0001445305-14-002069.txt : 20140509 0001445305-14-002069.hdr.sgml : 20140509 20140509160417 ACCESSION NUMBER: 0001445305-14-002069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20140331 FILED AS OF DATE: 20140509 DATE AS OF CHANGE: 20140509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGENUS INC CENTRAL INDEX KEY: 0001098972 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 061562417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29089 FILM NUMBER: 14829038 BUSINESS ADDRESS: STREET 1: 162 FIFTH AVENUE SUITE 900 CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 212-994-8200 MAIL ADDRESS: STREET 1: 162 FIFTH AVENUE SUITE 900 CITY: NEW YORK STATE: NY ZIP: 10010 FORMER COMPANY: FORMER CONFORMED NAME: ANTIGENICS INC /DE/ DATE OF NAME CHANGE: 19991115 10-Q 1 agen-3312014x10q.htm 10-Q AGEN-3.31.2014-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________ 
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number: 000-29089
Agenus Inc.
(exact name of registrant as specified in its charter)
Delaware
 
06-1562417
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3 Forbes Road, Lexington, Massachusetts 02421
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code:
(781) 674-4400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o         Accelerated filer  þ        Non-accelerated filer  o        Smaller reporting company  o
          (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  þ
Number of shares outstanding of the issuer's Common Stock as of April 30, 2014: 62,236,360 shares
 



Agenus Inc.
Quarterly Period Ended March 31, 2014
Table of Contents 




PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31, 2014
 
December 31, 2013
ASSETS
 
 
 
Cash and cash equivalents
$
73,491,291

 
$
27,351,969

Accounts receivable

 
1,200

Prepaid expenses
1,324,833

 
658,412

Other current assets
443,798

 
162,997

Total current assets
75,259,922

 
28,174,578

Plant and equipment, net of accumulated amortization and depreciation of $27,821,235 and $27,637,443 at March 31, 2014 and December 31, 2013, respectively
4,135,617

 
2,784,845

Goodwill
19,635,612

 
2,572,203

Acquired intangible assets, net of accumulated amortization of $73,661 at March 31, 2014
7,997,972

 

Other long-term assets
1,274,646

 
1,303,855

Total assets
$
108,303,769

 
$
34,835,481

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Current portion, long-term debt
$
2,869,301

 
$
3,518,550

Convertible notes
1,213,376

 

Current portion, deferred revenue
3,031,744

 
1,660,679

Accounts payable
1,681,448

 
834,740

Accrued liabilities
4,699,051

 
4,215,221

Other current liabilities
878,035

 
66,683

Total current liabilities
14,372,955

 
10,295,873

 
 
 
 
Other long-term debt
5,277,779

 
5,347,690

Deferred revenue
3,147,754

 
3,193,809

Contingent royalty obligation
8,935,252

 
18,799,141

Contingent purchase price consideration
10,630,000

 

Other long-term liabilities
2,654,627

 
1,679,671

Commitments and contingencies


 

STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized at March 31, 2014 and December 31, 2013:
 
 
 
Series A-1 convertible preferred stock; 31,620 shares designated, issued, and outstanding at March 31, 2014 and December 31, 2013; liquidation value of $32,320,630 at March 31, 2014
316

 
316

Series B2 convertible preferred stock; 3,105 shares designated, issued, and outstanding at March 31, 2014 and December 31, 2013
31

 
31

Common stock, par value $0.01 per share; 70,000,000 shares authorized; 62,230,609 and 36,391,191 shares issued at March 31, 2014 and December 31, 2013, respectively
622,306

 
363,912

Additional paid-in capital
711,625,013

 
644,571,866

Treasury stock, at cost; 0 and 43,490 shares of common stock at March 31, 2014 and December 31, 2013, respectively

 
(324,792
)
Accumulated deficit
(649,177,681
)
 
(649,092,036
)
Cumulative translation adjustment
215,417

 

Total stockholders’ equity (deficit)
63,285,402

 
(4,480,703
)
Total liabilities and stockholders’ equity (deficit)
$
108,303,769

 
$
34,835,481


See accompanying notes to unaudited condensed consolidated financial statements.

2


AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Quarters Ended March 31
 
 
2014
 
2013
 
Revenue:
 
 
 
 
Service revenue
$

 
$
725,225

 
Grant revenue
28,768

 

 
Research and development revenue
692,088

 
384,017

 
Total revenues
720,856

 
1,109,242

 
Operating expenses:
 
 
 
 
Cost of service revenue

 
(272,776
)
 
Research and development
(4,472,533
)
 
(2,554,122
)
 
General and administrative
(5,163,493
)
 
(2,891,541
)
 
Contingent consideration fair value adjustment
(909,000
)
 

 
Operating loss
(9,824,170
)
 
(4,609,197
)
 
Other income (expense):
 
 
 
 
Non-operating income
9,822,466

 
2,880

 
Interest expense, net
(355,809
)
 
(1,228,702
)
 
Net loss
(357,513
)
 
(5,835,019
)
 
Dividends on Series A and A-1 convertible preferred stock
(51,026
)
 
(3,007,186
)
 
Net loss attributable to common stockholders
$
(408,539
)
 
$
(8,842,205
)
 
Per common share data:
 
 
 
 
Basic and diluted net loss attributable to common stockholders
$
(0.01
)
 
$
(0.35
)
 
Weighted average number of common shares outstanding:
 
 
 
 
       Basic and diluted
50,556,807

 
25,071,684

 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
  Foreign currency translation gain
$
215,417

 
$

 
Other comprehensive income
215,417

 

 
Comprehensive loss
$
(193,122
)
 
$
(8,842,205
)
 

See accompanying notes to unaudited condensed consolidated financial statements.


3


AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three months Ended March 31,
 
 
2014
 
2013
 
Cash flows from operating activities:
 
 
 
 
Net income (loss)
$
(357,513
)
 
$
(5,835,019
)
 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
266,528

 
147,000

 
Share-based compensation
953,836

 
709,345

 
Noncash interest expense
153,146

 
448,638

 
Gain on sale of investment

 

 
Loss on disposal of assets
1,150

 
17,915

 
       Change in fair value of contingent royalty obligation
(8,894,974
)
 

 
       Loss on extinguishment of debt

 

 
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
1,200

 
388,606

 
Inventories

 

 
Prepaid expenses
(279,825
)
 
(341,680
)
 
Accounts payable
184,008

 
(149,686
)
 
Deferred revenue
(688,904
)
 
(381,971
)
 
Accrued liabilities and other current liabilities
(1,433,230
)
 
1,026,886

 
Other operating assets and liabilities
(29,768
)
 
74,618

 
Net cash (used in) provided by operating activities
(10,124,346
)
 
(3,895,348
)
 
Cash flows from investing activities:
 
 
 
 
Cash acquired in acquisition
514,470

 

 
Purchases of plant and equipment
(172,592
)
 
(377,323
)
 
Net cash provided by (used in) investing activities
341,878

 
(377,323
)
 
Cash flows from financing activities:
 
 
 
 
Net proceeds from sales of equity
56,667,252

 

 
Proceeds from employee stock purchases
84,271

 
35,438

 
Financing of property and equipment
(9,505
)
 
(17,078
)
 
Payments of convertible notes
(833,333
)
 

 
Net cash provided by financing activities
55,908,685

 
18,360

 
Effect of exchange rate changes on cash

13,105

 

 
Net increase in cash and cash equivalents
46,139,322

 
(4,254,311
)
 
Cash and cash equivalents, beginning of period
27,351,969

 
21,468,269

 
Cash and cash equivalents, end of period
$
73,491,291

 
$
17,213,958

 
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
$
193,893

 
$
3,372

 
Non-cash investing and financing activity:
 
 
 
 
Deemed dividend on Series A convertible preferred stock
$

 
$
2,906,664

 
Issuance of common stock, $0.01 par value, for acquisition of 4-Antibody
10,102,259

 

 
       Contingent consideration issued in connection with the acquisition of 4-Antibody AG
9,721,000

 

 
See accompanying notes to unaudited condensed consolidated financial statements.

4


AGENUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
Note A - Business, Liquidity and Basis of Presentation

Agenus Inc. including its subsidiaries also referred to as “Agenus,” the “Company,” “we,” “us,” and “our”) is a biopharmaceutical company developing a portfolio of immuno-oncology candidates, including checkpoint modulators, heat shock protein-based vaccines, and adjuvants. We are focused on immunotherapeutic products based on our core platform technologies with multiple product candidates advancing through the clinic, including several product candidates that have advanced into late-stage clinical trials through corporate partners.

Our core technology portfolio consists of our Retrocyte Display® Technology Platform and Checkpoint Modulator Antibody Programs, our Heat Shock Protein ("HSP")-Based Platform, and our Saponin Adjuvant Platform.

Our Checkpoint Modulator Antibody Programs became part of our technology portfolio with the acquisition of 4-Antibody AG, a private European-based biopharmaceutical company ("4-AB") in February 2014. This acquisition (see Note C) provides us with a technology platform for the rapid discovery and optimization of fully-human antibodies against a wide array of molecular targets. Within our HSP-Based Platform we are developing our Prophage Series cancer vaccines. Our Prophage Series vaccines are currently being studied in two different settings of glioblastoma multiforme, or GBM: newly diagnosed and recurrent disease. Also within our HSP-Based Platform, is HerpV, a recombinant, synthetic vaccine containing multiple antigens derived from the herpes simplex 2 virus. HerpV is currently in a Phase 2 clinical trial, and we believe it is one of the most clinically-advanced therapeutic vaccines for the treatment of genital herpes in clinical development. Within our Saponin Adjuvant Platform is QS-21 Stimulon® adjuvant, or QS-21 Stimulon, which is used by our licensees in numerous vaccines under development in trials, some as advanced as Phase 3, for a variety of diseases, including cancer, shingles, malaria, Alzheimer's disease, human immunodeficiency virus, and tuberculosis.

Our business activities have included product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development activities, and support of our collaborations. Our product candidates require clinical trials and approvals from regulatory agencies, as well as acceptance in the marketplace. In addition to the internal development of our product candidates, we continue to pursue collaborative, out-licensing and/or partnering opportunities for our portfolio programs and product candidates, as well as explore in-licensing, acquisitions and collaborative arrangements in areas of synergy with our existing programs.
 
We have incurred significant losses since our inception. As of March 31, 2014, we had an accumulated deficit of $649.2 million. Since our inception, we have financed our operations primarily through the sale of equity, issuance of debt, and interest income earned on cash, cash equivalents, and short-term investment balances. We believe that, based on our current plans and activities, our cash balance of $73.5 million as of March 31, 2014, plus potential proceeds from license, supply, and collaborative agreements will be sufficient to satisfy our liquidity requirements through the first half of 2015. We continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible, restrict capital expenditures and/or reduce the scale of our operations.
We expect to attempt to raise additional funds in advance of depleting our current funds. We may attempt to raise funds by: (1) pursuing collaborative, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing, and/or (5) selling equity securities. Satisfying long-term liquidity needs may require the successful commercialization and/or substantial out-licensing or partnering arrangements for i) our Retrocyte Display® Technology Platform, Checkpoint Modulator Antibody Programs, HerpV, and the Prophage Series vaccines, ii) vaccines containing QS-21 Stimulon under development by our licensees and/or iii) the identification, development and commercialization of potential other product candidates, each of which will require additional capital with no certainty of timing or probability of success. If we incur operating losses for longer than we expect and/or we are unable to raise additional capital, we may become insolvent and be unable to continue our operations.

Our research and development program costs include compensation and other direct costs plus an allocation of indirect costs, based on certain assumptions, and our review of the status of each program. Our product candidates are in various stages of research and development and significant additional expenditures will be required if we start new clinical trials, encounter delays in our programs, apply for regulatory approvals, continue development of our technologies, expand our operations, and/or bring our product candidates to market. The eventual total cost of each clinical trial is dependent on a number of factors such as trial design, length of the trial, number of clinical sites, number of patients, and trial sponsorship. The process of obtaining

5


and maintaining regulatory approvals for new therapeutic products is lengthy, expensive, and uncertain. Because our Checkpoint Modulator Antibody Programs are preclinical, HerpV is in a Phase 2 clinical trial, and the further development of our Prophage Series vaccines is subject to evaluation and uncertainty, we are unable to reliably estimate the cost of completing our research and development programs or, the timing for bringing such programs to various markets or substantial partnering or out-licensing arrangements, and, therefore, when, if ever, material cash inflows from operating activities are likely to commence. We will continue to adjust other spending as needed in order to preserve liquidity. Programs involving QS-21 Stimulon, other than our HerpV program, depend on our collaborative partners or licensees successfully completing clinical trials, successfully manufacturing QS-21 Stimulon to meet demand, obtaining regulatory approvals and successfully commercializing product candidates containing QS-21 Stimulon.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual consolidated financial statements. In the opinion of our management, the condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of our financial position and operating results. All significant intercompany transactions and accounts have been eliminated in consolidation. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission.
For our subsidiary 4-AB, the local currency is the functional currency. Assets and liabilities of 4-AB are translated into U.S. dollars using rates in effect at the balance sheet date while revenues and expenses are translated into U.S. dollars using average exchange rates. The cumulative translation adjustment resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in total stockholders’ equity.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.
Note B - Net Loss Per Share
Basic loss and income per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our Directors’ Deferred Compensation Plan, “DDCP”). Diluted income per common share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our DDCP) plus the dilutive effect of outstanding instruments such as warrants, stock options, nonvested shares, convertible preferred stock, and convertible notes. Because we reported a net loss attributable to common stockholders for all periods presented, diluted loss per common share is the same as basic loss per common share, as the effect of utilizing the fully diluted share count would have reduced the net loss per common share. Therefore, the following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding because they would be anti-dilutive:  
 
March 31,
 
2014
 
2013
 
Warrants
2,951,450

 
3,309,378

 
Stock options
4,267,655

 
2,830,712

 
Nonvested shares
109,747

 
279,889

 
Convertible preferred stock
333,333

 
333,333

 
Convertible notes
382,769

 

 

Note C - 4-Antibody Acquisition

On January 10, 2014, we entered into a Share Exchange Agreement providing for our acquisition of all of the outstanding capital stock of 4-AB, from the shareholders of 4-AB (the “4-AB Shareholders”). The transaction closed on February 12, 2014 (the "Closing Date"). In exchange for their shares, the 4-AB Shareholders received an aggregate of

6


3,334,079 shares of our common stock payable upon closing and valued at $10.1 million. Contingent milestone payments of up to $40 million (the "contingent consideration"), payable in cash or shares of our common stock at our option, will be due to the 4-AB Shareholders as follows (i) $20 million upon our market capitalization exceeding $300 million for ten consecutive trading days prior to the earliest of (a) the fifth anniversary of the Closing Date (b) the sale of the 4-AB or (c) the sale of Agenus, (ii) $10 million upon our market capitalization exceeding $750 million for 30 consecutive trading days prior to the earliest of (a) the tenth anniversary of the Closing Date (b) the sale of 4-AB or (c) the sale of Agenus, and (iii) $10 million upon our market capitalization exceeding $1.0 billion for 30 consecutive trading days prior to the earliest of (a) the tenth anniversary of the Closing Date (b) the sale of 4-AB or (c) the sale of Agenus. We have assigned an estimated preliminary fair value of $9.7 million to the contingent consideration. This acquisition provided us with the Retrocyte Display® Technology for the rapid discovery and optimization of fully-human antibodies against a wide array of molecular targets and a portfolio Checkpoint Modulator Antibody immunotherapy program.
The acquisition of 4-AB was accounted for under the acquisition method of accounting. The purchase price of approximately $19.8 million has been allocated to the tangible and intangible assets acquired and liabilities assumed. The fair value estimate of assets acquired and liabilities assumed is pending completion and final review by our management. Primary areas yet to be finalized include the fair value of certain tangible assets acquired and liabilities assumed, and the valuation of intangible assets acquired. The final purchase price allocation may differ from that presented below due to adjustments that may result from completion of the valuation of the assets acquired and liabilities assumed.
The following table summarizes the purchase price of the 4-AB acquisition, the identified assets acquired and liabilities assumed at the acquisition date (in thousands):
Assets acquired:
 
 
  Cash
 
$
514

  Other current assets
 
600

  Plant and equipment
 
1,340

  In-process research and development
 
2,100

  Patented technology
 
5,700

  Other finite-lived intangible
 
190

  Goodwill
 
16,891

    Total assets
 
27,335

Liabilities assumed:
 
 
  Accounts payable
 
649

  Other current liabilities
 
2,889

  Convertible notes
 
1,142

  Deferred revenue
 
1,890

  Deferred tax liability
 
420

  Other long-term liabilities
 
522

    Total liabilities
 
7,512

Total purchase price
 
$
19,823

The estimated fair value of the in-process research and development ("IPR&D") and patented technology was determined using the income approach and the relief from royalty rate method, respectively, using significant inputs, including an 18% discount rate, that are not observable.  We consider the fair value of the IPR&D and patented technology to be Level 3 due to the significant estimates and assumptions used by management in establishing the estimated fair values.
All of the convertible notes assumed in the acquisition were converted into approximately 383,000 shares of our common stock on May 8, 2014.
The following table summarizes the supplemental statements of operations information on an unaudited pro forma basis as if the 4-AB acquisition had occurred on January 1, 2013 (in thousands except per share data):

7


 
Three months ended March 31,
 
2014
 
2013
Pro forma revenues
$
926

 
$
4,858

Pro forma net loss attributable to common stockholders
$
(1,280
)
 
$
(7,057
)
Basic and diluted net loss attributable to common stockholders per share
$
(0.02
)

$
(0.25
)
The pro forma results presented above are for illustrative purposes only for the periods presented and do not purport to be indicative of the actual results which would have occurred had the transaction been completed as of the beginning of the period, nor are they indicative of results of operations which may occur in the future. Revenues and net loss related to 4-AB of $303,000 and $1.4 million, respectively is included in our condensed consolidated statement of operations and comprehensive income for the quarter ended March 31, 2014.
Note D - Goodwill and Acquired Intangible assets
The following table sets forth the changes in the carrying amount of goodwill for the three months ended March 31, 2014 (in thousands):    
Balance, December 31, 2013
 
$
2,572

  Goodwill from 4-AB acquisition
 
16,891

  Foreign currency translation adjustment
 
173

Balance, March 31, 2014
 
$
19,636


Acquired intangible assets consisted of the following at March 31, 2014 (in thousands):
 
Amortization period (years)
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Intellectual Property
15 years
 
4,850

 
(40
)
 
$
4,810

Trademarks
4.5 years
 
909

 
(25
)
 
$
884

Other
3 years
 
192

 
(9
)
 
$
183

In-process research and development
Indefinite
 
2,121

 
$

 
$
2,121

  Total
 
 
$
8,072

 
$
(74
)
 
$
7,998

The weighted average amortization period of our finite-lived intangible assets is 13 years. Amortization expense related to acquired intangibles is estimated at $442,000 for the balance of 2014, $589,000 for each of the years ending 2015 and 2016, $532,000 for the year ending 2017, $449,000 for the year ending 2018, and $323,000 for each of the years 2019-2028, and $46,000 for the year ending 2029.
The acquired in-process research and development ("IPR&D") asset relates to the six pre-clinical Checkpoint Modulator Antibody Programs which target GITR, OX40, CTLA-4, PD-1, TIM-3 and LAG-3. IPR&D acquired in a business combination is capitalized at fair value until the underlying project is completed and is subject to impairment testing. Once the project is completed, the carrying value of IPR&D is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the acquired IPR&D are expensed as incurred.
Note E - Share-based Compensation Plans
We use the Black-Scholes option pricing model to value stock options granted to employees and non-employees, as well as stock options granted to members of our Board of Directors. All stock options have 10-year terms and generally vest ratably over a 3 or 4-year period. A non-cash charge to operations for the stock options granted to non-employees that have vesting or other performance criteria is affected each reporting period, until the non-employee options vest, by changes in the fair value of our common stock. A summary of option activity for the three months ended March 31, 2014 is presented below:

8


 
 
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2013
4,163,100

 
$
5.72

 
 
 
 
Granted
175,000

 
3.27

 
 
 
 
Exercised
(12,781
)
 
3.41

 
 
 
 
Forfeited
(43,373
)
 
3.91

 
 
 
 
Expired
(14,291
)
 
12.83

 
 
 
 
Outstanding at March 31, 2014
4,267,655

 
$
5.62

 
7.6
 
$
212,664

Vested or expected to vest at March 31, 2014
3,684,933

 
$
6.02

 
7.3
 
$
20,291

Exercisable at March 31, 2014
2,379,328

 
$
7.07

 
6.4
 
$
4,550

The weighted average grant-date fair values of stock options granted during the three months ended March 31, 2014 and 2013, were $2.54 and $2.88, respectively.
During the three months ended March 31, 2014, and 2013, all stock options were granted with exercise prices equal to the market value of the underlying shares of common stock on the grant date. As of March 31, 2014, $3.9 million of total unrecognized compensation cost, $556,000 of which pertains to performance awards for which performance has not yet been achieved, related to stock options granted to employees and directors is expected to be recognized over a weighted average period of 2.1 years.
Certain employees and consultants have been granted nonvested stock. The fair value of nonvested stock is calculated based on the closing sale price of our common stock on the date of issuance.

A summary of nonvested stock activity for the three months ended March 31, 2014 is presented below: 
 
Nonvested
Shares
 
Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2013
147,274

 
$
3.99

Granted

 

Vested
(21,319
)
 
4.65

Forfeited
(16,208
)
 
3.40

Outstanding at March 31, 2014
109,747

 
3.95

As of March 31, 2014, there was $264,000 of unrecognized share-based compensation expense related to these nonvested shares awarded to employees expected to be recognized over a weighted average period of 2.5 years. As of March 31, 2014, unrecognized expenses for nonvested shares awarded to outside advisors is $47,000. The total intrinsic value of shares vested during the three months ended March 31, 2014, was $68,000.
We issue new shares upon stock option exercises, purchases under our 2009 Employee Stock Purchase Plan, vesting of nonvested stock, issuances under the DDCP, and in lieu of approximately 33% of the base salary of our Chief Executive Officer. During the three months ended March 31, 2014, 18,149 shares were issued under the 2009 Employee Stock Purchase Plan, 18,194 shares were issued as a result of the vesting of nonvested stock, 12,781 shares were issued as a result of stock option exercises, and 13,092 shares were issued to our Chief Executive Officer in lieu of cash salary.
The impact on our results of operations from share-based compensation for the three months ended March 31, 2014, and 2013, was as follows (in thousands): 

9


 
Quarter Ended March 31,
 
 
2014
 
2013
 
Research and development
$
254

 
$
216

 
General and administrative
700

 
493

 
Total share-based compensation expense
$
954

 
$
709

 
Note F - Accrued Liabilities
Accrued liabilities consist of the following as of March 31, 2014 and December 31, 2013 (in thousands): 
 
March 31, 2014
 
December 31, 2013
Professional fees
$
1,627

 
$
1,121

Payroll
1,549

 
1,635

Clinical trials
826

 
1,021

Other
697

 
438

 
$
4,699

 
$
4,215


Note G - Fair Value Measurements

10


We measure our contingent royalty obligation and purchase price consideration at fair value. The fair values of our contingent royalty obligation and our purchase price consideration, $8.9 million and $10.6 million, respectively, are based on significant inputs not observable in the market, which require them to be reported as a Level 3 liability within the fair value hierarchy. The valuation uses assumptions we believe would be made by a market participant. In particular, the valuation analysis for the royalty obligation used the Income Approach based on the sum of the economic income that an asset is anticipated to produce in the future. In this case that asset is the potential royalty income to be paid to us as a result of certain license agreements for QS-21 Stimulon and the potential net sales generated from HerpV. The fair value of the contingent royalty obligation is estimated by applying a risk adjusted discount rate (12.5%) to the probability adjusted royalty revenue stream based on expected approval dates. These fair value estimates are most sensitive to changes in the probability of regulatory approvals. The Discounted Cash Flow method of the Income Approach was chosen as the method best suited to valuing the contingent royalty obligation.
The fair value of our purchase price consideration is based on estimates from Monte Carlo simulation of our market capitalization. Market capitalization was evolved using a geometric brownian motion, calculated daily for the life of the contingent consideration.
The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3) , as of March 31, 2014 (amounts in thousands):
Balance, December 31, 2013
 
$
18,799

Contingent purchase price consideration
 
9,721

Change in fair value of contingent royalty obligation during the quarter
(9,864
)
Change in fair value of purchase price consideration during the quarter
 
909

Balance, March 31, 2014
 
$
19,565

The decrease in fair value of the contingent royalty obligation liability is included in non-operating (loss) income in our condensed consolidated statement of operations for the quarter ended March 31, 2014, and related primarily to the termination by GSK of its Phase 3 clinical trial of a vaccine using our QS-21 Stimulon adjuvant in patients with non-small cell lung cancer. There were no changes in the valuation techniques during the period and there were no transfers into or out of Levels 1 and 2.
The estimated fair values of all of our financial instruments, excluding long-term debt, approximate their carrying amounts in the condensed consolidated balance sheets. The fair value of our long-term debt was derived by evaluating the nature and terms of each note and considering the prevailing economic and market conditions at the balance sheet date.
 The fair value of our long-term debt at March 31, 2014 and December 31, 2013, was $8.8 million and $9.6 million respectively, based on the Level 2 valuation hierarchy of the fair value measurements standard using a present value methodology. The principal value of our long-term debt at March 31, 2014 and December 31, 2013 was $8.8 million and $9.6 million, respectively.
In connection with the acquisition of 4-AB, we assumed convertible notes which upon a change of control of 4-AB have the ability to convert into shares of our common stock. We have elected to account for these convertible notes using fair value as a Level 1 liability. Accordingly, the fair value of our convertible notes at March 31, 2014 of $1.2 million, is their carrying value in the condensed consolidated balance sheet.
Note H - Equity
In February 2014, we issued and sold 22,236,000 shares of our common stock in a public underwritten offering. Net proceeds after deducting offering expenses were approximately $56.0 million. This offering was made under an effective shelf registration statement and proceeds from the offering will be used for general corporate purposes.
In February 2014, our Board of Directors retired 43,490 shares of our treasury stock then outstanding and returned those shares to authorized and unissued shares of our common stock.
We issued an aggregate of 3,334,079 shares of our common stock in exchange for all of the outstanding capital stock of 4-AB as detailed in Note C.
Note I - Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, ("ASU 2013-11"). ASU 2013-11 amends Accounting Standards Codification 740, Income Taxes, by providing guidance on the financial statement presentation of an unrecognized benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists ("ASC 740"). ASU 2013-11 does not affect the recognition or measurement of uncertain tax positions under ASC 740.
ASU 2013-11 will be effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted. The adoption of ASU 2013-11 did not have any impact on our consolidated financial statements.
Note J - Subsequent Event
On April 24, 2014, we amended our certificate of incorporation to increase the authorized number of shares of our common stock from 70,000,000 to 140,000,000 shares.

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q and other written and oral statements we make from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). You can identify these forward-looking statements by the fact they use words such as “could,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe,” “will,” “potential,” “opportunity,” “future” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, our business strategy, our research and development, our product development efforts, our ability to commercialize our product candidates, the activities of our licensees, our prospects for initiating partnerships or collaborations, the timing of the introduction of products, the effect of new accounting pronouncements, uncertainty regarding our future operating results and our profitability, anticipated sources of funds as well as our plans, objectives, expectations, and intentions.
We have included more detailed descriptions of these risks and uncertainties and other risks and uncertainties applicable to our business that we believe could cause actual results to differ materially from any forward-looking statements in Part II-Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. We encourage you to read those descriptions carefully. Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved. We caution investors not to place significant reliance on forward-looking statements contained in this document; such statements need to be evaluated in light of all the information contained in this document. Furthermore, the statements speak only as of the date of this document, and we undertake no obligation to update or revise these statements.
Oncophage®, Stimulon® and Retrocyte Display® are registered trademarks of Agenus Inc. and its subsidiaries. All rights reserved.
Overview
We are a biopharmaceutical company developing a portfolio of immuno-oncology candidates, including checkpoint modulator antibodies, heat shock protein-based vaccines and saponin adjuvants. We are focused on immunotherapeutic products based on our core platform technologies with multiple product candidates advancing through the clinic, including several product candidates that have advanced into late-stage clinical trials through corporate partners. We assess the development, commercialization and/or partnering strategies with respect to each of our internal product candidates periodically based on several factors, including clinical trial results, competitive positioning, and funding requirements and resources.
Our Retrocyte Display® Technology Platform and Checkpoint Modulator Antibody Programs became part of our portfolio with the acquisition of 4-Antibody AG, a private European-based biopharmaceutical company ("4-AB") in February 2014. The Retrocyte Display® Technology Platform is intended to enable, among other things, the rapid generation and optimization of fully human monoclonal antibodies against a broad range of target antigens of interest.  We currently have six pre-clinical Checkpoint Modulator Antibody Programs which target GITR, OX40, CTLA-4, PD-1, TIM-3 and LAG-3. We have selected two GITR agonists and one CTLA-4 antagonist to advance into investigational new drug application ("IND") enabling development. Although we envision using Retrocyte Display® to drive the discovery of future checkpoint modulator antibody candidates, not all candidates will necessarily be derived from the use of this technology. For example, our current antibody candidates targeting GITR were derived independently of Retrocyte Display®. We plan to identify development candidates for the other four Checkpoint Modulator Antibody Programs during 2014, in order to be in a position to file INDs on at least four candidates within the next two years.

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Within our HSP-Based Platform we are developing our Prophage Series cancer vaccines. Our Prophage Series cancer vaccines are autologous therapies derived from cells extracted from the patient’s tumor. As a result, Prophage Series vaccines contain a precise antigenic ‘fingerprint’ of a patient’s particular cancer and are designed to reprogram the body’s immune system to target only cells bearing this fingerprint, reducing the risk that powerful anti-cancer agents will target healthy tissue and cause debilitating side effects often associated with chemotherapy and radiation therapy. We believe that in contrast to many other autologous vaccines that are based on cellular preparations, the Prophage Series Vaccines are based on a stable protein preparation produced by a less complex manufacturing process. Our Prophage Series vaccines are currently being studied in two different settings of glioblastoma multiforme, or GBM: newly diagnosed and recurrent disease.
Also within our HSP-Based Platform, is HerpV, a recombinant, synthetic vaccine containing multiple antigens derived from the herpes simplex 2 virus. Combining our heat shock protein-based technology and our QS-21 Stimulon adjuvant, HerpV represents a potential new approach to the treatment of genital herpes. In November 2013, we released top line results from a Phase 2, randomized, double blind, multicenter clinical trial of HerpV in HSV-2 positive genital herpes patients, which showed that the trial met its primary endpoint. We anticipate reporting additional study results assessing the efficacy of a booster injection of HerpV during the second quarter of 2014. HerpV evokes immune responses to the mix of HSV2 peptides contained in the vaccine in a substantial majority of patients. Our Phase 2 study has shown that HerpV may reduce viral shedding, which has the potential to reduce the incidence and severity of herpetic lesion outbreaks and/or reduce the likelihood of disease transmission.  However, it is uncertain whether the degree of benefit conferred by HerpV will be sufficient to (i) warrant additional clinical trials funded by us or (ii) attract a development partner.
Within our Saponin Adjuvant Platform is QS-21 Stimulon® adjuvant, or QS-21 Stimulon. QS-21 Stimulon is a saponin extracted from the bark of the Quillaja saponaria tree, an evergreen tree native to warm temperate central Chile. QS-21 Stimulon has become a key component in the development of investigational preventive vaccine formulations across a wide variety of infectious diseases and, investigational therapeutic vaccines intended to treat cancer and degenerative disorders. QS-21 Stimulon has been widely studied in 50,000 patients. The key licensees of QS-21 Stimulon are GlaxoSmithKline ("GSK") and JANSSEN Alzheimer Immunotherapy ("JANSSEN AI"). QS-21 Stimulon is currently being studied in approximately 20 vaccine indications, which include GSK's Phase 3 vaccine programs for RTS,S for malaria, MAGE-A3 cancer immunotherapeutic for melanoma and HZ/su for shingles. In addition, JANSSEN AI's QS-21 Stimulon adjuvant-containing vaccine candidate is in Phase 2 trials for the treatment of Alzheimer’s disease. If any of our partners’ products containing QS-21 Stimulon successfully completes clinical development and receives approval for commercial sale, we are generally entitled to receive royalties for 10 years after commercial launch, with some exceptions.
In addition to our internal development efforts, we continue to pursue collaborative, out-licensing and/or partnering opportunities for our portfolio programs and product candidates, as well as explore in-licensing, acquisitions and collaborative arrangements in areas of synergy with our existing programs. Our business activities have included product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development, business development, and support of our collaborations. In April 2014, we entered into a collaboration and license agreement with Merck to discover and optimize fully human antibodies against two undisclosed Merck checkpoint targets using the Retrocyte Display® Technology Platform. Merck will be responsible for the clinical development and commercialization of candidates generated under the collaboration and we are eligible to receive potential payments associated with the completion of certain clinical, regulatory and commercial milestones as well as royalty payments on worldwide product sales.
We have financed our operations primarily through the sale of equity and debt securities. We believe that, based on our current plans and activities, our working capital resources at March 31, 2014, plus potential proceeds from license, supply, and collaborative agreements, will be sufficient to satisfy our liquidity requirements through the first half of 2015. We expect to attempt to raise additional funds in advance of depleting our current funds. We may attempt to raise funds by: (1) pursuing collaborative, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities. Satisfying long-term liquidity needs may require the successful commercialization and/or substantial out-licensing or partnering arrangements for i) our Retrocyte Display® Technology Platform, Checkpoint Modulator Antibody Programs, HerpV and the Prophage Series vaccines, ii) vaccines containing QS-21 Stimulon under development by our licensees, and/or iii) the identification, development and commercialization of potential other product candidates, each of which will require additional capital with no certainty of timing or probability of success. If we incur operating losses for longer than we expect and/or we are unable to raise additional capital, we may become insolvent and be unable to continue our operations.
Historical Results of Operations
Quarter ended March 31, 2014 Compared to the Quarter Ended March 31, 2013

12


Revenue: We generated revenue of approximately $721,000 and $1,109,000 during the three months ended March 31, 2014 and 2013, respectively. Revenue includes license fees, in 2014 grant revenue, and in 2013 service revenue. During the three months ended March 31, 2014 and 2013, we recorded revenue of approximately $689,000 and approximately $382,000, respectively, from the amortization of deferred revenue.
Research and Development: Research and development expenses include the costs associated with our internal research and development activities, including compensation and benefits, occupancy costs, clinical manufacturing costs, costs of consultants, and administrative costs. Research and development expense increased 75.1% to $4.5 million for the three months ended March 31, 2014 from $2.6 million for the three months ended March 31, 2013. Increased expenses primarily relate to the increased compensation expense related to increased headcount and bonuses for research and development personnel as well as the research and development costs of the checkpoint modulator program.
General and Administrative: General and administrative expenses consist primarily of personnel costs, facility expenses, and professional fees. General and administrative expenses increased 78.6% to $5.2 million for the three months ended March 31, 2014 from $2.9 million for the three months ended March 31, 2013. Increased expenses related to increased compensation expense in connection with bonuses for general and administrative personnel and increased professional fees related to our corporate activities and the acquisition of 4-AB.
Contingent consideration fair value adjustment: Contingent consideration fair value adjustment represents the increase in the fair value of our purchase price consideration during the three months ended March 31, 2014. The fair value of our purchase price consideration is based on estimates from Monte Carlo simulation of our market capitalization.
Non-operating income: Non-operating income for the three months ended March 31, 2014 represents the change in the fair value of our contingent royalty obligation.
Interest Expense, net: Interest expense, net decreased to approximately $356,000 for the three months ended March 31, 2014 from $1.2 million for the three months ended March 31, 2013 due to the extinguishment of our 8% senior secured convertible notes due August 2014 (the "2006 Notes") during 2013.
Dividends on Series A and A-1 convertible preferred stock: Dividends decreased to approximately $51,000 for the three months ended March 31, 2014 from approximately $3.0 million for the three months ended March 31, 2013 due to the deemed dividend issued during the exchange of Series A for Series A-1 convertible preferred stock during the quarter ended March 31, 2013 and the related reduced dividend obligation subsequent to the exchange.
Research and Development Programs
Prior to 2002, we did not track costs on a per project basis, and therefore have estimated the allocation of our total research and development costs to our largest research and development programs for that time period. During the three months ended March 31, 2014, these research and development programs consisted largely of our Prophage Series vaccines, HerpV and Checkpoint Modulator Antibody Programs as indicated in the following table (in thousands).
 
Research and
Development Program
 
Product
 
Three Months Ended March 31,
 
Year Ended December 31,
 
Prior to
2011
 
Total
 
2014
 
2013
 
2012
 
2011
 
Heat shock protein-based vaccine candidates for cancer
 
Prophage
Series
Vaccines
 
$
1,737

 
$
5,882

 
$
5,613

 
$
10,182

 
$
281,851

 
$
305,265

Heat shock protein-based vaccine candidates for infectious diseases
 
HerpV
 
1,695

 
6,358

 
4,862

 
734

 
18,354

 
32,003

Vaccine adjuvant *
 
QS-21 Stimulon
 
81

 
753

 
85

 
94

 
12,404

 
13,417

Checkpoint Modulator Antibody Program**
 
 
 
956

 

 

 

 

 
956

Other research and development programs
 
 
 
4

 
12

 
4

 
13

 
33,527

 
33,560

Total research and development expenses
 
 
 
$
4,473

 
$
13,005

 
$
10,564

 
$
11,023

 
$
346,136

 
$
385,201


13


___________________________ 
*    Prior to 2000, costs were incurred by Aquila Biopharmaceuticals, Inc., a company we acquired in November 2000.
**    Prior to 2014, costs were incurred by 4-Antibody AG, a company we acquired in February 2014.
Research and development program costs include compensation and other direct costs plus an allocation of indirect costs, based on certain assumptions and our review of the status of each program. Our product candidates are in various stages of development and significant additional expenditures will be required if we start new clinical trials, encounter delays in our programs, apply for regulatory approvals, continue development of our technologies, expand our operations, and/or bring our product candidates to market. The total cost of any particular clinical trial is dependent on a number of factors such as trial design, length of the trial, number of clinical sites, number of patients, and trial sponsorship. The process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy, expensive, and uncertain. Because our Checkpoint Modulator Antibody Programs are preclinical, HerpV is currently in a Phase 2 trial with further development dependent on clinical trial data, among other factors, and the further development of our Prophage Series vaccines is subject to evaluation and uncertainty, we are unable to reliably estimate the cost of completing our research and development programs or, the timing for bringing such programs to various markets, or substantial partnering or out-licensing arrangements, and, therefore, when, if ever, material cash inflows are likely to commence. Programs involving QS-21 Stimulon, other than our HerpV program, depend on our collaborative partners or licensees successfully completing clinical trials, successfully manufacturing QS-21 Stimulon to meet demand, obtaining regulatory approvals and successfully commercializing product candidates containing QS-21 Stimulon.
Liquidity and Capital Resources

We have incurred annual operating losses since inception, and we had an accumulated deficit of $649.2 million as of March 31, 2014. We expect to incur significant losses over the next several years as we continue clinical trials, manage our regulatory processes, prepare for potential commercialization of products, and continue development of our technologies. We have financed our operations primarily through the sale of equity and debt, and interest income earned on cash, cash equivalents, and short-term investment balances. From our inception through March 31, 2014, we have raised aggregate net proceeds of $618.3 million through the sale of common and preferred stock, the exercise of stock options and warrants, proceeds from our employee stock purchase plan, and the issuance of convertible notes and other notes. In addition, during 2012, we received $9.0 million from GSK for a first right to negotiate the purchase of the Company or certain of our assets and an expanded license agreement and $6.25 million through a license of non-core technologies with an existing licensee. GSK's first right to negotiate will expire in March 2017. The expanded license agreement provides GSK with a license to use QS-21 Stimulon in an undisclosed indication and also provides for additional royalty payments for this indication upon commercialization of a vaccine product. The license of non-core technologies converted a license grant from non-exclusive to exclusive and enabled the licensee to buy-out the current royalty stream structure.
We also maintain an effective registration statement to sell an aggregate of up to ten million shares of our common stock from time to time pursuant to an At the Market Issuance Sales Agreement with MLV & Co. LLC, as sales agent. As of March 31, 2014, we have 5.0 million shares available for sale under this agreement.
As of March 31, 2014, we had $10.0 million of debt outstanding. In April 2013, we entered into a Securities Exchange Agreement with the holders of our 2006 Notes whereby we exchanged all of the 2006 Notes, including accrued and unpaid interest, for $10.0 million in cash, 2,500,000 shares of our common stock, and a contractual right to the proceeds of 20% of our revenue interests from certain QS-21 Stimulon partnered programs and a 0.5% royalty on net sales of HerpV. To finance the cash portion of this exchange we entered into two new debt arrangements. We concurrently entered into a Loan and Security Agreement with Silicon Valley Bank for senior secured debt in the aggregate principal amount of $5.0 million (the “SVB Loan”). The SVB Loan bears interest at a rate of 6.75% per annum, payable in cash on the first day of each month with principal payments beginning November 2013 and ending with the final principal payment in April 2015. We also entered into a Note Purchase Agreement with various investors for senior subordinated notes (the “Subordinated Notes”) in the aggregate principal amount of $5.0 million due in April 2015. The Subordinated Notes bear interest at a rate of 10% per annum, payable in cash on the first day of each month in arrears. We also issued to the holders of the Subordinated Notes four year warrants to purchase 500,000 unregistered shares of our common stock at an exercise price of $4.41 per share. In addition, in connection with the acquisition of 4-AB, we assumed $1.2 million in convertible notes.
Our cash and cash equivalents at March 31, 2014 were $73.5 million, an increase of $46.1 million from December 31, 2013 principally as a result of the completion in February 2014 of a public offering of 22,236,000 shares of our common stock, with net proceeds of $56.0 million. We believe that, based on our current plans and activities, our cash balance of $73.5 million as of March 31, 2014, plus potential proceeds from license, supply, and collaborative agreements will be sufficient to satisfy our liquidity requirements through the first half of 2015. We continue to monitor the likelihood of success of our key

14


initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible, restrict capital expenditures and/or reduce the scale of our operations.

We expect to attempt to raise additional funds in advance of depleting our current funds. We may attempt to raise funds by: (1)pursuing collaborative, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities. Satisfying long-term liquidity needs may require the successful commercialization and/or substantial out-licensing or partnering arrangements for i) our Retrocyte Display® Technology Platform, Checkpoint Modulator Antibody Programs, HerpV and the Prophage Series vaccines, ii) vaccines containing QS-21 Stimulon under development by our licensees, and/or iii) the identification, development and commercialization of potential other product candidates, each of which will require additional capital with no certainty of timing or probability of success. If we incur operating losses for longer than we expect and/or we are unable to raise additional capital, we may become insolvent and be unable to continue our operations.
Our future cash requirements include, but are not limited to, supporting clinical trial and regulatory efforts and continuing our other research and development programs. Since inception, we have entered into various agreements with institutions and clinical research organizations to conduct and monitor our clinical studies. Under these agreements, subject to the enrollment of patients and performance by the applicable institution of certain services, we have estimated our total payments to be $52.6 million over the term of the studies. Through March 31, 2014, we have expensed $51.0 million as research and development expenses and $49.8 million has been paid related to these clinical studies. The timing of expense recognition and future payments related to these agreements is subject to the enrollment of patients and performance by the applicable institution of certain services.
We have also entered into sponsored research agreements related to our product candidates that required payments of $6.6 million, all of which have been paid as of March 31, 2014. We plan to enter into additional sponsored research agreements, and we anticipate significant additional expenditures will be required to advance our clinical trials, apply for regulatory approvals, continue development of our technologies, and bring our product candidates to market. Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing collaborative arrangements with academic and collaborative partners and licensees and by entering into new collaborations. As a result of our collaborative agreements, we will not completely control the efforts to attempt to bring those product candidates to market. For example, we have various agreements with collaborative partners and/or licensees that allow the use of our QS-21 Stimulon adjuvant in numerous vaccines. These agreements grant exclusive worldwide rights in some fields of use and co-exclusive or non-exclusive rights in others. These agreements generally call for royalties to be paid to us on future sales of licensed vaccines that include QS-21 Stimulon, which may or may not be achieved. Significant investment in manufacturing capacity could be required if we were to retain our manufacturing and supply rights.

Net cash used in operating activities for the three months ended March 31, 2014 and March 31, 2013, was $10.1 million and $3.9 million, respectively. This increase primarily resulted from increased personnel costs, costs related to the acquisition of 4-AB, costs incurred by 4-AB, as well as the reduced service revenue quarter to quarter. We continue to support and develop our QS-21 Stimulon partnering collaborations. If applications for marketing approval of vaccines that are submitted by our licensees are approved by the FDA, the first products containing QS-21 Stimulon are anticipated to be launched in 2016. We are generally entitled to royalties on sales by our licensees of vaccines using QS-21 Stimulon for at least 10 years after commercial launch, with some exceptions. Our future ability to generate cash from operations will depend on achieving regulatory approval and market acceptance of our product candidates, achieving benchmarks as defined in existing collaborative agreements, and our ability to enter into new collaborations.
Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, ("ASU 2013-11"). ASU 2013-11 amends Accounting Standards Codification 740, Income Taxes, by providing guidance on the financial statement presentation of an unrecognized benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists ("ASC 740"). ASU 2013-11 does not affect the recognition or measurement of uncertain tax positions under ASC 740. ASU 2013-11 will be effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted. The adoption of ASU 2013-11 did not have an impact on our consolidated financial statements.

15


Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is foreign currency exchange rate risk. International revenues and expenses are generally transacted by our foreign subsidiaries and are denominated in local currency. Approximately 15% and 0% of our operating expenses for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively, were from foreign subsidiaries. Additionally, in the normal course of business, we are exposed to fluctuations in interest rates as we seek debt financing and invest excess cash. We are also exposed to foreign currency exchange rate fluctuation risk related to our transactions denominated in foreign currencies. We do not currently employ specific strategies, such as the use of derivative instruments or hedging, to manage these exposures. Our currency exposures vary, but are primarily concentrated in the Euro and Swiss Franc, in large part due to our acquisition of 4-AB, a private company with operations in Switzerland and Germany. There has been no material change to our interest rate exposure and our approach toward interest rate and foreign currency exchange rate exposures, as described in our Annual Report on Form 10-K for the year ended December 31, 2013. However, commercialization of any of our product candidates outside of the United States could result in increased foreign currency exposure.
We had cash and cash equivalents at March 31, 2014 of $73.5 million, which are exposed to the impact of interest rate changes, and our interest income fluctuates as interest rates change. Due to the short-term nature of our investments in money market funds, our carrying value approximates the fair value of these investments at March 31, 2014, however, we are subject to investment risk.
We invest our cash and cash equivalents in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs, and maximize yields. We review our investment policy annually and amend it as deemed necessary. Currently, the investment policy prohibits investing in any structured investment vehicles and asset-backed commercial paper. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer, or type of investment. We do not invest in derivative financial instruments. Accordingly, we do not believe that there is currently any material market risk exposure with respect to derivatives or other financial instruments that would require disclosure under this item.

16



Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and were designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. It should be noted that any system of controls is designed to provide reasonable, but not absolute, assurances that the system will achieve its stated goals under all reasonably foreseeable circumstances. Our Principal Executive Officer and Principal Financial Officer have each concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective at a level that provides such reasonable assurances.
Changes in Internal Control Over Financial Reporting
In February 2014, we completed the acquisition of 4-Antibody AG ("4-AB"), at which time 4-AB became a wholly-owned subsidiary of the Company. We are currently in the process of assessing and integrating 4-AB's internal controls over financial reporting into our financial reporting systems. Other than this acquisition, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the first quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

17


PART II - OTHER INFORMATION
Item 1A.
Risk Factors
Our future operating results could differ materially from the results described in this Quarterly Report on Form 10-Q due to the risks and uncertainties described below. You should consider carefully the following information about risks below in evaluating our business. If any of the following risks actually occurs, our business, financial conditions, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline. These risk factors restate and supersede the risk factors set forth under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013.
We cannot assure investors that our assumptions and expectations will prove to be correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. See “Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q. Factors that could cause or contribute to such differences include those factors discussed below.
Risks Related to our Business
If we incur operating losses for longer than we expect, or we are not able to raise additional capital, we may be unable to continue our operations, or we may become insolvent.
Our net losses for the years ended December 31, 2013, 2012, and 2011, were $30.1 million, $11.3 million, and $23.3 million, respectively. During the quarter ended March 31, 2014, we generated net loss of $357,513 due primarily to a fair value adjustment to our contingent royalty obligation at March 31, 2014.
We expect to incur additional losses over the next several years as we continue research and clinical development of our technologies and pursue partnering opportunities, regulatory strategies, commercialization, and related activities, and such losses may increase as a result of our acquisition of 4-AB. Furthermore, our ability to generate cash from operations is dependent on the success of our licensees and collaborative partners, as well as the likelihood and timing of new strategic licensing and partnering relationships and/or successful development and commercialization of vaccines containing QS-21 Stimulon, our Prophage Series vaccines and our other product candidates. From our inception through March 31, 2014, we have incurred net losses totaling $649.2 million.
On March 31, 2014, we had $73.5 million in cash and cash equivalents. We believe that, based on our current plans and activities, our working capital resources at March 31, 2014, and potential proceeds from license, supply, and collaborative agreements will be sufficient to satisfy our liquidity requirements through the first half of 2015. We expect to attempt to raise additional funds in advance of depleting our funds although additional funding may not be available on favorable terms, or at all. For the quarter ended March 31, 2014, our average monthly cash used in operating activities was approximately $3.4 million.
We have financed our operations primarily through the sale of equity and debt securities. In order to finance future operations, we will be required to raise additional funds in the capital markets, through arrangements with collaborative partners, or from other sources. Additional financing may not be available on favorable terms, or at all. If we are unable to raise additional funds when we need them or if we incur operating losses for longer than we expect, we may not be able to continue some or all of our operations, or we may become insolvent. We also may be forced to license or sell technologies to others under agreements that allocate to third parties substantial portions of the potential value of these technologies.
There are a number of factors that will influence our future capital requirements, including, without limitation, the following:

the number and characteristics of the product candidates we pursue;

the scope, progress, results and costs of researching and developing our future product candidates, and conducting preclinical and clinical trials;

the timing of, and the costs involved in, obtaining regulatory approvals for our and our licensees' product candidates;

the cost of manufacturing;


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our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property rights;

the costs associated with any successful commercial operations; and

the timing, receipt and amount of sales of, or royalties on, our future products, if any.
General economic conditions in the United States economy and abroad may have a material adverse effect on our liquidity and financial condition, particularly if our ability to raise additional funds is impaired. The ability of potential patients and/or health care payers to pay for our products could also be adversely impacted, thereby limiting our potential revenue. In addition, any negative impacts from any deterioration in the credit markets on our collaborative partners could limit potential revenue from our product candidates.

Certain of our outstanding debt instruments contain significant restrictive and affirmative covenants and we may not be able to make interest or principal payments when due or otherwise remain in compliance with their terms.
In April 2013 we exchanged our 8% senior secured convertible notes due August 2014 (the "2006 Notes"), including accrued and unpaid interest, for $10.0 million in cash, 2,500,000 shares of our common stock, a revenue interest in certain QS-21 Stimulon partnered programs and a royalty interest in HerpV. The $10.0 million cash payment was financed by entering into a Loan and Security Agreement with Silicon Valley Bank for a $5.0 million loan that bears interest at 6.75% annually (the "SVB Loan"), and a Note Purchase Agreement with various investors to issue senior subordinated notes in the aggregate principal amount of $5.0 million with annual interest at 10% (the "Subordinated Notes"). The SVB Loan is payable in equal monthly installments of approximately $278,000 until April 2015. The Subordinated Notes are due in April 2015.
The SVB Loan is secured by a lien against substantially all of our assets as well as the assets of our subsidiary Antigenics Inc., and contains, among other things, a number of restrictions and covenants that limit our ability to:
    incur certain additional indebtedness;
    make certain investments;
pay dividends other than dividends required pursuant to pre-existing commitments;
make payments on subordinated indebtedness other than regularly scheduled payments of interest;
    create certain liens;
    consolidate, merge, sell or otherwise dispose of our assets; and/or
    change our line of business.
The SVB Loan also specifies a number of events of default (some of which are subject to applicable cure periods), including, among other things:
    covenant defaults;
    other non-payment defaults;
        bankruptcy;
        certain penalties and judgments from a governmental authority;
        cross-defaults in respect of indebtedness over $50,000; and
        insolvency defaults.
Additionally, any material adverse change with respect to us or Antigenics Inc., constitutes an event of default. Upon the occurrence of an event of default under the SVB Loan, subject to cure periods in certain circumstances, the Lender may declare all amounts outstanding to be immediately due and payable and may foreclose upon our assets that secure the SVB Loan. During the continuance of an event of default which does not accelerate the maturity of the SVB Loan, interest will accrue at a default rate equal to the otherwise applicable rate plus 5%. We may prepay the SVB Loan at any time, in full, subject to certain notice requirement and a prepayment premium equal to 4% of the outstanding principal amount of the SVB Loan.
The Subordinated Notes also include default provisions which allow for the acceleration of the principal payment of the Subordinated Notes in the event we become involved in certain bankruptcy proceedings, become insolvent, fail to make a payment of principal or (after a grace period) interest on the Subordinated Notes, default on other indebtedness with an aggregate principal balance of $5 million or more if such default has the effect of accelerating the maturity of such

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indebtedness, or become subject to a legal judgment or similar order for the payment of money in an amount greater than $5 million if such amount will not be covered by third-party insurance.
If we default on the SVB Loan or the Subordinated Notes and the repayment of such indebtedness is accelerated, our liquidity will be materially and adversely affected.
Our ability to satisfy our obligations under this indebtedness will depend upon our future performance, which is subject to many factors, including the factors identified in this “Risk Factors” section and other factors beyond our control. If we are not able to generate sufficient cash flow from operations in the future to service our indebtedness, we may be required, among other things, to:
seek additional financing in the debt or equity markets;
refinance or restructure all or a portion of our indebtedness;
sell, out-license, or otherwise dispose of assets; and/or
reduce or delay planned expenditures on research and development and/or commercialization activities.
Such measures might not be sufficient to enable us to make principal and interest payments. In addition, any such financing, refinancing, or sale of assets might not be available on economically favorable terms, if at all.
Other than for the year ended December 31, 2012, we have had negative cash flows from operations. The net cash provided by operations of $1.0 million for the year ended December 31, 2012 primarily resulted from one-time payments received under amended license agreements and therefore our net cash provided by operations for the year ended December 31, 2012 is not indicative of future results. For the three months ended March 31, 2014 and for the years ended December 31, 2013, and 2011, net cash used in operating activities was $10.1 million, $19.5 million, and $16.2 million, respectively.
We may fail to realize the benefits we expect to realize as a result of the acquisition of 4-AB and/or we may suffer a loss in productivity as a result of the integration process.
The long-term success of the acquisition of 4-AB will depend, in part, on our ability to realize the anticipated synergies, business opportunities and growth prospects from combining the businesses of Agenus and 4-AB. We may never realize these anticipated synergies, business opportunities and growth prospects. We might experience increased competition that limits our ability to expand our business, and we might not be able to capitalize on expected business opportunities, including maintaining current collaboration relationships and advancing the development of the 4-AB Checkpoint Modulator Antibody Programs. Moreover, assumptions underlying estimates of expected costs as a result of the acquisition may be inaccurate, and general industry and business conditions might deteriorate. If any of these factors limit our ability to integrate the operations of Agenus and 4-AB successfully or on a timely basis, or to develop the business opportunities that we expect to realize from the acquisition of 4-AB, the expectations of future results of operations, including certain cost savings and synergies expected to result from the acquisition, might not be met.
In addition, integrating operations is complex and requires significant efforts and expenditures for us and 4-AB. During or as a result of the integration process, employees might leave, be terminated, or have decreased productivity, and our management might have its attention diverted from core business objectives while trying to integrate operations and corporate and administrative infrastructures.
We may not receive anticipated QS-21 Stimulon revenues from our licensees.
With the exception of our HerpV program, we currently rely upon and expect to continue to rely upon third party licensees, particularly GlaxoSmithKline (“GSK”) and JANSSEN Alzheimer Immunotherapy (“JANSSEN AI”), to develop, test, market and manufacture vaccines that utilize our QS-21 Stimulon adjuvant. We expect that we will rely on similar relationships if we develop new adjuvants in our Saponin Adjuvant Platform.
In return for rights to use QS-21 Stimulon, our licensees have generally agreed to pay us license fees, milestone payments and royalties on product sales for a minimum of 10 years after commercial launch, with some exceptions. As each licensee controls its own product development process, we cannot predict our licensees' requirements for QS-21 Stimulon in the future or to what extent, if any, they will develop vaccines that use QS-21 Stimulon as an adjuvant. Our licensees may initiate or terminate programs containing QS-21 Stimulon at any time. Clinical trials being conducted by our licensees, including those being conducted by GSK and JANSSEN AI, may not be successful. For example, in April 2014, GSK announced the termination of a Phase 3 trial of its MAGE-A3 cancer immunotherapeutic (a vaccine containing QS-21 Stimulon) in non-small cell lung cancer and in 2013 they announced the Phase 3 trial of their MAGE-A3 cancer immunotherapeutic in melanoma missed its first co-primary endpoint and the study would continue until completion of its second co-primary endpoint, which is expected in 2015. The results of these trials and other trials conducted by our licensees, as well as other factors, may cause our licensees to terminate additional programs containing QS-21 Stimulon. In the event that our licensees develop vaccines using

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QS-21 Stimulon, there is no guarantee that these products will obtain regulatory approval or, if so approved, will generate significant royalties, if any, or that we will be able to collect royalties in the future.
In addition, where we had previously supplied GSK and JANSSEN AI with all their requirements of QS-21 Stimulon, we have amended our agreements so that they are permitted to manufacture their own QS-21 Stimulon. We are unable to predict what amount of QS-21 Stimulon, if any, will be purchased from us by other licensees or collaborators in the future. Any inability to receive anticipated QS-21 Stimulon revenues would have a material adverse effect on our business, financial condition and results of operations.
In connection with the exchange of our 2006 Notes, we entered into a Revenue Interests Assignment Agreement with the holders of the 2006 Notes. This agreement granted these holders a contractual right to the proceeds of 20% of our revenue interests from QS-21 Stimulon partnered programs and a 0.5% royalty on net sales of HerpV. Due to uncertainties surrounding the future revenue stream generated from our licensees, we are unable to predict the precise dollar value reduction in revenue that will result from this agreement to pay the 2006 Note holders their share of the proceeds from QS-21 Stimulon and HerpV programs. Any reduction in revenues generated from QS-21 Stimulon could have a material adverse effect on our business, financial condition and results of operations.
Our HerpV therapeutic vaccine candidate is in early stage development and we may not be able to successfully develop this candidate.
Based on the results of our Phase 1 clinical trial of HerpV, which includes QS-21 Stimulon, we advanced this product candidate into a Phase 2 trial that measured the effect of vaccination on viral shedding in individuals infected with HSV-2 (genital herpes). In November 2013, we announced that the Phase 2 trial met its primary endpoint, a statistically significant reduction in viral shedding. Additional study results, including booster and immune response data, are expected during the first half of 2014. The findings to date from our clinical trials, while positive, were limited in size and scope and may be insufficient to attract a partnering arrangements or warrant further development of the HerpV program. In addition, even if we proceed with further HerpV development, there is no guarantee that future clinical trials will be successful, that a reduction in viral shedding will translate into clinical benefit, or that the safety profile will be considered acceptable. In addition, the success of future clinical trials, if any, is dependent on, upon other things, maintaining sufficient supply of the required investigational materials, enrolling sufficient patients and the adherence of these patients to the study protocol. Furthermore, it is possible that research and discoveries by others will render our product candidate obsolete or noncompetitive.
We may not be able to advance clinical development or commercialize Prophage Series Vaccines.
The probability of future clinical development efforts leading to marketing approval and commercialization of Prophage Series vaccines is highly uncertain. Prophage Series vaccines have been in clinical development for over 15 years, including multiple Phase 1 and 2 trials in eight different tumor types as well as randomized Phase 3 trials in metastatic melanoma and adjuvant renal cell carcinoma. To date, none of our clinical trials with Prophage Series vaccines has resulted in a marketing approval, except in Russia where commercialization of the approved product has not been successful by us or NewVac LLC ("NewVac") our licensee, for Oncophage® in the Russian Federation and certain other CIS countries. Due to our limited resources or a shift in corporate priorities, we may be unable or limited in our ability to support on-going clinical studies with Prophage Series vaccines, or perform additional ones.
We do not currently sponsor any on-going clinical trials with Prophage Series vaccines and therefore we lack the ability to control trial design, timelines and data availability. Current and future studies may eventually be terminated due to, among other things, slow enrollment, lack of probability that they will yield useful translational and/or efficacy data, lengthy timelines, or unlikelihood that results will support timely or successful regulatory filings. Currently, the only actively enrolling Prophage Series vaccine clinical study is a Phase 2 trial of Prophage Series vaccine in combination with Avastin® (bevacizumab) in patients with surgically resectable recurrent glioma. This trial is being conducted under the sponsorship of the Alliance for Clinical Trials in Oncology, a cooperative group of the NCI. To date, clinical site activation and patient enrollment have not met expectations, which could curtail the viability of sustaining the trial. Furthermore, potential changes in clinical practices trending away from the administration of Avastin for the treatment of recurrent glioma could exacerbate enrollment issues and/or render the trial design impractical. In January 2014 we announced the initiation of a randomized Phase 2 trial with Prophage Series vaccine and Bristol-Myers Squibb's Yervoy® (ipilimumab), for the treatment of Stage III and IV metastatic melanoma. While we believe the combination has the potential to trigger a more effective immune response against the tumor than Yervoy alone, there is no guarantee that this trial will be completed or that it will yield useful translational and/or efficacy data. This study is being sponsored by an investigator at the University of Texas and, although the investigator-held investigational new drug application (IND) has been activated to allow initiation of the trial, patient enrollment has not yet been initiated.
If we or our licensee are unable to purify heat shock proteins we may have difficulty successfully initiating or completing clinical trials or supporting commercial sales of Prophage Series vaccines.

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The successful development and commercialization of Prophage Series vaccines for a particular cancer depends in part on the ability of NewVac to purify sufficient heat shock proteins from that type of cancer. If we or NewVac have difficulties in purifying heat shock proteins for a sufficiently large number of patients in clinical trials, we may experience enrollment delays and/or lower the probability of a successful analysis of the data from clinical trials. We have successfully manufactured product across many different cancer types, however, the success rate per indication has varied. We have evolved our manufacturing processes to better accommodate a wider range of tumor types. Our current manufacturing technologies have been successful in manufacturing product from approximately 92% of the RCC tumors received and approximately 85% of the tumors received from patients enrolled in Phase 2 clinical trials for the treatment of recurrent glioma. In addition, we may encounter problems with other types of cancer or patients if we expand our research. If we cannot overcome these problems, the number of patients or cancer types that our heat shock protein-based product candidates could treat would be limited. In addition, if we commercialize our heat shock protein-based product candidates, we may not be able to replicate past manufacturing success rates and we may face claims from patients for whom we are unable to produce a vaccine.
Changes in our manufacturing strategies, manufacturing problems, or increased demand may cause delays, unanticipated costs, or loss of revenue streams within or across our programs.
We currently manufacture our Prophage Series vaccines in our Lexington, MA facility. There is no guarantee that we will be able to meet future manufacturing demand for Prophage Series vaccines, and a failure to do so could cause a delay or cessation in the further development of our Prophage Series vaccine programs. Manufacturing of Prophage Series vaccines is complex, and various factors could cause delays or an inability to supply vaccine. Deviations in the processes controlling manufacture could result in production failures. Furthermore, we have limited financial, personnel, and manufacturing resources and there is no assurance that we will be able to allocate resources necessary for the continued manufacturing of Prophage Series vaccines in light of competing corporate priorities. In addition, regulatory bodies may require us to make our manufacturing facility a single product facility. In such an instance, we would no longer have the ability to manufacture Prophage Series vaccines in addition to other product candidates in our current facility.
We have given our key QS-21 Stimulon licensees, GSK and JANSSEN AI, manufacturing rights for QS-21 Stimulon for use in their product programs. If they or their third party contract manufacturers encounter problems with QS-21 Stimulon manufacturing, their programs containing QS-21 Stimulon could be delayed or terminated, and this could have an adverse effect on our license fees, milestone payments and royalties that we may otherwise receive from these programs. We have retained the right to manufacture QS-21 for ourselves and third parties, although no other such programs are anticipated to bring us substantial revenues in the near future, if ever.
The Checkpoint Modulator Antibody Programs, new to our business through the acquisition of 4-AB, will require substantial manufacturing development and investment to develop. The Checkpoint Modulator Antibody Programs are preclinical, and we have only recently initiated the development of the reagents, cell lines and systems required to manufacture our antibody candidates. If these development-stage efforts are delayed or do not produce the desired outcomes, this will cause delays in development timelines and increased costs, which may cause us to limit the size and scope of our efforts and studies. In addition, our staff has limited experience in the manufacture and development of the Checkpoint Modulator Antibody Programs and we currently rely on consultants and advisors to advance these operations. We are in the process of identifying a contract manufacturers (CMO) for our Checkpoint Modulator Antibody Programs. During the early development stages of the Checkpoint Modulator Antibody programs, we will likely be using only one CMO, and will not have a backup manufacturer in place. In the future, we may need to secure additional CMOs and we will also need to develop or secure later phase and/or commercial manufacturing capabilities, all of which would cause us to incur additional costs and risk. In the event that our Checkpoint Modulator Antibody programs require progressively larger production capabilities, our options for CMOs may become more limited. In addition, while we currently have our own cGMP manufacturing facility in Lexington, MA, our facility is not currently configured or equipped to adequately support manufacturing of the required cell lines or the downstream production of cGMP antibody product candidates.
We may elect to alter our manufacturing strategy and hire CMOs to manufacture our internally manufactured products, which would require additional time and resources to identify suitable CMOs and transfer the technology and systems. Such an effort could divert resources away from the Checkpoint Modulator Antibody programs and lead to delays in the development of product candidates. In addition, our ability to efficiently manufacture our products is contingent upon a CMO’s ability to ramp up production in a timely manner without the benefit of years of experience and familiarity with the processes, which we may not be able to adequately transfer.
We currently rely upon and expect to continue to rely upon third parties, potentially including our collaborators or licensees, to produce materials required to support our product candidates, preclinical studies, clinical trials, and commercial efforts. A number of factors could cause production interruptions at either our manufacturing facility or the facilities of our CMOs or suppliers, including equipment malfunctions, labor or employment retention problems, natural disasters, power

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outages, terrorist activities, or disruptions in the operations of our suppliers. Alternatively, there is the possibility we may have excess manufacturing capacity if product candidates do not progress as planned.
There are a limited number of CMOs or suppliers that are capable of manufacturing our product candidates or the materials used in their manufacture. If we are unable to do so ourselves or to arrange for third-party manufacturing or supply of these product candidates or materials, or to do so on commercially reasonable terms, we may not be able to complete development of these product candidates or commercialize them ourselves or through our collaborative partners or licensees. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third party for regulatory compliance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control, and the possibility of termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.
Biopharmaceutical manufacturing is also subject to extensive government regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of product candidates. In addition, facilities are subject to ongoing inspections, and minor changes in manufacturing processes may require additional regulatory approvals, either of which could cause us to incur significant additional costs and lose revenue.
Risks associated with doing business internationally could negatively affect our business.
We have in the past, and may continue to pursue pathways to develop and commercialize our product candidates in non-U.S. jurisdictions. For example, our Oncophage® vaccine is approved for sale in Russia for the treatment of kidney cancer patients at intermediate risk for disease recurrence, and we have partnered to commercialize this product in the Russian Federation with NewVac, who has been unsuccessful to date in doing so. In addition, due to the acquisition of 4-AB, we now have research and development operations in Switzerland and Germany. Various risks associated with foreign operations may impact our success. Possible risks of foreign operations include fluctuations in the value of foreign and domestic currencies, disruptions in the import, export, and transportation of patient tumors and our products or product candidates, the product and service needs of foreign customers, difficulties in building and managing foreign relationships, the performance of our licensees or collaborators, geopolitical instability, unexpected regulatory, economic, or political changes in foreign markets and limitations on the flexibility of our operations and costs imposed by local labor laws. See “Risk Factors- Even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory requirements are subject to change” and "Risk Factors - We may fail to realize the benefits we expect to realize as a result of the acquisition of 4-AB or suffer a loss of productivity as a result of the integration process."
If we, or our licensees, fail to obtain market demand or adequate levels of reimbursement for our product candidates, there may be no commercial or partnering opportunities for these products, or such opportunities may be significantly limited.
We or our current and future strategic alliance partners, if any, may be unable to dedicate sufficient resources to the commercialization of our current and future products and product candidates or may otherwise fail in their commercialization due to factors beyond our control. Although our Oncophage® vaccine is approved for sale in Russia for the treatment of kidney cancer patients at intermediate risk for disease recurrence, our licensee, NewVac, has been unsuccessful in securing reimbursement or market demand for this product, and it is unlikely that it will be able to do so. In addition, as we advance our Checkpoint Modulator Antibody Programs, we will be competing in a very crowded industry. If products that compete directly or indirectly with our products or product candidates prove superior to existing antibodies, market demand for our products or product candidates could be hampered or non-existent. We and our strategic partners, if any, will face competition from other products currently approved or that will be approved in the future for the same therapeutic indications.
In addition, public and private insurance programs may determine that they will not cover our product candidates or the product candidates of our licensees. Government-sponsored health care systems typically pay a substantial share of health care costs, and they may regulate reimbursement levels of products to control costs. If we or our licensees are unsuccessful in obtaining substantial reimbursement for our product candidates from national or regional funds, we will have to rely on private-pay, which may delay or prevent commercialization and/or partnering efforts. We, or our licensees, may not be able to obtain health insurance coverage of our product candidates, and if coverage is obtained, it may be substantially delayed, or there may be significant restrictions on the circumstances in which the products would be reimbursed. We are unable to predict what impact any future regulation or third-party payer initiatives relating to reimbursement will have on any potential future sales for our product candidates.

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Our competitors in the biotechnology and pharmaceutical industries may have superior products, manufacturing capability, selling and marketing expertise and/or financial and other resources.
Our product candidates and the product candidates in development by our collaborative partners may fail because of competition from major pharmaceutical companies and specialized biotechnology companies that market products, or that are engaged in the development of product candidates, directed at cancer, infectious diseases and degenerative disorders. Many of our competitors, including large pharmaceutical companies, have greater financial and human resources and more experience than we do. Our competitors may:
    commercialize their product candidates sooner than we commercialize our own;
    develop safer or more effective therapeutic drugs or preventive vaccines and other therapeutic products;
    implement more effective approaches to sales and marketing and capture some of our potential market share;
    establish superior intellectual property positions;
discover technologies that may result in medical insights or breakthroughs, which render our drugs or vaccines obsolete, possibly before they generate any revenue; or
    adversely affect our ability to recruit patients for our clinical trials.

There is no guarantee that our products or product candidates will be able to compete with potential future products being developed by our competitors.
Competitive products in our HerpV program include Valtrex (GSK) and Famvir (Novartis), which are small molecule drugs marketed for treatment of genital herpes. Other companies are engaged in research and/or clinical development for vaccines for treatment of genital herpes including Genocea and Vical. AiCuris Gmbh is engaged in clinical research of a small molecule drug for treatment of genital herpes and has completed a Phase 2 trial.
We are aware of compounds that claim to be comparable to QS-21 Stimulon that are being used in clinical trials. Several other vaccine adjuvants are in development and could compete with QS-21 Stimulon for inclusion in vaccines in development. These adjuvants include, but are not limited to, oligonucleotides, under development by Pfizer, Idera, Colby, and Dynavax, MF59 under development by Novartis, IC31, under development by Intercell, and MPL, under development by GSK. In the past, we have provided QS-21 Stimulon to other entities under materials transfer arrangements. In at least one instance, it is possible that this material was used unlawfully to develop synthetic formulations and/or derivatives of QS-21. In addition, companies such as Adjuvance Technologies, Inc. CSL Limited, and Novavax, Inc., as well as academic institutions and manufacturers of saponin extracts, are developing saponin adjuvants, including derivatives and synthetic formulations. These sources may be competitive with our ability to do future partnering and licensing deals with QS-21 Stimulon.
We are also aware of a third party that manufactures pre-clinical material purporting to be comparable to QS-21 Stimulon. The claims being made by this third party may create marketplace confusion and have an adverse effect on the goodwill generated by us and our partners with respect to QS-21 Stimulon. Any diminution of this goodwill may have an adverse effect on our ability to commercialize this technology, either alone or with a third party.
In competition with our Prophage Series product candidates, Genentech markets Avastin and Eisai and Arbor Pharmaceuticals market Gliadel, both for treatment of recurrent glioma. In addition, TVAX Biomedical and Stemline Therapeutics are developing immunotherapy candidates (TVI-Brain-1 and SL-701, respectively) for recurrent glioma. Schering Corporation, a subsidiary of Merck, markets Temodar for treatment of patients with newly diagnosed glioma. Other companies are developing vaccine candidates for the treatment of patients with newly diagnosed glioma, such as Innocell Corp (Immuncell-LC), ImmunoCellular Therapeutics (ICT-107), Northwest Biotherapeutics (DC-Vax), Immatics (IMA-950), Activartis Biotech (GBM-Vax) and Celldex (CDX-110). Celldex is also currently developing a vaccine candidate for recurrent glioma. Other companies may begin such development as well.
If vaccines from our Prophage Series are developed in other indications, they could face additional competition in those indications. In addition, and prior to regulatory approval, our Prophage Series vaccines and all of our other product candidates may compete for access to patients with other products in clinical development, with products approved for use in the indications we are studying, or with off-label use of products in the indications we are studying. We anticipate that we will face increased competition in the future as new companies enter markets we seek to address and scientific developments surrounding immunotherapy and other traditional cancer therapies continue to accelerate.
We have six preclinical Checkpoint Modulator Antibody Programs that have been commenced by 4-AB, our wholly-owned subsidiary. We are aware of several large companies that have antibody-based products on the market or in clinical

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development that are directed to the same biological target as some of these programs, including Bristol-Myers Squibb, which markets ipilimumab, an anti-CTLA-4 antibody, and has an anti-PD1 antibody in development, Medimmune, which has anti-CTLA-4, OX-40 and PD1 antibodies in development, Merck and Curetech, which each has an anti-PDI antibody in development, and Pfizer, which has an anti-CTLA-4 antibody in development. Tesaro also has antibody programs targeting PD-1, TIM-3 and LAG-3 and these include both monospecific and dual reactive antibody drug candidates.
Our future growth depends on our ability to successfully identify, develop, acquire or in-license products and product candidates; otherwise, we may have limited growth opportunities.
An important part of our business strategy is to continue to develop a pipeline of product candidates by developing, acquiring or in-licensing products, businesses or technologies that we believe are a strategic fit with our existing business. However, these business activities may entail numerous operational and financial risks, including:
difficulty or inability to secure financing to fund development activities for such development, acquisition or in-licensed products or technologies;
incurrence of substantial debt or dilutive issuances of securities to pay for development, acquisition or in-licensing of new products;
disruption of our business and diversion of our management's time and attention;
higher than expected development, acquisition or in-license and integration costs;
exposure to unknown liabilities;
difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
inability to retain key employees of any acquired businesses;
difficulty in managing multiple product development programs; and
inability to successfully develop new products or clinical failure.
We have limited resources to identify and execute the development, acquisition or in-licensing of products, businesses and technologies and integrate them into our current infrastructure. We may compete with larger pharmaceutical companies and other competitors in our efforts to establish new collaborations, and/or acquire, in-license, and/or advance new product candidates. These competitors likely will have access to greater financial resources than us and may have greater expertise in identifying and evaluating new opportunities. Moreover, we may devote resources to potential development, acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.
Failure to enter into and/or maintain significant licensing, distribution and/or collaboration agreements on favorable terms to us may hinder or cause us to cease our efforts to develop and commercialize our product candidates, increase our development timelines, and/or increase our need to rely on partnering or financing mechanisms, such as sales of debt or equity securities, to fund our operations and continue our current and anticipated programs.
We have been engaged in efforts to enter into licensing, distribution and/or collaborative agreements with one or more pharmaceutical or biotechnology companies to assist us with development and/or commercialization of our product candidates. If we are successful in entering into such agreements, we may not be able to negotiate agreements with economic terms similar to those negotiated by other companies. We may not, for example, obtain significant upfront payments, substantial royalty rates or milestones. If we fail to enter into any such agreements, our efforts to develop and/or commercialize our products or product candidates may be undermined. In addition, if we do not raise funds through any such agreements, we will need to rely on other financing mechanisms, such as sales of debt or equity securities, to fund our operations. Such financing mechanisms, if available, may not be sufficient or timely enough to advance our programs forward in a meaningful way in the short-term.
While we have been pursuing these business development efforts for several years, we have not entered into a substantial agreement relating to the potential development or commercialization of any of our Prophage Series vaccines other than the agreement with NewVac to which we granted an exclusive license to manufacture, market and sell Oncophage as well as pursue a development program in the Russian Federation and certain other CIS countries. To date, the NewVac arrangement has not provided substantial benefit to us, and it is unlikely that it will. NewVac has experienced challenges establishing manufacturing capabilities and securing government reimbursement, and has not met certain milestones set within the license agreement. In addition, other companies may not be interested in pursuing patient-specific vaccines like our Prophage Series vaccines, and many other companies have been and may continue to be unwilling to commit to an agreement prior to receipt of additional clinical data, if at all.

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We would consider license and/or co-development opportunities to advance HerpV and antibody candidates derived from the Retrocyte Display® Technology Platform, as well as collaborations to develop antibodies derived from the Retrocyte Display® Technology Platform against targets of interest. However, collaborative partners or licensees may defer discussions until these assets are further developed or validated, or they may not engage in such discussions on terms acceptable to us or at all.
Because we rely on collaborators and licensees for the development and commercialization of most of our product candidate programs, these programs may not prove successful, and/or we may not receive significant payments from such parties.
Part of our strategy is to develop and commercialize a majority of our product candidates by continuing or entering into arrangements with academic, government, or corporate collaborators and licensees. Our success depends on our ability to negotiate such agreements on favorable terms and on the success of the other parties in performing research, preclinical and clinical testing, completing regulatory applications, and commercializing product candidates. For example, development of Prophage Series vaccine for the treatment of patients with recurrent glioma is dependent, in large part, on the efforts of the the Alliance for Clinical Trials in Oncology, a National Cancer Institute cooperative group, which is sponsoring a Phase 2 clinical trial of this product candidate in this indication. When our licensees or third party collaborators sponsor clinical trials using our product candidates, we cannot control the timing of enrollment, data readout, or quality of such trials or related activities. In addition, substantially all product candidates containing QS-21 Stimulon, other than HerpV, depend on the success of our collaborative partners or licensees, and our relationships with these third parties. Such product candidates depend on our collaborators and licensees successfully enrolling patients and completing clinical trials, being committed to dedicating the resources to advance these product candidates, obtaining regulatory approvals, and successfully commercializing product candidates. We have granted NewVac an exclusive license to manufacture, market and sell Oncophage® in the Russian Federation and certain other CIS countries. NewVac has faced challenges establishing manufacturing capabilities and securing government reimbursement, which has impacted its ability to commercialize the product in the licensed territory. NewVac may terminate this agreement at any time without cause and it is expected to otherwise terminate in December 2014. We do not expect to receive financial or other benefits from our relationship with NewVac or the sale of Oncophage® in the Russian Federation or CIS countries.
In addition, our research, development, and commercialization efforts with respect to antibody candidates from the Retrocyte Display® Technology Platform include the participation of institutional and corporate collaborators. For example, 4-AB has collaborative arrangements with Ludwig Cancer Research and Brazil-based Recepta Biopharma SA, among others. If we are not able to maintain and optimize these arrangements, as well as advance other current or potential collaborations on terms favorable to us, this could have a negative impact on our operations.
Development activities for our collaborative programs may fail to produce marketable products due to unsuccessful results or abandonment of these programs, failure to enter into future collaborations or license agreements, or the inability to manufacture product supply requirements for our collaborators and licensees. Several of our agreements also require us to transfer important rights and regulatory compliance responsibilities to our collaborators and licensees. As a result of these collaborative agreements, we will not control the nature, timing, or cost of bringing these product candidates to market. Our collaborators and licensees could choose not to, or be unable to, devote resources to these arrangements or adhere to required timelines, or, under certain circumstances, may terminate these arrangements early. They may cease pursuing product candidates or elect to collaborate with different companies. In addition, these collaborators and licensees, outside of their arrangements with us, may develop technologies or products that are competitive with those that we are developing. From time to time, we may also become involved in disputes with our collaborators or licensees. Such disputes could result in the incurrence of significant expense, or the termination of collaborations. We may be unable to fulfill all of our obligations to our collaborators, which may result in the termination of collaborations. As a result of these factors, our strategic collaborations may not yield revenue. Furthermore, we may be unable to enter into new collaborations or enter into new collaborations on favorable terms. Failure to generate significant revenue from collaborations could increase our need to fund our operations through sales of debt or equity securities and would negatively affect our business prospects.
We are highly reliant on our Chief Executive Officer and other members of our management team. In addition, we have limited internal resources and if we fail to recruit and/or retain the services of key employees and external consultants as needed, we may not be able to achieve our strategic and operational objectives.
Garo H. Armen, Ph.D., the Chairman of our Board of Directors and our Chief Executive Officer, co-founded the Company in 1994, and has been, and continues to be, integral to building our company and developing our technology. If Dr. Armen is unable or unwilling to continue his relationship with Agenus, our business may be adversely impacted.

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Effective December 1, 2005, we entered into an employment agreement with Dr. Armen. Subject to the earlier termination as provided in the agreement, the agreement had an original term of one year and is automatically extended thereafter for successive terms of one year each, unless either party provides notice to the other at least ninety days prior to the expiration of the original or any extension term. Dr. Armen plays an important role in our day-to-day activities. We do not carry key employee insurance policies for Dr. Armen or any other employee.
We also rely on a small staff of highly trained and experienced senior management and scientific, administrative and operations personnel and consultants to conduct our business. Reductions in our staffing levels have eliminated redundancies in key capabilities and skill sets among our full time staff and required us to rely more heavily on outside consultants and third parties. In addition, if in the future we need to perform sales, marketing and distribution functions for commercial and/or international operations, we will need to recruit experienced personnel and/or engage external consultants incurring significant expenditures.
Reduction in expenses and resulting changes to our compensation and benefit programs have reduced the competitiveness of these programs and thereby increased employee retention risk. The competition for qualified personnel in the biotechnology field is intense, and if we are not able to continue to attract and retain qualified personnel and/or maintain positive relationships with our outside consultants, we may not be able to achieve our strategic and operational objectives.

Risks Related to Regulation of the Biopharmaceutical Industry
The drug development and approval process is uncertain, time-consuming, and expensive.
Clinical development, including preclinical testing and the process of obtaining and maintaining regulatory approvals for new therapeutic products, is lengthy, expensive, and uncertain. As of March 31, 2014, we have spent approximately 19 years and $305.3 million on our research and development program in heat shock protein-based vaccines for cancer. It also can vary substantially based on the type, complexity, and novelty of the product. We must provide regulatory authorities with manufacturing, product characterization, and preclinical and clinical data demonstrating that our product candidates are safe and effective before they can be approved for commercial sale. It may take us many years to complete our testing, and failure can occur at any stage of testing. Interim results of preclinical studies or clinical trials do not necessarily predict their final results, and acceptable results in early studies might not be seen in later studies. Any preclinical or clinical test may fail to produce results satisfactory to regulatory authorities for many reasons, including but not limited to insufficient product characterization, poor study structure conduct or statistical analysis planning, failure to enroll a sufficient number of patients or failure to prospectively identify the most appropriate patient eligibility criteria, and collectability of data. Preclinical and clinical data can be interpreted in different ways, which could delay, limit, or prevent regulatory approval. Negative or inconclusive results from a preclinical study or clinical trial, adverse medical events during a clinical trial, or safety issues resulting from products of the same class of drug could require a preclinical study or clinical trial to be repeated or cause a program to be terminated, even if other studies or trials relating to the program are successful. We or the FDA, other regulatory agencies, or an institutional review board may suspend or terminate human clinical trials at any time on various grounds.
The timing and success of a clinical trial is dependent on obtaining and maintaining sufficient cash resources, successful production of clinical trial material, enrolling sufficient patients in a timely manner, avoiding serious or significant adverse patient reactions, and demonstrating efficacy of the product candidate in order to support a favorable risk versus benefit profile, among other considerations. The timing and success of our clinical trials, in particular, are also dependent on clinical sites and regulatory authorities accepting each trial's protocol, statistical analysis plan, product characterization tests, and clinical data. In addition, regulatory authorities may request additional information or data that is not readily available. Delays in our ability to respond to such requests would delay, and failure to adequately address concerns would prevent, our commercialization efforts. We have encountered in the past, and may encounter in the future, delays in initiating trial sites and enrolling patients into our clinical trials. Future enrollment delays will postpone the dates by which we expect to complete the impacted trials and the potential receipt of regulatory approval. There is no guarantee we will successfully initiate and/or complete our clinical trials.
Delays or difficulties in obtaining regulatory approvals or clearances for our product candidates may:
    adversely affect the marketing of any products we or our licensees or collaborators develop;
    impose significant additional costs on us or our licensees or collaborators;
    diminish any competitive advantages that we or our licensees or collaborators may attain;
    limit our ability to receive royalties and generate revenue and profits; and
    adversely affect our business prospects and ability to obtain financing.

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Delays or failures in our receiving regulatory approval for our product candidates in a timely manner may result in us having to incur additional development expense and subject us to having to secure additional financing. As a result, we may not be able to commercialize them in the time frame anticipated, and our business will suffer.
Even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory requirements are subject to change.
Regulatory authorities generally approve products for particular indications. If an approval is for a limited indication, this limitation reduces the size of the potential market for that product. Product approvals, once granted, are subject to continual review and periodic inspections by regulatory authorities. Our operations and practices are subject to regulation and scrutiny by the United States government, as well as governments of any other countries in which we do business or conduct activities. Later discovery of previously unknown problems or safety issues, and/or failure to comply with domestic or foreign laws, knowingly or unknowingly, can result in various adverse consequences, including, among other things, possible delay in approval or refusal to approve a product, warning letters, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, refusal of the government to renew marketing applications, complete withdrawal of a marketing application, and/or criminal prosecution, withdrawal of an approved product from the market, and/or exclusion from government health care programs. Such regulatory enforcement could have a direct and negative impact on the product for which approval is granted, but also could have a negative impact on the approval of any pending applications for marketing approval of new drugs or supplements to approved applications.
Because we are a company operating in a highly regulated industry, regulatory authorities could take enforcement action against us in connection with our, or our licensees or collaborators, business and marketing activities for various reasons. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing, or making payments to foreign officials for the purpose of obtaining or retaining business abroad.
From time to time, new legislation is passed into law that could significantly change the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the FDA and other foreign health authorities. Additionally, regulations and guidance are often revised or reinterpreted by health agencies in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted, or whether regulations, guidance, or interpretations will change, and what the impact of such changes, if any, may be. For example, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”), enacted in March 2010, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the pharmaceutical industry. With regard to pharmaceutical products, among other things, ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare D program. We expect both government and private health plans to continue to require healthcare providers, including healthcare providers that may one day purchase our products, to contain costs and demonstrate the value of the therapies they provide.
New data from our research and development activities, and/or resource considerations could modify our strategy and result in the need to adjust our projections of timelines and costs of programs.
Because we are focused on novel technologies, our research and development activities, including our nonclinical studies and clinical trials, involve the ongoing discovery of new facts and the generation of new data, based on which we determine next steps for a relevant program. These developments can occur with varying frequency and constitute the basis on which our business is conducted. We need to make determinations on an ongoing basis as to which of these facts or data will influence timelines and costs of programs. We may not always be able to make such judgments accurately, which may increase the costs we incur attempting to commercialize our product candidates. We monitor the likelihood of success of our initiatives and we may need to discontinue funding of such activities if they do not prove to be commercially feasible, due to our limited resources.
We may need to successfully address a number of technological challenges in order to complete development of our product candidates. Moreover, these product candidates may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities, or other characteristics that may preclude our obtaining regulatory approvals or prevent or limit commercial use.
Risks Related to Intellectual Property Rights
If we are unable to obtain and enforce patent protection for our product candidates and related technology, our business could be materially harmed.

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Issued patents may be challenged, narrowed, invalidated or circumvented. In addition, court decisions may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability and scope of our patents in the United States and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives.
Furthermore, the product development timeline for biotechnology products is lengthy and it is possible that our issued patents covering our product candidates in the United States and other jurisdictions may expire prior to commercial launch.
Our strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. The issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology.
The patent landscape in the field of therapeutic antibody development, manufacture and commercialization is crowded. For example, we are aware of third party patents directed to methods for identifying and producing therapeutic antibodies, We are also aware of third party patents directed to antibodies to numerous targets for which we also seek to identify, develop, and commercialize antibodies, including without limitation CTLA-4, PD-1, GITR, OX40, TIM-3, and LAG-3. For example, some patents claim antibodies based on competitive binding with existing antibodies, some claim antibodies based on specifying sequence or other structural information, and some claim various methods of discovery, production, or use of such antibodies. These or other third party patents could impinge on or foreclose our freedom to operate in relation to our technology platforms, including Retrocyte Display®, as well as in relation to development and commercialization of antibodies identified by us as therapeutic candidates. As we discover and develop our candidate antibodies, we will continue to conduct analyses of these third party patents to determine whether we believe we might infringe them, and if so, whether they would be likely to be deemed valid and enforceable if challenged. If we determine that a license for a given patent or family of patents is necessary or desirable, there can be no guarantee that a license would be available on favorable terms, or at all. Inability to obtain a license on favorable terms, should such a license be determined to be necessary or desirable, could, without limitation, result in increased costs to design around the third party patents, delay product launch, or result in cancellation of the affected program or cessation of use of the affected technology.
Third parties may also seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.
We have exclusive rights to approximately 60 issued United States patents and approximately 99 issued foreign patents. We also have exclusive rights to approximately 12 pending United States patent applications and approximately 43 pending foreign patent applications. However, our patents may not protect us against our competitors. Our patent positions, and those of other pharmaceutical and biotechnology companies, are generally uncertain and involve complex legal, scientific, and factual questions. The standards which the United States Patent and Trademark Office, or USPTO, uses to grant patents, and the standards which courts use to interpret patents, are not always applied predictably or uniformly and can change, particularly as new technologies develop. Consequently, the level of protection, if any, that will be provided by our patents if we attempt to enforce them, and they are challenged, is uncertain. In addition, the type and extent of patent claims that will be issued to us in the future is uncertain. Any patents that are issued may not contain claims that permit us to stop competitors from using similar technology.

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The issued patents that cover the Prophage Series vaccines expire at various dates between 2015 and 2024. The issued patents related to HerpV expire at various dates between 2015 and 2029. Our patent to purified QS-21 Stimulon expired in 2008. Additional protection for QS-21 Stimulon in combination with other agents is provided by our other issued patents which expire between 2017 and 2022. We continue to explore means of extending the life cycle of our patent portfolio.
Through our acquisition of 4-AB, we also own a number of patents and patent applications directed to various methods and compositions, including methods for identifying therapeutic antibodies and product candidates arising out of 4-AB’s technology platforms. In particular, we own patents and patent applications relating to Retrocyte Display® Technology Platform, a high throughput antibody expression platform for the identification of fully human monoclonal antibodies.  This patent family is projected to expire between 2029 and 2030.  In addition, as we advance our research and development efforts with our institutional and corporate collaborators, we intend to seek patent protection for newly-identified therapeutic antibodies and product candidates. We can provide no assurance that any of our patents, including the patents that were newly acquired from 4-AB, will have commercial value, or that any of our existing or future patent applications, including the patent applications that were newly acquired with 4-AB, will result in the issuance of valid and enforceable patents.
The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards which the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries. Outside the United States, patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate patent protection outside of the United States. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in foreign jurisdictions, or whether any patents that do issue will have claims of adequate scope to provide competitive advantage. Moreover, we cannot predict whether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader claims may increase the incidence and cost of patent interference proceedings, opposition proceedings, post-grant review, inter partes review, and/or reexamination proceedings, the risk of infringement litigation, and the vulnerability of the claims to challenge. On the other hand, the allowance of narrower claims does not eliminate the potential for adversarial proceedings, and may fail to provide a competitive advantage. Our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive advantage.
Our patent on QS-21 Stimulon composition of matter has expired and we rely primarily on unpatented technology and know-how to protect our rights to QS-21 Stimulon.
Our QS-21 Stimulon composition of matter patent family has expired, and our patent rights are limited to protecting certain combinations of QS-21 Stimulon with other adjuvants or formulations of QS-21 Stimulon with other agents, such as excipients that improve performance of the compound. However, there is no guarantee that a third party would necessarily choose to use QS-21 Stimulon in combination with such adjuvants or formulate it with the other agents covered by our patents. We are aware of other companies that claim to produce material comparable to QS-21 Stimulon. At least one other party has also developed derivatives of QS-21 that have shown biological activity.
Although our licenses also rely on unpatented technology, know-how, and confidential information, these intellectual property rights may not be enforceable in certain jurisdictions and, we may not be able to collect anticipated revenue from our licensees. Any such inability would have a material adverse effect on our business, financial condition and results of operations.
We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Even after they have been issued, our patents and any patents which we license may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition.
The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents licensed to us:
 
we or our collaborators may initiate litigation or other proceedings against third parties to enforce our patent rights;

third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us;

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third parties may initiate opposition proceedings, post-grant review, inter partes review, or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our collaborators and/or licensors to participate in such proceedings to defend the validity and scope of our patents;

there may be a challenge or dispute regarding inventorship or ownership of patents currently identified as being owned by or licensed to us;

the USPTO may initiate an interference or derivation proceeding between patents or patent applications owned by or licensed to us and those of our competitors, requiring us or our collaborators and/or licensors to participate in an interference or derivation proceeding to determine the priority of invention, which could jeopardize our patent rights; or

third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent infringement.
These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. There is a risk that a court or administrative body could decide that our patents are invalid or not infringed by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents could limit our ability to assert our patents against these or other competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
 
others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents;

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;

we might not have been the first to make the inventions covered by patents or pending patent applications;

we might not have been the first to file patent applications for these inventions;

any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or

we may not develop additional proprietary technologies that are patentable.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. In particular, as a result of the acquisition of 4-AB, we now have six preclinical Checkpoint Modulator Antibody Programs, and the patent landscape around the discovery, development, manufacture and commercial use of therapeutic antibodies is crowded.
Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to any technology that we require may also materially harm our business, financial condition, and results of operations. Furthermore, we would be exposed to a threat of litigation.

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In the biopharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:
 
we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents;

if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or other proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position;

if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; and

if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.

These lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific personnel. There is a risk that a court would decide that we or our collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.
The biopharmaceutical industry has produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.
The cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to our business.
We are currently party to various intellectual property license agreements. These license agreements impose, and we expect that future license agreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. These licenses typically include an obligation to pay an upfront payment, yearly maintenance payments and royalties on sales. If we fail to comply with our obligations under the licenses, the licensors may have the right to terminate their respective license agreements, in which event we might not be able to market any product that is covered by the

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agreements. Termination of the license agreements or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, which could adversely affect our competitive business position and harm our business.
If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.
Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery.
As is common in the biopharmaceutical industry, we employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. In addition, we are responsible for the payment of patent fees for patent rights that we have licensed from other parties. If any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to the licensor for any costs and consequences of any resulting loss of patent rights.

Risks Related to Litigation

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We may face litigation that could result in substantial damages and may divert management's time and attention from our business.
We may currently be a party, or may become a party, to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. While we currently believe that the ultimate outcome of any of these proceedings will not have a material adverse effect on our financial position, results of operations, or liquidity, litigation is subject to inherent uncertainty. Furthermore, litigation consumes both cash and management attention.
We maintain property and general commercial insurance coverage as well as errors and omissions and directors and officers insurance policies. This insurance coverage may not be sufficient to cover us for future claims.
We are also exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.
Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding our business, our results of operations or potential transactions we are considering. We may not be able to prevent a director, executive or employee from trading in our common stock on the basis of, or while having access to, material, nonpublic information. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team.
Product liability and other claims against us may reduce demand for our products and/or result in substantial damages.
We face an inherent risk of product liability exposure related to testing our product candidates in human clinical trials and commercial sales of Oncophage in Russia, and may face even greater risks if we sell our other product candidates commercially. An individual may bring a product liability claim against us if one of our product candidates causes, or merely appears to have caused, an injury. Product liability claims may result in:
    decreased demand for our product candidates;
    regulatory investigations;
    injury to our reputation;
    withdrawal of clinical trial volunteers;
    costs of related litigation; and
    substantial monetary awards to plaintiffs.
We manufacture the Prophage Series vaccines from a patient's cancer cells, and medical professionals must inject the vaccines into the same patient from which they were manufactured. A patient may sue us if a hospital, a shipping company, or we fail to receive the removed cancer tissue or deliver that patient's vaccine. We anticipate that the logistics of shipping will become more complex if the number of patients we treat increases and that shipments of tumor and/or vaccines may be lost, delayed, or damaged. Additionally, complexities unique to the logistics of commercial products may delay shipments and limit our ability to move commercial product in an efficient manner without incident. We do not have any other insurance that covers loss of or damage to the Prophage Series vaccines or tumor material, and we do not know whether such insurance will be available to us at a reasonable price or at all. We have limited product liability coverage for use of our product candidates. Our product liability policy provides $10.0 million aggregate coverage and $10.0 million per occurrence coverage. This limited insurance coverage may be insufficient to fully cover us for future claims.
We are also subject to laws generally applicable to businesses, including but not limited to, federal, state and local wage and hour, employee classification, mandatory healthcare benefits, unlawful workplace discrimination and whistle-blowing. Any actual or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim, even if without merit, could result in costly litigation, regulatory action or otherwise harm our business, results of operations, financial condition, cash flow and future prospects.

34


If we do not comply with environmental laws and regulations, we may incur significant costs and potential disruption to our business.
We use or may use hazardous, infectious, and radioactive materials, and recombinant DNA in our operations, which have the potential of being harmful to human health and safety or the environment. We store these hazardous (flammable, corrosive, toxic), infectious, and radioactive materials, and various wastes resulting from their use, at our facilities pending use and ultimate disposal. We are subject to a variety of federal, state, and local laws and regulations governing use, generation, storage, handling, and disposal of these materials. We may incur significant costs complying with both current and future environmental health and safety laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration, the Environmental Protection Agency, the Drug Enforcement Agency, the Department of Transportation, the Centers for Disease Control and Prevention, the National Institutes of Health, the International Air Transportation Association, and various state and local agencies. At any time, one or more of the aforementioned agencies could adopt regulations that may affect our operations. We are also subject to regulation under the Toxic Substances Control Act and the Resource Conservation Development programs.
Although we believe that our current procedures and programs for handling, storage, and disposal of these materials comply with federal, state, and local laws and regulations, we cannot eliminate the risk of accidents involving contamination from these materials. Although we have a workers' compensation liability policy, we could be held liable for resulting damages in the event of an accident or accidental release, and such damages could be substantially in excess of any available insurance coverage and could substantially disrupt our business.
Risks Related to our Common Stock
Our stock may be delisted from The Nasdaq Capital Market, which could affect its market price and liquidity.
Our common stock is currently listed on The Nasdaq Capital Market (“Nasdaq”) under the symbol “AGEN.” In the event that we fail to maintain compliance with the applicable listing requirements, our common stock could become subject to delisting from Nasdaq. Although we are currently in compliance with all of the listing standards for listing on Nasdaq, we cannot provide any assurance that we will continue to be in compliance in the future. We have been non-compliant with the minimum bid price requirement set forth in Nasdaq Marketplace Rule 5550(a)(2) three times since our move to The Nasdaq Capital Market in April 2009.
Provisions in our organizational documents could prevent or frustrate attempts by stockholders to replace our current management.
Our certificate of incorporation and bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. Our certificate of incorporation provides for a staggered board and removal of directors only for cause. Accordingly, stockholders may elect only a minority of our Board at any annual meeting, which may have the effect of delaying or preventing changes in management. In addition, under our certificate of incorporation, our Board of Directors may issue additional shares of preferred stock and determine the terms of those shares of stock without any further action by our stockholders. Our issuance of additional preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby effect a change in the composition of our Board of Directors. Our certificate of incorporation also provides that our stockholders may not take action by written consent. Our bylaws require advance notice of stockholder proposals and director nominations and permit only our president or a majority of the Board of Directors to call a special stockholder meeting. These provisions may have the effect of preventing or hindering attempts by our stockholders to replace our current management. In addition, Delaware law prohibits a corporation from engaging in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. Our Board of Directors may use this provision to prevent changes in our management. Also, under applicable Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.
The first right to negotiate provision contained in our agreement with one of our licensees could hinder or delay a change of control of our company or the sale of certain of our assets
We have entered into a First Right to Negotiate and Amendment Agreement with GSK that affords GSK, one of our licensees, a first right to negotiate with us in the event we determine to initiate a process to effect a change of control of our company with, or to sell certain of our assets to, an unaffiliated third party or in the event that a third party commences an unsolicited tender offer seeking a change of control of our company. In such event, we must provide GSK a period of time to determine whether it wishes to negotiate the terms of such a transaction with us. If GSK affirmatively so elects, we are required to negotiate with GSK in good faith towards effecting a transaction of that nature for a specified period. During the negotiation

35


period, we are obligated not to enter into a definitive agreement with a third party that would preclude us from negotiating and/or executing a definitive agreement with GSK. If GSK determines not to negotiate with us or we are unable to come to an agreement with GSK during this period, we may enter into the specified change of control or sale transaction within the following 12 months, provided that such a transaction is not on terms in the aggregate that are materially less favorable to us and our stockholders (as determined by our Board of Directors, in its reasonable discretion) than terms last offered to us by GSK in a binding written proposal during the negotiation period. The first right to negotiate terminates on March 2, 2017. Although GSK's first right to negotiate does not compel us to enter into a transaction with GSK nor prevent us from negotiating with or entering into a transaction with a third party, the first right to negotiate could inhibit a third party from engaging in discussions with us concerning such a transaction or delay our ability to effect such a transaction with a third party.
Our stock has historically had low trading volume, and its public trading price has been volatile.
Between our initial public offering on February 4, 2000 and March 31, 2014, and for the three months ended March 31, 2014, the closing price of our common stock has fluctuated between $1.80 and $315.78 per share and $2.72 and $5.10 per share, respectively. The average daily trading volume for the quarter ended March 31, 2014 was approximately 1.0 million shares while the average daily trading volume for the year ended December 31, 2013 was approximately 367,000 shares. The market may experience significant price and volume fluctuations that are often unrelated to the operating performance of individual companies. In addition to general market volatility, many factors may have a significant adverse effect on the market price of our stock, including:
continuing operating losses, which we expect over the next several years as we continue our development activities;
announcements of decisions made by public officials;
results of our preclinical studies and clinical trials;
announcements of new collaboration agreements with strategic partners or developments by our existing collaborative partners;
announcements of technological innovations, new commercial products, failures of products, or progress toward commercialization by our competitors or peers;
failure to realize the anticipated benefits of the Acquisition;
developments concerning proprietary rights, including patent and litigation matters;
publicity regarding actual or potential results with respect to product candidates under development;
quarterly fluctuations in our financial results;
variations in the level of expenses related to any of our product candidates or clinical development programs;
additions or departures of key management or scientific personnel;
conditions or trends in the biotechnology and biopharmaceutical industries;
other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events;
changes in accounting principles;
general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies; and
sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock.
In the past, securities class action litigation has often been brought against a company following a significant decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies generally experience significant stock price volatility.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock, or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

36


The sale of a significant number of shares could cause the market price of our stock to decline.
The sale by us or the resale by stockholders of a significant number of shares of our common stock could cause the market price of our common stock to decline. As of March 31, 2014, we had approximately 62,230,609 shares of common stock outstanding. All of these shares are eligible for sale on Nasdaq, although certain of the shares are subject to sales volume and other limitations. We have filed registration statements to permit the sale of approximately 8,200,000 shares of common stock under our equity incentive plans. We have also filed registration statements to permit the sale of approximately 167,000 shares of common stock under our employee stock purchase plan, to permit the sale of 225,000 shares of common stock under our Directors' Deferred Compensation Plan, to permit the sale of approximately 8,274,000 shares of common stock pursuant to various private placement agreements and to permit the sale of approximately 10,000,000 shares of our common stock pursuant to our At Market Issuance Sales Agreement. As of March 31, 2014, an aggregate of 12.4 million of these shares remain available for sale. Contingent milestone payments, payable in cash or shares of our common stock at our option, will be due to the 4-AB Shareholders as follows (i) $20 million upon our market capitalization exceeding $300 million for ten consecutive trading days prior to the earliest of (a) the fifth anniversary of the Closing Date, (b) the sale of 4-AB or (c) the sale of Agenus; (ii) $10 million upon our market capitalization exceeding $750 million for 30 consecutive trading days prior to the earliest of (a) the tenth anniversary of the Closing Date (b) the sale of 4-AB or (c) the sale of Agenus, and (iii) $10 million upon our market capitalization exceeding $1.0 billion for 30 consecutive trading days prior to the earliest of (a) the tenth anniversary of the Closing Date, (b) the sale of 4-AB or (c) the sale of Agenus.
As of March 31, 2014, warrants to purchase approximately 2,951,000 shares of our common stock with a weighted average exercise price per share of $10.87 were outstanding.
As of March 31, 2014, options to purchase 4,267,655 shares of our common stock with a weighted average exercise price per share of $5.62 were outstanding. These options are subject to vesting that occurs over a period of up to four years following the date of grant. As of March 31, 2014 we have 109,747 nonvested shares outstanding.
We may issue additional common stock, preferred stock, restricted stock units, or securities convertible into or exchangeable for our common stock. Furthermore, substantially all shares of common stock for which our outstanding stock options or warrants are exercisable are, once they have been purchased, eligible for immediate sale in the public market. The issuance of additional common stock, preferred stock, restricted stock units, or securities convertible into or exchangeable for our common stock or the exercise of stock options or warrants would dilute existing investors and could adversely affect the price of our securities. In addition, such securities may have rights senior to the rights of securities held by existing investors.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and to comply with changing regulation of corporate governance and public disclosure could have a material adverse effect on our operating results and the price of our common stock.
The Sarbanes-Oxley Act of 2002 and rules adopted by the SEC and Nasdaq have resulted in significant costs to us. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations regarding the required assessment of our internal control over financial reporting, and our independent registered public accounting firm's audit of internal control over financial reporting, have required commitments of significant management time. We expect these commitments to continue.
Our internal control over financial reporting (as defined in Rules 13a-15 of the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all deficiencies or weaknesses in our financial reporting. While our management has concluded that there were no material weaknesses in our internal control over financial reporting as of December 31, 2013, our procedures are subject to the risk that our controls may become inadequate because of changes in conditions or as a result of a deterioration in compliance with such procedures. No assurance is given that our procedures and processes for detecting weaknesses in our internal control over financial reporting will be effective.
We anticipate additional commitments of management time to ensure that our internal control over financial reporting of the operations of 4-AB complies with Section 404 of the Sarbanes-Oxley Act of 2002. Prior to the acquisition, 4-AB was a privately held company organized under the laws of Switzerland and, as such, it had not been subject to financial reporting requirements applicable to public companies and was not required to prepare and publish audited financial statements in accordance with U.S. GAAP. Accordingly, our on-going efforts to ensure that our internal control over the financial reporting of the operations of 4-AB will cause us to incur significant additional costs.
Changing laws, regulations and standards relating to corporate governance and public disclosure, are creating uncertainty for companies. Laws, regulations and standards are subject to varying interpretations in some cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided, which could result in continuing uncertainty regarding compliance matters and higher costs caused by ongoing revisions to disclosure and

37


governance practices. If we fail to comply with these laws, regulations and standards, our reputation may be harmed and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our operating results and the market price of our common stock.

Item 6.
Exhibits

The Exhibits listed in the Exhibit Index are included in this Quarterly Report on Form 10-Q.

(b) Exhibits




38




AGENUS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
Date:
May 9, 2014
AGENUS INC.
 
 
 
 
/s/    CHRISTINE M. KLASKIN
 
 
Christine M. Klaskin
VP, Finance, Principal Financial Officer, Principal Accounting Officer


39



Exhibit Index
Exhibit No.
 
Description
 
 
 
3.1
 
Amended and Restated Certificate of Incorporation of Antigenics Inc. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on June 10, 2002 and incorporated herein by reference.
 
 
 
3.1.1
 
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Antigenics Inc. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on June 11, 2007 and incorporated herein by reference.
 
 
 
3.1.2
 
Certificate of Ownership and Merger changing the name of the corporation to Agenus Inc. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on January 6, 2011 and incorporated herein by reference.
 
 
 
3.1.3
 
Certificate of Second Amendment to the Amended and Restated Certificate of Incorporation of Agenus Inc. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on September 30, 2011 and incorporated herein by reference.
 
 
 
3.1.4
 
Certificate of Third Amendment to the Amended and Restated Certificate of Incorporation of Agenus Inc. Filed as Exhibit 3.1.4 to our Quarterly Report on Form 10-Q (File No. 0-29089) for the quarter ended June 30, 2012 and incorporated herein by reference.
 
 
 
3.1.5
 
Certificate of Fourth Amendment to the Amended and Restated Certificate of Incorporation of Agenus Inc. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on April 25, 2014 and incorporated herein by reference.
 
 
 
3.2
 
Fifth Amended and Restated By-laws of Agenus Inc. Filed as Exhibit 3.2 to our Current Report on Form 8-K (File No. 0-29089) filed on January 6, 2011 and incorporated herein by reference.
 
 
 
3.3
 
Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock of Agenus Inc. filed with the Secretary of State of the State of Delaware on September 24, 2003. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on September 25, 2003 and incorporated herein by reference.
 
 
 
3.4
 
Certificate of Designations, Preferences and Rights of the Class B Convertible Preferred Stock of Agenus Inc. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on September 5, 2007 and incorporated herein by reference.
 
 
 
3.5
 
Certificate of Designations, Preferences and Rights of the Series A-1 Convertible Preferred Stock of Agenus Inc. Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 0-29089) filed on February 5, 2013 and incorporated herein by reference.
 
 
 
10.1 (1)
 
Collaborative Research and Development Agreement dated May 23, 2011 between 4-Antibody AG and Ludwig Institute for Cancer Research LTD. Filed herewith.

 
 
 
10.2 (1)
 
Collaborative Research and Development and Commercial Rights Agreement dated December 21, 2012 among 4-Antibody AG, Ludwig Institute for Cancer Research LTD and Recepta Biopharma S.A.

 
 
 
10.3
 
Sublease Agreement between 4-Antibody AG, and Technologie Park Basel AG dated January 28, 2011. Filed herewith.
 
 
 
10.3.1
 
Addendum to the Lease Agreement from January 28, 2011 between 4-Antibody AG and Technologie Park Basel AG dated March 31, 2012. Filed herewith.
 
 
 
10.3.2
 
Addendum No. 4 to the Lease Agreement from January 28, 2011 between 4-Antibody AG and Technologie Park Basel AG dated June 2013. Filed herewith.
 
 
 
10.3.3
 
Addendum No. 5 to the Lease Agreement from January 28, 2011 between 4-Antibody AG and Technologie Park Basel AG dated April 30, 2013. Filed herewith.
 
 
 
10.3.4
 
Addendum No. 6 to the Lease Agreement from January 28, 2011 between 4-Antibody AG and Technologie Park Basel AG dated July 31, 2013. Filed herewith.
 
 
 
10.4
 
Commercial Lease Agreement No. 01/2003 between BioCentiv GmbH and 4-Antibody AG dated December 1, 2002, Filed herewith.
 
 
 

40


10.4.1
 
20th Addendum to Commercial Lease Agreement No. 01/2003 between BioCentiv GmbH and 4-Antibody AG dated November 1, 2010. Filed herewith.
 
 
 
10.4.2
 
28th Addendum to Commercial Lease Agreement No. 01/2003 between BioCentiv GmbH and 4-Antibody AG dated July 2, 2013. Filed herewith.
 
 
 
10.4.3
 
29th Addendum to Commercial Lease Agreement No. 01/2003 dated between BioCentiv GmbH and 4-Antibody AG August 9, 2013. Filed herewith.
 
 
 
31.1
 
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. Filed herewith.
 
 
 
31.2
 
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. Filed herewith.
 
 
 
32.1(2)
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Submitted herewith.
 
 
 
101.INS
 
XBRL Instance Document(3)
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document(3)
 
 
 
101.CAL
 
XBRL Calculation Linkbase Document(3)
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document(3)
 
 
 
101.LAB
 
XBRL Label Linkbase Document(3)
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document(3)


(1)
Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 405 of the Securities Act or Rule 24b-2 of the Securities Exchange Act.
(2)
This certification accompanies the Quarterly Report on Form 10-Q and is not filed as part of it.
(3)
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.


41
EX-10.1 2 agen-exhibit101q114.htm COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT AGEN-Exhibit 10.1 Q1 14



COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
THIS COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (this “Agreement”) is made the 23rd. day of May, 2011 (“EFFECTIVE DATE”) by and between the LUDWIG INSTITUTE FOR CANCER RESEARCH LTD, a Swiss not-for-profit corporation, with its registered office at Stadelhoferstrasse 22, 8001, Zurich, Switzerland, and having an office at 666 Third Avenue, New York, NY 10017, United States of America (“LICR”) and 4-ANTIBODY AG (“4AB”), incorporated in Switzerland at Schwarzwaldallee 215, CH-4002 Basel, Switzerland.

WHEREAS, LICR owns technology and know-how with respect to the development of immunotherapies including antibodies to treat various forms of cancer; and

WHEREAS, 4AB owns technology and know-how with respect to the generation and development of human monoclonal antibodies to treat human diseases; and

WHEREAS, LICR and 4AB desire to establish a multi-target research and development collaboration in a focus area of high interest for the cancer immunology field of translational research in the immunosuppression and immunoregulation in cancer; and

NOW THEREFORE, in consideration of the premises, representations, warranties and agreements set forth herein, the parties hereto agree as follows.


1
DEFINITIONS

1.01
“AFFILIATE” shall mean any corporation or business entity of which LICR or 4AB owns directly or indirectly, fifty percent (50%) or more of the assets or outstanding stock, or any corporation which LICR or 4AB directly or indirectly controls, or any parent corporation which owns, directly or indirectly, fifty percent (50%) or more of the assets or outstanding stock of LICR or 4AB or directly or indirectly controls LICR or 4AB.

1.02
“ANTIBODY” or “ANTIBODIES” shall mean an immunoglobulin (Ig) molecule, generally comprising four polypeptide chains, two heavy (H) chains and two light (L) chains, or an equivalent Ig homologue thereof (e.g., a camelid nanobody, which comprises only a heavy chain, single domain antibodies (dAbs) which can be either heavy or light chain); including full length functional mutants, variants, or derivatives thereof (including but not limited to chimeric, veneered, humanized antibodies, fully human equivalents (e.g. created by guided selection or similar technology), which retain the essential epitope binding features of an Ig molecule, and including dual specific, bispecific, multispecific, and dual variable domain immunoglobulins; Immunoglobulin molecules can be of any class (e.g., IgG, IgE, IgM, IgD, IgA, and IgY), or subclass (e.g., IgG1, IgG2, IgG3, IgG4, IgA1, and IgA2) and allotype. Also included within the meaning of the term Antibody is any ANTIBODY FRAGMENT.

1.03
“ANTIBODY FRAGMENT” means a molecule comprising at least one polypeptide chain that is not full length, including (i) a Fab fragment, which is a monovalent fragment consisting of the variable light (VL), variable heavy (VH), constant light (CL) and constant heavy 1 (CH1) domains; (ii) a F(ab')2 fragment, which is a bivalent fragment comprising two Fab fragments linked by a disulfide bridge at the hinge region; (iii) a heavy chain portion of a Fab (Fd) fragment, which consists of the VH and CH1 domains; (iv) a variable fragment (Fv) fragment, which consists of the VL and VH domains of a single arm of an antibody, (v) a domain antibody (dAb) fragment, which comprises a single variable domain; (vi) an isolated complementarity determining region (CDR); (vii) a Single Chain Fv Fragment; (viii) a diabody, which is a bivalent, bispecific antibody in which VH and VL domains are expressed on a single polypeptide chain, but using a linker that is too short to allow for pairing between the two domains on the same chain, thereby forcing the domains to pair with the complementarity domains of another chain and creating two antigen binding sites; and (ix) a linear antibody, which comprises a pair of tandem Fv segments (VH-CH1- VH-CH1) which, together with complementarity light chain polypeptides, form a pair of antigen binding regions; and (x) other non-full length portions of heavy and/or light chains, or mutants, variants, or derivatives thereof, alone or in any combination.

1.04
“ARBITRATION” shall have the meaning ascribed to it in Section 13.02C.

1.05
“ARBITRATORS” shall have the meaning ascribed to it in Section 13.02C.


1



1.06
“BACKGROUND INTELLECTUAL PROPERTY” shall mean any INTELLECTUAL PROPERTY, owned or controlled by a party, and which is provided to the other party for use in the PROGRAM, and/or which is necessary or useful for performing the PROGRAM.

1.07
“CHANGE OF CONTROL” shall mean a situation in which more than fifty percent (50%) of the ownership interest in a party is acquired by a third party.

1.08
“CLINICAL TRIAL” shall mean any clinical studies, research protocols, or medical research, wherein a PRODUCT is evaluated as a potential diagnostic or therapeutic in a human patient or set of patients and the PROTOCOLS of which LICR starts to execute, after the EFFECTIVE DATE of this Agreement.

1.09
“CUMULATIVE COSTS” shall mean the identified and documented direct costs incurred by each party directly related to the research and development of each PRODUCT and direct costs associated with PROGRAM INTELLECTUAL PROPERTY filing, prosecution, and maintenance covering each PRODUCT. CUMULATIVE COSTS exclude costs not directly related to the development of a PRODUCT and the PROGRAM INTELLECTUAL PROPERTY claiming such PRODUCT, and shall stop incurring for a PRODUCT and the PROGRAM INTELLECTUAL PROPERTY claiming such PRODUCT upon the earlier of (i) its licensing to a third party; (ii) upon its first regulatory approval as obtained by 4-AB; (iii) the transfer or assignment of rights to a PRODUCT or PROGRAM INTELLECTUAL PROPERTY claiming such PRODUCT obtained under or as a result of this Agreement to a third party. CUMULATIVE COSTS for each such PRODUCT may be deducted from anything of value received for rights in a PRODUCT and the PROGRAM INTELLECTUAL PROPERTY claiming such PRODUCT, whether cash or anything received in lieu of cash for such rights. CUMULATIVE COSTS shall be disclosed annually to the JOINT MANAGEMENT
COMMITTEE for approval and any unapproved costs shall not be considered CUMULA TIVE COSTS. For clarity, the CUMULA TIVE COSTS of each PRODUCT and the PROGRAM INTELLECTUAL PROPERTY, or part thereof, claiming such PRODUCT can only be deducted from the monetary realization of each such specific instance. By way of non-limiting example only, CUMULATIVE COSTS associated with PRODUCT 1 shall exclude expenses related to a clinical trial for development of PRODUCT 2, shall not include PROGRAM INTELLECTUAL PROPERTY claiming PRODUCT 2, and cannot be deducted from licensing revenue of PRODUCT 2.

1.10
“DISPUTE” shall have the meaning ascribed to it in Section 13.02A.

1.11
“EFFECTIVE DATE” shall have the meaning ascribed to such term in the introductory paragraph of this Agreement.

1.12    “EXTENSION TERM” shall have the meaning ascribed to it in Section 2.02.

1.13
“FIELD” shall mean the diagnosis, prevention and treatment of animal and human diseases or conditions.

1.14    “ICC” shall have the meaning ascribed to it in Section 13.02C.

1.15    “INFORMATION” shall have the meaning ascribed to it in Section 6.01.

1.16    “INITIAL TERM” shall mean three (3) years from the EFFECTIVE DATE.

1.17
“INTELLECTUAL PROPERTY” shall mean the rights comprised in any patent, copyright, design, trade mark, eligible layout or similar right whether at common law or conferred by statute, rights to apply and applications for registration under a statute in respect of these or like rights and rights to protect trade secrets and know-how, throughout the world for the full period of the rights and all renewals and extensions.

1.18
“JOINT MANAGEMENT COMMITTEE” shall mean the committee established pursuant to Section 3 herein.

1.19
“LICR” shall have the meaning ascribed to such term in the introductory paragraph of this Agreement.

1.20
“4AB” shall have the meaning ascribed to it in the introductory paragraph of this Agreement.

1.21
“NY LAB” shall mean LICR’s laboratory at Memorial Sloan-Kettering Cancer Center, 1275 York Avenue, Box 32, New York, New York 10021-6007, USA. The research at the NY LAB is governed by an interinstitutional agreement between LICR and Memorial Sloan-Kettering Cancer Center (MSKCC). A redacted version of that agreement is attached in Appendix 6 (“MSKCC AGREEMENT”).

1.22
“PROCEEDS” shall mean all forms of cash consideration such as but not limited to license fees, royalties, milestone fees and sublicense fees and all forms of non-cash consideration received from a licensee or similar

2



third party as a result of the commercialization of PRODUCTS, PROGRAM INTELLECTUAL PROPERTY and PROGRAM PATENTS. PROCEEDS shall not include consideration received as research funding the research and development of a PRODUCT.

1.23
“PRODUCT(S)” shall mean any ANTIBODY or ANTIBODIES or any other product, service, process or method of using such ANTIBODY or ANTIBODIES which recognizes a TARGET.

1.24
“PROGRAM” as used herein shall mean the collaboration between LICR and 4AB to carry out the research and clinical development program set out in Appendix 1. The PROGRAM will cover and include all monoclonal ANTIBODIES recognizing a TARGET, generated by 4AB during the INITIAL TERM or any EXTENSION TERM of the research program as specified Appendix 1.

1.25
“PROGRAM INTELLECTUAL PROPERTY” shall mean all ANTIBODIES results, research data, know-how, materials, compounds and inventions which are created solely by the LICR or 4AB during the course of and as a direct result of carrying out the PROGRAM.

1.26
“PROGRAM P A TENT(S)” shall mean all patents issued and patent applications filed pertaining to the PROGRAM INTELLECTUAL PROPERTY during the TERM, and any reissues, re-examinations, continuations, claims of U.S. and foreign continuations-in-part which are directed to subject matter specifically described in the U.S. and foreign patent applications, divisions, renewals, or renewals claiming priority to any such patent or patent application and including any extensions, patents of addition, and any extension of the term of the patent or supplementary protection certificate or other means by which greater effective patent protection is extended.

1.27
"PROTOCOL" shall mean a document or set of documents that describes for example and without limitation the objective(s), design, methodology, statistical considerations, and organization of one or more CLINICAL TRIAL(s).

1.28
“RULES” shall have the meaning ascribed to it in Section 13.02C.

1.29
“TARGETS” shall mean the cell surface proteins against which ANTIBODIES shall be generated and evaluated within the PROGRAM, which shall be selected by the JOINT MANAGEMENT COMMITTEE. TARGETS shall be identified in Appendix 2, which shall be updated from time to time as agreed by the JOINT MANAGEMENT COMMITTEE.

1.30
“TERM” shall have the meaning ascribed to it in Section 9.01.

1.31
“TERRITORY” shall mean all countries worldwide, their territories and possessions.

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2    RESEARCH COLLABORATION AND DEVELOPMENT

2.01
LICR and 4AB shall carry out the PROGRAM in accordance with the research and clinical development program set out in Appendix 1. LICR and 4AB shall perform the PROGRAM in accordance with the timelines set forth therein, as reasonably practicable, and shall perform the PROGRAM using the highest professional standards of workmanship and care in so doing. LICR and 4AB shall not deviate materially from the PROGRAM without the prior written consent of the other party.

2.02
The PROGRAM shall commence on the EFFECTIVE DATE and shall continue for the INITIAL TERM; provided, however, that with the consent of both LICR and 4AB, which consent shall not be unreasonably withheld, the PROGRAM may be extended for an additional period of up to three (3) years beyond the INITIAL TERM (the “EXTENSION TERM”). Further extensions may be mutually agreed upon by the parties.

2.03
The PROGRAM may be modified only by mutual written consent of the parties.

2.04
Any CLINICAL TRIAL conducted as part of the PROGRAM shall comply with the following provisions:
A: Any CLINICAL TRIAL shall only be initiated following written approval of the corresponding PROTOCOL by the JOINT MANAGEMENT COMMITTEE.
B: Any PROTOCOL amendment must be approved in writing by the JOINT MANAGEMENT COMMITTEE, unless more timely amendments are required by a regulatory authority.
C: Each CLINICAL TRIAL approved by the JOINT MANAGEMENT COMMITTEE will be governed by a separate and independent written clinical trial agreement which shall be negotiated in good faith between LICR and 4AB.

2.05
Subject to any further written agreement between the parties, each party shall be responsible for its own costs and expenses incurred in performing its research and development activities as described the PROGRAM.

3    JOINT MANAGEMENT COMMITTEE

3.01
The parties shall establish and maintain a JOINT MANAGEMENT COMMITTEE to monitor the conduct, management, supervision and progress of the PROGRAM so as to provide the best chance of a successful outcome for the research and development of PRODUCT(S). The JOINT MANAGEMENT COMMITTEE responsibilities shall include:
A: Preparing and approving annual research plans for the PROGRAM
B: Exchanging annual research budgets and approval of CUMULATIVE COSTS on a regular basis
C: Discussing progress and exchanging results of the PROGRAM
D: Preparation and approval of PROTOCOL(s) for any CLINICAL TRIAL(s) and approval of any PROTOCOL amendment to any CLINICAL TRIAL
E: Discussing the potential creation or existence of any PROGRAM INTELLECTUAL PROPERTY and agreeing a plan for protecting such PROGRAM INTELLECTUAL PROPERTY
F: Discussing and reviewing proposed publications and disclosures by either party

G: Discussing and reviewing the commercialization of the PRODUCTS and PROGRAM PATENTS

3.02
The JOINT MANAGEMENT COMMITTEE shall consist of representatives from 4AB and LICR, provided that the number of representatives of each of them will at all times be and remain equal. The parties will have the right to change their representatives from time to time by notifying one another to this effect. 4AB and LICR shall each appoint a project coordinator from one of its representatives who shall report to the JOINT MANAGEMENT COMMITTEE as required.

3.03
Each member of the JOINT MANAGEMENT COMMITTEE may appoint an alternate and references in this paragraph and in this Section to “members” and “representatives” of the JOINT MANAGEMENT COMMITTEE shall include references to alternates of such members and representatives. An alternate will only act if the member is not available.

3.04
The JOINT MANAGEMENT COMMITTEE shall meet, at least once per calendar quarter, in person, via teleconferences, or via videoconference and shall hold such additional meetings as its members think fit.

3.05
Unless otherwise agreed by the parties, 4AB shall appoint a Chairperson of the JOINT MANAGEMENT COMMITTEE who shall be responsible for preparing the minutes of JOINT MANAGEMENT COMMITTEE meetings as well as any related correspondence.


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3.06
No business shall be transacted at any meeting of the JOINT MANAGEMENT COMMITTEE unless a quorum of members is present at the time when the meeting proceeds to business. A quorum shall be at least four (4) members present in person or by their alternate, at least two (2) of whom must be representatives appointed by 4AB and at least two (2) of whom must be representatives appointed by LICR.

3.07
All matters and all formal resolutions of the JOINT MANAGEMENT COMMITTEE shall require the approval of both parties acting through their respective JOINT MANAGEMENT COMMITTEE members. In the event of any disagreement amongst the members of the JOINT MANAGEMENT COMMITTEE with respect to any aspect of the PROGRAM, the matter of disagreement shall be resolved in accordance with the dispute resolution process set out in Section 13.

3.08
The first representatives of the JOINT MANAGEMENT COMMITTEE nominated by 4AB and LICR shall be as set forth in Appendix 3 hereto.

3.09
The JOINT MANAGEMENT COMMITTEE shall ensure that care is taken to properly record and document all research and development activities performed during the PROGRAM. Each party shall promptly notify the JOINT MANAGEMENT COMMITTEE in writing of the potential creation or existence of any PROGRAM INTELLECTUAL PROPERTY.

4 COMMERCIALIZATION

4.01
4AB shall have the sole right to negotiate with prospective licensee’s exclusive, sub- licensable, worldwide licenses or options, under the PROGRAM INTELLECTUAL PROPERTY and PROGRAM P A TENTS to develop and commercialize PRODUCTS, in accordance with the terms of this Agreement.

4.02
4AB shall keep LICR informed in writing on a regular basis concerning its progress in securing the exploitation of the PRODUCTS and PROGRAM INTELLECTUAL PROPERTY and the status of negotiations with prospective licensees. 4AB shall provide LICR with copies of draft term sheets and license proposals being exchanged with prospective licensees.

4.03
LICR shall provide such assistance as is reasonably necessary for 4AB to carry out its rights and responsibilities under this section 4.

4.04
4AB shall not grant any license or option under PROGRAM INTELLECTUAL PROPERTY and PROGRAM PATENTS to develop and commercialize PRODUCTS without the written consent of LICR, which consent shall not be unreasonably withheld or delayed.

4.05
4AB shall provide LICR with copies of all executed license agreement and annual diligence reports of licensee’s efforts to develop and commercialize licensed PRODUCTS and PROGRAM PATENTS

4.06
LICR on behalf of itself and its academic collaborators and Memorial Sloan-Kettering Cancer Center and its academic collaborators retain an irrevocable right to practice only for their educational and non-commercial research (including clinical research involving patient care) purposes the inventions claimed under PROGRAM INTELLECTUAL PROPERTY and PROGRAM PATENTS, where any clinical trial using an ANTIBODY generated and developed through the PROGRAM will be conducted under a JOINT MANAGEMENT COMMITTEE agreed PROTOCOL.

4.07
4AB acknowledges that LICR, after publication or presentation of scientific data related to the PROGRAM, may have obligations to share materials, including ANTIBODIES, with the academic scientific community. In such cases the ANTIBODIES shall be made available to other academic researchers, solely for non- commercial research and educational purposes, pursuant to a material transfer agreement in the form set out in the template agreement in Appendix 5, with any proposed changes thereto subject to the prior review and written approval of 4AB, which shall not be unreasonably withheld.

4.08
The parties acknowledge that the United States Government, as a matter of statutory right under 35 USC Sections 200-212, may hold a non-exclusive license and certain other rights under PROGRAM PATENTS made as a consequence of the use of funding supplied by the United States Government for the PROGRAM. In the event the United States Government has such rights or in the future is found to have such rights with respect to any license contemplated under this Agreement, even if termed an “exclusive” license, shall be understood to be subject to the rights of the United States Government, without any effect on the parties’ remaining obligation, as set forth in this Agreement.


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4.09
No rights or licenses (either express or implied) to any intellectual property rights or any proprietary technical information of LICR or 4AB are granted by this Agreement, except as expressly provided in this Section 4 or the following Section 5.


5    INTELLECTUAL PROPERTY

5.01
All rights, title and interest in and to any BACKGROUND INTELLECTUAL PROPERTY shall remain with the party owning such BACKGROUND INTELLECTUAL PROPERTY. Each party grants the other party a royalty free, non- exclusive license to use its BACKGROUND INTELLECTUAL PROPERTY only for the purpose of carrying out the PROGRAM. Neither party may grant any sublicense to use the other party’s BACKGROUND INTELLECTUAL PROPERTY to any third party without the other party’s written agreement.

5.02
PROGRAM INTELLECTUAL PROPERTY and PROGRAM PATENTS shall be jointly owned in equal shares by 4AB and LICR, subject to LICR’s obligations under the MSKCC AGREEMENT.

5.03
During the TERM and EXTENSION TERM, the JOINT MANAGEMENT COMMITTEE shall assess the PROGRAM INTELLECTUAL PROPERTY with regard to any inventions that could be the subject of a patent application, and where considered appropriate 4AB will file patent application(s) in those countries agreed to by the parties. All such patent applications will become PROGRAM PATENTS as part of the PROGRAM INTELLECTUAL PROPERTY. The inventorship of all such PROGRAM PATENTS shall be determined under US patent law.

5.04
During the INITIAL TERM and any EXTENSION TERM, 4AB will be responsible for managing the filing and prosecutions of any patents or applications for patents included in the PROGRAM PATENTS at 4AB’s cost. LICR and 4AB shall consult regularly in the preparation, filing, prosecution and maintenance of any patents or applications for patents included in the PROGRAM PATENTS, and share copies of all material correspondence and filings (and any other information requested by a party) related thereto. 4AB may, in its sole discretion, notify LICR that it does not desire continued filing, prosecution or maintenance of any PROGRAM PATENT upon which timely notification LICR shall have the option to continue the prosecution or maintenance of the PROGRAM PATENT at its sole expense. If LICR does not provide written notice of such intent within 30 days of such notice from 4AB, then 4AB shall have no further responsibility for the costs thereof, and such patent shall no longer be deemed a PROGRAM PATENT.

5.05
4AB and LICR shall reasonably discuss the need to enforce and/or defend the PROGRAM PATENTS and PROGRAM INTELLECTUAL PROPERTY against any third party that infringes or wrongfully uses the same in any manner, and only after 4AB and LICR have agreed a course of action shall any action be initiated by either party.

5.06
The parties hereto shall cooperate with each other in gaining patent term restoration or similar extensions or continuations of rights in the TERRITORY where applicable to PROGRAM PATENT(S).


6    CONFIDENTIALITY

6.01
All oral, written, electronic or other communications and other information disclosed or provided by the parties including any and all analyses or conclusions drawn or derived therefrom regarding any PROGRAM INTELLECTUAL PROPERTY or the PROGRAM, or either party’s assays, processes, formulations, analytical procedures, clinical procedures, methodologies, products, samples, material, cells and specimens or functions (“INFORMATION”) shall be received and used solely for the purposes set forth in this Agreement and subject to the following terms and conditions:
A.
Each party shall keep the other’s INFORMATION in confidence for the period commencing on the EFFECTIVE DATE and ending five (5) years after the end of the TERM or EXTENSION TERM and will not, without the disclosing party’s prior written consent, disclose any INFORMATION to any person or entity, except those of the receiving party’s officers, employees, consultants and AFFILIATES who require said INFORMATION to perform their obligations under this Agreement. Each of the party’s officers, employees, consultants and AFFILIATES to whom INFORMATION is to be disclosed shall be advised by the receiving party of, and bound by the terms of this Agreement.
B.
The obligations of confidentiality and non-use set forth herein shall not apply to any INFORMATION which is:

i
known to the receiving party prior to receipt from the disclosing party, other than through prior disclosure by the disclosing party, as evidenced by the receiving party’s written records;


6



ii
available to the general public or which hereafter becomes available to the general public otherwise than through a breach of this Agreement;

iii
obtained by the receiving party from a third party with a valid right to disclose such INFORMATION, provided that said third party is not under a confidentially obligation to the disclosing party; or
    
iv
independently developed by employees, agents, consultants or AFFILIATES of the receiving party who had no knowledge of or access to the disclosing party’s INFORMATION as evidenced by the receiving party’s written records.

C.
The parties will keep the terms of this Agreement and to the extent necessary or desirable to protect any INTELLECTUAL PROPERTY arising in connection with the PROGRAM, the PROGRAM and PROGRAM INTELLECTUAL PROPERTY, confidential except as otherwise agreed.

D.
The parties may, under appropriate obligations of confidentiality, disclose the PROGRAM INTELLECTUAL PROPERTY and the terms of this Agreement to its advisers and consultants, and to its potential and actual collaborators, investors, shareholders and licensees.

E.
Except as is set forth in this Agreement, all INFORMATION shall remain the proprietary property of the disclosing party.
        
F.
If, in the opinion of the receiving party’s counsel, any of the disclosing party’s INFORMATION is required to be disclosed pursuant to law, regulation, or court order, the receiving party shall give the disclosing party prompt, written notice in order to allow the disclosing party to take whatever action it reasonably deems necessary to protect its INFORMATION. In the event that no protective order or other remedy is obtained, or the disclosing party waives compliance with the terms of this Section 6, receiving party will furnish only that portion of the INFORMATION which receiving party is advised by counsel is legally required.

G.
Except as is set forth in this Agreement, no party shall acquire any license or other intellectual property interest in any INFORMATION disclosed to it by the other party. Further, except as is set forth in this Agreement, disclosure of INFORMATION shall not result in any obligation on the part of the discloser to grant the receiving party any right in or to such INFORMATION.

H.
Upon expiration or termination of this Agreement, each party shall immediately return to each disclosing party all INFORMATION which it has received from the disclosing party, all notes which may have been made regarding said information, and all copies thereof. The receiving party may retain one copy of each item of INFORMATION, and notes regarding the same, provided that said copy shall be retained and used solely for the purposes of ongoing compliance with this Agreement and shall be held in the receiving party’s confidential files. For purposes of this paragraph, LICR and 4AB shall be the disclosing parties with respect to any PROGRAM INTELLECTUAL PROPERTY.

7    CONSIDERATION

7.01
PROCEEDS received by 4AB shall be first used to reimburse each party’s CUMULATIVE COSTS incurred in respect to the licensed PRODUCT and PROGRAM PATENTS from which the PROCEEDS are derived.

7.02
The remaining PROCEEDS (“NET PROCEEDS”) shall be shared [**] between LICR and 4AB.

7.03
4AB shall provide LICR its share of CUMULATIVE COSTS and NET PROCEEDS within thirty (30) days of its receipt of any PROCEEDS, together with a report disclosing detail of the PROCEEDS received and the calculation of CUMULATIVE COSTS and NET PROCEEDS distributed to each party.

8    PAYMENTS

8.01
All payments to be made under this Agreement to LICR shall be made within sixty (60) days of receipt of a tax invoice from LICR and shall be made in US Dollars (USD) by bank wire transfer to LICR’s bank account as follows:



[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.


7





Beneficiary/Payee:    Ludwig Institute for Cancer Research Ltd.
Account No.:        
With:            Credit Suisse
Postfach
CH-8070 Zurich, Switzerland
Clearing:
SWIFT:
IBAN:

8.02
If any payment is not made on or before the due date specified herein, 4AB will pay interest on the outstanding amount until paid in full if requested to do so by LICR. Interest will be charged at a rate equal to the "Intended Federal Funds Rate" or equivalent [**] as specified by the Federal Open Market Committee and currently published by the US Federal Reserve Board at www.federalreserve.gov/fomc/fundsrate.htm.

8.03
During the TERM and for a period of five (5) years thereafter, 4AB shall keep complete and accurate records pertaining to the development, manufacture, use, sale or other disposition of the PRODUCTS, in sufficient detail to permit LICR to confirm the accuracy of all payments due hereunder and compliance with all responsibilities and obligations. LICR shall have the right to cause an independent, certified public accountant to audit such records. Such audits may be exercised once each calendar year and only with respect to the then current calendar year and the immediately prior two calendar years, upon reasonable prior written notice to 4AB and during normal business hours, and LICR shall bear the full cost of such audit, unless such inspection leads to the discovery of a discrepancy of greater than the greater of [**] percent ([**] %) in reporting to LICR's detriment, or of $[**], for any calendar year. In such instance, 4AB agrees to pay the reasonable cost of such audit plus interest as stipulated in Section 8.02 from and after the date the audit report is delivered to4AB. The terms of this Section 8.03 shall survive any termination or expiration of this Agreement for a period of five (5) years.


9    TERM AND TERMINATION

9.01
This Agreement shall be effective as of the EFFECTIVE DATE and unless terminated earlier in accordance with this Agreement, shall remain in force until the expiration of the INITIAL TERM or EXTENSION TERM (the “TERM”).

9.02
Each party shall have the right to terminate this Agreement upon written notice to the other party if, after receiving written notice of a material breach of this Agreement, the breaching party fails to cure such breach within sixty (60) days from the date of such notice and such termination is affirmed by an arbitral tribunal pursuant to Section 13.

9.03
Either party may terminate this Agreement with notice if the other party makes an assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy instituted on behalf of or against such party, or has a receiver or trustee appointed for all or substantially all of its property; provided that in the case of an involuntary bankruptcy proceeding such right to terminate shall only become effective if the party consents to the involuntary bankruptcy or such proceeding is not dismissed within ninety (90) calendar days after the filing thereof.

9.04
Sections 4 (Commercialization), 5 (Intellectual Property), 6 (Confidentiality), 7 (Consideration), 8 (Payments), 10 (Rights Upon Termination), 12 (Indemnity), 13 (Dispute Resolution), 14 (Public Announcements and Publications), 16 (Survival and Waivers) and 17 (Governing Law) shall survive the expiry or termination of this Agreement.

10    RIGHTS UPON TERMINATION

10.01
If this Agreement is terminated by 4AB pursuant to Section 9.02 or 9.03, then on the effective date of said termination, 4AB’s and LICR’s obligations and rights under this Agreement shall terminate.
Notwithstanding the preceding sentence, 4AB shall retain a fully paid up, royalty free, perpetual, worldwide, exclusive license under any PROGRAM PATENT(S). However, notwithstanding such termination, termination of this Agreement shall not affect any already licensed PRODUCTS and PROGRAM PATENT(S).

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.



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10.02
If this Agreement is terminated by LICR pursuant to Section 9.02 or 9.03, then on the effective date of said termination, 4AB’s and LICR’s obligations and rights under this Agreement shall terminate. Notwithstanding the preceding sentence, LICR shall retain a fully paid up, royalty free, perpetual, worldwide, exclusive license under any PROGRAM PATENT(S). However, notwithstanding such termination, termination of this Agreement shall not affect any already licensed PRODUCTS and PROGRAM PATENT(S).

10.03
Notwithstanding termination of this Agreement by either party, each party shall remain liable to the other with respect to any obligations which arise prior to the effective date of termination.


11    REPRESENTATIONS AND WARRANTIES

11.01    Each party represents and warrants to the other party that:

A.
it is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation, and has full corporate or other power and authority to enter into this Agreement and to carry out the provisions hereof;


B.
it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf have been duly authorized to do so by all requisite corporate or partnership action;

C.
(i) this Agreement is legally binding upon it and enforceable in accordance with its terms, and (ii) the execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, to which it is a party or by which it may be bound, or violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it; and

D.
it has not, and will not during the TERM OR EXTENSION TERM, grant any right to any third party that would conflict with the rights granted to the other party hereunder.


12    INDEMNITY & INSURANCE

12.01
LICR shall indemnify, hold harmless and defend 4AB and its directors, officers, agents and employees from and against any loss, costs (including reasonable attorney’s fees), damages, injury, liability, claims, demands, or causes of action (“LIABILITY”) arising out of or resulting from (a) personal injury or death in connection with LICR’s activities hereunder; (b) LICR’s use, handling, storage or disposal of any materials or information; (c) any negligent act or omission or willful misconduct of LICR or LICR’s employees or agents; (d) any act or omission of LICR as an employer; or (e) any debt or other duty of any kind or amount owed to a LICR subcontractor, except to the extent that any such LIABILITY is incurred as a result of the gross negligence or willful misconduct of 4AB.

12.02
4AB shall indemnify, hold harmless and defend LICR and Memorial Sloan-Kettering Cancer Center and their directors, officers, agents and employees, from and against any LIABILITY arising out of or resulting from (a) personal injury or death in connection with 4AB’s activities hereunder; (b) 4AB’s use, handling, storage or disposal of any materials or information; (c) any negligent act or omission or willful misconduct of 4AB or 4AB’s employees, or agents; (d) any act or omission of 4AB as an employer; (e) any debt or other duty of any kind or amount owed to a 4AB subcontractor; or (f) arising out of this Agreement, except to the extent that any such LIABILITY is incurred as a result of the gross negligence or willful misconduct of any such indemnitee. This indemnification shall also include, but not be limited to, any product liability.

12.03
4AB shall maintain insurance with limits, which are consistent with industry standards to cover 4AB’s activities in connection with this Agreement.

12.04
Except as otherwise expressly set forth in this Agreement, neither party makes any representations and extends no warranties of any kind, either express or implied, including but not limited to warranties of merchantability, fitness for a particular purpose, validity of patent rights claims issued or pending, or non-infringement of third party rights.


13 DISPUTE RESOLUTION

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13.01
The parties recognize that disputes as to certain matters may from time to time arise which relate to the rights of either party and obligations hereunder. It is the objective of the parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the parties agree to follow the procedures set forth in Section 13.02, if and when such a dispute arises between the parties.

13.02    Dispute Resolution Procedures.

A.
If any dispute, claim or controversy of any nature arising out of or relating to this Agreement, including any action or claim based on tort, contract or statute, or concerning the interpretation, effect, termination, validity, performance and/or breach of this Agreement (each, a “DISPUTE”), arises between the parties and the parties cannot resolve such DISPUTE within thirty (30) days of a written request by either party to the other party, the parties agree to refer the DISPUTE either to: (a) the chief scientific officer (or equivalent) of LICR and the chief scientific officer (or equivalent) of 4AB for resolution (if such DISPUTE relates to scientific issues); or (b) to the head of business development (or equivalent) of LICR and the head of business development (or equivalent) of 4AB for resolution (if such DISPUTE does not relate to scientific issues). If such officers of the parties cannot resolve such DISPUTE within an additional thirty (30) days, then such DISPUTE shall be referred to the chief executive officer (or equivalent) of LICR and the chief executive officer (or equivalent) of 4AB for resolution. After an additional thirty (30) days, if such officers have not succeeded in negotiating a resolution of the DISPUTE, then either party may at any time thereafter seek to resolve such DISPUTE by arbitration pursuant to Section 13.02C below.

B.
The parties acknowledge and agree that any declarations (either oral or in writing) rendered by the parties’ representatives during the resolution procedure under Section 13.02A above, shall not be considered as an acknowledgement of such party’s liability in respect to the DISPUTE. The parties agree that neither of them may rely on such statement or document as mean of evidence during the arbitration proceeding. For the avoidance of doubts, this Section 13.02B shall not apply to documents, information and statements relating to the disputed obligations under this Agreement.

C.    If any dispute, disagreement, claim or controversy of any nature or type arises out of or results from this Agreement and is not resolved pursuant to Section 13.02A, then without regard or reference to the principles of conflicts of law or international private law or any contrary term or condition in any international treaty or convention (other than in connection with the recognition of arbitral awards as the parties have agreed below):

i    Jurisdiction/Forum. Any DISPUTE that cannot be resolved after negotiation between the parties as set forth in Section 13.02A shall be finally resolved by binding arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ICC”) as supplemented by clause “v”, below (collectively, the “RULES”).

ii    Applicability of Rules. If a procedural question or dispute arises that is not governed by the RULES, the ARBITRATORS shall make a binding determination of its resolution after affording each party an opportunity to state its preferred means of resolution. Each party hereby expressly, irrevocably and unconditionally consents and submits to the personal jurisdiction of the ICC and waives and hereby affirmatively covenants not to assert their right to object to or challenge the sole and exclusive personal jurisdiction of the ICC in connection with DISPUTES. Any controversy concerning the extent to which any DISPUTE is subject to the terms and conditions of this Section and/or the RULES, or concerning the applicability, interpretation, or enforceability of this Section and/or the RULES, including any contention that all or part of these procedures are invalid or unenforceable, shall be governed by the substantive laws of England and Wales.

iii    Venue, Language and Governing Law. The arbitration described herein (the “ARBITRATION”) shall be conducted in the English language and all written briefs and statements prepared by the parties shall be submitted in the English language. The ARBITRATION shall be conducted at a mutually agreed location in England and Wales. All DISPUTES shall be governed by and construed in accordance with the substantive laws of England and Wales, and the ARBITRATION shall be conducted under the procedural requirements of the RULES, all without regard or reference to principles of conflicts of law that would result in the application of the laws of another jurisdiction.

iv    Arbitrators. The panel of arbitrators shall consist of three (3) neutral arbitrators who are mutually agreed upon by the parties meeting the following criteria: (i) none of them shall be current or former employees, directors or shareholders of, or otherwise have any current or previous relationship

10



with, either party or its respective AFFILIATES; and (ii) all of them shall be a person expert in pharmaceutical industry research and development or in licensing arrangements in the biotechnology or pharmaceutical fields (collectively, the “ARBITRATORS”). If the parties cannot mutually agree on the ARBITRATORS within fifteen (15) business days of the filing of the claim with the ICC, then the parties shall each submit six (6) curriculum vitae of proposed ARBITRATORS to the International Court of Arbitration of the ICC and that body shall appoint the ARBITRATORS by selecting one (1) of the expert ARBITRATORS from each of parties’ submissions and appointing the third ARBITRATOR in its discretion.

v    Supplemental Rules. The ARBITRATION shall be subject to the following rules: (i) the ARBITRATORS may not award or assess punitive damages against either party except that the ARBITRATORS, in their solediscretion, may award reasonable costs, expenses and fees to the prevailing party; (ii) until such time as an award of costs is made by the ARBITRATORS, each party shall bear its own costs and expenses of the ARBITRATION and one-half (1/2) of the fees and costs of the ARBITRATORS; and (iii) time is of the essence with regard to the completion of the ARBITRATION and the ARBITRATORS shall make a final award no later than one (1) year after the filing of the initial claim with the ICC.

vi    Award. The ARBITRATORS’ award shall be the sole and exclusive remedy between the parties regarding any claims, counter-claims, issues or accountings presented or pled to the ARBITRATORS, including any such claims, counter-claims, issues or accountings seeking declaratory, equitable and/or injunctive relief, and all costs, fees or taxes incident to enforcing the ARBITRATORS’ award shall be, to the maximum extent permitted by law, charged against the party resisting enforcement. Judgment upon the award of the ARBITRATORS may be entered in a court of competent jurisdiction, or application may be made to such court for a judicial acceptance of the award or any order of enforcement. Without limiting the foregoing, if and to extent that the final award of the ARBITRATORS is found unenforceable, either party may bring a cause of action against the other party before any court of competent jurisdiction at the domicile of the defendant party.
    
vii    Interim Relief. By agreeing to arbitration, the parties do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre- arbitral attachment or other order in aid of the arbitration proceedings and the enforcement of any award. Without prejudice to such provisional remedies in aid of arbitration as may be available under the jurisdiction of a court, the ARBITRATORS shall have full authority to grant provisional remedies and to award damages for the failure of any party to respect the ARBITRATORS’ orders to that effect.

D.
Notwithstanding anything to the contrary, if any DISPUTE arises from either party’s rights or obligations under Section 6 (Confidentiality), then a party may seek equitable relief from a court of competent jurisdiction without needing to resort to the dispute resolution mechanism described above in this Section 13.02. In the event of any dispute relating to this Agreement or breach thereof, the parties shall use their best endeavors to develop practical solutions of mutual benefit to settle conflicts amicably between themselves.


14    PUBLIC ANNOUNCEMENTS AND PUBLICATION

14.01
Neither party shall use the name of the other party in any publicity, advertising, or news without the prior written consent of the other party.

14.02
4AB and LICR may issue one or more joint announcements regarding this Agreement, provided each such announcement has been approved in writing by both LICR and 4AB prior to its release. Further, each party may, in presentations; publications or other disclosures accurately report that it is a party to the relationship represented by this Agreement. All public announcements and statements concerning the research, development and commercialization of PRODUCT(s) by 4AB, LICR or their licensee(s) will acknowledge 4AB’s and LICR’s role in the discovery and validation of the ANTIBODY or ANTIBODIES.

14.03
It is accepted by the parties that the parties may wish to publish or disclose aspects of the PROGRAM and results thereof in scientific journals or meetings or the like. Specifically, LICR and its academic collaborators shall have the right to publish and present scientific findings relating to the PROGRAM. In such an event the disclosing party shall provide the other party with copies of such publications and presentations at least thirty (30) calendar days prior to submission for publication or presentation. The non-disclosing party shall, within a period of thirty (30) calendar days of receipt of such publications or presentations advise the disclosing party whether patent or commercial interests may be prejudiced by the proposed publication or presentation, in which case the party shall delay, or cause its collaborators to delay, submission, if necessary, of the publication or presentation for an

11



additional period, such period not exceeding forty five (45) calendar days, from notification received from disclosing party. If non-disclosing party has not responded to the disclosing party within the initial thirty (30) calendar day time period, the proposed publication or presentation shall be deemed not to prejudice any patent or commercial interests and the LICR and its academic collaborators are free to proceed.


15    INDEPENDENT PARTIES

15.01
At all times, 4AB and LICR shall be deemed and shall in fact be independent of one another and neither shall be authorized or empowered hereby to act as the agent for the other party for the purpose whatsoever or, on behalf of the other, enter into any contract, warranty or representations as to any matter.


16    SURVIVAL AND WAIVERS

16.01
The covenants of the parties which by their terms or express intent are to be performed after the termination or expiration of this Agreement shall survive the termination or expiration of this Agreement.

16.02
Any term or condition of this Agreement may be waived or qualified at any time by the party entitled to the benefit thereof by written instrument executed by said party. No delay or failure on the part of either party in exercising any rights hereunder, and no partial or single exercise thereof, shall constitute a waiver of such rights or of any other rights hereunder.


17    GOVERNING LAW

17.01
This Agreement shall be construed and governed in accordance with the laws of the England and Wales, without regard to its conflicts of law provisions.


18    ASSIGNMENT

18.01
This Agreement, and the rights and obligations hereunder, may not be assigned or transferred by either party without the prior written consent of the other party, except in the case of a CHANGE OF CONTROL.

18.02    Any assignment in violation of this provision shall be void.


19    SEVERANCE

19.01
If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, all other provisions shall continue in full force and effect.


20    NOTICES

20.01
Any notice or other communication required or permitted to be given to either party hereto shall be in writing unless otherwise specified and shall be deemed to have been properly given and effective: (a) on the date of delivery if delivered in person; (b) the date of electronically confirmed facsimile transmission if during the recipient’s normal business hours, or otherwise on the next business day of the recipient; (c) one (1) business day after sending via next business day delivery by a nationally recognized overnight courier service; or (d) three (3) days after mailing by registered or certified mail, postage prepaid and return receipt requested, to the other party at the following address or facsimile number.

Notices to LICR shall be addressed to:

Ludwig Institute for Cancer Research Ltd
666 Third Avenue, 28th floor
New York, NY 10017
USA

Facsimile:    (212) 450-1535
Attention:    Mr. Ed McDermott Jr.
President

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Copies to:

Ludwig Institute for Cancer Research Ltd
666 Third Avenue, 28th floor
New York, NY 10017
USA

Facsimile:    (212) 450-1535
Attention:    Jonathan Skipper, Ph.D.
Executive Director, Technology Development

Notices to 4AB shall be addressed to:

4-Antibody AG
Schwarzwaldallee 215
Basel
CH-4002
Switzerland
Attention:     Robert F Burns, PhD
Chief Executive Officer

Copies to:

4-Antibody AG
Schwarzwaldallee 215
Basel
CH-4002
Switzerland

Attention:    Sarah Thompson, PhD
Head of Intellectual Property



21    FORCE MAJEURE

21.01
No failure or omission by the parties hereto in the performance of any obligation under this Agreement shall be deemed a breach hereto or create any liability if the same arises from any cause beyond the control of the parties including, but not limited to, the following: acts of gods, acts or omissions of any government; any rule, regulation or order issued by governmental authority or by any officer, department, agency or instrumentality thereof: fire; storm; flood; earthquake; accident; war; rebellion; insurrection; riot; invasion; or strike, lockout or other work stoppage provided that such failure or omission is cured as is practicable after the occurrence of the force majeure.


22    ENTIRE AGREEMENT

22.01
This Agreement, together with any Appendix attached hereto and expressly incorporated herein, constitutes the entire agreement between the parties and supersedes all previous arrangements whether written or oral. Any Amendment or modification to this Agreement shall be of no effect unless made in a writing which specifically references this Agreement and signed by both parties.













13












IN WITNESS WHEREOF the parties, intending to be bound hereby, have caused their duly authorised representatives to execute this Agreement.


LUDWIG INSTITUTE FOR CANCER RESEARCH        4-ANTIBODY AG


/s/ Edward A. McDermott____________________        /s/ Robert F. Burns_____________________

Name: Edward A. McDermott                    Name: Robert F. Burns

Title: President                            Title: CEO

Date: May 23, 2011                        Date:    19th May 2011


/s/ Jonathan Skipper_________________________        /s/ Ulf Grawunder, PhD_________________

Name: Jonathan Skipper                    Name: Ulf Grawunder, PhD

Title: Executive Director, Technology Development        Title:    CSO

Date: May 23, 2011                        Date: 19th May 2011


































14




Appendix 1.

PROGRAM SUMMARY

The parties will conduct preclinical and clinical research to establish potential antibody immunotherapies in cancer. [**].


[**]:

1)    [**]
2)    [**]
3)    [**]
4)    [**]
5)    [**]
6)    [**]
7)    [**]
8)    [**]


























[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

15






Appendix 2:


TARGETS: the parties have jointly identified an initial list of potential targets of clinical interest. Antibody immunotherapy against each of these targets has potential utility in the treatment of cancer patients. These targets are as follows:

1. GITR

2. OX40

3. TIM3

4. [**]

The parties may agree to change the list of targets, or to add further targets to this list.

























[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

16





Appendix 3:

JOINT MANAGEMENT COMMITTEE


4AB: Ulf Grawunder, Marc van Dijk (project coordinator), Robert Burns


LICR: Gerd Ritter, Jedd Wolchok, Jonathan Skipper/Pär Olsson (alternating)

























































17





Appendix 4:    Material Transfer Agreement


LUDWIG INSTITUTE FOR CANCER RESEARCH LTD

Postfach, 8024 Zurich, Switzerland
MATERIAL TRANSFER AGREEMENT
FOR ACADEMIC INSTITUTIONS

Name of Institution:                                201_

(The ‘Recipient’)

Address:

Phone:

Fax:

Email:
Attention:


(The ‘Investigator’)

Reagent:
Dear Dr ___
The Ludwig Institute for Cancer Research (hereinafter ‘LICR’) is willing to provide your Institution, (the ‘Recipient’) with the reagents listed above (said reagent and progeny thereof being referred to herein collectively as the ‘Reagents’) for use in the project described in Appendix A (‘Project’) upon the terms and conditions set forth herein:

NOW THEREFORE, intending to be legally bound, the parties hereto hereby agree as follows:

1.
The Reagents furnished to the Recipient for use by the Investigator pursuant to this letter agreement and derivatives thereof (including but not limited to recombinant constructs, cultures, subcultures, mutations or other products derived directly or indirectly from the Reagents, referred to herein as the ‘Derivatives’) will be maintained at the Recipient within the sole possession and control of the Investigator and those staff directly supervised by the Investigator and will be used solely for research and/or educational purposes described in the Project. The Reagents and any Derivatives will only be used in laboratory animals or in vitro experiments as described above, will not be used in therapy involving humans. The Reagents and Derivatives will not be sold by the Recipient or the Investigator or any of Recipient’s or Investigator’s staff to any third party, for any purposes whatsoever and will not be distributed, or transferred by the Recipient or the Investigator or any of Recipient’s or Investigator’s staff to any third party, for any purposes whatsoever without the prior written agreement of LICR. No right, title or interest in the Reagents, Information and the intellectual proprietary rights therein is conveyed under this agreement except for the limited right to perform the Project.

2.
The Reagents, and any information relating to the Reagents that may be disclosed to the Investigator by LICR (the ‘Information’) are being provided to and accepted by the Recipient and the Investigator WITHOUT ANY REPRESENTATION OR WARRANTY, ALL OF WHICH ARE EXPRESSLY DISCLAIMED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESSED OR IMPLIED. LICR and its directors, officers, employees or agents assume no liability in connection with the Reagents or the Derivatives or the Information or their use by the Recipient, including the Investigator and staff. Recipient hereby agrees to defend, indemnify and hold harmless LICR and its directors, officers,

18



employees and agents from and against any liability or claim arising from any use or misuse of the Reagents, Information or the Derivatives, breach of this agreement or the negligence or wilful malfeasance of Recipient, the Investigator or any of Recipient’s or Investigator’s staff. Without limiting the foregoing, LICR makes no representations or warranties as to testing of the Reagents for the presence or absence of any pathogens, and the Investigator and Recipient assume all risk of harm with respect to any pathogens.

3.
Reagents are being provided at no cost to Recipient; provided, however, the costs of handling and transportation by courier will be paid by Recipient, which hereby gives authorisation to LICR to use the following courier account.

Courier:                    
Account No:                     

4.
The Investigator and Recipient have not licensed, assigned or otherwise transferred and will not license, assign or otherwise transfer to any third party any interest in the research involving the Reagents or in the intellectual property or inventions that might emerge therefrom.

5.
Title to the Reagents and patent rights and other intellectual property rights therein are retained by LICR. No right or license is granted with respect to the Reagents, any Derivatives, the Information or any intellectual property rights, except as expressly set forth herein.


6.
Recipient represents and warrants that it is a not-for-profit private or public institution or academic entity and shall not use the Reagents or Information, directly or indirectly for commercial purposes, including without limitation sponsored research. In the event Recipient, Investigator or any other person conceives or reduces to practice any invention as a result of the use of the Reagents or Information furnished under this agreement or the intellectual proprietary rights therein, including any new use for the Reagent, Recipient will promptly disclose any such inventions, discoveries or new use to LICR in writing (the “Invention Notice”). Inventorship on any corresponding patent applications filed as a result of such inventions and discoveries shall be determined in accordance with applicable laws governing inventorship. If Recipient does not pursue or abandons patent protection for any invention described in an Invention Notice, Recipient shall promptly notify LICR, and LICR shall thereafter have the right, at its expense, to prepare, file, prosecute, and maintain any such patent. Recipient and Investigator shall assist LICR, at LICR’s expense, in the preparation of all documents necessary to effectuate LICR's rights in such intellectual property. Recipient hereby grants LICR and said third party a non-terminable, transferable, fully paid-up, royalty-free worldwide, non-exclusive, sublicensable license under any intellectual property rights therein. In addition, Recipient hereby grants LICR (or its designee) an option to obtain a worldwide, exclusive, sublicensable license under any such intellectual property rights within six (6) months of notification, on terms and conditions to be negotiated in good faith by the parties. Such option may be exercised by LICR (or its designee) within six (6) months after LICR’s receipt of the Invention Notice.

7.
The Investigator will keep LICR informed of the results obtained during the course of the research undertaken with the Reagents, any Derivatives and the Information in the course of the Project and will provide the Intellectual Property Office of LICR (666 Third Avenue, 28th Floor, New York, NY 10017, USA, for the attention of Dr. Jonathan Skipper) with ongoing reports on a three monthly basis and an Invention Notice promptly when an invention is made.

8.
LICR and the Recipient will keep in strict confidence all confidential information it receives under this agreement and information relating to the Project and will not publicly disclose any such information without the consent of the other party, unless such information is or becomes generally known to the public through no fault of either party, or is made available to the parties by a third party having lawful right to do so, or is required to be disclosed (but only to

19



the extent of such requirement) pursuant to any law, court order or legal or regulatory process, or is independently developed by the receiving party without use of or reference to the confidential information of the disclosing party. However, the Recipient and the Investigator shall have the right to publish and present scientific findings relating to the results of the Project provided that the Recipient and the Investigator provide LICR with copies of such proposed disclosures at least thirty (30) days prior to submission for publication or presentation. Within thirty (30) days of receipt of such proposed publication or presentation, LICR shall advise Recipient whether patent or commercial interests may be prejudiced by the proposed publication or presentation and shall have the right to request delay of submission of the publication or presentation for an additional period, not to exceed sixty (60) days from initial receipt by LICR, to allow Recipient, who shall have the right but not the obligation in accordance with paragraph 6 above, to seek appropriate intellectual property protection of any inventions or discoveries relating to the Reagents or any Derivatives. If LICR has not responded to the Recipient within the thirty (30) day time period, the proposed publication or presentation shall be deemed not to prejudice any patent or commercial interests and the Recipient is free to proceed with the planned disclosure.

9.
Any publication referring to the Reagents, Information, any Derivatives or reporting of the research carried out with the Reagents, Information or any Derivatives shall contain a reference, when appropriate, to the relevant publication describing the Reagents and to LICR as the source of the Reagents. LICR would appreciate receiving, in due course, a copy of any relevant publications.

Very truly yours,

LUDWIG INSTITUTE FOR CANCER RESEARCH LTD

By:                            By:                
Jonathan Skipper Ph.D.
Executive Director
Ludwig Institute for Cancer Research Ltd
666 Third Avenue 28th Floor
New York, NY 10017
USA



To be signed by authorised signatory of Recipient Institution:

Accepted and agreed to this

__________ Day of ________________ 201_

Signature ________________________
Name ___________________________
(Please Print)
Title ____________________________


To be signed by the Investigator:

Agreed and accepted this

_________ Day of _________________ 201_


20



Signature _________________________
Name ____________________________
(Please Print)
Title _____________________________

21

EX-10.2 3 agen-exhibit102q114.htm COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT AGEN-Exhibit 10.2 Q1 14


COLLABORATIVE RESEARCH & DEVELOPMENT AND COMMERCIAL RIGHTS AGREEMENT
THIS COLLABORATIVE RESEARCH & DEVELOPMENT AND COMMERCIAL RIGHTS AGREEMENT (this “AGREEMENT”) is made the 21st day of December, 2012 (“EFFECTIVE DATE”) by and between RECEPTA BIOPHARMA S.A. with its principal place of business at Rua Tabapuã 1123, cj 36, Sao Paulo, SP Brazil, enrolled with the CNPJ/MF under No. CNPJ/MF: 07.896.151/0001-19, with its By-laws duly filed with the Commercial Registry of the State of São Paulo – JUCESP under NIRE 35.300.329.287 (“RECEPTA”), the LUDWIG INSTITUTE FOR CANCER RESEARCH LTD, a Swiss not- for-profit corporation, with its registered office at Stadelhoferstrasse 22, 8001, Zurich, Switzerland, and having an office at 666 Third Avenue, New York, NY 10017, United States of America (“LICR”), and 4-ANTIBODY AG (“4AB”), incorporated in Switzerland with its registered office at Hochbergerstrasse 60C, CH-4057 Basel, Switzerland. RECEPTA, LICR, and 4AB may each be referred to herein, individually, as a “PARTY” or, collectively, as the “PARTIES”.
WHEREAS, RECEPTA is interested to secure commercial rights to some of the products generated in an ongoing research and development collaboration between LICR and 4AB (“LICR/4AB R&D AGREEMENT”) using 4AB’s Retrocyte Display® discovery technology and LICR’s preclinical and clinical development expertise which are relevant to RECEPTA’s research and development and business activities; and
WHEREAS, 4AB owns technology and know-how with respect to the generation and development of human monoclonal antibodies to treat human diseases; and
WHEREAS, LICR has expertise in the pre-clinical and clinical development of therapeutic antibodies in the treatment of cancer; and
WHEREAS, the PARTIES wish to collaborate to have 4AB and LICR use their technology and joint expertise to discover antibodies directed against TARGETS of interest to RECEPTA (as defined below) that RECEPTA intends to develop and commercialize as PRODUCTS (as defined below), all on the terms and conditions set forth herein; and
WHEREAS, LICR and 4AB desire that RECEPTA be engaged to commercialize some of the products arising from the LICR/4AB R&D AGREEMENT in the TERRITORY.
NOW THEREFORE, in consideration of the premises, representations, warranties and agreements set forth herein, the PARTIES hereto agree as follows:
1    DEFINITIONS
1.01    “4AB” shall have the meaning ascribed to it in the introductory paragraph of this AGREEMENT and comprises 4AB’s two operating sites in Basel, Switzerland and Jena, Germany.


1





1.02    “ACCUMULATED DEVELOPMENT COSTS” shall mean the identified and documented DEVELOPMENT COSTS incurred by each PARTY under the DEVELOPMENT PROGRAM for each ANTIBODY or PRODUCT. ACCUMULATED DEVELOPMENT COSTS exclude ACCUMULATED DISCOVERY COSTS and DIRECT INTERNAL COST and DIRECT EXTERNAL COSTS not related to the development of a PRODUCT and shall stop being incurred by each PARTY, for a PRODUCT upon the earlier of (i) its licensing to a THIRD PARTY; (ii) upon receipt of all approvals from the relevant REGULATORY AGENCY necessary to market and sell a PRODUCT; or (iii) the transfer or assignment of rights to a PRODUCT under this AGREEMENT to a THIRD PARTY. ACCUMULATED DEVELOPMENT COSTS shall be disclosed annually to the JOINT MANAGEMENT COMMITTEE for approval and any unapproved costs shall not be considered ACCUMULATED DEVELOPMENT COSTS. For the purposes of clarity, once recovery of an ACCUMULATED DEVELOPMENT COST has been made from NET REVENUES as provided for herein, that portion of such ACCUMULATED DEVELOPMENT COSTS which has been recovered shall no longer be included in the ongoing calculation of ACCUMULATED DEVELOPMENT COSTS.
1.03    “ACCUMULATED DISCOVERY COSTS” shall mean the identified and documented DISCOVERY COSTS incurred by LICR and 4AB respectively under the DISCOVERY PROGRAM for each ANTIBODY or PRODUCT and DIRECT INTERNAL COSTS and DIRECT EXTERNAL COSTS associated with PROGRAM INTELLECTUAL PROPERTY filing, prosecution, and maintenance covering each ANTIBODY or PRODUCT. ACCUMULATED DISCOVERY COSTS exclude DIRECT INTERNAL COST and DIRECT EXTERNAL COSTS not directly related to an ANTIBODY or PRODUCT or the PROGRAM INTELLECTUAL PROPERTY claiming such PRODUCT and shall stop being incurred for an ANTIBODY or PRODUCT upon the transfer of ANTIBODIES to RECEPTA as provided for in Appendix 1 herein. ACCUMULATED DISCOVERY COSTS shall be disclosed annually to the JOINT MANAGEMENT COMMITTEE for approval and any unapproved costs shall not be considered ACCUMULATED DISCOVERY COSTS. For the purposes of clarity, once recovery of an ACCUMULATED DISCOVERY COST has been made from NET REVENUES as provided for herein, that portion of such ACCUMULATED DISCOVERY COSTS which has been recovered shall no longer be included in the calculation of ongoing ACCUMULATED DISCOVERY COSTS.
1.04    “ACTIVE INGREDIENT” means the clinically active material(s) that provide(s) pharmacological activity in a pharmaceutical or biopharmaceutical product (excluding formulation components such as coatings, stabilizers, excipients or solvents, adjuvants or controlled release technologies). ACTIVE INGREDIENT does not include an ANTIBODY.
1.05    “AFFILIATE” shall mean (i) any corporation or business entity of which RECEPTA or LICR or 4AB owns directly or indirectly, fifty percent (50%) or more of the assets or outstanding stock, or any corporation which RECEPTA or LICR or 4AB directly or indirectly controls, or (ii) any parent corporation which owns, directly or indirectly, fifty percent (50%) or more of the assets or outstanding stock of RECEPTA or LICR or 4AB or directly or indirectly controls RECEPTA or LICR or 4AB or (iii) any sister company which is under common control with RECEPTA or LICR or 4AB for example, any entity where fifty percent (50%) or more of the assets or outstanding stock of such entity is owned, directly or indirectly, by the same parent corporation which owns, directly or indirectly, fifty percent (50%) or more of the assets or outstanding stock of RECEPTA or LICR or 4AB or

2





directly or indirectly controls RECEPTA or LICR or 4AB. For the purpose of clarity, activities performed by 4AB under this AGREEMENT may be performed by its AFFILIATE in Jena, Germany.
1.06    “AGREEMENT” shall have the meaning ascribed to such term in the introductory paragraph.
1.07    “ANTIBODY” or “ANTIBODIES” shall mean an immunoglobulin (Ig) molecule delivered to RECEPTA by 4AB or LICR pursuant to this AGREEMENT for each of the TARGETS described in Appendix 1, and any modification or derivative of any such molecule which is generated or created by or on behalf of RECEPTA, its AFFILIATES or sublicensees, generally comprising four polypeptide chains, two identical heavy (H) chains and two identical light (L) chains, or an equivalent Ig homologue thereof (e.g., a camelid nanobody, which comprises only a heavy chain, including full length functional mutants, variants, or derivatives thereof, which retain the essential epitope binding features of the variable region of an Ig molecule. Immunoglobulin molecules can be of any class (e.g., IgG, IgE, IgM, IgD, IgA, and IgY), or subclass (e.g., IgG1, IgG2, IgG3, IgG4, IgA1, and IgA2) and allotype. ANTIBODY or ANTIBODIES does not include single domain antibodies (dAbs, which can be either heavy or light chain), or dual specific, bispecific, multispecific, or dual variable domain immunoglobulins, and antibody-drug conjugates or antibody-toxin conjugates. ANTIBODY or ANTIBODIES does not include any ANTIBODY FRAGMENT.
1.08    “ANTIBODY BACKUP” means an ANTIBODY generated in a DISCOVERY PROGRAM which has been recommended by the JOINT MANAGEMENT COMMITTEE and accepted by RECEPTA as a molecule which RECEPTA has elected to hold in reserve to protect against potential failure of the ANTIBODY LEAD in such molecule’s further development.
1.09    “ANTIBODY LEAD” means an ANTIBODY generated in a DISCOVERY PROGRAM which has been recommended by the JOINT MANAGEMENT COMMITTEE and accepted by RECEPTA as the molecule which RECEPTA has elected to move into further RECEPTA development.
1.10    “ANTIBODY FRAGMENT” means a molecule generated or claimed pursuant to the LICR/4AB R&D AGREEMENT or the sequence description of such molecule which is any part or fragment of an ANTIBODY including, but not limited to, molecular variants of such part of fragment which in each case comprise at least one polypeptide chain that is not full length, including (i) a Fab fragment, which is a monovalent fragment consisting of the variable light (VL), variable heavy (VH), constant light (CL) and constant heavy 1 (CH1) domains; (ii) a F(ab')2 fragment, which is a bivalent fragment comprising two Fab fragments linked by a disulfide bridge at the hinge region; (iii) a heavy chain portion of a Fab (Fd) fragment, which consists of the VH and CH1 domains; (iv) a variable fragment (Fv) fragment, which consists of the VL and VH domains of a single arm of an antibody, (v) a domain antibody (dAb) fragment, which comprises a single variable domain; (vi) an isolated complementarity determining region (CDR); (vii) a Single Chain Fv Fragment; (viii) a diabody, which is a bivalent, bispecific antibody in which VH and VL domains are expressed on a single polypeptide chain, but using a linker that is too short to allow for pairing between the two domains on the same chain, thereby forcing the domains to pair with the complementarity domains of another chain and creating two antigen binding sites; and (ix) a linear antibody, which comprises a pair of tandem Fv segments (VH-CH1-

3





VH-CH1) which, together with complementarity light chain polypeptides, form a pair of antigen binding regions; and (x) other non-full length portions of heavy and/or light chains, or mutants, variants, or derivatives thereof, alone or in any combination, in each case.
1.11    “APPROVAL” shall mean receipt of all approvals from the relevant REGULATORY AGENCY necessary to market and sell a PRODUCT in the TERRITORY.
1.12    “BACKGROUND INTELLECTUAL PROPERTY” shall mean any INTELLECTUAL PROPERTY, know-how or proprietary technical information owned or controlled by a PARTY, and which is provided to another PARTY for use in the DISCOVERY PROGRAMS or DEVELOPMENT PROGRAMS, and/or which is necessary or useful for performing the DISCOVERY PROGRAMS or DEVELOPMENT PROGRAMS, and all enhancements of and/or refinements or improvements thereto.
1.13    “cGMP” means the regulatory requirements for current good manufacturing practices promulgated in 21 C.F.R. §11;210;211;600 and in EC Directives 2003/94/EC and 2005/28/EC, as well as any additional REGULATORY AGENCY requirements needed to seek registration in the USA or EU, as any of the foregoing may be amended from time to time and anything which replaces or supersedes the same from time to time.
1.14    “COMMERCIALLY REASONABLE EFFORTS” means for 4AB or RECEPTA the level of efforts that a similarly situated biopharmaceutical company of a similar size to 4AB or RECEPTA as the case may be would devote to the discovery, development, and commercialization of a product having similar commercial and scientific potential at a similar stage in the product’s life cycle, taking into account safety and efficacy, the competitiveness of alternative products, the proprietary position of the product, pricing and reimbursement, profitability, likelihood of obtaining APPROVAL, and all other relevant commercial factors.
1.15    “DEVELOPMENT PROGRAM(S)” as used herein shall mean the activities to be performed by LICR and 4AB and RECEPTA as set forth in Appendix 2. The DEVELOPMENT PROGRAMS will cover and include all activities related to the preclinical and clinical development of ANTIBODIES and PRODUCTS recognizing a TARGET but excluding the activities performed pursuant to the DISCOVERY PROGRAMS.
1.16    “DEVELOPMENT COSTS” as used herein shall mean all DIRECT INTERNAL COSTS and DIRECT EXTERNAL COSTS incurred by the PARTIES in the course of conducting their responsibilities within the DEVELOPMENT PROGRAM(S). RECEPTA’S DIRECT INTERNAL COSTS and DIRECT EXTERNAL COSTS within the TERRITORY shall not be included in DEVELOPMENT COSTS save for the costs of those activities expressly disclosed in Appendix 2 or added to Appendix 2 from time to time following the approval of the JOINT MANAGEMENT COMMITTEE and with the written approval of the CEOs of the PARTIES.
1.17    “DIRECT EXTERNAL COSTS” as used herein shall be the actual amounts paid to a THIRD PARTY in return for services and tasks undertaken pursuant to this AGREEMENT
1.18    “DIRECT INTERNAL COSTS” as used herein shall be [**]
[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

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1.19    “DISCOVERY COSTS” as used herein shall mean all DIRECT INTERNAL COSTS and DIRECT EXTERNAL COSTS incurred by 4AB and LICR in the course of conducting their responsibilities within the DISCOVERY PROGRAM.

1.20    “DISCOVERY PROGRAM” as used herein shall mean the activities performed by LICR and 4AB under the LICR/4AB R&D AGREEMENT which are pursuant to this AGREEMENT, during the INITIAL TERM or any EXTENSION TERM as set forth in Appendix 1. The DISCOVERY PROGRAMS will cover and include all activities related to the discovery and generation of ANTIBODIES recognizing a TARGET. For the purposes of clarity, a DISCOVERY PROGRAM is not a DEVELOPMENT PROGRAM.
1.21    “DISCOVERY PROGRAM COMPLETION” as used herein shall mean that (a) an ANTIBODY LEAD and an ANTIBODY BACKUP have been selected and recommended to the JOINT MANAGEMENT COMMITTEE for acceptance as ready for transfer to RECEPTA, (b) a data report has been compiled for RECEPTA and reviewed by the JOINT MANAGEMENT COMMITTEE such data report to include full gene and peptide sequence data in electronic form, and (c) shipment to RECEPTA and receipt by RECEPTA of 5mg in protein form of each ANTIBODY LEAD and each ANTIBODY BACKUP for each DISCOVERY PROGRAM is confirmed by 4AB and RECEPTA respectively to the JOINT MANAGEMENT COMMITTEE.
1.22    “EFFECTIVE DATE” shall have the meaning ascribed to such term in the introductory paragraph of this AGREEMENT.
1.23    “EXPERT DETERMINATION” shall mean a suitably qualified neutral arbitrator to be agreed by the PARTIES who shall determine the matter in question within ninety (90) days of being appointed. Fees shall be paid equally by the parties and the arbitrator’s determination which shall be binding shall be made on the basis of written submissions from the PARTIES.
1.24    “EXTENSION TERM” shall have the meaning ascribed to it in Section 2.03.
1.25    “FIELD” shall mean all therapeutic uses for the treatment of humans.
1.26    “FIRST COMMERCIAL SALE” shall mean, with respect to any PRODUCT in any country or jurisdiction in the TERRITORY, the first (1st) sale to a THIRD PARTY for distribution, use or consumption of any such PRODUCT in such country or jurisdiction after the APPROVAL and any applicable pricing approvals have been obtained for such PRODUCT in such country or jurisdiction.

1.27    “GAAP” shall mean United States generally accepted accounting principles consistently and appropriately applied.
1.28    “IND” shall mean an investigational new drug application filed with the United States Food and Drug Administration pursuant to 21 C.F.R. § 312 (as amended from time to time) for authorization to commence human PHASE I CLINICAL TRIALs of a PRODUCT, and the equivalent regulatory filing in other countries including the TERRITORY.
1.29    “INFORMATION” shall have the meaning ascribed to it in Section 6.01.
1.30    “INITIAL TERM” shall mean twelve (12) months from the EFFECTIVE DATE.
1.31    “INTELLECTUAL PROPERTY” shall mean the rights comprised in any patent, copyright, design, trade mark, eligible layout or similar right whether at common law or conferred by statute, rights to apply and applications for registration under a statute in respect of

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these or like rights and rights to protect trade secrets and know-how, throughout the world for the full period of the rights and all renewals and extensions.
1.32    “JOINT MANAGEMENT COMMITTEE” shall mean the committee established pursuant to Article 3 herein.
1.33    “LEAD PARTY shall mean the PARTY responsible for briefing the JOINT MANAGEMENT COMMITTEE in a timely fashion at the appropriate JOINT MANAGEMENT COMMITTEE meeting at which the development activity identified under that LEAD PARTY'S name in Appendix 4 is discussed and recommending a course of action in the best interests of the DEVELOPMENT PROGRAM(S).
1.34    “LICR” shall have the meaning ascribed to it in the introductory paragraph of this AGREEMENT.
1.35    “LICR/4AB R&D AGREEMENT” shall mean the joint collaborative research and development agreement between LICR and 4AB which is appended hereto in Appendix 4.
1.36    “MAINTENANCE PERIOD” shall have the meaning ascribed to it in Section 2.02.
1.37    “MANUFACTURING CONTRACTOR” shall have the meaning ascribed to it in Section 4.011.
1.38    “NEGOTIATIONS” shall have the meaning ascribed to it in Section 4.011.
1.39    “NET REVENUES” shall mean all forms of cash considerations generated from the PARTIES’ commercialization efforts under the terms of this AGREEMENT including (i) upfront payments, (ii) license or sub-licensing fees, (iii) milestone payments, (iv) royalties, (v) in the event 4AB markets a PRODUCT or PRODUCTS, NET SALES by 4AB or its AFFILIATES outside the TERRITORY less 4AB’s direct PRODUCT costs, marketing costs and reasonable overhead costs as agreed by the PARTIES, (vi) in the event RECEPTA markets a PRODUCT or PRODUCTS pursuant to Section 4.03, NET SALES by RECEPTA or its AFFILIATES outside the TERRITORY less RECEPTA’S direct PRODUCT costs, marketing costs and reasonable overhead costs as agreed by the remaining PARTIES, and (vi) all forms of non-cash considerations or comparable revenues, less any royalty for an ANTIBODY to be paid by 4AB to a THIRD PARTY to obtain a license under a VALID CLAIM of a THIRD PARTY required to enable the commercialization of a PRODUCT as contemplated herein. For the purposes of clarity the PURCHASE PRICE paid by RECEPTA hereunder is not included in NET REVENUES, and NET REVENUES excludes any revenues arising within the TERRITORY generated by RECEPTA or its AFFILIATES by the exercise of its or their rights in the TERRITORY under this AGREEMENT.
1.40    “NET SALES” shall mean with respect to any PRODUCT, the gross amount recognized in accordance with GAAP for sales of such PRODUCT to a THIRD PARTY less deductions, to the extent reasonable, customary, and consistent with a PARTY’S business practices, for:
a)    transportation charges, and other charges, such as insurance, relating thereto;
b)    sales and excise taxes or customs duties paid by the selling PARTY and any other governmental charges imposed upon the sale of such PRODUCT and actually paid;
c)    discounts and chargebacks actually accrued, granted, allowed or incurred in connection with the sale of such PRODUCT;

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d)    allowances or credits to customers actually accrued, granted, allowed or incurred and not in excess of the selling price of such PRODUCT, on account of rejection, outdating, recalls or return of such PRODUCT; and
e)    rebates, reimbursements, fees or similar payments to or accruals for (i) wholesalers and other distributors, pharmacies and other retailers, buying groups (including group purchasing organisations), health care insurance carriers, pharmacy benefit management companies, health maintenance organisations, governmental authorities, or other institutions or health care organisations; or (ii) to patients and other THIRD PARTIES arising in connection with any program applicable to a PRODUCT under which a PARTY or its AFFILIATES provides to low income, uninsured or other patients the opportunity to obtain a PARTY’S pharmaceutical products at reduced cost.
For the avoidance of doubt, if a single item falls into more than one of the categories set forth in clauses (a)-(e) above, such item may not be deducted more than once. Sales between a PARTY and its AFFILIATES and sublicensees shall be disregarded for purposes of calculating NET SALES except if such purchaser is an end user. NET SALES will be calculated on an accrual basis, in a manner consistent with a PARTY’S accounting policies for external reporting purposes, as consistently applied, in accordance with GAAP. To the extent any accrued amounts used in the calculation of NET SALES are estimates, such estimates shall be corrected in accordance with a PARTY’S accounting policies for external reporting purposes, as consistently applied, and NET SALES and related payments under this AGREEMENT shall be reconciled as appropriate. Furthermore, if a PRODUCT either (i) is sold in the form of a combination product containing both an ANTIBODY and one or more ACTIVE INGREDIENT(S) as separate molecular entity(ies) that are not derived from the PROGRAMS; or (ii) is sold in a form that contains (or is sold bundled with) a delivery device therefor (in either case ((i) or (ii)), a “COMBINATION PRODUCT”), the NET SALES of such PRODUCT for the purpose of calculating royalties and sales-based milestones owed under this AGREEMENT for sales of such PRODUCT, shall be determined as follows: first, a PARTY shall determine the actual NET SALES of such COMBINATION PRODUCT (using the above provisions) and then such amount shall be multiplied by the fraction A/(A+B), where A is the invoice price of the PRODUCT, if sold separately, and B is the total invoice price of any other ACTIVE INGREDIENT or delivery device in the COMBINATION PRODUCT if sold separately. If any other ACTIVE INGREDIENT or delivery device in the COMBINATION PRODUCT is not sold separately, NET SALES shall be calculated by multiplying actual NET SALES of such COMBINATION PRODUCT by a fraction A/C where A is the invoice price of the PRODUCT if sold separately and C is the invoice price of the COMBINATION PRODUCT. If neither the PRODUCT nor any other ACTIVE INGREDIENT (or delivery device) in the COMBINATION PRODUCT is sold separately, the adjustment to NET SALES shall be determined by the PARTIES in good faith to reasonably reflect the fair market value of the contribution of the PRODUCT in the COMBINATION PRODUCT to the total fair market value of such COMBINATION PRODUCT. If the PARTIES are unable to reach an agreement on the fair market value of the contribution of the PRODUCT in the COMBINATION PRODUCT within thirty (30) days as from the start of negotiations in this respect, then any of the PARTIES shall have the right to refer such issue to EXPERT DETERMINATION.
1.41    “PARTY” or “PARTIES” shall have the meaning ascribed to such term in the introductory paragraph of this AGREEMENT.
1.42    “PERCENTAGE SHARE” shall have the meaning ascribed to it in Section 8.03.2.

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1.43    “PERSON” means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organisation or other entity.
1.44    “PHASE I PHASE I CLINICAL TRIAL” means, with respect to a PRODUCT, a clinical trial on sufficient numbers of human patients or subjects for the primary purposes of evaluating safety, metabolism and pharmacokinetics, as described in 21 C.F.R. §312.21(a), or similar clinical study in the TERRITORY.
1.45    “PRODUCT(S)” shall mean any composition and/or formulation containing or comprising one or more ANTIBODY(IES) for use in the FIELD.
1.46    “PRODUCT PATENT(S)” shall mean all patent applications filed by LICR or 4AB and all patents issued therefrom pertaining to ANTIBODIES which arise from PROGRAM INTELLECTUAL PROPERTY or otherwise covered by PROGRAM INTELLECTUAL PROPERTY, and any reissues, re-examinations, continuations, claims of U.S. and foreign continuations-in-part which are directed to subject matter specifically described in the U.S. and foreign patent applications, divisionals, or renewals claiming priority to any such patent or patent application and including any extensions, patents of addition, and any extension of the term of the patent or supplementary protection certificate or other means by which greater effective patent protection is extended.
1.47    “PROGRAM INTELLECTUAL PROPERTY” shall mean all results, data, know-how, materials, and compounds including and relating to ANTIBODIES created by LICR and/or 4AB during the course of and as a direct result of carrying out the DISCOVERY PROGRAMS and the DEVELOPMENT PROGRAMS. PROGRAM INTELLECTUAL PROPERTY does not and shall not include any enhancements of, refinements to, or improvements to LICR or 4AB BACKGROUND INTELLECTUAL PROPERTY made during the course of carrying out the DISCOVERY PROGRAMS and all such enhancements of, refinements to, or improvements to LICR and 4AB BACKGROUND INTELLECTUAL PROPERTY shall remain the exclusive property of LICR or 4AB respectively.
1.48    “PURCHASE PRICE” shall mean the payment made by RECEPTA under Article 7 herein to 4AB for the grant of the exclusive commercial rights and other rights provided for under Article 4. The PURCHASE PRICE shall be non-refundable.

1.49    “QUARTER” shall mean each period of three months ending on March 31, June 30, September 30, or December 31.
1.50    “RECEPTA” shall have the meaning ascribed to such term in the introductory paragraph of this AGREEMENT.
1.51    “REGULATORY AGENCY” shall mean the Food and Drug Administration (FDA), the European Medicines Agency (EMA) and Agencia Nacional de Vigilancia Sanitaria or National Health Surveillance Agency (Anvisa) of Brazil or any corresponding government agency responsible for the approval of clinical trials of investigational agents in humans.




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1.52    “RESOURCE ESCALATION DECISION” shall mean each decision agreed by the PARTIES which will trigger key go/no go actions for the various stages of each DEVELOPMENT PROGRAM and which represents a significant increase in resourcing including, but not limited to, the following decisions (i) [**].
The RESOURCE ESCALATION DECISIONS are described in more detail in Appendix 4 together with current estimates of projected resourcing.
1.53    SCIENTIFICALLY REASONABLE EFFORTS” means for LICR the level of effort that a similarly situated academic clinical research group of a similar size to LICR would devote to a discovery, preclinical and clinical research project having similar clinical and scientific potential at a similar stage in the project’s development, taking into account safety and efficacy, the competitiveness of alternative projects, the proprietary position of the project and all other relevant factors. LICR’s efforts will employ its uniquely effective working relationship with the Memorial Sloan Kettering Cancer Center (MSKCC) and with certain key clinical staff within MSKCC.
1.54    “SOUTH AMERICA” shall mean Argentina, Bolivia, Chile, Colombia, Ecuador, French Guiana, Guyana, Paraguay, Peru, Suriname, Uruguay, and Venezuela, excluding Brazil.
1.55    “TARGET” shall mean the antigens designated by the PARTIES against which ANTIBODIES shall be generated and evaluated within the DISCOVERY PROGRAMS as set forth in Appendix 1.
1.56    “TERM” shall have the meaning ascribed to it in Section 10.01.
1.57    “TERRITORY” shall mean Brazil.
1.58    “THIRD PARTY” means any PERSON other than a PARTY or an AFFILIATE.
1.59    “TOTAL ACCUMULATED DEVELOPMENT COSTS” shall have the meaning ascribed to it in Section 8.02
1.60    “VALID CLAIM” means any issued or granted claim of a patent that has not been revoked or held unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, that remains unappealable or unappealed within the time allowed for appeal, or that has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue, re-examination, disclaimer or otherwise.
2    RESEARCH & DEVELOPMENT COLLABORATION
2.01 4AB and LICR shall carry out the DISCOVERY PROGRAMS in accordance with the work plans set out in Appendix 1 and in accordance with the timelines set forth therein as reasonably practicable, and shall perform the DISCOVERY PROGRAMS with good scientific and technical diligence and in the case of 4AB using COMMERCIALLY REASONABLE EFFORTS and in the case of LICR using SCIENTIFICALLY REASONABLE EFFORTS. 4AB and LICR shall not deviate materially from the DISCOVERY PROGRAMS without the prior agreement of RECEPTA. 4AB and LICR shall deliver to RECEPTA ANTIBODIES generated from the DISCOVERY PROGRAMS that meet the specification set forth in Appendix 1 as applicable, and [**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

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in the manner set forth in Appendix 1, together with the corresponding written reports identified in Appendix 1.

2.02    4AB and LICR shall maintain records of their respective activities under this AGREEMENT pursuant to the DISCOVERY PROGRAMS in sufficient detail and in good scientific manner as will properly and accurately reflect all work done and results achieved in the DISCOVERY PROGRAMS. During the INITIAL TERM and any EXTENSION TERM, and for two (2) years thereafter (the “MAINTENANCE PERIOD”), 4AB and LICR shall provide RECEPTA full access to such records during ordinary business hours upon request provided such request gives reasonable notice and such resulting access is not agreed to more than once each calendar year.
2.03    The DISCOVERY PROGRAMS shall commence on the EFFECTIVE DATE and shall continue for the INITIAL TERM unless previously terminated pursuant to a recommendation of the JOINT MANAGEMENT COMMITTEE as provided for in Article 3 herein; provided, however, that with the consent of the PARTIES, which consent shall not be unreasonably withheld, the DISCOVERY PROGRAMS may be extended for an additional period of up to six (6) months beyond the INITIAL TERM (the “EXTENSION TERM”). Further extensions may thereafter be mutually agreed upon by the PARTIES.
2.04    When the JOINT MANAGEMENT COMMITTEE has determined that a DISCOVERY PROGRAM has reached DISCOVERY PROGRAM COMPLETION, the PARTIES will collaborate on a DEVELOPMENT PROGRAM for the ANTIBODY LEAD and ANTIBODY BACKUP derived from such DISCOVERY PROGRAM.
2.05    The activities to be performed by the PARTIES under each DEVELOPMENT PROGRAM are detailed in Appendix 2.
2.06 The PARTIES will each contribute to the costs of conducting the DEVELOPMENT PROGRAMS as further detailed in Article 8 and Appendix 2 and Appendix 4.

3    JOINT MANAGEMENT COMMITTEE
3.01    Promptly following the EFFECTIVE DATE, the PARTIES shall establish a JOINT MANAGEMENT COMMITTEE to monitor the conduct, management, supervision, and progress of the DISCOVERY PROGRAMS and the DEVELOPMENT PROGRAMS. The JOINT MANAGEMENT COMMITTEE shall consist of three representatives from each PARTY and shall operate by unanimous decisions. The initial representatives of each PARTY are set forth in Appendix 3 hereto. Either PARTY may change its representatives upon written notice to the other PARTIES. Unless otherwise agreed to by the PARTIES, the JOINT MANAGEMENT COMMITTEE shall meet at least once per QUARTER, in person, via teleconferences, or via videoconference and shall hold such additional meetings as its members think fit. The first meeting of the JOINT MANAGEMENT COMMITTEE shall take place within ten (10) days of the EFFECTIVE DATE.
3.02    Each PARTY shall designate one of its members as co-chair. The co-chairs shall be responsible to circulate, finalize and agree on minutes of each meeting within thirty (30) days after the meeting date. The JOINT MANAGEMENT COMMITTEE shall be the primary vehicle for communication between the PARTIES on DISCOVERY PROGRAM information and DEVELOPMENT PROGRAM information. The JOINT MANAGEMENT COMMITTEE’s role is to facilitate communication between the PARTIES regarding progress in relation to the

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DISCOVERY PROGRAMS and DEVELOPMENT PROGRAMS and the collaboration generally.
3.03    The JOINT MANAGEMENT COMMITTEE shall have the authority to discuss and agree strategy, direction, and timing of
3.03.1    the development and commercialization of ANTIBODIES and PRODUCTS; and
3.03.2    the filing or extension of INTELLECTUAL PROPERTY designed to protect ANTIBODY or PRODUCT; and
3.03.3    any amendment of the PROGRAMS solely as to technical details that do not substantially affect resources required for performance, timing, or deliverables, and in each case solely if mutually agreed in writing by authorized representatives of the JOINT MANAGEMENT COMMITTEE.
Any such mutually agreed outcomes of such discussions which impact the resources required for allocation to DEVELOPMENT PROGRAM shall require endorsement by the CEOs of the PARTIES as provided for in Section 3.05 before implementation.
3.04    The JOINT MANAGEMENT COMMITTEE shall have the authority to recommend the allocation of resources to the DEVELOPMENT PROGRAMS together with the development of an annual budget of projected costs no later than October 1 of each year for the subsequent calendar year consistent with the activities and roles as described in more detail in Appendix 2 subject to such resourcing recommendations being accepted and ratified in writing by the CEOs of the PARTIES within sixty (60) days. At the first meeting of the JOINT MANAGEMENT COMMITTEE, the PARTIES will include on the agenda of the meeting discussion and decision (a) on whether there is a need to schedule a budget discussion for any costs related to DEVELOPMENT PROGRAMS due in 2013 and (b) [**]
3.05    Before each RESOURCE ESCALATION DECISION is agreed, each PARTY will indicate its agreement on a DEVELOPMENT PROGRAM by DEVELOPMENT PROGRAM basis to the JOINT MANAGEMENT COMMITTEE to such RESOURCE ESCALATION DECISION about to be undertaken. In the event that a PARTY agrees to a RESOURCE ESCALATION DECISION being undertaken, but elects not to provide funds for such RESOURCE ESCALATION DECISION, the JOINT MANAGEMENT COMMITTEE will record the fact that NET REVENUES accrued from such DEVELOPMENT PROGRAM will be adjusted as defined further in Section 8.03 (“ADJUSTED NET REVENUES”) subject to such resourcing recommendations being accepted and ratified in writing by the CEOs of the PARTIES within thirty (30) days such acceptance not to be withheld unreasonably.
3.05.1
[**]
3.05.2
[**]
3.06    The JOINT MANAGEMENT COMMITTEE shall wherever possible recommend strategies utilizing the complementary know-how and expertise of each of the PARTIES, to maximize the success of the DISCOVERY PROGRAMS and DEVELOPMENT PROGRAMS. To facilitate such strategies the JOINT MANAGEMENT COMMITTEE shall be responsible for [**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

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ensuring full data, information and associated documentation exchange between the PARTIES with respect to the DISCOVERY PROGRAMS and DEVELOPMENT PROGRAMS, ANTIBODIES, and PRODUCTS.

3.07    The JOINT MANAGEMENT COMMITTEE shall not have any decision-making authority beyond that described above and the JOINT MANAGEMENT COMMITTEE shall have no power to amend or waive compliance with this AGREEMENT.

3.08    The JOINT MANAGEMENT COMMITTEE may make recommendations to the CEOs of the PARTIES if these are considered necessary to:
3.08.1    Improve the effectiveness of the implementation of the DISCOVERY PROGRAMS and/or the DEVELOPMENT PROGRAMS;
3.08.2    To recommend a change of TARGET or TARGETS to the PARTIES if any DISCOVERY PROGRAM encounters or seems likely to encounter implementation difficulties which in the view of the PARTIES cannot be reasonably overcome or for any other reason that the JOINT MANAGEMENT COMMITTEE agrees;
3.08.3    To recommend extension of the AGREEMENT to include additional TARGETS or to substitute TARGETS from within the LICR/4AB R&D AGREEMENT subject always to the consent of 4AB and LICR, provided that the JOINT MANAGEMENT COMMITTEE agrees that such substitutions or extensions have the potential to increase the overall effectiveness and success of the collaboration between the PARTIES.

4    COMMERCIAL AND OTHER RIGHTS AND DILIGENCE OBLIGATIONS
4.01    4AB hereby grants RECEPTA and RECEPTA hereby accepts an exclusive right to research, develop, make, have made, use, market, sell, offer for sale, and import ANTIBODIES and PRODUCTS in the FIELD in the TERRITORY.
4.02    4AB retains all rights to commercialize ANTIBODIES and PRODUCTS in the FIELD outside the TERRITORY. No rights or licenses (either express or implied) to any BACKGROUND INTELLECTUAL PROPERTY of LICR or 4AB or RECEPTA are granted by this AGREEMENT except as expressly provided in this Article 4 or the following Article 5.
4.03    [**]
4.04    [**]
4.05    RECEPTA shall use COMMERCIALLY REASONABLE EFFORTS to develop and commercialize ANTIBODIES and PRODUCTS under the terms herein.
4.06    4AB shall use COMMERCIALLY REASONABLE EFFORTS to develop and commercialize ANTIBODIES and PRODUCTS outside the TERRITORY and LICR shall use SCIENTIFICALLY REASONABLE EFFORTS to conduct preclinical and clinical research on ANTIBODIES and PRODUCTS outside the TERRITORY.
[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.


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4.07    If 4AB has failed to commercialize PRODUCTS outside the TERRITORY by the date of the FIRST COMMERCIAL SALE, all rights to commercialize PRODUCTS outside the TERRITORY under this AGREEMENT shall automatically revert to LICR and RECEPTA.
4.08    During a DEVELOPMENT PROGRAM and prior to filing with any REGULATORY AGENCY for clinical studies within the TERRITORY, RECEPTA shall provide LICR and 4AB with a diligence report on January 1st and July 1st of each year describing RECEPTA’s efforts to develop and commercialize PRODUCTS within the TERRITORY. Thereafter, RECEPTA shall provide LICR and 4AB diligence reports annually on January 1st describing RECEPTA’s efforts to develop and commercialize PRODUCTS.

4.09    During a DEVELOPMENT PROGRAM and until 4AB has secured a first commercialization partner for one or more ANTIBODIES, 4AB shall provide LICR and RECEPTA with a diligence report on January 1st and July 1st of each year describing 4AB’s efforts to execute its commercialization rights to PRODUCTS outside the TERRITORY.

4.010    At the point at which 4AB first seeks a THIRD PARTY commercialization partner outside the TERRITORY whose interests include SOUTH AMERICA, 4AB will invite RECEPTA to submit a proposal for a commercialization plan to develop the commercial rights to an ANTIBODY LEAD and an ANTIBODY BACKUP] and a PRODUCT based thereon outside the TERRITORY but solely within SOUTH AMERICA and; provided such a proposal is received from RECEPTA within thirty (30) days of such request, will consider it jointly and reasonably with LICR. RECEPTA may also propose such a commercialization plan for developing the commercial rights to an ANTIBODY LEAD and an ANTIBODY BACKUP and a PRODUCT based thereon outside the TERRITORY but solely within SOUTH AMERICA, prior to 4AB inviting RECEPTA to do so. Once 4AB has received such a proposal and if such proposal is not unreasonably rejected jointly by LICR and 4AB, 4AB may but shall not be obligated to subsequently invite RECEPTA to resubmit a revised proposal before offering rights outside the TERRITORY to a THIRD PARTY.
4.011    [**]
4.012    When 4AB first seeks a manufacturing contractor to supply cGMP material for one or more of the PRODUCTS for use outside the TERRITORY (the “MANUFACTURING CONTRACTOR”) pursuant to the AGREEMENT, 4AB agrees to notify RECEPTA to determine whether RECEPTA wishes to enter into good faith negotiations (the “NEGOTIATIONS”) to become the MANUFACTURING CONTRACTOR under the following provisions:
[**];
4.013    In the event that RECEPTA becomes the MANUFACTURING CONTRACTOR for a PRODUCT or PRODUCTS, [**] For the purposes of clarity, in the event that RECEPTA does not become the MANUFACTURING CONTRACTOR for 4AB and LICR, [**].
[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.





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5    INTELLECTUAL PROPERTY

5.01    All rights, title and interest in and to any BACKGROUND INTELLECTUAL PROPERTY shall remain with the PARTY owning such BACKGROUND INTELLECTUAL PROPERTY.
5.02    PRODUCT PATENTS and PROGRAM INTELLECTUAL PROPERTY shall be owned and managed jointly by LICR and 4AB as provided for under the LICR/4AB R&D AGREEMENT.
5.03    RECEPTA shall have the sole right and responsibility, at its sole cost, to prosecute and maintain, defend and enforce any patents or applications for patents included in the PRODUCT PATENTS within the TERRITORY and to conduct any lawsuits, claims and/or proceedings relating to such PRODUCT PATENTS within the TERRITORY, including any interference or opposition proceeding relating thereto provided always that RECEPTA’s actions shall be consistent with the patent strategy pursued by LICR and 4AB outside the TERRITORY and shall give LICR and 4AB reasonable notice to allow LICR and 4AB to provide inputs to RECEPTA to assist RECEPTA in its actions provided for in this Section 5.03 and also provided RECEPTA shall reimburse LICR and/or 4AB for any reasonable costs it/they may incur (including THIRD PARTY costs) in so assisting with any of the above activities.
5.04    In the event that the right described in Section 3.05.1 is granted to RECEPTA, the PARTIES will enter negotiations to agree the process to prosecute and maintain, defend and enforce any patents or applications for patents covering an ANTIBODY LEAD and an ANTIBODY BACKUP included in the PRODUCT PATENTS worldwide and to conduct any lawsuits, claims and/or proceedings relating to such PRODUCT PATENTS worldwide, including any interference or opposition proceeding relating thereto provided that RECEPTA agrees that such costs associated with ANTIBODY LEAD and an ANTIBODY BACKUP and any related PRODUCT PATENTS shall be covered by RECEPTA. If the PARTIES agree that some or all of the associated tasks may be performed by 4AB and/or LICR, RECEPTA shall reimburse 4AB and/or LICR for any reasonable costs it/they may incur (including THIRD PARTY costs) in so assisting with any of the above activities. In the event that the right described in Section 3.05.2 reverts to 4AB, then 4AB shall have sole responsibility for the prosecution and management of the PATENTS.
5.05    4AB agrees to use COMMERCIALLY REASONABLE EFFORTS to file patent applications intended to provide protection for PRODUCT(S) based on data generated by the PARTIES during the DISCOVERY PROGRAM as contemplated under the LICR/4AB R&D Agreement and similarly in the DEVELOPMENT PROGRAM and to make such information and data available to LICR and RECEPTA. 4AB shall use COMMERCIALLY REASONABLE EFFORTS to maximize the opportunity for patent term restoration or similar extensions or continuations of rights where applicable to PRODUCT PATENT(S).
5.06    RECEPTA agrees to use COMMERCIALLY REASONABLE EFFORTS to file patent applications within the TERRITORY following the EFFECTIVE DATE intended to provide additional protection for PRODUCT(S) within the TERRITORY based on data generated by RECEPTA during its development of PRODUCT and to make such information and data available to LICR and 4AB to support any patent applications outside the TERRITORY. RECEPTA shall use COMMERCIALLY REASONABLE EFFORTS to maximize the opportunity for patent term restoration or similar extensions or continuations of rights where applicable to PRODUCT PATENT(S) in the TERRITORY.

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6    CONFIDENTIALITY
6.01    All oral, written, electronic or other communications and other information disclosed or provided by one PARTY to another PARTY, including any and all analyses or conclusions drawn or derived therefrom regarding any PROGRAM INTELLECTUAL PROPERTY or the DISCOVERY PROGRAMS or the DEVELOPMENT PROGRAMS, or a PARTY’s BACKGROUND INTELLECTUAL PROPERTY, patent applications or other patent filings, assays, processes, formulations, analytical procedures, clinical procedures, methodologies, products, samples, material, cells and specimens or functions (“INFORMATION”) shall be received and used solely for the purposes set forth in this AGREEMENT and subject to the following terms and conditions.
6.02    Each PARTY shall keep the INFORMATION of the other PARTIES in confidence for the period commencing on the EFFECTIVE DATE and ending five (5) years after the end of the TERM and will not, without the disclosing PARTY’s prior written consent, disclose any INFORMATION to any PERSON, except those of the receiving PARTY’s officers, employees, directors, consultants, collaborators, sublicensees and AFFILIATES who require said INFORMATION to perform their obligations or exercise their rights under this AGREEMENT. Each PARTY’s officers, employees, directors, consultants, collaborators, sublicensees and AFFILIATES to whom INFORMATION of the other PARTY is to be disclosed shall be advised by the receiving PARTY of the confidential nature thereof and shall be bound by confidentiality and non-use obligations no less stringent than those contained herein.
6.03    The obligations of confidentiality and non-use set forth herein shall not apply to any INFORMATION which is:
6.03.1    known to the receiving PARTY prior to receipt from the disclosing PARTY, other than through prior disclosure by the disclosing PARTY, as evidenced by the receiving PARTY’s written records;
6.03.2    available to the general public or which hereafter becomes available to the general public otherwise than through a breach of this AGREEMENT;
6.03.3
obtained by the receiving PARTY from a THIRD PARTY with a valid right to disclose such INFORMATION.

6.04    The terms of this AGREEMENT are considered INFORMATION of the PARTIES. However, each PARTY shall be entitled to disclose the terms of this AGREEMENT under legally binding obligations of confidence and limited use to: legal, financial and investment banking advisors; and potential and actual investors, acquirers and licensees or sublicensees doing diligence and counsel for the foregoing.
6.05    If, in the opinion of the receiving PARTY’s counsel, any of the disclosing PARTY’s INFORMATION is required to be disclosed pursuant to law, regulation, or court order, the receiving PARTY shall, if permissible, give the disclosing PARTY prompt written notice in order to allow the disclosing PARTY to take whatever action it reasonably deems necessary to protect its INFORMATION. In the event that no protective order or other remedy is obtained, or the disclosing PARTY waives compliance with the terms of this Article 6, the receiving PARTY will furnish only that portion of the INFORMATION which the receiving PARTY is advised by its counsel is legally required. Additionally, each PARTY may disclose the INFORMATION of another PARTY to the extent that such disclosure is (i) made by such PARTY to relevant regulatory authorities as required in connection with any filing, application or request for

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APPROVAL for a PRODUCT; provided, however, that reasonable measures shall be taken to assure confidential treatment of such INFORMATION; and/or (ii) made by such PARTY to the US Patent Office or European Patent Office or their foreign equivalents in connection with establishing patentability of INTELLECTUAL PROPERTY arising under this AGREEMENT.
6.06    Promptly after the termination or expiration of this AGREEMENT for any reason, each PARTY shall promptly return to the other PARTIES, or destroy and certify the destruction thereof, all tangible manifestations of such other PARTIES’ INFORMATION at that time in the possession of the receiving PARTY. The receiving PARTY may retain one copy of each item of INFORMATION, and notes regarding the same, provided that said copy shall be retained and used solely for the purposes of ongoing compliance with this AGREEMENT and shall be held in the receiving PARTY’s confidential files.
6.07    No PARTY shall use the name of another PARTY in any publicity, advertising, or news without the prior written consent of the other PARTY. All press releases or other similar public communication by a PARTY relating to this AGREEMENT shall be approved in advance by the other PARTIES, which approval shall not be unreasonably withheld or delayed, except for (i) those communications required by applicable law (which shall be governed by Section 6.05), (ii) disclosures of information for which consent has previously been obtained and (iii) information of a similar nature to that which has been previously disclosed publicly with respect to this AGREEMENT, each of which ((i), (ii) and (iii)), shall not require advance approval.
7    PURCHASE PROVISIONS
7.01    RECEPTA and/or its designated AFFILIATE agrees to pay 4AB a PURCHASE PRICE of [**] for each PRODUCT to each TARGET totaling [**] for the rights to (i) exclusively commercialize the PRODUCTS and ANTIBODIES in the TERRITORY under the rights herein; (ii) enter discussions to potentially secure further rights pursuant to Section 4.010, 4.011, and 4.012 herein; (iii) a distribution of potential commercial returns pursuant to Sections 8.03 and 8.04 herein and (iv) all other commercial rights made available herein.
7.02
The payments referred to in Section 7.01 above will be made as follows:

7.02.1
a total unrefundable (even in the event of termination pursuant to Section 10.02 herein) [**] as an upfront payment in two tranches of (a) CHF two hundred and fifty thousand (250,000) within ten (10) days following the EFFECTIVE DATE of this AGREEMENT and (b) [**] on January 31st, 2013
7.02.2
a total amount of [**] on February 1st, 2013
7.02.3
a total amount of [**] on June 1st, 2013
7.02.4
a total amount of [**] on June 1st, 2013
8
FUNDING AND COORDINATION OF DEVELOPMENT PROGRAMS AND DISTRIBUTION OF COMMERCIAL RETURNS
8.01    The PARTIES hereby agree, subject to the provisions of this Article 8, to provide funding for the elements of the DEVELOPMENT PROGRAMS described further in Appendix 2 and Appendix 4 provided such funding provisions may be modified by mutual agreement of the
[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.


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PARTIES but in each case solely if mutually agreed in writing by authorized representatives of the PARTIES. Furthermore, the PARTIES agree to contribute fully to the DEVELOPMENT COSTS as detailed herein.
8.02    ACCUMULATED DEVELOPMENT COSTS for each calendar year for each DEVELOPMENT PROGRAM shall be recorded by each PARTY and a summary report of each PARTY’S ACCUMULATED DEVELOPMENT COSTS for each given calendar year shall be presented to the JOINT MANAGEMENT COMMITTEE no later than March 31st, of the subsequent calendar year.
8.03    The PARTIES hereby agree that NET REVENUES arising from commercialization of PRODUCT rights within the FIELD but outside the TERRITORY pursuant to the AGREEMENT will be [**] after, first, full recovery of LICR’s and 4AB’s ACCUMULATED DISCOVERY COSTS followed by, second, recovery of the ACCUMULATED DEVELOPMENT COSTS of the PARTIES. The calculation of NET REVENUES and ACCUMULATED DEVELOPMENT COSTS will be made for each PRODUCT separately.
8.03.1
First, each PARTY will provide a summary of ACCUMULATED DEVELOPMENT COSTS pursuant to Section 8.02;
8.03.2
Second, before distribution of NET REVENUES all ACCUMULATED DEVELOPMENT COSTS of each PARTY for all years (“TOTAL ACCUMULATED DEVELOPMENT COSTS”) will be added and a share of proceeds calculated according to the following formula for each PRODUCT separately: “PERCENTAGE SHARE” of a PARTY equals the TOTAL ACCUMULATED DEVELOPMENT COSTS of the PARTY divided by the TOTAL ACCUMULATED DEVELOPMENT COSTS of all PARTIES;

8.03.3    Third, all NET REVENUES derived from a PRODUCT will be distributed to each PARTY according to the proportion of each PARTY’S PERCENTAGE SHARE of a PRODUCT until the TOTAL ACCUMULATED DEVELOPMENT COSTS of a PRODUCT for all PARTIES has been fully recovered from NET REVENUES;
8.03.4    Fourth, all remaining NET REVENUES of a PRODUCT will be [**] except that in the case where NET REVENUES constitute ADJUSTED NET REVENUES as defined in Section3.05, the share of a PARTY will be calculated according to the following formula: [**].
8.04    In the event that a PARTY elects not to continue its contribution to funding a DEVELOPMENT PROGRAM or DEVELOPMENT PROGRAMS pursuant to Section 3.05 the calculation of NET REVENUES described in Section 8.03 will be modified in the following manner: [**] with such calculations being made on a PRODUCT by PRODUCT basis for the PRODUCT or PRODUCTS emerging from such DEVELOPMENT PROGRAM or DEVELOPMENT PROGRAMS which the non-funding PARTY no longer supports provided always that:
[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

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8.04.1     in no case shall such diminishment in the calculated NET REVENUES lead to a PARTY receiving less than [**] of NET REVENUES;
8.04.2    a PARTY which has previously elected not to continue its contribution to funding a DEVELOPMENT PROGRAM or DEVELOPMENT PROGRAMS shall not be prevented from funding in whole or in part a subsequent development activity in which case its funding contribution shall be included in the calculation of ACCUMULATED DEVELOPMENT COSTS as provided for in this Article 8;
8.04.3    if NET REVENUES from the exercise of the commercial rights of 4AB pursuant to Section 4.02 specifically cover development funding by a THIRD PARTY and fully meet the requirements of the then current estimated resources required to undertake a DEVELOPMENT PROGRAM or the DEVELOPMENT PROGRAMS to completion of a PHASE I CLINICAL TRIAL for such DEVELOPMENT PROGRAM or PHASE I CLINICAL TRIALS for the DEVELOPMENT PROGRAMS, then the full contribution of each PARTY to such DEVELOPMENT PROGRAM or DEVELOPMENT PROGRAMS shall be deemed to have been made by such PARTY with the result that the NET REVENUES will not be diminished as described in this Section 8.04.
9    PAYMENTS
9.01    All payments to be made under this AGREEMENT to 4AB from RECEPTA except as otherwise stated herein shall be made within thirty (30) days of receipt of a tax invoice from 4AB and shall be made in CHF by bank wire transfer to 4AB’s bank account as follows:

Beneficiary/Payee     4-Antibody AG
Account No:        [**]
With:            [**]
Clearing:        [**]
SWIFT:        [**]
IBAN:            [**]

9.02    If any payment due from RECEPTA is not made on or before the due date specified herein, RECEPTA will pay interest on the outstanding amount until paid in full if requested to do so by 4AB. Interest will be charged at a rate equal to the [**] for the time period in which such amount is outstanding as disclosed from time to time by the European Central Bank which applied on the due date. Calculation of interest will be made for the exact number of days in the interest period based on a year of 360 days (actual/360).
9.03    If laws or regulations require withholding by 4AB or by RECEPTA or an AFFILIATE of RECEPTA of any taxes imposed upon the PARTIES on account of any profit participation and payments paid pursuant to this Agreement, such taxes shall be deducted by 4AB or by RECEPTA or an AFFILIATE of RECEPTA as the case may be as required by law from such remittable profit participation and payment and shall be paid by 4AB or by RECEPTA or an AFFILIATE of RECEPTA as the case may be to the proper tax authorities. Official receipts of payment of any

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

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withholding tax shall be secured and sent to the PARTIES as evidence of such payment. The PARTIES shall exercise their best efforts to ensure that any withholding taxes imposed are reduced as far as possible under the provisions of any relevant tax treaty.

9.04    During the TERM and for a period of five (5) years thereafter, the PARTIES shall keep complete and accurate records pertaining to the development, manufacture, use, sale or other disposition of the PRODUCTS, in sufficient detail to permit the PARTIES to confirm the accuracy of all payments due hereunder and compliance with all responsibilities and obligations. Each PARTY shall have the right to cause an independent, certified public accountant to audit such records. Such audits may be exercised once each calendar year and only with respect to the then current calendar year and the immediately prior two calendar years, upon reasonable prior written notice to a PARTY and during normal business hours, and the PARTY initiating such audit shall bear the full cost of such audit, unless such inspection leads to the discovery of a discrepancy of greater than the greater of [**]%) in reporting to such PARTY's detriment, or of [**], for any calendar year. In such instance, the audited PARTY agrees to pay the reasonable cost of such audit plus interest as stipulated in Section 9.02 and 9.06 from and after the date the audit report is delivered to the PARTY requesting such audit. The terms of this Section 9.04 shall survive any termination or expiration of this AGREEMENT for a period of five (5) years.
9.05    All payments to be made under this Agreement from 4AB to either RECEPTA or its designated AFFILIATE or LICR shall be made within thirty (30) days of receipt of an invoice from either RECEPTA or its designated AFFILIATE or LICR and shall be made in CHF by bank wire transfer to bank account as follows:

Beneficiary/Payee    RECEPTA
Account No:        [**]
With:            [**]
Clearing:        N/A
SWIFT:        [**]
IBAN:            N/A


Beneficiary/Payee    LICR
Account No:        [**]
With:            [**]
Clearing:        [**]
SWIFT:        [**]
IBAN:            [**]

9.06    If any payment due from 4AB is not made on or before the due date specified herein, 4AB will pay interest on the outstanding amount until paid in full if requested to do so by either RECEPTA or LICR. Interest will be charged at a rate equal to the [**] for the time period in which such amount is outstanding as disclosed from time to time by the European Central Bank which applied on the due date. Calculation of interest will be made for the exact number of days in the interest period based on a year of 360 days (actual/360).


[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

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10    TERM AND TERMINATION

10.01    This AGREEMENT shall be effective as of the EFFECTIVE DATE and shall remain in force unless terminated earlier in accordance with the terms herein (the “TERM”).
10.02    If RECEPTA has not received approval from its Board of Directors for the payment of the PURCHASE PRICE as detailed in Article 7 herein prior to February 1st 2013, RECEPTA may terminate this AGREEMENT in its entirety provided that the payments due to 4AB pursuant to Section 7.02.1 are made in full regardless of the date that RECEPTA may terminate this AGREEMENT.

10.03    If RECEPTA has not received approval from its Board of Directors for the payment of the PURCHASE PRICE as detailed in Article 7 herein and has not notified 4-AB of such approval prior to February 28, 2013, 4AB may terminate this AGREEMENT. 4AB’s right to terminate the AGREEMENT as provided for in this Section 10.03 may be waived if RECEPTA and 4AB agree to a cost coverage by RECEPTA for the ongoing activity under the DISCOVERY PROGRAMS until such time as RECEPTA has received final approval from its Board of Directors to allow RECEPTA’S financial obligations herein to be fulfilled.

10.04    Each PARTY shall have the right to terminate this AGREEMENT in its entirety with respect to one or both of the other PARTIES if a PARTY is in breach or solely with respect to a particular PRODUCT to which a breach relates, upon written notice to the other PARTY or PARTIES if, after receiving written notice of a material breach of this AGREEMENT, the breaching PARTY or PARTIES fail(s) to cure such breach within 60 days following receipt of such notice. If such breach remains after such 60 day period the PARTIES shall attempt to resolve the dispute under the provisions of Article 14.

10.05    A PARTY may terminate this AGREEMENT with respect to one or both of the other PARTIES with notice if the other PARTY or PARTIES make(s) an assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy instituted on behalf of or against such PARTY or PARTIES, or has a receiver or trustee appointed for all or substantially all of its property; provided that in the case of an involuntary bankruptcy proceeding such right to terminate shall only become effective if the PARTY or PARTIES consent(s) to the involuntary bankruptcy or such proceeding is not dismissed within ninety (90) calendar days after the filing thereof.
10.06    RECEPTA shall have the right to terminate this AGREEMENT in its entirety or in part with respect to any specific ANTIBODY or PRODUCT for its convenience upon ninety (90) days prior written notice to 4AB provided that the PURCHASE PRICE for such ANTIBODY or PRODUCT has been paid in full.
10.07    Once a DEVELOPMENT PROGRAM has been initiated as described in Appendix 2, LICR and/or 4AB shall have the right to terminate the commercial rights under this AGREEMENT in their entirety or in part with respect to any specific ANTIBODY or PRODUCT for their convenience upon ninety (90) days prior written notice to RECEPTA if after receiving written notice of failure to comply with the diligence provisions of Sections 4.05 and 5.06 herein, RECEPTA fails to address such compliance failure breach within 60 days following receipt of such notice. If such compliance failure remains after such 60 day period the PARTIES shall attempt to resolve the dispute under the provisions of Article 14.
10.08     Sections 5.01, 5.02, 5.03, and 5.04 (Intellectual Property), Article 6 (Confidentiality), Sections 7.01 and 7.02 (Purchase Provisions), Article 9 (Payments), Article 11 (Rights Upon

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Termination), Article 13 (Indemnity & Insurance), Article 14 (Dispute Resolution and Governing Law), Article 17 (Survival and Waivers), and Article 20 (Notices) shall survive the expiry or termination of this AGREEMENT.
11    RIGHTS UPON TERMINATION
11.01    If this AGREEMENT is terminated in its entirety by RECEPTA pursuant to Section 10.02 all rights and licenses granted to RECEPTA hereunder shall immediately terminate and RECEPTA shall forfeit any share of NET REVENUES it would otherwise be due under the provisions of Section 8.03.
11.02    If this AGREEMENT is terminated by 4AB either with respect to a PRODUCT pursuant to Section 10.04 or in its entirety pursuant to Section 10.03, 10.04, 10.05, or 10.07, all rights and licenses granted to RECEPTA hereunder shall immediately terminate and RECEPTA shall forfeit any share of NET REVENUES it would otherwise be due under the provisions of Section 8.02. Any such termination shall not remove RECEPTA’s obligations under Article 7 or Article 8 relating to any accrued payments due 4AB at the time of such termination and such payments will be due in full and RECEPTA hereby agrees to make such payments in full even in the event of such termination.
11.03    In the event this AGREEMENT is terminated by 4AB pursuant to RECEPTA’S default as described in Section 10.04, 10.05 or 10.07 or partially terminated or terminated in its entirety by RECEPTA pursuant to Section 10.06, RECEPTA agrees in addition to transfer all rights to ANTIBODIES and PRODUCTS including PATENT RIGHTS arising from the collaboration described in this AGREEMENT to 4AB and LICR and shall take all steps necessary to effect such transfer. Furthermore RECEPTA agrees to make available INFORMATION related to the development of PRODUCTS within the TERRITORY up until the date of such termination, including, but not limited to, filings with REGULATORY AGENCIES and any active IND dossier; and to assign such IND and the right to use any such INFORMATION to LICR and 4AB.
11.04    In the event this AGREEMENT is terminated by RECEPTA pursuant to 4AB’s default as described in Section 10.04, and such default is upheld following the dispute resolution procedures provided for herein, or terminated by RECEPTA as described in Section 10.05, 4AB agrees to transfer all rights to ANTIBODY LEADS or ANTIBODY BACK-UPS including any PATENT RIGHTS for ANTIBODY LEADS or ANTIBODY BACK-UPS to RECEPTA and LICR. 4AB shall take all steps necessary to effect such transfer. Furthermore 4AB agrees to make available INFORMATION related to the development of ANTIBODY LEADS or ANTIBODY BACK-UPS up until the date of such termination, including, but not limited to, filings with REGULATORY AGENCIES and any active IND dossier; provided always that such exchange of INFORMATION shall not entitle RECEPTA to any commercial right to either LICR’s or 4AB’s BACKGROUND INTELLECTUAL PROPERTY or any ANTIBODIES beyond such ANTIBODY LEADS and ANTIBODY BACK-UPS.
11.05    In the event this AGREEMENT is partially terminated or terminated in its entirety by RECEPTA pursuant to Section 10.06, 4AB agrees to transfer all rights to ANTIBODY LEADS or ANTIBODY BACK-UPS including any PATENT RIGHTS within the TERRITORY for ANTIBODY LEADS or ANTIBODY BACK-UPS to RECEPTA and 4AB shall take all steps necessary to effect such transfer. Furthermore 4AB agrees to make available INFORMATION related to the development of ANTIBODY LEADS or ANTIBODY BACK-UPS up until the date of such termination, including but not limited, to filings with REGULATORY AGENCIES and any active IND dossier; provided that such exchange of INFORMATION shall not entitle

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RECEPTA to any commercial right beyond the TERRITORY or to either LICR’s or 4AB’s BACKGROUND INTELLECTUAL PROPERTY.
11.06    Notwithstanding expiration or termination of this AGREEMENT by any PARTY, each PARTY shall remain liable to the remaining PARTY with respect to any obligations which arise prior to the effective date of termination.
12    REPRESENTATIONS AND WARRANTIES
12.01    Each PARTY represents and warrants to the other PARTIES that the representing and warranting PARTY is duly organized in its jurisdiction of incorporation; that the representing and warranting PARTY has the full power and authority to enter into this AGREEMENT; that this AGREEMENT is binding upon the representing and warranting PARTY; that this AGREEMENT has been duly authorized by all requisite corporate action within the representing and warranting PARTY; and that the execution, delivery and performance by the representing and warranting PARTY of this AGREEMENT and its compliance with the terms and conditions hereof does not and shall not conflict with or result in a breach of any of the terms and conditions of or constitute a default under (a) any agreement or other instrument binding or affecting it or its AFFILIATES or the property of either of them, (b) the provisions of its certificate of incorporation, bylaws or other governing documents or (c) any order, writ, injunction or decree of any governmental authority entered against it or by which any of its property is bound.
12.02    As of the EFFECTIVE DATE, solely with respect to the ANTIBODIES, 4AB represents and warrants to RECEPTA that: (a) LICR and 4AB each has sufficient legal or beneficial title under the LICR and 4AB BACKGROUND INTELLECTUAL PROPERTY respectively necessary for the purposes contemplated under this AGREEMENT and for 4AB to grant the licenses contained in this AGREEMENT and is not currently subject to any outstanding order, judgment or decree of any court or administrative agency that restricts it in any way from granting to RECEPTA such licenses; (b) neither LICR nor 4AB has received any written notice of any pending law suits, judgments, settlements or legal actions against either LICR or 4AB with respect to the LICR and 4AB BACKGROUND INTELLECTUAL PROPERTY respectively that, if determined adversely to either LICR or 4AB, would have a material adverse effect upon their ability to grant to RECEPTA the rights under, or upon the ability of RECEPTA to exercise its rights and obligations as contemplated by this AGREEMENT; and (c) neither LICR nor 4AB has received written notice of any THIRD PARTY claims that any of the patents contained within the LICR or 4AB BACKGROUND INTELLECTUAL PROPERTY respectively are invalid or unenforceable.
12.03    As of the EFFECTIVE DATE, LICR and 4AB represent and warrant to RECEPTA that they will diligently pursue the DISCOVERY PROGRAMS detailed herein separately and jointly with all reasonable care. However, neither LICR nor 4AB can guarantee that the DISCOVERY PROGRAMS will deliver to RECEPTA ANTIBODIES meeting the specifications in Appendix 1 or that such ANTIBODIES if delivered to RECEPTA hereunder will progress successfully through clinical development and eventually secure marketing approval.
13    INDEMNITY & INSURANCE
13.01 RECEPTA shall indemnify, hold harmless and defend LICR and 4AB and their directors, officers, agents and employees from and against any loss, costs (including

22





reasonable attorney’s fees), damages, injury, liability, claims, demands, or causes of action (“LIABILITY”) arising out of or resulting from (a) personal injury or death in connection with RECEPTA’s or any AFFILIATE of RECEPTA’s activities hereunder; (b) RECEPTA’s or any AFFILIATE of RECEPTA’s use, handling, storage or disposal of any materials or information; (c) any gross negligent act or gross omission or willful misconduct of RECEPTA or an AFFILIATE of RECEPTA or RECEPTA’s employees or agents or the employees or agents of an AFFILIATE of RECEPTA; (d) any act or omission of RECEPTA or any AFFILIATE of RECEPTA as an employer; or (e) any debt or other duty of any kind or amount owed to a RECEPTA subcontractor or AFFILIATE of RECEPTA’s, subcontractor except to the extent that any such LIABILITY is incurred as a result of the gross negligence or willful misconduct of either LICR or 4AB.
13.02    LICR shall indemnify, hold harmless and defend RECEPTA and 4AB and their directors, officers, agents and employees from and against any loss, costs (including reasonable attorney’s fees), damages, injury, liability, claims, demands, or causes of action (“LIABILITY”) arising out of or resulting from (a) personal injury or death in connection with LICR’s or any AFFILIATE of LICR’s activities hereunder; (b) LICR’s or any AFFILIATE of LICR’s use, handling, storage or disposal of any materials or information; (c) any gross negligent act or gross omission or willful misconduct of LICR or an AFFILIATE of LICR or LICR’s employees or agents