT 9.2 Bulk Drug Substance Development Project Abbott will provide development activities to support Triangle to advance the development of *** . Abbott shall *** the Technical Steering Committee, the U.S. Marketing Board or the International Marketing Board decides that *** . Activities will include, but are not limited to the following: technical transfer of process and methods, demonstration in the special labs where necessary, process optimization and demonstration, validation of analytical methods, process justification, manufacturing engineering run(s) for registration, validation in manufacturing and regulatory filings. The development process will proceed as follows: 1. An estimate of activities, FTE, pilot plant and manufacturing requirements has been provided by Abbott and is attached (Exhibit 9.2a-d). 2. Changes in the scope of work will be mutually proposed by the Abbott/Triangle project team and approved by the Technical Steering Committee. Significant changes in project scope or the amount of material needed may result in an increase or decrease in the FTEs, pilot plant runs, manufacturing runs and/or purchased materials. 3. Triangle will make an *** for each project. Abbott will charge development activities *** . Upon *** , Triangle will be billed *** , by project, at the rates defined below. If a project is terminated or completed prior to the *** , the *** will be *** . Payments *** are as follows: Compound *** *** *** *** *** *** *** *** FTE Cost Schedule*: FTE Development *** FTE Analytical *** Pilot Plant Time *** Manufacturing Time *** Materials *** *FTE shall mean the time and work output equivalent to a full time employee for *** who is proficient in the performance of all assigned duties and responsibilities. These costs are subject to annual adjustments *** . *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. EXHIBIT 9.2a *** Development Project *** - -------------------------------------------------------------------------------- Stage Activity Anticipated Deliveries - -------------------------------------------------------------------------------- 1 Clinical Supply TBD - -------------------------------------------------------------------------------- 2 Process Development *** - -------------------------------------------------------------------------------- 2a *** - -------------------------------------------------------------------------------- 2b *** - -------------------------------------------------------------------------------- 2c Bulk Drug Cost Estimate - -------------------------------------------------------------------------------- 3 Registration Batches *** - -------------------------------------------------------------------------------- 4 Process Validation & Regulatory Documentation - -------------------------------------------------------------------------------- 4a Process Validation *** - -------------------------------------------------------------------------------- 4b Regulatory Filing - -------------------------------------------------------------------------------- 4c Pre-Approval Inspection - -------------------------------------------------------------------------------- Estimated Efforts: *** Development FTE Pilot Plant Weeks *** Weeks *** Analytical FTE Manufacturing Weeks *** Weeks Project Assumptions *** . Manufacturing process assumed to be *** , requiring *** , beginning with *** . *** to be determined. Commercial volumes estimated to be between *** and up to *** . Materials currently estimated to be *** . *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. EXHIBIT 9.2b *** Development Project *** - -------------------------------------------------------------------------------- Stage Activity Anticipated Deliveries - -------------------------------------------------------------------------------- 1 Clinical Supply TBD - -------------------------------------------------------------------------------- 2 Process Development *** - -------------------------------------------------------------------------------- 2a *** - -------------------------------------------------------------------------------- 2b Bulk Drug Cost Estimate - -------------------------------------------------------------------------------- 3 Registration Batches *** - -------------------------------------------------------------------------------- 4 Process Validation & Regulatory Documentation - -------------------------------------------------------------------------------- 4a Process Validation *** - -------------------------------------------------------------------------------- 4b Regulatory Filing - -------------------------------------------------------------------------------- 4c Pre-Approval Inspection - -------------------------------------------------------------------------------- Estimated Efforts: *** Development FTE Pilot Plant Weeks *** Weeks *** Analytical FTE Manufacturing Weeks *** Weeks Project Assumptions *** through development and scale-up activities. Assumes that the process can address *** . Assumed *** process, requiring *** . Commercial volumes estimated to be between *** and *** . Materials current estimate *** . *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. EXHIBIT 9.2c Bulk Drug Substance Development Project L-FMAU - -------------------------------------------------------------------------------- Stage Activity Anticipated Deliveries - -------------------------------------------------------------------------------- 1 Clinical Supply TBD - -------------------------------------------------------------------------------- 2 Process Development *** - -------------------------------------------------------------------------------- 2a *** - -------------------------------------------------------------------------------- 2b Bulk Drug Cost Estimate - -------------------------------------------------------------------------------- 3 Registration Batches *** - -------------------------------------------------------------------------------- 4 Process Validation & Regulatory Documentation - -------------------------------------------------------------------------------- 4a Process Validation *** - -------------------------------------------------------------------------------- 4b Regulatory Filing - -------------------------------------------------------------------------------- 4c Pre-Approval Inspection - -------------------------------------------------------------------------------- Estimated Efforts: *** Development FTE Pilot Plant Weeks *** Weeks *** Analytical FTE Manufacturing Weeks *** Weeks Project Assumptions *** . *** is available with *** to meet *** targets. Manufacturing process assumed to be *** , depending on *** , requiring *** . Commercial volumes estimated to be between *** and *** . Materials currently estimated to be *** . *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. EXHIBIT 9.2d Bulk Drug Substance Development Project *** Sourcing Strategy Project Assumptions *** will support *** to work with *** development team on *** strategy for the Compound. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit 9.2 DRUG PRODUCT DEVELOPMENT PROJECT Abbott will perform selected Development Activities* to advance the development of Products covered by the Triangle/Abbott alliance. Development Activities include, but are not limited to, the following activities; formulation development, analytical methods development, pre-formulation, clinical batch manufacture/test/release, clinical packaging/labeling/distribution and supportive stability studies. Development Activities performed by Abbott to support a Development Project will typically be carried out in the following stepwise manner: 1. Scope of Work drafted by *** . 2. Scope of Work finalized and mutually agreed by Abbott/Triangle project personnel. 3. A cost estimate in FTEs (typically a range i.e. *** ) is provided by Abbott to Triangle. 4. *** issues *** covering project work projected over a defined time period ( *** ) Typically, *** per project. 5. Abbott bills Triangle *** , by project, at the current FTE *** ( *** for FY '99) plus *** other mutually agreed costs ( *** charges). ***. The following project plans outline, in broad terms, the major Development Activities required to develop the pharmaceutical *** needed to support the projects. The responsible party projected to carry out a particular project activity is listed under, "Responsibility lead." The alliance partner projected to participate in a support role is designated as "responsibility-assist." Current project activities, timeline, and cost estimates will be reviewed and updated by the alliance project personnel in concert with *** "Estimated Drug Product Costs" reflect an estimated range, by project, based on combined experience of Triangle and Abbott. As phase programs mature and the assumptions change, Abbott and Triangle understand that changes in project scope may be reflected in development costs. Abbott will conduct development and bill Triangle for services provided within the arrangement described above. *Development Activity - any individual activity required to advance a Compound through the development phases (I, II and III) and /or to develop a manufacturing process to permit commercialization of the Compound. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit 9.2e Drug Product Development Activities and Timeline for *** 7/21/99
- -------------------------------------------------------------------------------------------------------------- Responsibility Estimated Cumulative Development Activity (Lead/Assist) Anticipated Delivery Timeline - -------------------------------------------------------------------------------------------------------------- *** o *** *** TBD *** o *** *** o *** *** - -------------------------------------------------------------------------------------------------------------- Formulation/Analytical Development o Develop *** o Complete form development of *** *** o Develop/validate analytical methods *** TBD *** o Transfer analytical methods to *** manufacturing site/QA *** - -------------------------------------------------------------------------------------------------------------- CTM manufacture/Scale-up/Manufacture of Definitive Stability Batches o Continue *** *** *** o Manufacture *** *** *** o Perform *** *** *** *** o Manufacture *** batches *** *** o *** definitive stability studies *** *** TBD - -------------------------------------------------------------------------------------------------------------- Commercial Production o Manufacture 1st three validation batches per dosage form *** TBD o Manufacture remainder of launch quantities *** TBD *** - --------------------------------------------------------------------------------------------------------------
Estimate of Drug Product Cost for HIV /HBV *** Assumptions: *** not included Clinical Packaging Labeling/Distribution not included Stability studies to meet ICH guidelines *** *** *** costs not included Manufacture includes, *** samples. *** not included Current analytical methods meet ICH/Abbott/Triangle standards and guidelines *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit 9.2f Drug Product Development Activities and Timeline for *** 7/21/99
- -------------------------------------------------------------------------------------------------------------- Responsibility Estimated Cumulative Development Activity (Lead/Assist) Anticipated Delivery Timeline - -------------------------------------------------------------------------------------------------------------- *** o *** *** TBD *** - -------------------------------------------------------------------------------------------------------------- Formulation/Analytical Development o Develop ** *** TBD o Complete *** *** *** o Develop/validate analytical methods *** TBD o Transfer analytical methods to manufacturing site/QA *** TBD *** - -------------------------------------------------------------------------------------------------------------- CTM manufacture/Scale-up/Manufacture of Definitive Stability Batches o Manufacture *** *** *** o Manufacture *** *** *** o Manufacture *** *** *** o *** definitive stability studies *** *** TBD *** - -------------------------------------------------------------------------------------------------------------- Commercial Production o Manufacture 1st three validation batches per dosage form *** TBD o Manufacture remainder of launch quantities *** TBD *** - --------------------------------------------------------------------------------------------------------------
Estimate of Drug Product Cost for HIV Program *** Assumptions: *** not included Clinical Packaging Labeling/Distribution not included Stability studies to meet ICH guidelines *** *** *** costs not included Manufacture includes, *** . *** Current analytical methods meet ICH/Abbott/Triangle standards and guidelines *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit 9.2g Drug Product Development Activities and Timeline for *** 7/21/99
- -------------------------------------------------------------------------------------------------------------- Responsibility Estimated Cumulative Development Activity (Lead/Assist) Anticipated Delivery Timeline - -------------------------------------------------------------------------------------------------------------- Formulation/Analytical Development o Develop *** *** o Develop/validate analytical methods *** o Transfer analytical methods to manufacturing site/QA *** TBD *** - -------------------------------------------------------------------------------------------------------------- CTM manufacture/Scale-up/Manufacture of Definitive Stability Batches o Manufacture *** *** *** o Manufacture *** *** *** o *** definitive stability studies *** *** TBD *** - -------------------------------------------------------------------------------------------------------------- Commerical Production o Manufacture 1st three validation batches per dosage form *** TBD o Manufacture remainder of launch quantities *** TBD *** - --------------------------------------------------------------------------------------------------------------
Estimate of Drug Product Cost for HBV Program *** Assumptions: *** not included Clinical Packaging Labeling/Distribution not included Stability studies to meet ICH guidelines *** *** *** *** costs not included Manufacture includes, *** . *** Current analytical methods meet ICH/Abbott/Triangle standards and guidelines *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. Exhibit 9.2h Drug Product Development Activities and Timeline for *** 7/21/99
- -------------------------------------------------------------------------------------------------------------- Responsibility Estimated Cumulative Development Activity (Lead/Assist) Anticipated Delivery Timeline - -------------------------------------------------------------------------------------------------------------- *** o *** *** TBD *** - -------------------------------------------------------------------------------------------------------------- Formulation/Analytical Development o Develop *** *** TBD o *** *** o Develop/validate analytical methods *** *** o Transfer analytical methods to manufacturing site/QA *** *** - -------------------------------------------------------------------------------------------------------------- CTM manufacture/Scale-up/Manufacture of Definitive Stability Studies o Manufacture *** *** *** o Manufacture *** *** *** o Manufacture *** *** *** o Initiate definitive stability studies *** *** *** *** - -------------------------------------------------------------------------------------------------------------- Commercial Production o Manufacture 1st three validation batches per dosage form *** TBD o Manufacture remainder of launch quantities *** TBD *** - --------------------------------------------------------------------------------------------------------------
Estimate of Drug Product Cost for HBV Program *** Assumptions: *** not included Clinical Packaging labeling/distribution not included Stability studies to meet ICH guidelines *** *** *** costs not included Manufacture includes, *** . *** not included Current analytical methods meet ICH/Abbott/Triangle standards and guidelines *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. EXHIBIT 20.3 ALTERNATIVE DISPUTE RESOLUTION The parties recognize that a bona fide dispute as to certain matters may arise from time to time during the term of this Agreement which relates to either party's rights and/or obligations. To have such a dispute resolved by this Alternative Dispute Resolution ("ADR") provision, a party first must send written notice of the dispute to the other party for attempted resolution by good faith negotiations between their respective presidents (or their equivalents) of the affected subsidiaries, divisions, or business units within *** after such notice is received (all references to "days" in this ADR provision is to calendar days). Any negotiations regarding a dispute shall be treated as settlement negotiations for purposes of the Federal Rules of Evidence and any similar state rules of evidence. Such negotiations shall not be admissible in any subsequent ADR hearing. If the matter has not been resolved within *** of the notice of dispute, or if the parties fail to meet within such *** , either party may initiate an ADR proceeding as provided herein. The parties shall have the right to be represented by counsel in such a proceeding. 1. To begin an ADR proceeding, a party shall provide written notice to the other party of the issues to be resolved by ADR. Within *** after its receipt of such notice, the other party may, by written notice to the party initiating the ADR, add additional issues to be resolved within the same ADR. 2. Within *** following receipt of the original ADR notice, the parties shall select a mutually acceptable neutral (the "Neutral") to preside in the resolution of any disputes in this ADR proceeding. If the parties are unable to agree on a mutually acceptable neutral within such period, the parties shall request the President of the Center for Public Resources ("CPR"), 366 Madison Avenue, New York, New York 10017 to select a neutral pursuant to the following procedures: (a) The CPR shall submit to the parties a list of not less than five (5) candidates within fourteen (14) days after receipt of the request from the parties, along with a Curriculum Vitae for each candidate. No candidate shall be an employee, director, or shareholder of either party or any of their subsidiaries or affiliates. (b) Such list shall include a statement of disclosure by each candidate of any circumstances likely to affect his or her impartiality. (c) Each party shall number the candidates in order of preference (with the number one (1) signifying the greatest preference) and shall deliver the list to the CPR within *** following receipt of the list of candidates. If a party believes a conflict of interest exists regarding any of the *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. candidates, that party shall provide a written explanation of the conflict to the CPR along with its list showing its order of preference for the candidates. Any party failing to return a list of preferences on time shall be deemed to have no order of preference. (d) If the parties collectively have identified fewer than three (3) candidates deemed to have conflicts, the CPR immediately shall designate as the neutral the candidate for whom the parties collectively have indicated the greatest preference. If a tie should result between two candidates, the CPR may designate either candidate. If the parties collectively have identified three (3) or more candidates deemed to have conflicts, the CPR shall review the explanations regarding conflicts and, in its sole discretion, may either (i) immediately designate as the neutral the candidate for whom the parties collectively have indicated the greatest preference, or (ii) issue a new list of not less than five (5) candidates, in which case the procedures set forth in subparagraphs 2(a) - 2(d) shall be repeated. 3. No earlier than *** or later than *** after selection, the neutral shall hold a hearing to resolve each of the issues identified by the parties. The ADR proceeding shall take place at a location agreed upon by the parties. If the parties cannot agree, the neutral shall designate a location other than the principal place of business of either party or any of their subsidiaries or affiliates. 4. At least *** prior to the hearing, each party shall submit the following to the other party and the neutral: (a) a copy of all exhibits on which such party intends to rely in any oral or written presentation to the neutral; (b) a list of any witnesses such party intends to call at the hearing, and a short summary of the anticipated testimony of each witness; (c) a proposed ruling on each issue to be resolved, together with a request for a specific damage award or other remedy for each issue. The proposed rulings and remedies shall not contain any recitation of the facts or any legal arguments and shall not exceed *** . (d) a brief in support of such party's proposed rulings and remedies, provided that the brief shall not exceed *** pages. This page limitation shall apply regardless of the number of issues raised in the ADR proceeding. Except as expressly set forth in subparagraphs 4(a) - 4(d), no discovery shall be required or permitted by any means, including depositions, interrogatories, requests for admissions, or production of documents. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 5. The hearing shall be conducted on *** and shall be governed by the following rules: (a) Each party shall be entitled to *** of hearing time to present its case. The neutral shall determine whether each party has had the *** to which it is entitled. (b) Each party shall be entitled, but not required, to make an opening statement, to present regular and rebuttal testimony, documents or other evidence, to cross-examine witnesses, and to make a closing argument. Cross-examination of witnesses shall occur immediately after their direct testimony, and cross-examination time shall be charged against the party conducting the cross-examination. (c) The party initiating the ADR shall begin the hearing and, if it chooses to make an opening statement, shall address not only issues it raised but also any issues raised by the responding party. The responding party, if it chooses to make an opening statement, also shall address all issues raised in the ADR. Thereafter, the presentation of regular and rebuttal testimony and documents, other evidence, and closing arguments shall proceed in the same sequence. (d) Except when testifying, witnesses shall be excluded from the hearing until closing arguments. (e) Settlement negotiations shall not be admissible under any circumstances. Affidavits prepared for purposes of the ADR hearing also shall not be admissible. As to all other matters, the neutral shall have sole discretion regarding the admissibility of any evidence. 6. Within *** following completion of the hearing, each party may submit to the other party and the neutral a post-hearing brief in support of its proposed rulings and remedies (which may include specific performance and/or injunctive relief), provided that such brief shall not contain or discuss any new evidence and shall not exceed *** pages. This page limitation shall apply regardless of the number of issues raised in the ADR proceeding. 7. The neutral shall rule on each disputed issue within *** following completion of the hearing. Such ruling shall adopt in its entirety the proposed ruling and remedy of one of the parties on each disputed issue but may adopt one party's proposed rulings and remedies on some issues and the other party's proposed rulings and remedies on other issues. The neutral shall not issue any written opinion or otherwise explain the basis of the ruling. 8. The neutral shall be paid a reasonable fee plus expenses. These fees and expenses, along with the reasonable legal fees and expenses of the prevailing party (including all expert *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. witness fees and expenses), the fees and expenses of a court reporter, and any expenses for a hearing room, shall be paid as follows: (a) If the neutral rules in favor of one party on all disputed issues in the ADR, the losing party shall pay 100% of such fees and expenses. (b) If the neutral rules in favor of one party on some issues and the other party on other issues, the neutral shall issue with the rulings a written determination as to how such fees and expenses shall be allocated between the parties. The neutral shall allocate fees and expenses in a way that bears a reasonable relationship to the outcome of the ADR, with the party prevailing on more issues, or on issues of greater value or gravity, recovering a relatively larger share of its legal fees and expenses. 9. The rulings of the neutral and the allocation of fees and expenses shall be binding, non-reviewable, and non-appealable, and may be entered as a final judgment in any court having jurisdiction. 10. Except as provided in paragraph 9 or as required by law, the existence of the dispute, any settlement negotiations, the ADR hearing, any submissions (including exhibits, testimony, proposed rulings, and briefs), and the rulings shall be deemed Confidential Information. The neutral shall have the authority to impose sanctions for unauthorized disclosure of Confidential Information. EX-10.2 3 FIRST AMENDMENT TO OPTION AGREEMENT EXHIBIT 10.2 UC Case Nos. 92-283, 92-383 & 96-036 FIRST AMENDMENT TO OPTION AGREEMENT This first amendment to the Option Agreement ("Amendment") is effective this 9th day of June 1999 ("Effective Date") between The Regents of the University of California, a California corporation having statewide administrative headquarters at 1111 Franklin Street, 12th Floor, Oakland, California 94607 ("The Regents") and Triangle Pharmaceuticals, Inc., a North Carolina corporation, having a principal place of business at 4 University Place, 4611 University Drive, Durham, North Carolina 27707 ("Optionee"). BACKGROUND The Regents and Optionee entered into an agreement effective September 1, 1996 (UC Control No. 97-11-0081) ("Option Agreement") granting to Optionee an option to negotiate the terms of an exclusive license under Regents' Patent Rights (as defined in the Option Agreement). Under Article 6 (Due Diligence) of the Option Agreement, Optionee is required to sponsor research for at least two (2) years according to the Project Description, Budget and Sponsored Research Agreement set forth in Attachment C. In the event that both Studies (as defined in the Sponsored Research Agreement) are terminated (other than for reasons of uncured breach on the part of The Regents) pursuant to Paragraphs 2.2 or 2.9 of the Sponsored Research Agreement, then Optionee shall have no further rights under the Option Agreement. Optionee has requested that the Option Agreement be amended to delete this provision *** , and The Regents hereby agrees to delete Paragraph 6.1 of Article 6 (Due Diligence) in its entirety. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 1 The remaining provisions of the Option Agreement remain in full force and effect. The parties have executed this Amendment by their respective and duly authorized officers, as evidenced by the signatures below. TRIANGLE PHARMACEUTICALS, INC. THE REGENTS OF THE UNIVERSITY OF CALIFORNIA By: /s/ Chris A. Rallis By: /s/ Paula R. Szoka, Ph.D. ------------------- ------------------------- (Signature) (Signature) Name: Chris A. Rallis Name: Paula R. Szoka, Ph.D. Title: Vice President Title: Senior Licensing Officer Business Development and General Counsel Date: June 8, 1999 Date: June 9, 1999 2 EX-10.3 4 SECOND AMENDMENT TO OPTION AGREEMENT EXHIBIT 10.3 UC Case Nos. 92-283, 92-383 & 96-036 SECOND AMENDMENT TO OPTION AGREEMENT This second amendment to the Option Agreement ("Second Amendment") is effective this 31st day of August 1999 ("Effective Date") between The Regents of the University of California, a California corporation having statewide administrative headquarters at 1111 Franklin Street, 12th Floor, Oakland, California 94607 ("The Regents") and Triangle Pharmaceuticals, Inc., a Delaware corporation, having a principal place of business at 4 University Place, 4611 University Drive, Durham, North Carolina 27707 ("Optionee"). BACKGROUND The Regents and Optionee entered into an agreement effective September 1, 1996 (UC Control No. 97-11-0081) ("Option Agreement") granting to Optionee an option to negotiate the terms of an exclusive license under Regents' Patent Rights (as defined in the Option Agreement). Optionee has requested that the Option Agreement be amended to extend the term of the Option Agreement in order to continue to evaluate the Licensed Products to determine its interest in taking a license under Regents' Patent Rights; The Regents wishes to grant the option extension so that the Inventions may be developed to the fullest extent and the benefits therefrom enjoyed by the general public. The parties agree to amend the Option Agreement as follows: Article 3 OPTION FEE AND TERM of the Option Agreement is amended to add Articles 3.4, 3.5, and 3.6. 3.4 On or before September 1, 1999, Optionee may extend the option granted pursuant hereto for one (1) additional year by signing this Second Amendment *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 1 and by paying an extension fee of *** , due within *** of receipt by Optionee of the fully executed Second Amendment. 3.5 Optionee may extend the option granted pursuant hereto for one (1) additional year by so notifying The Regents in writing at least thirty (30) days before September 1, 2000, which notice shall be accompanied by an extension fee of *** . 3.6 The two option extension fees referred to in Paragraphs 3.4 and 3.5 are non-refundable, non-creditable, and not an advance against royalties. The remaining provisions of the Option Agreement remain in full force and effect. The parties have executed this Second Amendment by their respective and duly authorized officers, as evidenced by the signatures below. TRIANGLE PHARMACEUTICALS, INC. THE REGENTS OF THE UNIVERSITY OF CALIFORNIA By: /s/ Chris A. Rallis By: /s/ Terence A. Feuerborn ----------------------- ---------------------------- (Signature) (Signature) Name: Chris A. Rallis Name: Terence A. Feuerborn Title: Executive Vice President Title: Executive Director Business Development and Research Administration and General Counsel Technology Transfer Date: August 31, 1999 Date: September 13, 1999 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission. 2 EX-11.1 5 COMPUTATION OF NET LOSS PER COMMON SHARE Triangle Pharmaceuticals, Inc. (A Development Stage Company) Computation of Net Loss Per Common Share (In thousands, except per share amounts)
Three Months Nine Months Three Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 1999 1999 1998 1998 ------------- ------------- ------------- ------------- Historical weighted average shares outstanding ................... 35,157 31,354 24,058 22,511 -------- -------- -------- -------- Shares used in computing net loss per common share .............. 35,157 31,354 24,058 22,511 ======== ======== ======== ======== Net Loss ......................... $(22,563) $(73,423) $(15,619) $(46,283) ======== ======== ======== ======== Basic and diluted net loss per common share .................. $ (0.64) $ (2.34) $ (0.65) $ (2.06) ======== ======== ======== ========
EX-27.1 6 FINANCIAL DATA SCHEDULE
5 This schedule contains consolidated summary financial information extracted from Form 10-Q for the quarterly period ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 72,319,000 89,181,000 0 0 0 166,683,000 7,290,000 (2,123,000) 171,850,000 25,512,000 43,000 0 0 38,000 146,257,000 171,850,000 0 0 0 0 77,920,000 0 0 (73,423,000) 0 (73,423,000) 0 0 0 (73,423,000) (2.34) (2.34)
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