-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H5b86G9hoyG/MXMJIXSzCRvZ0gzE3a0Jo8lhU0hEe/qUeGRRJCz0bXsWI/olpk2t 09ZJsz3ujurJgDvpO+sVuA== 0000950135-97-001467.txt : 19970401 0000950135-97-001467.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950135-97-001467 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE BIOMOLECULES INC CENTRAL INDEX KEY: 0000857121 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 942786743 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-19910 FILM NUMBER: 97568600 BUSINESS ADDRESS: STREET 1: 45 S STREET CITY: HOPKINTON STATE: MA ZIP: 01748 BUSINESS PHONE: 5084359001 MAIL ADDRESS: STREET 1: 45 SOUTH ST CITY: HOPKINTON STATE: MA ZIP: 01748 10-K405 1 CREATIVE BIOMOLECULES 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO __________________ Commission file number: 0-19910 CREATIVE BIOMOLECULES, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-2786743 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 45 SOUTH STREET, HOPKINTON, MA 01748 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 435-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE PER SHARE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) on February 28, 1997 was approximately $260 million, based on the last sale price as reported on The Nasdaq Stock Market. As of February 28, 1997, the registrant had 32,927,058 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the Registrant's Proxy Statement for the 1997 Annual Meeting of Stockholders. With the exception of the portions of the 1997 Proxy Statement expressly incorporated into this Form 10-K by reference, such document shall not be deemed filed as part of this Form 10-K. 2 PART I ITEM 1. BUSINESS OVERVIEW Creative BioMolecules, Inc. ("Creative BioMolecules" or the "Company") is developing products for the regeneration and restoration of human tissues and organs based on morphogenic proteins identified and characterized by the Company. The Company's lead morphogenic protein, OP-1, has been shown to induce formation of several types of tissues including bone, cartilage, kidney, tooth and brain. For orthopaedic and dental applications of OP-1, the Company's corporate partner is Stryker Corporation ("Stryker"), a leading surgical and medical products company. Stryker has completed a pivotal trial to evaluate the use of an OP-1 bone regeneration product as a bone graft substitute. Stryker is also undertaking clinical studies of OP-1 in acute fractures and other bone indications, as well as preclinical studies in cartilage regeneration. The Company's corporate partner in development of renal disease therapies is Biogen, Inc. ("Biogen"), a leading biopharmaceutical company with expertise in development and commercialization of protein therapies. Creative BioMolecules and Biogen are developing OP-1 products to moderate or halt the progression of renal failure. In addition to the Stryker and Biogen programs, Creative BioMolecules has proprietary programs in place to develop OP-1 product candidates for neurological disorders and osteoporosis. The Company has discovered a family of morphogenic proteins that initiate the cascade of cellular events responsible for tissue formation. One member of this family is OP-1, a naturally occurring morphogenic protein produced primarily in the kidney. OP-1 has the capacity to trigger the formation of a variety of tissues by activating cells to respond to their specific environment. The activated cells then differentiate and form the type of tissue dictated by their environment. The Company believes that as a result of such action, OP-1 may be helpful in the treatment of defects and diseases involving a number of different types of human tissues and organs. OP-1 was first isolated and characterized by Creative BioMolecules' scientists and is the subject of issued patents covering the protein itself as well as OP-1 based products for certain applications. The Company's agreement with Stryker gives Stryker the exclusive right to develop, market and sell OP-1 based products for use in the repair or replacement of bone and joint tissue ("orthopaedic reconstruction"). This agreement provides for the payment of royalties to the Company on such sales, gives the Company the exclusive right to supply Stryker's worldwide commercial requirements for such products and provides for research funding to the Company. The Company's agreement with Biogen gives Biogen the exclusive right to develop, manufacture, market and sell OP-1 based products for use in the treatment of renal disease. This agreement provides for the payment of royalties to the Company on such sales and provides for research funding to the Company. The Company has retained commercial rights to OP-1 based products for all indications other than orthopaedic reconstruction, dental therapeutics and kidney disorders. The Company's retained applications include neurological disorders and metabolic bone diseases such as osteoporosis. ORTHOPAEDIC RECONSTRUCTION. In 1995 there were 1.6 million procedures in the United States for which the Company believes an OP-1 bone regeneration product could have been utilized. These procedures included non-healing fractures, open fracture reductions, spinal fusions, maxillofacial reconstructions, prosthetic fixations and gap fillings. In addition to the pivotal trial in non-union fractures, the Company's corporate partner, Stryker, has initiated clinical studies in Europe in acute fractures and other bone indications, and has a preclinical program in cartilage regeneration underway to evaluate OP-1 in the treatment of both cartilage defects and combination bone-cartilage defects in animal models. KIDNEY DISORDERS. Acute renal failure involves the rapid loss of kidney function and is associated with a high mortality rate. Chronic renal failure, in contrast, is the slow progressive loss of kidney function ultimately resulting in the need for kidney transplantation or dialysis. The high mortality rate of acute renal 1 3 failure and the substantial costs associated with dialysis therapy represents areas of significant unmet medical and economic healthcare needs. Creative BioMolecules and its partner, Biogen, are developing OP-1 product candidates to treat both acute and chronic renal failure. The Company believes that there is a substantial commercial opportunity for renal therapies that could delay or eliminate the need for costly dialysis treatments. Studies have shown that OP-1 administration improves kidney function in animal models of both acute and chronic renal failure. DENTAL THERAPEUTICS. The Company and its partner, Stryker, are developing an OP-1 product for dentin regeneration that may offer an alternative to certain root canal procedures. In a pilot clinical trial, the Company's OP-1 product induced statistically significant dentin formation. The Company commenced a second pilot clinical trial in September 1995 to evaluate this application further. The Company also has an OP-1 product candidate in preclinical testing which it believes can restore the periodontal tissues necessary to maintain tooth attachment when used in conjunction with standard surgical treatments of periodontal disease. NEUROLOGICAL DISORDERS. Creative BioMolecules is developing OP-1 product candidates for use in the treatment of certain neurological disorders involving stroke and Parkinson's Disease. Preclinical studies have shown that OP-1 promotes survival of neurons and can promote the establishment of new neuronal connections which aid recovery from brain injury or disease. The Company believes that therapies which promote survival and growth of neurons could have substantial commercial potential. OTHER PROGRAMS. Research studies have suggested that OP-1 may be useful in treating osteoporosis. In addition to its work with the OP-1 protein, the Company has a program underway to develop small molecules that can stimulate the same regeneration results induced by morphogenic proteins via activation of various steps in the tissue formation cascade. The Company's principal offices are located at 45 South Street, Hopkinton, Massachusetts 01748, and its telephone number is (508) 435-9001. The Company is the successor to a California corporation of the same name organized in 1981. In 1987, the Company completed a corporate reorganization and became a Delaware corporation. SCIENTIFIC BACKGROUND As humans age, the body's capacity to form or regenerate tissue after injury diminishes substantially. Tissue formation begins when an activated stem cell responds to the program of cues produced in that cell's location and becomes committed to a cell type consistent with that particular set of information. Stem cells are found throughout the body in people of all ages and are the precursor cells from which all tissues and organs are derived. Once a stem cell is activated, its interactions with its surroundings determine the particular cell type (e.g., bone, cartilage, kidney, tooth and brain) into which it will differentiate. For example, an activated stem cell in a bone defect will produce bone because the information available to that cell from neighboring cells and the extracellular environment specifies a unique program of signal and response that results in that cell becoming a bone-forming cell. This process of cell interaction depends on morphogenic proteins which can activate stem cells to begin the process of differentiation and commitment, leading to tissue and organ formation. Diminished capacity to produce morphogenic proteins, due to aging or disease, is believed to be associated with reduced ability to form tissue in response to injury. The ability to reinitiate tissue formation processes with morphogenic proteins may provide the basis for novel therapeutics to treat tissue disorders. 2 4 THE COMPANY'S TECHNOLOGY Creative BioMolecules has played a significant role in advancing scientific understanding of the process of tissue regeneration. The Company has established a technology platform based on the molecular and cellular events responsible for tissue and organ development. This platform provides the basis for development of the Company's proprietary therapeutic products. Creative BioMolecules was the first to identify and characterize a family of morphogenic proteins that are key regulators of tissue and organ formation in humans. The Company's lead morphogenic protein, OP-1, is a naturally occurring substance produced primarily in the kidney. OP-1's role early in the cascade of events that leads to tissue and organ formation, prior to commitment of a stem cell to a particular cell type, has led the Company to believe that OP-1 is capable of inducing the formation of many different types of tissues. Preclinical studies conducted by the Company have indicated a prominent role for OP-1 in the formation of bone, cartilage, kidney, tooth and brain. The illustration below depicts the cascade of molecular and cellular events involved in the tissue formation process. [GRAPHIC DEPICTING MORPHOGEN INDUCED TISSUE AND ORGAN FORMATION.] 3 5 In addition to identifying and characterizing the OP-1 protein and other morphogenic proteins, Creative BioMolecules also has identified the DNA sequences which regulate the expression of OP-1, has identified the cellular receptors to which OP-1 binds and through which it acts, and has determined the three-dimensional structure of OP-1. These discoveries have enabled Creative BioMolecules to initiate a small molecule program, the goal of which is to identify second generation, orally-active drug compounds that either promote morphogenic protein expression or mimic the biological activities of morphogenic proteins. BUSINESS STRATEGY Creative BioMolecules' objective is to lead the discovery and development of therapeutics for tissue regeneration. Key elements of the Company's continuing business strategy include: SECURING MARKETING APPROVAL FOR OP-1 IN ORTHOPAEDIC RECONSTRUCTION. The Company is supporting Stryker in obtaining marketing approval of the OP-1 bone regeneration product for use in the United States and foreign markets. The Company has focused its manufacturing, quality control and quality assurance efforts on generating the manufacturing related data for the PMA application to be filed by Stryker, and preparing the Company's manufacturing facility for Food and Drug Administration ("FDA") inspection and approval. DEVELOPING OP-1 AS A THERAPY FOR RENAL DISEASE. In late 1996, the Company established a worldwide partnership with Biogen to develop OP-1 as a therapy for acute and chronic renal disease. The Company believes that preclinical results have demonstrated the promise of this molecule in protecting against kidney damage in acute conditions and in slowing kidney function decline in chronic disease. The Company and Biogen are working closely together in the development of a renal therapy based on these findings. The Company is supplying OP-1 for the initial development stages and Biogen is preparing to conduct clinical trials of this therapy. GENERATING A BREADTH OF PRODUCT PROGRAMS. The Company has targeted a number of initial indications for its OP-1 products, including the regeneration of bone, cartilage, kidney, tooth and brain. The Company believes the potential for expansion of its product pipeline is extensive, since OP-1 has shown activity in inducing the formation of a broad range of tissues and organs. In addition, the Company is investigating the role in tissue formation of related morphogenic proteins in its proprietary portfolio. ESTABLISHING CORPORATE COLLABORATIONS. The Company's strategy is to seek collaborations for several of its discovery and development programs. Through collaborations, the Company augments its financial resources and leverages its equity capital. Collaborations also allow the Company to broaden its pipeline of programs, to access complementary technologies and to gain significant development, manufacturing and commercialization expertise. DEVELOPING A SMALL MOLECULE PROGRAM. The Company believes it may be able to stimulate the same regeneration induced by morphogenic proteins via activation of various steps in the cascade of tissue formation with small, orally-active compounds. The Company has been able to develop biochemical and cell-based screens that mimic discrete points within the tissue formation cascade to enable the identification of small molecule candidates. In connection with establishment of a partnership to develop a renal disease therapy, Biogen extended to the Company a $15 million line of credit to fund research in a small molecule discovery program. ACCESSING NEW TECHNOLOGIES/ESTABLISHING ACADEMIC COLLABORATIONS. The Company has utilized a large network of academic collaborators to gain knowledge of new technologies, to identify additional uses for morphogenic proteins and to extend research on existing indications. These collaborators, who are located around the world, help leverage the Company's resources. 4 6 CAPITALIZING ON PROCESS DEVELOPMENT AND MANUFACTURING CAPABILITIES. The Company has significant capabilities in process development and in manufacturing OP-1 for use in both the ongoing clinical trials and for future OP-1 indications. In addition, the Company's process development and protein manufacturing capabilities are transferable to the production of other proteins, enabling the Company to fill existing plant capacity and to generate additional revenues in the near-term. The manufacture of products in-house also allows the Company to increase its participation in corporate partnerships by deriving revenues from manufacturing as well as product sales. PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS The Company is developing therapeutic products based on OP-1 for use in orthopaedic reconstruction, kidney disorders, dental therapeutics, neurological disorders and osteoporosis. The following table sets forth these programs: OP-1 PRODUCTS UNDER DEVELOPMENT
Commercial U.S. Regulatory Potential Application Rights Classification(1) Status(2) - --------------------- ---------- ----------------- --------- ORTHOPAEDIC RECONSTRUCTION: Stryker Device Non-Union Fractures -- Tibia U.S. Pivotal Clinical Trial completed, data analysis in progress Non-Union Fractures -- All long bones U.S. Treatment Study Other Bone Indications (3) European Clinical Studies Cartilage Regeneration Preclinical Studies KIDNEY DISORDERS: Biogen Biologic Acute Renal Failure Preclinical Studies Chronic Renal Failure Preclinical Studies DENTAL THERAPEUTICS: Stryker Device Periodontal Disease Preclinical Studies Dentin Regeneration U.S. Pilot Clinical Trial NEUROLOGICAL DISORDERS: Company Biologic Stroke Preclinical Studies Parkinson's Disease Preclinical Studies OSTEOPOROSIS Company Drug Research
- ------------ (1) "Device" refers to products which will be reviewed by the FDA's Center for Devices and Radiological Health; "Biologic" refers to products which will be reviewed by the FDA's Center for Biologics Evaluation and Research; "Drug" refers to products which will be reviewed by the FDA's Center for Drug Evaluation and Research. The indicated regulatory classifications are either current (orthopaedic reconstruction and dentin regeneration) or anticipated (kidney disorders, periodontal disease, neurological disorders and osteoporosis). These regulatory classifications may be subject to change, as the FDA has the authority to regulate the Company's products under more than one regulatory classification. (2) "Pivotal Clinical Trials" are investigations conducted under an Investigational Device Exemption ("IDE"), intended to be used as the primary supporting documentation for regulatory approval of a new medical device. "Treatment Study" denotes an open label study pursuant to a supplement to an IDE. "European Clinical Studies" are physician sponsored feasibility investigations conducted among a small number of patients. "Pilot Clinical Trials" are feasibility investigations 5 7 conducted under an IDE, that are intended to assess the initial safety and/or efficacy of a new medical device. "Preclinical Studies" denotes the collection and analysis of data from multiple studies in animals relating to toxicity and/or efficacy in preparation for an Investigational New Drug ("IND") or IDE application filing. "Research" denotes all investigative activities with respect to product candidates prior to initiation of Preclinical Studies. See "-- Regulatory Issues." (3) Stryker has indicated that it has initiated clinical studies for multiple orthopaedic reconstruction applications of OP-1. ORTHOPAEDIC RECONSTRUCTION PROGRAMS Creative BioMolecules believes there is a significant commercial opportunity for the use of OP-1 products to regenerate bone and cartilage tissue in orthopaedic reconstruction. The number of procedures for which the Company believes an OP-1 bone regeneration product could have been utilized exceeded 1.6 million in 1995 in the United States. These procedures included non-healing fractures (170,000), open fracture reductions (439,000), spinal fusions (202,000), maxillofacial reconstructions (219,000), prosthetic fixations (541,000), and gap fillings (31,000). In addition, in 1995 there were 570,000 cartilage-related injuries in the United States. For orthopaedic reconstruction applications, the Company's corporate partner is Stryker, a leader in surgical and medical products for orthopaedic reconstruction. Pursuant to its agreement with Stryker, the Company receives funding to support research and development in orthopaedic reconstruction, has an exclusive right to supply OP-1 bone and cartilage regeneration products for Stryker's orthopaedic reconstruction applications, and upon marketing, will also receive royalties on any sales of such OP-1 bone and cartilage regeneration products. See "--Collaborative and Licensing Agreements -- Stryker Corporation." BONE. The Company has amassed a large body of evidence that OP-1 is a potent stimulator of cartilage and bone formation. The natural conversion of stem cells into cartilage is activated by morphogenic proteins such as OP-1. In a bone environment, cartilage tissue becomes permeated by blood vessels and mineralizes to become bone. Numerous studies in six different animal species have demonstrated that OP-1 is capable of inducing bone regeneration at a wide array of sites within the body in which bone is normally present. Bone formed in response to OP-1 is biochemically and biomechanically identical to normal bone. The most widely employed reconstruction procedure for the replacement of lost or damaged bone is bone grafting. Grafting involves surgical transplantation of bone or bone chips to the site of the defect facilitating new bone formation. Autograft, the currently preferred grafting approach, involves two surgical steps: one step to harvest the graft and a second step to implant the graft at the site of the defect or injury. In addition to the pain and cost associated with this two-step procedure, an estimated twenty-five percent of patients experience complications resulting from the graft harvesting step. Allograft procedures, a second approach, utilize bone grafts or demineralized bone powder taken from cadavers. While allografts avoid the need for an ancillary surgical procedure, they carry the risk of infectious disease transmission. The Company believes that its OP-1 bone regeneration product applied locally to the site of the defect could be used as an alternative to many bone graft procedures, providing more reliable healing, accelerating the rate of healing and obviating the need for graft harvesting with its associated complications. Stryker has completed a pivotal clinical trial under an IDE to evaluate the use of an OP-1 bone regeneration product as a bone graft substitute. This clinical trial focuses on regeneration of bone tissue in non-union fractures in the tibia, a long bone in the leg. Non-union fractures are fractures which have failed to heal for a period of at least nine months. The trial was designed to compare the safety and efficacy of the OP-1 bone regeneration product candidate with autograft procedures in the treatment of non-union fractures. The OP-1 bone regeneration product used in this trial consists of a paste-like formulation that is applied locally at the site of defect. The trial is being conducted at a number of specialized orthopaedic hospitals and trauma centers in the United States. In accordance with the protocol of this trial, patients are followed for 6 8 nine months after treatment to assess bone regeneration. The endpoints of the trial are clinical outcome and a blinded panel radiographic assessment of healing which is currently in progress. Stryker and the Company are working to prepare a PMA application for this OP-1 bone regeneration product. In October 1995, the FDA approved a supplemental treatment arm (an "Open-Label Trial") of the pivotal trial, allowing Stryker to expand the study to test the OP-1 bone regeneration product for the treatment of all long bone non-union fractures. Stryker is currently treating patients in this Open-Label Trial which will allow for the evaluation of various clinical parameters prior to market launch. In addition to the U.S. pivotal trial and its supplemental treatment arm, Stryker initiated clinical studies in several European countries, under physician sponsorship. Stryker is expected to initiate further clinical testing of OP-1 bone regeneration products in a number of countries for an increasing array of orthopaedic reconstruction indications. The Company believes that Stryker's goal is to sell OP-1 bone regeneration products for a number of orthopaedic reconstruction indications in major markets around the world. CARTILAGE. Creative BioMolecules and Stryker are also engaged in research on the regeneration of cartilage. Cartilage tissue is found in different parts of the body and serves various purposes. The focus of the Company's collaboration is articular cartilage, a thin layer of tough opaque tissue that lines the opposing bone surfaces of all moving joints to provide almost frictionless movement. When articular cartilage tissue in a joint suffers more than superficial damage, it does not regenerate and may further deteriorate over time. In an initial series of animal experiments, Creative BioMolecules demonstrated that an OP-1 product induced the formation of articular cartilage in cartilage defect sites. Current techniques to repair cartilage damage are limited. Arthroscopic surgery is used to relieve pain and lessen the chance of further tissue damage but cannot repair defects or stop degeneration. Many patients need to undergo more than one treatment and often never achieve lasting pain relief. Another procedure, recently developed in Sweden, has been used to treat patients with articular cartilage defects in the knee. In this procedure, a small portion of the patient's healthy knee cartilage tissue is surgically removed. The cells within the extracted tissue sample are multiplied over several weeks using cell culture techniques and then those cells are reimplanted in the patient's knee. This process is costly, time consuming and involves two separate surgical procedures at different times. The Company believes that OP-1 can be used to stimulate the regeneration of articular cartilage. Initial animal studies show that OP-1 induces cartilage formation in surgically prepared defects. The Company and Stryker are expanding the preclinical program to evaluate locally applied OP-1 in the treatment of both cartilage defects and combination bone-cartilage defects in animal studies. KIDNEY DISORDERS Kidney disorders, particularly various types of renal failure, are a large and growing health care problem. Billions of dollars are spent annually in the United States on the treatment of renal failure patients. Despite these expenditures, mortality rates remain high and quality of life low. Recent research has indicated that kidneys which recover from acute renal failure may be doing so by repeating some of those morphogenic processes that were initially involved in kidney development. Studies conducted by the Company's scientists and its collaborators have shown that OP-1 is a key morphogenic signal that initiates kidney formation at the earliest stages of kidney development. The Company's corporate partner in development of a renal disease therapy is Biogen, a leading biopharmaceutical company with expertise in development and commercialization of protein based therapeutics. Creative BioMolecules and its partner, Biogen, are 7 9 developing an OP-1 product to moderate or halt the progression of renal failure. See "-- Collaborative and Licensing Agreements -- Biogen, Inc." ACUTE RENAL FAILURE. Acute renal failure is the rapid and sudden loss of the kidneys' ability to perform their essential functions and is often associated with multiple organ failure and a high mortality rate. The primary causes of acute renal failure are interruptions of blood flow (often as a result of certain surgical procedures or cardiac arrest), trauma and certain medications with toxic side effects to the kidneys. Based on data from the National Center for Health Statistics and other sources, Creative BioMolecules estimates that there were 250,000 diagnosed cases of acute renal failure in the United States in 1995. Currently, therapies that prevent, improve recovery or reduce the extent of kidney injury from acute renal failure are limited. The Company believes that there is a substantial commercial opportunity for a therapy that could prevent, facilitate recovery or reduce the extent of kidney injury in acute renal failure. Animal studies have been conducted by the Company and its academic collaborators to determine if the rapid onset of acute renal failure injury can be moderated by systemic administration of OP-1. Results of these studies indicate that an OP-1 product can reduce the extent of injury to the kidneys in an animal model of acute renal failure. The Company and its partner, Biogen, currently have additional preclinical studies underway with the goal of initiating human clinical investigation of an OP-1 product for the treatment of acute renal failure. CHRONIC RENAL FAILURE. Unlike acute renal failure with its sudden and rapid onset, chronic renal failure is characterized by a gradual and progressive loss of kidney function. Chronic renal failure may take several years to manifest symptoms and to require therapeutic intervention. The most common conditions associated with onset of chronic renal failure are diabetes and high blood pressure. Chronic renal failure eventually results in end stage renal disease, a condition which requires dialysis or kidney transplantation. Aside from the substantial economic costs associated with dialysis, there are significant side effects and the average life expectancy of patients on dialysis is substantially diminished. Based on reports from the United States Renal Data System and epidemiology studies, Creative BioMolecules estimates that in 1995 there were more than 300,000 patients on dialysis and that the numbers are rising by 10% each year. In addition, the Company estimates that there were more than 700,000 patients with some degree of chronic renal failure in the United States in 1995. The Company believes that there is a significant commercial opportunity for a therapy that could reduce, delay or prevent the need for dialysis or that could halt the progression of chronic renal failure. The Company has initiated a series of studies to investigate the potential of OP-1 to moderate the progression of chronic renal failure. Results indicate that systemic administration of OP-1 can retard the progressive loss of kidney function in an animal model of chronic renal failure. The Company and Biogen are conducting additional preclinical studies with the goal of initiating human clinical investigation of an OP-1 product for the treatment of chronic renal failure. DENTAL THERAPEUTICS Dental medicine has few therapeutics to treat the hard and soft tissues which comprise the tooth and its associated attachment structures. Creative BioMolecules, in partnership with Stryker, is developing regenerative therapies to treat these tissues. The Company and Stryker are evaluating OP-1 products to treat periodontal disease and for dentin regeneration as an alternative to certain root canal procedures. PERIODONTAL TISSUE REPAIR. Periodontal disease is a bacterially induced inflammatory disorder that results in the progressive destruction of the periodontal tissues that hold teeth in place. Reliable and effective restoration of periodontal tissue damaged or lost as a result of periodontal disease is not possible with current 8 10 therapies. The Company estimates based on data from the most recent American Dental Association Survey of Services Rendered ("ADA Survey") that in 1995 approximately four million patients underwent periodontal surgery in the United States for severe periodontal disease. The Company believes that most of these procedures would have been candidates for treatment with an OP-1 periodontal product. DENTIN REGENERATION. Dentin is a hard, mineralized tissue that lies immediately beneath the enamel of the tooth, surrounding the dental pulp which contains the tooth's nerve and blood vessels. Dentin acts as a protective layer to the dental pulp. A pulp exposure occurs when a defect in the tooth penetrates through the enamel and dentin into the pulp chamber. This often results in infection of the pulp, necessitating tooth extraction or removal of the pulp by root canal surgery. The Company's estimates based on data from the most recent ADA Survey that in 1995 there were approximately 16 million root canal procedures performed in the United States. The Company believes that approximately one quarter of these procedures represent candidates for dentin regeneration therapy with an OP-1 product. A pilot clinical trial completed in 1994 in the United States with an OP-1 product showed statistically significant evidence of dentin formation. The trial was conducted under an IDE"and involved placement of an OP-1 product onto an exposed pulp which was then sealed with standard dental filling material. The Company and Stryker are conducting additional trials to evaluate OP-1's safety and activity in dentin formation. NEUROLOGICAL DISORDERS A number of neurological disorders, including stroke, Parkinson's Disease, brain trauma, Alzheimer's Disease, and Amyotrophic Lateral Sclerosis (Lou Gehrig's Disease), are characterized by the acute or progressive death of neurons. A major advance in neuroscience was the discovery of naturally occurring proteins that promote the survival of neurons. It is generally believed that application of such proteins to neurons could slow or halt neuronal degeneration and hence slow disease progression. Studies conducted by Creative BioMolecules and its academic collaborators have indicated that OP-1 can promote neuron survival. The Company has initiated preclinical investigation of OP-1 as a treatment for certain neurological disorders. STROKE. Strokes occur when blood flow to the brain is interrupted by a clogged or burst artery. The interruption deprives the brain of oxygen and nutrients, and causes neurons to die. Stroke is the third leading cause of death in the United States and the number one cause of adult disability. The National Stroke Association estimates that there are 550,000 strokes every year in the United States and that three million Americans are permanently disabled because of stroke. Therapeutics currently available to aid the recovery from stroke are limited. The Company believes that there is a substantial commercial opportunity for a therapeutic that could promote enhanced recovery from stroke. Recent research by Creative BioMolecules' academic collaborators has indicated that OP-1 can promote the development of neurons and thereby enhance the ability of neurons to establish connections with adjacent neurons. The Company therefore believes that treatment with OP-1 has the potential to enhance recovery after brain injury caused by stroke. In a preclinical study in an animal model of stroke conducted by one of the Company's collaborators, OP-1 treated animals showed a statistically significant improvement in the recovery of motor skills compared to untreated animals. Creative BioMolecules is continuing these studies with the goal of initiating human clinical investigation of OP-1 as a treatment to enhance recovery from stroke. PARKINSON'S DISEASE. Parkinson's disease is a progressive neurological condition characterized by tremor, muscular rigidity, and slowness of movement. The disease is caused by the gradual loss of function and eventual death of the neurons which control the coordination of voluntary movement. Current therapies 9 11 offer a temporary palliative effect, but, for reasons not well understood, these therapies become ineffective after several years. The National Institute of Neurological Disorders and Stroke estimates that more than 500,000 people in the United States are affected by Parkinson's Disease at any one time, and that 50,000 people in the United States are diagnosed with Parkinsons's Disease each year. The Company believes that a therapy that promotes the survival of the neurons which degenerate in Parkinson's Disease could have substantial commercial potential. Initial studies in a preclinical model of Parkinson's Disease conducted by the Company's academic collaborators have indicated that OP-1 enhances survival of the neurons which are most affected by Parkinson's Disease and that this enhancement correlates with improved recovery of normal function. These studies are being continued with the goal of initiating human clinical investigation of OP-1 as a treatment for Parkinson's Disease. OSTEOPOROSIS Creative BioMolecules is engaged in a research program to develop therapeutic products for use in osteoporosis and other metabolic bone diseases. Osteoporosis is a term used to describe a variety of disorders that are characterized by a reduction in the mass of bone per unit volume. Current therapies for osteoporosis are thought to work by inhibiting further loss of bone tissue rather than stimulating the formation of new bone. The Company believes that treatments that would stimulate bone formation rather than inhibit bone resorption may be preferable for therapy in osteoporosis. The Company believes an OP-1 product, or a small molecule that triggers OP-1 production or mimics its action, may cause the body to rebuild the bone mass lost to osteoporosis or other metabolic bone diseases. SMALL MOLECULE PROGRAM In addition to identifying and characterizing the OP-1 protein, Creative BioMolecules also has identified the DNA sequences which regulate the expression of OP-1, has identified the cellular receptors to which OP-1 binds and through which it acts and has determined the three-dimensional structure of OP-1. The Company is seeking to use these recent discoveries to identify orally-active drug compounds that either promote endogenous morphogenic protein expression or mimic morphogenic protein biological activities. For instance, the DNA sequences that regulate OP-1 expression and the receptors which bind OP-1 are being formatted into assays to screen and identify small molecules that increase OP-1 synthesis or mimic OP-1 action. In addition, the information that relates to the three-dimensional structure of OP-1 can be used to aid the rational design or modification of small molecule drug candidates. These assays and information have enabled the Company to develop a small molecule program that seeks to identify the next generation of drug development candidates based on morphogenic protein biology. The Company may fund this small molecule research program in part through a $15 million line of credit from Biogen. This credit facility was established by the Company and Biogen in connection with the December 1996 partnership agreement for renal disease therapy. If the Company successfully identifies one or more small molecule candidates for clinical development, Biogen has a right to license such compounds for its renal disease program. COLLABORATIVE AND LICENSING AGREEMENTS STRYKER CORPORATION. Creative BioMolecules entered into a collaboration with Stryker in 1985 to identify and develop bone-inducing proteins. OP-1 was first isolated and characterized by the Company's scientists through research funded by Stryker. The Company will receive royalty payments based on Stryker's worldwide commercial sales of OP-1 products for use in orthopaedic reconstruction and manufacturing revenue for supply of Stryker's product requirements for such sales. The Company is currently supplying an OP-1 bone regeneration product to Stryker for use in clinical trials as part of the 10 12 research program. The Company is conducting research on additional indications for OP-1 in orthopaedic reconstruction including cartilage regeneration. In 1996, the Company and Stryker extended their collaboration to include dental therapeutics incorporating OP-1. The Company's agreement with Stryker provides for research funding to the Company for this work. The current work plan establishes research objectives and funding through April 30, 1998. Stryker has exclusive rights to develop, market and sell products incorporating bone and cartilage-inducing proteins developed under the research program, including OP-1, for use in the field of orthopaedic reconstruction and dental therapeutics. The Company has also agreed not to undertake research to develop bone and cartilage-inducing proteins for use in orthopaedic reconstruction, on its own behalf or for third parties, for five years after conclusion of the research program. The Company has the exclusive and irrevocable right to develop, market and sell products incorporating morphogenic proteins developed under the research program, including OP-1, for all uses and applications other than orthopaedic and dental reconstruction such as renal failure, neurological diseases, metabolic bone disorders, and others. Both the Company and Stryker have the right to grant licenses to third parties in their respective fields, and each is obligated to pay royalties to the other on its sales of such products and to share royalties received from licensees. The Company has been responsible for preclinical studies of OP-1 products, and Stryker and the Company are each responsible for clinical studies in their respective fields. The Company has the exclusive right to supply OP-1 products to Stryker for worldwide commercial sales in the field of orthopaedic and dental reconstruction. See "-- Patents and Proprietary Rights." BIOGEN, INC. In December 1996, the Company entered into a Research Collaboration and License Agreement with Biogen to collaborate on the development of novel therapeutics for the treatment of renal disorders. The initial focus of the collaboration is on advancing the development of the Company's morphogenic protein, OP-1, for the treatment of acute and chronic renal failure. Under the agreement, the Company granted to Biogen exclusive worldwide rights to manufacture, market and sell OP-1 and OP-1 products developed through the collaboration for the treatment of renal disease. Biogen paid the Company a $10,000,000 license fee in 1996 and made an $18,000,000 equity investment which were recorded in the quarter ended December 31, 1996. In addition, Biogen has guaranteed $10,500,000 in research funding over the next three years, will pay up to an additional $69,000,000 upon the attainment of certain milestones and will make available a $15,000,000 line of credit. The agreement further provides for the payment of royalties to the Company based on product sales. The Company may draw upon the $15,000,000 line of credit over the next three years to fund the research and development of small molecule products based on OP-1. Advances are limited to $5,000,000 per year. Biogen received an exclusive option to obtain an exclusive, worldwide license to OP-1 protein small molecule products for the treatment of renal disorders. In the event Biogen exercises its option, Biogen will forgive the lesser of $10,000,000 or the principal amount outstanding under the line of credit. The remaining principle, together with all accrued and unpaid interest, is due and payable five years from the date of the first advance and may be repaid, at the Company's option, in either cash, common stock or reduction of royalties due the Company from Biogen. In September 1994, the Company signed a three-year manufacturing contract with Biogen to produce in the Company's manufacturing facility in Lebanon, New Hampshire several of Biogen's protein-based therapeutic candidates for use in Biogen's clinical trials. The contract covers the period from January 1995 through December 1997. As part of the research collaboration, the two companies agreed to extend the manufacturing contract for two years through December 31, 1999, with Biogen having the option, but not the obligation, to use the manufacturing facility for a mutually agreeable number of months in one of the two extension years. To enable the Company to meet its obligations under the manufacturing contract, Biogen financed the construction of a 7,000 square foot addition to the present facility for production under current Good Manufacturing Practices as mandated by the FDA ("cGMP") using 11 13 bacterial fermentation at an estimated total cost of $2,900,000. The Company agreed to reimburse Biogen for the construction costs and leasehold improvements at the end of the contract term, including the extension, at an amount equal to Biogen's construction costs less $300,000 and less all accumulated depreciation. The reimbursement to Biogen is estimated to be no more than $2,100,000. Biogen also agreed to lease equipment to the Company for the operation of such portion of the facility and for cGMP production using bacterial fermentation by the Company at an estimated total cost of $2,400,000, as provided in an equipment lease agreement. The Company has the option to purchase the equipment at the end of the extended lease term for an amount equal to its then fair market value or for such other amount as is negotiated by the two parties. GENETICS INSTITUTE. In July 1996 Creative BioMolecules and Stryker and Genetics Institute, Inc., now a wholly-owned subsidiary of American Home Products, ("Genetics Institute") announced that they had cross-licensed their worldwide patent rights, royalty-free, in the bone morphogenetic/osteogenic protein family. The agreement allows the companies to commercialize their respective lead compounds, which are now in clinical trials for bone repair and regeneration, free of the risk of patent litigation among the parties. Under the agreement, which covers both issued patents and pending patent applications, Creative BioMolecules and Stryker have exclusive rights to OP-1, their lead compound under both their own and Genetics Institute's patents. Genetics Institute and Yamanouchi Pharmaceutical Company, Ltd., its partner in the worldwide development of Genetics Institute's bone growth factors, have exclusive rights to BMP-2, their lead compound under both their own and Creative BioMolecules/Stryker patents. In addition, the companies have granted each other royalty-free, non-exclusive cross-licenses to patents and patent applications covering certain other related morphogenic proteins. PURDUE UNIVERSITY. In May 1996, Creative BioMolecules entered into an agreement with Purdue Research Foundation to define signaling pathways in the cell that result in tissue formation. The goal of this collaboration is to aid in the discovery of small molecule compounds that can regenerate a variety of tissues. This agreement expands the Company's effort to extend its technology from morphogenic proteins such as OP-1 to small, orally-active compounds that mimic or upregulate these proteins. As part of the agreement, Creative BioMolecules also has licensed rights to a class of small molecule compounds that have already been demonstrated to influence signal transduction pathways. NATIONAL INSTITUTES OF HEALTH. The Company has a cooperative research and development agreement with the National Institutes of Health to explore the biology of certain morphogenic proteins that were first identified by U.S. government researchers. As part of this agreement Creative BioMolecules has a right to license patentable inventions that may arise from this collaboration. ACADEMIC COLLABORATIONS. The Company has relationships with a number of academic investigators which are focused on testing morphogenic proteins in tissue regeneration and restoration applications. In its collaborations, the Company seeks to expand the scientific knowledge concerning tissue formation as well as the activities and characteristics of various proteins under development by the Company. The academic collaborators are not employees of Creative BioMolecules. Hence, the Company has limited control over their activities and limited amounts of their time are dedicated to the Company's projects. The Company's collaborators may have relationships with other commercial entities, some of which compete with the Company. Although the precise nature of each relationship varies, the collaborators and their primary affiliated institutions generally sign agreements which provide for confidentiality of the Company's proprietary technology and results of studies. The Company seeks to obtain exclusive rights to license developments that may result from these studies. PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP. In December 1986, the Company granted to entities associated with Prudential Securities Incorporated (PruTech Research and Development Partnership III and PruTech Product Development Partnership; collectively, the "PruTech Entities") a license to use 12 14 certain technology developed by the Company relating to Epidermal Growth Factor ("EGF") and Platlet Derived Growth Factor ("PDGF"). Technology developed as a result of such research and development is owned by the PruTech Entities. During 1988, the Company exercised its option under a related contract to take a worldwide, exclusive license to all such technology. The license requires the Company to pay the PruTech Entities royalties on sales of any PDGF or EGF-related products or on sublicenses of the technology through December 31, 1999. ENZON CROSS-LICENSING AGREEMENT. The Company owns a number of issued U.S. and foreign patents with broad claims on the composition of BABS(TM) (Biosynthetic Antibody Binding Sites) proteins and their interdomain linkers. BABS(TM) represents a separate technology developed by the Company, as to which the Company has retained rights, but is not currently being utilized in its OP-1 development programs. One important European patent in this family has been opposed. The opposition proceeding is in its early stages, and it is too early to predict its outcome. There can be no assurance that this European patent will not be narrowed or lost in the opposition. Some of the Company's BABS(TM) technology is also covered by patents held by Enzon Corporation ("Enzon"). In December 1993, the Company and Enzon signed cross-licensing and collaboration agreements which consolidate the two companies' intellectual property rights and know-how covering BABS(TM) proteins. The agreements allow each company, on a royalty-free basis, to develop and manufacture products based on the combined technology. Each party is also free to market products based on the combined technology in collaboration with a limited number of third parties, subject to the payment of a royalty by such third party. The parties have also agreed to outlicense the technology to third parties on a non-exclusive basis in exchange for license, milestone and royalty payments. Enzon has been designated the exclusive marketing agent for such licenses. The Company believes that consolidation of the companies' respective positions relating to BABS(TM) proteins has created a strong position in the use and manufacture of these novel proteins. MANUFACTURING The Company has significant manufacturing experience in the scaling-up and production of recombinant proteins, including its own OP-1 protein. This manufacturing experience prepares the Company to move forward with its OP-1 product programs utilizing its own manufacturing capabilities. The Company has produced its recombinant proteins by bacterial fermentation as well as by mammalian cell culture techniques in the laboratory. The Company has scaled-up both of these production processes and has produced clinical grade recombinant proteins using each of them. In March 1993, the Company acquired a 47,000 square foot manufacturing facility in Lebanon, New Hampshire from Verax Corporation ("Verax") to scale-up the production of its proteins. The facility was designed to enable production for clinical research and commercial use in accordance with cGMP. In September 1994, the Company signed a three-year manufacturing contract with Biogen to produce in the manufacturing facility several of Biogen's protein-based therapeutic candidates for Biogen's use in its clinical trials. To enable the Company to meet its obligations under the manufacturing contract, Biogen financed the construction of a 7,000 square foot addition to the present facility for cGMP production using bacterial fermentation and agreed to lease equipment to the Company for the operation of such portion of the facility. See "-- Collaborative and Licensing Agreements -- Biogen, Inc." The Company believes that the acquisition and expansion of this manufacturing facility will significantly enhance its ability to produce qualified products for clinical trials and commercialization of OP-1. 13 15 COMPETITION The potential therapeutic products which Creative BioMolecules is developing will compete with existing and new products being developed by others for treatment of the same indications. Competition in the development of human therapeutics is particularly intense and includes many large pharmaceutical and biopharmaceutical companies, specialized biotechnology firms, universities and other research institutions. Certain of these companies have extensive financial, marketing and human resources which may result in significant competition. Many pharmaceutical companies have extensive experience in undertaking clinical trials, in obtaining regulatory approval to market products and in manufacturing on a large scale. Other biopharmaceutical companies may also have more resources and experience in these areas than the Company. Several pharmaceutical companies have entered or expanded their presence in the biotechnology field by acquiring specialized biotechnology companies, thus providing additional resources to the acquired companies which may allow them to become more competitive. The technology underlying the development of human therapeutic products is expected to continue to undergo rapid and significant advancement and change. In the future, the Company's technological and commercial success will be based on its ability to develop proprietary positions in key scientific areas and efficiently evaluate potential product opportunities. A number of companies are engaged in the research and development of morphogenic proteins for the repair of bone and cartilage. The Company is aware that Genetics Institute is pursuing the development of bone morphogenetic proteins and, to the Company's knowledge, is the only other company that has begun human clinical trials of a recombinant bone morphogenetic protein for the repair of orthopaedic and other skeletal defects. Genetics Institute has entered into relationships with Yamanouchi Pharmaceuticals Co., Ltd. and Sofamor Danek Group, Inc. covering development and marketing of bone morphogenetic proteins. In addition, the Company believes that a number of biopharmaceutical companies are developing other recombinant human proteins, primarily growth factors, for use in the repair of bone and cartilage defects and in other indications. A number of other companies are pursuing traditional therapies, including autografts, allografts and electrical stimulation devices, as well as cell therapies for the repair of bone and cartilage defects that may compete with the Company's products. The Company's potential products for dental indications through its collaboration with Stryker will compete primarily with traditional therapies. The Company is not aware of any companies pursuing the development of recombinant proteins for dentin applications. The Company is aware that Genetics Institute is pursuing the development of bone morphogenetic proteins for the repair of periodontal tissue. The Company is aware of several biotechnology companies that are developing recombinant protein based products for the treatment of renal and neurological disorders. In the field of renal failure two different products are being evaluated in human clinical studies for acute renal failure and one of those products is also being evaluated preclinically for chronic renal failure. Creative BioMolecules is not aware of any companies developing morphogenic protein based products for either acute or chronic renal failure. In the field of neurological disorders, particularly in the areas of recovery from stroke and treatment of Parkinson's Disease, there are several companies engaged in preclinical and clinical studies with recombinant protein based and more traditional small molecule products. One of those product candidates (for the treatment of Parkinson's Disease) is based on a morphogenic protein that is part of the same family of proteins of which OP-1 is a member. A number of biotechnology and pharmaceutical companies are pursuing the development of other recombinant growth factors and hormones for the treatment of osteoporosis. The Company believes that only a limited number of companies are seeking to develop morphogenic proteins for the treatment of 14 16 osteoporosis. However, many major pharmaceutical companies are pursuing the development of traditional drug therapies for the treatment of osteoporosis. In addition to competing with pharmaceutical and biotechnology companies, the Company's products and technologies will also compete with those developed by academic institutions, government agencies and other public organizations conducting research that may discover new therapies, seek patent protection or establish collaborative arrangements for product research. The Company believes that in addition to a product's patent position, efficacy and price, the timing of a product's introduction may be a major factor in determining eventual commercial success and profitability. Early entry may have important advantages in gaining product acceptance and market share. Accordingly, the relative speed with which the Company can complete preclinical and clinical testing, obtain regulatory approvals, and supply commercial quantities of the product is expected to have an important impact on the Company's competitive position, both in the United States and abroad. Other companies may succeed in developing similar products that are introduced earlier, are more effective, or are produced and marketed more effectively. There can be no assurance that research and development by others will not render any of the Company's products obsolete or noncompetitive. PATENTS AND PROPRIETARY RIGHTS Creative BioMolecules pursues a policy of obtaining patent protection for patentable subject matter in its proprietary technology. As of March 6, 1997, the Company owned or had rights to 40 issued patents and 81 pending patent applications in the United States. The Company also owned or had rights to approximately 41 issued foreign patents and 126 foreign patent applications pending in Europe, Japan and certain other countries. Many of these applications were filed through the Patent Cooperation Treaty and the European Patent Office seeking to preserve for the Company the right to file applications in various countries. Certain patents and patent applications relating to morphogenic proteins, including OP-1, are owned by Stryker and have been licensed exclusively to the Company for use in all indications other than orthopaedic reconstruction. See "-- Collaborative and Licensing Agreements -- Stryker Corporation." Certain other patents and patent applications are owned jointly with other collaborators. There can be no assurance, however, that any such patent applications will issue as patents, or that any patent now issued, or to be issued, will provide a preferred position with respect to the technology or products it covers. MORPHOGENIC PROTEIN TECHNOLOGY. Within the Company's patent estate, 15 issued U.S. patents, 21 granted foreign patents, 75 U.S. pending applications and 89 pending foreign applications pertain to the Company's morphogenic protein technology. Of these, 14 U.S. patents, 17 foreign patents, 16 U.S. pending applications and 34 foreign applications pertain to composition of matter; 1 U.S. patent, 4 U.S. pending applications and 8 foreign applications pertain to methods of production; 19 U.S. applications and 17 foreign applications pertain to the Company's small molecule program and 4 foreign patents, 26 U.S. pending applications and 30 foreign applications pertain to particular tissue applications, including renal, neural, bone, liver, periodontal, dentin, gastrointestinal tract and immune cell-mediated tissue applications. On July 15, 1996, Creative BioMolecules, Stryker and Genetics Institute entered into a cross-license agreement in which the parties granted world-wide, royalty-free, cross licenses to each other in the bone morphogenetic/osteogenetic protein family (see "-- Collaborative and Licensing Agreements -- Genetics Institute"). This cross-license, covering both issued patents and pending applications in the field of bone morphogenic proteins, eliminates the risk of patent litigation between the parties relating to the Company's individual and joint efforts with Stryker to commercialize OP-1. 15 17 OTHER TECHNOLOGY. Within the Company's patent estate, the Company owns or has rights to 7 U.S. patents, 4 foreign patents, 9 U.S. applications and 20 foreign applications, related to its BABS(TM) and interdomain linker technology. The Company also has patents issued in the United States and certain foreign countries, and applications pending in the United States and certain foreign countries on compositions of matter, methods of use and methods of production relating to other proprietary technology. The Company's success will depend in part on its ability to obtain marketing exclusivity for its products for a period of time sufficient to establish a market position and achieve an adequate return on its investment in product development. The Company believes that protection of its products and technology under United States and international patent laws and other intellectual property laws is an important factor in securing such market exclusivity. U.S. patents issued from applications filed prior to June 8, 1995 have a term of the longer of 17 years from patent grant or 20 years from the earliest filing date to which the application is entitled benefit. U.S. patents issued from applications filed on or after June 8, 1995 have a term of 20 years from the earliest filing date to which the application is entitled benefit. Patents in most foreign countries have a term of 20 years from the date of the filing of the patent application. In the United States and certain foreign countries, the exclusivity period provided by patents covering pharmaceutical products may be extended by a portion of the time required to obtain regulatory approval for a product. The Company's issued U.S. patents begin expiring in 2005, and issued foreign patents begin expiring in 2006. Although the Company pursues patent protection, significant legal issues remain as to the extent to which patent protection may be afforded in the field of biotechnology, in both the United States and foreign countries. Furthermore, the scope of protection has not yet been broadly tested. Therefore, the Company also relies upon trade secrets, know-how and continuing technological advancement to develop and maintain its competitive position. Disclosure of the Company's know-how is generally protected under confidentiality agreements. There can be no assurance, however, that all confidentiality agreements will be honored, that third parties will not develop equivalent technology independently, that disputes will not arise as to the ownership of technical information or that wrongful disclosure of the Company's trade secrets will not occur. Certain products and processes important to Creative BioMolecules may be subject in the future to patent protection obtained by others. Biotechnology is developing rapidly. Because many patent applications have been filed in this field in recent years, the scope that courts will give to the claims of patents issued from such applications and the nature of these claims cannot be predicted. Several patent applications based on work done years ago have been issued to others with broad claims directed to the use of basic recombinant DNA technology. It is premature to predict what general trend, if any, will emerge as to the breadth of allowed claims for biotechnology products and related uses. The allowance of broader claims may increase the incidence and cost of interference proceedings at the United States Patent and Trademark Office and the risk of infringement litigation. A policy of allowing narrower claims, conversely, could limit the value of the Company's proprietary rights under its patents. It is possible that Patent and Trademark Office interference proceedings will occur with respect to a number of the Company's patent applications or issued patents. It is also likely that subject matter patented by others will be required by the Company to research, develop, or commercialize at least some of the Company's products. No assurance can be given that licenses under any such patent rights of others will be made available on acceptable terms. REGULATORY ISSUES Regulation by governmental agencies in the United States and other countries is a significant factor in the clinical evaluation and licensing of the Company's potential products as well as in the development and research of new products. All of the Company's products currently under development will require regulatory approval by the FDA under the Food, Drug, and Cosmetic Act ("FD&C Act"), as a drug or device, or under 16 18 the Public Health Service Act as a biological, to be marketed in the United States. Regardless of the classification assigned to the Company's products, all human diagnostic and therapeutic products are subject to rigorous testing. Generally, considerable time and expense are required to clinically evaluate the safety and efficacy of a new product. Moreover, even after extensive preclinical testing, unanticipated side effects can arise during clinical trials that can halt or delay the regulatory process at any point. The Company believes that seeking and obtaining regulatory approval for a new therapeutic or diagnostic product is likely to take several years and require the expenditure of substantial resources. Products developed through genetic engineering, such as the Company's products, are relatively new, and state and local regulation may increase as genetically engineered products become more common. The federal government oversees certain recombinant DNA research activity through the National Institutes of Health Guidelines for Research Involving Recombinant DNA Molecules (the "NIH Guidelines"). The Company believes it complies with the NIH Guidelines, which prohibit or restrict certain recombinant experiments, set forth levels of biological and physical containment of recombinant DNA molecules to be met for various types of research, and require that institutional biosafety committees approve certain experiments before they are initiated. Compliance with the NIH Guidelines has not had, and the Company does not foresee that it will have, a material effect on the competitive position or cash flow of the Company. Discussions have been underway since 1996 between NIH and FDA regarding alternative models for regulation of recombinant DNA research and the products resulting from such research, and the appropriateness of any continued NIH role. It is not possible to predict the effect of such potential regulatory changes on the Company or its potential competitors. PHARMACEUTICAL AND BIOLOGICAL PRODUCTS. The Company expects that certain of its potential products will be regulated by the FDA as pharmaceuticals or biologicals. The regulatory approval of pharmaceutical and biological products in the United States intended for therapeutic use in humans involves many steps. The initial phase of the FDA approval process involves preclinical testing to demonstrate that the product would not be an unreasonable hazard in clinical studies with human subjects. Upon completion of preclinical testing, an IND application must be filed with the FDA. The application includes (i) information on the composition of the product including pharmacology and toxicology, (ii) chemistry, manufacturing, and control information, (iii) results of all the preclinical safety and efficacy investigations including in vivo and in vitro studies, (iv) information on any previous human experience with the product, (v) a clinical design and protocol, (vi) information on the investigators, (vii) the necessary agreements among parties involved in the testing and (viii) approval of an Institutional Review Board at the center(s) conducting the study or studies. If the application has not been denied or if additional information has not been requested by the FDA within 30 days of filing, the applicant may then begin clinical studies. Clinical testing usually occurs in three phases to demonstrate safety and efficacy of the product. Phase I clinical trials consist of testing for the safety and tolerance of the product with a small group of subjects and may also yield preliminary information about the efficacy and dosage levels of the product. Phase II clinical trials involve testing for efficacy, determination of optimal dosage and identification of possible side effects in a larger patient group. Phase III clinical trials consist of additional testing for efficacy and safety with an expanded patient group. Currently, FDA requires a separate IND for each distinct clinical study. After product approval, FDA may request or require an additional phase (Phase IV) of clinical studies to provide additional information on safety and efficacy. Upon successful completion of Phase III testing, either a New Drug Application ("NDA") or Product License Application/Establishment License Application ("PLA/ELA") can be filed, depending upon whether the product is designated as a drug or a biological, respectively. The FDA normally requires at least two 17 19 adequate and well-controlled clinical trials for product approval. Certain biological products may be eligible for a unified application known as a Biologics License Application ("BLA"), which reduces the amount of information required to be filed concerning manufacturing facilities. All approval types require a detailed review of all data collected from clinical studies, the composition of the drug or biological, non-clinical pharmacology and toxicology data, environmental impact data, human pharmacokinetics and bioavailability data, patent information, certain case report data and forms, the labeling that will be used, information on chemistry, manufacturing, and controls, and samples of the product. After the FDA completes its review of the application, the product is typically reviewed by a panel of medical experts, and the applicant is required to answer questions on its safety and efficacy. The FDA considers the recommendation of the panel, and may in its own discretion approve an NDA, PLA/ELA, or BLA. If so approved, the product may then be marketed. DEVICES. The Company expects that certain of its potential products will be regulated by the FDA as Class III devices. Preclinical evaluations of Class III devices are similar to those of pharmaceuticals and biologicals, with additional emphasis on implant persistence, implant sensitization, and carrier characterization and specifications. Upon completion of preclinical testing, an IDE application is filed with the Center for Devices and Radiological Health in the FDA. This application consists of (i) identifying information on the sponsor, (ii) complete reports of prior investigations of the device, (iii) a summary of the investigational plan (or the complete plan), (iv) a description of the methods, facilities, and controls used for manufacturing, processing, packing, storage, and installation of the device, (v) example investigator agreements, (vi) a list of investigators, (vii) certifications concerning investigators and Investigational Review Boards, (viii) copies of labeling and (ix) materials relating to environmental impact and informed consent. If the application has not been denied by the FDA within 30 days of filing, the applicant may then begin clinical studies. The FDA may approve the IDE before the end of the 30 day period, in which case the applicant may begin clinical studies immediately. The clinical testing of a device may consist of a preliminary feasibility study leading to a much larger pivotal safety and effectiveness study, or it may consist of only the larger pivotal safety and effectiveness study. Upon successful completion of the clinical testing and compilation of the data, a PMA application can be filed. This application consists of (i) indications for use, (ii) product description, (iii) discussion of alternatives to use of the device, (iv) marketing history (worldwide), (v) review of clinical studies and results, (vi) methods, facilities and controls (as in an IDE), (vii) non-clinical data, (viii) if only one clinical study is used, a justification of that approach, (ix) identification and bibliography of any information relevant to the safety and effectiveness of the device, (x) product samples, (xi) product labeling and (xii) certain environmental information. The FDA is required to respond to the PMA submission within 180 days, although the FDA may not adhere to this schedule and further review may take additional time. After the FDA completes its review of the application, the product is typically reviewed by a panel of medical experts, and the applicant is required to answer questions on its safety and effectiveness. At the recommendation of the panel, a PMA may be granted, and the product may then be marketed. TREATMENT IND STATUS. Before the completion of clinical trials for products, a company may file for Treatment IND status under provisions of the IND regulations. These regulations apply to products for patients with serious or life-threatening diseases and are intended to facilitate the availability of new products to desperately ill patients after clinical trials have shown convincing evidence of efficacy, but before general marketing approval has been granted by the FDA. Under these regulations, it may be possible for the Company to recover some of the costs of research, development and manufacture of its products before commercial marketing begins. The 18 20 Company may seek Treatment IND status for qualified products, although the decision whether to grant such status lies with the FDA. The FDA has also adopted regulations intending to accelerate the approval of therapeutic products for serious and life threatening diseases under certain circumstances. The Company may seek to utilize these regulations for qualified products. Approvals under these regulations may be conditioned on further studies by the Company, may include restrictions on marketing, may require prior submission of promotional materials, and may be subject to expedited withdrawal of approval. USER FEES. The United States Congress passed the Prescription Drug User Fee Act ("User Fee Act") in October 1992. The purpose of the User Fee Act is to reduce the time that the FDA takes to act on completed PLAs, ELAs, and NDAs. Priority applications should be acted upon in six months and regular applications should be acted upon in 12 months from date of submission. The User Fee Act contemplates that establishment, application and product fees paid by pharmaceutical companies seeking license approval or who already have products on the market will be used to pay for extra resources at the FDA. The increase in resources is intended to allow the FDA to meet the above deadlines. Small companies with no product on the market may receive a reduction and deferral of some fees. User fee waivers are possible for companies with limited resources if they can show that fees are a barrier to innovation or to development of products. Waivers are also possible to protect the public health, if fees would exceed FDA costs, or on equitable grounds. The FDA has stated that it will grant these waivers on a case-by-case basis. In particular, smaller entities (less than $10 million in annual gross revenues and no corporate parent or funding source with annual gross revenues of $100 million or more), or up to medium-sized entities (annual gross revenues of less than $100 million) developing Orphan Drugs, may qualify for a fee waiver. The FDA has issued a draft guidance document describing criteria for user fee exceptions and waivers, and the Company may seek such exceptions or waivers for its products if appropriate under this guidance. The user fee program does not apply to generic drugs and medical devices at this time. Because the original legislation creating user fees will expire in the fall of 1997, negotiations are currently underway between the regulated industry, the FDA, and the Congress to draft reauthorizing legislation. It is impossible to predict whether these efforts will be successful, and what effect their success or failure may have on approval times and availability of FDA resources. FACILITIES INSPECTION. In addition to product approval prior to marketing, the Company must also obtain FDA approval of the facility in which its products will be manufactured. In the case of a pharmaceutical or a device, the Company must be in compliance with cGMP requirements; inspection of the Company's facilities to determine such compliance would be conducted as part of the overall NDA or PMA approval. In the case of a biological, unless the product qualifies for a BLA, a separate application specific to the manufacturing facility must be approved (in the form of an ELA), and the facility must meet guidelines set by the Center for Biologics Evaluation and Research. Since any NDA, PMA or ELA approved by the FDA is both site and process specific, any material change by the Company in its manufacturing process, equipment or location would necessitate additional FDA review and approval. Recently, the FDA promulgated new regulations concerning cGMPs for medical devices. These new regulations include elements drawn from existing international standards and a new emphasis on design of medical devices (in addition to the existing focus on manufacturing). Until these new regulations are better understood by industry, compliance with medical device cGMPs may prove more difficult than in the past, and may require the use of additional resources or even the redesign of some existing devices or facilities. 19 21 FOREIGN REGULATIONS. Regulations concerning the marketing of human therapeutic and diagnostic products are generally imposed by foreign governments and may have an impact on the Company's anticipated operations. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement levels vary widely from country to country. The Company attempts to conduct its development activities in a manner that would also support regulatory filings in selected foreign countries. OTHER. The current Congress is considering various possible reforms to limit the FD&C Act. Examples of possible changes include, but are not limited to, alternative approval mechanisms, variations in the length of statutory exclusivity and patent restoration, and modified FDA regulatory procedures. At present, it is not possible to predict whether such changes will, in fact, occur, and what their possible effect on the Company might be. Amendments to the federal laws have loosened export restrictions on therapeutic products, including amendments permitting the export of products not yet approved in the United States but approved in certain foreign countries. The Company may choose to conduct such exports of its products prior to obtaining FDA marketing approval in the United States. In addition, the Company is subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Research Conservation and Recovery Act, regulations administered by the Nuclear Regulatory Commission, national restrictions on technology transfer, import, export and customs regulations and other present or possible future local, state or federal regulation. From time to time, other federal agencies and congressional committees have indicated an interest in implementing further regulation of biotechnology applications. The Company is not able to predict whether any such regulations will be adopted or whether, if adopted, such regulations will adversely affect the Company's business. EMPLOYEES As of February 28, 1997, the Company had 191 full-time employees, 27 of whom hold Ph.D., D.V.M., or M.D. degrees. The Company considers its relations with its employees to be good and has experienced a low rate of employee turnover. None of the Company's employees is covered by a collective bargaining agreement. The Company has entered into confidentiality agreements with all of its employees. 20 22 ITEM 2. DESCRIPTION OF PROPERTY The Company currently leases an aggregate of 69,000 square feet in two facilities in Hopkinton, Massachusetts. The location is approximately 30 miles west of Cambridge and Boston and 20 miles east of Worcester, all of which are major research centers in health care and biotechnology in Massachusetts. The Company's larger facility, encompassing 54,000 square feet of space, houses research and development laboratories and small scale production suites. The research and development laboratories are fully equipped for recombinant DNA synthesis, protein engineering, analytical chemistry, cell biology, and process development activities. The production suites are designed and equipped to produce clinical grade protein products. The smaller facility, with 15,000 square feet of space, houses its corporate offices. Both leases expire in 1998. The Company purchased a leasehold interest in, and an option to purchase, a 47,000 square foot manufacturing facility in Lebanon, New Hampshire on March 15, 1993. The location is approximately 130 miles north by northwest of Boston, Massachusetts and 90 miles southeast of Burlington, Vermont. This facility houses two functional cGMP production suites, quality assurance/quality control laboratories and support offices. The facility is fully equipped for cGMP production of recombinant proteins from mammalian cell culture and monoclonal antibodies from Hybridoma cultures. The lease expires in 2008. The Company has room for expansion within the site. In September 1994, the Company signed a three-year manufacturing contract with Biogen to produce for clinical trials several of Biogen's protein-based therapeutic candidates in the manufacturing facility in Lebanon, New Hampshire. To enable the Company to meet its obligations under the manufacturing contract, Biogen is constructing and financing a 7,000 square foot addition to the present facility for cGMP production using bacterial fermentation and agreed to lease equipment to the Company for the operation of such portion of the facility and for the cGMP production of bacterial fermentation products by the Company. The Company believes that its existing facilities, including the addition of bacterial fermentation capacity in Lebanon, New Hampshire, are adequate for its current needs. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the year ended December 31, 1996 to a vote of the Company's security holders. 21 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's Common Stock is traded on The Nasdaq Stock Market under the symbol CBMI. The following table presents quarterly information on the price range of the Company's Common Stock, indicating the high and low sale prices reported by The Nasdaq Stock Market.
High Low ---- --- 1996 4th Quarter.................. $12.75 $ 6.50 3rd Quarter.................. 8.50 5.13 2nd Quarter.................. 10.88 7.56 1st Quarter.................. 13.00 6.88 1995 4th Quarter.................. 7.00 4.50 3rd Quarter.................. 6.25 2.50 2nd Quarter.................. 3.13 1.69 1st Quarter.................. 3.25 1.50 1994 4th Quarter.................. 3.88 1.38
STOCKHOLDERS As of February 28, 1997, there were approximately 318 stockholders of record of the Company's Common Stock. DIVIDENDS The Company has not paid any dividends on its Common Stock since its inception and does not intend to pay any dividends on its Common Stock in the foreseeable future. The Company intends to retain its earnings, if any, for the development of its business. RECENT SALES OF UNREGISTERED SECURITIES On December 9, 1996, the Company sold to Biogen 1,542,680 shares of Common Stock at a premium to the then-current market price of the Common Stock. Proceeds to the Company were $18,000,000. The Company issued these securities without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act, since no public offering was involved. No underwriters were involved in the offer and sale of the securities. 22 24 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below with respect to the Company's consolidated statements of operations for the year ended December 31, 1996, the three months ended December 31, 1995 and for the years ended September 30, 1995 and 1994, and with respect to the consolidated balance sheets as of December 31, 1996 and 1995, are derived from the consolidated financial statements that have been audited by Deloitte & Touche LLP, independent auditors, which are included elsewhere in this Form 10-K. The consolidated statement of operations data for the years ended September 30, 1993 and 1992, and the consolidated balance sheet data as of September 30, 1995, 1994, 1993 and 1992, are derived from audited consolidated financial statements not included herein. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes included herein.
THREE YEAR MONTHS ENDED ENDED YEARS ENDED SEPTEMBER 30, DECEMBER DECEMBER ----------------------------------------------- 31, 1996 31, 1995(1) 1995 1994 1993 1992 -------- ----------- -------- -------- -------- -------- (In thousands, except per share amounts) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Research and development contracts ..... $ 5,548 $ 971 $ 5,824 $ 3,652 $ 1,576 $ 4,469 Manufacturing contracts ................ 4,486 770 6,159 1,411 461 -- License fees and royalties ............. 11,122 2 544 7 30 -- Product sales .......................... -- -- -- 16 35 56 Interest ............................... 1,174 261 649 580 549 472 Other .................................. 22 -- 53 141 3 5 -------- -------- -------- -------- -------- -------- Total revenues ....................... 22,352 2,004 13,229 5,807 2,654 5,002 -------- -------- -------- -------- -------- -------- Cost and expenses: Research and development ............... 15,651 3,194 11,688 17,680 12,898 7,489 Cost of manufacturing contracts ........ 3,823 715 5,330 1,389 439 -- Cost of product sales .................. -- -- -- 3 6 13 Marketing, general and administrative .. 4,901 1,254 3,604 4,794 3,121 3,292 Interest ............................... 217 61 229 200 209 200 -------- -------- -------- -------- -------- -------- Total costs and expenses ............. 24,592 5,224 20,851 24,066 16,673 10,994 -------- -------- -------- -------- -------- -------- Net loss ................................. $ (2,240) $ (3,220) $ (7,622) $(18,259) $(14,019) $ (5,992) ======== ======== ======== ======== ======== ======== Net loss per common share(2) ............. $ (0.07) $ (0.11) $ (0.37) $ (0.95) $ (0.94) $ (0.55) ======== ======== ======== ======== ======== ======== Weighted average number of common shares outstanding(2) ........... 30,062 28,120 20,431 19,212 14,855 10,812 ======== ======== ======== ======== ======== ========
SEPTEMBER 30, DECEMBER DECEMBER ----------------------------------------------- 31, 1996 31, 1995 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- (In thousands) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and marketable securities ..................... $ 50,075 $ 20,002 $ 10,486 $ 5,423 $ 25,255 $ 6,739 Working capital ................................ 48,174 21,743 11,651 4,927 23,940 5,015 Total assets ................................... 73,819 41,341 32,192 27,470 45,326 12,235 Capital lease obligations, less current portion 1,651 1,711 1,713 1,750 1,798 216 Accumulated deficit ............................ (71,438) (69,198) (65,978) (58,356) (40,098) (26,079) Total stockholders' equity ..................... 67,261 37,829 28,269 22,807 40,675 9,676
(1) In January 1996, the Company changed its fiscal year end from September 30 to December 31, effective with the three month period ended December 31, 1995. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the computation of net loss per common share. 23 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL To date, most of the Company's revenues have been derived from research and development payments and license fees under agreements with collaborative partners. Beginning in the year ended September 30, 1995, a significant portion of the Company's revenues also were derived from contract manufacturing. The Company anticipates that over the next several years its revenues will be derived primarily from such collaborative agreements. The Company has been unprofitable since its inception and expects to incur additional operating losses over the next several years. The Company's research agreements with collaborative partners have typically provided for the partial or complete funding of research and development for specified projects and royalties payable to the Company in exchange for licenses to market the resulting products. The Company is presently a party to major research collaborations with Stryker to develop products for orthopedic reconstruction and with Biogen to develop products for the treatment of renal disorders. Under the research portion of the collaboration with Stryker, the Company supplies an OP-1 product to Stryker for clinical trials and other uses, provides clinical support and performs research work pursuant to work plans established periodically by the two companies. The current work plan establishes research objectives and funding through April 1998. In December 1996, the Company signed a Research Collaboration and License Agreement with Biogen. Under the research collaboration, the Company will perform research work pursuant to work plans established annually by the two companies and supply OP-1 to Biogen for preclinical and clinical uses. Although the Company is seeking and in the future may seek to enter into collaborative arrangements with respect to certain other projects, there can be no assurance that the Company will be able to obtain such agreements on acceptable terms or that the costs required to complete the projects will not exceed the funding available for such projects from the collaborative partners. The Company's manufacturing contracts provide for technical collaboration and manufacturing for third parties at the Company's manufacturing facility in Lebanon, New Hampshire. The Company is presently a party to a manufacturing contract with Biogen to produce several of Biogen's protein-based therapeutic candidates through December 1997 for use in Biogen's clinical trials. The Company agreed to provide Biogen with all available cell culture and bacterial fermentation capacity within the manufacturing facility, and Biogen agreed to pay the Company's costs associated with such capacity, for approximately six months in each of the three years beginning in January 1995. The companies have agreed that the supply of OP-1 to Biogen pursuant to the research collaboration during 1997 will satisfy Biogen's 1997 obligations under the manufacturing contract. The companies also agreed to extend the manufacturing contract for two years through 1999, with Biogen having the option, but not the obligation, to use the manufacturing facility for a mutually agreeable number of months in one of the two years. Although the Company is seeking additional manufacturing contracts for available cell culture and bacterial fermentation capacity, there can be no assurance that the Company will be able to obtain such contracts on acceptable terms. Revenue is earned and recognized based upon work performed, upon the sale or licensing of product rights, upon shipment of product for use in preclinical and clinical testing or upon attainment of benchmarks specified in collaborative agreements. The Company's results of operations vary significantly from year to year and quarter to quarter and depend on, among other factors, the timing of contract manufacturing activities and the timing of payments made by collaborative partners. The timing of the Company's contract revenues may not match the timing of the Company's associated product development expenses. As a result, research and development expenses may exceed contract revenues in any particular period. Furthermore, aggregate research and development contract revenues for any product may not offset all of the Company's development expenses for such product. 24 26 In January 1996, the Board of Directors voted to change the Company's fiscal year end from September 30 to December 31, effective with the three month period ended December 31, 1995. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, SEPTEMBER 30, 1995 AND 1994. The Company's revenues in the fiscal years ended December 31, 1996, September 30, 1995 and September 30, 1994 were $22,352,000, $13,229,000 and $5,807,000, respectively. Research and development contract revenues increased 59% from $3,652,000 in the year ended September 30, 1994 to $5,824,000 in the year ended September 30, 1995 and decreased 5% to $5,548,000 in the year ended December 31, 1996. These increases and decreases are primarily due to fluctuations in research funding from Stryker. The Company anticipates that research revenues will increase in 1997 primarily as a result of the research activity under the research collaboration with Biogen. Manufacturing contract revenues reflect manufacturing, principally for Biogen beginning in the year ended September 30, 1995, performed at the Company's manufacturing facility in Lebanon, New Hampshire. The Company anticipates using the facility for the production of OP-1 for Stryker, Biogen and the Company's own uses for a substantial portion of 1997. Therefore, the Company does not anticipate significant contract manufacturing revenues in 1997. Product sales are sales of proteins to the research market. The Company does not anticipate significant product sales, if any, in 1997. License fees and royalties revenues for the year ended December 31, 1996 include a $10,000,000 license fee from Biogen as part of the research collaboration with the Company to develop products for the treatment of renal disorders, $500,000 from Stryker for the Company's licensing to Stryker of patent rights and know-how in the dental field and $622,000 received for the licensing patent rights and know-how associated with certain protein technology which is not central to the Company's business. License fees and royalties revenues for the year ended September 30, 1995 include revenue from licensing patent rights and know-how associated with certain protein technology which is not central to the Company's business. Interest revenues increased 12% from $580,000 in the year ended September 30, 1994 to $649,000 in the year ended September 30, 1995 and increased 81% to $1,174,000 in the year ended December 31, 1996. The increase from the year ended September 30, 1994 to the year ended September 30, 1995 was due to increased cash balances resulting from a private placement of the Company's equity during the year ended September 30, 1995. The increase from the year ended September 30, 1995 to the year ended December 31, 1996 was due to increased cash balances resulting from an underwritten public offering of the Company's common stock in July 1996. Other revenues consist primarily of non-recurring gains from the sale of certain manufacturing equipment. The Company's total costs and expenses, consisting primarily of research and development expenses, decreased 13% from $24,066,000 in the year ended September 30, 1994 to $20,851,000 in the year ended September 30, 1995 and increased 18% to $24,592,000 in the year ended December 31, 1996. Research and development expenses decreased 34% from $17,680,000 in the year ended September 30, 1994 to $11,688,000 in the year ended September 30, 1995 and increased 34% to $15,651,000 in the year ended December 31, 1996. Substantially all of the cost of operating the manufacturing facility from January 1995 through mid-September 1995 is reported as cost of manufacturing contracts, contributing to the decrease in research and development expenses from the year ended September 30, 1994 to the year ended September 30, 1995. From the date of acquisition of the manufacturing facility in March 1993 through December 1994, the facility was primarily used for development activities by the Company and therefore the facility operating costs related to such development activities were reported as research and development 25 27 expenses for such periods. As discussed further below, commencing in January 1995 through September 1995, facility operating costs were reported as cost of manufacturing contracts. The decrease in research and development expenses from the year ended September 30, 1994 to the year ended September 30, 1995 also was due to a 20% staff reduction in the Company's Massachusetts operations implemented in September 1994 and a corresponding reduction in purchases of laboratory supplies and services. The increase in research and development expenses from the year ended September 30, 1995 to the year ended December 31, 1996 was due in part to an increase in development activities by the Company at the manufacturing facility. The facility operating costs related to such development activities were reported as research and development expenses for such periods. Also contributing to the increase were staff increases and a corresponding increase in purchases of laboratory supplies, services, recruiting and relocation expenses, and increased expenditures on academic collaborations and subcontracted research related to product and technology development. The Company anticipates that research expenses will increase in 1997 primarily as a result of the research activity under the research collaboration with Biogen. Cost of manufacturing contracts includes the costs associated with the manufacturing for third parties conducted at the Company's manufacturing facility in Lebanon, New Hampshire. Cost of manufacturing contracts increased significantly beginning in the year ended September 30, 1995, as the Company began production for Biogen in January 1995. The Company anticipates using the facility for the production of OP-1 for Stryker, Biogen and the Company's own uses for a substantial portion of 1997. Costs associated with the production of OP-1 for Stryker, Biogen and the Company's own uses will be reported as research and development expenses. Marketing, general and administrative expenses decreased 25% from $4,794,000 in the year ended September 30, 1994 to $3,604,000 in the year ended September 30, 1995 and increased 36% to $4,901,000 in the year ended December 31, 1996. The decrease from the year ended September 30, 1994 to the year ended September 30, 1995 was due to a 20% staff reduction in the Company's Massachusetts operations implemented in September 1994 and a corresponding reduction in purchases of supplies and services and a reduction in recruiting and relocation expenses. The increase from the year ended September 30, 1995 to the year ended December 31, 1996 was due to increases in executive staff and recruiting and relocation costs, along with additional costs associated with the Biogen transaction. Interest expense increased 15% from $200,000 in the year ended September 30, 1994 to $229,000 in the year ended September 30, 1995 and decreased 5% to $217,000 in the year ended December 31, 1996. The increase from the year ended September 30, 1994 to the year ended September 30, 1995 was due to an increase in interest rates on capital lease obligations, partially offset by the repayment of obligations under capital leases. The decrease from the year ended September 30, 1995 to the year ended December 31, 1996 was due to the repayment of obligations under capital leases. As a result of the foregoing, the Company incurred a net loss of $2,240,000 in the year ended December 31, 1996 compared to a net loss of $7,622,000 in the year ended September 30, 1995 and a net loss of $18,259,000 in the year ended September 30, 1994. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, the Company's principal sources of liquidity consisted of cash and cash equivalents of $38,249,000, marketable securities of $11,826,000 and a $15,000,000 unsecured line of credit from Biogen, as discussed futher below. The Company has financed its operations primarily through placements of equity securities, revenues received under agreements with collaborative partners, and more recently, manufacturing contracts. Since inception, sales of equity securities have raised approximately $131,998,000 in gross proceeds, including approximately $12,717,000 in an underwritten public offering of common stock completed in July 1996 and $18,000,000 in a private placement of common stock with Biogen 26 28 completed in December 1996. Since inception, the Company has earned approximately $79,660,000 in gross revenues. The Company increased its investment in property, plant and equipment to $28,458,000 at December 31, 1996 from $24,680,000 at December 31, 1995. The Company currently plans to spend approximately $3,200,000 in the year ended December 31, 1997 in leasehold improvements, equipment purchases and validation expenses required to obtain FDA approval of the manufacturing facility and to expand the Company's research, development and manufacturing capabilities. In addition, as part of a manufacturing contract with Biogen, Biogen financed the construction of leasehold improvements to the Company's manufacturing facility at an estimated total cost of $2,900,000 and is installing and financing certain equipment with an estimated total cost of $2,400,000 for the Company, as discussed further below. The Company's collaborative agreements with Stryker provide for research payments to the Company and royalty payments to the nonseller from sales of any OP-1 products. The Company also has the exclusive right to supply Stryker's worldwide commercial requirements for OP-1 products for use in orthopedic reconstruction. Under the research portion of the collaboration, the Company supplies OP-1 products to Stryker for clinical trials and other uses and provides clinical support and performs research work pursuant to work plans established periodically by the two companies. In May 1996, the Company and Stryker agreed to extend the research portion of the collaboration for two years through April 1998. The Company estimates that the contract extension will provide approximately $12,000,000 of revenue to the Company over the two year period. In December 1996, the Company signed a Research Collaboration and License Agreement with Biogen to collaborate on the development of the Company's morphogenic protein, OP-1, for the treatment of renal disorders. Under the agreement, the Company granted to Biogen exclusive worldwide rights to manufacture, market and sell OP-1 for the treatment of renal disease. Biogen paid a $10,000,000 license fee in 1996 and made an $18,000,000 equity investment in common stock at a premium over the then-current market price per share. Biogen has guaranteed $10,500,000 in research funding over the next three years, will pay up to an additional $69,000,000 upon the attainment of certain milestones and make available a $15,000,000 line of credit. The agreement further provides for the payment of royalties to the Company based on product sales. The Company may draw upon the $15,000,000 line of credit over the next three years to fund the research and development of small molecule products based on OP-1. Advances are limited to $5,000,000 per year. In exchange for the line of credit, Biogen received an exclusive option to obtain an exclusive, worldwide license to OP-1 based small molecule products for the treatment of renal disorders. In the event Biogen exercises its option, Biogen will forgive the lesser of $10,000,000 or the principal amount outstanding under the line of credit. The remaining principal, together with all accrued and unpaid interest is due and payable five years from the date of the first advance and may be repaid, at the Company's option, in either cash, common stock or reduction of royalties due the Company from Biogen. In September 1994, the Company signed a three-year manufacturing contract with Biogen to produce in the Company's manufacturing facility in Lebanon, New Hampshire several of Biogen's protein-based therapeutic candidates for use in Biogen's clinical trials. The contract covers the period from January 1995 through December 1997. As part of the research collaboration, the two companies agreed to extend the manufacturing contract for two years through December 31, 1999, with Biogen having the option, but not the obligation, to use the manufacturing facility for a mutually agreeable number of months in one of the two extension years. To enable the Company to meet its obligations under the manufacturing contract, Biogen financed the construction of a 7,000 square foot addition to the present facility for cGMP production using bacterial fermentation at an estimated total cost of $2,900,000. The Company agreed to reimburse Biogen for the construction costs and leasehold improvements at the end of the contract term, including the extension, at an amount equal to Biogen's construction costs less $300,000 and less all accumulated depreciation. The reimbursement to Biogen is estimated to be no more than $2,100,000. Biogen also agreed to lease equipment to the Company for the operation of such portion of the facility and for cGMP production using bacterial fermentation by the Company at an estimated total cost of $2,400,000, as provided in an equipment lease agreement. The Company has the option to purchase the equipment at the end of 27 29 the extended lease term for an amount equal to its then fair market value or for such other amount as is negotiated by the two parties. Biogen currently plans to complete the installation of the equipment and prepare the bacterial facility for operation in 1997. The Company anticipates that its existing capital resources should enable it to maintain its current and planned operations through 1999. The Company expects to incur substantial additional research and development and other costs, including costs related to preclinical studies and clinical trials. The Company's ability to continue funding its planned operations beyond 1999 is dependent upon its ability to generate sufficient cash flow from collaborative arrangements and manufacturing contracts, and to obtain additional funds through equity or debt financings, or from other sources of financing, as may be required. The Company is seeking additional collaborative arrangements and also expects to raise funds through one or more financing transactions, as conditions permit. In addition, the Company is investigating the feasibility of raising capital through the sale/leaseback or debt financing of some of its capital assets. Over the longer term, because of the Company's significant long-term capital requirements, the Company intends to raise funds when conditions are favorable, even if it does not have an immediate need for additional capital at such time. If substantial additional funding is not available, the Company's business will be materially and adversely affected. CAUTIONARY FACTORS WITH RESPECT TO FORWARD-LOOKING STATEMENTS This Form 10-K contains forward-looking statements which are based on management's current expectations and which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. The Company cautions investors that there can be no assurance that the actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to the following: uncertainty as to timing of and the Company's ability to commercialize its products; the Company's reliance on its lead product candidate and the Company's lack of control over the clinical progress of several applications of its products, which are controlled by the Company's collaborative partners; the Company's reliance on current and prospective collaborative partners to supply funds for research and development and to commercialize its products; intense competition related to the research and development of morphogenic and other proteins for various applications and therapies and the possibility that others may discover or develop, and the Company may not be able to gain rights with respect to, the technology necessary to commercialize its products; the Company's lack of experience in commercial manufacturing and unproven ability to manufacture products on a large scale; the Company's lack of marketing and sales experience and the risk that any products that the Company develops may not be able to be marketed at acceptable prices or receive commercial acceptance in the markets that the Company expects to target; uncertainty as to whether there will exist adequate reimbursement for the Company's products from government, private health insurers and other organizations; and uncertainties as to the extent of future government regulation of the Company's business. As a result, the Company's future development efforts involve a high degree of risk. 28 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Index to Consolidated Financial Statements Number - ------------------------------------------ ------ Creative BioMolecules, Inc. And Subsidiary: Financial Statements: Independent Auditors' Report........................ 30 Consolidated Balance Sheets......................... 31 Consolidated Statements of Operations............... 32 Consolidated Statements of Stockholders' Equity..... 33 Consolidated Statements of Cash Flows............... 34 Notes to Consolidated Financial Statements.......... 35 29 31 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Creative BioMolecules, Inc. We have audited the accompanying consolidated balance sheets of Creative BioMolecules, Inc. and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 1996, the three month period ended December 31, 1995 and each of the two years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts used and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiary at December 31, 1996 and 1995, and the results of their operations and their cash flows for the year ended December 31, 1996, the three month period ended December 31, 1995 and each of the two years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Boston, Massachusetts February 21, 1997 30 32 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------- ASSETS 1996 1995 - ------ ------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 38,248,988 $ 11,917,779 Marketable securities 11,826,266 8,084,269 Accounts receivable 1,454,696 2,818,618 Inventory 1,341,914 562,290 Prepaid expenses and other 208,886 149,105 ------------- ------------- Total current assets 53,080,750 23,532,061 ------------- ------------- PROPERTY, PLANT AND EQUIPMENT - net 16,224,376 14,736,306 ------------- ------------- OTHER ASSETS: Note receivable - officer 350,000 Patents and licensed technology - net 401,629 382,703 Deferred patent application costs - net 3,471,169 2,431,298 Deposits and other 290,950 258,473 ------------- ------------- Total other assets 4,513,748 3,072,474 ------------- ------------- TOTAL $ 73,818,874 $ 41,340,841 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Lease obligations - current portion $ 53,532 $ 42,567 Accounts payable 2,830,356 738,100 Accrued liabilities 561,562 512,446 Accrued compensation 1,460,856 495,633 ------------- ------------- Total current liabilities 4,906,306 1,788,746 ------------- ------------- LEASE OBLIGATIONS 1,651,493 1,710,910 ------------- ------------- DEFERRED COMPENSATION - officers 12,500 ------------- ------------- COMMITMENTS (Notes 6, 7 and 11) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued Common stock, $.01 par value, 50,000,000 shares authorized, 32,769,553 shares and 28,894,996 shares issued and outstanding at December 31, 1996 and 1995, respectively 327,696 288,950 Common stock payable 1,736,586 Additional paid-in capital 138,371,802 105,001,625 Accumulated deficit (71,438,423) (69,198,476) ------------- ------------- Total stockholders' equity 67,261,075 37,828,685 ------------- ------------- TOTAL $ 73,818,874 $ 41,340,841 ============= =============
See notes to consolidated financial statements 31 33 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Year Ended Ended Year Ended September 30, December 31, December 31, ----------------------------- 1996 1995 1995 1994 ------------ ------------ ------------ ------------ REVENUES: Research and development contracts $ 5,547,976 $ 970,806 $ 5,824,344 $ 3,651,949 Manufacturing contracts 4,485,531 770,133 6,158,574 1,411,262 License fees and royalties 11,122,584 2,157 544,000 7,500 Product sales 15,600 Interest 1,174,219 260,953 648,602 580,160 Other 21,900 349 53,470 140,757 ------------ ------------ ------------ ------------ Total revenues 22,352,210 2,004,398 13,228,990 5,807,228 ------------ ------------ ------------ ------------ COSTS AND EXPENSES: Research and development 15,650,986 3,193,979 11,687,847 17,679,692 Cost of manufacturing contracts 3,823,442 715,171 5,329,779 1,388,577 Cost of product sales 3,494 Marketing, general and administrative 4,900,823 1,254,566 3,603,954 4,793,508 Interest 216,906 60,784 229,477 200,563 ------------ ------------ ------------ ------------ Total costs and expenses 24,592,157 5,224,500 20,851,057 24,065,834 ------------ ------------ ------------ ------------ NET LOSS $ (2,239,947) $ (3,220,102) $ (7,622,067) $(18,258,606) ============ ============ ============ ============ NET LOSS PER COMMON SHARE $ (0.07) $ (0.11) $ (0.37) $ (0.95) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 30,062,334 28,120,190 20,430,900 19,212,477 ============ ============ ============ ============
See notes to consolidated financial statements. 32 34 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Preferred Stock Common Stock ----------------------- ----------------------- Shares Amount Shares Amount ----------- -------- ----------- -------- BALANCE, SEPTEMBER 30, 1993 0 $ 0 18,575,966 $185,760 Repayment of notes receivable Forgiveness of notes receivable Issuance of common stock in connection with asset purchase 394,890 3,949 Issuance of common stock for note receivable 467,715 4,677 Other issuances of common stock 96,247 962 Net loss ----------- -------- ----------- -------- BALANCE, SEPTEMBER 30, 1994 0 0 19,534,818 195,348 Forgiveness of notes receivable Issuance of common stock for note receivable 66,271 663 Repayment of notes receivable Issuance of Series 1994/A Preferred Stock in connection with private placement (net of costs $269,064) 1,130,000 11,300 Issuance of common stock in connection with asset purchase 394,890 3,949 Conversion of Series 1994/A Preferred Stock into common stock (1,130,000) (11,300) 5,650,000 56,500 Other issuances of common stock 186,675 1,867 Net loss ----------- -------- ----------- -------- BALANCE, SEPTEMBER 30, 1995 0 0 25,832,654 258,327 Issuance of common stock in connection with self-managed public offering of common stock (net of costs of $108,026) 3,000,000 30,000 Other issuances of common stock 62,342 623 Net loss ----------- -------- ----------- -------- BALANCE, DECEMBER 31, 1995 0 0 28,894,996 288,950 Reclassification of equity consideration in connection with asset purchase Issuance of common stock in connection with underwritten public offering of common stock (net of costs of $1,283,236) 2,000,000 20,000 Issuance of common stock in connection with research collaboration 1,542,680 15,427 Stock based compensation Other issuances of common stock 331,877 3,319 Net loss ---------- --------- ----------- -------- BALANCE, DECEMBER 31, 1996 0 $ 0 32,769,553 $327,696 ========== ========= =========== ========
Common Additional Stock Paid-In Accumulated Payable Capital Deficit ----------- ------------ ------------ BALANCE, SEPTEMBER 30, 1993 $ 5,785,131 $ 74,914,056 $(40,097,701) Repayment of notes receivable Forgiveness of notes receivable Issuance of common stock in connection with asset purchase (4,048,545) 4,044,596 Issuance of common stock for note receivable 1,763,286 Other issuances of common stock 316,496 Net loss (18,258,606) ----------- ------------ ------------ BALANCE, SEPTEMBER 30, 1994 1,736,586 81,038,434 (58,356,307) Forgiveness of notes receivable Issuance of common stock for note receivable 69,358 Repayment of notes receivable Issuance of Series 1994/A Preferred Stock in connection with private placement (net of costs $269,064) 10,949,011 Issuance of common stock in connection with asset purchase (3,949) Conversion of Series 1994/A Preferred Stock into common stock (45,200) Other issuances of common stock 245,097 Net loss (7,622,067) ----------- ------------ ------------ BALANCE, SEPTEMBER 30, 1995 1,736,586 92,252,751 (65,978,374) Issuance of common stock in connection with self-managed public offering of common stock (net of costs of $108,026) 12,611,974 Other issuances of common stock 136,900 Net loss (3,220,102) ----------- ------------ ------------ BALANCE, DECEMBER 31, 1995 1,736,586 105,001,625 (69,198,476) Reclassification of equity consideration in connection with asset purchase (1,736,586) 1,736,586 Issuance of common stock in connection with underwritten public offering of common stock (net of costs of $1,283,236) 12,696,744 Issuance of common stock in connection with research collaboration 17,984,573 Stock based compensation 17,000 Other issuances of common stock 935,274 Net loss (2,239,947) ----------- ------------ ------------ BALANCE, DECEMBER 31, 1996 $ 0 $138,371,802 $(71,438,423) =========== ============ ============
Stockholders' Notes Receivable Total ------------ ------------ BALANCE, SEPTEMBER 30, 1993 $ (112,491) $ 40,674,755 Repayment of notes receivable 24,183 24,183 Forgiveness of notes receivable 44,154 44,154 Issuance of common stock in connection with asset purchase Issuance of common stock for note receivable (1,763,286) 4,677 Other issuances of common stock 317,458 Net loss (18,258,606) ----------- ------------ BALANCE, SEPTEMBER 30, 1994 (1,807,440) 22,806,621 Forgiveness of notes receivable 44,154 44,154 Issuance of common stock for note receivable (70,021) Repayment of notes receivable 1,833,307 1,833,307 Issuance of Series 1994/A Preferred Stock in connection with private placement (net of costs $269,064) 10,960,311 Issuance of common stock in connection with asset purchase Conversion of Series 1994/A Preferred Stock into common stock Other issuances of common stock 246,964 Net loss (7,622,067) ----------- ------------ BALANCE, SEPTEMBER 30, 1995 0 28,269,290 Issuance of common stock in connection with self-managed public offering of common stock (net of costs of $108,026) 12,641,974 Other issuances of common stock 137,523 Net loss (3,220,102) ----------- ------------ BALANCE, DECEMBER 31, 1995 0 37,828,685 Reclassification of equity consideration in connection with asset purchase Issuance of common stock in connection with underwritten public offering of common stock (net of costs of $1,283,236) 12,716,744 Issuance of common stock in connection with research collaboration 18,000,000 Stock based compensation 17,000 Other issuances of common stock 938,593 Net loss (2,239,947) ----------- ------------ BALANCE, DECEMBER 31, 1996 $ 0 $ 67,261,075 =========== ============
See notes to consolidated financial statements 33 35 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Year Ended Ended Year Ended September 30, December December ----------------------------- 31, 1996 31, 1995 1995 1994 ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,239,947) $ (3,220,102) $ (7,622,067) $(18,258,606) ------------ ------------ ------------ ------------ Adjustments to reconcile net loss to net cash used: Depreciation and amortization 2,423,002 758,544 2,471,184 2,347,602 Compensation expense 35,249 29,750 107,002 78,967 Deferred patent and application costs 92,426 137,474 Bad debt expense 232,671 Increase (decrease) in cash from: Accounts receivable 1,345,673 (255,691) (1,101,169) (1,020,377) Inventory and prepaid expenses (839,405) 87,655 142,375 (146,662) Accounts payable and accrued liabilities 3,151,969 (417,120) (477,274) 66,282 Deferred contract revenue (147,920) 147,920 ------------ ------------ ------------ ------------ Total adjustments 6,116,488 203,138 1,086,624 1,843,877 ------------ ------------ ------------ ------------ Net cash provided by (used for) operating activities 3,876,541 (3,016,964) (6,535,443) (16,414,729) ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (17,362,723) (4,735,565) (12,701,607) (16,740,819) Sale of marketable securities 13,620,727 2,710,190 9,407,869 22,208,504 Expenditures for property, plant and equipment (3,778,278) (47,495) (445,082) (2,949,005) Expenditures for patents (1,191,591) (175,902) (832,552) (644,879) Note receivable from officer (350,000) Decrease (increase) in deposits and other (32,477) (27,679) 12,233 ------------ ------------ ------------ ------------ Net cash provided by (used for) investing activities (9,094,342) (2,248,772) (4,599,051) 1,886,034 ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of equity: Public placement of common stock 14,000,000 12,750,000 Private placement of common stock 18,000,000 Series 1994/A Preferred Stock 11,229,375 Common stock - other 880,698 137,523 239,465 322,135 Costs of raising equity (1,283,236) (108,026) (269,064) Decrease in stockholders' notes receivable 1,833,307 24,183 Repayments of obligations under capital leases (48,452) (23,211) (128,776) (182,472) ------------ ------------ ------------ ------------ Net cash provided by financing activities 31,549,010 12,756,286 12,904,307 163,846 ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26,331,209 7,490,550 1,769,813 (14,364,849) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,917,779 4,427,229 2,657,416 17,022,265 ------------ ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 38,248,988 $ 11,917,779 $ 4,427,229 $ 2,657,416 ============ ============ ============ ============
See notes to consolidated financial statements. 34 36 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business - Creative BioMolecules is developing products for the regeneration and restoration of human tissues and organs. The Company's products in development are based on OP-1, a morphogenic protein identified and characterized by the Company. OP-1 has been shown to induce formation of several tissues including bone, cartilage, kidney, brain and tooth. Change in Year End - In January 1996, the Board of Directors voted to change the Company's fiscal year end from September 30 to December 31, effective with the three month period ended December 31, 1995. Use of Estimates - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the balance sheet date. Actual results may differ from such estimates. Reclassifications - Certain reclassifications have been made to amounts at December 31, 1995 to conform to the presentation at December 31, 1996. Consolidation - The accompanying consolidated financial statements include the Company and its wholly owned subsidiary, California Medicinal Chemistry Corporation (the "Subsidiary"). Intercompany balances are eliminated in consolidation. The Subsidiary has been inactive since 1985. Revenue Recognition - The Company's research agreements with collaborative partners have typically provided for the partial or complete funding of research and development for specified projects and royalties payable to the Company in exchange for licenses to market resulting products. These research agreements are generally cancelable on short-term notice by the collaborative partner. In certain of these agreements, the Company retains the right to manufacture and supply the active ingredient. Revenue is earned and recognized based upon work performed, upon the sale or licensing of product rights, upon shipment of product for use in preclinical and clinical testing or upon attainment of benchmarks specified in the related agreements. The Company's manufacturing contracts provide for technical collaboration and manufacturing for third parties. Revenue is earned and recognized based upon work performed. 35 37 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) During the year ended December 31, 1996, the three months ended December 31, 1995 and the years ended September 30, 1995 and 1994, total revenues from major customers as a percent of total revenues of the Company were as follows:
Three Months Year Ended Year Ended Ended September 30, December December ----------------- Customer 31, 1996 31, 1995 1995 1994 -------- ---------- ------------ ---- ---- Biogen, Inc. 65% 37% 46% 2% Stryker Corporation 27% 48% 35% 49% Government Grant 2% 11% Contract Manufacturing 11% Customer
Research and Development - Research and development costs are charged to operations as incurred. Certain research and development projects are partially funded with research and development contracts, and the expenses related to these activities are included in research and development costs. Cash Equivalents and Marketable Securities - Cash equivalents consist of short-term, highly liquid investments purchased with remaining maturities of three months or less. All other liquid investments are classified as marketable securities. Marketable securities are stated at market value which approximates amortized cost plus accrued interest. As of December 31, 1996 and 1995, the Company classified its marketable securities as available-for-sale and had approximately $5,678,000 and $5,251,000 in United States government and agency instruments, respectively, and $6,148,000 and $2,833,000 in corporate bonds and notes, respectively, all with maturities ranging from one to twenty-seven months. For the year ended December 31, 1996, the three months ended December 31, 1995 and the years ended September 30, 1995 and 1994, gross realized gains and losses were not material. In computing realized gains and losses, the Company computes the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium. At December 31, 1996 and 1995, gross unrealized gains and losses were not material. Fair Value of Financial Instruments - The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting data to develop the estimates of fair value. 36 38 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The estimated fair value of cash, accounts receivable and accounts payable approximates fair value due to the short-term nature of these instruments. The fair value of marketable securities is based on current market values. Lease obligations generally bear interest at a floating annual rate, subject to market conditions. Accordingly, fair value approximates market value. Inventory - Inventory consists principally of raw materials and laboratory supplies. Inventories are stated at the lower of cost or market. Property, Plant and Equipment - Purchased property, plant and equipment is recorded at cost. Leased property, plant and equipment is recorded at the lesser of cost or the present value of the minimum lease payments. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the related assets (three to fifteen years) or the remaining terms of the leases, whichever is shorter. Patents and Licensed Technology - The Company has filed applications for United States and foreign patents covering aspects of its technology. Costs related to pending patent applications have been deferred. Costs related to successful patent applications and costs related to pending applications from which the Company is currently deriving economic benefit, are amortized over the estimated useful life of the patent, generally 16 to 20 years, using the straight-line method. Costs related to licensed technology also have been deferred and are amortized over the estimated useful life of the underlying technology, generally 10 to 17 years, using the straight-line method. Accumulated amortization was approximately $358,000 and $225,000 at December 31, 1996 and 1995, respectively. Accumulated costs related to issued patents, pending patent applications and licensed technology are evaluated periodically and, if considered to have limited future value, are charged to expense. See Long Lived Assets below. Long Lived Assets - The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of" in 1996. SFAS No. 121 establishes recognition and measurement criteria for losses whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. There was no effect on the Company's consolidated financial statements as a result of the adoption of SFAS No. 121. Net Loss Per Common Share - Net loss per common share is computed based on the weighted average number of shares of common stock outstanding during each year. Common equivalent shares from stock options and warrants are excluded from the computation as their effect is antidilutive. Stock-Based Compensation - The Company's stock options and purchase plans are accounted for under Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees" (Note 8). 37 39 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT In December 1996, the Company entered into a Research Collaboration and License Agreement with Biogen to collaborate on the development of novel therapeutics for the treatment of renal disorders. The initial focus of the collaboration is on advancing the development of the Company's morphogenic protein, OP-1, for the treatment of acute and chronic renal failure. Under the agreement, the Company granted to Biogen exclusive worldwide rights to manufacture, market and sell OP-1 and OP-1 products developed through the collaboration for the treatment of renal disease. Biogen paid the Company a $10,000,000 license fee in 1996 and made an $18,000,000 equity investment (Note 9) which were recorded in the quarter ended December 31, 1996. In addition, Biogen has guaranteed $10,500,000 in research funding over the next three years, will pay up to an additional $69,000,000 upon the attainment of certain milestones and will make available a $15,000,000 line of credit. The agreement further provides for the payment of royalties to the Company based on product sales. The Company may draw upon the $15,000,000 line of credit over the next three years to fund the research and development of small molecule products based on OP-1. Advances are limited to $5,000,000 per year. In exchange for the line of credit, Biogen received an exclusive option to obtain an exclusive, worldwide license to OP-1 based small molecule products for the treatment of renal disorders. In the event Biogen exercises its option, Biogen will forgive the lesser of $10,000,000 or the principal amount outstanding under the line of credit. The remaining principal, together with all accrued and unpaid interest, is due and payable five years from the date of the first advance and may be repaid, at the Company's option, in either cash, common stock or reduction of royalties due the Company from Biogen. 3. NOTE RECEIVABLE - OFFICER In September 1996, the Company loaned $350,000 to an officer of the Company. The loan is evidenced by a fully secured promissory note bearing interest at the annual rate of 6.02% and payable in three equal annual installments, plus accrued interest. 4. ACQUISITION OF ASSETS On March 15, 1993, the Company acquired certain assets of Verax consisting principally of a leased manufacturing facility and equipment. The total purchase price of approximately $13,700,000 consisted of approximately $3,100,000 in cash, assumption of certain liabilities of Verax totaling approximately $2,000,000, acquisition costs of approximately $160,000 and an equity consideration valued at $8,500,000. The equity consideration consisted of 1,184,670 shares of the Company's common stock issued in annual installments from March 1993 through March 1995. 38 40 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
December 31, ----------------------------- 1996 1995 ------------ ------------ Land $ 352,000 $ 352,000 Building 1,500,000 1,500,000 Laboratory equipment and furniture 7,684,195 6,722,634 Leasehold improvements 16,403,420 13,971,149 Office furniture and equipment 2,495,095 1,970,138 Construction in progress 23,760 164,270 ------------ ------------ Total 28,458,470 24,680,191 Less accumulated depreciation and amortization (12,234,094) (9,943,885) ------------ ------------ Total $ 16,224,376 $ 14,736,306 ============ ============
Amounts included in property, plant and equipment applicable to capital leases were as follows:
December 31, --------------------------- 1996 1995 ----------- ----------- Land $ 352,000 $ 352,000 Building 1,500,000 1,500,000 Laboratory equipment and furniture 47,000 47,000 ----------- ----------- Total 1,899,000 1,899,000 Less accumulated amortization (397,960) (293,463) ----------- ----------- Total $ 1,501,040 $ 1,605,537 =========== ===========
6. LEASE OBLIGATIONS As part of the acquisition of certain assets of Verax (Note 4), the Company assumed certain liabilities consisting principally of obligations under capital leases totaling $1,852,000. These obligations bear interest at variable rates based on the prime rate ranging from 9.25 % to 10.5 % at December 31, 1996 and 1995 and are due monthly through the year 2008. In addition, the Company has an agreement to lease certain laboratory equipment for a period of five years, with an effective interest rate of 15%. The Company has noncancelable operating lease agreements for office and laboratory space and certain office and laboratory equipment. Rent expense for all operating leases was approximately $566,000, $150,000, $597,000 and $478,000 for the year ended December 31, 1996, the three months ended December 31, 1995 and the years ended September 30, 1995 and 1994, respectively. 39 41 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LEASE OBLIGATIONS (CONTINUED) Future minimum lease obligations at December 31, 1996 were as follows:
Year Ending December 31 Capital Operating ----------------------- ------- --------- 1997 $ 260,864 $553,376 1998 250,771 234,747 1999 247,406 8,340 2000 247,406 2001 247,406 Thereafter 2,352,899 ----------- -------- Total minimum lease payments 3,606,752 $796,463 ======== Less amount representing interest 1,901,727 ---------- Present value of net minimum lease payments 1,705,025 Less current portion 53,532 ---------- Long-term obligations under capital leases $1,651,493 ==========
Under a security requirement of a lease agreement with a leasing company, the Company purchased and pledged as collateral a letter of credit totaling $31,152, which expires on February 26, 1997 and must be renewed annually until the end of the lease term. 7. COMMITMENTS In September 1994, the Company signed a three-year manufacturing contract with Biogen to produce in the Company's manufacturing facility in Lebanon, New Hampshire several of Biogen's protein-based therapeutic candidates for use in Biogen's clinical trials. The contract covers the period from January 1995 through December 1997. As part of the research collaboration, the companies agreed to extend the manufacturing contract for two years through December 31, 1999, with Biogen having the option, but not the obligation, to use the manufacturing facility for a mutually agreeable number of months in one of the two years. To enable the Company to meet its obligations under the manufacturing contract, Biogen financed the construction of a 7,000 square foot addition to the present facility for cGMP production using bacterial fermentation at an estimated total cost of $2,900,000. The Company agreed to reimburse Biogen for the construction costs and leasehold improvements at the end of the contract term at an amount equal to Biogen's construction costs less $300,000 and less all accumulated depreciation. The reimbursement to Biogen is expected to be no more than $2,100,000. Biogen also agreed to lease equipment to the Company for the operation of such portion of the facility and for cGMP production using bacterial fermentation by the Company at an estimated total cost of $2,400,000, as provided in an equipment lease agreement. The Company has the option to purchase the equipment at the end of the extended lease term for an amount equal to its then fair market value or for such other amount as negotiated by the parties. Biogen plans to complete the installation of the equipment and prepare the bacterial facility for operation in 1997. 40 42 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. COMMITMENTS (CONTINUED) As security for its obligations under the manufacturing contract and the equipment lease agreement, the Company granted to Biogen a security interest in the manufacturing facility and certain of its equipment and furniture at the manufacturing facility and any applicable inventory or other assets related to the operation of the manufacturing facility with a total net book value at December 31, 1996 of $13,504,000. 8. STOCK PLANS Stock Option Plans - In May 1987, the Company established the 1987 Stock Plan ("1987 Plan") and terminated the 1983 Incentive Stock Option Plan ("1983 Plan") such that no further grants of options could be made thereunder. The 1987 Plan was subsequently amended to increase the number of shares of common stock authorized for issuance thereunder. A total of 5,150,000 shares of common stock have been reserved for issuance under the 1987 Plan upon the exercise of options or in connection with awards or direct purchases of stock. The 1987 Plan permits the granting of incentive and nonqualified stock options to consultants, employees or officers of the Company and its subsidiaries at prices determined by the Board of Directors. All options granted in the year ended December 31, 1996, the three months ended December 31, 1995 and the two years ended September 30, 1995 and 1994 were granted at fair market value. Awards of stock may be made to consultants, employees or officers of the Company and its subsidiaries, and direct purchases of stock may be made by such individuals also at prices determined by the Board of Directors. Options become exercisable as determined by the Board of Directors and expire up to ten years from the date of grant. 41 43 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. STOCK PLANS (CONTINUED) Activity under the plans is summarized as follows:
Weighted Average Number Exercise Price of Shares Per Share --------- ---------------- Outstanding, October 1, 1993 1,180,739 $3.38 Granted 281,400 8.36 Exercised (18,740) 1.97 Canceled (85,520) 6.36 --------- Outstanding, September 30, 1994 1,357,879 4.25 (806,535 exercisable at a weighted average price of $2.48 per share) Granted 2,816,441 2.42 Exercised (106,471) .90 Canceled (320,086) 4.04 --------- Outstanding, September 30, 1995 3,747,763 2.99 (1,014,897 exercisable at a weighted average price of $2.89 per share) Granted 13,000 6.00 Exercised (9,477) .82 Canceled (37,129) 4.28 --------- Outstanding, December 31, 1995 3,714,157 3.00 (1,431,824 exercisable at a weighted average price of $3.11 per share) Granted 1,063,700 7.86 Exercised (276,178) 2.12 Canceled (139,535) 4.43 --------- Outstanding, December 31, 1996 4,362,144 $4.16 ========= (1,904,110 exercisable at a weighted average price of $3.47 per share)
At December 31, 1996 85,024 shares were available for grant under the 1987 Plan. In January 1997, the Company's Board of Directors approved, subject to stockholder approval, an increase in the number of shares of common stock authorized for issuance under the 1987 Plan from 5,150,000 to 6,150,000. Employee Stock Purchase Plan - The Employee Stock Purchase Plan permits eligible employees to purchase common stock of the Company up to an aggregate of 500,000 shares. During the year ended December 31, 1996, 45,049 shares were issued under this Plan at prices of $6.11 and $7.01 per share; during the three months ended December 31, 1995, 55,515 shares were issued under this Plan at a price of $2.34 per share; during the year ended September 30, 1995, 143,475 shares were issued under this Plan at a price of $1.49 per share and during the year ended September 30, 1994, 77,507 shares were issued under this Plan at prices of $7.44 and $2.75 per share. 42 44 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. STOCK PLANS (CONTINUED) Director Plan - The 1992 Non-Employee Director Non-Qualified Stock Option Plan provides for the granting of options to purchase up to an aggregate of 300,000 shares of common stock to non-employee directors. During the year ended December 31, 1996, options to purchase 70,000 shares were granted at a price of $9.34 per share; during the three months ended December 31, 1995 no options were granted; during the year ended September 30, 1995, options to purchase 20,000 shares were granted at a weighted average exercise price of $2.75 per share and during the year ended September 30, 1994 no options were granted. During the year ended December 31, 1996, options to purchase 12,500 shares were canceled at a weighted average exercise price of $9.18 per share. During the year ended September 30, 1994, options to purchase 30,000 shares were canceled at a weighted average exercise price of $8.50 per share. At December 31, 1996, options to purchase 47,500 shares were exercisable at a weighted average exercise price of $7.92 per share. Stock-Based Compensation - As discussed in Note 1, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with APB No. 25, and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements. SFAS No. 123, "Accounting for Stock-Based Compensation", requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of January 1, 1995. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following assumptions: expected life, six months following total vesting; stock volatility, 76% to 86% in 1996 and 77% to 80% in 1995; risk free interest rates, 5% in 1996 and 1995; and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures for broad-based grants are estimated at 2% per year and adjusted to actual as they occur. Forfeitures for grants to executives are recognized as they occur. If the computed fair values of the 1996 and 1995 awards had been amortized to expense over the vesting period of the awards, pro forma net loss would have been $3,811,000 or a net loss of $0.13 per share for the year ended December 31, 1996, $3,378,000 or a net loss of $0.12 per share for the three months ended December 31, 1995, and $7,822,000 or a net loss of $0.38 per share for the year ended September 30, 1995. Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. These amounts are based on calculated values for options awards in 1996 and 1995 aggregating $7,980,000. Had the assumptions regarding expected term and volatility been reduced by six months and 10% or increased by six months and 10%, total calculated value would have decreased by $975,000 or increased by $884,000, respectively. 43 45 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. STOCK PLANS (CONTINUED) The Company also granted stock options to non-employee consultants in 1996. These options were valued based on the fair value of the services received. Total compensation expense recognized related to these options was $17,000 in 1996. 9. STOCKHOLDERS' EQUITY In December 1994, the Board of Directors designated a series of preferred stock of the Company consisting of 1,500,000 shares of the authorized and unissued preferred stock, as Series 1994/A Convertible Preferred Stock (the "Series Preferred Stock"). Each share of the Series Preferred Stock was convertible, at the option of the holder, into five shares of common stock. Each share of the Series Preferred Stock automatically converted into five shares of common stock after twenty consecutive trading days on which the closing price of the Company's common stock exceeded $3.975 per share. In December 1994 and January 1995, the Company sold in a private placement, 1,130,000 units (the "Units"), consisting of one share of Series Preferred Stock and one warrant to purchase one share of the Company's common stock. Each warrant is exercisable for a period of five years from the date of issuance at an exercise price of $2.385. Net proceeds to the Company, after deducting fees and other expenses of the offering, were approximately $11,000,000. In June 1995, holders of 30,000 shares of Series Preferred Stock elected to convert their Series Preferred Stock into 150,000 shares of common stock. In August 1995, holders of 40,251 shares of Series Preferred Stock elected to convert their Series Preferred Stock into 201,255 shares of common stock. On August 31, 1995, after twenty consecutive trading days on which the closing price of the Company's common stock exceeded $3.975 per share, the remaining 1,059,749 shares of Series Preferred Stock automatically converted into 5,298,745 shares of common stock. In October 1995, the Company sold in a self-managed public offering 3,000,000 shares of common stock at a price of $4.25 per share. Net proceeds to the Company, after deducting fees and other expenses of the offering, were approximately $12,650,000. In July 1996, the Company sold 2,000,000 shares of common stock in a public offering at a price of $7.00 per share. Net proceeds to the Company, after deducting fees and other expenses of the offering, were approximately $12,717,000. In December 1996, as part of a research collaboration (Note 2), the Company sold to Biogen 1,542,680 shares of common stock at a premium to the then-current market price of the common stock. Proceeds to the Company were $18,000,000. Common Stock Warrants - The Company issued in 1987 a warrant to purchase 17,600 shares of common stock at $5.00 per share to an equipment lessor. The warrant is fully exercisable and expires in December 1997. 44 46 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY (CONTINUED) Stockholders' Notes Receivable - In connection with a research and development contract, the Company in 1986 sold to a partnership, for a purchase price of $25,100, warrants for the purchase of 467,715 shares of common stock at an initial exercise price of $5.00 per share (subsequently adjusted to $3.78 per share). The warrants were exercised on December 22, 1993 by payment of $4,677 in cash and delivery of a secured full recourse promissory note for $1,763,286 bearing interest at prime plus 1%. The note was repaid in full in February 1995. 10. INCOME TAXES No income tax provision or benefit has been provided for federal income tax purposes as the Company has incurred losses since inception. As of December 31, 1996, the Company had available net operating loss carryforwards of approximately $64,400,000 for income tax purposes. In addition, the Company had approximately $1,500,000 of unused investment and research and development tax credits. These net operating loss and tax credit carryforwards will expire at various dates between 1997 and 2012. Because of the change in ownership, as defined in the Internal Revenue Code, which occurred in July 1989, the net operating loss and tax credit carryforwards are subject to annual limitations regarding their utilization. The components of deferred income taxes at December 31, 1996 and 1995 were primarily deferred tax assets of approximately $21,900,000 and $21,100,000, respectively, of net operating loss carryforwards and approximately $1,500,000 and $1,300,000, respectively, of investment and research and development tax credits. The Company has not yet achieved profitable operations. Accordingly, management believes that the tax benefits as of December 31, 1996 and 1995 do not satisfy the realization criteria set forth in SFAS No. 109 and has recorded a valuation allowance for the entire net asset. 11. ROYALTY AGREEMENTS The Company has entered into various license agreements which require the Company to pay royalties based upon a set percentage of certain product sales and license fee revenue subject, in some cases, to certain minimum amounts. Total royalty expense approximated $25,000, $5,000, $21,000 and $22,000 for the year ended December 31, 1996, the three months ended December 31, 1995 and the years ended September 30, 1995 and 1994, respectively. 12. RETIREMENT SAVINGS PLAN The Company has a 401(k) retirement savings plan covering substantially all of the Company's employees. Matching Company contributions are at the discretion of the Board of Directors. The Board of Directors authorized matching contributions up to 3% of participants' salaries amounting to approximately $202,000, $53,000, $180,000 and $175,000 for the year ended December 31, 1996, the three months ended December 31, 1995 and the years ended September 30, 1995 and 1994, respectively. 45 47 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The response to this item is incorporated by reference from the discussions responsive thereto under the captions "Information Concerning Current Directors, Nominees and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The response to this item is incorporated by reference from the discussion responsive thereto under the caption "Compensation of Directors and Executive Officers" in the Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this item is incorporated herein by reference from the discussion responsive thereto under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this item is incorporated herein by reference from the discussion responsive thereto under the captions "Certain Transactions" and "Compensation of Directors and Executive Officers --Employment Agreements" in the Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders. 46 48 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Item 14(a) The following documents are filed as part of this Annual Report on Form 10-K. 14(a)(1) Financial Statements See "Index to Consolidated Financial Statements" at Item 8 in this Annual Report on Form 10-K. 14(a)(2) Financial Statement Schedules and Other Financial Statements - See 14(d) below. 14(a)(3) Exhibits - See 14 (c) below. Item 14(b) Reports on Form 8-K No reports on Form 8-K were filed during the three-month period ended December 31, 1996. Item 14(c) Exhibits The following is a list of exhibits filed as part of this Annual Report on Form 10-K: 3. Articles of Incorporation and By-Laws 3.1 Restated Certificate of Incorporation, as amended, of the Registrant. (Filed as Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) 3.2 Restated By-Laws of the Registrant. (Filed as Exhibit 3.4 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 4. Instruments Defining the Rights of Security Holders 4.1 Article FOURTH of the Restated Certificate of Incorporation of the Registrant, as amended (see Exhibit 3.1). 10. Material Contracts 10.1 Second Amended and Restated Registration Rights Agreement, dated as of January 31, 1992. (Filed as Exhibit 10.4 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.2 Amendment No. 1 to Second Amended and Restated Registration Rights Agreement, dated as of December 23, 1994, by and between the Registrant and certain of its Stockholders, and Instruments of Adherence to the Second Amended and Restated Registration Rights Agreement. (Filed as Exhibit 10.51 to Registrant's Quarterly Report on Form 10-Q for the Period Ended December 31, 1994 (File No. 0-19910), and incorporated herein by reference.) 47 49 10.3 Amendment No. 2 to Second Amended and Restated Registration Rights Agreement, dated as of May 24, 1996, by and between the Registrant and certain of its Stockholders. (Filed as Exhibit 10.1 to Form S-3 Registration Statement (Registration No. 333-5477), and incorporated herein by reference.) 10.4 Amendment No. 3 to Second Amended and Restated Registration Rights Agreement, dated as of December 9, 1996, by and between the Registrant and certain of its Stockholders. #10.5 Second Amended and Restated Research, Development and Supply Agreement, As Amended, dated as of May 17, 1991, between Stryker Corporation and the Registrant ("Stryker Development Agreement"). (Filed as Exhibit 10.5 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) #10.6 Amendment Agreement, dated October 23, 1991, between the Registrant and Stryker Corporation. (Filed as Exhibit 10.6 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.7 Amendment, dated March 27, 1992, to Stryker Development Agreement between Stryker Corporation and the Registrant. (Filed as Exhibit 10.6A to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.8 Amendment, dated November 19, 1992, to Stryker Development Agreement between Stryker Corporation and the Registrant. (Filed as Exhibit 10.6B to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.9 Amendment Agreement, dated May 13, 1994, between the Registrant and Stryker Corporation. (Filed as Exhibit 99.2 to Registrant's Report on Form 8-K for the May 9, 1996 Event (File No. 0-19910), and incorporated herein by reference.) 10.10 Amendment Agreement, dated April 30, 1996, between the Registrant and Stryker Corporation. (Filed as Exhibit 99.3 to Registrant's Report on Form 8-K for the May 9, 1996 Event (File No. 0-19910), and incorporated herein by reference.) +10.11 Amendment Agreement, dated October 31, 1996, between the Registrant and Stryker Corporation. 10.12 Irrevocable License Agreement, dated May 17, 1991, between Stryker Corporation and the Registrant. (Filed as Exhibit 10.7 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.13 Amended and Restated Agreement for License or Sale of Technology, dated December 14, 1988, by and among PruTech Research and Development Partnership III, PruTech Project Development Partnership and the Registrant. (Filed as Exhibit 10.9 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 48 50 10.14 Master Lease Agreement, dated as of May 1, 1987, between the Registrant and Phoenix Leasing Incorporated. (Filed as Exhibit 10.23 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.15 Common Stock Purchase Warrant, dated June 1, 1987, issued by the Registrant to Phoenix Leasing Incorporated. (Filed as Exhibit 10.24 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.16 Real Estate Standard Form Industrial Lease, dated as of October 24, 1988, as amended September 17, 1991, between WRC Properties, Inc. and the Registrant. (Filed as Exhibit 10.26 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.17 Second Amendment, dated January 28, 1994, to Standard Form Industrial Lease dated October 24, 1988, as amended September 17, 1991, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the Period Ended September 30, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.18 Third Amendment, dated September 20, 1994, to Standard Form Industrial Lease dated October 24, 1988, as amended September 17, 1991 and January 28, 1994, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the Period Ended September 30, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.19 Standard Form Industrial Lease, dated February 25, 1992, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.52 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.20 First Amendment, dated February 28, 1994, to Standard Form Industrial Lease dated February 25, 1992 by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) 10.21 Second Amendment, dated September 20, 1994, to Standard Form Industrial Lease dated February 25, 1992, as amended February 28, 1994, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.33 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) 10.22 Asset Purchase Agreement, dated March 4, 1993, by and between the Registrant and Verax Corporation (the "Asset Purchase Agreement"), including Exhibits thereto and List of Schedules to Asset Purchase Agreement and to Exhibit A thereto. Any of such Schedules will be supplied upon request by the Commission. (Filed as Exhibit 2.1 and 2.2 to the Registrant's Report on Form 8-K for March 15, 1993 Event (File No. 0-19910), and incorporated herein by reference.) 49 51 10.23 Assumption Agreement, dated March 15, 1993, by and between the Registrant and Verax Corporation including Exhibits hereto. (Filed as Exhibit 10.56 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.24 Indenture of Lease between Wilton L. Buskey and Carol Buskey and Verax Corporation, dated September 7, 1988 as amended through September 25, 1992, (assumed by Registrant pursuant to Assumption Agreement, dated March 15, 1993, by and between the Registrant and Verax Corporation -- see Exhibit 10.23 above). (Filed as Exhibit 10.57 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.25 Non-Disturbance and Attornment Agreement, dated as of September 7, 1988, by and between Verax Corporation and First NH Bank [successor to First NH Bank of Lebanon] (assumed by Registrant pursuant to Assumption Agreement, dated March 15, 1993, by and between the registrant and Verax Corporation -- see Exhibit 10.23 above.) (Filed as Exhibit 10.58 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.26 Loan Agreement, dated as of September 7, 1988, by and between Verax Corporation and First NH Bank [successor to First NH Bank of Lebanon] (assumed by Registrant pursuant to Assumption Agreement, dated March 15, 1993, by and between the Registrant and Verax Corporation -- see Exhibit 10.23 above.) (Filed as Exhibit 10.59 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) #10.27 CBM Cross-License Agreement, dated as of November 26, 1993, between Enzon, Inc. and the Registrant. (Filed as Exhibit 10.42 to Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1993 (File No. 0-19910), and incorporated herein by reference.) #10.28 Enzon Cross-License Agreement, dated as of November 26, 1993, between Enzon, Inc. and the Registrant. (Filed as Exhibit 10.43 to Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1993 (File No. 0-19910), and incorporated herein by reference.) #10.29 Exclusive Marketing Agreement, dated as of November 26, 1993, between Enzon, Inc. and the Registrant. (Filed as Exhibit 10.44 to Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1993 (Filed No. 0-19910), and incorporated herein by reference.) #10.30 Manufacturing Agreement, dated as of September 28, 1994, between Biogen, Inc. and the Registrant. (Filed as Exhibit 99.1 to Registrant's Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910), and incorporated herein by reference.) #10.31 Equipment Lease Agreement, dated as of September 28, 1994, between Biogen, Inc. and the Registrant. (Filed as Exhibit 99.2 to Registrant's Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910), and incorporated herein by reference.) 50 52 10.32 Security Agreement, dated as of September 28, 1994, between Biogen, Inc. and the Registrant. (Filed as Exhibit 99.3 to Registrant's Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910), and incorporated herein by reference.) 10.33 Form of Preferred Stock and Warrant Purchase Agreement, with Exhibits thereto, signed by the Registrant and the persons listed on the Schedule attached at the end of the Form of Preferred Stock and Warrant Purchase Agreement. (Filed as Exhibit 10.52 to Registrant's Quarterly Report on Form 10-Q for the Period Ended December 31, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.34 Form of Warrant issued by the Registrant to the persons listed on the Schedule attached at the end of the Form of Warrant on various dates between December 23, 1994 and January 25, 1995. (Filed as Exhibit 10.53 to Registrant's Quarterly Report on Form 10-Q for the Period Ended December 31, 1994 (File No. 0-19910), and incorporated herein by reference.) #10.35 Cross-License Agreement, dated as of July 15, 1996, between the Registrant, Genetics Institute, Inc. and Stryker Corporation. (Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 of Genetics Institute, Inc. (File No.0-14587), filed with the Securities and Exchange Commission on November 6, 1996 and incorporated herein by reference.) 10.36 Underwriting Agreement dated July 2, 1996 between the Registrant and Hambrecht & Quist LLP and Cowen & Company. (Filed as Exhibit 1.1 to Form S-3 Registration Statement (Registration No. 333-5477), or amendments thereto, and incorporated herein by reference.) +10.37 Research Collaboration and License Agreement, dated December 9, 1996, between the Registrant and Biogen, Inc. 10.38 Restricted Stock Purchase Agreement, dated December 9, 1996, between the Registrant and Biogen, Inc. *10.39 1983 Incentive Stock Option Plan, amended as of September 11, 1984. (Filed as Exhibit 10.34 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) *10.40 1987 Stock Plan, as amended on December 7, 1994. (Filed as Exhibit to Registrant's Preliminary Proxy Statement for 1995 Annual Meeting of Stockholders (File No. 0-19910), and incorporated herein by reference.) *10.41 Employee Stock Purchase Plan, as amended on December 7, 1994. (Filed as Exhibit to Registrant's Preliminary Proxy Statement for 1995 Annual Meeting of Stockholders (File No. 0-19910), and incorporated herein by reference.) *10.42 1992 Non-Employee Director Non-Qualified Stock Option Plan, as amended on March 20, 1996. (Filed as Exhibit 10.25 to Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File No. 0-19910), and incorporated herein by reference.) 51 53 *10.43 Form of Employment Agreement with confidentiality provisions. (Filed as Exhibit 10.31 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) *10.44 Employment Agreement, dated as of January 2, 1992, between Charles Cohen, Ph.D. and the Registrant. (Filed as Exhibit 10.47 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) *10.45 Employment Agreement, dated February 25, 1992, between Wayne E. Mayhew III and the Registrant. (Filed as Exhibit 10.51 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) *10.46 Employment Agreement, dated July 20, 1992, between Ronald D. Johnson, Ph.D., and the Registrant. (Filed as Exhibit 10.54 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) *10.47 Executive Severance Agreement, dated December 1, 1993, between Gregory Liposky and the Registrant (assumed as part of the Registrant's acquisition of the manufacturing facility from Verax Corporation). (Filed as Exhibit 10.51 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) *10.48 Employment Agreement, dated July 17, 1995, between Michael M. Tarnow and the Registrant. (Filed as Exhibit 99.1 to Registrant's Report on Form 8-K for the August 31, 1995 Event (File No. 0-19910), and incorporated herein by reference.) *10.49 Employment Agreement, dated May 21, 1996, between Thomas J. Facklam, Ph.D. and the Registrant. (Filed as Exhibit 99.2 to Registrant's Report on Form 8-K for the June 3, 1996 Event (File No. 0-19910), and incorporated herein by reference.) 21 Subsidiaries of the Registrant. (Filed as Exhibit 22 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 23.1 Independent Auditors' Consent. 27 Financial Data Schedule The Registrant will supply the Commission, upon request, with copies of all exhibits and schedules to exhibits listed above, as to which such exhibits and schedules have not been included herein. * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. + Documents with respect to which Confidential Treatment has been requested. # Documents with certain confidential information deleted. Item 14(d) Financial Statement Schedules and Other Financial Statements Financial statement schedules have not been included because they are not applicable or the information is included in the financial statements or notes thereto. 52 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in Hopkinton, Massachusetts, on March 28, 1997. CREATIVE BIOMOLECULES, INC. By: /s/ Wayne E. Mayhew III Wayne E. Mayhew III Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated below on date indicated.
Signature Capacity Date --------- -------- ---- /s/ Brian H. Dovey Chairman of the Board and Director March 28, 1997 Brian H. Dovey /s/ Michael M. Tarnow President and Chief Executive Officer March 28, 1997 Michael M. Tarnow and Director (principal executive officer) /s/ Charles Cohen, Ph.D. Chief Scientific Officer and Director March 28, 1997 Charles Cohen, Ph.D. /s/ Wayne E. Mayhew III Vice President and Chief Financial Officer, March 28, 1997 Wayne E. Mayhew III Treasurer and Secretary (principal financial officer) /s/ Susan B. Blanton Controller (principal accounting officer) March 28, 1997 Susan B. Blanton /s/ Jeremy L. Curnock Cook Director March 28, 1997 Jeremy L. Curnock Cook /s/ Martyn D. Greenacre Director March 28, 1997 Martyn D. Greenacre /s/ Arthur J. Hale Director March 28, 1997 Arthur J. Hale, M.D. /s/ Suzanne D. Jaffe Director March 28, 1997 Suzanne D. Jaffe /s/ Michael Rosenblatt, M.D. Director March 28, 1997 Michael Rosenblatt, M.D. /s/ James R. Tobin Director March 28, 1997 James R. Tobin
55 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 3.1 Restated Certificate of Incorporation, as amended, of the Registrant. (Filed as Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) 3.2 Restated By-Laws of the Registrant. (Filed as Exhibit 3.4 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 4.1 Article FOURTH of the Restated Certificate of Incorporation of the Registrant, as amended (see Exhibit 3.1). 10.1 Second Amended and Restated Registration Rights Agreement, dated as of January 31, 1992. (Filed as Exhibit 10.4 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.2 Amendment No. 1 to Second Amended and Restated Registration Rights Agreement, dated as of December 23, 1994, by and between the Registrant and certain of its Stockholders, and Instruments of Adherence to the Second Amended and Restated Registration Rights Agreement. (Filed as Exhibit 10.51 to Registrant's Quarterly Report on Form 10-Q for the Period Ended December 31, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.3 Amendment No. 2 to Second Amended and Restated Registration Rights Agreement, dated as of May 24, 1996, by and between the Registrant and certain of its Stockholders. (Filed as Exhibit 10.1 to Form S-3 Registration Statement (Registration No. 333-5477), and incorporated herein by reference.) 10.4 Amendment No. 3 to Second Amended and Restated Registration Rights Agreement, dated as of December 9, 1996, by and between the Registrant and certain of its Stockholders. 10.5 Second Amended and Restated Research, Development and Supply Agreement, as Amended, dated as of May 17, 1991, between Stryker Corporation and the Registrant ("Stryker Development Agreement"). (Filed as Exhibit 10.5 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.6 Amendment Agreement, dated October 23, 1991, between the Registrant and Stryker Corporation. (Filed as Exhibit 10.6 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.7 Amendment, dated March 27, 1992, to Stryker Development Agreement between Stryker Corporation and the Registrant. (Filed as Exhibit 10.6A to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.8 Amendment, dated November 19, 1992, to Stryker Development Agreement between Stryker Corporation and the Registrant. (Filed as Exhibit 10.6B to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 56 Exhibit No. Description - ------- ----------- 10.9 Amendment Agreement, dated May 13, 1994, between the Registrant and Stryker Corporation. (Filed as Exhibit 99.2 to Registrant's Report on Form 8-K for the May 9, 1996 Event (File No. 0-19910), and incorporated herein by reference.) 10.10 Amendment Agreement, dated April 30, 1996, between the Registrant and Stryker Corporation. (Filed as Exhibit 99.3 to Registrant's Report on Form 8-K for the May 9, 1996 Event (File No. 0-19910), and incorporated herein by reference.) 10.11 Amendment Agreement, dated October 31, 1996, between the Registrant and Stryker Corporation. 10.12 Irrevocable License Agreement, dated May 17, 1991, between Stryker Corporation and the Registrant. (Filed as Exhibit 10.7 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto and incorporated herein by reference.) 10.13 Amended and Restated Agreement for License or Sale of Technology, dated December 14, 1988, by and among PruTech Research and Development Partnership III, PruTech Project Development Partnership and the Registrant. (Filed as Exhibit 10.9 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.14 Master Lease Agreement, dated as of May 1, 1987, between the Registrant and Phoenix Leasing Incorporated. (Filed as Exhibit 10.23 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.15 Common Stock Purchase Warrant, dated June 1, 1987, issued by the Registrant to Phoenix Leasing Incorporated. (Filed as Exhibit 10.24 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.16 Real Estate Standard Form Industrial Lease, dated as of October 24, 1988, as amended September 17, 1991, between WRC Properties, Inc. and the Registrant. (Filed as Exhibit 10.26 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.17 Second Amendment, dated January 28, 1994, to Standard Form Industrial Lease dated October 24, 1988, as amended September 17, 1991, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the Period Ended September 30, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.18 Third Amendment, dated September 20, 1994, to Standard Form Industrial Lease dated October 24, 1988, as amended September 17, 1991 and January 28, 1994, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the Period Ended September 30, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.19 Standard Form Industrial Lease, dated February 25, 1992, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.52 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 57 Exhibit No. Description - ------- ----------- 10.20 First Amendment, dated February 28, 1994, to Standard Form Industrial Lease dated February 25, 1992 by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) 10.21 Second Amendment, dated September 20, 1994, to Standard Form Industrial Lease dated February 25, 1992, as amended February 28, 1994, by and between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.33 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) 10.22 Asset Purchase Agreement, dated March 4, 1993, by and between the Registrant and Verax Corporation (the "Asset Purchase Agreement"), including Exhibits thereto and List of Schedules to Asset Purchase Agreement and to Exhibit A thereto. Any of such Schedules will be supplied upon request by the Commission. (Filed as Exhibit 2.1 and 2.2 to the Registrant's Report on Form 8-K for March 15, 1993 Event (File No. 0-19910), and incorporated herein by reference.) 10.23 Assumption Agreement, dated March 15, 1993, by and between the Registrant and Verax Corporation including Exhibits hereto. (Filed as Exhibit 10.56 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.24 Indenture of Lease between Wilton L. Buskey and Carol Buskey and Verax Corporation, dated September 7, 1988 as amended through September 25, 1992, (assumed by Registrant pursuant to Assumption Agreement, dated March 15, 1993, by and between the Registrant and Verax Corporation -- see Exhibit 10.23 above). (Filed as Exhibit 10.57 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.25 Non-Disturbance and Attornment Agreement, dated as of September 7, 1988, by and between Verax Corporation and First NH Bank [successor to First NH Bank of Lebanon] (assumed by Registrant pursuant to Assumption Agreement, dated March 15, 1993, by and between the registrant and Verax Corporation -- see Exhibit 10.23 above.) (Filed as Exhibit 10.58 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.26 Loan Agreement, dated as of September 7, 1988, by and between Verax Corporation and First NH Bank [successor to First NH Bank of Lebanon] (assumed by Registrant pursuant to Assumption Agreement, dated March 15, 1993, by and between the Registrant and Verax Corporation -- see Exhibit 10.23 above.) (Filed as Exhibit 10.59 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.27 CBM Cross-License Agreement, dated as of November 26, 1993, between Enzon, Inc. and the Registrant. (Filed as Exhibit 10.42 to Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 10.28 Enzon Cross-License Agreement, dated as of November 26, 1993, between Enzon, Inc. and the Registrant. (Filed as Exhibit 10.43 to Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1993 (File No. 0-19910), and incorporated herein by reference.) 58 Exhibit No. Description - ------- ----------- 10.29 Exclusive Marketing Agreement, dated as of November 26, 1993, between Enzon, Inc. and the Registrant. (Filed as Exhibit 10.44 to Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1993 (Filed No. 0-19910), and incorporated herein by reference.) 10.30 Manufacturing Agreement, dated as of September 28, 1994, between Biogen, Inc. and the Registrant. (Filed as Exhibit 99.1 to Registrant's Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910), and incorporated herein by reference.) 10.31 Equipment Lease Agreement, dated as of September 28, 1994, between Biogen, Inc. and the Registrant. (Filed as Exhibit 99.2 to Registrant's Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910), and incorporated herein by reference.) 10.32 Security Agreement, dated as of September 28, 1994, between Biogen, Inc. and the Registrant. (Filed as Exhibit 99.3 to Registrant's Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910), and incorporated herein by reference.) 10.33 Form of Preferred Stock and Warrant Purchase Agreement, with Exhibits thereto, signed by the Registrant and the persons listed on the Schedule attached at the end of the Form of Preferred Stock and Warrant Purchase Agreement. (Filed as Exhibit 10.52 to Registrant's Quarterly Report on Form 10-Q for the Period Ended December 31, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.34 Form of Warrant issued by the Registrant to the persons listed on the Schedule attached at the end of the Form of Warrant on various dates between December 23, 1994 and January 25, 1995. (Filed as Exhibit 10.53 to Registrant's Quarterly Report on Form 10-Q for the Period Ended December 31, 1994 (File No. 0-19910), and incorporated herein by reference.) 10.35 Cross-License Agreement, dated as of July 15, 1996, between the Registrant, Genetics Institute, Inc. and Stryker Corporation. (Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 of Genetics Institute, Inc. (File No.0-14587), filed with the Securities and Exchange Commission on November 6, 1996 and incorporated by reference herein.) 10.36 Underwriting Agreement dated July 2, 1996 between the Registrant and Hambrecht & Quist LLC and Cowen & Company. (Filed as Exhibit 1.1 to Form S-3 Registration Statement (Registration No. 333-5477), or amendments thereto, and incorporated herein by reference.) 10.37 Research Collaboration and License Agreement, dated December 9, 1996, between the Registrant and Biogen, Inc. 10.38 Restricted Stock Purchase Agreement, dated December 9, 1996, between the Registrant and Biogen, Inc. 10.39 1983 Incentive Stock Option Plan, amended as of September 11, 1984. (Filed as Exhibit 10.34 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.40 1987 Stock Plan, as amended on December 7, 1994. (Filed as Exhibit to Registrant's Preliminary Proxy Statement for 1995 Annual Meeting of Stockholders (File No. 0-19910), and incorporated herein by reference.) 59 Exhibit No. Description - ------- ----------- 10.41 Employee Stock Purchase Plan, as amended on December 7, 1994. (Filed as Exhibit to Registrant's Preliminary Proxy Statement for 1995 Annual Meeting of Stockholders (File No. 0-19910), and incorporated herein by reference.) 10.42 1992 Non-Employee Director Non-Qualified Stock Option Plan, as amended on March 20, 1996. (Filed as Exhibit 10.25 to Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File No. 0-19910), and incorporated herein by reference.) 10.43 Form of Employment Agreement with confidentiality provisions. (Filed as Exhibit 10.31 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 10.44 Employment Agreement, dated as of January 2, 1992, between Charles Cohen, Ph.D. and the Registrant. (Filed as Exhibit 10.47 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.45 Employment Agreement, dated February 25, 1992, between Wayne E. Mayhew III and the Registrant. (Filed as Exhibit 10.51 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.46 Employment Agreement, dated July 20, 1992, between Ronald D. Johnson, Ph.D., and the Registrant. (Filed as Exhibit 10.54 to Form S-1 Registration Statement (Registration No. 33-46200), or amendments thereto, and incorporated herein by reference.) 10.47 Executive Severance Agreement, dated December 1, 1993, between Gregory Liposky and the Registrant (assumed as part of the Registrant's acquisition of the manufacturing facility from Verax Corporation). (Filed as Exhibit 10.51 to Registrant's Annual Report on Form 10-K for the period ended September 30, 1995 (File No. 0-19910), and incorporated herein by reference.) 10.48 Employment Agreement, dated July 17, 1995, between Michael M. Tarnow and the Registrant. (Filed as Exhibit 99.1 to Registrant's Report on Form 8-K for the August 31, 1995 Event (File No. 0-19910), and incorporated herein by reference.) 10.49 Employment Agreement, dated May 21, 1996, between Thomas J. Facklam, Ph.D. and the Registrant. (Filed as Exhibit 99.2 to Registrant's Report on Form 8-K for the June 3, 1996 Event (File No. 0-19910), and incorporated herein by reference. 21 Subsidiaries of the Registrant. (Filed as Exhibit 22 to Form S-1 Registration Statement (Registration No. 33-42159), or amendments thereto, and incorporated herein by reference.) 23.1 Independent Auditors' Consent 27 Financial Data Schedule EX-10.4 2 AMENDMENT NO. 3 TO REGISTRATION RIGHTS AGREEMENT 1 Exhibit 10.4 AMENDMENT NO. 3 TO THE SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS AMENDMENT NO. 3, dated as of December 9, 1996, is made to the SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of January 31, 1992, as previously amended by (i) Amendment No. 1 thereto, dated as of December 23, 1994, and (ii) Amendment No. 2 thereto, dated as of May 24, 1996 (collectively, the "Registration Rights Agreement"), among Creative BioMolecules, Inc., a Delaware corporation (the "Company"), and the persons defined as "Investors" under the Registration Rights Agreement. W I T N E S S E T H: WHEREAS, the Company proposes to enter into a Research Collaboration and License Agreement with Biogen, Inc. ("Biogen"), and in connection therewith to enter into a restricted stock purchase agreement (the "Restricted Stock Purchase Agreement") with Biogen under which Biogen will purchase from the Company a number of shares (the "Biogen Shares") of the Company's common stock, $.01 par value per share ("Common Stock") in an amount to be computed in accordance with the Restricted Stock Purchase Agreement at an aggregate purchase price of $18,000,000; WHEREAS, in connection with the execution of the Restricted Stock Purchase Agreement, the Company has agreed to amend the Registration Rights Agreement to provide certain registration rights with respect to the Biogen Shares; WHEREAS, the parties hereto desire to amend the Registration Rights Agreement to, among other things, add Biogen as a party to the Registration Rights Agreement and include the Biogen Shares as "Registrable Securities", thereby providing to Biogen registration rights with respect to the Biogen Shares; and WHEREAS, Section 17(f) of the Registration Rights Agreement provides that terms of the Registration Rights Agreement may be amended and the observance thereof waived with the consent of the Company and the holders of at least 50% of the Registrable Securities (as currently defined in the Registration Rights Agreement), and the undersigned holders of Registrable Securities collectively hold the requisite percentage of Registrable Securities to effect this amendment on behalf of all Investors; and WHEREAS, the parties believe that it is in their best interests to amend the Registration Rights Agreement as provided herein; 2 NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. To amend the Registration Rights Agreement as follows: (a) Biogen shall be included within the definition of "Investors" in the Registration Rights Agreement and shall have the same rights and privileges as apply to the existing Investors thereunder, PROVIDED THAT Biogen executes an instrument of adherence to the Registration Rights Agreement bearing the address to be used for notice under the Registration Rights Agreement. (b) The definition of Registrable Securities in Section 2(b) of the Registration Rights Agreement shall be amended to include the Biogen Shares and any shares of Common Stock subsequently issued to Biogen with respect to the Biogen Shares. 2. Except as otherwise expressly provided herein, the Registration Rights Agreement is hereby ratified and confirmed and shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 3 TO THE SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT to be executed as an instrument under seal as of the date first written above. CREATIVE BIOMOLECULES, INC. By: /s/ Wayne E. Mayhew III ----------------------------------- Name: Wayne E. Mayhew III Title: Vice President and Chief Financial Officer THE INVESTORS Name of Investor: APA Excelsior Venture Capital Holdings (Jersey) Limited By: /s/ Alan Patricof ----------------------------------- Title: Patricof & Co. Ventures, Inc. Investment Manager 3 Name of Investor: Apax CR II(A) By: /s/ Maurice Tchenio ----------------------------------- Title: PDG --------------------------------- Name of Investor: Apax CR II(C) By: /s/ Maurice Tchenio ----------------------------------- Title: PDG --------------------------------- Name of Investor: MMG Conseil By: /s/ Maurice Tchenio ----------------------------------- Title: PDG Name of Investor: Apax Venture Capital Fund Ltd. By: /s/ Coutts (Jersey) Limited ----------------------------------- Name of Investor: Apax Ventures II, Ltd. By: /s/ Coutts (Jersey) Limited ----------------------------------- Name of Investor: Apax Ventures III By: /s/ Apax Funds Nominee Ltd. ----------------------------------- 4 Name of Investor: Apax Ventures III International Partners, L.P. By: /s/ Apax Funds Nominee Ltd. ----------------------------------- Name of Investor: Apax Ventures IV By: /s/ Apax Funds Nominee Ltd. ----------------------------------- Name of Investor: Apax Ventures IV International Partners, L.P. By: /s/ Apax Funds Nominee Ltd. ----------------------------------- Name of Investor: Biotechnology Investments Limited By: /s/ T. Fowler /s/ H. Casey ----------------------------------- Title: Authorized Signatories --------------------------------- Name of Investor: Charles Cohen By: /s/ Charles Cohen ----------------------------------- Title: Chief Scientific Officer --------------------------------- Name of Investor: Domain Partners III, LP One Palmer Square Associates III, LP By: /s/ Kathleen K. Schoemaker ----------------------------------- Title: General Partner --------------------------------- 5 Name of Investor: DP III Associates, LP One Palmer Square Associates III, LP By: /s/ Kathleen K. Schoemaker ----------------------------------- Title: General Partner --------------------------------- Name of Investor: Arthur J. Hale, M.D. By: /s/ Arthur J. Hale ----------------------------------- Title: Director --------------------------------- Name of Investor: PruTech Research & Development Partnership III R&D Funding Corp. General Partner By: /s/ Patrick Owen Burns ----------------------------------- Title: Vice President --------------------------------- Name of Investor: Jeffrey Wiesen By: /s/ Jeffrey M. Wiesen ----------------------------------- EX-10.11 3 AMENDMENT AGREEMENT 1 EXHIBIT 10.11 CREATIVE BIOMOLECULES, INC. HAS OMITTED FROM THIS EXHIBIT 10.11 PORTIONS OF THE AGREEMENT FOR WHICH CREATIVE BIOMOLECULES, INC. HAS REQUESTED CONFIDENTIAL TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH AN ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPERATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AMENDMENT AGREEMENT This agreement by and between CREATIVE BIOMOLECULES, INC., a Delaware corporation with its office and place of business at 45 South Street, Hopkinton, Massachusetts 01748 ("CBM"), and STRYKER CORPORATION, a Michigan corporation with its office and place of business at 2725 Fairfield Road, P.O. Box 4085, Kalamazoo, Michigan 49003-4085 ("Stryker"). WHEREAS, CBM and Stryker are parties to that certain Second Amended and Restated Research, Development and Supply Agreement, dated as of May 17, 1991, as amended to the date hereof (the "Agreement"), concerning research and development on OP (capitalized terms used but not defined herein shall have the meaning provided therefor in the Agreement); and WHEREAS, CBM and Stryker desire to amend the Agreement in certain respects as more fully set forth herein, to evidence their agreement that the OP Field includes the Dental Field (as defined below) and to set forth the terms and conditions relating to the license by CBM to Stryker of CBM's rights with respect to certain intellectual property and related commercial rights related to the Dental Field generally and to certain programs undertaken by CBM in the Dental Field; NOW, THEREFORE, in consideration of the foregoing and the agreements set forth herein and in the Agreement, the parties 2 hereto agree that, effective as of the date hereof, the provisions of the Agreement shall be amended as provided herein. 1. The fifth WHEREAS clause of the Agreement is hereby amended by deleting it in its entirety and replacing it with the following: WHEREAS, the parties have agreed that Stryker shall own all right, title and interest in and to the OP Products and OP Devices which have resulted from or may be further developed by CBM, its agents or independent contractors as a result of undertaking the Prior Agreement and this Agreement or performing the tasks performed thereunder or to be performed hereunder (the "Research Project"); that Stryker shall be the exclusive licensee of the Licensed Dental Intellectual Property (as such term is defined in Section 1.7A(iii) of this Agreement) as provided in Section 1.7 of this Agreement; and that, pursuant to the terms of that certain Irrevocable License Agreement, dated as of May 17, 1991 (the "License"), a copy of which is attached hereto as Exhibit 1, Stryker shall grant to CBM an irrevocable, exclusive, worldwide license to the Present Patents and Applications and Future Patents and Applications (as such terms are defined in Section 1.4B of this Agreement) for all uses and applications of all inventions claimed therein, except for the manufacture, use and sale of OP Products and OP Devices for use in the field of treatment, repair or - 2 - 3 replacement of bone and joint tissue including, without limitation, meniscus and articular cartilage and ligaments and tendons (the "OP Field") other than the portion of the OP Field consisting of prevention or treatment of Osteoporosis, Osteomalacia and Paget's Disease other than (i) by the local application of OP Products and OP Devices in an insoluble formulation directly on bone or joint tissue for local, as opposed to general or systemic, effect and (ii) the treatment of fractures regardless of whether they result from Osteoporosis, Osteomalacia and Paget's Disease (the "Bone Disease Field"), it being expressly understood and agreed that the OP Field as defined herein includes the Dental Field (as such term is defined in Section 1.7A(i) of this Agreement); 2. Paragraph B of Section 1.4 of the Agreement is hereby amended by deleting it in its entirety and replacing it with the following: B. Pursuant to the Assignment, dated May 17, 1991 (the "Patent Assignment"), a copy of which is attached hereto as Exhibit 2, CBM has assigned to Stryker its entire right, title and interest in the inventions and improvements disclosed in the U.S., foreign and PCT applications and patents issuing therefrom that are listed in Schedule A thereto (the "Present Patents and Applications"). CBM represents to Stryker that the Present Patents and - 3 - 4 Applications and the patents and applications that have been prosecuted in Stryker's name during the period from May 17, 1991 to October 31, 1996 as Future Patents and Applications (as defined below), a list of which is set forth in Schedule I hereto, constitute all U.S., foreign and PCT applications and patents in which CBM ever had any right, title and interest that disclose inventions and improvements related to OP Products and OP Devices conceived, made, developed or reduced to practice as part of the Research Project by CBM or any of its personnel or by any third party under contract to CBM. CBM agrees that all future patent applications and patents that disclose inventions and improvements related to OP Products and OP Devices that are conceived, made, developed or reduced to practice as part of the Research Project by CBM or any of its personnel or by any third party under contract to CBM and all continuations, continuations in part, divisions, reissues, additions or extensions and other patents or applications based in whole or in part on such patents and applications (the "Future Patents and Applications") in which CBM has any right, title or interest will be prosecuted in Stryker's name at Stryker's expense. CBM will prepare and file the applications for the Future Patents and Applications at no expense to Stryker but only after review thereof by Stryker and with Stryker's concurrence as to the form thereof. Issues that arise in - 4 - 5 the course of the prosecution of the Present Patents and Applications and Future Patents and Applications will be jointly decided by Stryker and CBM. 3. Paragraph A of Section 1.5 of the Agreement is hereby amended by adding a new sentence at the end thereof that shall read as follows: Notwithstanding anything in the foregoing to the contrary, no payments shall be required to be made by CBM to Stryker in respect of the first * of Royalties, calculated in the manner provided herein, that would otherwise be required to be paid hereunder. 4. The first sentence of paragraph A of Section 1.6 of this Agreement is hereby amended to read in its entirety as follows: Stryker shall pay to CBM, in U.S. dollars, quarterly royalties equal to * of Stryker's Net Sales of OP Products and OP Devices for a period of * years beginning, in the case of OP Products or OP Devices with application in the OP Field other than the Dental Field, on the date of first commercial sale of any OP Product or OP Device with such an application and, in the case of OP Products or OP Devices with application in the Dental Field, on the date of first commercial sale of any OP Product or OP Device with such an application. - 5 - 6 5. Article I of the Agreement is hereby amended to add at the end thereof a new Section 1.7, which shall read in its entirety as follows: 1.7 Agreements Relating to the Dental Field. A. For purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "Dental Field" shall mean the treatment, repair or replacement of the tooth, dentin, alveolar bone, cementum, enamel, gingiva (to the extent, but only to the extent, the gingiva functions as part of the apparatus holding the tooth to the jaw) and/or periodontal ligament, but excluding the treatment of Oral Ulcerations (as defined in clause (v) below) or any other disease or disorder of the tissues of the mouth not involving the tooth, dentin, bone (including alveolar bone), cementum, enamel, gingiva (to the extent, but only to the extent, the gingiva functions as part of the apparatus holding the tooth to the jaw), ligament (including the periodontal ligament), tendon and/or cartilage; (ii) "Know-How" shall mean all inventions, discoveries, confidential or proprietary ideas, concepts and information, research data, lab notebooks, records relating to preclinical and clinical trials, manufacturing specifications, methods or processes, formulas, designs, Master Files, IDE and other submissions to the FDA and other authorities in connection with regulatory clearances, - 6 - 7 product development data and other trade secrets, other than the Licensed Patent Rights (as such term is defined in Section 1.7A(iv) of this Agreement), related to the development of OP Products and OP Devices with applications in the Dental Field; (iii) "Licensed Dental Intellectual Property" shall mean the Know-How and the Licensed Patent Rights; (iv) "Licensed Patent Rights" shall mean CBM's entire right, title and interest for the United States and all foreign countries in all inventions and improvements disclosed in the US, foreign and PCT applications and patents issuing therefrom that are listed on Schedule II hereto and in all continuations, continuations in part, divisions, reissues, additions or extensions thereof and in the future patent applications and patents referred to in the last sentence of Section 1.7B of this Agreement; (v) "Oral Ulcerations" shall mean the formation of lesions on the surface of skin lining the oral cavity caused by loss of tissue but does not include Periodontal Disease (as defined in clause (vi) below) or any other disease or disorder involving the tooth, dentin, bone (including alveolar bone), cementum, enamel, gingiva (to the extent, but only to the extent, the gingiva functions as part of the apparatus holding the tooth to the jaw), ligament (including the periodontal ligament), tendon and/or cartilage; and - 7 - 8 (vi) "Periodontal Disease" shall mean degeneration of the apparatus holding the tooth to the jaw involving damage to any or all of the gingiva (to the extent, but only to the extent, the gingiva functions as part of the apparatus holding the tooth to the jaw), alveolar bone, cementum, enamel and periodontal ligament. B. CBM hereby grants to Stryker an irrevocable (except as set forth in Section 3.2), exclusive, worldwide license in the Dental Field to use and enjoy the Licensed Dental Intellectual Property and related commercial rights that CBM now has or hereafter acquires arising out of research and development programs undertaken by CBM, or by third parties and in which CBM has or acquires any rights, to develop OP Products and OP Devices with applications in the Dental Field, including, but not limited to, OP Products and OP Devices for dentin regeneration and the treatment of periodontal disease and tooth sensitivity. The license granted hereunder shall include the right to sublicense to third parties not affiliated with Stryker. CBM represents to Stryker that, as of the date hereof, the Licensed Patent Rights constitute all US, foreign and PCT applications and patents in which CBM ever had any right, title and interest that disclose inventions and improvements related to OP Products and OP Devices with applications in the Dental Field other than the Present Patents and Applications and - 8 - 9 the Future Patents and Applications to the extent applicable to the Dental Field and that the inventions and improvements disclosed in the Licensed Patent Rights and the other Licensed Dental Intellectual Property were not conceived, made, developed or reduced to practice as part of the Research Project. CBM further agrees that all future patent applications and patents in which it has or acquires any rights that disclose inventions or improvements related to OP Products and OP Devices that were not conceived, made, developed or reduced to practice as part of the Research Project but have applications in the Dental Field as well as applications outside the Dental Field shall be included in Licensed Patent Rights. C. Stryker is hereby given the first right during the term of this Agreement to sue infringers in the Dental Field of the Licensed Dental Intellectual Property and to collect and retain all profits and/or damages or amounts by way of settlement that may be recovered as a result thereof, whether for the past or for the future, and CBM agrees to permit the use of its name in all such suits and sign all necessary papers. The expenses of such suit or suits shall be paid by Stryker, and any and all recoveries from said suit or settlements thereof shall go to Stryker. Should Stryker fail to take the necessary steps by litigation or otherwise to stop infringement in the Dental Field of the - 9 - 10 Licensed Dental Intellectual Property, then CBM may conduct at its own expense, and with the right to all recoveries, such litigation as it may deem necessary, provided that CBM has first given a written sixty (60) day notice to Stryker of its intention to initiate such litigation, and provided further, that Stryker fails during said sixty (60) days' period to indicate its willingness to initiate said suggested litigation or fails to initiate said suggested litigation within four (4) months after said notice. The party conducting any litigation shall keep the other party reasonably informed as to all actions in the litigation and the party not conducting the litigation shall assist and cooperate with the party conducting the litigation and shall be reimbursed by the conducting party for the out-of-pocket expenses reasonably incurred by it in connection with providing such assistance and cooperation. D. Stryker agrees to reimburse CBM for its pro rata share of all costs incurred after August 1, 1996 in the prosecution and defense of the Licensed Patent Rights, which costs will be prorated by agreement of the parties based on a good faith estimate of the relative value of the patent or application inside and outside the Dental Field but, if the parties cannot otherwise agree, each will bear half the cost. CBM agrees that it will consult with Stryker with respect to issues that arise in the course of the - 10 - 11 prosecution of the Licensed Patent Rights and that it will not abandon any claims related to the Dental Field without the prior written consent of Stryker. E. Stryker acknowledges that certain of the Licensed Patent Rights are the subject of a Cross-License Agreement entered into among Stryker, CBM and Genetics Institute, Inc. (for itself and the GPDC Partnership referred to therein). F. As part of the consideration for the license of the Licensed Dental Intellectual Property hereunder, Stryker agrees to pay to CBM, by wire transfer to the account designated in writing by CBM, the sum of $500,000. G. Stryker agrees that it will employ such reasonable efforts as are necessary to diligently proceed with research and product development work with regard to the development of OP Products and OP Devices for dentin regeneration and the treatment of Periodontal Disease. With respect to dentin regeneration, Stryker agrees to complete the current clinical trials and then to evaluate this program. With respect to the treatment of Periodontal Disease, Stryker agrees to prepare a work plan that contemplates the commencement of human feasibility studies of such OP Products and Devices prior to *. Stryker's agreements herein with regard to the continuation of the programs regarding the development of OP Products and OP - 11 - 12 Devices for dentin regeneration and the treatment of Periodontal Disease are subject, however, in each case, to the cessation of such activities at any time in the event of adverse findings regarding safety or efficacy or any other matter that in Stryker's judgment adversely affects Stryker's ability to develop a commercially marketable product therefor. Stryker also agrees to evaluate the results of CBM's research regarding the treatment of tooth sensitivity and to make a decision regarding the resumption of that program. In the event that Stryker determines that the development of a commercially marketable product for dentin regeneration or the treatment of Periodontal Disease or tooth sensitivity is not feasible, Stryker agrees that it will consider entering into a license and sublicense, which license and sublicense shall not include the right to grant sublicenses without Stryker's written consent, with CBM or a third party proposed by CBM that is acceptable to Stryker in its reasonable discretion with respect to the use and exploitation of the patent rights of Stryker owned by Stryker pursuant to Section 1.4A of this Agreement and of the Licensed Dental Intellectual Property insofar as they relate to dentin regeneration or the treatment of Periodontal Disease or tooth sensitivity, as the case may be. In exercising its discretion in determining that a proposed third-party licensee/sublicensee is not acceptable - 12 - 13 to it, Stryker may take into account, among other things, the economic terms of any such license and sublicense, the fact that the proposed third-party licensee/sublicensee is a competitor of Stryker in the OP Field and the protections against off-label use of products produced by the proposed third-party licensee/sublicensee that are included in the proposed terms of any such license and sublicense. H. Stryker and CBM agree that the Research Project will be expanded to cover projects related to the programs to be continued by Stryker with respect to the development of OP Products and OP Devices for dentin regeneration and the treatment of Periodontal Disease and tooth sensitivity, if Stryker determines to proceed with any such program. In such event, the specific projects on which CBM will work and the maximum number of full-time equivalents to be allocated to them in any month shall be determined in advance by one or more written documents (a "Dental Field Related Current Scope of Work") and the term "Current Scopes of Work," as defined in paragraph B of Section 1.1 shall include any such Dental Field Related Current Scope of Work. I. Stryker shall reimburse CBM for all expenses incurred by CBM after July 31, 1996 in connection with research efforts and clinical trials related to the Dental Field up to an aggregate of $85,000 or such greater amount as may have been approved in advance by Stryker in writing - 13 - 14 promptly upon receipt of an invoice or invoices therefor that provides detailed information with respect to the particular expenses for which reimbursement is sought. Except as set forth in the preceding sentence, it is expressly understood and agreed that Stryker is not assuming any obligation or liability incurred or that may be incurred as a result of the work performed prior to the date hereof by CBM or by third patties under contract to CBM related to the development of OP Products and OP Devices with applications in the Dental Field, including, but not limited to, product liability claims, claims arising out of treatments prior to the date hereof in connection with preclinical or clinical trials, including with respect to all patients currently enrolled therein, and that Stryker is not assuming any obligation or liability of CBM to any third party under any agreement or understanding related to such development efforts, whether incurred prior to or on or after the execution and delivery of this Agreement (collectively, the "Preexisting CBM Obligations"). CBM agrees to indemnify and hold Stryker harmless from any and all losses, costs, expenses (including attorneys' fees and expenses), fees, liabilities and damages sustained or that may be sustained by Stryker to the extent they arise out of Preexisting CBM Obligations. - 14 - 15 J. Nothing in this Agreement, including, without limitation, the acceptance of the license of the Licensed Dental Intellectual Property pursuant to this Section 1.7, shall constitute a waiver by Stryker of its right to ownership of any portion of the Licensed Dental Intellectual Property that is subsequently determined to have been conceived, made, developed or reduced to practice as part of the Research Project by CBM or any of its personnel or by any third party under contract to CBM. K. Stryker acknowledges that any patent rights owned by Stryker that arise from any Dental Field Related Current Scope of Work shall be Future Patents and Applications and shall be covered by the License with respect to all uses and applications of the inventions claimed therein other than in the OP Field. 6. The first sentence of subparagraph (iv) of Section 3.2C of the Agreement shall be amended to read in its entirety as follows: (iv) if Stryker shall at any time after the date hereof decide not to proceed, or fail to diligently proceed with its obligations under Section 1.lE, other than with respect to applications in the Dental Field that are treated separately in Section 1.7G of this Agreement, and such failure shall continue for three (3) months after notice from CBM, Stryker shall - 15 - 16 reassign to CBM all of the rights and licenses otherwise granted to Stryker under this Agreement and the Patent Assignment. 7. Section 3.5 of the Agreement is hereby amended by adding, at the end thereof, the following language: ; provided, however, that in the event of any controversy or claim relating to the provisions of this Agreement pertaining exclusively to matters arising under Section 1.7 hereof, the arbitration shall take place in Boston, Massachusetts. 8. The specific amendments of certain provisions of the Agreement set forth in paragraphs 1, 2, 3, 4, 6 and 7 hereof shall be effective as of the date hereof and the provisions set forth in paragraph 5 hereof shall be deemed to be added to Article I of the Agreement effective as of the date hereof. Except as specifically provided herein, the terms and provisions of the Agreement shall continue in full force and effect in all respects and are hereby confirmed by the parties hereto. 9. This Agreement may be executed in counterparts and shall become effective when one or more counterparts have been signed by each of the parties. - 16 - 17 IN WITNESS WHEREOF, the parties hereto have-executed this Amendment Agreement as of the 31st day of October, 1996. CREATIVE BIOMOLECULES, INC. STRYKER CORPORATION /s/Michael M. Tarnow /s/John W. Brown - --------------------------------- ---------------------------------- Michael M. Tarnow John W. Brown President and Chief Chairman of the Board, Executive Officer President and Chief Executive Officer - 17 - 18 SCHEDULE I. CaseNumber Country Application Number: Filing Date: Patent Number: * - 18 - 19 SCHEDULE I. CaseNumber Country Application Number: Filing Date: Patent Number: * - 19 - 20 SCHEDULE II. Pending and Issued CBM Patent Filings Relating to Dental Field **The inventions and improvements in the patent applications and patent(s) listed herein are licensed only for use in the Dental Field. CaseNumber Country Application Number: Filing Date: Patent Number: * - 20 - EX-10.37 4 RESEARCH COLLABORATION AND LICENSE AGREEMENT 1 EXHIBIT 10.37 CREATIVE BIOMOLECULES, INC. HAS OMITTED FROM THIS EXHIBIT 10.37 PORTIONS OF THE AGREEMENT FOR WHICH CREATIVE BIOMOLECULES, INC. HAS REQUESTED CONFIDENTIAL TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH AN ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPERATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. RESEARCH COLLABORATION AND LICENSE AGREEMENT This Agreement is made and entered into this 9th day of December, 1996 by and between BIOGEN, INC. (hereinafter referred to as "BIOGEN"), a Massachusetts corporation located at 14 Cambridge Center, Cambridge, MA 02142, and CREATIVE BIOMOLECULES, INC., a Delaware corporation, located at 45 South Street, Hopkinton, MA 01748 ("CBM"). WHEREAS, BIOGEN is a biopharmaceutical company which develops, manufactures, markets and sells pharmaceutical products for human healthcare; and WHEREAS, CBM is the owner and/or exclusive licensee of certain technology, patent rights and other proprietary know-how related to PRODUCTS as hereinafter defined; and WHEREAS, BIOGEN desires to obtain an exclusive right and license in and to such technology, patent rights and proprietary know-how in the TERRITORY as hereinafter defined; and WHEREAS, BIOGEN desires to support additional research in the FIELD as hereinafter defined; and WHEREAS, CBM is willing to grant the exclusive right and license desired by BIOGEN and to participate in the conduct of the research supported by BIOGEN. NOW, THEREFORE, in consideration of the mutual promises and other good and valuable consideration, the parties agree as follows: SECTION 1 - DEFINITIONS. The terms used in this Agreement have the following meaning: 1.1 The term "AFFILIATE" as applied to either party shall mean any company or other legal entity other than the party in question, in whatever country organized, controlling, controlled by or under common control with that party. The term "control" means ownership or control, 2 directly or indirectly, of at least fifty percent (50%) of the outstanding stock or voting rights or the right to elect or appoint a majority of the directors. 1.2 The term first "AGREEMENT YEAR" shall mean the period from the EFFECTIVE DATE to December 31, 1997. With respect to any year after the first AGREEMENT YEAR, the term "AGREEMENT YEAR" shall mean the calendar year. 1.3 The term "BACKGROUND INFORMATION" shall mean any data, know-how or other information pertaining to the FIELD which may be useful in the discovery, research, development, manufacture, use or sale of PRODUCTS and which is known to BIOGEN or CBM, as the case may be, on the EFFECTIVE DATE and in and to which BIOGEN or CBM, as the case may be, has a transferable right. 1.4 The term "BACKGROUND MATERIAL" shall mean any material, reagent or substance relating to the FIELD which may be useful in the discovery, research, development, manufacture, use or sale of PRODUCTS and which is in the possession of BIOGEN or CBM, as the case may be, on the EFFECTIVE DATE and in and to which BIOGEN or CBM, as the case may be, has a transferable right. 1.5 The term "BIOGEN PATENTS" shall mean all patents and patent applications throughout the TERRITORY, covering or relating to BIOGEN TECHNOLOGY, including any substitutions, extensions, reissues, reexaminations, renewals, continuations, continuations-in-part, divisionals and supplemental protection certificates, which BIOGEN owns (in whole or in part) or otherwise has a transferable right as of the EFFECTIVE DATE or at any time during the term of this Agreement, including but not limited to BIOGEN'S rights in any RESEARCH PATENTS. 1.6 The term "BIOGEN OP-1 TECHNOLOGY" shall mean any methods, procedures, practices, processes, know-how, inventions, discoveries and the like used by BIOGEN (other than solely for research purposes) at any time during the term of this Agreement in the manufacture of OP- - 2 - 3 1 PROTEIN in bulk form by BIOGEN. BIOGEN OP-1 TECHNOLOGY shall not include any methods, procedures, practices, processes, know-how, inventions, discoveries or the like owned or controlled by BIOGEN which relate solely to the formulation of OP-1 PROTEIN in final dosage form or which relate to other uses in the FIELD. 1.7 The term "BIOGEN OP-1 PATENTS" shall mean all patents and patent applications throughout the TERRITORY covering or relating to BIOGEN OP-1 TECHNOLOGY, including any substitutions, extensions, reissues, reexaminations, renewals, continuations, continuations-in-part, divisionals and supplemental protection certificates, which BIOGEN owns (in whole or in part) or otherwise has a transferable right at any time during the term of this Agreement. 1.8 The term "BIOGEN TECHNOLOGY" shall mean information and materials in the FIELD, including but not limited to, biological materials, technical and non-technical data and information relating to the results of tests, assays, methods, and processes, and drawings, plans, diagrams and specifications and/or other documents containing such information and data owned by BIOGEN or to which BIOGEN has a transferable interest on the EFFECTIVE DATE or prior to termination of this Agreement and which are necessary or useful for the manufacture, use or sale of PRODUCTS. 1.9 The term "CALENDAR QUARTER" shall mean the period of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31, as the case may be. 1.10 The term "CBM PATENT RIGHT(S)" shall mean all patents and patent applications throughout the TERRITORY, covering or relating to CBM TECHNOLOGY, including any substitutions, extensions, reissues, reexaminations, renewals, continuations, continuations-in-part, divisionals and supplemental protection certificates, which CBM owns (in whole or in part) or otherwise has a transferable right as of the EFFECTIVE DATE or at any time during the term of this Agreement, including but not limited to CBM's rights in any RESEARCH PATENTS and CBM's - 3 - 4 rights obtained under the STRYKER LICENSE and the GI LICENSE. CBM PATENT RIGHTS as of the EFFECTIVE DATE are set forth in Appendix A hereto. 1.11 "CBM TECHNOLOGY" shall mean CBM BACKGROUND INFORMATION and any other information, data (including all chemical, pharmacological, toxicological, clinical, assay, manufacturing and control information, data and test results), ideas, concepts, formulas, trade secrets, methods, procedures, designs, materials, compositions, plans, diagrams, applications, specifications, techniques, records, practices, processes, research, know-how, inventions, discoveries and the like which CBM owns (in whole or in part) or otherwise has a transferable right as of the EFFECTIVE DATE or at any time during the term of this Agreement and which is necessary or useful in order to discover, research, develop, make, formulate, use, sell or seek approval to market PRODUCT, including but not limited to CBM's rights in the RESEARCH INFORMATION, the RESEARCH MATERIALS and the RESEARCH INVENTIONS, and CBM's rights under the STRYKER LICENSE and the GI LICENSE. 1.12 The term "COST OF GOODS" shall mean BIOGEN's FULLY ALLOCATED COST to manufacture PRODUCTS (i) less the amount, if any, by which CBM's FULLY ALLOCATED COST for OP-1 PROTEIN (manufactured by CBM in accordance with GMP) is less than BIOGEN's FULLY ALLOCATED COST for manufacturing of OP-1 PROTEIN included in PRODUCT (ii) plus any amounts to be added to COST OF GOODS under Sections 9.2 and 10.1 (a). 1.13 The term "DISTRIBUTOR" shall mean a person or entity in a country who (i) buys finished PRODUCT from BIOGEN or its AFFILIATES, (ii) assumes responsibility for a significant amount of the promotion, marketing and sales effort related to PRODUCTS in that country and, (iii) under an implied sublicense, sells such PRODUCT in that country. - 4 - 5 1.14 The term "EFFECTIVE DATE" shall mean the date after execution of this Agreement on which the government's notice period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, lapses without government action. 1.15 The term "FTE" shall mean scientist or other professional possessing skills and experience necessary to carry out the RESEARCH, measured each year on a full-time basis. 1.16 The term "FIELD" shall mean the treatment, diagnosis and prevention of acute and chronic forms of renal failure, renal dysfunction, renal toxicity and other forms of kidney disease or kidney disorders in humans, independent of etiology, by use of drug or gene therapy designed or intended to have an effect on the function of the kidney, excluding, however ex-vivo uses in preserving organs for transplant. Specifically excluded from the FIELD is the use of a drug or gene therapy to treat or prevent damage to any organ other than the kidney or any tissue other than renal tissue, except to the extent that the effect on the non-kidney organ or non-renal tissue is inherent or coincidental to the designed or intended effect on the function of the kidney. 1.17 The term "FIRST COMMERCIAL SALE" shall mean in each country of the TERRITORY, (i) the first sale of a PRODUCT by BIOGEN or any of its AFFILIATES, SUBLICENSEES or DISTRIBUTORS to a THIRD PARTY in connection with the nationwide introduction of PRODUCT by BIOGEN, its AFFILIATES, SUBLICENSEES or DISTRIBUTORS following marketing and/or pricing approval by the appropriate governmental agency for the country in which the sale is made, or (ii) when governmental approval is not required or when sales can be made through named patient sales prior to governmental approval, the first sale in that country in connection with the nationwide introduction of PRODUCT in that country. 1.18 The term "FULLY ALLOCATED COST" shall mean BIOGEN's fully burdened manufacturing cost of PRODUCT in final therapeutic form or CBM's fully burdened manufacturing cost of OP-1 PROTEIN, as the case may be. The fully burdened cost of the PRODUCT or OP-1 - 5 - 6 PROTEIN, as the case may be, will be determined in accordance with generally accepted accounting principles in the United States and will include (i) direct labor, material, product testing costs, (ii) charges related to lost batches, except as otherwise specified in this Agreement, and (iii) an allocable share of manufacturing overhead costs defined as costs incurred by the party or for its account which are attributable to the party's supervisory services, occupancy costs, corporate bonus (to the extent not charged directly to departments), payroll, information systems, or human relations or purchasing functions and which are allocated to company departments based on space occupied or headcount or other activity-based method. Allocable manufacturing overhead shall not include any costs attributable to general corporate activities including, by way of example, executive management, investor relations, business development, legal affairs and finance. 1.19 The term "GI LICENSE" shall mean a Cross License Agreement made as of July 15, 1996 by and among Genetics Institute, Inc., Stryker Corporation and CBM. 1.20 The term "GMP" shall mean current Good Manufacturing Practices required by the Food and Drug Administration and equivalent requirements of other regulatory authorities in the MAJOR MARKETS for the manufacture and testing of pharmaceutical products. 1.21 The term "GROSS PROFIT" shall mean NET SALES of PRODUCT less COST OF GOODS. 1.22 The term "MAA" shall mean an application for regulatory approval to sell PRODUCT in the European Union and similar in purpose to an NDA in the United States. 1.23 The term "MAJOR MARKET(S)" shall mean the United States, Japan, United Kingdom, Germany, France, Italy and Spain. The term "MAJOR MARKET SEGMENT" shall mean United States, Europe or Japan, as the case may be. 1.24 The term "NDA" shall mean a New Drug Application or Product License Application or equivalent filing filed for PRODUCT with the U.S. Food and Drug Administration ("FDA"). - 6 - 7 1.25 The term "NDR" shall mean an application for regulatory approval to sell PRODUCT in Japan and similar in purpose to an NDA in the United States. 1.26 The term "NET SALES" means the gross amount invoiced by BIOGEN, its AFFILIATES and SUBLICENSEES to THIRD PARTIES from the sale or distribution of PRODUCT, less cost of freight and freight insurance, (if billed separately), returns, rejections, rebates, sales taxes, excise taxes, other taxes (other than income taxes) levied on the invoiced amount, duties and credits and allowances actually given or made, including cash, trade, quantity and other discounts and the like, provided, however, that a sale or transfer of PRODUCT by BIOGEN to an AFFILIATE or SUBLICENSEE for re-sale of PRODUCT by such AFFILIATE or SUBLICENSEE shall not be considered a sale for the purpose of this provision but the resale of PRODUCT by such AFFILIATE or SUBLICENSEE to a THIRD PARTY shall be a sale for such purposes. A "sale" shall mean a transfer or other disposition for consideration, but shall not include transfers or dispositions at no cost for pre-clinical, clinical, regulatory or governmental purposes or disposition of PRODUCT at no cost for promotional purposes. In the event that consideration in addition to or in lieu of money is received for the sale of PRODUCT in an arms length transaction, such consideration shall be added to NET SALES. To the extent that a PRODUCT is sold in other than an arms length transaction, NET SALES shall be the average sales price of PRODUCT if sold in an arms length transaction in the country in which the non-arms length transaction occurred. PRODUCT shall be considered "sold" at the earlier of (a) the transfer of title in such PRODUCT by BIOGEN or any of its AFFILIATES or SUBLICENSEES to a THIRD PARTY as aforesaid; or (b) the shipment of such PRODUCT from the manufacturing or warehouse facilities of BIOGEN or its AFFILIATE or SUBLICENSEE to a THIRD PARTY. In the event that PRODUCT is sold in the form of a combination product containing one or more active ingredients or components in addition to OP-1 PROTEIN, NET SALES shall be - 7 - 8 determined by multiplying NET SALES of the combination product (as defined by reference to the standard NET SALES definition) during the applicable payment period by the fraction A/A+B where A is the average sale price of PRODUCT when sold separately in finished form and B is the average sale price of the other active ingredients or components when sold separately in finished form in each case during the applicable payment period in the country in which the sale of the combination product was made, or if sales of both the PRODUCT and the other active ingredients or components did not occur in such period, then in the most recent payment period in which sales of both occurred. In the event that such average sale price cannot be determined for both PRODUCT and all other active ingredients or components included in the combination product, NET SALES for purposes of determining payments under this Agreement shall be calculated by multiplying the NET SALES of the combination product by the fraction C/C+D where C is the standard fully-absorbed cost of the OP-1 PROTEIN portion of the combination and D is the sum of the standard fully-absorbed costs of all other active components or ingredients included in the combination product, in each case, as determined by BIOGEN using its standard accounting procedures consistently applied. In no event shall NET SALES of a combination product be reduced to less than * of actual NET SALES of such PRODUCT by reason of the adjustment provision set forth in this paragraph. 1.27 The term "OP-1 PROTEIN" shall mean a polypeptide chain ("Protein") * is set forth on Appendix B to this Agreement and shall include: (a) * variant forms thereof; (b) amino acid variant forms of the Protein sharing at least * amino acid sequence identity with the * of the Protein ("* Homologs"); - 8 - 9 (c) * variant forms of the Protein or such * variant forms or the * Homologs, including, without limitation, polypeptides comprising only the * thereof; (d) homodimeric, heterodimeric and chimeric forms of the Protein and of any of the variant forms thereof identified in the preceding Subsections (a), (b) and (c), to the extent they also consist of: (i) the Protein or variant forms thereof identified in the preceding Subsections (a), (b) and (c), or (ii) other polypeptide chains which are not within the preceding Subsection (i). (e) polyclonal or monoclonal antibodies to the Protein or to any of the foregoing proteins; (f) the DNA or RNA encoding the Protein or any of the foregoing proteins; (g) vectors and host cells containing the foregoing DNA or RNA. Determination of "identity" between any two amino acid sequences is based on that alignment which achieves the maximum identity between the two sequences. 1.28 The term "PRODUCT" shall mean any article, composition, apparatus, material, method, process or service for use in development or clinical testing in the FIELD or indicated and approved for use in the FIELD which (i) is or includes the OP-1 PROTEIN and/or any product developed or derived therefrom pursuant to RESEARCH, and (ii) the manufacture, import, use or sale of which is covered by a VALID CLAIM of the CBM PATENT RIGHTS or includes, is based on or is derived from any of the CBM TECHNOLOGY. 1.29 The term "PRODUCT DEVELOPMENT PROGRAM" shall have the meaning set forth in Section 7.2. - 9 - 10 1.30 The term "R&D" shall mean the research and development work performed by CBM and funded by BIOGEN as part of the R&D COLLABORATION, including the research work performed by CBM under the RESEARCH PLAN and the development work performed by CBM as agreed upon by the parties. 1.31 The term "R&D COLLABORATION" shall have the meaning set forth in Section 8.1 of this Agreement. 1.32 The term "RESEARCH INFORMATION" shall mean any data, results, formulas, process information or other information which results directly from R&D funded by BIOGEN pursuant to this Agreement. 1.33 The term "RESEARCH INVENTION(S)" shall mean any invention, know-how, method, process, use, article of manufacture, or composition of matter conceived or first actually or constructively reduced to practice as part of R&D or which results directly from R&D funded by BIOGEN pursuant to this Agreement. 1.34 The term "RESEARCH MATERIAL" shall mean any material, reagent or substance which results directly from R&D funded by BIOGEN pursuant to this Agreement. 1.35 The term "RESEARCH PATENT RIGHT(S)" shall mean all patents and patent applications throughout the TERRITORY which have any claim which incorporates, is based on or derived from RESEARCH INFORMATION, RESEARCH INVENTIONS or RESEARCH MATERIAL, including any substitutions, extensions, reissues, reexaminations, renewals, continuations, continuations-in-part, divisionals and supplemental protection certificates. 1.36 The term "RESEARCH PLAN" shall mean the written descriptions of the discovery research and pre-GLP studies to be performed by CBM as part of the R&D COLLABORATION in the FIELD for the first AGREEMENT YEAR and for each subsequent AGREEMENT YEAR of the R&D COLLABORATION as agreed upon by the parties in accordance with Section 8.2. - 10 - 11 1.37 The term "STRYKER LICENSE" shall mean a certain Irrevocable License Agreement dated as of May 17, 1991 by and between CBM and Stryker Corporation. 1.38 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party expressly licensed by BIOGEN to make, have made, import, use or sell any PRODUCT. 1.39 The term "TERRITORY" shall mean all countries of the world. 1.40 The term "THIRD PARTY(IES)" shall mean a person or entity who or which is neither a party hereto nor an AFFILIATE or SUBLICENSEE of a party hereto. 1.41 The term "VALID CLAIM" shall mean (i) a claim of a pending patent application which claim shall not have been canceled, withdrawn, abandoned or rejected by an administrative agency from which no appeal can be taken or been pending for more than seven (7) years or (ii) a claim of an issued and unexpired patent which has not lapsed or become abandoned or been declared invalid or unenforceable by a court of competent jurisdiction or an administrative agency from which no appeal can be or is taken. 1.42 The use herein of the plural shall include the singular, and the use of the masculine shall include the feminine. SECTION 2 - GRANT AND OTHER RIGHTS. 2.1 (a) Subject to Section 3.2, CBM hereby grants to BIOGEN and BIOGEN hereby accepts from CBM an exclusive, royalty-bearing right and license under CBM TECHNOLOGY AND CBM PATENT RIGHTS to make, have made, import, use and sell PRODUCTS in the TERRITORY. In the event that under the preceding sentence CBM has granted to BIOGEN a sublicense to CBM's rights under any CBM PATENTS or CBM TECHNOLOGY acquired by CBM from a THIRD PARTY after the EFFECTIVE DATE, other than any rights acquired by CBM under the granted THIRD PARTY patent discussed between patent counsel for CBM and patent counsel - 11 - 12 for BIOGEN, at a meeting held on November 25, 1996, and its foreign counterpart patents and under any divisionals, substitutions, reissues, reexaminations, renewals, extensions, supplemental protection certificates, continuations or continuations-in-part of such patents (the "Other Third Party Patents"), BIOGEN shall be responsible for paying any royalty obligation which CBM may have to such THIRD PARTY arising from the manufacture, use or sale by BIOGEN of PRODUCTS in the TERRITORY. (b) CBM hereby grants to BIOGEN and BIOGEN hereby accepts from CBM a nonexclusive, perpetual, royalty-free right and license, with no right to grant sublicenses, under CBM's rights in RESEARCH INVENTIONS, RESEARCH INFORMATION AND RESEARCH PATENTS to research, develop, make, have made, import, use and sell, in and outside the FIELD, products that do not embody OP-1 PROTEIN. In addition, CBM grants to BIOGEN an option to obtain a nonexclusive, royalty-bearing right and license, with the right to grant sublicenses as part of a sublicense package which includes, to a significant extent, BIOGEN technology, under CBM's rights in RESEARCH INVENTIONS, RESEARCH INFORMATION and RESEARCH PATENTS to research, develop, make, have made, import, use and sell, in and outside the FIELD, products that do not embody OP-1 PROTEIN, on terms, including financial terms, to be negotiated in good faith by the parties. (c) BIOGEN hereby grants to CBM and CBM hereby accepts from BIOGEN a nonexclusive, royalty-free, right and license, with no right to grant sublicenses, under BIOGEN OP-1 TECHNOLOGY and BIOGEN OP-1 PATENTS solely for CBM's own use to make, have made, import, use and sell OP-1 PROTEIN for use by CBM or Stryker Corporation outside the FIELD. The license granted by the preceding sentence shall terminate in the event of the sale by CBM of all or substantially all of its assets or the merger or acquisition or similar change in control of CBM (a "Change of Control"). BIOGEN grants to CBM (or in the event of a Change of Control, to the successor to CBM) an option exercisable at any time during the term of this Agreement to obtain a - 12 - 13 nonexclusive, royalty-bearing right and license, with the right to grant sublicenses, under BIOGEN OP-1 TECHNOLOGY and BIOGEN OP-1 PATENTS solely to make, have made, import, use and sell OP-1 PROTEIN for use outside the FIELD under terms, including financial terms, to be negotiated in good faith by the parties. In the event that under this Section , BIOGEN has granted to CBM a sublicense to BIOGEN's rights under any BIOGEN OP-1 TECHNOLOGY or BIOGEN OP-1 PATENTS owned (in whole or in part) by a THIRD PARTY, CBM shall be responsible for paying any royalty obligations which BIOGEN may have to such THIRD PARTY arising from the manufacture, use or sale by CBM or Stryker Corporation of OP-1 PROTEIN. (d) BIOGEN hereby grants to CBM and CBM hereby accepts from BIOGEN a nonexclusive, royalty-free right and license under BIOGEN BACKGROUND INFORMATION and BIOGEN BACKGROUND MATERIALS in the TERRITORY, without the right to grant sublicenses, solely for purposes of conducting R&D under this Agreement. The foregoing license shall terminate upon termination of the R&D COLLABORATION. 2.2 (a) Subject to Paragraphs 2.2(b) and 2.2(c), BIOGEN shall be entitled to extend the licenses granted to it herein to AFFILIATES and to sublicense such licenses to THIRD PARTIES, provided that CBM shall have the right to consent to any sublicense in a MAJOR MARKET other than Japan which consent shall not be unreasonably withheld. In the case of a license which has been extended to AFFILIATES or sublicensed to a SUBLICENSEE, such AFFILIATES and SUBLICENSEES shall be bound by all terms and conditions of this Agreement. BIOGEN shall advise CBM of any such extension to AFFILIATES or of any sublicense which does not require CBM's consent under this Section promptly after such extension or sublicense becomes effective. In the event BIOGEN proposes to grant a sublicense to its rights in a MAJOR MARKET other than Japan, BIOGEN shall provide CBM with notice of BIOGEN's intent and a copy of any proposed sublicense at least thirty (30) days prior to the proposed execution of such sublicense. - 13 - 14 CBM shall be deemed to have given its consent to any sublicense in a MAJOR MARKET to which it has not objected prior to the end of the thirty (30) day notice period. (b) BIOGEN shall guarantee and be responsible for the payment of all compensation due and the making of reports under this Agreement by reason of sales of any PRODUCTS by its AFFILIATES and SUBLICENSEES and their compliance with all applicable terms of this Agreement. Performance or satisfaction of any obligations of BIOGEN under this Agreement by any of its AFFILIATES or SUBLICENSEES shall be deemed performance or satisfaction of such obligations by BIOGEN. (c) Notwithstanding anything to the contrary herein, BIOGEN shall not be entitled to grant a sublicense in Japan unless, pursuant to the terms of such sublicense, BIOGEN continues to play a significant role with the SUBLICENSEE in the development, registration and sale of PRODUCT in Japan. BIOGEN shall provide CBM with a copy of any proposed sublicense in Japan at least thirty (30) days prior to the proposed execution of such sublicense. 2.3 During the term of this Agreement, if CBM determines that it is interested in entering into a business arrangement with a THIRD PARTY outside the FIELD for exploitation of products which are or include the OP-1 PROTEIN and with respect to which CBM has not granted rights as of the EFFECTIVE DATE, and in the event that as part of the THIRD PARTY arrangement it will be proposed that such THIRD PARTY acquire * of the outstanding common stock of CBM, then CBM shall grant to BIOGEN a right of first negotiation as follows: (i) CBM shall give written notice to BIOGEN of its interest in entering into such an arrangement with a THIRD PARTY and information as to the nature of the proposed products or technology. BIOGEN shall have * after receipt of such notice and information to decide whether or not it wishes to pursue negotiations for such an arrangement and * after receipt of such notice and information to submit a proposal to CBM. During such period, - 14 - 15 CBM shall provide BIOGEN with such additional information and data as may be reasonably requested by BIOGEN to enable BIOGEN prepare its proposal. (ii) In the event that BIOGEN declines to pursue negotiations or does not reply to CBM's notice within * or submit a proposal within *, CBM shall be free to negotiate an arrangement with a THIRD PARTY. In the event that BIOGEN expresses interest in negotiations, * after submission of the proposal by BIOGEN, CBM shall conduct negotiations on an exclusive basis with BIOGEN diligently and in good faith to reach an agreement with BIOGEN. In the event that the parties fail to negotiate a written agreement, CBM shall be free to negotiate and conclude an agreement with a THIRD PARTY. 2.4 CBM agrees for the term of this Agreement not to make, use or sell in the FIELD or to grant a license to a THIRD PARTY to make, use or sell in the FIELD a product which is or includes a protein sharing at least * amino acid sequence identity with the * of the OP-1 PROTEIN (a "* Homolog") or any * or * variant form of such * Homolog or homodimeric, heterodimeric or chimeric form of the * Homolog or any polyclonal or monoclonal antibodies to the * Homolog or DNA or RNA encoding the * Homolog. 2.5 (a) CBM shall use commercially reasonable efforts (i) to restrict its marketing and sales of any products which are or incorporate the OP-1 PROTEIN to fields other than the FIELD and (ii) to ensure that all THIRD PARTIES to whom CBM grants rights to make, use or sell products which are or incorporate the OP-1 PROTEIN are restricted by contract (which CBM shall use reasonable efforts to enforce) in their operations to marketing and selling such products in fields other than the FIELD. - 15 - 16 (b) BIOGEN shall use commercially reasonable efforts (i) to restrict its marketing and sales of PRODUCT to uses in the FIELD and (ii) to ensure that all AFFILIATES and SUBLICENSEES to whom BIOGEN grants rights to make, use or sell PRODUCTS are restricted in their operations to marketing and selling such PRODUCTS in the FIELD, provided, however that, nothing contained herein shall prevent BIOGEN or any of its AFFILIATES or SUBLICENSEES from including in its marketing and sales materials and efforts references to inherent or coincidental effects of PRODUCT not excluded from the FIELD under Section 1.16. 2.6 (a) To the extent CBM PATENT RIGHTS or CBM TECHNOLOGY licensed to BIOGEN under this Agreement are rights which CBM has licensed from Stryker Corporation, under the STRYKER LICENSE or licensed from Genetics Institute, Inc. under the GI LICENSE, BIOGEN understands and agrees as follows: (i) The rights licensed to BIOGEN by CBM are subject to the terms, limitations, restrictions and obligations of the STRYKER LICENSE and the GI LICENSE. (ii) BIOGEN will comply with the terms, obligations, limitations and restrictions of the STRYKER LICENSE and the GI LICENSE and acknowledges that it has reviewed such terms, obligations, limitations and restrictions. 2.7 BIOGEN shall notify CBM in the event that BIOGEN receives notice of any claim that its manufacture, use or sale of PRODUCT infringes the Other Third Party Patents. CBM shall, at its sole expense, (i) defend BIOGEN in any infringement action under the Other Third Party Patents and indemnify and hold BIOGEN harmless for any damages and expenses incurred by BIOGEN in connection therewith, including back royalties and damages and charges incurred by BIOGEN if injunctive relief is granted against BIOGEN, or (ii) obtain, at CBM's sole expense, the right for BIOGEN to make, use and sell PRODUCTS under the Other Third Party Patents. - 16 - 17 SECTION 3 - SMALL MOLECULE PRODUCTS OUTSIDE THE SCOPE OF THE RESEARCH COLLABORATION. 3.1 (a) To the extent CBM determines, in its sole discretion, to conduct research in order to develop small molecule products based on the OP-1 PROTEIN, BIOGEN shall, subject to the terms set forth below, make funds available for such research and development by a loan or loans to CBM up to the amount of fifteen million dollars ($15,000,000) (the "Maximum Amount"). Such available funds may be drawn upon by CBM over the first three (3) AGREEMENT YEARS in such amounts and at such times as CBM may, in it sole discretion, determine up to the Maximum Amount, provided that CBM shall not draw down in any AGREEMENT YEAR more than $5 million plus any portion of the funds available for draw down during the prior AGREEMENT YEARS which CBM did not draw down in such prior AGREEMENT YEARS. CBM shall provide to BIOGEN a workplan and budget showing any use for which CBM intends to borrow funds from BIOGEN under this Agreement prior to such use. Subject to the other provisions of this Section, CBM may borrow funds before or after any use shown on a workplan and budget. CBM shall give reasonable consideration to BIOGEN's comments on any workplan and budget provided under this Section. CBM shall not be required to obtain BIOGEN's approval for any workplan or budget related to CBM's small molecule development program or approval to implement any workplan or budget. In addition, on each occasion that CBM draws upon funding available under this section, CBM shall provide BIOGEN with or otherwise utilize the form of unsecured note set forth in Appendix C attached hereto and made a part hereof (the "Note"). BIOGEN shall not be obligated to make any loan to CBM under this Section at any time during which (i) CBM is in default under the Note, (ii) CBM does not have cash and marketable securities in the amount of at least $15,000,000, as shown on its most recent publicly-filed financial statements or (iii) any proceeding, voluntary or involuntary, in bankruptcy or insolvency, are pending against CBM, or a receiver is operating for CBM with or - 17 - 18 without the consent of CBM. BIOGEN's obligation to make loans to CBM under this Section shall terminate upon the earlier to occur of (i) the end of the third AGREEMENT YEAR or (ii) termination or expiration of this Agreement. (b) During such time as CBM is developing an OP-1 PROTEIN small molecule product (provided BIOGEN has not breached its obligations under this Section), but no later than sixty (60) days after CBM gives BIOGEN written notice of * BIOGEN shall have an exclusive option to obtain an exclusive, worldwide license in the FIELD to the family of compounds which includes such small molecule product on terms to be negotiated by the parties hereto in good faith; provided that (i) the royalty rate applicable to such product shall be * of NET SALES and (ii) there shall be * in connection with the license for the family of compounds which includes such small molecule product. In addition, in the event BIOGEN exercises its option hereunder, BIOGEN shall (i) forgive the lesser of ten million dollars ($10,000,000) or the principal amount outstanding under the Note and (ii) in the event that CBM has repaid all or part of the principal amount of the Note, pay to CBM an amount equal to the difference between $10,000,000 and the sum of (x) the amount forgiven under clause (i) and (y) the amount of principal repaid by CBM under the Note. In the event BIOGEN shall exercise its option under this Section as to more than one family of compounds, BIOGEN shall forgive or repay, as the case may be, in accordance with the previous sentence, any incremental amounts borrowed under this Section by CBM with respect to development of the additional family of compounds, provided in no event shall the sum of the amounts forgiven and/or paid by BIOGEN under this sentence and the amounts forgiven and/or paid by BIOGEN under the previous sentence exceed $10 million. - 18 - 19 (c) At BIOGEN's request, CBM shall provide BIOGEN with annual summary reviews of CBM's program to develop small molecule products. BIOGEN may exercise its option hereunder using the same procedures as those described in Paragraph 2.3(i) and (ii), provided that in the event that the parties fail to negotiate a written agreement within the time period allotted, CBM shall be free to negotiate and conclude an agreement with a THIRD PARTY but only on terms not more favorable than the terms offered to BIOGEN without first offering BIOGEN such more favorable terms. To the extent the funds are repayable, CBM shall repay to BIOGEN the amounts borrowed and represented by the Note on or before the end of five (5) years following the date the Note was first executed by CBM hereunder. Such repayment shall be made at, CBM's sole option, either in cash, or Common Stock, registered for re-sale, priced at its then fair market value, as defined below, or if at the time of repayment there are NET SALES of PRODUCT, as a deduction from the Percentage of GROSS PROFIT due CBM under Section 10 of this Agreement, provided that (i) unless CBM otherwise requests, BIOGEN shall not deduct in any year more than * of the Percentage of GROSS PROFIT otherwise due to CBM for such year and (ii) interest shall continue to accrue under the Note until all amounts under the Note have been repaid in full. Notwithstanding anything herein to the contrary, BIOGEN may require that CBM repay the amounts borrowed under the Note in cash rather than equity if the closing price of CBM's Common Stock has been less than * per share on any of the thirty (30) trading days preceding the repayment date or in cash and stock to the extent necessary to ensure that receipt of CBM's shares will not cause BIOGEN's holdings in CBM to equal more than * of CBM's total Common Stock outstanding after the issuance of such shares to BIOGEN. For purposes of this Section 3.1 (c), "fair market value" of CBM Common Stock shall mean: the lower of (i) the average of the closing prices as reported by NASDAQ or by such other principal securities exchange on which the shares are traded, as applicable, over the thirty (30) trading days preceding the date on which payment is due - 19 - 20 or (ii) the closing price as reported by NASDAQ or such other exchange on the date on which payment was due. Delivery of any shares of Common Stock shall take place no later than five (5) days after the repayment date. Notwithstanding the foregoing, in the event that at any time during the * following the date on which repayment under the Note is due, CBM makes a public disclosure regarding material adverse information which was known to CBM on the repayment date but which had not been publicly disclosed and the trading price of CBM Common Stock on the second full trading day after public release of the information is lower than the per share "fair market value" of any shares issued to BIOGEN, as determined above, the "fair market value" of the shares issued to BIOGEN shall be retroactively adjusted based on such lower price and additional shares shall be issued to BIOGEN to make up the shortfall. 3.2 All right, title and interest in and to inventions, discoveries and know-how and all patents and other intellectual property rights related thereto resulting from CBM's small molecule program shall be owned by CBM but shall be subject to BIOGEN's option set forth in Paragraph 3.1(a). SECTION 4 - SUPPLY OF PRECLINICAL AND CLINICAL MATERIAL. 4.1 In support of the PRODUCT DEVELOPMENT PROGRAM, during the term of this Agreement, CBM shall supply BIOGEN with its worldwide requirements for preclinical and clinical supplies of bulk PRODUCT provided that CBM's obligation to supply and BIOGEN's obligation to obtain PRODUCT shall not apply to (i) a PRODUCT used for phase III pivotal clinical trials or for cross-over or human pharmacological studies for which it is desirable or necessary, for regulatory approval purposes, to use material manufactured at the commercial production facility or (ii) to any preclinical and clinical studies for any indications after the first two indications in the FIELD if CBM is then using * or more of the capacity of its New Hampshire facility as - 20 - 21 existing on the EFFECTIVE DATE. To the extent BIOGEN cannot obtain approval for itself or an AFFILIATE or a contract manufacturer, subject to Section 4.13, or SUBLICENSEE to qualify as a source of supply for phase III pivotal clinical trials, CBM shall continue to supply bulk PRODUCT for clinical trials for a transition period to be agreed upon by the parties. 4.2 As set forth in Paragraph 7.1, BIOGEN shall have primary responsibility for process development. Upon BIOGEN's request, CBM shall promptly transfer to BIOGEN, such BACKGROUND INFORMATION and CBM TECHNOLOGY relative to OP-1 PROTEIN and manufacturing OP-1 PROTEIN as is reasonably necessary to enable BIOGEN to perform process development work and to manufacture supplies of the PRODUCT. BIOGEN shall reimburse CBM for the reasonable costs of copying and shipping BACKGROUND INFORMATION under the preceding sentence to BIOGEN, but no additional compensation will be required of BIOGEN for such transfer other than as set forth in this Agreement. BIOGEN agrees that it will use a mutually agreed upon number of CBM personnel in its process development effort with the costs of such CBM personnel to be included as part of the payments to support R&D set forth in Paragraph 8.3. 4.3 Subject to the other terms of this Section, CBM shall use commercially reasonable efforts to supply to BIOGEN all of BIOGEN's requirements for bulk PRODUCT for preclinical and clinical uses, not including phase III pivotal clinical trials, in such quantities as BIOGEN shall from time to time order and to deliver to BIOGEN such quantities of bulk PRODUCT in accordance with a mutually agreeable supply schedule (which shall specify at a minimum those supply dates which are designed to ensure that BIOGEN will have final PRODUCT in advance of the scheduled commencement date of any clinical trial or other work for which PRODUCT is needed) as set forth in Section 4.7. In the event that CBM is unable to manufacture sufficient quantities of bulk PRODUCT to meet its supply commitments to BIOGEN and Stryker Corporation and to satisfy its own internal needs for OP-1 PROTEIN, CBM shall immediately notify BIOGEN of such shortage, - 21 - 22 and, until such shortage has ended, shall allocate available supplies among BIOGEN, Stryker Corporation and CBM (for its own internal use) in a manner which is reasonable in light of the anticipated needs and the timing of the needs of the parties. Notwithstanding anything to the contrary in this Agreement, CBM's obligation to supply hereunder shall not require CBM to add additional capacity above that which existed on the EFFECTIVE DATE or to use any outside source. In the event BIOGEN's development plan requires quantities of bulk PRODUCT beyond CBM's ability to supply or CBM is for any reason unable to deliver bulk PRODUCT which conforms to Specifications, as defined below, and GMP, in the quantities required ("Incremental Supply"), whether because of a shortage of bulk PRODUCT or a lack of capacity or otherwise, but other than as the result of (i) a failure of the production process prior to the first successful batch (defined as a batch which has achieved anticipated yield and conforms to Specifications run at scale after technology transfer), or (ii) a force majeure event of the kind described in Section 14, provided such force majeure event does not extend more than three (3) months, the parties will negotiate in good faith the use of BIOGEN or other facilities to manufacture the Incremental Supply of PRODUCT. 4.4 BIOGEN shall reimburse CBM for bulk PRODUCT as follows: (a) For the First Order, as defined in Section 4.7, of bulk PRODUCT using the cell-line and process currently being utilized by CBM (the "* Process"), BIOGEN shall reimburse CBM for PRODUCT under the terms of the Manufacturing Agreement between the parties dated as of September 28, 1994 (the "Manufacturing Agreement"). (b) For any bulk PRODUCT manufactured by CBM using the * Process after the First Order, BIOGEN shall reimburse CBM at a per gram amount for bulk PRODUCT delivered to and accepted by BIOGEN, such amount to be negotiated in good faith by the parties upon completion of the First Order, using as a reference CBM's FULLY ALLOCATED COST of bulk - 22 - 23 PRODUCT for the First Order. CBM shall provide to BIOGEN as soon as available all relevant cost information regarding the First Order. (c) For bulk PRODUCT manufacturing by CBM using a cell line and process other than the * Process, BIOGEN shall reimburse CBM for CBM's FULLY ALLOCATED COST for the actual quantity of bulk PRODUCT delivered to and accepted by BIOGEN, provided that in determining its FULLY ALLOCATED COST for bulk PRODUCT, CBM shall not include costs related to any failed batches after the first successful batch run at scale following technology transfer, but instead shall include * of the FULLY ALLOCATED COST of the delivered batch. CBM's FULLY ALLOCATED COST shall include an allocated portion of * as the cost of capital on any incremental capital investment designed to produce PRODUCT to be supplied hereunder provided such capital investment is approved in advance by BIOGEN. The reimbursement amount for each shipment or transfer of PRODUCT shall be paid within thirty (30) days after the invoice date unless the shipment is rejected during such thirty (30) day period. Payment shall be remitted in immediately available funds in the invoice currency. Unless otherwise agreed between the parties the invoice currency shall be U.S. Dollars. 4.5 Title to PRODUCT supplied hereunder, and risk of loss with respect to such PRODUCT, shall pass to BIOGEN upon delivery of the PRODUCT to a carrier designated by BIOGEN at CBM's manufacturing facility. Upon the passage of title, BIOGEN shall be the owner of such PRODUCT for all purposes. 4.6 No provision on BIOGEN's order forms or CBM's order or invoice forms which may purport to impose different conditions upon the parties hereto shall modify the terms of this Agreement. 4.7 (a) CBM and BIOGEN agree that CBM shall extend its current OP-1 PROTEIN manufacturing campaign in 1997 for an additional * period (or for such longer period - 23 - 24 as BIOGEN may request) to manufacture bulk PRODUCT for BIOGEN's use under this Agreement. The bulk PRODUCT resulting from the * manufacturing campaign (or such longer period as BIOGEN may request) shall be delivered to BIOGEN as BIOGEN's "First Order". CBM acknowledges and agrees that the * manufacturing campaign for OP-1 PROTEIN under this Agreement shall be considered use by BIOGEN of CBM's cell culture space under the terms of the Manufacturing Agreement. (b) CBM agrees that BIOGEN's reimbursement to CBM for the First Order and any related facility turn-around time and * of IQ and OQ work to be performed on bacteria fermentation equipment at CBM's manufacturing facility under the Manufacturing Agreement will be deemed full satisfaction by BIOGEN to CBM of BIOGEN's obligation for 1997 under the Manufacturing Agreement. The parties will extend the Manufacturing Agreement for an additional two (2) year period with BIOGEN having the option but not the obligation to use CBM's manufacturing facility for a mutually agreeable number of slots in one of the two extension years. CBM's obligation under the Manufacturing Agreement to purchase certain bacterial fermentation equipment owned by BIOGEN shall be extended during the option period until the earlier of (i) the end of the year in which BIOGEN exercises its option and uses its option capacity or (ii) the end of the extension period. (c) As soon as practical after the EFFECTIVE DATE, BIOGEN shall provide to CBM a nonbinding forecast showing on a quarterly basis BIOGEN's anticipated requirements for PRODUCT for the first and second AGREEMENT YEARS. Commencing in 1997, BIOGEN shall, at least thirty (30) days prior to each CALENDAR QUARTER, provide to CBM a forecast showing BIOGEN's PRODUCT needs for the corresponding CALENDAR QUARTER and three following CALENDAR QUARTERS of the next year. Within ten (10) days of receipt of the forecast, CBM shall provide BIOGEN with a proposed production schedule and the parties shall meet to determine - 24 - 25 the number of batches and start and stop dates for the necessary production campaigns. BIOGEN may cancel a scheduled campaign, without penalty, up to nine (9) months prior to scheduled commencement date of the campaign. In the event BIOGEN cancels a campaign after nine (9) months prior to the schedule commencement date, BIOGEN shall pay to CBM the following percentage of CBM's FULLY ALLOCATED COSTS attributable to the scheduled production run: Notice of Cancellation Percentage of Costs ---------------------- ------------------- * In the event there is unused or excess capacity at CBM during such period as CBM is otherwise obligated to manufacture bulk PRODUCT for BIOGEN, CBM shall provide written notice to BIOGEN and shall give BIOGEN the first option to have CBM manufacture additional bulk PRODUCT for BIOGEN under this Agreement using such unused or excess capacity. 4.8 PRODUCT supplied by CBM to BIOGEN under this Agreement shall conform to the specifications attached hereto as Appendix D (the "Specifications"). The parties acknowledge that the Specifications are expected to be amended in light of manufacturing experiences. Amended Specifications shall be attached to this Agreement upon signature by each of the parties. CBM shall manufacture PRODUCT in accordance with GMP and shall use and maintain validated processes, facilities and documentation in the manufacture of PRODUCT which comply with GMP as generally applied in the pharmaceutical industry to the relevant stage of development of PRODUCT. CBM shall make available for inspection by BIOGEN all documentation related to validation and GMP compliance. In manufacturing PRODUCT, CBM shall comply in all material respects with all - 25 - 26 applicable laws, regulations and professional standards. CBM shall package PRODUCT for shipment to BIOGEN in accordance with standard operating procedures approved by BIOGEN. 4.9 CBM shall provide BIOGEN with the test results, certificates of analysis, batch records and other necessary documents to enable BIOGEN to determine whether PRODUCT meets the Specifications and has been manufactured in accordance with GMP, as generally applied in the pharmaceutical industry to the relevant stage of development of PRODUCT. BIOGEN shall have thirty (30) days from receipt of such documentation to examine such documentation and to determine if the PRODUCT meets the Specifications. BIOGEN shall promptly notify CBM of any defective PRODUCT and shall return to CBM or otherwise dispose of any defective shipments in accordance with CBM instructions and at CBM's cost and expense. Except as set forth in Section 12, BIOGEN's sole and exclusive remedy for receipt of a defective shipment shall be for CBM, at BIOGEN's request, (i) to give BIOGEN a full credit for any defective shipments or (ii) to provide replacement PRODUCT, at no additional cost to BIOGEN, within five (5) days if CBM has PRODUCT on hand or otherwise within ninety (90) days, of receipt of BIOGEN's notice of defect. 4.10 BIOGEN shall have the right to conduct inspections, audits and investigations of CBM's facilities, equipment, record-keeping procedures and records from time to time upon reasonable notice. CBM shall provide reasonable cooperation in any investigations conducted by BIOGEN related to PRODUCT manufactured at CBM. BIOGEN shall have the right to observe during the manufacture of PRODUCT to be supplied to BIOGEN under this Agreement. CBM shall provide prompt notice to BIOGEN of any inspections or investigations by the FDA or other regulatory authorities directed towards PRODUCT or any facilities or equipment used in the manufacturing of PRODUCT and shall provide BIOGEN with copies of all correspondence and reports related to any such inspection or investigation as soon as practical after they become available to CBM. - 26 - 27 4.11 In utilizing the PRODUCT in the TERRITORY, BIOGEN will comply with all provisions of the laws applicable in the TERRITORY in all material respects. 4.12 CBM warrants that PRODUCT at the time of delivery to BIOGEN shall meet the Specifications. EXCEPT AS SET FORTH IN THIS SECTION AND IN SECTION 4.8, CBM MAKES NO OTHER WARRANTY HEREIN, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE SUPPLY OF PRODUCT HEREUNDER. 4.13 (a) BIOGEN has the right to manufacture PRODUCT (i) for Phase III pivotal clinical trials, (ii) for Phase I and Phase II trials for any indication after the first two indications in the event CBM is then utilizing * of the capacity at its New Hampshire facility as existing on the EFFECTIVE DATE, (iii) for any cross-over or human pharmacological studies for which it is necessary or desirable, for regulatory approval purposes, to use material manufactured at the commercial production facility and (iv) for commercial supply worldwide. In the event BIOGEN decides to engage a contract manufacturer to manufacture PRODUCT, BIOGEN shall use CBM to perform the contract manufacturing services for BIOGEN, unless BIOGEN determines, in its reasonable discretion, that CBM cannot manufacture PRODUCT on competitive terms, in the required amounts and meeting the desired quality standards. In addition, at any such time as BIOGEN proposes to build a new facility or add to an existing facility in order to expand manufacturing capacity for PRODUCT, BIOGEN shall consider in good faith using CBM as a contract manufacturer to provide the additional capacity. BIOGEN shall consider in good faith any request by CBM for BIOGEN to supply OP-1 PROTEIN to CBM on mutually agreeable terms under a supply agreement to be negotiated by the parties at such time. (b) BIOGEN agrees that, during the term of this Agreement, BIOGEN shall use CBM as a contract manufacturer to manufacture Phase I or Phase II product for BIOGEN (which may be bulk PRODUCT for which BIOGEN is not otherwise obligated to use CBM under this - 27 - 28 Agreement or another product) for a period of time which is substantially equivalent to the number of months utilized by BIOGEN to manufacture bulk PRODUCT for treatment of patients at Phase III clinical trial sites located in Europe and Japan, provided that (i) CBM has open capacity at its facility when BIOGEN needs the capacity, and (ii) CBM is capable of manufacturing product in the quantities and of the quality required by BIOGEN. BIOGEN shall have the right to make the capacity which it is obligated to use under this Section available to a third party. The terms of the contract manufacturing relationship between the parties shall be the subject of a separate written agreement to be negotiated in good faith by the parties at the time manufacturing is required by BIOGEN. SECTION 5 - DUE DILIGENCE. 5.1 (a) BIOGEN shall initiate and use commercially reasonable efforts to develop, and register PRODUCTS and continue to use commercially reasonable efforts to manufacture, market and sell PRODUCTS in each MAJOR MARKET in the TERRITORY. (b) In addition to its obligations under Paragraph 5.1(a), BIOGEN shall use "diligent efforts", as defined below, to meet the following milestones with respect to PRODUCTS in Japan on the dates set forth herein: * The parties hereby acknowledge that the marketing plan for Japan received by CBM from BIOGEN on * (the "Japan Plan") will serve as a general guide for BIOGEN to - 28 - 29 develop, register and sell PRODUCTS in Japan. CBM acknowledges that it has received and reviewed the Japan Plan. During the term of this Agreement, BIOGEN shall provide CBM with quarterly updates of BIOGEN's PRODUCT development and marketing activities in Japan. For purposes of this Section, "diligent efforts" shall mean those efforts which are consistent with the efforts that would be generally applied by *. Notwithstanding anything herein to the contrary, in no event shall BIOGEN be deemed not to have used "diligent efforts" in Japan to the extent any delay in meeting any of the milestones set forth above for Japan is attributable to the failure of CBM, in any material respect, to fulfill its obligations to supply PRODUCT for testing and clinical uses in Japan under this Agreement or any delay by CBM in meeting such obligations. If CBM does not agree that BIOGEN has applied "diligent efforts" to reach a milestone in Japan, then CBM shall notify BIOGEN. If BIOGEN does not agree with CBM's assessment, the parties shall enter into arbitration under the terms of this Section. Within * days of delivery of notice from CBM under this Section, each party shall select one expert in the field of Japanese drug development to serve on an arbitration panel to decide the issue. The expert selected by a party shall not be a past or present employee of or consultant to such party or of any AFFILIATE or SUBLICENSEE of such party. The members of the panel selected by the parties shall, within * days of their selection, select a third member to serve on the panel. If the members of the panel selected by the parties cannot, within * days of their selection, agree on a third member, the parties shall request that the American Arbitration Association ("AAA") select the third member who shall not be a past or present employee of or consultant to either party or of any AFFILIATE or SUBLICENSEE of either party. Each party shall then have * days to submit to the panel and to the other party a written response presenting such party's position on the issue. The panel - 29 - 30 shall, within * days after receipt of both parties responses, hold a joint meeting on the issue at which each party will have an opportunity to make a presentation and to respond to the other party's presentation. Within * days of the conclusion of the meeting, the panel shall render its decision in writing. The decision of the panel shall be binding on the parties. Each party shall bear its own costs in connection with the arbitration proceedings, including the costs of the panel member selected by it. The costs of the third panel member will be shared equally. The arbitration shall be held in the United States and conducted under the rules of the AAA, except as otherwise expressly provided in this Section . (c) In the event that BIOGEN fails to meet any of its obligations under Section 5.1(a) as to a MAJOR MARKET, including Japan, or Section 5.1(b) as to Japan or advises CBM that it does not have a significant interest in developing, registering, manufacturing, marketing or selling PRODUCT in a MAJOR MARKET or does not intend to develop, register, manufacture, market or sell PRODUCT in a MAJOR MARKET, CBM, as its sole remedy, shall have the right and option to terminate this Agreement as to the MAJOR MARKET SEGMENT (but not as to the entire Agreement or any other MAJOR MARKET SEGMENT) which includes such MAJOR MARKET on sixty (60) days prior written notice to BIOGEN. In the event that BIOGEN advises CBM that BIOGEN does not intend to develop, register, manufacture, market or sell PRODUCT in a particular country outside the MAJOR MARKETS and BIOGEN's reasons for choosing not to enter such country are not related to the limited size of the potential market, potential parallel import or pricing issues, regulatory or patent obstacles in such country or other difficulties or limitations outside of BIOGEN's control, CBM, as its sole remedy, shall have the right and option to terminate this Agreement as to such country on sixty (60) days prior written notice to BIOGEN. (d) BIOGEN shall provide written reports to CBM on June 30th and December 31st of each year concerning the efforts being made in accordance with this Section 5.1 with respect - 30 - 31 to PRODUCTS in the TERRITORY. BIOGEN shall provide CBM with any additional information reasonably requested by CBM concerning the status of BIOGEN's development efforts. SECTION 6 - CONFIDENTIALITY, INFORMATION AND ADVERSE EXPERIENCES. 6.1 During the term of this Agreement, it is contemplated that each party may disclose to the other, proprietary and confidential technology, inventions, technical information, material, reagents, biological materials and the like which are owned or controlled by the party providing such information or which that party is obligated to maintain in confidence ("Confidential Information"). Each party shall have the right to refuse to accept the other party's Confidential Information. Each party agrees not to disclose and to maintain the Confidential Information of the other party in strict confidence, to cause all of its agents, representatives and employees to maintain the disclosing party's Confidential Information in confidence and not to disclose any such Confidential Information to a third party without the prior written consent of the disclosing party and not to use such Confidential Information for any purpose other than as licensed under this Agreement. 6.2 The obligations of confidentiality will not apply to information which: (i) was known to the receiving party or generally known to the public prior to its disclosure hereunder through no fault of the receiving party or any agent, representative or employee thereof; or (ii) subsequently becomes known to the public by some means other than a breach of this Agreement, including publication and/or laying open to inspection of any patent applications or patents; (iii) is subsequently disclosed to the receiving party by a third party having a lawful right to make such disclosure and who is not under an obligation of confidentiality to the disclosing party; - 31 - 32 (iv) is required by law, rule, regulation or bona fide legal process to be disclosed, provided that the receiving party takes all reasonable steps to restrict and maintain confidentiality of such disclosure and provides reasonable notice to the disclosing party; or (v) is approved for release by the parties. 6.3 The obligations of Section 6.1 notwithstanding, BIOGEN may disclose the Confidential Information of CBM licensed to BIOGEN hereunder to THIRD PARTIES who (i) need to know the same in order to secure regulatory approval for the sale of PRODUCT, (ii) who need to know the same in order to work towards the commercial development of PRODUCT or to manufacture PRODUCT, or (iii) who are approved by CBM, provided that such parties, other than regulatory authorities, are bound by obligations of confidentiality and non-use at least as stringent as those set forth herein. 6.4 CBM shall provide to BIOGEN, or if required to the applicable regulatory authority, all documents and information requested by the regulatory authority or reasonably requested by BIOGEN in support of BIOGEN's regulatory submissions, including information related to manufacturing as specified in Section 4. Copies of all documents provided directly to a regulatory authority shall be provided to BIOGEN in advance, if practicable, or otherwise within two (2) days of delivery to the regulatory authority. In addition, CBM shall provide to BIOGEN any information related to PRODUCT reasonably required in support of BIOGEN's applications to patent offices and such governmental offices as regulate the price of PRODUCT as well as any information relating to PRODUCT reasonably required to support a legal action by BIOGEN against a THIRD PARTY. 6.5 Each party will keep the other informed of all reports of serious adverse experiences ("AE's") coming to its knowledge and possibly related to PRODUCT. All reports of serious AE's shall be promptly forwarded to the other party. - 32 - 33 SECTION 7 - GOVERNANCE. 7.1 Oversight of the Strategic Alliance between the parties (a) As part of the strategic alliance between the parties under this Agreement and subject to the terms of this Agreement, (i) BIOGEN shall have the primary responsibility in areas of process development, product development, clinical, regulatory, commercial manufacturing, sales and marketing, and (ii) CBM shall have primary responsibility in the areas of discovery research and pre-GLP research, subject to funding limitations under Section 8.3, and preclinical and clinical supplies of PRODUCT. (b) Overall direction and strategy of the parties' strategic alliance under this Agreement will be provided by a Senior Board consisting of the Presidents of each party (the "Board"). The Board will meet not less than two (2) times a year during the term of this Agreement. (c) The parties shall also establish two (2) committees under this Agreement which will be monitored and supervised by the Board. These committees shall be: (i) the Research and Development Committee; and (ii) the Clinical Advisory Committee. 7.2 Research and Development Committee. BIOGEN shall use commercially reasonable efforts to develop OP-1 PROTEIN for use in the FIELD (the "PRODUCT DEVELOPMENT PROGRAM"). BIOGEN shall use commercially reasonable efforts to concurrently develop OP-1 PROTEIN for the treatment of acute and chronic renal failure. A Research and Development Committee (the "R&D Committee") shall be established by the parties to oversee and monitor the PRODUCT DEVELOPMENT PROGRAM, including research, process development, product development, clinical, regulatory and production of preclinical and clinical supplies of PRODUCTS. The day-to-day activities of the R&D COLLABORATION, described hereinafter in Section 8, will be overseen and monitored by the R&D Committee as described herein. - 33 - 34 (a) Membership. Within ten (10) days of the date hereof, CBM and BIOGEN shall each appoint (2) persons (or such other number of persons as the parties may determine) to serve on the R&D Committee. Such representatives will be qualified, by reason of background and experience, to assess the scientific progress of each activity. Each party will have the right to change its representation on the R & D Committee upon written notice sent to the other party. (b) Chair. The R&D Committee chair shall alternate between the parties each AGREEMENT YEAR during the PRODUCT DEVELOPMENT PROGRAM. (c) Responsibilities. The R&D Committee will have authority to: (i) review and approve the RESEARCH PLAN for each AGREEMENT YEAR prepared by CBM; (ii) make recommendations to the Board regarding the performance of the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION and the conduct of the R&D pursuant thereto, and monitor performance thereunder; (iii) modify the R&D COLLABORATION (iv) review any and all proposed publication[s] or communication[s] relating to the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION and the results therefrom, in accordance with the procedure set forth in Section 8; (d) Meetings. The R&D Committee will meet not less than four (4) times a year during the term of the PRODUCT DEVELOPMENT PROGRAM, at such dates and times as agreed to by the parties. Meetings in person will alternate between BIOGEN's premises and CBM's premises or such other place as may be mutually agreed upon. At such meetings, the Committee will discuss the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION and the performance by each party under the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION, evaluate the results thereof and set priorities therefor. All decisions made or actions taken by the - 34 - 35 Committee will be made unanimously by its members with the CBM members cumulatively having one vote and the BIOGEN members cumulatively having one vote. The Committee will prepare written minutes of each meeting and a written record of all decisions whether made at a formal meeting or not. A quorum for a meeting shall require at least one CBM member and at least one BIOGEN member. 7.3 Clinical Advisory Committee. A Clinical Advisory Committee shall be established by the parties consisting of up to three (3) outside scientists and all of the members of the R&D Committee. This outside scientists on the Clinical Advisory Committee shall be selected by the R&D Committee. The Clinical Advisory Committee shall meet two (2) times each year to advise the R&D Committee with respect to the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION. BIOGEN shall enter into agreements with and pay the fees of the outside members of the Clinical Advisory Committee. 7.4 Committee Deadlock. If there is an issue not involving a major strategic decision on which any of the committees cannot reach agreement because of a Deadlock (as hereinafter defined), such matter will be resolved, in good faith, by the party having primary responsibility for the area in question, as set forth in Section 7.1. If there is an issue involving a major strategic decision on which any of the committees cannot reach agreement because of a Deadlock, such matter will be submitted to the Board. In the event agreement cannot be reached at the Board level, the Deadlock shall be resolved, in good faith, by the party having primary responsibility for the area in question as set forth in Section 7.1. For the purpose of this Section, "Deadlock" will mean, (i) with respect to any matter considered and voted upon by the committee, that one party votes in favor of such matter and the other party does not vote in favor of such matter or (ii) a quorum cannot be established for the Committee to vote on a matter. - 35 - 36 7.5 Attendance by CBM at BIOGEN Project Meetings. A representative of CBM shall have the right to attend all meetings of those BIOGEN project teams devoted solely to the marketing, sale and commercialization of PRODUCTS and those portions of any other internal BIOGEN meetings that are devoted solely to the review of the commercialization of PRODUCTS, other than those meetings at which BIOGEN intends to discuss sensitive information related to BIOGEN's business or strategies. BIOGEN acknowledges that CBM representatives will have access to sales forecasts as part of their attendance at BIOGEN meetings. SECTION 8 - R&D COLLABORATION 8.1 Object. As soon as practical after the EFFECTIVE DATE, as part of the PRODUCT DEVELOPMENT PROGRAM, a research and development collaboration shall be established by the parties hereto to conduct R&D and other development work, as specified herein (the "R&D COLLABORATION"). CBM agrees to conduct R&D pursuant to the RESEARCH PLAN and any development work requested by BIOGEN and BIOGEN agrees to support and fund such R&D at CBM in accordance with the terms and conditions set forth below. In addition, BIOGEN agrees to fund and conduct its own research and development efforts as part of the PRODUCT DEVELOPMENT PROGRAM. 8.2 (a) Conduct of the R&D. The R&D will be conducted at such sites approved by the R&D Committee. CBM will use commercially reasonable efforts to complete R&D in accordance with the agreed-upon schedule, but in no event shall CBM be obligated to provide research funding or perform research and development work beyond that funded by BIOGEN. The RESEARCH PLAN for the first AGREEMENT YEAR shall be agreed upon by the parties within one (1) month of the EFFECTIVE DATE. The RESEARCH PLAN for each subsequent AGREEMENT YEAR - 36 - 37 shall be agreed upon by the parties at least ninety (90) days prior to the beginning of such AGREEMENT YEAR. (b) Exchange of Information To further the efforts of the parties under the R&D COLLABORATION, the parties shall, within thirty (30) days of the EFFECTIVE DATE, exchange BACKGROUND INFORMATION. A disclosing party's BACKGROUND INFORMATION shall be treated as Confidential Information of the disclosing party under Section 6, subject to the licenses expressly granted to the receiving party under this Agreement, and shall be used only for purposes contemplated under this Agreement. BIOGEN shall keep CBM reasonably informed of its process development efforts in connection with the PRODUCT DEVELOPMENT PROGRAM. (c) Visitation. For the purpose of facilitating the parties understanding of the research and development activities conducted hereunder, each party will permit duly authorized employees or representatives of the other to visit its facilities where the R&D activities are conducted, at reasonable times and with reasonable notice. 8.3 Financial Conditions. (a) Support Commitment. During the term of the R&D COLLABORATION, as specified in Section 8.6, BIOGEN will pay to CBM the following amounts in the calendar years as set forth below to support R & D at CBM and the number of FTE's so indicated: (i) four million dollars ($4,000,000) for the first AGREEMENT YEAR to support *; and (ii) three and one-half million dollars ($3,500,000) for the second AGREEMENT YEAR to support *. (iii) three million dollars ($3,000,000) for the third AGREEMENT YEAR to support *. - 37 - 38 * of the funding amount each AGREEMENT YEAR shall be used to support development work as directed by BIOGEN under the R&D COLLABORATION. In the event that in any AGREEMENT YEAR, BIOGEN has not requested CBM to perform a level of development work sufficient to fully utilize the allocated development work funding for such AGREEMENT YEAR then CBM shall have the right to use unused development work funding for discovery or pre-GLP R&D in that AGREEMENT YEAR or in a subsequent AGREEMENT YEAR, provided that in the event that the R&D COLLABORATION or this Agreement terminates (other than as a result of a breach by CBM) prior to the expenditure of any such funds by CBM, CBM shall have the right to retain and use such funds for any purpose. CBM agrees that no part of the R&D funding provided by BIOGEN shall be used for CBM's small molecule development program. (b) Commitment Level BIOGEN's total commitment to support the R&D set forth above for the R&D COLLABORATION will be ten and one-half million dollars ($10,500,000) and includes the costs of any arrangements with THIRD PARTIES entered into by CBM. (c) Payment Schedule. Funding for the R&D COLLABORATION will be made by BIOGEN to CBM in United States dollars for each calendar year during the term of the R&D COLLABORATION, payable *, with the first payment for the FIRST AGREEMENT YEAR to be made on the later of the EFFECTIVE DATE or January 1, 1997. In the event CBM has not used all of the funds allocated to discovery and pre-GLP research under the R&D COLLABORATION in the FIRST AGREEMENT YEAR, CBM may use such funds, up to *, for R&D in the next AGREEMENT YEAR. Except as set forth in the preceding sentence and in Section 8.3 (a), CBM shall not carry-over funding from one AGREEMENT YEAR to the next, and all funding for an AGREEMENT YEAR which has not been used by CBM for R&D in such year shall be promptly refunded to BIOGEN. - 38 - 39 8.4 Budget, Allocation and Audits. The R&D Committee will establish an annual budget for R&D and prepare semi-annual financial reports of actual and budgeted expenditures based on the use of FTE's and monies spent on THIRD PARTY R&D. BIOGEN shall have the right annually to have an independent certified public accountant review CBM's accounting records for the sole purpose of verifying the use of FTE's and monies spent on THIRD PARTY R&D in connection with the R&D COLLABORATION. The costs of any such audit shall be borne by BIOGEN unless CBM has been determined through the audit to be in material breach of this Agreement in which case the cost of the audit shall be borne by CBM. 8.5 Title to Equipment. CBM will retain title to any equipment purchased with funds provided by BIOGEN under this Agreement, if such purchase is mutually agreed upon as part of the budget. 8.6 Term and termination of the Research Collaboration. The term of the R&D COLLABORATION will be the first three (3) AGREEMENT YEARS, but may be extended by mutual agreement of the parties for an additional two (2) AGREEMENT YEARS with funding for such years to be determined by mutual agreement of the parties hereto. BIOGEN shall be entitled to terminate the R&D COLLABORATION and cease funding thereof only in the event of a breach by CBM of any of CBM's material obligations in the R&D COLLABORATION following written notice of such breach to CBM. If such breach is not cured within thirty (30) days after written notice is given by BIOGEN to CBM specifying the breach, BIOGEN may terminate the R&D COLLABORATION without terminating the entire Agreement and may cease funding hereunder forthwith upon written notice to CBM after expiration of such thirty (30) day period. In the event, BIOGEN terminates the R&D COLLABORATION, CBM will reimburse to BIOGEN any amounts paid by BIOGEN in excess of CBM's actual and non-cancelable expenditures. - 39 - 40 8.7 Third Party Support CBM shall not apply any of the funding provided by BIOGEN under this Agreement towards R&D to be conducted in whole or in part by a THIRD PARTY unless BIOGEN has approved the form of agreement with such THIRD PARTY. 8.8 Confidentiality. In order to facilitate the operation of the R&D COLLABORATION, either party may disclose confidential or proprietary information owned or controlled by it to the other. It is hereby understood and agreed that such information shall be deemed "Confidential Information" and treated as such in accordance with Section 5 hereof. 8.9 Results of the R&D COLLABORATION. (a) All right, title and interest in and to any RESEARCH INFORMATION, RESEARCH INVENTIONS and RESEARCH MATERIAL (the "Results"), and any RESEARCH PATENTS based thereon, made solely by employees or others acting on behalf of CBM shall be owned solely by CBM ("CBM Results"), subject to the licenses granted to BIOGEN under Section 2. All right, title and interest in and to any invention, information or materials made solely by employees or others acting on behalf of BIOGEN in connection with the PRODUCT DEVELOPMENT PROGRAM and any patents thereon shall be owned solely by BIOGEN ("BIOGEN Results"), subject to the licenses granted to CBM under Section 2 to the extent that BIOGEN Results constitute BIOGEN OP-1 TECHNOLOGY or BIOGEN OP-1 PATENTS. (b) The Parties recognize that, as a result of the R&D COLLABORATION between BIOGEN and CBM hereunder, certain Results may be deemed to be joint inventions, in accordance with applicable law, as both: (i) one or more employees or agents of CBM or any other persons obliged to assign such Results to CBM, and (ii) one or more employees or agents of BIOGEN or any other persons obliged to assign such Results to BIOGEN, are joint inventors of such Results ("Joint Results"). Joint Results shall be jointly owned by the parties subject to the licenses granted under Section 2. - 40 - 41 (c) There will be no publication of the Results by CBM or BIOGEN, or any employee of CBM or BIOGEN unless the R&D Committee has reviewed the proposed scientific publication concerning the Results and each party has consented to the publication. A party will, upon request of the other party, delay publication to enable patent rights to be perfected. 8.10 BIOGEN Activity. BIOGEN will, at its sole expense, conduct all pre-clinical, clinical, development and regulatory work under the PRODUCT DEVELOPMENT PROGRAM not conducted by CBM as part of the R&D COLLABORATION in order to obtain registration in the TERRITORY for the PRODUCTS being developed in the R&D COLLABORATION. The work to be performed by BIOGEN will be outlined in a development plan presented to the R&D Committee, with the R&D Committee providing, among other things, input on protocol design and development and registration strategies. BIOGEN shall keep the R&D Committee regularly informed and consult with the R&D Committee no less frequently than quarterly with respect to BIOGEN's activities relative to PRODUCTS in connection with the PRODUCT DEVELOPMENT PROGRAM. SECTION 9 - PATENTS. 9.1 (a) CBM shall promptly advise BIOGEN, in writing, of each RESEARCH INVENTION arising from the R&D COLLABORATION. Representatives of CBM and BIOGEN shall then discuss whether a patent application or applications pertaining to such RESEARCH INVENTION should be filed and in which countries. The titles, serial numbers and other identifying data of patent applications claiming a RESEARCH INVENTION to which BIOGEN is granted rights hereunder and filed after the EFFECTIVE DATE by mutual agreement of and BIOGEN, shall be added to Appendix A and shall become CBM PATENT RIGHTS. In the event CBM is not interested in filing a patent application on a RESEARCH INVENTION, then CBM shall assign all - 41 - 42 of its right, title and interest in the RESEARCH INVENTION and any patents thereon to BIOGEN, and CBM shall have no further right or license thereto. (b) Subject to Section 9.1 (c) as to Joint Results, BIOGEN shall pay * of all "Patent Costs", as defined below, related to those CBM PATENT RIGHTS identified" on Schedule 1 of Appendix A. Notwithstanding the foregoing, BIOGEN shall pay * of the Patents Costs related to any of the CBM PATENT RIGHTS identified on Schedule 2 of Appendix A which pertain solely to the FIELD. All other costs for filing, prosecution, issuance and maintenance of CBM PATENT RIGHTS shall be borne by CBM. The term "Patent Costs" shall mean all reasonable costs of CBM incurred after the EFFECTIVE DATE for the filing, prosecution, issuance, and maintenance of the identified CBM PATENT RIGHTS, but not including the costs of any opposition or interference proceedings. (c) CBM shall file, prosecute and maintain patent applications and patents in the TERRITORY relating to CBM PATENT RIGHTS and those RESEARCH INVENTIONS, RESEARCH PATENTS RIGHTS and other inventions made solely by employees or others acting on behalf of CBM through patent counsel selected by CBM and reasonably acceptable to BIOGEN, who shall consult with and keep BIOGEN advised with respect thereto. In the case of Joint Results, the parties will determine which party will be responsible for filing, prosecuting and maintaining patent applications and patents based on which party made the greater contribution to the joint inventions but in all cases the cost and expense of such filing, prosecuting and maintaining patents applications and patents shall be paid for jointly by the parties, subject to paragraph (a) above and paragraph (d) below. (d) Notwithstanding anything in this Section 9.1 to the contrary, BIOGEN may, at its discretion, elect to discontinue financial support of any patent or patent application for which it is providing support under this Agreement, provided, however, that BIOGEN will notify CBM of - 42 - 43 its intention at least ninety (90) days prior to taking such action. In any country in which BIOGEN has elected to discontinue its support of any patent application or patent, CBM, upon receiving notice, may elect at its own expense to assume all financial responsibility for the prosecution or maintenance of such patent application or patent. In such event the license of the patent or patent application will be deemed to have expired with respect to that country upon CBM's receiving notice of BIOGEN's decision. If any such patent or patent application as to which BIOGEN has elected to discontinue its support is based upon a Joint Result, then BIOGEN shall promptly thereafter assign all of its rights and interest in any such patent or patent application to CBM without further cost or obligation of CBM to BIOGEN. 9.2 With respect to any CBM PATENT RIGHTS, each patent application, office action, response to office action, request for terminal disclaimer, and request for reissue or reexamination of any patent issuing from such application shall be provided to BIOGEN sufficiently prior to the filing of such application, response or request to allow for review and comment by BIOGEN. However, CBM shall have the right to take any action that in its judgement is necessary to preserve such CBM PATENT RIGHTS. Notwithstanding anything herein to the contrary, CBM shall not abandon a CBM PATENT RIGHT or allow a CBM PATENT RIGHT to lapse, other than as part of a commercially reasonable patent strategy designed to increase the value of CBM PATENT RIGHTS licensed to BIOGEN under this Agreement, without first giving BIOGEN notice of such intention at least sixty (60) days prior to the date on which such CBM PATENT RIGHT will lapse or become abandoned. BIOGEN shall have the right to assume the prosecution, maintenance and defense of any CBM PATENT RIGHT which CBM intends to abandon. In the event BIOGEN assumes the prosecution, maintenance and defense of any CBM PATENT RIGHT under the foregoing sentence, the costs incurred by BIOGEN in connection therewith shall be added to COST - 43 - 44 OF GOODS under this Agreement, but not for purposes of determining COST OF GOODS (as a percentage of NET SALES) under Appendix E. 9.3 (a) If any of the CBM PATENT RIGHTS under which BIOGEN is licensed hereunder is infringed by a THIRD PARTY, BIOGEN shall have the right and option but not the obligation to bring an action for infringement, at its sole expense, against such third party in the name of CBM and/or in the name of BIOGEN, and to join CBM as a party plaintiff if required or if it would promote the success of the litigation. Each party shall promptly notify the other party of any such infringement. BIOGEN shall keep CBM informed as to the prosecution of any action for such infringement. No settlement, consent judgment or other voluntary final disposition of the suit which adversely affects CBM PATENT RIGHTS may be entered into without the consent of CBM, which consent shall not unreasonably be withheld. (b) In the event that BIOGEN shall undertake the enforcement and/or defense of the CBM PATENT RIGHTS by litigation any recovery of damages by BIOGEN for any such suit shall be applied first in satisfaction of any unreimbursed expenses and legal fees of BIOGEN relating to the suit. The balance remaining from any such recovery shall be treated as NET SALES in the period received. (c) In the event that BIOGEN elects not to pursue an action for infringement, upon written notice to CBM by BIOGEN that an unlicensed third party is an infringer of CBM PATENT RIGHTS licensed to BIOGEN, CBM shall have the right and option, but not the obligation at its cost and expense to initiate infringement litigation and to retain any recovered damages. (d) In any infringement suit either party may institute to enforce the CBM PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the request of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, - 44 - 45 and the like. All reasonable out-of-pocket costs incurred in connection with rendering cooperation requested hereunder shall be paid by the party requesting cooperation. SECTION 10 - COMPENSATION. 10.1 (a) BIOGEN shall pay to CBM a percentage of GROSS PROFIT from the sale of PRODUCTS sold by BIOGEN, its AFFILIATES and SUBLICENSEES in the TERRITORY ("Percentage of GROSS PROFIT") as set forth in Appendix D attached hereto and made a part hereof; provided that, if the COST OF GOODS as a percentage of NET SALES, as shown on Appendix E, is greater than *, the Percentage of GROSS PROFIT paid to CBM shall not be less than the equivalent of a royalty of * on NET SALES. In the event that BIOGEN is required to pay royalties in any country to a party who is not an AFFILIATE or SUBLICENSEE of BIOGEN for PRODUCT for which compensation is also due hereunder to CBM pursuant to this Section 10.1 under a license which is reasonably required for the manufacture, marketing, importation, use or sale of OP-1 PROTEIN contained in PRODUCT (such royalties to such party are hereinafter "Other Payments"), then the COST OF GOODS shall be increased in each payment period by *. (b) If the manufacture, use or sale of PRODUCT by BIOGEN or its AFFILIATES or SUBLICENSEES in any country in which PRODUCT has been on the market for at least three (3) years is not covered by a VALID CLAIM of a CBM PATENT RIGHT in such country, the percentage of GROSS PROFIT payable with respect to NET SALES in such country shall be reduced - 45 - 46 by one-half during each CALENDAR QUARTER immediately subsequent to a CALENDAR QUARTER in which one or more THIRD PARTIES, not including a DISTRIBUTOR of BIOGEN, are selling "Comparable Products" as defined below, and the fraction A/A+B is greater than *. For purposes of the preceding sentence, A is the unit sales of Comparable Products in such quarter in such country and B is the unit sales of PRODUCT in such quarter in such country, as shown by a competent sales tracking company recognized in such country. "Comparable Product" shall mean a product which would be a PRODUCT if manufactured, used or sold under this Agreement. In no event shall any reduction under this Section 10.1(b) cause the compensation payable to CBM under Section 10.1 for any period to fall below the equivalent of (i) a royalty of * of NET SALES in any country in which CBM had at one time filed in good faith a patent application with a claim covering PRODUCT or (ii) a royalty of * of NET SALES in any other country. In any period in which the percentage of GROSS PROFIT is reduced in a country under the preceding sentence, the COST OF GOODS and NET SALES attributable to PRODUCT sold in such country shall no longer be used in determining the COST OF GOODS as a percentage of NET SALES for purposes of Appendix E for such period. (c) NET SALES of PRODUCT in a country shall not be included in the calculation of GROSS PROFIT or "Sales Volume", as defined in Appendix E, or in the determination of COST OF GOODS at any time after the later to occur of (i) the period ending * and (ii) the date on which PRODUCT is no longer covered by a VALID CLAIM of CBM PATENT RIGHT in such country. 10.2 As consideration for the research and development already performed by CBM with respect to PRODUCTS, BIOGEN shall pay to CBM a nonrefundable, noncreditable license fee of ten million dollars ($10,000,000), which amount shall be paid on the date of this Agreement by - 46 - 47 delivery of such amount to the Escrow Agent, as defined in a certain Escrow Agreement between the parties dated as of the date hereof (the "Escrow Agreement"). The license fee shall be held by the Escrow Agent under the terms of the Escrow Agreement. 10.3 (a) BIOGEN shall pay the following amounts upon the occurrence of the following milestone events with respect to PRODUCTS. * (b) In the event BIOGEN does not initiate a Phase I clinical trial in the United States with a PRODUCT prior to * and its failure to initiate a Phase I clinical trial on such date is not attributable to the breach by CBM in any material respect of its supply obligations under this Agreement or any delay by CBM in meeting such obligations, BIOGEN will nevertheless pay CBM the milestone set forth in Section 10.3(a) above as if it had reached such milestone; provided that if BIOGEN later actually achieves such milestone, BIOGEN shall also pay the amount required on reaching the milestone but shall not thereafter be required to pay the milestone required * in Japan. 10.4 The parties hereto have contemporaneously with this Agreement executed a Restricted Stock Purchase Agreement under which BIOGEN will purchase for investment an agreed upon amount of CBM Common Stock. - 47 - 48 10.5 BIOGEN shall keep, and shall cause each of its AFFILIATES and SUBLICENSEES to keep, full and accurate books of account containing all particulars relevant to its sales of PRODUCTS that may be necessary for the purpose of calculating all compensation payable to CBM hereunder. Such books of account shall be kept at their principal place of business and, with all necessary supporting data shall, for the three (3) years next following the end of the calendar year to which each shall pertain, be open for inspection by an independent certified public accountant reasonably acceptable to BIOGEN, upon reasonable notice during normal business hours at CBM's expense for the sole purpose of verifying compensation or compliance with this Agreement. In the event the inspection determines that compensation due CBM for any period have been underpaid by five percent (5%) or more, then BIOGEN shall pay for all costs of the inspection, otherwise the costs of the inspection shall be borne by CBM. In all cases, BIOGEN shall pay to CBM any underpaid compensation promptly and with interest at an annualized rate of the prime rate available to CBM, plus two percent (2%) and CBM shall promptly pay to BIOGEN any overpaid compensation. All information and data reviewed in the inspection shall be used only for the purpose of verifying compensation due and shall be treated as BIOGEN Confidential Information subject to the obligations of this Agreement. No audit by an agent of CBM shall occur more frequently than once during any twelve (12) month period. 10.6 In each year the amount of compensation due shall be calculated quarterly as of the end of each CALENDAR QUARTER (each as being the last day of an "Accounting Period") and shall be paid quarterly within the thirty (30) days next following such date. Every such payment shall be supported by the accounting prescribed in Paragraph 10.7 and shall be made in United States currency. Whenever for the purpose of calculating compensation, conversion from any foreign currency shall be required, such conversion shall be at the rate of exchange published in The Wall Street Journal for the last business day of the Accounting Period. - 48 - 49 10.7 With each quarterly payment, BIOGEN shall deliver to CBM a full and accurate accounting to include at least the following information: (a) Quantity of PRODUCT subject to compensation sold (by country) by BIOGEN, its AFFILIATES and SUBLICENSEES; (b) Total receipts for each PRODUCT subject to compensation (by country); (c) Detailed deductions to determine GROSS PROFIT; and (d) Total compensation payable to CBM. 10.8 Since NET SALES and COST OF GOODS in each AGREEMENT YEAR to be used to finally determine the Percentage of GROSS PROFIT for such year will not be known until the end of such AGREEMENT YEAR, in order to make the quarterly payments specified under Section 10.6, BIOGEN shall use a percentage of GROSS PROFIT which is determined by: (i) annualizing the year-to-date NET SALES for purposes of calculating Sales Volume; (ii) using the year-to-date COST OF GOODS; As changes in the Percentage of GROSS PROFIT determined by applying (i) and (ii) above occur from one CALENDAR QUARTER to the next CALENDAR QUARTER within the same AGREEMENT YEAR, in addition to the payment for the CALENDAR QUARTER, BIOGEN will make the necessary adjustment in such CALENDAR QUARTER reflecting the change in the Percentage of GROSS PROFIT to be applied to the preceding CALENDAR QUARTER or QUARTERS. Within thirty (30) days of the end of each CALENDAR YEAR, BIOGEN shall calculate the actual percentage of GROSS SALES to which CBM is entitled based on the actual Sales Volume, NET SALES and COST OF GOODS for the year. In the event CBM has not received its full percentage of GROSS PROFITS for the year, BIOGEN shall promptly make a balancing payment to CBM in the amount of the deficit. In the event BIOGEN has paid CBM more than its - 49 - 50 full percentage of GROSS PROFITS for the year, CBM shall promptly reimburse BIOGEN in the amount of the excess. 10.9 If the transfer of or the conversion into United States Dollar Equivalent of any remittance due hereunder is not lawful or possible in any country, such remittance shall be made by the deposit thereof in the currency of the country to the credit and account of CBM or its nominee in any commercial bank or trust company located in that country, prompt notice of which shall be given to CBM. CBM shall be advised in writing in advance by BIOGEN and provide to BIOGEN a nominee, if so desired. 10.10 Any tax required to be withheld by BIOGEN under the laws of any foreign country for the account of CBM, shall be promptly paid by BIOGEN for and on behalf of CBM to the appropriate governmental authority, and BIOGEN shall use its best efforts to furnish CBM with proof of payment of such tax. Any such tax actually paid on CBM's behalf shall be deducted from royalty payments due CBM. 10.11 Compensation shall be due and payable for the manufacture, use and sale of an individual PRODUCT only once with respect to the same unit of PRODUCT irrespective of the number of patents or claims thereof which cover the manufacture, use and sale of such PRODUCT. SECTION 11 - REPRESENTATIONS AND WARRANTIES. 11.1 Each party represents and warrants to the other party that: (i) it is free to enter into this Agreement; (ii) in so doing, it will not violate any other agreement to which it is a party; and (iii) it has taken all corporate action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement. - 50 - 51 11.2 (a) Each party represents that it is not aware, without making any special inquiry or investigation, of any action, suit, inquiry or investigation or any claim, demand or notice of default which if adversely determined would affect the rights granted under this Agreement. (b) Each party acknowledges that in entering into this Agreement the other party has relied upon information supplied by the disclosing party, including, in the case of information supplied by CBM, data and information concerning OP-1 PROTEIN and preclinical studies in the FIELD and information related to CBM's patents. Neither party is aware of any data or information given to the other party which is untrue or inaccurate or of any other data or information which is necessary to make the data and information provided to the other party complete and not misleading. To the best of CBM's knowledge, all filings set forth in Appendix A and made by CBM to the United States Patent and Trademark Office were made in compliance with the applicable requirements of 37 CFRSection 1.56. 11.3 CBM hereby represents and warrants to BIOGEN that: (a) It is the owner or licensee of the CBM PATENT RIGHTS which it has licensed to BIOGEN under this Agreement and has the right and has taken all necessary action to grant licenses or sublicenses therefor; (b) All patent applications included in CBM PATENT RIGHTS existing as of the Effective Date are pending and have not been abandoned; (c) Subject to Section 2.6, CBM has not entered into any agreement with any THIRD PARTY which is in conflict with the rights granted to BIOGEN pursuant to this Agreement. (d) CBM will not take any action that would in any way prevent CBM from granting the rights granted to BIOGEN under this Agreement with respect to CBM PATENT RIGHTS or CBM TECHNOLOGY acquired after the EFFECTIVE DATE or which would otherwise conflict with or adversely affect the rights granted to BIOGEN under this Agreement. - 51 - 52 Nothing herein shall prohibit CBM from amending or modifying the scope of claims during the patent prosecution process. (e) CBM will take all actions required by it to maintain its rights under the STRYKER LICENSE and the GI LICENSE as in effect on the EFFECTIVE DATE, and shall immediately send to BIOGEN any notice of default or breach received by CBM under the STRYKER LICENSE or the GI LICENSE. (f) All employees of CBM who perform R&D for CBM in connection with CBM's obligations under this Agreement are required to assign their rights in any intellectual property arising from such work to CBM. 11.4 Each party represents that, with the exception of the issues raised by the Other Third Party Patents, if any, it has not as of the EFFECTIVE DATE been notified by a THIRD PARTY or received an opinion of counsel to the effect that there are any granted patents owned or controlled by a THIRD PARTY which would be infringed by the manufacture, use or sale of PRODUCT and it is not aware, without making any special inquiry or investigation, of any infringement by a THIRD PARTY of the CBM PATENT RIGHTS. 11.5 Except as otherwise expressly set forth in this Agreement CBM makes no representations or extends any warranties of any kind, either express or implied, including, but not limited to, warranties of merchantability, fitness for a particular purpose, non-infringement or validity of any CBM patent or other intellectual property rights. 11.6 The Parties shall file with the Federal Trade Commission and the Department of Justice any notification and report required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations issued thereunder (the "Act") and use their best efforts to comply with the Act in connection with the transactions contemplated under this Agreement. - 52 - 53 SECTION 12 - INDEMNIFICATION. 12.1 Indemnification by BIOGEN. BIOGEN will defend, indemnify and hold harmless CBM, its AFFILIATES and their employees, agents, officers, shareholders and directors and each of them (the "CBM Indemnified Parties") from and against any and all third party claims, causes of action and costs (including reasonable attorney's fees) of any nature made or lawsuits or other proceedings filed or otherwise instituted against the CBM Indemnified Parties resulting from or arising out of breach of this Agreement by BIOGEN or failure by BIOGEN to comply in any material respect with applicable laws or regulations or out of the research, development, testing, manufacture, sale or use of any PRODUCT by BIOGEN, its AFFILIATES, SUBLICENSEES or DISTRIBUTORS, other than those claims which result or arise from breach of this Agreement by CBM or failure by CBM to comply in any material respect with applicable laws or regulations or the negligence or willful misconduct of CBM or any its AFFILIATES or any of their employees, agents, officers, shareholders or directors. 12.2 Indemnification by CBM. CBM will defend, indemnify and hold harmless BIOGEN, its AFFILIATES and their employees, agents, officers, shareholders and directors and each of them (the "BIOGEN Indemnified Parties") from and against any and all third party claims, causes of action and costs (including reasonable attorney's fees) of any nature made or lawsuits or other proceedings filed or otherwise instituted against any of the BIOGEN Indemnified Parties resulting from or arising out of breach of this Agreement by CBM or failure of CBM to comply in any material respect with applicable laws or regulations or the negligence or willful misconduct of CBM or its AFFILIATES or any of their employees, agents, officers, shareholders or directors. 12.3 Conditions to Indemnification. A person or entity that intends to claim indemnification under this Section (the "Indemnitee") shall promptly notify the indemnifying party (the "Indemnitor") of any loss, claim, damage, liability or action in respect of which the Indemnitee intends to claim such - 53 - 54 indemnification, and the Indemnitor shall assume the defense thereof with counsel mutually satisfactory to the Indemnitee whether or not such claim is rightfully brought; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor if Indemnitor does not assume the defense, or if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other person represented by such counsel in such proceedings. The indemnity agreement in this Section shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld or delayed unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action, only if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Section , but the omission so to deliver notice to the Indemnitor will not relieve it of any liability that it may have to any Indemnitee otherwise than under this Section . The Indemnitee under this Section , its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigations of any action, claim or liability covered by this indemnification. SECTION 13 - ASSIGNMENT; SUCCESSORS. 13.1 This Agreement shall not be assignable by either of the parties without the prior written consent of the other party (which consent shall not be unreasonably withheld), except that either party without the consent of the other may assign this Agreement to an AFFILIATE or to a successor in interest or transferee of all or substantially all of the portion of the business to which this Agreement relates. - 54 - 55 13.2 Subject to the limitations on assignment herein, this Agreement shall be binding upon and inure to the benefit of said successors in interest and assigns of CBM and BIOGEN. Any such successor or assignee of a party's interest shall expressly assume in writing the performance of all the terms and conditions of this Agreement to be performed by said party and such Assignment shall not relieve the Assignor of any of its obligations under this Agreement. SECTION 14 - FORCE MAJEURE. Neither party shall be liable to the other party for damages or loss (other than with respect to payments due CBM hereunder) occasioned by failure of performance by the defaulting party if the failure is occasioned by war, fire, explosion, flood, strike or lockout, embargo, or any similar cause beyond the control of the defaulting party, provided that the party claiming this exception has exerted all reasonable efforts to avoid or remedy such event and provided such event does not extend for more than six (6) months. SECTION 15 - TERMINATION. 15.1 Except as otherwise specifically provided herein and unless sooner terminated pursuant to Sections 15.2 or 15.3 of this Agreement, this Agreement and the licenses and rights granted hereunder shall remain in full force and effect until BIOGEN's obligations to pay compensation hereunder terminate. Upon expiration of BIOGEN's obligation to pay compensation hereunder with respect to a specific country and specific PRODUCT as to which BIOGEN's license is then in effect, the license granted to BIOGEN with respect to such country and such PRODUCT pursuant to Section 2.1 shall be deemed to be fully paid and BIOGEN shall thereafter have a royalty-free right to use the CBM PATENT RIGHTS and CBM TECHNOLOGY and to make, use, import and sell such PRODUCT in such country. - 55 - 56 15.2 Upon breach of any material provisions of this Agreement by either party to this Agreement, in the event the breach is not cured within sixty (60) days after written notice to the breaching party by the other party, in addition to any other remedy it may have, the other party at its sole option may terminate this Agreement, provided that such other party is not then in breach of this Agreement. 15.3 Either party to this Agreement may, upon giving notice of termination, immediately terminate this Agreement upon receipt of notice that the other party has become insolvent or has suspended business in all material respects hereof, or has consented to an involuntary petition purporting to be pursuant to any reorganization or insolvency law of any jurisdiction, or has made an assignment for the benefit of creditors or has applied for or consented to the appointment of a receiver or trustee for a substantial part of its property. 15.4 Upon any termination of this Agreement, BIOGEN shall be entitled to, but shall not be obligated to finish any work-in-progress for which BIOGEN has received firm purchase orders and to sell any completed inventory of a PRODUCT covered by this Agreement which remains on hand as of the date of the termination, so long as BIOGEN pays to CBM the compensation applicable to said subsequent sales in accordance with the same terms and conditions as set forth in this Agreement. 15.5 The licenses granted under Section 2.1(b) and, subject to the termination provision contained therein, 2.1(c), and obligations of Sections 6 and 12, as well as Sections 15.4, 15.5, 15.6, 15.7, 15.9, 16.3, and 16.7 and the repayment obligation under the Note shall survive any termination of this Agreement. 15.6 Upon termination of this Agreement or of the rights and licenses granted to BIOGEN in any country, BIOGEN shall have no further right under this Agreement to CBM TECHNOLOGY or CBM PATENT RIGHTS in such country other than under the license granted under Section - 56 - 57 2.1(b) and other than in those countries in which BIOGEN otherwise retains a license, including a paid up license, under this Agreement. 15.7 BIOGEN agrees to use CBM TECHNOLOGY only for the manufacture, use or sale of PRODUCTS and only and to the extent licensed under this Agreement. 15.8 CBM shall have the right to terminate this Agreement in the event CBM has terminated BIOGEN's rights under Section 5.1(c) as to all of the MAJOR MARKET SEGMENTS. 15.9 On or after the end of the third AGREEMENT YEAR, BIOGEN may terminate this Agreement for any reason upon six (6) months prior notice to CBM. In the event of any termination under this Section or in the event CBM terminates this Agreement pursuant to Sections 15.2, 15.3 or 15.8 all licenses and rights granted to BIOGEN shall terminate forthwith and BIOGEN shall grant to CBM an exclusive, worldwide, royalty-free, sublicensable license under BIOGEN PATENTS and BIOGEN TECHNOLOGY solely to make, have made, import, use and sell PRODUCTS. In the event that under this Section , BIOGEN has granted to CBM a sublicense to BIOGEN's rights under any BIOGEN TECHNOLOGY or BIOGEN PATENTS owned (in whole or in part) by a THIRD PARTY, CBM shall be responsible for paying any royalty obligations which BIOGEN may have to such THIRD PARTY arising from the manufacture, use or sale by CBM of PRODUCTS. In addition, if the licenses under this Section become applicable, CBM shall pay all reasonable costs incurred by BIOGEN in making BIOGEN PATENTS and BIOGEN TECHNOLOGY available to CBM. In the event CBM terminates the rights and licenses in any country pursuant to Section 5.1(c) then BIOGEN shall grant to CBM an exclusive, royalty-free, sublicensable license in that country under BIOGEN PATENTS and BIOGEN TECHNOLOGY solely to make, have made, use and sell PRODUCTS and subject to the same terms as above with respect to THIRD PARTY royalties and costs incurred by BIOGEN. In addition, in the event CBM terminates the rights and licenses in any country pursuant to Section 5.1(c), but not the entire Agreement, BIOGEN will supply CBM's - 57 - 58 requirements for PRODUCT in such country under a supply agreement, with terms, including financial terms, to be negotiated by the parties in good faith. SECTION 16 - GENERAL PROVISIONS. 16.1 The relationship between CBM and BIOGEN is that of independent contractors. CBM and BIOGEN are not joint venturers, partners, principal and agent, master and servant, employer or employee, and have no relationship other than as independent contracting parties. CBM shall have no power to bind or obligate BIOGEN in any manner. Likewise, BIOGEN shall have no power to bind or obligate CBM in any manner. 16.2 This Agreement, the Restricted Stock Purchase Agreement, the Escrow Agreement and the Instrument of Adherence between the parties of even date herewith sets forth the entire agreement and understanding between the parties as to the subject matter thereof and supersedes all prior agreements in this respect. There shall be no amendments or modifications to these Agreements, except by a written document which is signed by both parties. 16.3 This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, U.S.A. without reference to its choice-of-law principles. 16.4 The headings in this Agreement have been inserted for the convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular or section or paragraph. 16.5 Any delay in enforcing a party's rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of a party's right to the future enforcement of its rights under this Agreement, excepting only as to an expressed written and signed waiver as to a particular matter for a particular period of time. - 58 - 59 16.6 In conducting any activities under this Agreement or in connection with the manufacture use or sale of PRODUCT, BIOGEN shall comply with all applicable laws and regulations including, but not limited to, all Export Administration Regulations of the United States Department of Commerce. 16.7 Notices. Any notices given pursuant to this Agreement shall be in writing and shall be deemed delivered upon the earlier of (i) when received at the address set forth below, or (ii) three (3) business days after mailed by certified or registered mail postage prepaid and properly addressed, with return receipt requested, or (iii) when sent, if sent, by facsimile, as confirmed by certified or registered mail. Notices shall be delivered to the respective parties as indicated: If to CBM: Creative BioMolecules, Inc. 45 South Street Hopkinton, MA 01748 Attn: CEO with a copy to Vice President - General Counsel If to BIOGEN: Biogen, Inc. 14 Cambridge Center Cambridge, MA 02142 Attn: President with a copy to Vice President - General Counsel 16.8 This Agreement may be executed in any number of separate counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument. - 59 - 60 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. CREATIVE BIOMOLECULES, INC. BIOGEN, INC. By: /s/ Michael M. Tarnow By: /s/ James R. Tobin -------------------------------- --------------------------------- Name and Title: Michael M. Tarnow Name and Title: James R. Tobin -------------------- -------------------- Chief Executive Officer President and Chief Operating Officer 61 APPENDIX A SCHEDULE 1 CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE: PATENT NUMBER: * SCHEDULE 2 CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE: PATENT NUMBER: * SCHEDULE 3 CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE: PATENT NUMBER: * SCHEDULE 4 CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE; PATENT NUMBER: * 62 APPENDIX B OP-1 PROTEIN ACTIVE * FULL SEQUENCE * 63 APPENDIX C CREATIVE BIOMOLECULES, INC. UNSECURED PROMISSORY NOTE Creative BioMolecules, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with offices at 45 South Street, Hopkinton, MA 01748 (the "Borrower") acknowledges itself indebted to and for value received hereby promises to pay to the order of Biogen, Inc. (the "Payee"), at 14 Cambridge Center, Cambridge, MA 02142 or at such other address as the Borrower may be directed from time to time, the principal sum of Fifteen Million Dollars ($15,000,000), or such lesser sum as shall be advanced as set forth in the schedule of Advances and Payments of Principal attached hereto (the "Schedule"), and to pay interest on the unpaid principal amount hereof from the date of each Advance at a rate for each Advance equal to the Prime Rate, as defined below, in effect on the business day immediately preceding the date of the Advance (interest to be paid on the basis of the actual number of days elapsed on the basis of a 360 day year). Prime Rate shall mean the rate of interest announced from time to time by State Street Bank and Trust Company as its *. The principal hereof, if not sooner paid as provided herein, together with all accrued and unpaid interest, shall be due and payable five years from the date of the first advance set forth in the Schedule attached hereto. All payments shall be applied first to costs of collection and then to principal and interest accrued on such principal. Payments of accrued interest shall be made quarterly in arrears on the first business day of each quarter until the aforesaid principal sum and all accrued interest thereon has been fully paid. This Note is entered into pursuant to the Research Collaboration and License Agreement, dated December 9, 1996 by and between the Borrower and the Payee (the "Agreement"). The advances described in the Agreement and made by the Payee to the Borrower, the applicable interest rate, and all payments made on the account of principal thereof, shall be recorded by the Payee, and, prior to any transfer thereof, endorsed on the Schedule attached hereto which is a part of this Note; provided, however, that the failure of the Payee so to record on or endorse this Note (or any error in recording on or endorsing this Note) shall not affect the Borrower's obligations hereunder. Payments hereon are to be made in lawful money of the United States of America or in any other manner set forth in the Agreement at the Payee's address set forth above or such other address as the Payee shall designate in writing to the Borrower. This Note may be prepaid in whole or in part on any date without penalty or premium upon five (5) days prior written notice to the Payee, provided that amounts prepaid shall not be available for futher borrowing under the Agreement. Partial prepayments shall be applied to principal payments of this Note in inverse order of maturity. Whenever any Event of Default, as defined below, shall have occurred, the Payee may take any one or more of the following remedial steps: 64 (i) The Payee may declare the entire outstanding principal amount payable hereunder, together with accrued interest, to be immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything herein to the contrary notwithstanding: (ii) The Payee may exercise any rights and remedies under this Note; (iii) The Payee may take whatever action at law or in equity as may be available and appear necessary or desirable to collect the amounts then due and thereafter to become due, or to specifically enforce the performance or observance of any obligations, agreements, or covenants of the Borrower under this Note. For purposes of this Agreement, an "Event of Default" shall mean (i) failure of Borrower to pay interest when due or (ii) termination by Payee of the Agreement for breach by the Borrower. In addition to the payment of interest, as provided above, Payee shall pay interest on overdue installments of principal, and to the extent permitted by law, on overdue installments of interest, at the rate of 18% per annum. In no event shall this Note bear interest in excess of the maximum rate of interest permitted by applicable law. In case the Payee shall have proceeded to enforce its rights under this Note and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Payee, then and in every such case, the Borrower and the Payee shall be restored respectively to their several positions and rights hereunder and thereunder, and all rights, remedies and powers of the Borrower and the Payee shall continue as though no such proceedings had been taken, but subject nevertheless to the order or result of any such proceedings. No remedy herein conferred upon or reserved to the Payee is intended to be exclusive of any other available remedy or remedies but each and every such remedy shall be cumulative and shall be in addition to every remedy given under this Note or the Agreement or now or hereafter existing at law, in equity or by statute. If an Event of Default shall occur and the Payee shall reasonably require and employ attorneys for the collection of payments due or to become due or the enforcement or performance or observance of any obligation or agreement on the part of the Borrower herein contained, the Borrower shall on demand therefor pay to the Payee the reasonable fees and expenses of such attorneys so incurred by the Payee in connection with litigation or otherwise. In the event any agreement contained in this Note should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Upon receipt by the Borrower of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note and indemnity satisfactory to the Borrower (in case of loss, theft or destruction) or cancellation of the Note (in the case of mutilation), the Borrower will make 65 and deliver to the Payee a new Note of like tenor and amount and dated as of the date to which interest has been paid on the unpaid principal balance hereunder. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without giving effect to conflicts of law principles. If any clause or provision of this Note shall be ruled invalid by any court of competent jurisdiction, the validity of such clause or provision shall not affect any of the remaining provisions hereof. The Borrower (and any endorsers of this Note) hereby waive presentment, demand for payment, protest and notice of dishonor of this Note IN WITNESS WHEREOF the Borrower has caused this Note to be duly executed and delivered, all as of the date shown below. Date: [SEAL] ATTEST: CREATIVE BIOMOLECULES, INC. _______________________ By:______________________ 66 ADVANCES AND PAYMENTS OF PRINCIPAL(1) Amount of Unpaid Amount of Interest Principal Principal Notation Date Advance Rate Paid Balance Made By - ---- --------- -------- --------- --------- -------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __________ (1) This Schedule is part of an Unsecured Promissory Note executed by Creative BioMolecules, Inc. (the "Borrower") on December 9, 1996, pursuant to which the Borrower promises to pay up to fifteen million dollars ($15,000,000) to the order of Biogen, Inc. 67 APPENDIX D PRODUCT RELEASE SPECIFICATIONS FOR BULK OP-1 Test Method Specification * 68 APPENDIX E PERCENTAGE OF GROSS PROFIT THE PERCENTAGE OF GROSS PROFIT TO BE RECEIVED BY CBM UNDER SECTION 10.1 SHALL BE DETERMINED AS A FUNCTION OF SALES VOLUME AND COST OF GOODS (AS A PERCENTAGE OF NET SALES) BY REFERENCE TO THE FOLLOWING TABLE: COST OF GOODS (AS A PERCENTAGE OF NET SALES) S A L E * S V O L U M E For purposes of the determination of Percentage of GROSS PROFIT, "Sales Volume" for a calendar year shall mean NET SALES of Product for such year, provided that solely for purposes of calculating Sales Volume and not for purposes of calculating GROSS PROFIT, NET SALES on sales by BIOGEN to DISTRIBUTORS shall be based on the invoice price on the sale by the DISTRIBUTOR to a THIRD PARTY rather than on the invoice price on the sale to the DISTRIBUTOR by BIOGEN. EX-10.38 5 RESTRICTED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.38 RESTRICTED STOCK PURCHASE AGREEMENT THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 9th day of December, 1996 by and among Creative BioMolecules, Inc., a Delaware corporation, with its principal office at 45 South Street, Hopkinton, MA 01748 (the "Company") and Biogen, Inc., a Massachusetts corporation, with its principal office at 14 Cambridge Center, Cambridge, MA 02142 (the "Purchaser"). WHEREAS, the Company and the Purchaser have entered into a Research Collaboration and License Agreement of even date herewith, (the "License Agreement") pursuant to which the Company will grant to the Purchaser a license to certain of the Company's patent rights and technology as further defined and described therein. WHEREAS, in furtherance of the execution and delivery of the License Agreement, the Company has agreed to sell to the Purchaser and the Purchaser has agreed to purchase the number of shares of the Company's common stock, $.01 par value (the "Common Stock") computed in accordance with this Agreement, at an aggregate purchase price of $18,000,000, on the terms set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: SECTION 1 - SALE OF THE SHARES. 1.1 Sale by the Company. Subject to and upon the terms and conditions of this Agreement, at the Closing (as defined in Section 3.1): 2 Pending only clearance of the transactions contemplated by this Agreement and the License Agreement by the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "Act"), the Company shall sell to the Purchaser, and the Purchaser shall purchase from the Company, the number of whole shares of the Company's Common Stock equal to the Calculated Amount (defined hereafter) (the "Shares"), at a purchase price (the "Purchase Price") per share equal to the Premium Price (defined hereafter), for an aggregate purchase price of $18,000,000. The Purchase Price for all of the Shares will be payable by the Purchaser at the Closing by delivery to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in its capacity as the Escrow Agent, as defined in a certain Escrow Agreement between the parties and the Escrow Agent dated as of the date hereof (the "Escrow Agreement"), of a certified check or wire transfer in the amount of the aggregate Purchase Price for all of the Shares. The parties agree that the Escrow Agent shall hold the aggregate Purchase Price paid by the Purchaser in escrow under the terms of the Escrow Agreement. "Market Price" means the average of the last reported sale price, regular way, or if there is no such sale price, the average of the last reported bid and asked prices, as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") for the five (5) business days immediately preceding the date of the Closing, computed to three decimal places. "Premium Price" means one hundred and thirty percent (130%) of the Market Price, provided that in no event shall the Premium Price be less than $10.00 nor more than $12.00. "Calculated Amount" means 18,000,000 divided by the Premium Price. SECTION 2 - CONDITIONS TO PURCHASER'S OBLIGATION. The obligation of the Purchaser to purchase the Shares pursuant to Section 1.1 of this Agreement is subject to satisfaction of the following conditions at or prior to the Closing: 2.1 Representations and Warranties. Each of the representations and warranties of the Company set forth in Section 6 hereof shall be true and correct as of the date of the Closing. - 2 - 3 2.2 Registration Rights Agreement. The Second Amended and Restated Registration Rights Agreement, dated as of May 24, 1996, by and among the Company and various holders of the Company's securities (the "Registration Rights Agreement") shall have been amended by the execution of an amendment to the Registration Rights Agreement ("Amendment No. 3 to the Registration Rights Agreement") and an Instrument of Adherence which provide that the Shares and any shares subsequently issued to the Purchaser with respect to the Shares (the "Additional Shares") shall be included in the definition of "Registrable Securities" and the Purchaser, as the holders of Shares, shall be included in the definition of "Investors", and such documents shall have been deposited with the Escrow Agent under the Escrow Agreement. 2.3 License Agreement. The Company and the Purchaser shall have executed and deposited with the Escrow Agent under the Escrow Agreement the License Agreement, and the License Agreement shall be in full force and effect as of the date of the Closing, pending only clearance of the transactions contemplated by this Agreement and the License Agreement by the Federal Trade Commission and the Department of Justice under the Act. 2.4 Documentation at the Closing. The Company shall have deposited with the Escrow Agent, prior to or at the Closing, all of the following documents or evidence of the occurrence of the following events: (a) An Officer's Certificate, executed by the President of the Company and dated as of the date of the Closing, stating that the representations and warranties of the Company contained in Section 6 hereof are true and correct as of the date of the Closing and that all of the obligations and covenants of the Company contained in this Agreement required to be performed or satisfied prior to or at the Closing, including, without limitation the conditions specified in Sections 2.1 through 2.3, inclusive, have been performed or satisfied in all material respects. - 3 - 4 (b) A Secretary's Certificate, executed by the Secretary or the Assistant Secretary of the Company and dated as of the date of the Closing, providing: (1) a certified copy of the resolutions of the Board of Directors of the Company evidencing approval of this Agreement, authorization for the issuance of the Shares, execution of all other agreements and documents contemplated hereby, and performance of all of the transactions contemplated hereby and thereby; (2) a certified copy of the Certificate of Incorporation of the Company, as amended and in effect as of the date of the Closing; (3) a certified copy of the by-laws of the Company, as amended and in effect as of the date of the Closing; and (4) the names of officers of the Company authorized to sign this Agreement, the certificate for the Shares, and the other documents or certificates to be delivered pursuant to this Agreement by the Company or any of its officers, together with the true signatures of such officers. (c) A certificate of good standing of the Company, issued by the Secretary of State of the State of Delaware and each State where the Company is qualified to do business as a foreign corporation, dated as of the close of business on a date within ten (10) business days of the date of the Closing. (d) Copies of all other documents evidencing other necessary corporate or other action and third party and governmental approvals, if any, with respect to this Agreement and the other documents executed in connection with this Agreement and the transactions contemplated hereby or thereby. 2.5 Documents and Proceedings. All documents to be deposited with the Escrow Agent hereunder, and all corporate and other proceedings taken or required to be taken in connection with the transactions contemplated hereby and to be consummated at or prior to the Closing and all documents incident thereto, shall be reasonably satisfactory in form and substance to the Purchaser - 4 - 5 or its counsel. The parties acknowledge that all documents deposited with the Escrow Agent under this Agreement will be held by the Escrow Agent under the terms of the Escrow Agreement. 2.6 Waiver. Any condition specified in this Section 2 may be waived by the Purchaser; provided, however, that no such waiver shall be effective unless (i) it is set forth in a writing executed by the Purchaser or (ii) the Purchaser consummates the Closing. SECTION 3 - CLOSING. 3.1 Closing. The closing of the transactions contemplated under this Agreement (the "Closing") shall take place at the offices of the Purchaser, 4 Cambridge Center, Cambridge, MA 02142, at 4:00 p.m., Boston Time, on December 9, 1996, or at such other place, time or date as may be mutually agreed upon in writing by the parties. 3.2 Delivery of Certificates Representing the Shares. At the Closing, the Company shall deliver to the Escrow Agent, to be held under the terms of the Escrow Agreement, an Irrevocable Letter of Instructions to Transfer Agent, signed by the Vice President and Chief Financial Officer of the Company, instructing ChaseMellon Shareholder Services, L.L.C., the Company's Transfer Agent and Registrar, to issue a stock certificate, registered in the name of the Purchaser, representing the Shares. SECTION 4 - RIGHTS TO REPURCHASE SHARES. (a) In the event that the License Agreement is terminated as a result of a breach by the Purchaser thereunder or by the Purchaser prior to its expiration (except as a result of a breach by the Company) (such termination a "Termination Event"), the Company, shall have the right and option, for sixty (60) days from the occurrence of the Termination Event, to elect to purchase from the Purchaser, and the Purchaser shall sell or cause to be sold to the Company, upon the Company's - 5 - 6 exercise of such right, such number of Shares (collectively the "Option Shares") owned by the Purchaser on such date as is specified by the Company, at the Purchase Price. The right to repurchase the Option Shares provided in this Section 4(a) shall be exercised by the Company, if at all, by delivery to the Purchaser during the applicable aforesaid 60-day period, of a written notice of election to purchase such Option Shares (the"Election Notice"). (b) The number of Option Shares subject to repurchase and the purchase price thereof, at the time of any stock dividend or other distribution made on or in respect of the shares of capital stock of the Company or any subdivision, combination, redemption or reclassification of the outstanding capital stock of the Company or received in exchange for the Option Shares or any part thereof, shall be adjusted to give effect to such stock dividend, other distribution, subdivision, combination, redemption or reclassification. (c) The sale of Option Shares effected under the terms of Section 4(a) hereof shall be made at the offices of the Company on a mutually acceptable business day which day shall be within 10 days after the expiration of the applicable 60-day period referred to in Section 4(a), and shall be such 10th day if the parties do not agree on such date. Delivery of certificates or other instruments evidencing such Option Shares duly endorsed for transfer shall be made on such date against payment of the Purchase Price thereof. Payment for the Option Shares purchased pursuant to this Section 4 shall be made in the form of a certified check or a wire transfer of clearing house funds to an account designated by the Purchaser. (d) Following the occurrence of a Termination Event, if and to the extent that the Company does not exercise its right to purchase the Option Shares within the exercise period, this Section 4 shall be null and void and the Purchaser may sell or otherwise transfer up to all of the Option Shares, subject only to compliance with the provisions of Section 5 of this Agreement and any applicable laws or regulations. - 6 - 7 (e) The provisions of this Section 4 shall not be applicable after the fifth anniversary of the date of this Agreement. SECTION 5 - PROCEDURES ON SALE OF SHARES TO THIRD PARTIES BY THE PURCHASER. Except as otherwise expressly provided herein, the Purchaser hereby agrees that it shall not Sell (as defined in subsection (e) below) any Shares (the "Offered Shares") to any person other than the Company, except in accordance with the following procedures: (a) The Purchaser shall first deliver to the Company a written notice (the "Transfer Notice"), which Transfer Notice shall be irrevocable for a period of ten (10) days after delivery thereof (the "Offer Period"), offering to the Company, all of the Offered Shares proposed to be sold by the Purchaser at the purchase price and on the terms specified therein. The Company shall have the right and option, at its sole discretion, for a period of 10 days after its receipt of the Transfer Notice, to accept the offer of all, but not less than all, of the Offered Shares at the purchase price and upon the terms stated in the Transfer Notice. Such acceptance will be made by delivery of a written notice to the Purchaser within the Offer Period (the "Acceptance Notice"). (b) The sale of Offered Shares under the terms of Section 5(a) above shall be made at the offices of the Company on a mutually acceptable business day, which day shall be within 5 days after the expiration of the Offer Period and shall be such 5th day if the parties do not agree on such date. Delivery of certificates or other instruments evidencing such Offered Shares duly endorsed for transfer shall be made on such date against payment of the purchase price therefor. Payment for the Offered Shares purchased pursuant to this Section 5 shall be made in the form of a certified check or a wire transfer of clearing house funds to an account designated by the Purchaser. (c) If effective acceptance shall not be received pursuant to Section 5(a) above with respect to all Offered Shares offered for sale pursuant to the Transfer Notice then the Purchaser may Sell to a third party or third parties all, but not less than all, the shares so offered for sale at a - 7 - 8 price not less than the price, and on terms not more favorable to the purchaser thereof than the terms, stated in the Transfer Notice, at any time within 90 days after the expiration of the Offer Period. In the event that such shares are not sold by the Purchaser during such 90-day period, the right of the Purchaser to Sell such shares without renewed compliance with this Section 5 shall expire and the obligations of this Section 5 shall be reinstated; provided, however, that in the event that the Purchaser determines, at any time during such 90-day period, that the sale of all of the shares on the terms set forth in the Transfer Notice is impracticable, the Purchaser can terminate the offer of the shares to a third party or parties and reinstate the procedure provided in this Section 5 without waiting for the expiration of such 90-day period. (d) Anything contained herein to the contrary notwithstanding, any third party purchaser of shares pursuant to this Section 5 who or which is not a signatory to an agreement with the Company that places restrictions on such Offered Shares substantially similar to the restrictions set forth in Section 5 of this Agreement shall agree in writing, as a condition to such sale, to be bound by all applicable provisions of Section 5 of this Agreement . (e) As used above, the term "Sell" shall mean to sell, or in any other way, directly or indirectly, transfer, assign, distribute, pledge, encumber or otherwise dispose of, either voluntarily or involuntarily any of the Shares or Additional Shares. (f) Anything contained herein to the contrary notwithstanding, the provisions of this Section 5 shall not be applicable (i) if, and to the extent that, the Purchaser Sells any Offered Shares to the public pursuant to a registration statement declared effective by the Securities and Exchange Commission under the Securities Act, (ii) if, and to the extent that, the Purchaser Sells any Offered Shares in compliance with the requirements set forth in Rule 144 under the Securities Act or (iii) after the third anniversary of this Agreement. - 8 - 9 (g) The Company shall not be required (a) to transfer on its books any of the shares which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement, or (b) to treat as owner of such shares or to pay dividends to any transferee to whom any such shares shall have been sold or transferred. SECTION 6 - REPRESENTATIONS OF THE COMPANY. The Company represents and warrants to the Purchaser that: 6.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority (corporate and other) to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Company is duly qualified to do business and is in good standing in all jurisdictions in which its ownership of property or the character of its business requires such qualification and in which the failure to be so qualified would have a material adverse effect on the Company. 6.2 Authorization. The execution and delivery by the Company of this Agreement, and any other documents and agreements to be executed in connection with this Agreement (the "Company's Transaction Documents"), and the consummation by the Company of all transactions contemplated hereunder, including without limitation the issuance and sale of the Shares, to the Purchaser pursuant to Section 1, have been duly authorized by all requisite corporate action. The Company's Transaction Documents have been duly executed by the Company and constitute the valid and legally binding obligations of the Company, enforceable against it in accordance with their respective terms, subject to clearance under the Act, as set forth in Section 2.3, and subject to laws of general application relating to bankruptcy, insolvency, relief of debtors and equitable principles and except as rights to indemnity or contribution may be limited by applicable law. Upon issuance to the Purchaser for the consideration specified in Section 1 above, the Shares will be duly authorized, - 9 - 10 validly issued, fully paid and nonassessable. Subject to clearance under the Act, as set forth in Section 2.3, the execution, delivery and performance by the Company of the Company's Transaction Documents and the consummation by the Company of the transactions contemplated thereby, will not, with or without the giving of notice or the passage of time or both, (i) conflict with or result in a breach of the material terms, conditions or provisions of, (ii) constitute a default under, (iii) result in the creation of any lien, security interest, charge or encumbrance upon the Company's capital stock or assets pursuant to, (iv) give any third party the right to accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, the certificate of incorporation or by-laws of the Company, or any law, statute, rule or regulation to which the Company is subject, or any material agreement, instrument, order, judgment or decree to which the Company is subject, except where any such event listed above would not have a material adverse effect on the Company or the transactions contemplated hereunder. Except as set forth on Exhibit A, the issuance of the Shares will not, require any further corporate action related specifically to such issuances and are not and will not be subject to any preemptive or other preferential rights or similar statutory or contractual rights either arising pursuant to any agreement or instrument to which the Company is a party or which is otherwise binding upon the Company. 6.3 Governmental Approval. Subject to the accuracy of the Purchaser's representations herein, no authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, under any applicable laws or regulations presently in effect, is or will be necessary for, or in connection with, the offer, issuance, sale, execution or delivery by the Company of the Shares or for the performance by the Company of its obligations under this Agreement or any other Company's - 10 - 11 Transaction Documents except under the Act, as set forth in Section 2.3, or as may be required under the Securities Act or applicable state securities laws. 6.4 Registration . Except as set forth in the Registration Rights Agreement and on Exhibit A, no person has demand or other rights to cause the Company to file any registration statement under the Securities Act relating to any securities of the Company or any right to participate in any such registration statement. 6.5 SEC Filings. The Company is current on all filings required by the Securities and Exchange Commission. The Company's annual report on Form 10-K for the year ended September 30, 1995, and its reports on Form 10-Q and Form 8K filed since September 30, 1995, do not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements made therein not misleading. Since the date of CBM's last publicly filed report on Form 10-Q, there has been no material adverse change to the business, financial condition or assets of the Company that has not been disclosed in a publicly filed report or otherwise disclosed to the Purchaser. There has commenced no litigation against the Company subsequent to September 30, 1996. 6.6 No Brokers or Finders. Except as otherwise disclosed to the Purchaser, no person has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon the Purchaser for any commission, fee or other compensation as a finder or broker because of any act by the Company or of any agent of the Company. The Company will pay, and hold the Purchaser harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys' fees and out-of-pocket expenses) arising in connection with any claim for any such commission, fee or other compensation. 6.7 Closing Date. The representations and warranties of the Company contained in this Section 6 and elsewhere in this Agreement, and all information contained in any exhibit, schedule or attachment hereto or in any writing delivered by, or on behalf of, the Company to the Purchaser, will - 11 - 12 be true and correct in all material respects on the date of the Closing as though then made, except as affected by the transactions expressly contemplated by this Agreement. SECTION 7 - REPRESENTATIONS OF THE PURCHASER. The Purchaser represents and warrants to the Company as follows: 7.1 (a) Organization. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, and has all requisite power and authority (corporate and other) to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (b) Authorization. The execution and delivery by the Purchaser of this Agreement and the consummation by the Purchaser of all transactions contemplated hereunder has been duly authorized by all requisite corporate action. This Agreement has been duly executed by the Purchaser. This Agreement and all other agreements and obligations entered into and undertaken in connection with the transactions contemplated hereby to which the Purchaser is a party constitute the valid and legally binding obligations of the Purchaser, enforceable against it in accordance with their respective terms, subject to the Act, as set forth in Section 2.3, and subject to laws of general application relating to bankruptcy, insolvency, relief of debtors and equitable principles and except as rights to indemnity or contribution may be limited by applicable law. Subject to clearance under the Act, as set forth in Section 2.3, the execution, delivery and performance by the Purchaser of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby, will not, with or without the giving of notice or the passage of time or both, (a) violate the provisions of the Articles of Organization or By-laws of the Purchaser; or (b) violate any judgment, decree, order or award of any court, governmental body or arbitrator or any material agreement to which the Purchaser is a party or by which the Purchaser is bound. - 12 - 13 7.2 Investment Representation. (a) The Purchaser is acquiring the Shares for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of selling or distributing the same and the Purchaser has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the distribution thereof. (b) The Purchaser has carefully reviewed the representations concerning the Company and has made a detailed inquiry concerning the Company, its business and its personnel; the officers of the Company have made available to the Purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering of the Shares made hereby and to obtain any additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of information provided by the Company to the Purchaser; the Purchaser has sufficient knowledge and experience in business and financial matters so as to be able to evaluate the risks and merits of its investment in the Company and is able to sustain a complete loss of its investment in the Company; and the Purchaser is an "accredited investor," as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. (c) The Purchaser understands that (i) the Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) the Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) in any event, the exemption from registration under Rule 144 or otherwise may not be available for at least two years. - 13 - 14 (d) The Purchaser will not attempt to sell, transfer or otherwise dispose of all or any portion of the Shares in the absence of an effective registration statement unless (i) an exemption from such registration is available under the Securities Act and (ii) if requested by the Company, the Purchaser shall have furnished to the Company an opinion of reputable securities counsel satisfactory in form and substance to the Company and its counsel that such proposed sale, transfer or other disposition would not be in violation of the Securities Act and applicable state securities laws. (e) A legend substantially in the following form will be placed on the Certificate representing the Shares: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN A RESTRICTED STOCK PURCHASE AGREEMENT DATED DECEMBER 9, 1996, BY AND AMONG CREATIVE BIOMOLECULES, INC. AND BIOGEN, INC. AND NO TRANSFER OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENTS CAN BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF CREATIVE BIOMOLECULES, INC. 7.3 No Brokers or Finders. No person has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon the Company for any commission, fee or other compensation as a finder or broker because of any act by the Purchaser or of any agent of the Purchaser. The Purchaser will pay, and hold the Company harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys' fees and out-of-pocket expenses) arising in connection with any such claim. - 14 - 15 7.4 Closing Date. The representations and warranties of the Purchaser contained in this Section 7 and elsewhere in this Agreement and all information delivered by, or on behalf of, the Purchaser to the Company, will be true and correct in all material respects on the date of the Closing as though then made, except as affected by the transactions expressly contemplated by this Agreement. SECTION 8 - BOARD SEAT The Company shall continue to nominate James R. Tobin, as long as he continues to be an employee of the Purchaser, to serve as a member of the Board of Directors of the Company through his current term and through one additional three-year term. Commencing with the date on which the additional three-year term of Mr. Tobin ends, or if earlier, the date on which Mr. Tobin is no longer an employee of the Purchaser, the Company shall nominate either the Chairman or the President of the Purchaser to serve as a member of the Board of Directors of the Company for the remainder of Mr. Tobin's terms under the preceding sentence if Mr. Tobin leaves the Purchaser's employ during his original term or his extension term and for two additional three year terms thereafter. This Section 8 shall terminate immediately upon termination of the License Agreement. SECTION 9 - NOTICES. Any notices or other communications required or permitted hereunder shall be sufficiently given if delivered personally or sent by telex, nationally recognized overnight delivery service, facsimile (receipt confirmed), registered or certified mail, postage prepaid, addressed as follows or to such other address of which the parties may have given notice: (i) if to the Purchaser, to: BIOGEN, INC. 14 Cambridge Center Cambridge, MA 02142 Attn: Vice President - General Counsel Fax No.: (617)679-2838 - 15 - 16 (ii) if to the Company, to: Creative BioMolecules, Inc. 45 South Street Hopkinton, Massachusetts Attn: President Fax No.: (508) 435-6951 Unless otherwise specified herein, such notices or other communications shall be deemed delivered (a) on the date delivered, if delivered by facsimile or personally; (b) on the day after the notice is delivered into the possession and control of a nationally recognized overnight delivery services, duly marked for delivery to the receiving party; or (c) three business days after being sent, if sent by registered or certified mail. SECTION 10 - SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Purchaser, on the one hand, and the Company, on the other hand, may not assign their respective obligations hereunder without the prior written consent of the other party. Any assignment in contravention of this Section 9 shall be void. No assignment shall release the Purchaser or the Company from any obligation or liability under this Agreement unless expressly agreed to by the non-assigning party. SECTION 11 - REMEDIES. The parties acknowledge that a breach of this Agreement will cause them irreparable harm which will be difficult to quantify and for which money damages would be inadequate. Therefore, in the event of such a breach or threat of such a breach, in addition to any other legal or equitable remedies it may have, each party shall be entitled to obtain specific performance of the other party's - 16 - 17 obligations and to obtain immediate injunctive relief, in each case without the necessity of posting a bond. SECTION 12 - COOPERATION. The Purchaser agrees that in the event of any underwritten public offering of securities of the Company, the Purchaser will comply with and agree to any reasonable restriction on the transfer of shares of Common Stock imposed by an underwriter and shall perform all acts and sign all necessary documents required with respect thereto. SECTION 13 - ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other writings referred to herein or delivered pursuant hereto contain the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior oral and written and all contemporaneous oral negotiations, commitments and understandings between such parties. This Agreement may be amended only by a written amendment executed by both parties. SECTION 14 - SEVERABILITY. Any provision of this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provision of this Agreement invalid, illegal or unenforceable in any other jurisdiction. SECTION 15 - EXPENSES. Except as otherwise expressly provided herein, the Purchaser, on the one hand, and the Company, on the other hand, will pay all fees and expenses (including, without limitation, legal and accounting fees and expenses) incurred by each of them in connection with the transactions contemplated hereby. - 17 - 18 SECTION 16 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Agreement or any other instrument or document delivered in connection herewith or therewith, shall survive the execution and delivery hereof or thereof for a period of five (5) years. SECTION 17 - WAIVER. No failure or delay on the part of a party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. SECTION 18 - FURTHER ASSURANCES. From and after the date of this Agreement, upon the reasonable request of one party hereto, the other party hereto shall execute and deliver such instruments, documents and other writings as may be necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. SECTION 19 - GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without regard to choice of law principles. SECTION 20 - SECTION HEADINGS. The section headings are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties. SECTION 21 - COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document. - 18 - 19 SECTION 22 - PERSON. The term Person as used in this Agreement means any individual, partnership, corporation, trust or other entity. IN WITNESS WHEREOF, this Agreement has been duly executed under seal by the parties hereto and delivered as of the date first above written. CREATIVE BIOMOLECULES, INC. By: /s/ Michael M. Tarnow ------------------------------- Michael M. Tarnow Chief Executive Officer BIOGEN, INC. By: /s/ James R. Tobin ------------------------------- Name: James R. Tobin Title: President and Chief Operating Officer - 19 - 20 EXHIBIT A SCHEDULE OF EXCEPTIONS None - 20 - EX-23.1 6 CONSENT OF DELOITTE AND TOUCHE 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-68084, 33-83276 and 33-91150 on Form S-3 and Registration Statement Nos. 33-56704, 33-56706, 33-61884 and 33-80945 on Form S-8 of Creative BioMolecules, Inc. of our report dated February 21, 1997, appearing in the Annual Report on Form 10-K of Creative BioMolecules, Inc. for the year ended December 31, 1996. /s/ Deloitte & Touche LLP Boston, Massachsuetts March 27, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,1996 AND FOR THE YEAR ENDED DECEMBER 31,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1 US DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 38,248,988 11,826,266 1,454,696 0 1,341,914 53,080,750 28,458,470 (12,234,094) 73,818,874 4,906,306 1,651,493 0 0 327,696 66,933,379 73,818,874 0 22,352,210 0 3,823,442 15,650,986 0 216,906 (2,239,947) 0 (2,239,947) 0 0 0 (2,239,947) (0.07) (0.07)
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