-----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, CHSWtuEGNju50Y30o3npec1rFsZ1P7IvMd/3WiqEu2+Loopel65+oRKG9pYyjkwN 6hizl8xmloNfsfzWIQCbIA== 0000899243-02-000881.txt : 20020415 0000899243-02-000881.hdr.sgml : 20020415 ACCESSION NUMBER: 0000899243-02-000881 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3 DIMENSIONAL PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000914201 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 232716487 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-16019 FILM NUMBER: 02594669 BUSINESS ADDRESS: STREET 1: 665 STOCKTON DRIVE STREET 2: SUITE 104 CITY: EXTON STATE: PA ZIP: 19341 BUSINESS PHONE: 6104588959 MAIL ADDRESS: STREET 1: 665 STOCKTON DRIVE STREET 2: SUITE 104 CITY: EXTON STATE: PA ZIP: 19341 10-K405 1 d10k405.txt FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to __________ Commission file number 000-30992 3-DIMENSIONAL PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware 23-2716487 (State of incorporation) (I.R.S. Employer Identification No.) Three Lower Makefield Corporate Center, Suite 300, 1020 Stony Hill Road, Yardley, PA 19067 (Address of principal offices including zip code) (267) 757-7200 (Registrant's telephone number including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 the definitive proxy statement incorporated by reference in Part III of this annual report on Form 10-K or any amendment to this annual report on Form 10-K. [X] As of February 11, 2002, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $111,835,628. Such aggregate market value was computed by reference to the closing sale price of the Common Stock as reported on the Nasdaq National Market on such date. As of February 11, 2002, there were 22,494,902 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the Registrant's 2002 Annual Meeting of Stockholders to be held on May 17, 2002, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference into Part III of this Report and certain exhibits are incorporated by reference into Part IV of this Report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS PART I
Page ---- Item 1. Business...................................................... 1 Executive Officers of the Registrant.................................... 19 Item 2. Properties.................................................... 21 Item 3. Legal Proceedings............................................. 21 Item 4. Submission of Matters to a Vote of Security Holders........... 21 PART II Market for the Registrant's Common Equity and Related Item 5. Stockholder Matters........................................ 21 Item 6. Selected Financial Data....................................... 22 Management's Discussion and Analysis of Financial Condition Item 7. and Results of Operations.................................. 23 Factors Affecting the Company's Prospects............................... 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 38 Item 8. Financial Statements and Supplementary Data................... F-1 Changes in and Disagreements with Accountants on Accounting Item 9. and Financial Disclosure................................... F-22 PART III Item 10. Directors of the Registrant................................... F-22 Item 11. Executive Compensation........................................ F-22 Security Ownership of Certain Beneficial Owners and Item 12. Management................................................. F-22 Item 13. Certain Relationships and Related Transactions................ F-22 PART IV Exhibits, Financial Statement Schedules, and Reports on Form Item 14. 8-K........................................................ F-23
This report includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements. The forward-looking statements are subject to a number of risks and uncertainties which are discussed in the section entitled "Factors Affecting the Company's Prospects." We do not intend to update any of these factors or to publicly announce the results of any revisions to these forward- looking statements. PART I Item 1. Business Overview We are a small molecule drug discovery and development business that has a pipeline of drug candidates in the areas of cancer, inflammation, and metabolic and cardiovascular diseases. Until recently when we in-licensed a compound, all of the drug candidates in our pipeline were discovered using all or a major portion of our integrated set of proprietary technologies called DiscoverWorks.(R) We believe DiscoverWorks increases the productivity of the drug discovery process by making it faster than traditional drug discovery methods and by providing our scientists with the ability to design characteristics into drug candidates that increase the probability of development success. DiscoverWorks may also enable us to discover drugs that act on many of the thousands of new drug targets revealed from sequencing the human genome. We use DiscoverWorks to discover and develop drugs for our own pipeline and in collaboration with pharmaceutical and biotechnology companies. The drug discovery process is discussed below in "--Industry Background." Our objective is to be an industry leader in the discovery and development of new drug candidates. The main elements of our strategy are to: . Expand and advance our pipeline of drug candidates: We plan to continue to expand and advance our pipeline. Our most advanced program, partnered with Centocor, Inc., a Johnson & Johnson subsidiary, has been designed to inhibit the formation of blood clots and a Phase 1 clinical program was initiated. Our next most advanced program is our pre-IND (pre- Investigational New Drug Application) thrombopoietin (TPO) mimetic drug candidate for treating people with low blood platelet counts, which is expected to begin human clinical trials in early 2003. In addition, we have three other pre-clinical programs that could advance drug candidates to human trials within the next 24 months. We may also continue to acquire targets and drug candidates for our pipeline from other pharmaceutical and biotechnology companies. . Pursue additional DiscoverWorks agreements: We intend to continue to enter into collaborative drug discovery and development agreements relating to the use of DiscoverWorks with pharmaceutical and biotechnology companies. We currently have research and development collaborations with several major pharmaceutical companies including Bristol-Myers Squibb Company and Johnson & Johnson. Our new and ongoing research and development collaborations generated $28 million in revenue during 2001. . Maintain and improve DiscoverWorks: We intend to continue to pursue technological and process innovation that allows us to continue to improve drug discovery and development productivity by improving success rates and speed. To date, we have invented the key proprietary DiscoverWorks technologies. We intend to continue to patent or otherwise protect our technological innovations to maintain our intellectual property position. . Create a world-class scientific research environment: The growth and success of our business depends on the talents of our employees. We are committed to providing our employees with a culture that emphasizes quality science, innovation, team work and empowerment. We are dedicated to continuous process improvement, implementation of new technologies, shared learning among our scientists, and innovative organizational design. Our Drug Candidate Programs With the exception of our in-licensed TPO mimetic compound, all of our programs are developing small molecule drug candidates that have been discovered and are being optimized by our scientists using DiscoverWorks. Our more advanced programs are described in the table below.
Therapeutic Molecular Target Area Indication Development Status ---------------- ----------- ---------- ------------------ Thrombin Cardiovascular Thrombosis Phase 1 program commenced Ongoing pre-clinical studies (Licensed to Centocor, Inc. /Johnson & Johnson) TPO mimetic Cancer Thrombocytopenia Pre-IND 3DP-3534 Supportive care alphavbeta/3// alphavbeta/5/ Cancer Solid Tumors Pre-clinical Bone Disorders Rheumatoid arthritis Cardiovascular Diabetic retinopathy Macular degeneration Restenosis Osteoporosis Urokinase Cancer Solid Tumors Pre-clinical Cardiovascular Restenosis, Atherosclerosis (Licensed to Berlex Laboratories, Inc. /Schering AG, Germany) C1s Inflammation Lupus, Autoimmune Diseases Pre-clinical Cardiovascular Bypass Surgery (In collaboration Pulmonary Adult Respiratory Distress with BioCryst Pharmaceuticals, Inc.) Syndrome (ARDS) Hdm2(mdm2)/p53 Cancer Adjunct to Chemotherapy and Lead Optimization interaction Cardiovascular Radiation
Oral Thrombin Inhibitors: Our most advanced cardiovascular drug discovery program focuses on the development of potent, selective, and orally active (orally administered) inhibitors of thrombin for arterial and venous thrombosis. This program is being conducted under an agreement that we entered into in December 2000 with Centocor, Inc., or Centocor, a subsidiary of Johnson & Johnson, under which Centocor acquired worldwide rights to our orally active direct thrombin inhibitor program. We are developing several compounds under this program. During 2001, the agreement with Centocor was amended to include compounds active against additional protease targets that affect coagulation. Centocor is responsible for development and worldwide commercialization of all compounds under the agreement. For the deep vein thrombosis indication, however, we have an option to co-develop and co-promote with Centocor in the United States. Under the agreement, we received an up- front cash payment of $6 million from Centocor and in October of 2001 we received a $4 million milestone payment. We could also receive additional milestone payments of up to $38 million based on the achievement of certain milestones for the first compound developed and approved under the agreement. As of December 31, 2001, we have also received research funding aggregating approximately $0.8 million, and the contract provides that we will receive committed additional funding of approximately $0.8 million over the initial two-year term of the research program. In addition, we are entitled to receive royalties on sales of any products marketed under the agreement. 2 The only oral anticoagulant currently marketed is warfarin (Coumadin(R) and generic versions). We have designed our compounds to work by a different mechanism of action from warfarin, which we believe will provide an enhanced safety profile without the need for monitoring. Our thrombin inhibitors were discovered through the close integration of structure-based drug design (the science of creating drug molecules from knowledge of the structural features of the site on the target protein at which drugs bind) and DirectedDiversity combinatorial chemistry. They represent a new class of thrombin inhibitors that potently and reversibly inhibit thrombin with excellent specificity and are orally active and efficacious in several animal models. We filed an Investigational New Drug Application (IND) with the FDA for 3DP-4815 in December 1999 and initiated Phase 1 clinical trials in January 2000. In the Phase 1 clinical trials, 3DP- 4815 exhibited good safety, surrogate efficacy and tolerability characteristics, and we are continuing additional pre-clinical studies to characterize its pharmacological profile. We are also developing alternative compounds from chemistry series different than 3DP-4815 to expand the spectrum of compound pharmacological properties suitable for full development as oral thrombin inhibitors. TPO Mimetic Program: In January of 2002, we acquired worldwide rights to a pre-IND compound, 3DP-3534, from GlaxoSmithKline plc, or GSK, for the prevention and treatment of thrombocytopenia, or low blood platelet count. We believe this compound fits well with our strategic effort in oncology. All payments that we will make to GSK will be in shares of our stock. We made an initial payment of 0.5 million shares and will issue up to 1.9 million additional shares if the compound achieves certain key development and regulatory milestone events. We expect to recognize a non-cash in-process research and development charge in the first quarter of 2002 of $4.1 million for the 0.5 million shares paid to GSK. 3DP-3534 is a pegylated synthetic TPO mimetic peptide that binds specifically to the thrombopoietin receptor. In in-vivo (evaluation in living organisms) studies, 3DP-3534 has been shown to increase the production of blood platelets, which regulate the clotting process. Our current development focus is on chemotherapy-induced thrombocytopenia. About one-third of the two million platelet transfusions administered each year in the United States are given to cancer patients, while the remainder are given to patients with a variety of conditions including coronary bypass and hepatic surgery, HIV/AIDS, hepatitis B and C, and idiopathic thrombocytopenia purpura. We are also evaluating clinical development plans in these other conditions where people are given platelet transfusions. Antagonists of alpha/v/beta/3/ and alpha/v/beta/5/ Integrins: The integrin adhesion proteins alpha/v/beta/3/ and alpha/v/beta/5/ are essential mediators of the adhesion of cells in tumor angiogenesis (the process by which tumors develop blood vessels), atherosclerosis, restenosis and osteoporosis. We have applied DiscoverWorks to the discovery of potent and selective small molecule antagonists of alpha/v/beta/3/ and alpha/v/beta/5/ and discovered several independent lead series of compounds. Our research has focused on finding selective antagonists which are equipotent at alpha/v/beta/3/ and alpha/v/beta/5/ integrins, thereby inhibiting cell adhesion or attachment as well as the migration of endothelial cells to form blood vessels in tumors. Our lead compounds have been shown to inhibit cellular processes that require functioning of alpha/v/beta/3/ and alpha/v/beta/5/ integrins. They are not cytotoxic and are being evaluated in several different in-vivo models for efficacy and pharmacokinetics. Urokinase Inhibitor Program: Our urokinase inhibitor program targets the inhibition of urokinase plasminogen activator (uPA or Urokinase). An inhibitor of uPA provides a new therapeutic approach to cancer treatment by inhibiting angiogenesis and metastasis. In addition, uPA has been identified as a target for restenosis, aneurysm, and atherosclerosis. Our lead compounds are potent and selective uPA inhibitors and have been shown to inhibit tumor cell invasion and migration of blood vessel muscle cells, and are orally active. During May 2000, we entered into a license and research agreement with Schering AG, Germany in which Schering AG obtained, for human therapeutic uses, exclusive worldwide rights to our urokinase inhibitor compounds. Under our agreement, we are responsible for further research and optimization of the compounds and Schering AG is responsible for development, marketing, and sales of the resulting products. As of December 31, 2001, we have received research funding aggregating approximately $4.1 million, and the contract provides that we will receive committed additional funding of approximately $0.9 million over the initial two- 3 year term of the research program. The contract provides that we could also receive milestone payments of up to approximately $23 million for the first product developed in a therapeutic area, and further milestones for additional therapeutic areas. After the initial research term, Schering AG, may terminate the agreement at any time on 90 days' notice. In connection with the agreement, we issued shares of our preferred stock to an affiliate of Schering AG for $5 million. These shares automatically converted into 223,214 shares of common stock upon the closing of our initial public offering. C1s Program: C1s is a serine protease that plays an important role in regulating the complement pathway, the pathway by which plasma proteins work to eliminate microorganisms and other antigens from tissues and blood. When the complement pathway is inappropriately activated or regulated, it may play a key role in several inflammation and autoimmune disorders including lupus, rheumatoid arthritis, and acute respiratory distress syndrome. We have discovered potent and selective leads that are currently being optimized further in in-vivo studies. During October 1996, we entered into a research collaboration with BioCryst Pharmaceuticals, Inc. to share resources and technology to develop inhibitors of key serine protease enzymes, including C1s, that represent promising targets for inhibiting the activation of complement. During June 1999, we updated and renewed our original agreement to concentrate on selected complement enzymes as targets for the design of inhibitors. Under our agreement, we are each responsible for our own research costs. If a drug candidate emerges as a result of our joint research, we will then negotiate the product development and commercialization rights and responsibilities. The initial term of the agreement was one year, subject to automatic annual renewal. Either of us may terminate the agreement at any time upon 60 days written notice. Hdm2(mdm2)/p53 Interaction Program: We have discovered a unique series of small molecule inhibitors of the interaction in tumor cells between two proteins, the tumor suppressor gene product p53 and another protein hdm2 which stimulates the breakdown of p53. Our compounds are active in anti- proliferative and apoptosis cellular models and are being investigated in- vivo. Our rapid progress to date with this program has resulted from the use of DiscoverWorks, where we integrated the analysis of the structure of our molecules bound to the hdm2 protein and our ThermoFluor high throughput screen, which is uniquely powerful for protein/protein interaction targets, and our powerful chemi-informatics for lead optimization. Other Internal Discovery Programs: In connection with our strategy to build our pipeline by gaining access to proprietary targets, in October 2001 we entered into a collaboration with Athersys, Inc. to discover, develop, and commercialize novel, small molecule drugs by screening against therapeutically relevant drug targets derived from the G-Protein Coupled Receptor (GPCR) family of proteins. This collaboration combines Athersys, Inc.'s functional genomics expertise with our capabilities for rapid drug identification and optimization of drug candidates. Under the terms of the agreement, certain drug candidates identified from the collaboration will be jointly developed, with the companies sharing future development costs and commercialization rights, while others will be retained exclusively by each of the parties for future development and commercialization. In addition to the programs described above, we have several other earlier stage programs focused on cancer and metabolic disease. Our Drug Discovery Collaborations We seek to enter into discovery collaborations and joint discovery programs with pharmaceutical and biotechnology companies. These arrangements can take various forms ranging from comprehensive programs to specific R&D arrangements that utilize components of DiscoverWorks for target decryption (the assessment of biochemical function) and validation, lead generation, and lead optimization (the chemical modification of leads). Our collaborations provide cash, drug targets, drug candidates, discovery and development capabilities, and other assets we need to build our company. A summary of our drug discovery collaborations is provided below. Bristol-Myers Squibb Company In July 2000, we entered into a collaboration with Bristol-Myers Squibb Company, or BMS, under which we are using our DiscoverWorks technologies to assist BMS in the discovery and development of new human 4 drugs for specific biological targets. In the initial three-year term of the research collaboration, BMS will supply biological targets and we will create chemical libraries and screen such libraries against these targets. Thereafter, the parties will decide which organization will conduct subsequent lead optimization and development activities of active hits toward creating pre-clinical drug candidates and the terms of any such extension. In addition to its collaboration in this research, BMS will be primarily responsible for pre-clinical and clinical development of identified drug candidates, and for marketing and sales of any resulting products. Under the BMS contract, we have received up-front licensing and technology access fees amounting to $19 million, and, as of December 31, 2001, we had received research funding of $7.5 million. The contract provides that we will receive committed additional research funding of approximately $6.9 million over the remaining initial three-year term of the collaboration. In addition, the contract provides that we will receive milestone payments through the development stages, and royalty payments on sales of any resulting products, with the amount at each level determined based on our involvement in the related optimization and development activities. For each compound, depending on whether stipulated pre-clinical and clinical milestones are met and depending on our level of contribution to the development of the compound, the contract provides that we could receive milestone payments aggregating from up to $4.5 million to $15 million. We have also granted BMS non-exclusive perpetual licenses under our DirectedDiversity patent rights for the duration of the licensed rights and non-exclusive perpetual licenses under our ThermoFluor technology for use by BMS in their research and development programs. BMS may terminate research activities under our collaboration with 90 days notice, without cause, but must pay any remaining research funding during the initial research term or one-half of the remaining research funding during any extended term. Following the end of the initial research or any extended research term, either party may terminate the agreement on 30 days notice if no compound is being optimized or developed under the collaborative agreement. Boehringer Ingelheim Pharmaceuticals, Inc. Effective December 1999, we entered into a collaboration agreement with Boehringer Ingelheim Pharmaceuticals, Inc., or BIPI, to use our DirectedDiversity technology to assist BIPI in the discovery of new drugs for specific biological targets in humans. The initial research term of our collaboration was for two years. In April 2001 we expanded our collaboration to cover additional targets and extended the research term through March 2003, subject to annual extensions by BIPI. In this collaboration, we have agreed to generate custom combinatorial chemistry libraries based on molecules and information provided by BIPI and will optimize those molecules into pre- clinical development candidates. BIPI is responsible for pre-clinical and clinical development, and marketing and sales of the resulting products. As of December 31, 2001, we had received up-front fees and research funding aggregating approximately $4.1 million, and the contract provides that we will also receive committed additional research funding of approximately $3.1 million over the remaining term of the collaboration. The contract provides that we could also receive milestone payments of up to $2.4 million for the first product developed, depending on whether stipulated milestones are met, and are eligible to receive additional milestones if subsequent products are developed. We are also entitled to receive royalties on sales of resulting products. BIPI may terminate the research program upon 30 days written notice provided it pays us, in most circumstances, an early termination fee if it terminates the research program prior to the end of any term. Johnson & Johnson Pharmaceutical Research & Development, L.L.C. In December 2001, we entered into a collaboration with Johnson & Johnson Pharmaceutical Research & Development, L.L.C., or J&J PRD, under which we are using our DiscoverWorks technology to discover and optimize small molecule drug leads directed towards genomics targets identified by J&J PRD. J&J PRD, will provide biological targets and we will create chemical libraries and screen such libraries against these targets. J&J PRD is responsible for subsequent lead optimization and development activities, and marketing and sales of the resulting products. The initial research term is for approximately one year, subject to renewal by mutual agreement. 5 Under the terms of this agreement, we received an up-front technology access fee and committed research funding aggregating $3.6 million over the initial term of the collaboration. The contract provides that we could also receive milestone payments of up to $4.2 million for the first product developed, depending on whether stipulated milestones are met, and could receive additional milestones if subsequent products are developed. The contract also provides that we are entitled to receive royalties on sales of licensed products. J&J PRD may terminate the research program upon 90 days notice, provided it pays the lesser of the amount due for six months or the balance of any financial support due for the remainder of the term of the research program. Aventis CropScience GmbH In October 1999, we entered into a collaboration with Hoechst Schering AgrEvo GmbH, now Aventis CropScience GmbH, or Aventis, to use our DirectedDiversity technology to assist Aventis in the discovery of compounds applicable to plant and pest management, Under our agreement, we received up- front payments and research funding totaling approximately $3.4 million. Our agreement originally had a two-year research term, which was extended until it expired in January 2002. DuPont Pharmaceuticals Company In February 2000, we entered into a collaboration with DuPont Pharmaceuticals Company (acquired by Bristol-Myers Squibb Company in October 2001), or DuPont Pharmaceuticals, to use our DirectedDiversity technology to assist DuPont Pharmaceuticals in the discovery of new human and veterinary pharmaceutical compounds for specific biological targets. Under our agreement, we received up-front payments and research funding totaling approximately $2.6 million. Our agreement had a two-year research term, which expired in December 2001. We have agreed not to work with any company other than DuPont Pharmaceuticals on compounds acting through the targets of the research program during the term of the program and for one year thereafter. Heska Corporation In December 1997, we entered into a research and license agreement with Heska Corporation, or Heska, to use our DirectedDiversity technology to assist in the discovery and development of new veterinary therapeutic agents. Under our agreement, we also granted Heska the exclusive worldwide right to license the veterinary therapeutic products developed for sale worldwide. As of December 31, 2001, we had received up-front payments and research funding totaling approximately $2.7 million. Our agreement originally had a two-year research term expiring in December 1999, which was revived and extended until May 31, 2002. Industry Background Drugs are chemical compounds that change the activity of biological target proteins associated with particular disease states to achieve the desired therapeutic effect. Using traditional approaches, it has been estimated generally to take from five to seven years from the initial identification of a protein as a suitable target for a drug to the production of a drug candidate ready to go into clinical trials. The major steps in the drug discovery process following identification of the biological target involve (a) hit identification, (b) lead generation, (c) lead optimization, and (d) target validation, each of which is described below. Hit identification: This involves the screening of large collections of compounds to identify those compounds that interact with the biological target (which may be an enzyme, receptor, or other protein). A compound that interacts with a target protein is referred to as a "hit." In order to identify hits, the following steps are undertaken: . production ("cloning and expression") of sufficient quantities of the target protein to facilitate high-throughput screening; 6 . design and development of a high-throughput screen specific to the target protein; and . screening the target protein against collections or "libraries" of compounds. Lead generation: This involves the chemical modification of hits by repeated cycles of synthesis and testing of analogs to produce "leads," which are compounds with improved chemical characteristics, thereby increasing their suitability as potential drugs. Lead optimization: This involves the further optimization of leads by additional repeated modification to produce drug development candidates with optimized characteristics for further pre-clinical and clinical development. Target validation: In parallel to the above steps in the discovery process, "target validation" studies seek to establish the link between the target protein and the particular clinical disease. These tests usually involve correlating changes in the level of the target protein in cells or animals with changes in cell biology or animal physiology characteristic of the disease state. This "biology-driven" target validation, which is generally employed today in the pharmaceutical industry, is in contrast to "chemistry- driven" target validation, where the role of the target protein in disease is determined by testing a target-specific compound in living organism models. Drug discovery has traditionally been a costly and time-consuming process in which the failure rate remains very high. Pharmaceutical companies are facing growing challenges to rapid and cost efficient drug discovery as continuing advances are made in genomics research. While there are approximately 500 currently known biological targets for human therapeutics, it is estimated that genomics research will facilitate the identification of perhaps an additional 5,000 potential targets. In order to take advantage of the wealth of opportunities presented by genomics research, pharmaceutical companies will need to generate new lead compounds on a scale commensurate with the increase in new targets. This will require the use of more advanced and integrated technologies to rapidly and cost efficiently discover and develop lead compounds. Although advances in recent years have improved the drug discovery process, there remain serious challenges, which can include: . an inability to produce in a reasonable time sufficient quantities of the target protein for high-throughput screening and concurrent three- dimensional structure analysis of the target protein; . the need to establish a different high-throughput screen for each new target, which typically can take from two to six months; . an inability to rapidly generate leads from initial hits, a process which typically can take one to two years; . the need for large resources in the lead optimization process; . an inability to incorporate desirable "drug-like" attributes (as described below) into leads and to validate target proteins sufficiently early in the optimization process; and . the time-consuming and resource-intensive nature of the biology-driven target validation process. Our Integrated DiscoverWorks Solution We believe that we provide a unique solution to the problems of efficiency and productivity in drug discovery by integrating the use of an array of advanced tools with proprietary information technology to more efficiently discover new drugs and harness the opportunities presented by genomics. We believe that our technologies offer an important solution to the resource and productivity dilemmas facing drug discovery by providing the following advantages: . Industrialization of Early Stage Drug Discovery. DiscoverWorks(R) is an integrated approach to establish the "drugability", biological functions and therapeutic relevance of the multitude of new 7 drug targets emerging from sequencing the human genome. Drugability is the determination of whether or not a small molecule can bind sufficiently to a drug target. The efficiency and broad applicability of our ThermoFluor(R) high-throughput screen, coupled with rapid chemical property optimization enabled by DirectedDiversity(R) combinatorial chemistry and chemi-informatics, allow us to rapidly discover compounds that can be used to directly test therapeutic ideas for drug action in biological disease models. This approach, which we call chemi-genomics, allows targets to be prioritized and medicinal chemistry to begin at the earliest stage of the drug discovery process. We believe this increases the success rate of the drug discovery process and decreases the time required to discover and develop drugs. . Improved Compound Characteristics. Our DirectedDiversity process and structural biology capabilities enable our scientists to design "drug- like" characteristics into our compounds throughout the lead generation and optimization processes. We believe this will increase the probability of development success of our drug candidates. We believe our technology reduces the risk in discovery and early development by facilitating better, more timely decisions in discovery and development. We believe that the key benefits of our technology, with its broad applicability, will be even more important to the pharmaceutical industry as the genomics revolution continues to expand the number of new molecular targets. Our DiscoverWorks Technology Platform DiscoverWorks is a highly integrated platform for drug discovery that links our ThermoFluor high-throughput screen, Chemical Probe and computer-based Synthetically Accessible Libraries, DirectedDiversity chemi-informatics and combinatorial chemistry and structure-based drug design. Starting from the DNA sequence of a molecular target, we can generate chemical leads that can be used to test a disease hypothesis in a biological model and to serve as starting points for lead optimization. Our DiscoverWorks technologies can efficiently assimilate and process vast quantities of data produced from the combination of combinatorial chemistry and high-throughput screening, and can be rapidly and efficiently scaled to meet increasing demand. Our DiscoverWorks process integrates the following technologies: Target Protein Production Timely large-scale production of target proteins is essential for effective quantitative high-throughput screening and analysis of the three-dimensional structure of the target. We have extensive experience in cloning, engineering and expressing target proteins using a wide array of bacterial, insect cell, and mammalian cell expression systems. We believe we can produce large quantities of many types of target proteins in order to facilitate high- throughput screening and target protein three-dimensional structure analysis. ThermoFluor High-Throughput Screening Our proprietary ThermoFluor high-throughput screening process is a direct binding assay that measures the affinity of compounds in a screening library to a target protein. ThermoFluor has broad target applicability because it is based on the fact that most targets are proteins that melt at defined temperatures. Drugs can be screened and their affinity measured by measuring any difference in protein melting temperature with and without the drug present. ThermoFluor can be applied with equal effectiveness to many varieties of enzymes, receptors, growth factors, antibodies, cell adhesion molecules (molecules that influence contact between cells), and other target proteins. We have developed ThermoFluor in an automated computer workstation format using 384-well assay plates with integrated data processing and database connectivity. We are continuing to develop ThermoFluor to incorporate improvements that improve its versatility and enhance throughput. ThermoFluor is able to directly discover leads for target proteins with unknown biological function, including the thousands of new targets being identified through genome sequencing. We believe ThermoFluor 8 significantly shortens the time required for target-specific high-throughput screen development and compound library screening. The ThermoFluor assay developed and used for high-throughput screening can also be applied during lead generation and optimization, offering additional time and cost savings in the discovery process. The technology is portable and can be scaled up to screen very large numbers of compounds at many targets. ThermoFluor Target Decryption and Protein Characterization We believe ThermoFluor screening can be used to assess the biochemical function (i.e. class of enzyme, receptor etc.) of targets emerging from genomics and proteomics research. This capability is referred to as "target decryption". The knowledge of the biochemical function of a potential target that can be obtained with ThermoFluor can provide, in addition to establishing a defensible intellectual property position, key information regarding target "drugability", potential side effect profile, functional uniqueness, and guidance for focusing a screening campaign that can lead to the discovery of compounds that can be used as pharmacological probes for validating the role of the target in disease model systems ("chemi-genomics" or chemistry driven target validation). DirectedDiversity Probe Library In order to initiate our DiscoverWorks discovery process, we have constructed a DirectedDiversity Probe Library incorporating approximately 300,000 individually synthesized "drug-like" compounds. The library includes a diversity of chemical structures that are representative of the three- dimensional molecular shapes that we believe are useful for targeting drug binding sites on proteins and that possess "drug-like" properties, that is, the structural and physicochemical characteristics (such as shape and molecular weight) commonly found in orally active, small molecule marketed drugs. Prior to including a compound in our Probe Library, we extensively analyze and accumulate information on the compound, including a comprehensive set of approximately 600 molecular descriptors (physicochemical characteristics of a molecule, such as shape and molecular weight). The Probe Library includes sub- libraries directed toward classes of enzyme targets called serine proteases and metalloproteases, receptor tyrosine kinases, GPCRs, and several other receptor classes with broad therapeutic relevance. DirectedDiversity Synthetically Accessible Library To complement our Probe Library, we have generated a computer-based Synthetically Accessible Library of multi-billion compounds that are analogs of the compounds in our Probe Library. Each compound in the Synthetically Accessible Library can be synthesized using automated chemistry synthesis protocols. For a typical optimization cycle, we select a focused library varying from 100 to 1,000 compounds from our Synthetically Accessible Library and synthesize them within two to three weeks. As with our Probe Library, each of the compounds in our Synthetically Accessible Library is indexed using a comprehensive set of approximately 600 molecular characteristics. In August 2001, we formed a collaboration with Cyprotex Services Limited, or Cyprotex, aimed at providing parameters useful for improving the prediction of ADME (Absorption, Distribution, Metabolism, Excretion) properties of compounds. The collaboration is geared towards integrating the application of Cyprotex ADME prediction methods with our DiscoverWorks process to improve the development success rate of drug candidates. DirectedDiversity Chemi-informatics Software and Databases Using the 600 molecular characteristics referred to above and artificial intelligence computer procedures, our DirectedDiversity chemi-informatics software helps assure that properties important in drug development, such as potency, selectivity, bio-availability, and minimal toxicity, are factored into compound selection for inclusion in a focused library, and more broadly, in the lead generation and lead optimization processes. Through 9 our ability to rapidly select and synthesize a focused library of compounds in each optimization cycle, our chemists can test many optimization hypotheses in parallel, with all information tracked and captured by the DirectedDiversity software for use in future compound synthesis and testing cycles and other discovery programs. The combination of the detailed chemical description of each of our compounds and the biological screening data that is generated provides a valuable drug property database for lead generation and further optimization. We believe that traditional approaches to library generation using combinatorial chemistry are less directed and information-rich, and therefore an unnecessary expenditure of time and effort may be required in the discovery process, and the compounds produced may lack required properties for orally active drugs. Automated Chemical Synthesis Technologies We have a broad range of modern parallel synthetic technologies, which affords us the capacity to synthesize over 10,000 compounds per month. We believe this compound production is sufficient to support multiple concurrent discovery programs and can be readily expanded. Structure-Based Drug Design Technology Our DiscoverWorks platform integrates structure-based drug design technology that uses X-ray crystallography to directly visualize how lead compounds bind to a target protein. Structure-based drug design allows the atom-by-atom modification of leads to produce chemically new compounds with high potency and specificity toward a given target protein. We have established a state-of-the-art facility for protein production, crystallization, X-ray crystallography, and computational chemistry to carry out three-dimensional structure determination of target proteins and their bound complexes with lead compounds. In addition, we have access through our membership in the Industrial Macromolecular Crystallography Association (IMCA) to the Advanced Photon Source at the Argonne National Laboratory in Argonne, Illinois. The integration of DirectedDiversity technology with structure-based drug design allows us to automate the parallel design and chemical synthesis of compounds, enabling the simultaneous investigation and optimization of multiple drug properties. We refer to this as the coupling of high-throughput co-structure analysis and high-throughput chemistry. Chemi-Genomics: Chemistry-Driven Target Validation Our chemistry-driven target validation process, also referred to as chemical genomics or chemi-genomics, relies on the broad capability of our ThermoFluor screen, coupled with our ability using DirectedDiversity to rapidly generate leads suitable for testing therapeutic hypotheses in biological models. By capitalizing on DiscoverWorks, we can perform chemistry- driven validation of new genomics targets early in the discovery process. We believe this provides a unique advantage that allows us to prioritize targets early, on the basis of therapeutic utility and drugability. GPCR Technology Program G-protein coupled receptors, or GPCRs, are an important class of target proteins that exist on the surface membrane of all cells, and are associated with a wide range of therapeutic categories. We have an ongoing program aimed at the three-dimensional structure determination of a drug target GPCR using X-ray crystallography. Successful crystallization of drug target GPCRs may present a novel opportunity to exploit this broad and important range of drug targets, benefiting both our internal discovery programs and pharmaceutical and biotechnology company collaborations. Our collaboration with Athersys, Inc. is focused on screening at several GPCR targets using our GPCR-directed probe libraries. 10 Intellectual Property Protection of our intellectual property is a strategic priority. Our ability to protect and use our intellectual property rights in the continued development and commercialization of our technologies and drug candidates, operate without infringing the proprietary rights of others and prevent others from infringing on our proprietary rights is crucial to our continued success. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade secrets, know-how or other proprietary information. We currently rely on a combination of patents and pending patent applications, some of which we license and most of which we own, and on trademarks, copyrights, trade secrets, know-how and proprietary information, to protect our interests as we continue to develop and commercialize our technologies and drug candidates. We devote significant resources to obtaining, enforcing and defending patents, as well as developing and protecting our other proprietary information. Our comprehensive patent strategy is to augment our broad proprietary portfolio by continuing to actively seek patents for our technologies and compounds. We have already obtained patents or filed patent applications on a number of our technologies and on certain of the compounds we have developed. We also have certain proprietary trade secrets and know-how that are not patentable or for which we have chosen to maintain secrecy rather than file for patent protection. We have taken certain security measures to protect our trade secrets, proprietary know-how, technologies and confidential information and continue to explore further methods of protection. We have executed confidentiality agreements with our employees and consultants upon the commencement of an employment or consulting arrangement with us. These agreements require that all confidential information developed or made known to the individual by us during the course of the individual's relationship with us be kept confidential and not disclosed to third parties. These agreements also provide that inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. We also attempt to limit access to, and dissemination of, our confidential information. Our intellectual property estate is as follows: Drug Discovery Program Patents We have 22 issued U.S. Patents, three Australian patents, three New Zealand patents, two South African patents, one Pakistani patent and one Singapore patent covering our drug discovery program inventions. The patents cover various, distinct families of new compounds, methods of making compounds, pharmaceutical compositions, and methods of using the compounds for treating particular disease states and for inhibiting proteases, or in one instance, for antagonizing certain adhesion proteins. We also have 30 pending U.S. patent applications, four of which have received a notice of allowance from the U.S. Patent & Trademark Office, 164 pending foreign patent applications, and five applications in preparation. These applications describe and claim distinct families of new compounds, methods of making the compounds, and pharmaceutical compositions. These applications also variously describe and claim methods of using compounds for treating particular disease states, methods of using compounds for inhibiting proteases, methods of using compounds for antagonizing certain adhesion proteins, methods of using compounds for antagonizing insect GABA receptors and for use as pesticides, methods of using compounds for inhibiting plasminogen activation inhibitor-1 activity, and methods of using compounds for inhibiting mdm2-p53 interactions. The proteases that are inhibited by protease inhibitors described and claimed in the issued patents and pending applications variously include, but are not limited to, thrombin, factor Xa, urokinase, and complement C1s. Particular disease states to which the issued patents and pending applications are directed are described in the sections entitled "--Our Drug Candidate Programs" and "--Our Drug Discovery Collaborations." 11 We have two issued U.S. patents and three allowed U.S. applications covering lead compounds and their manufacture and use in our thrombin program, one issued U.S. patent and one allowed U.S. application covering lead compounds and their manufacture and use in our urokinase program, one issued U.S. patent and one allowed U.S. application covering lead compounds and their manufacture and use in our C1s complement program, and one issued U.S. patent and one allowed U.S. application covering lead compounds and their manufacture and use in our integrin program. However, we may be unable to obtain any issued patents for any patent applications we have filed or may file in the future on our drug discovery inventions. Furthermore, if a compound considered a lead compound at present changes in the future, we may have to file new patent applications to cover the new one. We have an exclusive, worldwide license from GSK to patents that cover 3DP- 3534, in its pegylated and unpegylated forms, and methods of treatment with 3DP-3534, for in-vivo administration. We also have a worldwide, exclusive license to other patents owned by another entity and directed to certain polyethylene glycol moieties for use in preparing 3DP-3534. DirectedDiversity Combinatorial Chemistry Process Patents Our DirectedDiversity technology is protected by five issued U.S. patents. Collectively, these patents provide apparatus and process patent coverage for the automated, semi-automated and/or manual computer-directed selection, synthesis, testing, and refinement of compounds in chemical libraries, including the computer codes that allow implementation of this process. In October 1995, we were issued our first U.S. patent covering our DirectedDiversity technology. The patent covers the use of semi-automated feedback control for refining the properties of combinatorial libraries for all applications in which suitable properties can be measured (e.g., drugs, herbicides, paints, scents, solvents, advanced materials, etc.). A second U.S. patent related to our DirectedDiversity technology was issued in November 1996 covering the automatic generation of new drug leads through computer- controlled, iterative robotic synthesis and analysis of chemical libraries. Our third U.S. patent, issued in November 1997, covers additional features of our DirectedDiversity technology, including inventions related to computer software for semi-automatic and automatic generation of compounds of interest. We received our fourth U.S. patent for DirectedDiversity in May 1999, covering the generation of new drug leads through computer-controlled, iterative robotic synthesis and analysis of chemical libraries. Our fifth patent issued September 2001, covering the method, system and computer program product for representing the similarity/dissimilarity between chemical compounds. We also have four Australian patents and two Israeli patents, one Taiwan patent and one allowed application in India that cover our DirectedDiversity technology described above. Additionally, we have 13 pending U.S. patent applications and 43 pending foreign patent applications. In addition to our DirectedDiversity technology described above, these patent applications cover new methods for handling large multidimensional data sets. Within our DirectedDiversity technology, these methods are utilized for visualizing chemical compound similarity/dissimilarity, for lead identification, and for lead optimization. The methods for handling large multi-dimensional data sets have applications beyond our DirectedDiversity technology. ThermoFluor Patents We have 11 issued U.S. patents covering our ThermoFluor screening and protein characterization technology, process and instruments. These U.S. patents cover methods for screening compounds for binding to proteins and nucleic acids; an instrument for implementing these methods for screening compounds; methods for screening for biochemical conditions that stabilize proteins and nucleic acids; methods for screening for biochemical conditions that facilitate protein crystallization; methods for screening for biochemical conditions that promote recombinant protein folding; methods for screening for lead compounds that bind to a target receptor; methods and apparatus for sensing emission fluorescence; and methods of screening for molecules in combinatorial systems. 12 We also have six pending U.S. applications, one New Zealand patent and 19 pending foreign patent applications covering this technology. At least one of the pending applications cover "functional genomics," which include methods for screening proteins of unknown function in order to determine the function of newly discovered proteins. Under the terms of a settlement agreement with Anadys Pharmaceuticals, Inc. (formerly Scriptgen Pharmaceuticals, Inc.) or Anadys, relating to an action that Anadys brought against us in the United States District Court for the District of Delaware on October 13, 1998 for our alleged infringment of two patents, we acquired a limited license to Anadys' ATLAS (Any Target Ligand Affinity Screen) assay technology and Anadys was granted a limited license to the method claims of our ThermoFluor assay technology. Neither of these licenses is exclusive. Under this agreement, we paid Anadys $1.5 million and Anadys released us from all claims of infringement with respect to those two patents. The settlement agreement restricts us, until March 7, 2003, from specified activities in connection with screening drugs useful for treating "infection" (defined as relating to drugs whose principal aim is to treat or cure infectious disease in humans). As part of this settlement agreement, we are precluded from using our ThermoFluor screening technology in the Hepatitis C Virus "infection" area as part of collaborative agreements or as part of our internal drug programs until March 7, 2003. In addition, we are precluded from using our ThermoFluor screening technology as part of more than one collaboration agreement in other areas of "infection" until March 7, 2003, and such collaborative agreement must be limited to a maximum of three anti-viral targets. Our collaboration with Bristol-Myers Squibb Company constitutes the one permitted collaboration agreement in the area of infection. The settlement with Anadys, however, does not restrict use of our ThermoFluor screening technology for our internal drug discovery efforts, other than the limitation with respect to Hepatitis C Virus "infection," or for purposes of collaborative agreements outside the area of "infection." In addition, if our use of ThermoFluor facilitates the discovery of a drug used to treat infectious disease, we are obligated to pay Anadys a royalty based on revenue from the sale of such a drug. U.S. Government Grants We have been awarded a number of U.S. government grants to fund a variety of internal scientific programs and undertake exploratory research. Under these grants, we retain ownership of all intellectual property and commercial rights generated during these projects, subject to a non-transferable, paid-up license for the use by or on behalf of the United States of the inventions made with federal funds. This license is not exclusive and is retained by the U.S. government as provided by applicable statutes and regulations. We have received the following government grants and awards from the National Institutes of Health (Small Business Innovative Research "SBIR" grants) and the National Institute of Standards and Technology (Advanced Technology Program "ATP" award) during the past several years under which we have received a total of approximately $3.9 million:
Grant/Award Title Grant/Award Date - ----------------- ---------------- Automated Receptor Screening by Thermal Physical Assays (SBIR)(Phase 1)............................................. May 1995 Crystallization and Structural Determination of G-Coupled Protein Receptors (ATP)..................................... August 1995 Protein Engineering a Receptor Antagonist (SBIR)(Phase 1).... September 1995 Automated Receptor Screening by Thermal Physical Assays (SBIR)(Phase 2)............................................. September 1996 Four Helix Bundle Analog of a G-Protein Coupled Receptor (SBIR)(Phase 1)............................................. February 1999 Expression of G-Protein Coupled Receptors for Structure Determination (SBIR)(Phase 1)............................... September 1999 Four Helix Bundle Analog of a G-Protein Coupled Receptor (SBIR)(Phase 2)............................................. March 2000 Expression of G-Protein Coupled Receptors for Structure Determination (SBIR)(Phase 2)............................... June 2001
The sponsoring agencies make decisions annually on continuations of multi- year awards based on the availability of funds from the United States Congress and our satisfactory performance under each grant or award. 13 Government Regulation The U.S. Food and Drug Administration (FDA) and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements on the development, manufacture and marketing of pharmaceutical candidates. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record-keeping, approval, promotion and advertising and pricing of our drug candidates and those of our collaborative partners. Obtaining marketing approvals and later complying with ongoing statutory and regulatory requirements are costly and time-consuming. Any failure by us or our collaborators, licensors or licensees to obtain, or any delay in obtaining, regulatory approvals or in complying with other requirements could adversely affect the commercialization of drug candidates and our ability to receive up- front payments, milestone payments or royalty revenues. The steps required before a new drug candidate for humans may be distributed commercially in the U.S. generally include: . conducting appropriate laboratory evaluations of the drug candidate's chemistry, formulation and stability, and pre-clinical studies to assess the potential safety and efficacy of the product candidate; . submitting the results of these evaluations and tests to the FDA, along with manufacturing information and analytical data, in an investigational new drug application (IND); . obtaining approval of Institutional Review Boards, or IRBs, to introduce the drug into humans in clinical studies; . conducting adequate and well-controlled human clinical trials that establish the safety and efficacy of the drug candidate for the intended use, typically in the following sequential, or slightly overlapping, stages: Phase 1: The drug candidate is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion; Phase 2: The drug candidate is studied in patients to identify possible adverse effects and safety risks, determine dosage tolerance and the optimal dosage, and collect some efficacy data; Phase 3: The drug candidate is studied in an expanded patient population at multiple clinical study sites to confirm efficacy and safety at the optimized dose, by measuring a primary endpoint established at the outset of the study; and Phase 4: The FDA may in some circumstances require post-marketing studies to delineate additional information about a drug's risks, benefits and optimal use; . submitting the results of preliminary research, pre-clinical studies, and clinical trials as well as chemistry, manufacturing and control and labeling information on the drug candidate to the FDA in an New Drug Application (NDA) or Biologics License Application (BLA); . payment of fees authorized by the Prescription Drug User Fee Act ("PDUFA") which include a one-time application fee for approval of an NDA or BLA, an annual establishment fee imposed on facilities used to manufacture prescription drugs and biologics, and an annual product fee imposed on prescription drugs and biologics after FDA approval; and . obtaining FDA approval of the NDA or BLA, including inspection of manufacturing facilities, prior to any commercial sale or shipment of the drug candidate. The steps required before a new animal drug may be distributed commercially in the U.S. are similar to the foregoing. The major differences are that additional safety issues need to be addressed if the target animal(s) will contribute or be part of human food, and the requisite clinical study requirements for animal drugs are oftentimes less expensive than those for human drugs. Also, there are no user fees for New Animal Drug Applications (NADAs). 14 Upon approval, a drug candidate may be marketed only in those dosage forms and for those indications approved in the NDA, BLA or NADA. In addition to obtaining FDA approval for each indication to be treated with each product candidate, each foreign and domestic drug candidate manufacturing establishment must register with the FDA, list its product candidates with the FDA, comply with current good manufacturing practices (cGMPs) and permit and pass manufacturing plant inspections by the FDA. Moreover, the submission of applications for approval may require additional time to complete manufacturing stability studies. Foreign companies that manufacture drug candidates for distribution in the United States also must list their product candidates with the FDA and comply with cGMPs. They are also subject to periodic inspection by the FDA or by local authorities under agreement with the FDA. Moreover, approval of drug candidates may be delayed by certain market exclusivity and patent protections awarded to other parties concerning similar products or drug candidates. Any drug candidates that we or our collaborators manufacture or distribute under FDA approvals are subject to extensive continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences with the product candidate. Additionally, if we or our collaborators propose any modifications to a product, including changes in indication, manufacturing process, manufacturing facility or labeling, we or our collaborators may be required to submit an NDA/NADA supplement to the FDA. The promotion and advertising for drugs that we or our collaborators market are also subject to review and can be the subject of possible FDA action. Failure to comply subjects the manufacturer to possible FDA action, such as warning letters, suspension of manufacturing, seizure of the product, voluntary recall or withdrawal of a product or injunctive action, as well as possible civil or criminal penalties. We currently rely on, and intend to continue to rely on, third parties to manufacture our compounds and product candidates. These third parties will be required to comply with cGMPs. Products manufactured in the United States for distribution abroad will be subject to FDA regulations regarding export, as well as to the requirements of the country to which they are shipped. These latter requirements are likely to cover the conduct of clinical trials, the submission of marketing applications, and all aspects of manufacturing and marketing. Such requirements can vary significantly from country to country. As part of our strategic relationships, our collaborators may be responsible for the foreign regulatory approval process for our product candidates, although we may be legally liable for noncompliance. We and our collaborators are also subject to various federal, state and local laws, rules, regulations and policies relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with our research work. Also, the availability and levels of government or third-party payor reimbursement for our products and those of our collaborators/licensees that involve our technology will have a considerable impact on our revenues and business. The availability and scope of government and third-party reimbursement for drugs are subject to ongoing debate and change. For example, the U.S. Congress is actively debating whether and how to provide prescription drug benefits to Medicare beneficiaries. Government and third-party payors are continuously striving to reduce reimbursement levels for healthcare products, and these cost control initiatives may be applied to our products or those of our collaborators/licensees. Further, changes in government reimbursement are oftentimes adopted by other payors. The extent of government regulation which might result from future legislation or administrative action cannot be accurately predicted. As a result, the actual effect of these developments on our business is uncertain and unpredictable. Competition We compete both in the markets for pharmaceutical products and the markets for drug discovery technologies and services. Our principal competitors are the internal drug discovery departments of our pharmaceutical company customers and potential customers. Many of our customers and potential customers have developed or acquired or are developing or are acquiring integrated drug discovery capabilities that use combinatorial chemistry, chemi-informatics software, structure-based drug design and high-throughput 15 screening. In addition, many of these companies have large collections of compounds that they have previously synthesized, purchased from chemical supply catalogs or obtained from other sources against which they may screen new targets. For drug candidates that we seek to develop commercially and/or outlicense from our drug discovery pipeline, we face, and will continue to face, intense competition from organizations such as large pharmaceutical and biotechnology companies. Competition with any of the programs in our internal drug discovery pipeline may arise from current or future drug candidates in the same therapeutic class or other classes of therapeutic agents or other methods of preventing or reducing the incidence of disease. In addition, any drug candidate that is successfully developed may compete with existing therapies that have long histories of safe and effective use. Due to perceived shortcomings of available agents and the large market potential, competition to develop a safe, orally active antithrombotic agent is intense, with many discovery programs in process, including programs in clinical development by AstraZeneca, Pfizer Inc., and Abbott Laboratories. In addition, we are aware of several other programs targeting additional proteins in the coagulation process that could be competitive with our thrombin inhibitor, including programs of Schering AG, Germany and AstraZeneca. We are aware of an oral heparin program of Emisphere Technologies, Inc., believed to be in Phase 2, which may also compete with our thrombin inhibitor. In addition, oral agents that effect blood platelet activation could provide competitive therapeutic approaches to oral inhibitors of the coagulation process. We are aware of such drug development programs at Merck & Co., Inc., GlaxoSmithKline plc, Bristol-Myers Squibb Company, and Schering-Plough Corporation, among others. Our thrombopoietin-mimetic compound, 3DP-3534, with potential for prophylaxis and/or therapy for chemotherapy-induced thrombocytopenia, competes directly with the recombinant form of the natural human hormone (rhTPo) currently in Phase 3 clinical development by Pharmacia Corporation. We also are aware of a related product by Receptron, Inc. that is in Phase 1 clinical trials as a thrombopoietin receptor modulator. In addition, several companies may be attempting to develop small molecule agonists of the human thrombopoietin receptor in pre-clinical studies. Our orally active alpha/v/beta/3//alpha/v/beta/5/ integrin antagonist program for the treatment of solid and metastatic tumors, osteoporosis, and arthritis has significant competition from several companies. We are aware of competing small molecule programs at GlaxoSmithKline plc, Merck & Co., Inc., Pharmacia Corporation., and Merck KGaA that may have advanced one or more compounds into clinical trials. In addition, we are aware of programs at MedImmune and Centocor, Inc. developing humanized monoclonal antibodies against specific integrins to target tumor angiogenesis and/or rheumatoid arthritis among other indications. Our orally active urokinase inhibitor for the inhibition of cancer metastasis and tumor angiogenesis faces competition from a number of agents and approaches under development. We are aware of competing small molecule inhibitor programs at Abbott Laboratories, Pfizer Inc., Celera Genomics Group, Corvas International, Inc., and Wilex Biotechnology GmbH. We are also aware of programs aimed at developing compounds that are antagonists of the receptor for urokinase that could compete with our oral urokinase inhibitor. There are also a number of alternative approaches to controlling angiogenesis or metastasis including the use of a) inhibitors of matrix metalloproteases, which are protease enzymes that destroy the matrix material that binds cells together, including programs by British Biotech plc, Bristol-Myers Squibb Company, Pharmacia Corporation, and Pfizer, Inc., b) inhibitors of endothelial cell receptor tyrosine kinases, including programs by AstraZeneca, Pharmacia Corporation, Cephalon, Inc., and Merck & Co., Inc., and c) other therapeutic proteins or monoclonal antibodies that target a variety of processes in cancer cells. Our C1s complement antagonist program for the treatment of inflammatory diseases such as rheumatoid arthritis and lupus faces significant industry competition as well. We are aware of programs targeting various proteins in the complement activation cascade, including a humanized antibody directed against complement factor C5 by Alexion Pharmaceuticals, Inc. currently in Phase 2 clinical trials and a soluble complement receptor by AVANT Immunotherapeutics, Inc. In addition, small molecule programs directed against complement factors have been reported by Abbott Laboratories, Merck & Co., Inc., and Pfizer Inc. 16 Our hdm2 antagonist program, targeting a key molecular regulator of the well-known tumor suppressor gene p53, is also an area of active research in the pharmaceutical industry. In this regard, we are aware of pre-clinical research programs targeting hdm2 at AstraZeneca and Novartis AG. In additional, many companies are working on alternative ways to modulate normal p53 functioning, including various gene therapy and biological approaches. Other earlier-phase research programs in small molecule drug discovery are also in highly competitive areas. Many companies are working in these areas, and they may achieve earlier or greater success than we may be able to achieve. Most of our competitors, either alone, or together with their collaborators, have substantially greater research and development capabilities and financial, scientific, operational, marketing, and sales resources than we do, as well as significantly more experience in research and development, clinical trials, regulatory matters, manufacturing, marketing, and sales. These competitors and other companies may have developed or may in the future develop new technologies or products that compete with ours or which could render our technologies and products obsolete. In addition, our competitors may succeed in obtaining broader patent protection, receiving FDA approval for products, or developing and commercializing products or technologies before us. We also compete with these organizations in recruiting and retaining qualified scientific and management personnel. We also compete with biotechnology and drug discovery services companies, academic and scientific institutions, governmental agencies, and public and private research organizations. We face competition based on numerous factors, including size, diversity and ease of use of compound libraries, speed and cost of identifying and optimizing potential lead compounds and patent position from companies offering one or more technology components of the discovery process. Companies such as Aurora Biosciences Corporation (recently acquired by Vertex Pharmaceuticals Incorporated) and EVOTEC BioSystems AG have developed ultra-high-throughput screening capabilities. In addition, several competitors, including Anadys Pharmaceuticals, Inc., Novalon Pharmaceutical Corporation, Cetek Corporation, NeoGenesis Pharmaceuticals, Inc., and Signature Pharmaceuticals, Inc., have developed alternative approaches to screening protein targets of unknown function that are competitive with our ThermoFluor technology. There are many companies that provide combinatorial chemistry services for lead generation and optimization that compete with our DiscoverWorks technologies and discovery services. Competitors such as Pharmacopeia, Inc., ArQule, Inc., Discovery Partners International, Inc. and MediChem Life Sciences, Inc. (recently purchased by deCODE Genetics, Inc.) use computer methods to assist in the design of large screening libraries and synthesize them using combinatorial or parallel chemical synthesis methods, which are competitive with our DirectedDiversity technology. Competitors such as Accelerys Inc. (a division of Pharmacopeia, Inc.), Tripos, Inc., and MDL Information Systems, Inc. are computer software companies that offer chemi- informatics and other software and database services to support drug discovery, which are competitive with the software components of our DirectedDiversity chemi-informatics technology. Competitors such as Vertex Pharmaceuticals Incorporated, Millennium Pharmaceuticals, Inc., and Axys Pharmaceuticals, Inc. (recently purchased by Celera Genomics, Inc.) extensively use structure-based drug design or genomics technologies integrated with combinatorial chemistry and other drug discovery technologies. These entities compete with us either on their own or in collaborations. Companies such as Arena Pharmaceuticals, Inc., Synaptic Pharmaceutical Corporation, and EVOTEC BioSystems AG have developed GPCR screening technologies that offer alternative approaches to GPCR drug discovery which may be competitive with our structure-based drug design approach. In addition, both internal drug design units at major pharmaceutical companies and companies offering protein modeling services, such as Structural Bioinformatics, Inc. and BioIT Inc, may compete with 3DP's approach, while companies such as Structural GenomiX Inc., Astex Technology Ltd, and Syrrx, Inc. specialize in the use of high throughput crystallography for drug discovery and may have competitive GPCR crystallography programs. While we believe that our integration of proprietary technologies for drug discovery provides us with a competitive advantage over many of our competitors and intend to further develop our integrated "target-to-lead" technologies, we recognize that many of our competitors will seek to integrate and improve their technologies to provide discovery capabilities similar or superior to those provided by us. 17 Clinical Testing Strategy We do not have the ability to independently conduct clinical studies and obtain regulatory approvals for our drug candidates. To the extent our collaborators do not perform these functions, we rely and intend to continue to rely on third-party expert clinical investigators and clinical research organizations to perform these functions. Manufacturing Strategy We are an early stage drug discovery company and, accordingly, do not at this stage require commercial scale manufacturing capabilities. We currently rely, and anticipate continuing to do so for the foreseeable future, on internal capabilities for synthesis of the small amounts of chemical compounds required for the discovery phases of our internal programs and external collaborations. Completion of any pre-clinical trials for our drug candidates involving large quantities of chemical compounds, or any future clinical trials and commercialization of our drug candidates by us or our collaborators, will require access to, or development of, facilities to manufacture a sufficient supply of our drug substance. We do not have the facilities or experience to manufacture the quantities of drug substance necessary for any such trials or commercial purposes on our own and do not intend to develop or acquire facilities for the manufacture of such quantities of drug substance in the foreseeable future. We currently intend, instead, to rely on our collaborators and third-party contract manufacturers. In connection with our TPO mimetic compound 3DP-3534, we have signed a license, manufacturing, and supply agreement with Shearwater Corporation, a subsidiary of Inhale Therapeutic Systems, Inc., to provide a key ingredient required for the manufacture of the drug substance. Under the terms of this agreement, we will pay for the supply of the ingredient and may pay milestones, and royalties on product sales. We are currently working with other third-party manufacturers to provide adequate quantities of drug substance to meet our clinical development requirements. In addition, for drug candidates that we have licensed or may in the future license to third-party collaborators for further development and commercialization, we must rely on our collaborators' ability to manufacture, or to have manufactured, the quantities necessary for further development and commercialization. Marketing and Sales We sell and license our DiscoverWorks drug discovery services, technologies, and drug candidates through a direct marketing effort to pharmaceutical and biotechnology companies. Since we are an early-stage company, we do not have an established sales and marketing department. Instead, we solicit potential collaborative partners primarily through the efforts of our management and business development teams. We also present at industry conferences and have an internet web site that describes our products and services. We currently have no sales, marketing, or distribution capabilities to commercialize our drug candidates. In order to commercialize drugs, we will either internally develop sales, marketing, and distribution capabilities or make arrangements with third parties to perform these services. Employees As of March 1, 2002, we had 204 full-time employees, 89 of whom hold Ph.D. degrees. Of these employees, 161 were engaged in research and development and 43 were engaged in business development, finance, legal, facility operations, and general administration. Our scientific staff includes: 61 biologists, 73 chemists, and 27 computer scientists and engineers. Many of our employees have extensive experience in drug discovery at major pharmaceutical companies. None of our employees are represented by labor unions or covered by collective bargaining agreements. We have not experienced any work stoppages, consider our employee relations to be good, and believe that we enjoy a strong corporate culture built on cooperation among our various departments, which we view as a key element in our interdisciplinary approach to research. 18 Executive Officers of the Registrant The following table sets forth certain information concerning the executive officers, as well as certain other members of senior management, of the Company:
Name Age Position ---- --- -------- David C. U'Prichard, Ph.D............. 53 Chief Executive Officer President and Chief Scientific F. Raymond Salemme, Ph.D.............. 57 Officer John M. Gill.......................... 50 Chief Operating Officer Roger F. Bone, Ph.D................... 44 Senior Vice President, Research & Development Scott M. Horvitz...................... 43 Vice President, Finance and Administration, Secretary, Treasurer Brian R. MacDonald, MB ChB and Ph.D... 42 Vice President, Development Kathy A. Quay......................... 46 Vice President, Human Resources Melinda P. Rudolph.................... 44 Vice President, General Counsel
Dr. David C. U'Prichard joined us in September 1999 as our CEO and a member of our Board of Directors. From 1997 to 1999, Dr. U'Prichard served as President of Research and Development at SmithKline Beecham. While at SmithKline Beecham, Dr. U'Prichard oversaw the entry of approximately ten compounds into global development, the international registration of the diabetes drug Avandia(R) and the entry of four compounds into Phase 3 trials and six compounds into early clinical trials; additionally, he instituted several major restructuring efforts at the company. Prior to SmithKline Beecham, he worked for ICI/Zeneca (now AstraZeneca) from 1986 to 1997, as Executive Vice President and International Research Director from 1994 to 1997. Previously, Dr. U'Prichard was instrumental in the launch of Nova Pharmaceuticals in 1983, following an academic career as the Associate Professor of Pharmacology and Neurobiology at Northwestern University Medical School (1978-83), and his postdoctoral fellowship at Johns Hopkins University (1975-78). Dr. U'Prichard received his Ph.D. in Pharmacology from the University of Kansas, and his B.S. in Pharmacology with first-class honors from the University of Glasgow, Scotland. He has held academic appointments at Northwestern University, Johns Hopkins University and the University of Pennsylvania and is an Honorary Professor at the University of Glasgow. He is also an author of more than 100 primary and review publications, was a founding co-editor of Molecular Neurobiology and co-editor of Epinephrine in the Central Nervous System and has served as a member of various editorial boards. Dr. U'Prichard serves on the Board of Directors of Lynx Therapeutics, Inc., a public company. Dr. U'Prichard also serves on the Board of Directors of Predict, Inc., RiboTargets plc, and GeneMatrix, Inc., and is on the Board of the Pennsylvania Biotechnology Association. Dr. F. Raymond Salemme founded our company in 1993 and currently serves as President and Chief Scientific Officer and as a member of our Board of Directors. Dr. Salemme is co-inventor on 14 U.S. patents covering our DirectedDiversity(R) chemi-informatics process control technology and our ThermoFluor(R) assay technology. Prior to founding our company, Dr. Salemme established drug discovery groups specializing in structure-based drug design, biophysics and computational chemistry at Sterling Winthrop Pharmaceuticals and DuPont Merck Pharmaceuticals, Inc. Dr. Salemme also worked in Central Research and Development at DuPont, where he led research in protein X-ray crystallography and engineering, developed computational methods for crystallography and drug design, and conducted large-scale computational simulations of proteins and polymer systems. In 1983, Dr. Salemme founded the Protein Engineering Division of Genex Corporation, among the first companies to use X-ray crystallography and molecular modeling for genetically engineering proteins. From 1973 to 1983, Dr. Salemme was Professor of Biochemistry at the University of Arizona and published extensively in the areas of molecular structures of redox proteins, theory of biological electron transfer and protein architecture. Dr. Salemme received a B.A. in Molecular Biophysics from Yale University (with exceptional distinction) and a Ph.D. in Chemistry from the University of California, San Diego, where his Ph.D. thesis solved one of the first high-resolution 3-D protein structures by X-ray crystallography. In addition to duties at 3DP, Dr. Salemme serves on several corporate scientific and academic advisory boards, as well as federal advisory committees on advanced 19 technology and biotechnology, including the National Institute of Science and Technology (NIST) Visiting Committee on Advanced Technology, and advisory committees for National Institutes of Health (NIH). Mr. John M. Gill currently serves as our Chief Operating Officer and as a member of our Board of Directors. Mr. Gill joined us in May 2001 as Executive Vice President and Chief Financial Officer. Prior to joining us, Mr. Gill was Vice President and Director, Operations and Finance, SmithKline Beecham Research and Development, now GlaxoSmithKline plc. Mr.Gill served in Division and Corporate Finance positions at SmithKline Beecham from 1979 to 1984. During 1985, Mr. Gill was a founding member of SmithKline Beecham's life sciences venture capital fund, S.R. One, Ltd. In 1989, he was named Executive Vice President and Chief Operating Officer of SK&F/NOVA Pharmaceuticals, a neuroscience drug discovery joint venture of SmithKline Beckman and NOVA Pharmaceutical Corporation. He returned to S.R. One, Ltd. during 1991 and moved to SmithKline Beecham Research and Development during 1995. Prior to joining SmithKline Beecham, Mr. Gill worked for Peat, Marwick, Mitchell & Company. Mr. Gill is a Certified Public Accountant and received his B.A. in Accounting and Economics from Rutgers University in 1975. He served in the United States Marine Corps from 1971 to 1973. Dr. Roger F. Bone joined us in 1993 and currently serves as Senior Vice President, Research and Development. Dr. Bone began his career with Merck & Co. in 1990 as Senior Research Biophysicist and was named Research Fellow in 1992. He was a Postdoctoral Fellow at the University of California from 1985 to 1990, and he was an associate with Howard Hughes Medical Institute from 1988 to 1990. Dr. Bone is a recipient of the U.S. Public Health Service Individual National Research Award, is widely published in scientific journals, and is a co-inventor on several patents, including patents covering our DirectedDiversity(R) technology. Dr. Bone received his Ph.D. in Biochemistry from the University of North Carolina at Chapel Hill and his B.S. in Chemistry from Purdue University. Mr. Scott M. Horvitz has served as our Vice President, Finance and Administration since our inception. From 1991 to 1993, Mr. Horvitz held various positions at Magainin Pharmaceuticals Inc., now Genaera Corporation, and most recently served as Executive Director, Finance and Human Resources. From 1983 to 1991, Mr. Horvitz was with the firm of Richard A. Eisner and Company, LLP, Certified Public Accountants, where he most recently served as a Senior Audit Manager, specializing in venture-financed, technology start-up companies. Mr. Horvitz holds a B.S. in Accounting from the University at Albany and is a Certified Public Accountant. Mr. Horvitz is currently a member of the University at Albany Life Sciences Steering Committee. Dr. Brian R. MacDonald joined us in January 2002 as Vice President, Development. Prior to joining us, Dr. MacDonald served as Group Director, Emerging Therapeutic Areas, North American Medical Affairs, for GlaxoSmithKline plc (GSK) where he managed the clinical development of a portfolio of compounds in several disease areas. From 1995 to 2002, Dr. MacDonald held positions of increasing responsibility with SmithKline Beecham Pharmaceuticals (subsequently GSK). Prior to joining SmithKline Beecham Pharmaceuticals, Dr. MacDonald held teaching positions with the University of Pennsylvania and the University of Bath, U.K. Dr. MacDonald is a member of several well-respected medical research organizations. He received his medical degree and his Ph.D. from the University of Sheffield Medical School, Sheffield, UK and trained as a rheumatologist at the Royal National Hospital for Rheumatic Diseases, Bath UK. Ms. Kathy A. Quay joined us in September 2001 as Vice President Human Resources. From February 1999 to February 2001, Ms. Quay was a Senior Consultant with Watson Wyatt Worldwide, a global consulting firm. Prior to joining Watson Wyatt, Ms. Quay held leadership positions in Human Resources for Rhone-Poulenc Rorer, Inc. She also held various human resources positions for Centeon LLC, PECO Energy Company and General Electric Company. Ms. Quay received her BBA with a concentration in Industrial Relations from Ursinus College. Melinda P. Rudolph joined us in March 2002 as Vice President and General Counsel. From 1992 until she joined us, Ms. Rudolph was in private practice at the law firm of Harkins Cunningham, where she served as a partner (1998-2002), and of counsel (1996-1998) and an associate (1992-1995). Before joining Harkins 20 Cunningham, Ms. Rudolph was associated with the law firm of Pepper Hamilton & Scheetz (now Pepper Hamilton LLP). Ms. Rudolph received her J.D. in 1986 from the University of Pennsylvania Law School, where she was the winner of the Edwin R. Keedy Moot Court Competition. She received a B.A., cum laude from the University of Pennsylvania in 1978. Item 2. Properties We currently occupy approximately 104,500 square feet of space including our executive offices in Yardley, Pennsylvania and our two research facilities located in Exton, Pennsylvania and Cranbury, New Jersey. Our corporate and administrative offices cover 20,500 square feet of office space which we occupied in October of 2001 and which are leased through March of 2006. We lease approximately 41,000 square feet of space in Exton, Pennsylvania which houses one of our research and development facilities, including approximately 10,000 square feet, adjacent to our initial space, which we occupied in December 2000. The initial 31,000 square feet of our Exton facility is leased through June 2008 and the additional 10,000 square feet is subject to options allowing us to extend that portion of the lease term through June 2008. Our other research and development facility includes approximately 43,000 square feet of space in Cranbury, New Jersey. Our Cranbury facility is leased through May 2007. We believe that our current space is sufficient to meet our near term requirements. Item 3. Legal Proceedings We are not currently a party to any material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to stockholders during the fourth quarter of 2001. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Our common stock has been traded on the Nasdaq National Market under the symbol "DDDP" since August 4, 2000. The following table sets forth the high and low closing prices for our common stock for the quarters indicated as reported on the Nasdaq National Market.
High Low ------- ------- 2000 Third Quarter........................................... $38.875 $15.00 Fourth Quarter.......................................... 35.00 11.375 2001 First Quarter........................................... $15.125 $ 7.25 Second Quarter.......................................... 16.64 7.75 Third Quarter........................................... 10.39 6.60 Fourth Quarter.......................................... 9.60 5.54
As of February 11, 2002, there were approximately 138 holders of record and approximately 2,845 beneficial stockholders of our common stock. We do not intend to pay any cash dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings for use in our business. 21 Item 6. Selected Consolidated Financial Data The selected consolidated financial data set forth below is derived from our consolidated financial statements. Our statements of operations data for the year ended December 31, 2001 and our balance sheet data at December 31, 2001 are derived from our consolidated financial statements that have been audited by Arthur Andersen LLP and our consolidated statements of operations data for the years ended December 31, 2000 and 1999 and our consolidated balance sheet data at December 31, 2000 are derived from our financial statements that were audited by Richard A. Eisner & Company, LLP. These financial statements are included elsewhere in this annual report, and are qualified by reference to such consolidated financial statements. The statement of operations data for the years ended December 31, 1998 and 1997 and the balance sheet data as of December 31, 1999, 1998 and 1997 are derived from our audited financial statements, which are not included in this annual report. The selected consolidated financial information set forth below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes appearing elsewhere in this annual report.
Year ended December 31, --------------------------------------------- 2001 2000 1999 1998 1997 -------- ------- -------- ------- ------- (in thousands except per share data) Statements of Operations Data: Research and grant revenue..... $ 28,399 $12,409 $ 4,489 $ 5,095 $ 3,580 -------- ------- -------- ------- ------- Costs and expenses Research and development...... 29,614 14,562 12,136 10,984 6,517 General and administrative.... 15,334 8,652 6,525 4,458 3,000 Litigation settlement......... -- -- 1,500 -- -- -------- ------- -------- ------- ------- Total costs and expenses..... 44,948 23,214 20,161 15,442 9,517 -------- ------- -------- ------- ------- Loss from operations........... (16,549) (10,805) (15,672) (10,347) (5,937) Interest income................ 5,344 3,458 328 868 521 Interest expense............... (237) (646) (625) (232) (149) -------- ------- -------- ------- ------- Loss before income taxes....... (11,442) (7,993) (15,969) (9,711) (5,565) Provision for income taxes..... -- 159 -- -- -- -------- ------- -------- ------- ------- Net loss....................... (11,442) (8,152) (15,969) (9,711) (5,565) Declared and accrued cumulative dividends on preferred stock......................... -- (396) (669) (144) -- -------- ------- -------- ------- ------- Net loss applicable to common stock......................... $(11,442) $(8,548) $(16,638) $(9,855) $(5,565) ======== ======= ======== ======= ======= Basic and diluted net loss per common share--historical...... $ (.53) $ (.97) $ (27.37) $(22.20) $(27.55) ======== ======= ======== ======= ======= Weighted average common shares outstanding--historical....... 21,626 8,778 608 444 202 ======== ======= ======== ======= ======= Basic and diluted net loss per common share--pro forma....... $ (.52) $ (1.57) ======= ======== Weighted average common shares outstanding--pro forma........ 15,663 10,198 ======= ========
See our consolidated financial statements for a description of the computation of the historical and pro forma net loss per share and the number of shares used in the historical and pro forma per share calculations in "Statements of Operations Data" above. 22
As of December 31, --------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- ------- ------- ------- (in thousands) Balance Sheet Data: Cash, cash equivalents and marketable securities......... $100,389 $114,557 $ 7,645 $ 9,726 $ 8,953 Total assets................... 117,119 123,244 12,480 15,712 12,646 Notes payable--dividends and accrued interest.............. -- -- 685 144 -- Deferred revenue, less current portion....................... 3,286 9,619 -- -- -- Long-term debt, less current portion....................... 161 1,315 2,330 3,270 820 Convertible notes and accrued interest...................... -- -- 10,115 -- -- Settlement accrual, less current portion............... -- -- 500 -- -- Redeemable convertible preferred stock............... -- -- 34,834 34,834 24,461 Accumulated deficit............ (64,703) (53,261) (45,109) (29,140) (19,429) Total stockholders' equity (deficiency).................. 92,246 100,023 (41,748) (25,384) (15,702)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are a small molecule drug discovery and development business that has a pipeline of drug candidates in the areas of cancer, inflammation, and metabolic and cardiovascular diseases. Almost all of the drug candidates in our pipeline were discovered using portions of our integrated set of proprietary technologies called DiscoverWorks.(R) We believe DiscoverWorks increases the productivity of the drug discovery process by making it faster than traditional drug discovery methods and by providing our scientists with the ability to design characteristics into drug candidates that increase the probability of development success. DiscoverWorks may also enable us to discover drugs that act on many of the thousands of new drug targets revealed from sequencing the human genome. We use DiscoverWorks to discover and develop drugs for our own pipeline and in collaboration with pharmaceutical and biotechnology companies. To date, substantially all of our revenue has been from corporate collaborations, license agreements, and government grants. Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and development funding, and milestone payments. Royalties from sales of developed products are not expected for at least several years, if at all. We have incurred substantial operating losses since our inception in 1993. As of December 31, 2001, our accumulated deficit was $64.7 million. We have funded our operations primarily through public and private placements of equity securities totaling $153.0 million and cash received under collaborative agreements, license agreements, and government grants of $68.5 million. Our losses have resulted from costs incurred in research and development activities related to technology development, internally funded drug discovery and development programs, and associated administrative support costs. During 2001, we achieved a significant portion of our near term staffing needs, increasing our staff from 125 to 200, which includes 90 Ph.D.s. The staff expansion has enabled us to initiate and advance several internally funded programs. A key objective of ours is to continue to progress and expand our pipeline of drug candidates, which currently includes several programs in various stages of discovery and development. For 2002, our existing collaborations, license agreements, and government grants are expected to provide revenues of approximately $24 million relating to up-front fees, research funding payments, and license fees. Not included in the 2002 estimate are potential milestone payments from existing agreements or revenues from any future collaborations. Although one of our goals is to enter into additional DiscoverWorks collaborations, our basic business model is to focus a greater portion of our resources on internally funded product research and development. As a result, we expect to incur increasing operating losses in 2002 and over the next several years. In connection with our objective to enhance our pipeline, in January 2002 we acquired worldwide rights to a pre- clinical compound from GlaxoSmithKline plc (GSK) for the prevention and treatment of thrombocytopenia, 23 or low blood platelet count. We believe that this compound fits well with our strategic effort in oncology. All payments that we will make to GSK will be in 3DP stock. We made an initial payment of 0.5 million shares and are obligated to issue up to 1.9 million additional shares if the compound achieves certain key development and regulatory milestone events. We expect to recognize a non- cash in-process research and development charge in the first quarter of 2002 of $4.1 million for the initial 0.5 million shares. Our ability to achieve profitability is dependent on the progress and commercialization of drug candidates from existing programs and collaborations and our ability to initiate and develop new programs and enter into additional collaborations with favorable economic terms. Payments under drug discovery and development agreements will be subject to significant fluctuation in both timing and amount and therefore our results of operations for any period may not be comparable to the results of operations for any other period. Critical Accounting Policies Our significant accounting policies are described in Note B to the consolidated financial statements included in Item 8 of this Form 10-K. We believe our most critical accounting policy is revenue recognition. Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and development funding, and milestone payments. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. We estimate our performance period as the initial research term. The actual performance period may vary. We will adjust the performance period estimate based upon available facts and circumstances. Periodic payments for research and development activities and government grants are recognized over the period that we perform the related activities under the terms of the agreements. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when we have (i) adequate evidence that the milestone has been achieved and (ii) the achievement of the milestone is deemed to be substantive. The determination whether the achievement of the milestone is substantive is generally based upon the ability to verify the developmental progress. Results of Operations Years Ended December 31, 2001 and 2000 Revenue. Our revenue for the year ended December 31, 2001 was $28.4 million, compared to $12.4 million for the year ended December 31, 2000. The revenue increase results from discovery collaborations and license agreements with Schering AG, Germany, Bristol-Myers Squibb Company and Centocor, Inc., a wholly owned subsidiary of Johnson & Johnson, that commenced in May 2000, July 2000 and December 2000, respectively. Included in the 2001 revenue is a $4.0 million payment resulting from a milestone that the Company achieved in October 2001 in connection with the Centocor, Inc. agreement. In December 2001, we entered into a DiscoverWorks drug discovery alliance with Johnson & Johnson Pharmaceutical Research & Development L.L.C. We will begin to recognize revenue from this agreement in 2002. Research and Development Expenses. Our research and development expenses increased by $15.0 million to $29.6 million for the year ended December 31, 2001, compared to $14.6 million for the year ended December 31, 2000. During 2001, we increased our capacity to generate drug leads and added resources to progress our drug candidates to clinical trials. Related to our expansion were increases in personnel, scientific instrumentation, computing, and facilities expenses. We anticipate that research and development expenses will continue to increase as we advance more research and development programs towards and into human clinical trials. General and Administrative Expenses. Our general and administrative expenses increased by $6.6 million to $15.3 million for the year ended December 31, 2001, compared to $8.7 million for the year ended December 31, 2000. The increase was primarily related to increased management and personnel expenses, increased investments in business development and facilities required to support our continued research and development efforts, and additional expenses relating to our operations as a public company. 24 Other Income (Expenses). Interest income increased by $1.8 million to $5.3 million for the year ended December 31, 2001, compared to $3.5 million for the year ended December 31, 2000. The increase in interest income is attributable to the investment of the proceeds from our initial public offering and private placements of securities, as well as investment of the up-front fees we have received from our collaborators. Interest expense was $0.2 million for the year ended December 31, 2001 and $0.6 million for the year ended December 31, 2000. The decrease was due to the decrease in the amount of interest-bearing notes outstanding during the period. Provision for Income Taxes. As of December 31, 2001, we had net operating loss carryforwards for federal income taxes of $43.4 million. We also had federal research and development tax credit carryforwards. Our utilization of the net operating loss and tax credit carryforwards may be subject to annual limitations pursuant to Section 382 of the Internal Revenue Code, and similar state provisions, as a result of changes in our ownership structure. The annual limitations may result in the expiration of net operating losses and credits prior to utilization. At December 31, 2001 and 2000, the Company had deferred tax assets representing the benefit of net operating loss carryforwards, certain start up costs capitalized for tax purposes, up-front payments from collaborators taxable in the year received, and research and development tax credits. During the year ended December 31, 2000, we recorded a provision for federal and state income taxes of $0.2 million. The federal tax provision was based on the alternative minimum tax under which net operating loss carryforwards are available to offset 90% of our current tax liability. The Company did not record a benefit for the deferred tax asset because realization of the benefit was uncertain and, accordingly, a valuation allowance is provided to offset the deferred tax asset. Years Ended December 31, 2000 and 1999 Revenue. Our revenue for the year ended December 31, 2000 was $12.4 million, compared to $4.5 million for the year ended December 31, 1999. The revenue increase results from discovery collaborations and license agreements with Schering AG, and Bristol-Myers Squibb, that commenced in May 2000 and July 2000, respectively. The 2000 revenue amount is net of a charge of approximately $0.4 million in connection with a modification of the Bristol- Myers Squibb agreement made during the fourth quarter of 2000. The modification resulted from an agreement with Bristol-Myers Squibb to terminate both Bristol-Myers Squibb's subscription to a planned GPCR structure database and its non-exclusive license to related technologies. Research and Development Expenses. Our research and development expenses increased by $2.5 million to $14.6 million for the year ended December 31, 2000, compared to $12.1 million for the year ended December 31, 1999. During 2000, we continued to expand our research and development investments, including clinical testing of our lead thrombin inhibitor compound, in our internally funded and collaborative programs. Related to our expansion were increases in personnel, scientific instrumentation, and facilities expenses. General and Administrative Expenses. Our general and administrative expenses increased by $2.2 million to $8.7 million for the year ended December 31, 2000 compared to $6.5 million for the year ended December 31, 1999. The increase was primarily related to increased management and personnel expenses, increased investments in business development and facilities required to support our continued growth, and additional expenses relating to our operations as a public company. Other Income (Expenses). Interest income increased by $3.2 million to $3.5 million for the year ended December 31, 2000, compared to $0.3 million for the year ended December 31, 1999. The increase in interest income is attributable to the investment of the proceeds from our initial public offering and private placements of securities completed during this period, as well as investment of the up-front fees we have received from our collaborators. Interest expense was $0.6 million for the years ended December 31, 2000 and December 31, 1999. Provision for Income Taxes. As of December 31, 2000, we had net operating loss carryforwards for federal income taxes of $35.1 million. We also had federal research and development tax credit carryforwards. 25 Our utilization of the net operating loss and tax credit carryforwards may be subject to annual limitations pursuant to Section 382 of the Internal Revenue Code, and similar state provisions, as a result of changes in our ownership structure. The annual limitations may result in the expiration of net operating losses and credits prior to utilization. At December 31, 2000 and 1999, the Company had deferred tax assets representing the benefit of net operating loss carryforwards, certain start up costs capitalized for tax purposes, up-front payments from collaborators taxable in the year received, and research and development tax credits. During the year ended December 31, 2000, we recorded a provision for federal and state income taxes of $0.2 million. The federal tax provision was based on the alternative minimum tax under which net operating loss carryforwards are available to offset 90% of our current tax liability. The Company did not record a benefit for the deferred tax asset because realization of the benefit was uncertain and, accordingly, a valuation allowance is provided to offset the deferred tax asset. Liquidity and Capital Resources At December 31, 2001, we had cash, cash equivalents, and marketable securities of $100.4 million and working capital of $82.0 million. We have funded substantially all of our operations through public and private placements of equity securities with aggregate proceeds of approximately $153.0 million, and cash received from corporate collaborations totaling $64.7 million, government grants totaling $3.8 million, capital equipment and leasehold improvement financing totaling $7.8 million, and interest earned on our cash balances. In addition, in February 2002 we repaid a $5.0 million short-term note and then entered into a series of loans totaling $6.5 million, payable over 36 to 48 months, to finance the purchase of capital equipment and leasehold improvements. We believe that our available cash and cash equivalents, and marketable securities, expected revenue from collaborations and license arrangements, existing capital resources, interest income, and additional borrowings should be sufficient to fund anticipated levels of operations for at least the next two years. We expect that substantially all of our revenue for the foreseeable future will come from corporate collaborations, license agreements, government grants, and interest earned on the proceeds from our sales of securities, primarily in our initial public offering in 2000. However, there can be no assurance that we will successfully enter into new agreements with collaborators or extend the terms of our existing collaborations. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or drug candidates, or grant licenses on terms that are not favorable to us. We expect to incur increasing operating losses over the next several years as we continue to focus a greater portion of our effort on internal product research and development and further develop our technologies. To the extent that funds from our existing and future collaborations are not sufficient to fund our activities, it will be necessary to raise additional funds through public offerings or private placements of securities, long-term borrowings, or other methods of financing. There can be no assurance that such financing will be available on acceptable terms, if at all. If adequate funds are not available, we may have to delay or may not be able to continue developing our drug candidates. The following table summarizes our obligations as of December 31, 2001 to make future principal payments under our current contractual obligations:
Less than After 5 Total 1 Year 1-3 Years 4-5 Years Years ----------- ---------- ---------- ---------- -------- Short-term debt......... $ 5,000,000 $5,000,000 -- -- -- Long-term debt.......... 1,227,000 1,066,000 $ 161,000 -- -- Operating leases........ 13,469,000 2,418,000 7,432,000 $3,397,000 $222,000 ----------- ---------- ---------- ---------- -------- Total contractual obligations............ $19,696,000 $8,484,000 $7,593,000 $3,397,000 $222,000 =========== ========== ========== ========== ========
In addition, pursuant to our lease agreement for our Cranbury, New Jersey research facility, we maintain a $750,000 standby letter of credit. 26 Factors Affecting the Company's Prospects We have a history of net losses and may never achieve or maintain profitability. We have incurred net losses since our inception, including net losses of approximately $8.2 million for the year ended December 31, 2000 and approximately $11.4 million for the year ended December 31, 2001. As of December 31, 2001, we had an accumulated deficit of approximately $64.7 million. Although one of our goals is to enter into additional DiscoverWorks collaborations, our basic business model is to focus a greater portion of our efforts on internally funded product research and development. As a result, we expect to incur increasing operating losses over the next several years. The extent of our future losses will depend on the rate of growth, if any, of our revenue and on the level of our expenses. To date, we have derived substantially all of our revenue from corporate collaborations, license agreements and government grants. We expect that substantially all of our revenue for the foreseeable future will result from payments from these sources and from the licensing of our technologies and certain of our pre- clinical and clinical drug candidates. We also expect to continue to invest in our drug discovery technologies and to fund research and development of drug candidates. Because our operating expenses will increase in the future, we will need to generate significant additional revenue to achieve profitability. In order to generate revenue, we must continue to develop products and technologies from which we can derive revenue either ourselves or through existing and future collaborations. Accordingly, we may never achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our technology position and will be unable to develop and commercialize our drug candidates. To date, we have funded our operations primarily through public and private placements of equity securities and revenues from corporate collaborations, with additional revenue from government grants, capital equipment and leasehold financing, and interest earned on net proceeds of our initial public offering and private placements. We believe that our cash and cash equivalents, expected revenue from collaborations and license arrangements, existing capital resources and interest income should be sufficient to meet our operating and capital requirements for at least the next two years. However, our present and future capital requirements depend on many factors, including: . the level of research and development investment required to maintain and improve our technology position; . our ability to enter into new agreements with collaborators or to extend the terms of our existing collaborations, and the terms of any agreement of this type. During 2001, the research term for one of our collaborations ended and the research terms for two other collaborations are scheduled to end in 2002; . our success rate or that of our collaborators in discovery and development efforts associated with milestones and royalties; . the timing, willingness and success of our collaborators to commercialize our products, which would result in milestone payments and in royalties; . costs of recruiting and retaining qualified personnel; . costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; . our need or decision to acquire or license complementary technologies or new targets, or acquire complementary businesses; and . changes in drug candidate development plans needed to address any difficulties in clinical studies or in commercialization. 27 Should we require additional capital in the future, we do not know whether additional financing will be available on acceptable terms when needed. We would try to raise necessary funds through public or private equity offerings or debt financings or through corporate collaborations and licensing arrangements. If we raise additional capital by issuing equity securities, our existing stockholders' percentage ownership will be reduced and they may experience substantial dilution. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or drug candidates, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we may have to delay or may not be able to continue developing our drug candidates. If additional funds are required to operate our business, these funds may not be available on terms that we find favorable, if at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products or technologies or otherwise respond to competitive pressures could be significantly delayed or limited and we may need to downsize or halt our operations. All of the drug candidates we are developing, including those we have licensed for commercial development, are at an early stage of development, and they may fail in later development or commercialization. All of the compounds that we are currently developing will require significant additional research, formulation and manufacturing process development, and pre-clinical and extensive clinical testing prior to regulatory approval and commercialization. Pre-clinical and clinical studies of our products under development may not display the safety and efficacy necessary to obtain regulatory approvals. Pharmaceutical and biotechnology companies have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in earlier trials. Products that appear to be promising at early stages of development may not reach the market or be marketed successfully for a number of reasons, including the following: . researchers may find that the product is ineffective or has harmful side effects during later pre-clinical testing or clinical trials; . the product may fail to receive necessary regulatory approval or clearance; . the product may be too difficult to manufacture on a large scale; . the product may be too expensive to manufacture or market; . the product may not achieve broad market acceptance; . others may hold proprietary rights that will prevent the product from being marketed; or . others may market equivalent or superior products. We do not expect that we will make commercially available any products we are developing internally or in association with our collaborators for at least several years, if at all. We and our collaborators may not succeed in our research and product development efforts and we may not be able to launch any successfully commercialized products. Further, after commercial introduction of a new product, discovery of problems through adverse event reporting could result in restrictions on the product, including recall or withdrawal from the market and, in certain cases, civil or criminal penalties resulting from actions by regulatory authorities or damage from product liability judgments. 28 We are developing and using new technologies, and if we are unable to successfully commercialize these technologies, we will not achieve profitability. Our DiscoverWorks technologies, in particular our DirectedDiversity and ThermoFluor technologies, represent a new approach to the identification and optimization of lead compounds with therapeutic potential. We have not used these technologies in the development of any compound that has reached the point of commercialization. The collaboration with Bristol-Myers Squibb Company represents the initial collaborative use of the entire DiscoverWorks process. In addition, although we began using the entire DiscoverWorks set process in our internal programs in 1998, we did not use our ThermoFluor technology in our most advanced programs. Our technologies may not result in the successful identification, optimization or development of compounds that are safe or efficacious. Because the development of new pharmaceutical products is highly uncertain, our drug discovery technologies may not produce any commercially successful compounds. Failure to validate our technologies through the successful discovery of compounds that become commercialized would hinder our ability to license drug candidates developed by us internally and to market successfully our technologies and services. Historically, due to the highly proprietary nature of drug discovery and development efforts, and the desire to obtain maximum patent and other proprietary protection for their programs, other pharmaceutical and biotechnology companies have conducted molecular target screening and lead compound identification and optimization within their own internal research departments. We must convince these companies that our technologies and capabilities justify retaining us to work on drug discovery programs on their behalf or the licensing by them of our technologies. Under the terms of a settlement agreement with Anadys Pharmaceuticals, Inc., formerly known as Scriptgen Pharmaceuticals, Inc., we acquired a limited license to Anadys' ATLAS (Any Target Liquid Affinity Screen) assay technology, and Anadys was granted a limited license to the method claims of our ThermoFluor screening technology. Neither of these licenses was exclusive. The settlement agreement precludes us, until March 7, 2003, from using our ThermoFluor screening technology in the Hepatitis C Virus "infection" area as part of collaborative agreements or as part of our internal drug programs. In addition, the settlement agreement precludes us from using our ThermoFluor screening technology as part of more than one collaboration agreement in other areas of "infection" until March 7, 2003, and such collaborative agreement must be limited to a maximum of three anti-viral targets. Our collaboration agreement with Bristol-Myers Squibb Company constitutes the one permitted collaboration agreement in the area of infection. Our ability to succeed will depend upon the acceptance by potential collaborators of our systems, services and technologies as effective discovery tools. If we do not update and enhance our technologies, they will become obsolete. Technological change occurs rapidly in the pharmaceutical market, and our future success may depend on our ability to continuously update and enhance our technologies. Because DiscoverWorks integrates many technologies, we may find it difficult to stay abreast of the rapid changes in each of the areas that DiscoverWorks encompasses. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. In particular, our DirectedDiversity technology for optimizing the properties of lead compounds and our ThermoFluor technology for high-throughput screening involve areas where many companies are actively developing new technologies. Because the pharmaceutical and biotechnology industries currently perceive high- throughput screening and optimizing of lead compounds to represent critical bottlenecks in the discovery process, our competitors are using substantial resources to develop new technologies to reduce these bottlenecks. Accordingly, advances in existing technological approaches or our current or future competitors' development of different approaches may render our technologies obsolete. We are dependent on our collaborators, and our failure to successfully manage our existing and future collaborations and license arrangements could prevent us or our collaborators from developing and commercializing our products. Our strategy depends upon the maintenance of our existing collaborations and licensing arrangements as well as the formation of new collaborations and licensing arrangements, principally with pharmaceutical and 29 biotechnology companies. We may fail to maintain our existing collaborations or licensing arrangements, or establish additional collaborative or licensing arrangements, on terms favorable to us. In addition, our current or future collaborations or licensing arrangements may not be successful or we may be unable to successfully manage these collaborations or licensing arrangements. As a result, we could become involved in disputes that might result in, among other things, a significant strain on our management resources, legal claims involving significant time and expense, a loss of capital and a loss of current or future collaborators. Several other factors could harm our present or future collaborations or licensing arrangements, such as: . our failure to achieve our research and development objectives under our collaborative agreements; . the development of conflicts with our collaborators as to rights to intellectual property to technologies or product candidates either we or they develop; . our entry into additional collaboration agreements that potentially conflict with the business objectives of our collaborators; . the decision by our collaborators to become competitors of ours or enter into agreements with our competitors; or . the limit on the number of potential collaborators that results from further consolidation in our target markets. In addition, if we exclusively license any aspect of our technologies to one or more collaborators, we will limit our ability to license this technology to other parties. This may limit our ability to enter into future collaborations or licensing arrangements. Since we do not currently possess the resources necessary to complete development and commercialization of our drug candidates, we expect to rely on and continue to enter into licensing arrangements and/or third party expert clinical investigators and clinical research organizations for the further development and commercialization of our drug candidates. These drug candidates will require significant pre-clinical and/or clinical development efforts, the receipt of the requisite regulatory approvals and the successful manufacturing and marketing of the drugs. A party to whom we license a drug candidate may not devote sufficient resources to the development, manufacture, marketing or sale of these products. We will have limited or no control over the resources that any third party may devote to our projects. Any of our present or future collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. In addition, we may dispute the application of payment provisions under any of our collaboration agreements. If we fail to enter into or maintain collaborative agreements, or if any of these events occur, we may not be able to commercialize our technologies or develop and commercialize our drug candidates. If our collaborators fail to advance compounds arising from the use of our technologies to develop and commercialize pharmaceutical products, our business will suffer. Our future revenue will depend in part on the realization of milestone payments and royalties, if any, triggered by our collaborators' successful development and commercialization of compounds identified through the use of our technologies or of compounds that we licensed. The agreements with our collaborators do not obligate them to develop or commercialize lead compounds identified through the use of our technologies. Our development and commercialization of lead compounds will therefore depend not only on our and our collaborators' achievement of development objectives, but also on each collaborator's own financial, competitive, marketing and strategic considerations, such as the relative advantages of other companies' products, including relevant patent and proprietary positions. If a collaborator fails to develop or commercialize a lead compound identified through the use of our technologies, or if a compound that a collaborator develops is determined to be unsafe or of no therapeutic benefit, we will not receive any future milestone payments or royalties for that compound, and we may have only limited or no rights to independently develop and commercialize that compound. 30 If the third-party expert clinical investigators and clinical research organizations we intend to rely on to conduct any of our future clinical trials do not perform in an acceptable or timely manner, our clinical trials could be delayed or unsuccessful. We do not have the ability to independently conduct clinical studies and obtain regulatory approvals for our drug candidates and, to the extent our collaborators do not perform these functions, we intend to rely on third-party expert clinical investigators and clinical research organizations to perform these functions. If we cannot locate and enter into favorable agreements with acceptable third parties, or if these third parties do not successfully carry out their contractual duties, meet expected deadlines and enrollment objectives and follow regulatory guidelines, including clinical laboratory and manufacturing guidelines, then we will not obtain required approvals and will be unable to commercialize our drug candidates on a timely basis, if at all. If we or our collaborators are unable to manufacture or contract with third parties to manufacture drug candidates in sufficient quantities and at an acceptable cost, we or our collaborators may be unable to complete clinical trials and commercialize these drug candidates. Our or our collaborators' completion of any pre-clinical or clinical trials for our drug candidates involving large quantities of chemical substance, or any future clinical trials and commercialization of drugs, will require access to, or development of, facilities to manufacture a sufficient supply of our investigational drug substance. We do not have the facilities or experience to manufacture the quantities of drug substance necessary for any such trials or commercial purposes on our own and do not intend to develop or acquire facilities for the manufacture of such quantities of drug substance in the foreseeable future. Instead, we currently intend to rely on third-party contract manufacturers. In addition, because we intend to license certain of our drug candidates for further development and commercialization, once a drug candidate is licensed, we must rely on our collaborators' abilities to manufacture, or have manufactured, the quantities necessary for further development and commercialization of these drug candidates. Our manufacturing strategy presents the following risks: . we, or our collaborators, may not be able to locate acceptable manufacturers or enter into favorable long-term agreements with them; . third parties may fail to successfully manufacture our drug candidates or to manufacture them in a cost effective and/or timely manner; . we have not tested the manufacturing processes for our drug candidates in quantities needed for clinical trials or commercial sales; . delays in scale-up to commercial quantities could delay clinical studies, regulatory submissions, and commercialization of drug candidates; . we may not have intellectual property rights, or may have to share intellectual property rights, to many improvements in the manufacturing processes or new manufacturing processes for our drug candidates; . our drug candidates require a long lead time to manufacture and the manufacturing process is complex; and . manufacturers of our drug candidates are subject to the FDA's current Good Manufacturing Practices regulations, or cGMPs, and similar foreign standards and we and our collaborators do not have day-to-day control over compliance with these regulations by third-party manufacturers. 31 Any of these factors could delay clinical trials or commercialization of drug candidates developed and commercialized by us or by our collaborators, entail higher costs, and result in us or our collaborators being unable to effectively sell any products. If we, or our collaborators, do not obtain and maintain required regulatory approvals, we will be unable to commercialize our product candidates. Regulation by governmental entities in the United States and other countries could impact the development, production and marketing of any pharmaceutical products that we or our collaborators develop. The nature and the extent to which such regulation may apply will vary depending on the nature of any such pharmaceutical products. In particular, FDA, and foreign regulatory authorities apply rigorous pre-clinical and clinical testing and other approval requirements to pharmaceutical products for use in humans and animals. Various federal and, in some cases, state statutes and regulations and similar statutes and regulations of foreign jurisdictions also govern or influence the manufacturing, safety, labeling, storage, recordkeeping, confidential patient information exchange, promotion, advertising, marketing, and pricing relating to such pharmaceutical products. Companies spend a significant amount of time and resources obtaining these approvals and complying with appropriate federal and foreign statutes and regulations. Both we and our collaborators may be unable to successfully complete the pre- clinical and clinical development of, and file new drug applications, or NDAs or BLAs, with the FDA for any drug candidate. In addition the FDA may not grant approval on a timely basis, if at all, for any drug candidate. Any failure by our collaborators or licensees to obtain, or any delay in obtaining, regulatory approval or non-patent market exclusivity could adversely affect our ability to receive milestone payments or royalty revenues. Even if our collaborators or licensees obtain FDA regulatory approvals, material changes to an approved product, such as manufacturing changes or additional labeling claims, require further FDA review and approval. Once obtained, the FDA may withdraw any approval. Further, if we, our collaborators, our contract research organizations or our contract manufacturers fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, the FDA may impose sanctions, including delays, warning letters, fines, product recalls or seizures, injunctions, refusal of the FDA to review pending market approval applications or supplements to approval applications, total or partial suspension of production, civil penalties, withdrawals of previously approved marketing applications, or criminal prosecutions. In addition, foreign regulatory requirements governing human and animal clinical trials and marketing approval for pharmaceutical products govern our and our collaborators' marketing outside the United States. The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement may vary from country to country, adding to the overall expense of drug development. If we, or our collaborators, do not obtain adequate reimbursement, we will be unable to commercialize our product candidates. In both domestic and foreign markets, sales of our product candidates will depend in part upon the availability of reimbursement from third-party payors. Such third-party payors include government health administration authorities, managed care providers, private health insurers, and other organizations. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We, or our collaborators, may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of our products. Such studies may require us to provide a significant amount of resources. Our product candidates may not be considered cost-effective. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. Accordingly, legislation and regulations affecting the pricing of pharmaceuticals may change before our proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement for pharmaceuticals. If the government and third-party payors fail to provide adequate coverage and reimbursement rates for our product candidates, the market acceptance of our products may be adversely affected. If our products do not receive market acceptance, our business, financial condition, and results of operations will be materially adversely affected. 32 If we are unable to build sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will not be able to commercialize any of our drug candidates. We currently have no sales, marketing or distribution capabilities to commercialize our drug candidates. In order to commercialize any of our drug candidates, we must either internally develop sales, marketing and distribution capabilities or make arrangements with third parties to perform these services. To market any of our drug products directly, we would have to develop a marketing and sales force with technical expertise and supporting distribution capabilities and we may not be able to do so. To promote any of our drug products through third parties, we would have to locate acceptable third parties for these functions and enter into agreements with them on acceptable terms and we may not be able to do so. If we enter into co-promotion or other licensing arrangements, any product revenues would likely be lower than if we directly marketed and sold our products, and any revenues that we may receive would depend upon the efforts of third parties, which efforts may not be successful. If these third parties do not succeed in carrying out their contractual duties or do not meet expected deadlines, our sales would suffer and we might not be profitable. Our ability to compete in the market may decline if we do not adequately protect our proprietary technologies, or if we lose some of our intellectual property rights as a result of, or otherwise become involved in, expensive lawsuits or administrative proceedings. Our intellectual property consists of patents, copyrights, trade secrets, and trademarks. Our success depends in part on our ability to obtain patents and maintain adequate protection of our intellectual property for our technologies and products in the United States and other countries. We may be unable to obtain any issued patents for any patent applications we have filed or may file in the future. Our commercial success depends in part on avoiding infringing patents and proprietary rights of third parties and developing and maintaining a proprietary position with regard to our own technologies, products, and business. The patent positions of pharmaceutical companies, including our patent position, involve complex legal and factual questions, and whether a company will be able to enforce its patent cannot always be predicted with certainty. Even if we obtain patents, we may lose them in part or in whole as a result of lawsuits or administrative proceedings, or competitors may otherwise challenge or circumvent them. We cannot be sure that relevant patents have not been issued, or that relevant publications or actions by others have not occurred, that could block our ability to obtain patents or to operate as we would like. Others may develop similar technologies or duplicate technologies to those that we have developed. We are aware of the existence of claims in a granted patent and published patent applications in some countries that, if valid and broadly construed, may block our ability to commercialize products or processes in those countries if we are unable to circumvent or license them. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement and we may be unable to do so. Extensive litigation regarding patents and other intellectual property rights characterizes our industry. Many companies have employed intellectual property litigation as a way to gain a competitive advantage. If we became involved in litigation or interference proceedings declared by the United States Patent and Trademark Office, or oppositions or other intellectual property proceedings outside of the United States, to defend our intellectual property rights or as a result of alleged infringement of the rights of others, we might have to spend significant amounts of time and money. We are aware of a significant number of patents and patent applications relating to our technologies filed by, or issued to, third parties. Should any of our competitors have filed patent applications or obtained patents that claim inventions that we also claim, we may have to participate in an interference proceeding to determine priority of invention and, thus, the right to a patent for these inventions or discoveries in the United States. We could incur substantial costs from such a proceeding even if the outcome is favorable. Even if successful on priority grounds, an interference may result in loss of claims based on patentability grounds raised in the interference. The litigation or proceedings could divert our management time and efforts. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management time and disruption in our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete. 33 An adverse ruling arising out of any intellectual property dispute, including but not limited to an adverse decision as to the priority of our inventions, would undercut or invalidate our intellectual property position. An adverse ruling could also subject us to significant liability for damages, prevent us from using processes or products, or require us to license disputed rights from third parties. Although patent and intellectual property disputes in the biotechnology area are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties. We may not be able to obtain any necessary licenses on satisfactory terms, if at all. From time to time we have received letters from third parties suggesting that we may want to consider licensing patents held by such third parties. We believe that we have defenses to any infringement claim with respect to such patents. However, we cannot be certain that one or more of the third parties will not initiate litigation alleging that our technologies infringe claims of such patents or that a court would not find such claims valid and infringed. We have funded specific technologies with U.S. government grants. For instance, we developed our ThermoFluor screening technology using funds from a grant awarded by the National Institute for General Medical Sciences at the National Institutes of Health, and portions of our GPCR technology using funds from grants awarded by the National Institute for General Medical Sciences at the National Institutes of Health. We elected to retain title in these technologies, subject to a nonexclusive, nontransferable, irrevocable, paid-up license to the U.S. government to practice or have practiced for or on behalf of the government any technology developed with these funds. Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. In order to protect our proprietary technology and processes, we also rely in part on trade secret protection for our confidential and proprietary information. Our policy is to execute confidentiality agreements with our employees and consultants upon the commencement of an employment or consulting arrangement with us. These agreements require that all confidential information that the individual develops or that we make known to the individual during the course of the individual's relationship with us be kept confidential and not disclosed to third parties. These agreements also provide that inventions that the individual conceives in the course of rendering services to us shall be our exclusive property. Such individual may, nonetheless, disclose proprietary information, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, and we may be unable to meaningfully protect our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. If our competitors develop and market drug discovery technologies or drug candidates faster than we do or that are superior to our drug discovery technologies or drug candidates, our commercial opportunities will be reduced or eliminated. We compete both in the markets for drug discovery technologies and services and the markets for pharmaceutical products. Our principal competitors are the internal drug discovery departments of our pharmaceutical company customers and potential customers. Many of our customers and potential customers have developed or acquired or are developing or are acquiring integrated drug discovery capabilities that use combinatorial chemistry (the science of modifying a central core structure by adding different chemical groups connected to the core at different positions), chemi-informatics software (software for handling chemistry data), structure-based drug design and high- throughput screening. In addition, many of these companies have large collections of compounds that they have previously synthesized, purchased from chemical supply catalogs or obtained from other sources against which they may screen new targets. 34 We also compete with biotechnology and drug discovery services companies, academic and scientific institutions, governmental agencies, and public and private research organizations. Our technology platform integrates many technologies, including combinatorial chemistry, chemi-informatics software, structure-based drug design and high-throughput screening. We face competition based on numerous factors, including size, diversity and ease of use of compound libraries, speed and cost of identifying and optimizing potential lead compounds and patent position, from companies offering one or more technology components of the discovery process. These entities compete with us either on their own or in collaborations. While we believe that our integration of proprietary technologies for drug discovery provides us with a competitive advantage over many of our competitors, we expect that many of our competitors will seek to integrate and improve their technologies to provide discovery capabilities similar or superior to those provided by us. For drug candidates developed internally which we seek to license, we face, and will continue to face, intense competition from organizations such as large pharmaceutical and biotechnology companies. Competition with any of the programs in our internal drug discovery pipeline may arise from current or future drug candidates in the same therapeutic class or other classes of therapeutic agents or other methods of preventing or reducing the incidence of disease. Any drug candidate that is successfully developed may compete with existing therapies that have long histories of safe and effective use. Due to perceived shortcomings of available agents and the large market potential, competition to develop a safe, orally active antithrombotic agent (an agent which inhibits the formation of blood clots) is intense, with many discovery programs in process. Our orally active urokinase inhibitor for the inhibition of cancer metastasis (development of secondary tumors in other organs of the body during the spread of cancer) and tumor angiogenesis (development of new blood vessels that allow the further growth of tumors) and for cardiovascular indications faces competition from a number of agents and approaches currently under development. Our thrombopoietin-mimetic compound, 3DP-3534, with potential for prophylaxis and/or therapy for chemotherapy-induced thrombocytopenia, competes directly with the recombinant form of the natural human hormone (rhTPo) currently in Phase 3 clinical development. We also are aware of a related product that is in Phase 1 clinical trials as a thrombopoietin receptor modulator. In addition, several companies may be attempting to develop small molecule agonists of the human thrombopoietin receptor in pre-clinical studies. Our orally active alpha/v/beta/3//alpha/v/beta/5/ integrin antagonist program for the treatment of solid and metastatic tumors, osteoporosis, and arthritis has significant competition from several companies. We are aware of competing small molecule programs that may have advanced one or more compounds into clinical trials. In addition, we are aware of programs developing humanized monoclonal antibodies against specific integrins to target tumor angiogenesis and/or rheumatoid arthritis among other indications. Our C1s complement antagonist program for the treatment of inflammatory diseases such as rheumatoid arthritis and lupus faces significant industry competition as well. We are aware of programs targeting various proteins in the complement activation cascade, including a humanized antibody directed against complement factor C5 currently in Phase 2 clinical trials. Our hdm2 antagonist program, targeting a key molecular regulator of the well-known tumor suppressor gene p53, is also in an area of active research in the pharmaceutical industry. In this regard, we are aware of preclincal research programs targeting hdm2 at two companies. In addition, many companies are working on alternative ways to modulate normal p53 functioning, including various gene therapy and biological approaches. Other earlier-phase research programs in small molecule drug discovery at 3DP are also in highly competitive areas. Many other companies are working in these areas and they may achieve earlier or greater success than we may be able to achieve. Most of our competitors, either alone, or together with their collaborators, have substantially greater research and development capabilities and financial, scientific, operational, marketing and sales resources than we do, as well as significantly more experience in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales. These competitors and other companies may have developed or may in the future develop new technologies or products that compete with ours or which could render our technologies and products obsolete. In addition, our competitors may succeed in 35 obtaining broader patent protection, receiving FDA approval for products or developing and commercializing products or technologies before us. We also compete with these organizations in recruiting and retaining qualified scientific and management personnel. Most of our competitors, either alone, or together with their collaborators, have substantially greater research and development capabilities and financial, scientific, operational, marketing and sales resources than we do, as well as significantly more experience in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales. These competitors and other companies may have already developed or may in the future develop new technologies or products that compete with ours or which could render our technologies and products obsolete. In addition, our competitors may succeed in obtaining broader patent protection, receiving FDA approval for products or developing and commercializing products or technologies before us. We also compete with these organizations in recruiting and retaining qualified scientific and management personnel. If we lose our key personnel or are unable to attract and retain qualified personnel as necessary, it could delay our product development programs and harm our research and development efforts. We are highly dependent on the principal members of our scientific and management staff, including David C. U'Prichard, our Chief Executive Officer, F. Raymond Salemme, our President and Chief Scientific Officer and John M. Gill, our Chief Operating Officer. If we lose the services of one or more of these persons, we may be unable to achieve our business objectives. Our future success also will depend in part on the continued service of our other key scientific, software, engineering and management personnel and our ability to identify, hire and retain additional personnel. Intense competition exists for qualified personnel in the areas of our activities, and we may not be able to continue to attract and retain such personnel necessary for the development of our business. Failure to attract and retain key personnel could have a material adverse effect on our business, financial condition and results of operations. We have experienced a period of significant expansion of personnel and space, which could delay our product development programs and harm our research and development efforts. During 2001 we increased our staff from 125 to 200 and increased our space from 41,000 square feet to 104,500, square feet which includes three locations. As a result, we will face the challenge of managing the business in multiple locations. These needs and challenges will place demands on our management, information technology and other support functions, which may, from time to time, cause delays in our product development programs and diminish the results of our research and development efforts. We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline, causing investor losses. To date, substantially all of our revenue has been from corporate collaborations, license agreements and government grants. We expect that a significant portion of our revenues for the foreseeable future will be comprised of this funding as well as milestone payments. The timing of revenue in the future will depend largely upon the signing and terms of collaborative research and development or technology licensing agreements or the licensing of drug candidates for further development and the recognition of fees, milestone payments and royalty revenues from these agreements. In any one fiscal quarter we may receive multiple or no payments from our collaborators. Although we recognize certain revenue under our collaborations and some licenses over the life of the contract, operating results may vary from quarter to quarter. Revenue for any given period may be greater or less than revenue in the immediately preceding period or in the comparable period of the prior year. Our operating results may also fluctuate due to other factors, including the following: . termination of collaborations and licensing arrangements; . the ability and willingness of collaborators to develop and commercialize milestone and royalty-bearing products within expected timelines and the resulting demand for any commercialized products; 36 . our ability to enter into new collaborative agreements, or to extend the terms of our existing collaborative agreements, and the terms of any agreement of this type; . our ability or that of our collaborators to successfully satisfy all pertinent regulatory requirements; . the level of our expenditures on research and development and the level of other operating expenses; and . general and industry specific economic conditions, which may affect our collaborators' research and development expenditures. If revenue declines or does not grow as anticipated due to the expiration of collaborative agreements, failure to obtain new agreements or grants, lower-than-expected milestone or royalty payments or other factors, we may not be able to correspondingly reduce our operating expenses. A large portion of our expenses, including expenses for facilities, equipment and personnel, are committed and growing. Failure to achieve anticipated levels of revenue could therefore significantly harm our operating results for a particular fiscal period. Due to the possibility of fluctuations in our revenue and our anticipated increasing expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. Our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price may decline. If we use or our collaborators use biological and hazardous materials in a manner that causes injury, we may be liable for damages. Both we and our collaborators conduct research and development activities which involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. We use a wide range of solvents and other chemicals in order to discover new drug candidates. We also generate biological waste products such as bacterial cells and analyzed blood products during drug discovery programs. In addition, several of our biological studies use small quantities of radioactive isotopes of hydrogen, iodine, carbon, sulfur and phosphorus. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources. We do not have liability insurance coverage for contamination or injury. We also do not have mass tort insurance coverage or environmental insurance coverage. The cost of compliance with Federal and local regulatory requirements with respect to the use, monitoring and disposal of chemical and biological waste products could be significant. We may be sued for product liability. Because we are involved in the drug discovery process, our business exposes us to potential product liability risks. We may not be able to avoid product liability claims. Product liability insurance for the pharmaceutical industry is generally expensive, if it is available at all. If we are unable to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our product candidates. We currently maintain products/professional liability insurance with coverage which we believe is customary and appropriate for businesses such as ours. If a plaintiff brings a successful product liability claim against us in excess of our insurance coverage, if any, we may incur substantial liabilities and our business may fail. If we engage in any acquisition or business combination, we will incur a variety of risks that could adversely affect our business operations. We generally consider and will continue to consider strategic business initiatives intended to further the development of our business, including acquiring businesses, technologies and products and entering into 37 business combinations with other companies. If we do pursue one or more of these strategic initiatives, we could, among other things: . issue equity securities that would dilute current stockholders' percentage ownership, incur substantial debt, or both; . spend substantial operational, financial and management resources in integrating new businesses, technologies and products; . assume substantial actual or contingent liabilities; or . merge, or otherwise enter into a business combination with, another company in which our stockholders would receive cash or shares of the other company, or a combination of both. In such case, many stockholders may disagree with the terms of such business combination or may view the sufficiency of the consideration to be received to be inadequate, or both. In addition, any future acquisitions or business combinations might negatively impact our business relations with a collaborator and could lead to a termination of our agreement with that collaborator. Item 7A. Quantitative and Qualitative Disclosure About Market Risk Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio and on the increase or decrease in the amount of interest expense we must pay with respect to our various outstanding debt instruments. Our risk associated with fluctuating interest expense is limited to our long-term borrowings, the underlying interest rates of which are closely tied to market rates, and our investments in interest rate sensitive financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We seek to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We seek to minimize the risk of default by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest rate sensitive financial instruments at December 31, 1999, December 31, 2000 or December 31, 2001. Declines in interest rates over time will, however, reduce our interest income while increases in interest rates over time will increase our interest expense. 38 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 3-DIMENSIONAL PHARMACEUTICALS, INC. CONTENTS
Page ---- Consolidated Financial Statements Report of independent public accountants As of and for the year ended December 31, 2001......................... F-2 As of December 31, 2000 and for the years ended December 31, 2000 and 1999.................................................................. F-3 Consolidated balance sheets as of December 31, 2001 and 2000............. F-4 Consolidated statements of operations for the years ended December 31, 2001, 2000 and 1999..................................................... F-5 Consolidated statements of stockholders' equity (deficit) for the years ended December 31, 2001, 2000 and 1999.................................. F-6 Consolidated statements of cash flows for the years ended December 31, 2001, 2000 and 1999..................................................... F-7 Notes to consolidated financial statements............................... F-8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To 3-Dimensional Pharmaceuticals, Inc.: We have audited the accompanying consolidated balance sheet of 3- Dimensional Pharmaceuticals, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 3-Dimensional Pharmaceuticals, Inc. and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Philadelphia, Pennsylvania February 19, 2002 F-2 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders 3-Dimensional Pharmaceuticals, Inc. Yardley, Pennsylvania We have audited the accompanying consolidated balance sheet of 3- Dimensional Pharmaceuticals, Inc. and subsidiary as of December 31, 2000 and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for the years ended December 31, 2000 and 1999. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 3-Dimensional Pharmaceuticals, Inc. and subsidiary as of December 31, 2000, and the consolidated results of their operations and their cash flows for the years ended December 31, 2000 and 1999 in conformity with accounting principles generally accepted in the United States of America. Richard A. Eisner & Company, LLP New York, New York February 7, 2001 F-3 3-DIMENSIONAL PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS
December 31, December 31, ------------ ------------ 2001 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents......................... $ 19,519,000 $114,557,000 Marketable securities............................. 80,870,000 -- Prepaid expenses and other current assets......... 3,087,000 977,000 ------------ ------------ Total current assets............................ 103,476,000 115,534,000 Property and equipment, net........................ 11,735,000 5,508,000 Restricted cash.................................... 835,000 -- Other assets....................................... 1,073,000 2,202,000 ------------ ------------ $117,119,000 $123,244,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses............. $ 5,759,000 $ 3,193,000 Current portion of deferred revenue............... 9,601,000 7,385,000 Note payable...................................... 5,000,000 -- Current portion of long-term debt................. 1,066,000 1,209,000 Current portion of settlement accrual............. -- 500,000 ------------ ------------ Total current liabilities....................... 21,426,000 12,287,000 Deferred revenue, less current portion............. 3,286,000 9,619,000 Long-term debt, less current portion............... 161,000 1,315,000 ------------ ------------ 24,873,000 23,221,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred Stock--$.001 par value: 5,000,000 shares authorized, none issued and outstanding at December 31, 2001 and 2000....................... -- -- Common stock--$.001 par value; 45,000,000 shares authorized, 21,988,238 and 21,385,798 shares issued and outstanding at December 31, 2001 and December 31, 2000, respectively.............. 22,000 21,000 Additional paid-in capital........................ 158,450,000 157,223,000 Note receivable from officer...................... (260,000) (390,000) Deferred compensation............................. (2,386,000) (3,570,000) Accumulated deficit............................... (64,703,000) (53,261,000) Accumulated other comprehensive income............ 1,123,000 -- ------------ ------------ Total stockholders' equity......................... 92,246,000 100,023,000 ------------ ------------ $117,119,000 $123,244,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 3-DIMENSIONAL PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, --------------------------------------- 2001 2000 1999 ------------ ----------- ------------ Research and grant revenue........... $ 28,399,000 $12,409,000 $ 4,489,000 Costs and expenses: Research and development............ 29,614,000 14,562,000 12,136,000 General and administrative.......... 15,334,000 8,652,000 6,525,000 Litigation settlement............... -- -- 1,500,000 ------------ ----------- ------------ 44,948,000 23,214,000 20,161,000 ------------ ----------- ------------ Loss from operations................. (16,549,000) (10,805,000) (15,672,000) Interest income...................... 5,344,000 3,458,000 328,000 Interest expense..................... (237,000) (646,000) (625,000) ------------ ----------- ------------ Loss before income taxes............. (11,442,000) (7,993,000) (15,969,000) Provision for income taxes........... -- 159,000 -- ------------ ----------- ------------ Net loss............................. (11,442,000) (8,152,000) (15,969,000) Declared and accrued cumulative dividends on preferred stock........ -- (396,000) (669,000) ------------ ----------- ------------ Net loss applicable to common stock.. $(11,442,000) $(8,548,000) $(16,638,000) ============ =========== ============ Basic and diluted net loss per common share--historical................... $ (0.53) $ (0.97) $ (27.37) ============ =========== ============ Weighted average common shares outstanding--historical............. 21,626,000 8,778,000 608,000 ============ =========== ============ Basic and diluted net loss per common share--pro forma.................... $ (0.52) $ (1.57) =========== ============ Weighted average common shares outstanding--pro forma.............. 15,663,000 10,198,000 =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 3-DIMENSIONAL PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock Common Stock ------------------ ------------------- Notes Accumulated Additional Receivable Other Par Par Paid-in From Deferred Comprehensive Accumulated Shares Value Shares Value Capital Officers Compensation Income (Loss) Deficit ---------- ------ ---------- ------- ------------ ---------- ------------ ------------- ------------ Balance--December 31, 1998........ 1,400,000 $1,000 733,979 $ 1,000 $ 3,875,000 $(121,000) $ -- $ -- $(29,140,000) Common stock issued pursuant to exercise of stock options... -- -- 11,439 -- 11,000 -- -- -- -- Value of options issued to consultants..... -- -- -- -- 18,000 -- -- -- -- Value of warrants issued in connection with bridge loan..... -- -- -- -- 26,000 -- -- -- -- Dividend declared on Series A-1 preferred....... -- -- -- -- (501,000) -- -- -- -- Forgiveness of loans made to officers........ -- -- -- -- -- 51,000 -- -- -- Net loss......... -- -- -- -- -- -- -- -- (15,969,000) ---------- ------ ---------- ------- ------------ --------- ----------- ---------- ------------ Balance--December 31, 1999........ 1,400,000 1,000 745,418 1,000 3,429,000 (70,000) -- -- (45,109,000) Common stock issued pursuant to exercise of stock options, warrants and stock grants.... -- -- 622,010 -- 1,605,000 (521,000) -- -- -- Common stock issued pursuant to cashless exercise of warrants........ -- -- 1,017,230 1,000 (1,000) -- -- -- -- Issuance of Series D preferred stock, net of offering costs of $24,000......... 625,000 1,000 -- -- 4,976,000 -- -- -- -- Common stock issued pursuant to initial public offering, net of offering costs of $7,362,500...... -- -- 5,750,000 6,000 78,882,000 -- -- -- -- Conversion of convertible preferred stock........... (2,025,000) (2,000) 723,214 1,000 1,000 -- -- -- -- Conversion of redeemable preferred stock........... -- -- 12,463,389 12,000 63,523,000 -- -- -- -- Conversion of notes payable-- dividends and accrued interest........ -- -- 71,234 -- 1,068,000 -- -- -- -- Dividends declared on Series A-1 preferred....... -- -- -- -- (563,000) -- -- -- -- Value of options issued to consultants..... -- -- -- -- 392,000 -- -- -- -- Deferred compensation charge in connection with option grants... -- -- -- -- 3,983,000 -- (3,983,000) -- -- Forfeiture of options subject to deferred compensation.... -- -- -- -- (53,000) -- 53,000 -- -- Deferred compensation expense......... -- -- -- -- -- -- 360,000 -- -- Common stock reacquired...... -- -- (6,697) -- (19,000) 19,000 -- -- -- Forgiveness of loans made to officers........ -- -- -- -- -- 182,000 -- -- -- Net loss......... -- -- -- -- -- -- -- -- (8,152,000) ---------- ------ ---------- ------- ------------ --------- ----------- ---------- ------------ Balance--December 31, 2000........ -- -- 21,385,798 21,000 157,223,000 (390,000) (3,570,000) -- (53,261,000) Common stock issued pursuant to exercise of stock options... -- -- 246,134 -- 603,000 -- -- -- -- Common stock issued pursuant to exercise of warrants........ -- -- 356,306 1,000 10,000 -- -- -- -- Value of options issued to consultants..... -- -- -- -- 433,000 -- -- -- -- Compensation charge in connection with acceleration of vesting terms on options......... -- -- -- -- 365,000 -- -- -- -- Forfeiture of options subject to deferred compensation.... -- -- -- -- (184,000) -- 184,000 -- -- Deferred compensation expense......... -- -- -- -- -- -- 1,000,000 -- -- Forgiveness of loans made to officer......... -- -- -- -- -- 130,000 -- -- -- Comprehensive loss: -- Net loss........ -- -- -- -- -- -- -- (11,442,000) Unrealized gain on investments.... -- -- -- -- -- -- -- 1,123,000 -- Comprehensive loss............ ---------- ------ ---------- ------- ------------ --------- ----------- ---------- ------------ Balance--December 31, 2001........ -- $ -- 21,988,238 $22,000 $158,450,000 $(260,000) $(2,386,000) $1,123,000 $(64,703,000) ========== ====== ========== ======= ============ ========= =========== ========== ============ Total Stockholders' Equity (Deficit) -------------- Balance--December 31, 1998........ $(25,384,000) Common stock issued pursuant to exercise of stock options... 11,000 Value of options issued to consultants..... 18,000 Value of warrants issued in connection with bridge loan..... 26,000 Dividend declared on Series A-1 preferred....... (501,000) Forgiveness of loans made to officers........ 51,000 Net loss......... (15,969,000) -------------- Balance--December 31, 1999........ (41,748,000) Common stock issued pursuant to exercise of stock options, warrants and stock grants.... 1,084,000 Common stock issued pursuant to cashless exercise of warrants........ -- Issuance of Series D preferred stock, net of offering costs of $24,000......... 4,977,000 Common stock issued pursuant to initial public offering, net of offering costs of $7,362,500...... 78,888,000 Conversion of convertible preferred stock........... -- Conversion of redeemable preferred stock........... 63,535,000 Conversion of notes payable-- dividends and accrued interest........ 1,068,000 Dividends declared on Series A-1 preferred....... (563,000) Value of options issued to consultants..... 392,000 Deferred compensation charge in connection with option grants... -- Forfeiture of options subject to deferred compensation.... -- Deferred compensation expense......... 360,000 Common stock reacquired...... -- Forgiveness of loans made to officers........ 182,000 Net loss......... (8,152,000) -------------- Balance--December 31, 2000........ 100,023,000 Common stock issued pursuant to exercise of stock options... 603,000 Common stock issued pursuant to exercise of warrants........ 11,000 Value of options issued to consultants..... 433,000 Compensation charge in connection with acceleration of vesting terms on options......... 365,000 Forfeiture of options subject to deferred compensation.... -- Deferred compensation expense......... 1,000,000 Forgiveness of loans made to officer......... 130,000 Comprehensive loss: Net loss........ (11,442,000) Unrealized gain on investments.... 1,123,000 -------------- Comprehensive loss............ (10,319,000) -------------- Balance--December 31, 2001........ $ 91,123,000 ==============
The accompanying notes are an integral part of these consolidated financial statements. F-6 3-DIMENSIONAL PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ---------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Cash flows from operating activities: Net loss............................. $(11,442,000) $ (8,152,000) $(15,969,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization....... 2,863,000 1,922,000 1,565,000 Amortization of premium on marketable securities.............. 851,000 -- 19,000 Amortization of discount on marketable securities.............. (691,000) -- -- Accretion of interest on discounted note payable....................... 34,000 26,000 -- Non-cash compensation expense....... 1,495,000 201,000 51,000 Valuation of options and warrants... 433,000 752,000 44,000 Interest paid with common stock..... -- 49,000 -- Interest paid with preferred stock.. -- 239,000 -- Changes in: Other assets...................... (981,000) (1,899,000) 260,000 Accounts payable and accrued expenses ........................ 2,566,000 454,000 1,620,000 Settlement accrual................ (500,000) (1,000,000) 1,500,000 Deferred revenue.................. (4,117,000) 16,116,000 345,000 ------------ ------------ ------------ Net cash provided by (used in) operating activities............ (9,489,000) 8,708,000 (10,565,000) ------------ ------------ ------------ Cash flows from investing activities: Purchases of marketable securities.. (137,978,000) -- -- Maturities of marketable securities......................... 58,071,000 -- 7,267,000 Cash restricted for collateral...... 835,000 -- -- Acquisition of subsidiary, net of $25,000 cash acquired.............. -- -- (5,000) Capital expenditures................ (9,090,000) (3,469,000) (278,000) ------------ ------------ ------------ Net cash provided by (used in) investing activities............ (89,832,000) (3,469,000) 6,984,000 ------------ ------------ ------------ Cash flows from financing activities: Proceeds from sale of stock......... -- 102,212,000 -- Proceeds from exercise of options and warrants ...................... 614,000 1,068,000 11,000 Dividends paid on Series A-1 Preferred Stock.................... -- (229,000) -- Proceeds from issuance of short-term debt............................... 5,000,000 -- 10,000,000 Repayment of long-term debt and notes payable...................... (1,331,000) (1,378,000) (1,224,000) ------------ ------------ ------------ Net cash provided by financing activities...................... 4,283,000 101,673,000 8,787,000 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.................... (95,038,000) 106,912,000 5,206,000 Cash and cash equivalents--beginning of year............................. 114,557,000 7,645,000 2,439,000 ------------ ------------ ------------ Cash and cash equivalents--end of year................................ $ 19,519,000 $114,557,000 $ 7,645,000 ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid for interest.............. $ 204,000 $ 331,000 $ 446,000 Noncash investing and financing activities: Equipment purchased under capital leases............................ -- -- $ 390,000 Dividends declared but not paid.... -- $ 501,000 Note receivable exchanged for common stock...................... -- $ 521,000 -- Notes payable (including interest due of $89,000) exchanged for common stock...................... -- $ 1,068,000 -- Notes payable (including interest due of $353,000) exchanged for redeemable preferred stock........ -- $ 10,353,000 -- Conversion of redeemable and convertible preferred stock to common stock...................... -- $ 71,751,000 --
The accompanying notes are an integral part of these consolidated financial statements. F-7 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2001 and 2000 NOTE A--DESCRIPTION OF BUSINESS 3-Dimensional Pharmaceuticals, Inc. (the Company) is a drug discovery and development company that has a pipeline of drug candidates in the areas of cancer and inflammation, and metabolic and cardiovascular diseases. The Company has developed an integrated set of proprietary technologies called DiscoverWorks(R) to accelerate and improve the drug discovery process. DiscoverWorks enables scientists to design characteristics into drug candidates that the Company believes increases the probability of development success. The Company uses DiscoverWorks to discover and develop drugs for its own pipeline and in collaboration with pharmaceutical and biotechnology companies. The Company has incurred net losses since inception in 1993 and may incur additional losses for at least the next several years. Through December 31, 2001, substantially all of the Company's revenue has been derived from corporate collaborations, license agreements and government grants. The Company expects that substantially all of its funds for the next several years will result from payments from these sources, from outlicensing of technologies and internally developed drug candidates, and from interest income. The Company expects to spend significant resources to enhance its drug discovery technologies and to fund research and development of its pipeline of drug candidates. Through December 31, 2001, the Company's technologies have not been used in the development of any compound that has reached the point of commercialization. In order to achieve profitability, the Company must continue to develop products and technologies that can be commercialized by the Company or through existing and future collaborations. NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [1] Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances have been eliminated in consolidation. [2] Cash, cash equivalents and marketable securities: The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. Marketable securities include investments in commerical paper, notes and bonds with original maturities of greater than three months having a remaining maturity of less than 24 months. These marketable securities are treated for accounting purposes as available-for-sale and as such are reported at their fair market values. At December 31, 2001, the Company had $1,123,000 of unrealized gains on these marketable securities. All realized gains and losses are recorded in the results of operations. Unrealized gains and losses have been recorded as a separate component of stockholders' equity. [3] Restricted Cash: Restricted cash of $0.8 million at December 31, 2001 collateralizes a $0.8 million outstanding letter of credit associated with the lease of the Company's Cranbury research facility. The funds are invested in a money market fund. (Note K) [4] Property and equipment: Property and equipment are recorded at cost and depreciated using the straight-line method over estimated useful lives of two to five years. Leasehold improvements and equipment acquired under capital leases are amortized over the lesser of the economic useful life of the improvement or asset or the term of the lease. Expenditures for repairs and maintenance are charged to expense as incurred, while major renewals and improvements are capitalized. F-8 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS [5] Revenue recognition: Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and development funding and milestone payments. Non- refundable up-front fees are deferred and amortized to revenue over the related performance period. Periodic payments for research and development activities and government grants are recognized over the period that the Company performs the related activities under the terms of the agreements. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. In the year ended December 31, 1999, the Company changed its method of recognizing revenue with respect to nonrefundable up-front fees received under corporate collaboration research agreements to the method described above to conform with the requirements of an accounting bulletin on revenue recognition issued by the staff of the Securities and Exchange Commission in December 1999 and retroactively restated its prior years' financial statements to reflect the application of the new method. Prior to the change, the Company recognized revenue from such fees upon the execution of the agreement. [6] Research and development: Research and development costs are expensed as incurred. [7] Accounting for stock-based compensation: The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which establishes a fair value-based method of accounting for stock- based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123, which requires disclosure of the pro forma effects on net loss and net loss per share as if stock-based employee compensation was measured under SFAS No. 123, as well as certain other information. The Company accounts for stock-based compensation to non- employees using the fair value method in accordance with SFAS No. 123. The Company has recognized deferred stock compensation related to certain stock option grants (see Note I). [8] Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. [9] Per share data: Historical basic and diluted net loss per common share is computed by dividing the net loss increased by declared and accrued cumulative dividends on the Series A-1 preferred stock for the year by the weighted average number of common shares exclusive of outstanding shares of common stock which are subject to repurchase and are nonvested. As their effects would be anti- dilutive, shares of common stock issuable upon conversion of preferred stock (for the periods prior to conversion) and exercise of outstanding options and warrants as well as outstanding common shares which are nonvested during the periods were not included in computing diluted net loss per common share. F-9 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Securities and the related number of common shares not included in the diluted computation for the years ended December 31, 2001, 2000 and 1999 that could potentially dilute basic earnings per share, if any, in the future are as follows: Dilutive Potential Common Shares*
2001 2000 1999 --------- ---------- ---------- Preferred Stock (see below).................. -- 6,858,000 9,545,000 Options...................................... 2,991,000 2,115,000 2,023,000 Warrants..................................... 279,000 1,531,000 1,843,000 Common stock--subject to repurchase.......... 111,000 179,000 115,000 --------- ---------- ---------- 3,381,000 10,683,000 13,526,000 ========= ========== ==========
-------- * Includes weighted average shares for period prior to conversion and exercise. The preferred stock automatically converted into common stock on a 1 for .36 basis and certain nonvested common stock automatically became vested upon completion of the initial public offering of the Company's common stock in August 2000. Accordingly, pro forma basic and diluted net loss per common share on the accompanying consolidated statements of operations for the years ended December 31, 2000 and 1999 has been calculated by dividing net loss by the weighted average outstanding common shares as if the preferred stock were converted into common stock, and certain nonvested common stock was vested, as of the original date of issuance. [10] Comprehensive loss: Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires the reporting of all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. The Company's other comprehensive loss includes unrealized gains on available for sale securities. [11] Impairment of long-lived assets: As required by Statement of Financial Accounting Standards No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," the Company assesses the recoverability of any long-lived assets for which an indicator of impairment exists. Specifically, the Company calculates, and recognizes, any impairment losses by comparing the carrying value of these assets to its estimate of the undiscounted future operating cash flows. Although its current and historical operating cash flows are indicators of impairment, the Company believes that the future cash flows to be received from its long-lived assets will exceed the assets' carrying value. Accordingly, the Company has not recognized any impairment losses through December 31, 2001. [12] Income taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The objective of this pronouncement is to recognize and measure, in accordance with enacted tax laws, the amount of current and deferred income taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements. F-10 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS NOTE C--CERTAIN RESEARCH AND COLLABORATION AGREEMENTS In December 1997, the Company entered into a research collaboration with Heska Corporation to assist in the discovery and development of new veterinary therapeutic agents. The agreement originally had a two-year research term, which was revived and extended until May 31, 2002. As of December 31, 2001, the Company received up-front cash payments and research funding aggregating approximately $2.7 million. In October 1999, the Company entered into a research collaboration and license agreement with Hoechst Schering, AgrEvo GmbH, now part of Aventis CropScience GmbH, under which the Company utilized its DirectedDiversity(R) technology in the discovery of compounds applicable to plant and pest management. The initial term of the agreement was for two years and was extended until it expired in January 2002. As of December 31, 2001, the Company has received up-front payments, payment for delivery of compounds and research funding of approximately $3.4 million. In December 1999, the Company entered into a collaboration with Boehringer Ingelheim Pharmaceuticals, Inc., or BIPI, to use its DirectedDiversity technology to assist BIPI in the discovery of new drugs for specific biological targets in humans. The initial term of the collaboration was for two years and, in April 2001, the collaboration was expanded to cover additional targets and the research term was extended until March 2003. As of December 31, 2001, the Company has received up-front payments and research funding aggregating approximately $4.1 million, and will receive additional committed research funding of approximately $3.1 million over the remaining term of the collaboration. The Company could also receive milestone payments of up to $2.4 million for the first product developed depending on whether stipulated milestones are met, and is eligible to receive additional milestone payments if subsequent products are developed. The Company is also entitled to receive royalties on the sales of resulting products. In February 2000, the Company entered into a collaboration with DuPont Pharmaceuticals Company (acquired by Bristol-Myers Squibb Company in October 2001) under which the Company would utilize its DirectedDiversity technology to develop new drugs for specific biological targets. As of December 31, 2001, the Company has received up-front payments and research funding aggregating approximately $2.6 million. The agreement expired on December 31, 2001, the end of the initial research term of the collaboration. In March 2000, the Company was awarded and commenced a research project in which it was the recipient of a two-year Small Business Innovative Research (SBIR) award totaling up to $1 million. In addition, in June 2001, the Company was awarded and commenced an additional research project under a two-year SBIR Award totaling up to $1 million. The SBIRs are sponsored by the National Institutes of Health. In May 2000, the Company entered into a license and research agreement with Schering AG, Germany, in which Schering AG obtained, for human therapeutic uses, exclusive worldwide rights to the Company's urokinase inhibitor compounds. During the initial two-year research and development term, the Company is to receive payments for research funding totaling $5 million, of which $4.1 million was received by December 31, 2001. In addition, the Company is eligible to receive milestone payments of up to approximately $23 million for the first product developed in a therapeutic area depending on whether stipulated milestones are met, and future milestone payments for additional therapeutic areas and royalties on the sales of any resulting products. In connection with the agreement, an affiliate of Schering AG made a $5 million equity investment in the Company consisting of shares of preferred stock that converted into 223,214 shares of common stock. In July 2000, the Company entered into a collaboration with Bristol-Myers Squibb Company, or BMS, under which the Company will use its DiscoverWorks technologies to assist BMS in the discovery and development of new human drugs for specific biological targets. In the initial three-year term of the research F-11 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS collaboration, BMS will supply biological targets and the Company will create chemical libraries and screen such libraries against these targets. BMS may terminate research activities with 90 days notice, without cause, but must pay any remaining research funding during the initial research term or one-half of the remaining research funding during any extended term. Following the end of the initial research or any extended research term, either party may terminate the agreement on 30 days notice if no compound is being optimized or developed under the collaborative agreement. The Company received up-front cash licensing and technology access fees amounting to $19 million, net of a $4.5 million refund resulting from a modification of the agreement, and research funding of $14.4 million has been committed over the first three years of the collaboration of which $7.5 million was received by December 31, 2001. In addition, the Company could receive milestone payments through the clinical development stages, and royalty payments on the sales of any resulting products, with the amount at each level determined based on the Company's involvement in the related optimization and development activities. For each compound, depending on whether all pre-clinical and clinical milestones are met and depending on the Company's contribution to the development of the compound, the Company could receive milestone payments aggregating up to between $4.5 million and $15 million. In December 2000, the Company entered into an agreement with Centocor, Inc., a subsidiary of Johnson & Johnson, under which Centocor acquired worldwide rights to the Company's direct thrombin inhibitor program. Centocor is responsible for development and worldwide commercialization of all compounds under the agreement. For the deep vein thrombosis indication, the Company has an option to co-develop and co-promote with Centocor in the United States. Under the agreement, the Company received an up-front cash payment of $6 million from Centocor, research funding of $0.8 million during the year ended December 31, 2001 and a milestone payment of $4 million in October 2001 and is eligible to receive additional committed research funding of $0.8 million over the remaining term of the contract. The Company could also receive milestone payments of up to $38 million based on the achievement of certain milestones for the first compound developed and approved under the agreement. In addition, the Company is entitled to receive royalties on the sales of any products marketed under the agreement. In December 2001, the Company entered into a collaboration with Johnson & Johnson Pharmaceutical Research & Development, L.L.C., or J&J PRD, to utilize the Company's DiscoverWorks technology to discover and optimize small molecule drug leads directed towards genomics targets identified by J&J PRD. The initial research term is for approximately one year, subject to renewal by mutual agreement. Under the terms of this agreement, the Company received an up-front technology access fee and committed research funding aggregating $3.6 million. The contract provides that the Company could also receive milestone payments of up to $4.2 million for the first product developed depending on whether stipulated milestones are met and could receive additional milestones if subsequent products are developed. The contract also provides that the Company is entitled to receive royalties on the sales of any resulting products. All revenue from research and collaboration agreements is earned from activities performed in the United States. Revenue from foreign corporate collaborators (based on the location of the collaborator) comprised 13%, 30% and 23% of total collaboration revenues for the years ended December 31, 2001, 2000 and 1999, respectively. F-12 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Revenue from the Company's major customers as a percentage of total revenue, for the years ended December 31, 2001, 2000 and 1999 was comprised of the following:
Customer 2001 2000 1999 -------- ---- ---- ---- A........................... 43% 35% -- B........................... 30% -- -- C........................... 4% 16% 3% D........................... 9% 13% -- E........................... 8% 14% -- F........................... -- -- 37% G........................... -- 3% 27% H........................... -- -- 20% --- --- --- 94% 81% 87% === === ===
Deferred revenue at December 31, 2001, which consists of unamortized up- front fees, is expected to be recognized as revenue in 2002 and 2003 in the amounts of $9,601,000 and $3,286,000, respectively. NOTE D--PROPERTY AND EQUIPMENT Property and equipment, all of which are located in the United States, is summarized as follows:
As of December 31, ------------------------ 2001 2000 ----------- ----------- Laboratory equipment, computer software and office equipment............................ $12,330,000 $ 6,720,000 Leasehold improvements....................... 4,570,000 2,655,000 ----------- ----------- 16,900,000 9,375,000 Less accumulated depreciation and amortization................................ (5,165,000) (3,867,000) ----------- ----------- $11,735,000 $ 5,508,000 =========== ===========
NOTE E--ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
As of December 31, --------------------- 2001 2000 ---------- ---------- Professional fees.................................. $ 950,000 $ 289,000 Equipment.......................................... 1,473,000 685,000 Payroll and related expenses....................... 1,615,000 1,280,000 Trade payables..................................... 1,721,000 939,000 ---------- ---------- $5,759,000 $3,193,000 ========== ==========
NOTE F--DEBT [1] Short-term note payable: On December 31, 2001, the Company completed a short-term note financing for $5 million. The note bears interest at the prime rate of 4.75%. Principal and interest is due by February 28, 2002. The Company intends to repay the principal and interest and to arrange to refinance the amount borrowed as a long-term note. F-13 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS [2] Convertible notes payable: On November 18, 1999, the Company completed a convertible note financing for $10 million. The notes bore interest at the rate of prime + 1% per annum (9.5% through December 31, 1999). Principal and interest was due on the first anniversary of the closing date (the Maturity Date). The notes provided that, if prior to the Maturity Date the Company raised an additional $10 million through the sale of redeemable preferred stock, the notes and any unpaid accrued interest would convert into the redeemable stock on the same terms and conditions as given to the new investors. On March 31, 2000, the Company raised $18.4 million through the sale of redeemable preferred stock, which upon completion of the IPO converted into 2,186,101 shares of common stock. In connection therewith, the $10 million of convertible notes and $353,000 of accrued interest were converted into shares of redeemable preferred stock, which upon completion of the IPO converted into 1,232,559 shares of common stock. In connection with the sale of the notes, the Company issued warrants to purchase 1,250,000 shares of common stock exercisable at $3.50 per share for a period of one year. The Company recorded a noncash interest charge in connection with these warrants of $26,000 for the year ended December 31, 1999. All of the warrants were exercised prior to expiration, certain of which on a net issuance basis, resulting in the issuance of 1,119,285 shares of common stock. [3] Long-term debt: Long-term debt, including capital lease obligations, was as follows:
As of December 31, --------------------- 2001 2000 ---------- ---------- Loans payable(a)................................... $1,010,000 $2,002,000 Note payable(b).................................... 217,000 308,000 Capital lease obligations.......................... -- 214,000 ---------- ---------- 1,227,000 2,524,000 Current portion of long-term debt.................. 1,066,000 1,209,000 ---------- ---------- Long-term debt..................................... $ 161,000 $1,315,000 ========== ==========
- -------- (a) During 1998 and 1999, the Company entered into a series of 48-month loans to finance the purchase of laboratory equipment and office equipment and certain tenant improvements at interest rates varying between 10.68% and 11.65%. The loans are payable in monthly installments of principal and interest aggregating $98,000 with final payments in 2002 and 2003 aggregating $362,000 and $39,000, respectively. Borrowings related to the purchase of laboratory equipment and office equipment are collateralized by the equipment. (b) The note is payable in annual installments of $125,000 through December 2003. Interest on the note payable has been imputed at 10.0% per annum. As of December 31, 2001, the discounted amount of the note is $217,000 (face value $250,000). Minimum principal repayments of long-term debt as of December 31, 2001 were as follows: 2002........................................................... $1,066,000 2003........................................................... 161,000 ---------- Total...................................................... $1,227,000 ==========
F-14 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS NOTE G--FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires the Company to disclose the estimated fair value of its financial instruments. The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts payable and accrued expenses approximate fair value because of the short-term duration of those items. The carrying amounts of debt and notes payable approximate fair value because the interest rates on such debt approximate the market rate. NOTE H--REDEEMABLE PREFERRED STOCK AND EQUITY SECURITIES [1] Preferred stock: In August 2000, all outstanding Series A, B, C and D preferred shares and the notes payable were automatically converted into common shares of the Company on a 1 to .36 basis upon completion of the initial public offering of the Company's common stock. [2] Common Stock: In August 2000, the Company completed an initial public offering of its common stock. The offering consisted of 5,000,000 shares, which were priced at $15 per share. The Company also granted its underwriters an option to purchase 750,000 shares to cover over allotments, which was exercised concurrently with the IPO. Net proceeds to the Company after subtracting underwriting discounts and expenses was $78,888,000. [3] Warrants: As of December 31, 2001, the Company has outstanding warrants to purchase common shares, all of which are exercisable, as follows:
Expiration Number of Common Exercise Price Date Shares Reserved -------------- ---------- ---------------- $0.03 2005 5,894 $0.03 2006 90,599 $0.03 2007 5,336 $7.00 2004 4,500 -------- *106,329 ========
- -------- * Weighted average exercise price was $.32 and weighted average remaining contractual life was 4.44 years. [4] Common stock subject to repurchase: As of December 31, 2001 and 2000, 93,792 and 139,796 shares of common stock, respectively, are subject to repurchase by the Company. The shares are subject to repurchase at the Company's option at the original purchase prices, ranging from $2.94 to $6.30, in the event that the purchaser's relationship with the Company is terminated. The number of shares subject to repurchase by the Company decreases by 25% on the one-year anniversary of the sale, and further reduces upon later anniversary dates. [5] Note receivable from officer: At December 31, 2001, the Company has a note receivable from an officer with an unpaid balance of $260,000 in connection with a loan made in March 2000 to purchase 176,871 restricted shares of the Company's common stock. The loan is collateralized by the officer's beneficial interest in the stock. Under the terms of the F-15 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS note, interest accrues on the unpaid principal at approximately 7% per annum. Principal and accrued interest is to be paid in four equal installments with the first payment due six months from the loan date and the remaining payments due annually thereafter. The Company has forgiven installments of principal and interest due on loans to this officer and to other officers as part of the overall executive compensation program. These amounts have been recorded as compensation expense totaling $156,000, $182,000 and $58,000 for the years ended December 31, 2001, 2000 and 1999, respectively. NOTE I--EQUITY COMPENSATION PLANS The Company has maintained two equity compensation plans (together the Plans) for the issuance of stock options and other stock grants to its employees, non-employee directors, advisors and consultants. The Company's Equity Compensation Plan adopted in 1993, as amended, provides for the issuance of restricted stock and the granting of both incentive stock options and nonqualified stock options to purchase a total of 3,022,095 shares of common stock. The options vest over various periods, not exceeding five years, and expire no later than ten years from date of grant. Upon the close of the Company's IPO in August 2000, the Company stopped making grants under the 1993 Plan. During 2000, the board of directors and stockholders approved the 2000 Equity Compensation Plan, which became effective upon the close of the IPO in August 2000 and provided for the granting of up to 2,200,000 shares of common stock. On May 14, 2001, the board of directors and stockholders increased the number of shares under the plan to 4,200,000 shares of common stock. The 2000 Plan provides for grants of incentive stock options, nonqualified stock options, stock awards and performance units. The Plans are administered by a committee of the board of directors. The committee has the authority to determine the term during which an option may be exercised (provided that no option may have a term of more than ten years), the exercise price of an option and the rate at which options may be exercised. Incentive stock options may be granted only to employees of the Company. Nonqualified stock options may be granted to employees, directors or consultants of the Company. For incentive stock options, the exercise price may not be less than the fair value of the stock on the date of grant. The Company applies APB 25 in accounting for its employee stock option awards, which requires the recognition of compensation expense for the difference between the market value of the underlying common stock and the exercise price of the option at the grant date. Pro forma information regarding net loss and loss per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The weighted average fair value of options granted during the years ended December 31, 2001, 2000 and 1999 is estimated to be $6.80, $13.83 and $.35, respectively. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Year Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- Risk-free interest rate........................ 5.7% 5.9% 6.6% Expected life.................................. 6 Years 6 Years 6 Years Expected volatility............................ 102% 120% 10% Divided yield.................................. 0% 0% 0%
F-16 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Had compensation cost for the Company's stock options been determined based upon the fair value at the grant date for awards under the Plans consistent with the methodology prescribed under SFAS No. 123, the Company's pro forma net loss and pro forma net loss per share would be as follows:
Year Ended December 31, ------------------------------------- 2001 2000 1999 ----------- ----------- ----------- Net loss: Historical......................... $11,442,000 $ 8,152,000 $15,969,000 Pro forma.......................... 15,652,000 10,388,000 16,398,000 Basic and diluted net loss per share: Historical......................... $ (0.53) $ (0.97) $ (27.37) Pro forma.......................... $ (0.72) $ (1.23) $ (28.07)
The following table summarizes information about stock option activity under the Plans during the periods indicated:
Incentive Options Nonqualified Options -------------------- ------------------------ Weighted Weighted Average Average Exercise Excercise Shares Price Shares Price ---------- -------- ----------- ----------- Balance--December 31, 1998.... 1,020,149 $ 2.08 160,487 $ 1.92 Granted....................... 157,585 2.94 727,619 3.67 Exercised..................... (11,439) 0.97 -- -- Forfeited..................... (31,541) 2.65 -- -- ---------- ----------- Balance--December 31, 1999.... 1,134,754 2.20 888,106 3.35 Granted....................... 455,170 11.07 431,090 15.17 Exercised..................... (200,569) 1.80 (191,433) 2.59 Forfeited..................... (133,832) 3.44 -- -- ---------- ----------- Balance--December 31, 2000.... 1,255,523 5.34 1,127,763 8.00 Granted....................... 1,096,421 10.16 230,142 12.66 Exercised..................... (1,096,974) 2.45 (49,214) 2.44 Forfeited..................... (134,998) 10.46 (86,891) 15.17 ---------- ----------- Balance--December 31, 2001.... 2,019,972 $ 7.90 1,221,800 $ 8.59 ---------- ------ ----------- --------
The following table presents information relating to stock options outstanding and exercisable at December 31, 2001:
Options Outstanding Options Exercisable ------------------------------ -------------------- Weighted Average Weighted Weighted Remaining Average Average Number Life Exercise Number Exercise Range of Exercise Price Outstanding in Years Price Exercisable Price - ----------------------- ----------- --------- -------- ----------- -------- Incentive Stock Options $0.03 to $7.28........... 904,494 6.77 $ 3.52 559,235 $ 2.45 $7.29 to $30.00.......... 1,115,478 9.20 11.44 48,690 16.02 --------- ------- 2,019,972 8.11 $ 7.90 607,925 $ 3.54 ========= ====== ======= ====== Nonqualified Stock Options $0.03 to $7.28........... 710,853 7.40 $ 3.89 382,965 $ 3.66 $7.29 to $30.00.......... 510,947 8.98 15.14 109,503 17.54 --------- ------- 1,221,800 8.06 $ 8.59 492,468 $ 6.75 ========= ====== ======= ======
F-17 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS In addition to the stock option activity, the Company issued 7,143 shares of restricted stock at a weighted average purchase price per share of $6.30 under the Plans during the year ended December 31, 2000. The Company reacquired 6,697 unvested, restricted shares at a purchase price of $19,000 during 2000. As of December 31, 2001, 2,689,242 common shares were available for future grants under the 2000 Plan. The Company records expense for option grants to non-employees in the amount of the fair value per share, as computed using the Black-Scholes option-pricing model and variable plan accounting over the vesting period. The Company recognized non-cash expense of $433,000, $392,000 and $18,000 for the years ended December 31, 2001, 2000 and 1999, respectively in conjunction with such non-employee option grants. During the year ended December 31, 2001, the Company recorded charges totaling $365,000 resulting from changes in terms of certain stock options to former employees, directors and consultants. During the year ended December 31, 2000, in connection with the grant of options to employees and directors and the change in status of an option holder from a consultant to an employee, the Company recorded deferred stock compensation of $3,983,000, representing the difference between the exercise price and the market value of the Company's common stock on the dates such stock options were granted or status was changed. Deferred compensation is included as a component of stockholders' equity (deficit) and is being amortized to expense over the vesting period of the stock options. For the years ended December 31, 2001 and 2000, the Company incurred deferred stock compensation expense of $1,000,000 and $360,000, respectively. NOTE J--401(K) PLAN The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. During the year ended December 31, 2001, the Company began making matching contributions in the amount of 50% of employee contributions up to 6%. The Company, at its discretion, may also make certain contributions to the plan. For the years ended December 31, 2001 and 2000, the Company contributed $266,000 as matching contributions and $226,000 as a discretionary contribution to the plan, respectively. The Company made no contributions during 1999. NOTE K--COMMITMENTS AND CONTINGENCIES [1] Leases: The Company currently occupies approximately 104,500 square feet of space, including its corporate headquarters and clinical development offices in Yardley, Pennsylvania and two research facilities located in Exton, Pennsylvania and Cranbury, New Jersey. The Yardley facility includes 20,500 square feet of office space, which the Company occupied in October 2001 and which is leased through March 2006. The Company leases approximately 41,000 square feet of space in Exton, Pennsylvania which houses one of the Company's research and development facilities, including approximately 10,000 square feet, adjacent to its initial space, which the Company occupied in December 2000. The initial 31,000 square feet of the Exton facility is leased through June 2008 and the additional 10,000 square feet is subject to options allowing the Company to extend that portion of the lease term through June 2008. The Company's other research and development facility includes approximately 43,000 square feet of space in Cranbury, New Jersey. The Cranbury facility is leased through May 2007. At December 31, 2001 minimum annual rentals under the leases are as follows: F-18 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS
Year Ending December 31, Amount ------------------------ ----------- 2002................................... $ 2,418,000 2003................................... 2,460,000 2004................................... 2,503,000 2005................................... 2,469,000 2006................................... 2,412,000 Thereafter............................... 1,207,000 ----------- $13,469,000 ===========
The leases provide for scheduled rental increases and escalations for increases in real estate taxes and certain operating expenses. At December 31, 2001, the Company has recorded a deferred rent liability in the amount of $84,000. Rent expense was $2,224,000, $547,000 and $516,000 for the years ended December 31, 2001,2000 and 1999, respectively. [2] Letter of Credit: The Company had an outstanding letter of credit at December 31, 2001, totaling $0.8 million pursuant to the lease for the Cranbury research facility. (Note B[3]) [3] Contingencies: The Company may be, from time to time, a party to various legal proceedings arising from normal business activities. Although the amount of any liability that could arise with respect to currently pending actions cannot be accurately predicted, management believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial condition or result of operations. NOTE L--INCOME TAXES As of December 31, 2001, the Company has a net operating loss carryforward and a research and development credit carryforward for federal income tax purposes of approximately $49,680,000 and $2,909,000 respectively, which begin to expire in 2016. In addition, the Company has an alternative minimum tax credit carryforward of $120,000 as of December 31, 2001. Deferred tax assets, which represent the tax effects of loss and credit carryforwards and temporary differences between the financial statement amounts and the tax basis of assets and liabilities consist of:
As of December 31, ------------------------ 2001 2000 ----------- ----------- Net operating loss carryforwards................. $18,210,000 $14,760,000 Research and development credit carryforwards.... 2,909,000 1,321,000 Alternative minimum tax credit carryforward...... 120,000 117,000 Income deferred for financial statement purposes, taxable when received for tax purposes.......... 4,930,000 6,652,000 Operating expenses, capitalized and amortized as start up costs for tax purposes................. -- 247,000 Other--depreciation and expenses not currently deductible...................................... 806,000 376,000 ----------- ----------- Total deferred tax asset......................... 26,975,000 23,473,000 Valuation allowance.............................. (26,975,000) (23,473,000) ----------- ----------- Net deferred tax asset....................... $ -- $ -- =========== ===========
F-19 3-DIMENSIONAL PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS The Company has not recorded a benefit from its carryforwards or deductible temporary differences because realization of the benefit is uncertain and, therefore, a valuation allowance has been provided for the deferred tax asset at December 31, 2001 and 2000, respectively. The provision for income taxes for the year ended December 31, 2000 represents a provision for the federal alternative minimum tax and state income tax. The difference between the tax benefit computed at the statutory tax rate of 34% and the Company's effective tax rate is due to the increase in the valuation allowance of $3,502,000, $4,305,000 and $6,805,000 for the years ended December 31, 2001, 2000 and 1999, respectively, and the provision for the federal alternative minimum tax and state income tax of $159,000 for the year ended December 31, 2000. In subsequent years, the Company may be subject to an annual limitation on the utilization of its net operating loss and research and development tax credit carryforwards under Section 382 of the Internal Revenue Code. NOTE M--SETTLEMENT OF LITIGATION In October 1998, a complaint was filed in the United States District Court for the District of Delaware by Anadys Pharmaceuticals, Inc. alleging that the Company infringed two Anadys U.S. Patents. On March 7, 2000, the Company and Anadys entered into a Settlement Agreement for a total of $1.5 million which was paid by the Company for settlement of the litigation. NOTE N--QUARTERLY RESULTS (unaudited):
Quarter ended -------------------------------------------------- September March 31 June 30 30 December 31 Total Year ----------- ----------- ----------- ----------- ------------ 2001 Revenues................ $ 5,796,000 $ 6,643,000 $ 5,788,000 $10,172,000 $ 28,399,000 Net loss................ (1,641,000) (3,094,000) (4,965,000) (1,742,000) (11,442,000) Basic net loss per common share-- historical*............ $ (0.08) $ (0.14) $ (0.23) $ (0.08) $ (0.53) Diluted net loss per common share-- historical*............ $ (0.08) $ (0.14) $ (0.23) $ (0.08) $ (0.53) =========== =========== =========== =========== ============ 2000 Revenues................ $ 1,484,000 $ 2,131,000 $ 4,994,000 $ 3,800,000 $ 12,409,000 Net income (loss)....... (3,742,000) (2,477,000) 409,000 (2,342,000) (8,152,000) Basic net income (loss) per common share-- historical*............ $ (5.92) $ (3.76) $ 0.03 $ (0.11) $ (0.97) Diluted net income (loss) per common share--historical*..... $ (5.92) $ (3.76) $ 0.02 $ (0.11) $ (0.97) Basic net income (loss) per common share--pro forma.................. $ (0.36) $ (0.18) $ 0.02 $ (0.11) $ (0.52) Diluted net income (loss) per common share--pro forma....... $ (0.36) $ (0.18) $ 0.02 $ (0.11) $ (0.52) =========== =========== =========== =========== ============
- -------- * Per common share amounts for the quarters and full years have been calculated separately. Accordingly, quarterly amounts do not add to the annual amounts because of differences in the weighted average common shares outstanding during each period principally due to the effect of the Company's issuing shares of its common stock during the year. (1) During the quarter ended December 31, 2000, revenues included a $0.4 million adjustment resulting from a modification of the agreement with BMS. F-20 NOTE O--TPO MIMETIC PROGRAM: In January 2002, the Company acquired worldwide rights to a pre-clinical compound, 3DP-3534, from GlaxoSmithKline Plc, or GSK, for the prevention and treatment of thrombocytopenia, or low blood platelet count. All payments for the compound will be made to GSK in shares of the Company's stock. The Company made an initial payment of 0.5 million shares and is obligated to issue up to 1.9 million additional shares should the compound achieve certain key development and regulatory milestone events. With respect to the initial 0.5 million shares issued, the Company will recognize a non-cash in-process research and development charge in the first quarter of 2002 of $4.1 million. F-21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On September 24, 2001, upon the recommendation of the Audit Committee and the Board of Directors, the Company dismissed Richard A. Eisner & Company, LLP (Eisner) as the Company's independent accountants. Eisner's reports on the financial statements of the Company for each of the fiscal years ended December 31, 2000 and 1999 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company's 2000 and 1999 fiscal years and the interim period ended September 24, 2001, the Company did not have any disagreements with Eisner on any matter relating to accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Eisner, would have caused Eisner to make reference to the subject matter of the disagreement in connection with its report. On September 24, 2001, the Board of Directors approved the Company's retention of Arthur Andersen LLP to act as the Company's independent accountants. During the Company's 2000 and 1999 fiscal years and the interim period ended September 24, 2001, the Company did not consult Arthur Andersen LLP regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the financial statements of the Company. Additionally, the Company did not consult Arthur Andersen LLP during the Company's 2000 and 1999 fiscal years or the interim period ended September 24, 2001, regarding any matter that was the subject of a disagreement or a reportable event. PART III Item 10. Directors and Executive Officers of the Registrant The response to this item is contained in part under the caption "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K and the remainder is incorporated by reference from the discussion under the caption "Nomination and Election of Directors" from our Proxy Statement relating to our Annual Meeting of Stockholders scheduled for May 17, 2002, which will be filed within 120 days after the close of the Company's fiscal year covered by this Report. Item 11. Executive Compensation This information will be included in our Proxy Statement relating to our Annual Meeting of Stockholders scheduled for May 17, 2002, which will be filed within 120 days after the close of our fiscal year covered by this Report, and is incorporated herein by reference to such Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management This information will be included in our Proxy Statement relating to our Annual Meeting of Stockholders scheduled for May 17, 2002, which will be filed within 120 days after the close of our fiscal year covered by this Report, and is incorporated herein by reference to such Proxy Statement. Item 13. Certain Relationships and Related Transactions This information will be included in our Proxy Statement relating to our Annual Meeting of Stockholders scheduled for May 17, 2002, which will be filed within 120 days after the close of our fiscal year covered by this Report, and is incorporated herein by reference to such Proxy Statement. F-22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this report: (1) Financial Statements The financial statements are included under Item 8 of this Report. (2) Financial Statement Schedules The financial statement schedules listed under Item 8 of this Report are omitted because they are not applicable or required information, and are shown in the financial statements or the notes thereto. (3) List of Exhibits. The following is a list of exhibits filed as part of this annual report on Form 10-K. Where so indicated in parentheses, exhibits which were previously filed are incorporated herein by reference.
Exhibit Number Description ------- ----------- 3 (i) Ninth Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 3 (ii) Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 4.1 Form of Common Stock Certificate of Company (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.1 3-Dimensional Pharmaceuticals, Inc. Equity Compensation Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./1/ 10.2 Third Amended and Restated Stockholders' Agreement by and among the Company and the Stockholders identified therein, dated March 31, 2000 (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.3 Series B Preferred Stock Purchase Agreement between the Company and Merck KGaA, dated October 11, 1996 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.4 Series C Preferred Stock Purchase Agreement between the Company and American Home Products Corporation, dated June 13, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.5 Series D Preferred Stock Purchase Agreement between the Company and Schering Berlin Venture Corporation, dated May 17, 2000 (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.6 Warrant to Purchase Common Stock of the Company issued to HealthCare Ventures III, L.P., dated November 18, 1999 (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.7 Warrant to Purchase Common Stock of the Company issued to HealthCare Ventures IV, L.P., dated November 18, 1999 (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.8 Warrant to Purchase Common Stock of the Company issued to Rho Management Trust II, dated November 18, 1999 (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 333-37606)).
F-23
Exhibit Number Description ------- ----------- 10.9 Warrant to Purchase Common Stock of the Company issued to Aetna Life Insurance Company, dated November 18, 1999 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.10 Warrant to Purchase Common Stock of the Company issued to Henry Rothman, dated November 18, 1999 (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.11 Warrant to Purchase Common Stock of the Company issued to Abingworth Bioventures SICAV, dated November 18, 1999 (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.12 Warrant to Purchase Common Stock of the Company issued to Sentron Medical, Inc., dated November 18, 1999 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.13 Warrant to Purchase Common Stock of the Company issued to Biotech Growth S.A., dated November 18, 1999 (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.14 Employment Offer Letter to David C. U'Prichard, dated September 1, 1999 (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./1/ 10.15 Settlement Agreement between the Company and Anadys Pharmaceuticals, Inc. (Formerly Scriptgen Pharmaceuticals, Inc.), dated March 7, 2000 (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.16 Research Collaboration Agreement between the Company and BioCryst Pharmaceuticals, Inc., dated October 18, 1996, and Amendment No.1 thereto, dated October 18, 1996 (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.17 Collaborative Discovery and Lead Optimization Agreement between the Company and Boehringer Ingelheim Pharmaceuticals, Inc., dated December 17, 1999 (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.18 Collaborative Research and License Agreement between the Company and Hoechst Schering AgrEvo GmbH, now Aventis CropScience GmbH, dated October 18, 1999 (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.19 Collaborative Research and License Agreement between the Company and E.I. DuPont de Nemours & Co., dated October 12, 1998 (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.20 Collaborative Discovery and Lead Optimization Agreement between the Company and DuPont Pharmaceuticals Company, dated February 11, 2000 (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.21 Nonexclusive Patent License Agreement between the Company and DuPont Pharmaceuticals Company, dated February 11, 2000 (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.22 Research and License Agreement between the Company and the Heska Corporation, dated December 18, 1997, and Amendment No.1 thereto, dated December 18, 1997 (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.23 License and Research Agreement between the Company and Schering AG, Germany, dated May 17, 2000 (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/
F-24
Exhibit Number Description ------- ----------- 10.24 Master Loan and Security Agreement between the Company and Phoenixcor, Inc., dated June 18, 1998 (incorporated by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1 (File No. 333- 37606)). 10.25 Amended and Restated Lease for Combination Office/Laboratory/Light Manufacturing Space at Eagleview Corporate Center Lot 28 between the Company and Eagleview Technology Partners, dated December 12, 1997 (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.26 Master Lease Agreement between the Company and Transamerica Business Credit Corporation, dated June 12, 1997 (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.27 Warrant to Purchase Common Stock of the Company issued to Transamerica Business Credit Corporation, dated June 12, 1997 (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.28 Master Lease Agreement, Loan Agreement and Subordination Agreement between the Company and Comdisco, Inc., dated March 7, 1994 (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.29 Warrant to Purchase Series A Preferred Stock, originally dated March 7, 1994 and reissued to CDC Realty, Inc., dated July 21, 1998 (incorporated by reference to Exhibit 10.29 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.30 Warrant to Purchase Series A Preferred Stock, originally dated March 7, 1994 and reissued to Gregory Stento, dated July 21, 1998 (incorporated by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.31 Warrant to Purchase Series A Preferred Stock, originally dated April 25, 1995 and reissued to Comdisco, Inc., dated July 21, 1998 (incorporated by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.32 Warrant to Purchase Series A Preferred Stock, originally dated April 25, 1995 and reissued to Gregory Stento, dated July 21, 1998 (incorporated by reference to Exhibit 10.32 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.33 Form of Warrant to Purchase Common Stock (along with Schedule of Holders of Certain Warrants to Purchase Common Stock) (incorporated by reference to Exhibit 10.33 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.34 3-Dimensional Pharmaceuticals, Inc. 2000 Equity Compensation Plan (incorporated by reference to Exhibit 10.34 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./1/ 10.35 DiscoverWorks(TM) Drug Discovery Collaboration Agreement between the Company and Bristol-Myers Squibb Company, dated July 7, 2000 (incorporated by reference to Exhibit 10.35 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.36 DiscoverWorks(TM) Nonexclusive License and Purchase Agreement between the Company and Bristol-Myers Squibb Company, dated July 7, 2000 (incorporated by reference to Exhibit 10.36 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.37 Letter agreement between the Company and Bristol-Myers Squibb Company, dated December 18, 2000 (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K (File No. 000-309992)). 10.38 Research, Development and Commercialization Agreement between the Company and Centocor, Inc., dated as of December 29, 2000 (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K (File No. 000-30992))./2/
F-25
Exhibit Number Description ------- ----------- 10.39 First Amendment to Lease between the Company and Eagleview Technology Partners dated October 24, 2000 (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K (File No. 000- 30992))./2/ 10.40 Agreement of Sublease between the Company and Advanced Medicine, Inc., dated December 13, 2000 (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K (File No. 000-30992))./2/ 10.41 Additional and Alternative Target Agreement between the Company and Boehringer Ingelheim Pharmaceuticals, Inc. dated April 20, 2001 (incorporated by reference to Exhibit 10.41 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended June 30, 2001 (File No. 000-30992))./2/ 10.42 Amendment No. 1 dated May 16, 2001, to Discoverworks Drug Discovery Collaboration Agreement between the Company and Bristol-Myers Squibb Company, dated July 7, 2000 (incorporated by reference to Exhibit 10.42 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended June 30, 2001 (File No. 000-30992))./2/ 10.43 Agreement of Lease dated June 14, 2001, between the Company and Cedar Brook Corporate Center, L.P. (incorporated by reference to Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended June 30, 2001 (File No. 000-30992)). 10.44 Amendment No. 2 dated October 4, 2001, to Research, Development and Commercialization Agreement between the Company and Centocor, Inc., dated December 29, 2000 (incorporated by reference to Exhibit 10.44 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended September 30, 2001 (File No. 000-30992))./2/ 10.45 Agreement of Lease dated August 8, 2002, between the Company and Newtown Office Development III, L.P. (incorporated by reference to Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended September 30, 2001 (File No. 000-30992)). 10.46 Collaboration Research and Development Agreement dated October 25, 2001 between the Company and Athersys, Inc./3/,/4/. 10.47 Discoverworks Drug Discovery Collaboration Agreement dated December 28, 2001 between the Company and Janssen Pharmaceuticals and the R.W. Johnson Pharmaceutical Research Institute/3/,/4/. 10.48 License Agreement dated January 7, 2002 between the Company and GlaxoSmithKline plc, including Exhibit D consisting of a Stock Purchase Agreement and a Registration Rights Agreement between the Company and GlaxoSmithKline plc./3/,/4/. 11.1 Statements or computation of per share income (loss)./3/ 21.1 Subsidiaries of the Registrant (incorporated by reference to the Company's Annual Report on Form 10-K (File No. 000-30992)). 23.1 Consent of Arthur Andersen LLP./3/ 23.2 Consent of Richard A. Eisner & Company, LLP./3/ 99.1 Letter relating to Arthur Andersen LLP./3/
- -------- /1/Compensation plans or arrangements in which directors and executive officers are eligible to participate. /2/Confidential treatment granted with respect to portions of this exhibit. Omitted portions were filed separately with the Securities and Exchange Commission. /3/Filed herewith. /4/Confidential treatment has been requested with respect to portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (b) Reports on Form 8-K: None F-26 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. Date: March 29, 2002 3-Dimensional Pharmaceuticals, Inc. /s/ David C. U'Prichard By: _________________________________ David C. U'Prichard, Ph.D. Chief Executive Officer and Director
Name Title Date ---- ----- ---- /s/ David C. U'Prichard Chief Executive March 29, 2002 - ------------------------------------- Officer and David C. U'Prichard, Ph.D. Director (Principal Executive Officer) /s/ John M. Gill Chief Operating March 29, 2002 - ------------------------------------- Officer and John M. Gill Director (Principal Financial Officer) /s/ Scott M. Horvitz Vice President, March 29, 2002 - ------------------------------------- Finance and Scott M. Horvitz Administration (Principal Accounting Officer) /s/ F. Raymond Salemme President, Chief March 29, 2002 - ------------------------------------- Scientific Officer F. Raymond Salemme, Ph.D. and Director /s/ James H. Cavanaugh Director March 29, 2002 - ------------------------------------- - ------------------------------------- James H. Cavanaugh, Ph.D. James H. Cavanaugh, Ph.D. /s/ William Claypool. M.D. Director March 29, 2002 - ------------------------------------- - ------------------------------------- William Claypool, M.D. /s/ Zola P. Horovitz Director March 29, 2002 - ------------------------------------- - ------------------------------------- Zola P. Horovitz, Ph.D /s/ David R. King Director March 29, 2002 - ------------------------------------- - ------------------------------------- David R. King /s/ Joshua Ruch Director March 29, 2002 - ------------------------------------- - ------------------------------------- Joshua Ruch /s/ Harold R. Werner Director March 29, 2002 - ------------------------------------- - ------------------------------------- Harold R. Werner
INDEX TO EXHIBITS
Exhibit Number Description ------- ----------- 3 (i) Ninth Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 3 (ii) Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 4.1 Form of Common Stock Certificate of Company (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.1 3-Dimensional Pharmaceuticals, Inc. Equity Compensation Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./1/ 10.2 Third Amended and Restated Stockholders' Agreement by and among the Company and the Stockholders identified therein, dated March 31, 2000 (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.3 Series B Preferred Stock Purchase Agreement between the Company and Merck KGaA, dated October 11, 1996 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.4 Series C Preferred Stock Purchase Agreement between the Company and American Home Products Corporation, dated June 13, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.5 Series D Preferred Stock Purchase Agreement between the Company and Schering Berlin Venture Corporation, dated May 17, 2000 (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.6 Warrant to Purchase Common Stock of the Company issued to HealthCare Ventures III, L.P., dated November 18, 1999 (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.7 Warrant to Purchase Common Stock of the Company issued to HealthCare Ventures IV, L.P., dated November 18, 1999 (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.8 Warrant to Purchase Common Stock of the Company issued to Rho Management Trust II, dated November 18, 1999 (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.9 Warrant to Purchase Common Stock of the Company issued to Aetna Life Insurance Company, dated November 18, 1999 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.10 Warrant to Purchase Common Stock of the Company issued to Henry Rothman, dated November 18, 1999 (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.11 Warrant to Purchase Common Stock of the Company issued to Abingworth Bioventures SICAV, dated November 18, 1999 (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.12 Warrant to Purchase Common Stock of the Company issued to Sentron Medical, Inc., dated November 18, 1999 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 (File No. 333-37606)).
Exhibit Number Description ------- ----------- 10.13 Warrant to Purchase Common Stock of the Company issued to Biotech Growth S.A., dated November 18, 1999 (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.14 Employment Offer Letter to David C. U'Prichard, dated September 1, 1999 (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./1/ 10.15 Settlement Agreement between the Company and Anadys Pharmaceuticals, Inc. (Formerly Scriptgen Pharmaceuticals, Inc.), dated March 7, 2000 (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.16 Research Collaboration Agreement between the Company and BioCryst Pharmaceuticals, Inc., dated October 18, 1996, and Amendment No.1 thereto, dated October 18, 1996 (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.17 Collaborative Discovery and Lead Optimization Agreement between the Company and Boehringer Ingelheim Pharmaceuticals, Inc., dated December 17, 1999 (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.18 Collaborative Research and License Agreement between the Company and Hoechst Schering AgrEvo GmbH, now Aventis CropScience GmbH, dated October 18, 1999 (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.19 Collaborative Research and License Agreement between the Company and E.I. DuPont de Nemours & Co., dated October 12, 1998 (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.20 Collaborative Discovery and Lead Optimization Agreement between the Company and DuPont Pharmaceuticals Company, dated February 11, 2000 (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.21 Nonexclusive Patent License Agreement between the Company and DuPont Pharmaceuticals Company, dated February 11, 2000 (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.22 Research and License Agreement between the Company and the Heska Corporation, dated December 18, 1997, and Amendment No.1 thereto, dated December 18, 1997 (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.23 License and Research Agreement between the Company and Schering AG, Germany, dated May 17, 2000 (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.24 Master Loan and Security Agreement between the Company and Phoenixcor, Inc., dated June 18, 1998 (incorporated by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1 (File No. 333- 37606)). 10.25 Amended and Restated Lease for Combination Office/Laboratory/Light Manufacturing Space at Eagleview Corporate Center Lot 28 between the Company and Eagleview Technology Partners, dated December 12, 1997 (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.26 Master Lease Agreement between the Company and Transamerica Business Credit Corporation, dated June 12, 1997 (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.27 Warrant to Purchase Common Stock of the Company issued to Transamerica Business Credit Corporation, dated June 12, 1997 (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement on Form S-1 (File No. 333-37606)).
Exhibit Number Description ------- ----------- 10.28 Master Lease Agreement, Loan Agreement and Subordination Agreement between the Company and Comdisco, Inc., dated March 7, 1994 (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.29 Warrant to Purchase Series A Preferred Stock, originally dated March 7, 1994 and reissued to CDC Realty, Inc., dated July 21, 1998 (incorporated by reference to Exhibit 10.29 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.30 Warrant to Purchase Series A Preferred Stock, originally dated March 7, 1994 and reissued to Gregory Stento, dated July 21, 1998 (incorporated by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.31 Warrant to Purchase Series A Preferred Stock, originally dated April 25, 1995 and reissued to Comdisco, Inc., dated July 21, 1998 (incorporated by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.32 Warrant to Purchase Series A Preferred Stock, originally dated April 25, 1995 and reissued to Gregory Stento, dated July 21, 1998 (incorporated by reference to Exhibit 10.32 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.33 Form of Warrant to Purchase Common Stock (along with Schedule of Holders of Certain Warrants to Purchase Common Stock) (incorporated by reference to Exhibit 10.33 to the Company's Registration Statement on Form S-1 (File No. 333-37606)). 10.34 3-Dimensional Pharmaceuticals, Inc. 2000 Equity Compensation Plan (incorporated by reference to Exhibit 10.34 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./1/ 10.35 DiscoverWorks(TM) Drug Discovery Collaboration Agreement between the Company and Bristol-Myers Squibb Company, dated July 7, 2000 (incorporated by reference to Exhibit 10.35 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.36 DiscoverWorks(TM) Nonexclusive License and Purchase Agreement between the Company and Bristol-Myers Squibb Company, dated July 7, 2000 (incorporated by reference to Exhibit 10.36 to the Company's Registration Statement on Form S-1 (File No. 333-37606))./2/ 10.37 Letter agreement between the Company and Bristol-Myers Squibb Company, dated December 18, 2000 (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K (File No. 000-309992)). 10.38 Research, Development and Commercialization Agreement between the Company and Centocor, Inc., dated as of December 29, 2000 (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K (File No. 000-30992))./2/ 10.39 First Amendment to Lease between the Company and Eagleview Technology Partners dated October 24, 2000 (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K (File No. 000- 30992))./2/ 10.40 Agreement of Sublease between the Company and Advanced Medicine, Inc., dated December 13, 2000 (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K (File No. 000-30992))./2/ 10.41 Additional and Alternative Target Agreement between the Company and Boehringer Ingelheim Pharmaceuticals, Inc. dated April 20, 2001 (incorporated by reference to Exhibit 10.41 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended June 30, 2001 (File No. 000-30992))./2/ 10.42 Amendment No. 1 dated May 16, 2001, to Discoverworks Drug Discovery Collaboration Agreement between the Company and Bristol-Myers Squibb Company, dated July 7, 2000 (incorporated by reference to Exhibit 10.42 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended June 30, 2001 (File No. 000-30992))./2/
Exhibit Number Description ------- ----------- 10.43 Agreement of Lease dated June 14, 2001, between the Company and Cedar Brook Corporate Center, L.P. (incorporated by reference to Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended June 30, 2001 (File No. 000-30992)). 10.44 Amendment No. 2 dated October 4, 2001, to Research, Development and Commercialization Agreement between the Company and Centocor, Inc., dated December 29, 2000 (incorporated by reference to Exhibit 10.44 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended September 30, 2001 (File No. 000-30992))./2/ 10.45 Agreement of Lease dated August 8, 2002, between the Company and Newtown Office Development III, L.P. (incorporated by reference to Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter period ended September 30, 2001 (File No. 000-30992)). 10.46 Collaboration Research and Development Agreement dated October 25, 2001 between the Company and Athersys, Inc./3/,/4/. 10.47 Discoverworks Drug Discovery Collaboration Agreement dated December 28, 2001 between the Company and Janssen Pharmaceuticals and the R.W. Johnson Pharmaceutical Research Institute/3/,/4/. 10.48 License Agreement dated January 7, 2002 between the Company and GlaxoSmithKline plc, including Exhibit D consisting of a Stock Purchase Agreement and a Registration Rights Agreement between the Company and GlaxoSmithKline plc./3/,/4/. 11.1 Statements or computation of per share income (loss)./3/ 21.1 Subsidiaries of the Registrant (incorporated by reference to the Company's Annual Report on Form 10-K (File No. 000-30992)). 23.1 Consent of Arthur Andersen LLP./3/ 23.2 Consent of Richard A. Eisner & Company, LLP./3/ 99.1 Letter relating to Arthur Andersen LLP./3/
- -------- /1/Compensation plans or arrangements in which directors and executive officers are eligible to participate. /2/Confidential treatment granted with respect to portions of this exhibit. Omitted portions were filed separately with the Securities and Exchange Commission. /3/Filed herewith. /4/Confidential treatment has been requested with respect to portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. EX-10.46 3 dex1046.txt COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT EXHIBIT 10.46 CONFIDENTIAL COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT between 3-DIMENSIONAL PHARMACEUTICALS, INC. and ATHERSYS, INC. NOTE: Certain portions of this Collaborative Research and Development - ---- Agreement and its exhibits, which are identified by the symbol "[* *]", have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. ARTICLE 1 DEFINITIONS.....................................................1 ARTICLE 2 JOINT COMMITTEES...............................................10 2.1 Joint Steering Committee..........................................10 2.2 Chairperson.......................................................10 2.3 Joint Development Committee.......................................11 2.4 Responsibilities of the Joint Committees..........................11 2.5 Voting............................................................12 2.6 Opinion of Patent Counsel.........................................12 ARTICLE 3 RESEARCH PROGRAM...............................................12 3.1 Goal of Research Program..........................................12 3.2 Selection of Athersys Target and 3DP Target.......................12 3.3 Rejection.........................................................13 3.4 Selection/Rejection of Joint Targets..............................13 3.5 Athersys Responsibilities.........................................13 3.6 3DP Responsibilities..............................................14 3.7 Completion of Lead Generation.....................................14 3.8 Additional Efforts................................................14 3.9 Termination of Research Program For a Joint Target................15 3.10 Optional 3DP Continued Research...................................15 3.11 Re-instatement of Terminated Joint Target.........................15 3.12 [* *]......................................16 3.13 Expansion of Research Program.....................................16 ARTICLE 4 DEVELOPMENT PROGRAM............................................17 4.1 Goal of Development Program; Development Plans....................17 4.2 Responsibilities During the Development Program...................17 4.3 Determination to Move from Lead Generation to Lead Optimization...17 4.4 Progression into Lead Optimization................................18 4.5 Athersys Responsibilities.........................................18 4.6 3DP Responsibilities..............................................18 4.7 Progression into Pre-Clinical Development and Clinical Development.......................................................18 4.8 Development Efforts...............................................18 4.9 Opting Out........................................................18 i 4.10 Termination of Development Program for a Joint Compound...........19 ARTICLE 5 COMMERCIALIZATION..............................................20 5.1 Commercialization of Joint Products...............................20 5.2 Division of Revenues for Joint Products...........................20 5.3 Athersys Product Commercialization................................21 5.4 3DP Product Commercialization.....................................22 ARTICLE 6 EXCLUSIVITY....................................................23 6.1 Athersys Restriction..............................................23 6.2 3DP Restriction...................................................23 ARTICLE 7 COSTS AND FINANCIAL RECORD KEEPING.............................23 7.1 Research Program Costs............................................23 7.2 Development Program Costs.........................................23 7.3 Record Keeping....................................................24 7.4 Quarterly Reconciliation..........................................24 7.5 Audits............................................................25 ARTICLE 8 CROSS-LICENSES.................................................25 8.1 License Grant by 3DP..............................................25 8.2 License Grant by Athersys.........................................26 8.3 3DP's Libraries...................................................26 ARTICLE 9 RESEARCH PROGRAM AND DEVELOPMENT PROGRAM RECORD KEEPING........26 9.1 Laboratory Notebooks..............................................27 9.2 Audit.............................................................27 9.3 Policies for Maintaining Records; Assignments of Inventions.......27 ARTICLE 10 CONFIDENTIAL INFORMATION.......................................27 10.1 Confidentiality Obligations.......................................27 10.2 Written Assurances and Permitted Uses of Confidential Information.......................................................28 ii 10.3 Publication.......................................................28 10.4 Permitted Disclosures.............................................29 ARTICLE 11 PATENTS AND INTELLECTUAL PROPERTY..............................30 11.1 Ownership; Inventions.............................................30 11.2 Prosecution and Maintenance of Patent Rights......................32 11.3 Prosecution and Maintenance of Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds and Joint Development Compounds.............................................32 11.4 Cooperation.......................................................33 11.5 Third Party Infringement..........................................33 11.6 Other Intellectual Property Infringement..........................34 11.7 Patent Term Extensions............................................35 ARTICLE 12 REPRESENTATIONS AND WARRANTIES.................................35 12.1 Authority.........................................................35 12.2 Commercially Reasonable Efforts...................................35 12.3 No Conflicts......................................................35 12.4 No Existing Third Party Rights....................................35 12.5 Intellectual Property.............................................35 12.6 Access to Athersys Cell Lines.....................................36 12.7 Access to 3DP Compounds...........................................36 12.8 Disclaimer of Warranties..........................................37 ARTICLE 13 INDEMNIFICATION................................................37 13.1 Indemnification by Athersys.......................................37 13.2 Indemnification By 3DP............................................38 13.3 Insurance Proceeds................................................38 13.4 Insurance.........................................................38 ARTICLE 14 TERM AND TERMINATION...........................................38 14.1 Term..............................................................38 14.2 Extension of Research Program.....................................39 14.3 Partial Termination...............................................39 14.4 Breach............................................................39 14.5 Insolvency or Bankruptcy..........................................39 14.6 Survival of Obligations...........................................40 14.7 Effects of Termination............................................40 iii ARTICLE 15 DISPUTE RESOLUTION.............................................41 15.1 Dispute Resolution Process........................................41 15.2 Dispute Resolution Panel..........................................41 15.3 Arbitration.......................................................41 ARTICLE 16 MISCELLANEOUS PROVISIONS.......................................42 16.1 Entire Agreement..................................................42 16.2 Further Actions...................................................42 16.3 Binding Effect....................................................42 16.4 Assignment........................................................42 16.5 No Implied Licenses...............................................42 16.6 No Waiver.........................................................42 16.7 Force Majeure.....................................................42 16.8 Independent Contractors...........................................42 16.9 Notices and Deliveries............................................43 16.10 Public Announcements..............................................43 16.11 Headings..........................................................44 16.12 Severability......................................................44 16.13 No Consequential Damages..........................................44 16.14 Applicable Law....................................................44 16.15 Counterparts......................................................44 iv COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT ------------------------------------------------ This Agreement, made as of the 25th day of October, 2001 (the "Effective Date"), between 3-Dimensional Pharmaceuticals, Inc., a corporation -------------- organized under the laws of Delaware and having a place of business at 1020 Stony Hill Road, Suite 300, Yardley, Pennsylvania 19067 (herein referred to as "3DP") and Athersys, Inc., a corporation organized under the laws of Delaware --- and having a place of business at 3201 Carnegie Avenue, Cleveland, Ohio 44115 (herein referred to as "Athersys") (3DP and Athersys are each referred to as a -------- "Party" and collectively, the "Parties"). ------- WITNESSETH THAT: WHEREAS, 3DP is engaged in drug discovery research for a variety of pharmacologically active compounds and the development of technologies to facilitate such research and 3DP has patented and other proprietary systems for generating chemical compounds having desired pharmaceutical properties including DiscoverWorks(TM) Technology; WHEREAS, Athersys is engaged in discovery and production of drug discovery targets and drug discovery screens and has proprietary technologies therefor, including RAGE-VT Technology and RAGE-PE Technology; and WHEREAS, the Parties wish to enter into a strategic alliance in which they will collaborate on the selection of drug discovery targets to be produced and developed into screens by Athersys, on the screening by Athersys of compounds to be selected or synthesized and provided by 3DP, and on the further research and development and commercialization of compounds that are shown to be active in such screens. NOW, THEREFORE, in consideration of the covenants and obligations expressed herein, and intending to be legally bound, and otherwise to be bound by proper and reasonable conduct, the Parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 "Affiliate" means, with respect to any Party, any corporation or --------- other business entity, which controls, is controlled by, or is under common control with such Party. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls at least fifty (50%) of the voting stock or other ownership interest of the other corporation or entity (or alternatively with respect to foreign entities, if it owns the maximum such ownership interest permitted by law), or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint at least fifty (50%) of the members of the governing body of the corporation or other entity. 1.2 "Athersys" means Athersys and its Affiliates. -------- 1.3 "Athersys Compound" means a Compound that is selected or ----------------- otherwise results from screening against the Athersys Target during Lead Generation. 1.4 "Athersys Development Compound" means a Development Compound ----------------------------- directed against an Athersys Target that results from Pre-Clinical Development undertaken by Athersys and has been selected for Clinical Development. 1.5 "Athersys Indemnitees" shall have the meaning set forth in -------------------- Section 13.2. 1.6 "Athersys Lead Compound" means a Lead Compound directed against ---------------------- an Athersys Target that results from Lead Generation and has been selected for Lead Optimization or is identified during Lead Optimization. 1.7 "Athersys Product" means a Product that comprises an Athersys ---------------- Development Compound. 1.8 "Athersys Safety Assessment Compound" means a Safety Assessment ----------------------------------- Compound directed against an Athersys Target that results from Lead Optimization undertaken by Athersys and has been selected for Pre-Clinical Development. 1.9 "Athersys Target" means the Target that is selected by Athersys --------------- for screening of Compounds provided by 3DP during Lead Generation under this Agreement to develop a Product that will be owned exclusively by Athersys. 1.10 "Candidate Target" means a Target listed in Schedule 1.10, ---------------- ------------- Targets that are relevant to the disease areas listed in Schedule 1.10, ------------- and Targets that are within the families of Targets listed in Schedule 1.10, ------------- as may be amended by the JSC from time to time. 1.11 "Clinical Development" means the full range of Phase I, Phase II -------------------- and Phase III clinical development that are required to obtain a Regulatory Approval to market a Product. 1.12 "Clinical Development Plan" means the detailed program of ------------------------- Clinical Development activities documented by the JDC for each Joint Target and its respective Joint Development Compound and including those elements described in Section 4.1. 1.13 "Combination Product" means a Product that includes one or more ------------------- active ingredients in addition to a Development Compound developed under this Agreement. 1.14 "Compound" means an organic chemical compound that is selected or -------- synthesized by 3DP from the 3DP Probe Library or associated 3DP Synthetically Accessible Libraries or from other sources owned or controlled by 3DP for use in the Research Program. A flowchart of the potential progression of a Compound through Pre-Clinical Development and Clinical Development and into a Product is attached hereto as Schedule 1.14. ------------- 1.15 "Confidential Information" means all proprietary, non-public ------------------------ information that has or could have commercial value or other utility in a Party's business, or the unauthorized disclosure of which could be detrimental to the Party's interests, including confidential information, inventions, know-how, data and materials relating to chemical structures, Targets, 2 screens, assays, utility against Targets, Compounds, Lead Compounds, Safety Assessment Compounds, Development Compounds or Products provided by the Parties or otherwise developed under this Agreement, and shall include, without limitation, research, technical, development, manufacturing, commercialization, financial, personnel and other business information and plans, whether in oral, written, graphic or electronic form. 1.16 "Development Compound" means a Safety Assessment Compound that -------------------- results from Pre-Clinical Development and has characteristics considered required for a successful IND submission and, therefore, suitable for and has been selected for Clinical Development. 1.17 "Development Plan" means a Lead Optimization Plan, Pre-Clinical ---------------- Development Plan or Clinical Development Plan. 1.18 "Development Program" means the activities and tasks that ------------------- comprise Lead Optimization, Pre-Clinical Development, Clinical Development, manufacture and registration of a Product as applied to Joint Lead Compounds, Joint Safety Assessment Compounds, Joint Development Compounds and Joint Products as outlined in ARTICLE 4. Schedule 1.14 graphically depicts the ------------- elements of the Development Program and its relationship to the Research Program. 1.19 "Development Term" means with respect to each Lead Compound, the ---------------- period of time beginning with selection of such Lead Compound for Lead Optimization and ending with the earlier of (i) termination by the JSC or the JDC, as applicable, of the Development Program for such Lead Compound or Safety Assessment Compounds or Development Compounds derived therefrom, and (ii) the first commercial sale of a Product that results from such Lead Compound or Safety Assessment Compound or Development Compound derived therefrom. 1.20 "Disclosing Party" shall have the meaning set forth in Section ---------------- 10.1. 1.21 "Discontinuing Party" means a Party that elects to opt out of ------------------- further development and funding of a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound, as further provided in Section 4.9. 1.22 "DiscoverWorks(TM) Technology" means 3DP's full panoply of drug ---------------------------- discovery and compound and library synthesis technologies including but not limited to DirectedDiversity(R) technology, ThermoFluor(R) Technology, 3DP Probe Libraries, 3DP Synthetically Accessible Libraries and Proteomica(TM) technology, notwithstanding that not all such technologies and resources will be utilized under this Agreement. 1.23 "Effective Date" shall have the meaning set forth in the -------------- preamble. 1.24 "FTE" means a full time equivalent scientific employee (i.e., one --- full-time or multiple part-time employees aggregating to one full-time employee) employed by a Party and assigned to work on the Research Program or Development Program with such time and effort to constitute one employee working on the Research Program or Development Program on a full-time basis consistent with normal business and scientific practice (i.e., on an annual basis, at 3 least forty (40) hours per week of dedicated effort for at least forty-eight (48) weeks per year). In no event does an FTE include a subcontractor. 1.25 "FTE Rate" means [* *] per year per FTE for the first contract -------- year subject to an annual increase of [* *] compounded annually thereafter to reflect inflation. 1.26 "Funding Party" means a Party that elects to continue development ------------- of a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound as further provided in Section 4.9 after the other Party opts out of further development, i.e., becomes a Discontinuing Party. ---- 1.27 "IND" means (a) (i) an Investigational New Drug Application, as --- defined in the U.S. Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, that is required to be filed with the FDA before beginning clinical testing of a Development Compound in human subjects, or any successor application or procedure and (ii) any foreign counterpart of a U.S. Investigational New Drug Application, and (b) all supplements and amendments that may be filed with respect to the foregoing. 1.28 "Intellectual Property" means all of the following or their --------------------- substantial equivalent or counterpart in any jurisdiction throughout the world: (i) patents, patent applications and patent disclosures, (ii) trademarks, service marks, trade dress, trade names, corporate names, logos and Internet domain names, (iii) copyrights and copyrightable works, (iv) registrations and applications for any registration for any of the foregoing and (v) trade secrets, confidential information and inventions. 1.29 "Iterative Chemistry Limitations" means limitations inherent in ------------------------------- synthesizing compounds through iterative rounds of chemistry using combinatorial chemistry reaction schemes as developed for the 3DP Synthetically Accessible Library. A further explanation and examples of such iterative chemistry limitations are provided in Schedule 1.29. ------------- 1.30 "Joint Compound" means a Compound that is selected or otherwise -------------- results from screening against a Joint Target during Lead Generation. 1.31 "Joint Development Compound" means a Development Compound -------------------------- directed against a Joint Target that results from Pre-Clinical Development undertaken by the Parties and has been selected by the JDC for Clinical Development. 1.32 "Joint Lead Compound" means a Lead Compound directed against a ------------------- Joint Target that results from Lead Generation and has been selected by the JSC for Lead Optimization. 1.33 "Joint Product" means a Product that comprises a Joint ------------- Development Compound. 1.34 "Joint Safety Assessment Compound" means a Safety Assessment -------------------------------- Compound directed against a Joint Target that results from Lead Optimization undertaken by the Parties and has been selected by the JSC for Pre-Clinical Development. 4 1.35 "Joint Target" means one of the [* *] Targets that are selected ------------ by the JSC in accordance with Section 3.4 for screening by Athersys of Compounds provided by 3DP under this Agreement to develop a Product that will be owned jointly by Athersys and 3DP. 1.36 "JDC" means the Joint Development Committee established as --- provided in Section 2.3. Schedule 1.14 graphically depicts the relation of the ------------- JDC and the JSC to the Research and Development Program activities. 1.37 "JSC" means the Joint Steering Committee established as provided --- in Section 2.1. 1.38 "Lead Compound" means a Compound that has a well-understood ------------- structure-activity relationship with respect to a Target and is suitable for Lead Optimization, such that derivatives of the Compound, e.g., homologs, ---- analogs, polymorphs and isomers, can be designed which would reasonably be expected to have greater Potency, selectivity, pharmacokinetics, pharmacodynamics and acute safety. "Lead Compound" also includes such derivatives, e.g., homologs, analogs, polymorphs, and isomers up to the point of ---- selection as a Safety Assessment Compound. 1.39 "Lead Generation" means a program of identifying Lead Compounds --------------- by using Primary Screens and Secondary Screens to screen Compounds from the 3DP Probe Library and using up to three rounds of 3DP's proprietary iterative combinatorial chemical synthesis developed from the 3DP Synthetically Accessible Library, and DirectedDiversity(R) Technology to identify Compounds or classes of Compounds having superior activity and by using Secondary Screens to assist 3DP in determining the structure-activity relationships of Compounds being screened and confirm cell-based functional activity of the Compounds. 1.40 "Lead Generation Plan" means the detailed program of Lead -------------------- Generation activities as documented by the JSC for each Joint Target and including those elements described in Section 2.4.1. 1.41 "Lead Optimization" means a program of activities to progress ----------------- Lead Compounds into Safety Assessment Compounds by using customized or novel medicinal chemistry technologies to make specific derivatives, e.g., homologs, ---- analogs, polymorphs and isomers, of Lead Compounds and testing such derivatives in in vitro, ex vivo assays and/or in vivo animal models and using the data therefrom to improve Lead Compounds' structure-activity relationships, Potency, selectivity, pharmacokinetics, pharmacodynamics and acute safety. It is understood that Lead Optimization and Pre-Clinical Development overlap in the sense that certain data developed during Lead Optimization are useful in Pre-Clinical Development. 1.42 "Lead Optimization Plan" means the detailed program of Lead ---------------------- Optimization activities as documented by the JSC for each Joint Target and its respective Joint Lead Compound and including those elements described in Section 4.1. 1.43 "LMP" means license fees, milestone payments, purchase price or --- the fair market value of non-cash consideration received from a Third Party in exchange for a right or license granted, or the sale or assignment of rights, by Athersys in an Athersys Lead Compound, Athersys Safety Assessment Compound, Athersys Development Compound and/or Athersys 5 Product or by 3DP in a 3DP Lead Compound, 3DP Safety Assessment Compound, 3DP Development Compound and/or 3DP Product, as the case may be. LMP shall not include consideration received for services provided to the Third Party and shall also not include royalties received on Net Sales made by such Third Party. 1.44 "NDA" means (a) (i) a New Drug Application pursuant to 21 U.S.C. --- Section 505(b)(1) submitted to the FDA or any successor application or procedure and (ii) any foreign counterpart of a U.S. New Drug Application, and (b) all supplements and amendments, including supplemental New Drug Applications (and any foreign counterparts), that may be filed with respect to the foregoing. 1.45 "Net Sales" means the gross amount invoiced for sale of a Product --------- in the Territory by a Party or any of its Affiliates, licensees or sublicensees, to a Third Party end user, including but not limited to distributors, in bona fide, arm's-length transactions, after deduction of the following items (to the extent actually incurred or reasonably estimated and accrued and to the extent not already deducted in the amount invoiced): (i) customary trade, quantity and cash discounts, wholesaler-charge backs, or rebates (including, but not limited to, rebates to governmental agencies, managed care organizations, health management organizations, pharmacy benefit managers and group purchasing organizations); (ii) customary credits or allowances for rejection or return of previously sold Products; (iii) excise, sales and other consumption taxes and customs duties; (iv) retroactive price reductions including but not limited to those imposed by governmental agencies; and (iv) any charge for freight or insurance if separately stated on the same invoice as for the sale of Product and directly related to the sale or distribution of the Product. A "sale" of a Product is deemed to occur upon the invoicing, or if no invoice is issued, upon the earlier of shipment or transfer of title in the Product to a Third Party. In the event that all the active ingredients of a Combination Product are also sold separately and in identical strengths to those contained in the Combination Product, then Net Sales shall be calculated as set forth above on the basis of the gross invoice price of a Product containing the same weight of the active ingredient in the Athersys Product, the 3DP Product or the Joint Products, as the case may be, sold independently [ A ] divided by the sum of the gross invoice price of each of the active ingredients contained in the Combination Product sold independently [ B + A ], multiplied by the gross invoice price of the Combination Product, as shown by the following formula: Net Sales = [ A ] x [gross sales of the Combination Product] -------------- [ B + A ] In the event that the Athersys Product, the 3DP Product or the Joint Products, as the case may be, and/or any of the other active ingredients of a Combination Product are not sold separately in identical strengths to those contained in the Combination Product, then the Parties agree to negotiate in good faith the calculation of Net Sales with regard to such Combination Product based upon the relative value of the active ingredients as determined by the Parties hereto in good faith. 6 Sales between or among a Party and its Affiliates, licensees or sublicensees shall not be used to calculate Net Sales unless the purchasing Affiliate, licensee or sublicensee is an end-user. Net Sales for purposes of Sections 5.2, 5.3 and 5.4 includes sales by Third Party assignees or Third Party purchasers of a Party's rights thereunder. 1.46 "Non-publishing Party" shall have the meaning set forth in -------------------- Section 10.3.2. 1.47 "Opt-Out Point" shall have the meaning set forth in Section 14.3. ------------- 1.48 "Party" and/or "Parties" shall have the meaning set forth in the ----- ------- preamble hereto. 1.49 "Patent Prosecution" shall have the meaning set forth in Section ------------------ 11.2. 1.50 "Patent Rights" means all existing patents and patent ------------- applications and all patent applications hereafter filed, including any continuations, continuations-in-part, divisions, provisionals or any substitute applications, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal or extension (including any supplemental patent certificate) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all foreign counterparts of any of the foregoing. 1.51 "Phase I" means a complete program of one or more human clinical ------- trials in any country that is intended to initially evaluate the safety and/or pharmacological effect of a Product in subjects or that would otherwise satisfy the requirements of 21 CFR 312.21(a), or its foreign equivalent. 1.52 "Phase II" means a complete program of one or more human clinical -------- trials in any country that is intended to initially evaluate the effectiveness of a Product for a particular indication or indications in patients with the disease or indication under study or that would otherwise satisfy the requirements of 21 CFR 312.21(b), or its foreign equivalent. 1.53 "Phase III" means a complete program of one or more pivotal human --------- clinical trials in any country the results of which could be used to establish safety and efficacy of a Product as a basis for a Biologics License Application, Product License Application, NDA or similar application for marketing approval of a Product or that would otherwise satisfy the requirements of 21 CFR 312.21(c), or its foreign equivalent. 1.54 "Phase IV" means a program of one or more human clinical trials -------- in any country after approval for marketing in that country, including a trial that begins before approval but concludes after approval. 1.55 "Potency" means the level of activity against a Target at a given ------- molar concentration. A Compound is more potent than another Compound if it has a higher level of activity at the same or lower molar concentration or if it has the same or a higher level of activity at a lower molar concentration. 7 1.56 "Pre-Clinical Development" means a program of developing Safety ------------------------ Assessment Compounds into Development Compounds by undertaking the full range of pre-clinical studies, and the full range of safety and pathology/toxicology studies required to file an IND including but not limited to drug metabolism, pharmacokinetics, Potency, selectivity, and safety/toxicology studies. 1.57 "Pre-Clinical Development Plan" means the detailed program of ----------------------------- Pre-Clinical Development activities, as documented by the JDC for each Joint Target and its respective Joint Safety Assessment Compound and including those elements described in Section 4.1. 1.58 "Primary Screen" means a fluorometric, cell-based assay useful to -------------- screen Compounds for activity against Targets. 1.59 "Program Compound" means a Compound, a Lead Compound, a Safety ---------------- Assessment Compound and/or a Development Compound. 1.60 "Product" means any commercial product comprising an Athersys ------- Development Compound, a 3DP Development Compound or a Joint Development Compound as an active ingredient. 1.61 "Profits" means the amount, on an annual basis, equal to Net ------- Sales by a Party less any costs directly associated with such Net Sales, including, but not limited to, costs of goods sold, selling and marketing expenses, Phase IV expenses and royalties on Net Sales paid to the other Party and to Third Parties to the extent applicable. Net Sales for the purpose of this definition specifically exclude such Net Sales by a licensee or sublicensee. 1.62 "Publication Plan" shall have the meaning set forth in Section ---------------- 10.3.1. 1.63 "Publishing Party" shall have the meaning set forth in Section ---------------- 10.3.2. 1.64 "RAGE-PE Technology" means Athersys' proprietary methods for ------------------ creation of protein expression libraries using Athersys' Random Activation of Gene Expression(TM) technology. 1.65 "RAGE-VT Technology" means Athersys' proprietary methods for ------------------ creation and isolation of human cell lines expressing validated drug targets of interest using Athersys' Random Activation of Gene Expression(TM) technology. 1.66 "Receiving Party" shall have the meaning set forth in Section --------------- 10.1. 1.67 "Regulatory Approval" means any and all approvals (including any ------------------- applicable governmental price and reimbursement approvals), licenses, registrations, or authorizations of any federal, national, multinational, state, provincial or local regulatory agency, department, bureau or other governmental entity necessary for the manufacture, use, storage, import, transport, promotion, marketing and sale of a Product in a country. 8 1.68 "Research Program" means the drug discovery program that ---------------- comprises selection of Joint Targets, the Athersys Target and the 3DP Target, Screen Development and Lead Generation, and associated activities and tasks as outlined in ARTICLE 3. 1.69 "Research Program Costs" shall have the meaning set forth in ---------------------- Section 7.1. 1.70 "Research Term" means, with respect to each of the Joint Targets, ------------- the 3DP Target or the Athersys Target, the period beginning on the Effective Date and ending [* *] after the initiation of Lead Generation, unless this [* *] period is (i) extended in whole or in part by mutual written agreement of the Parties as set forth in Section 14.2 or (ii) terminated earlier pursuant to Section 2.4.5. 1.71 "Royalty Term" means, with respect to each of the Athersys ------------ Product, the 3DP Product, and the Joint Products and on a country-by-country basis, the period of time beginning on the date of the first commercial sale of such product and ending on the later of (a) when all claims of a patent covering such Product are expired or rendered invalid or unenforceable and (b) ten (10) years from the date of such first commercial sale in such country. 1.72 "Safety Assessment Compound" means a Lead Compound that has -------------------------- undergone Lead Optimization and has adequate Potency, efficacy, selectivity, pharmacokinetic/pharmacodynamic properties, and acute safety profile that is suitable for Pre-Clinical Development and has been selected for Pre-Clinical Development. 1.73 "Screen Development" means a program of developing a Primary ------------------ Screen by selecting Targets using Athersys' proprietary gene expression technology, RAGE-VT Technology, to express Targets in cell lines and developing screens to identify Compounds that are active against Targets. 1.74 "Secondary Screen" means a single, confirmatory cell-based assay ---------------- for a Target to determine or confirm function in a cell-based assay and to assist in determining structure-activity relationships for each Target. 1.75 "Small Molecule" means a non-peptidic, organic compound with a -------------- molecular weight of less than [* *] daltons. 1.76 "Target" means a human drug discovery target that is a G ------ Protein-coupled Receptor or an ion channel and human cell lines expressing such receptor or ion channel. 1.77 "Territory" means the entire world. --------- 1.78 "ThermoFluor(R) Technology" means the Patent Rights of 3DP and ------------------------- associated proprietary 3DP know-how and instruments used to evaluate ligand-binding parameters. 1.79 "Third Party" means a person or party other than 3DP and Athersys ----------- or their Affiliates. 1.80 "3DP" means 3DP and its Affiliates. --- 9 1.81 "3DP Compound" means a Compound that is selected or otherwise ------------ results from screening against the 3DP Target during Lead Generation. 1.82 "3DP Development Compound" means a Development Compound directed ------------------------ against a 3DP Target that results from Pre-Clinical Development undertaken by 3DP and has been selected for Clinical Development. 1.83 "3DP Indemnitees" shall have the meaning set forth in Section --------------- 13.1. 1.84 "3DP Lead Compound" means a Lead Compound directed against a 3DP ----------------- Target that results from Lead Generation and has been selected for Lead Optimization. 1.85 "3DP Probe Library" means 3DP's proprietary chemical library of ----------------- Small Molecules, synthesized by 3DP for the purpose of screening to find Lead Compounds, of approximately [* *] diverse synthesized compounds in existence as of the Effective Date. 1.86 "3DP Product" means a Product that comprises a 3DP Development ----------- Compound. 1.87 "3DP Safety Assessment Compound" means a Safety Assessment ------------------------------ Compound directed against a 3DP Target that results from Lead Optimization undertaken by 3DP and has been selected for Pre-Clinical Development. 1.88 "3DP Synthetically Accessible Library" means 3DP's proprietary ------------------------------------ Small Molecule compound library of approximately [* *] compounds available for on-demand synthesis. 1.89 "3DP Target" means the Target that is selected by 3DP for ---------- screening by Athersys of Compounds provided by 3DP under this Agreement to develop a Product that will be owned exclusively by 3DP. ARTICLE 2 JOINT COMMITTEES 2.1 Joint Steering Committee. Promptly following the Effective Date, ------------------------ the Parties shall establish a Joint Steering Committee ("JSC") that will be --- staffed by an equal number of 3DP and Athersys appointees. The total number of JSC members will be six (6), but the number may be adjusted upward or downward by the JSC from time to time provided the number of 3DP appointees is always the same as the number of Athersys appointees. Each Party may replace any of one or more of its appointees at will by giving written notice thereof to the other Party. 2.2 Chairperson. The Chairperson shall be selected initially by 3DP ----------- from among the 3DP appointees and shall serve in such role for six (6) months. After such six (6) month period, Athersys shall designate the Chairperson from among the Athersys appointees, and such person shall serve in such role for six (6) months. Thereafter, 3DP and Athersys shall continue to alternate designation of the Chairperson from their respective appointees every six (6) months throughout the Research Term. The Chairperson will be responsible for calling and chairing 10 meetings, developing meeting agendas, and recording meeting minutes and decisions taken. The Chairperson shall call at least one meeting every three (3) months during the Research Term. 2.3 Joint Development Committee. Promptly after the JSC selects the --------------------------- first Joint Safety Assessment Compound to progress into Pre-Clinical Development, the Parties will establish a Joint Development Committee (the "JDC") with a structure and governance as outlined for the JSC under Sections --- 2.1 and 2.2. In contrast to the JSC, however, the JDC will govern the Pre-Clinical Development and Clinical Development. The JDC will review, approve, and oversee the implementation of the Pre-Clinical Development Plans and Clinical Development Plans. Schedule 1.14 graphically depicts the relation of ------------- the JDC and the JSC to the Research Program and Development Program activities. 2.4 Responsibilities of the Joint Committees. ---------------------------------------- 2.4.1 In general, the responsibilities of the JSC, will be to adopt, review, and amend Lead Generation Plans, as described below, and Lead Optimization Plans, as described in Section 4.1, and oversee and, whenever practicable, expedite the implementation of such plans. Each Lead Generation Plan shall contain, as early as possible before or during the Lead Generation process, guidelines or criteria for determining whether a Compound constitutes a Lead Compound, such guidelines or criteria to be amended thereafter with increasing specificity during Lead Generation activities as practical. The JSC will appoint Compounds that successfully complete Lead Generation as Joint Lead Compounds and appoint Joint Lead Compounds that successfully complete Lead Optimization as Joint Safety Assessment Compounds. 2.4.2 The JSC shall be responsible for selecting the Joint Targets and for approving the Primary Screens and Secondary Screens developed by Athersys using the Joint Targets. If the JSC reasonably determines that a Primary Screen or a Secondary Screen is unlikely to yield a Lead Compound, then the JSC shall direct Athersys to terminate further efforts directed to such screen(s). If the JSC terminates a screening effort directed to a Joint Target, subject to there being sufficient time remaining in the Research Term, Athersys shall attempt to develop a replacement screen using its existing capabilities on the same Target. 2.4.3 In general, the responsibilities of the JDC will be to adopt, review, and amend Pre-Clinical Development Plans and Development Plans, as described in Section 4.1, and oversee and, whenever practicable, expedite the implementation of such plans. The JDC will appoint Joint Safety Assessment Compounds that successfully complete Pre-Clinical Development as Joint Development Compounds. 2.4.4 The JDC shall be responsible for determining whether or not and to what extent to pursue back-up Joint Safety Assessment Compounds and back-up Joint Development Compounds. 2.4.5 If (i) at any time the JSC or the JDC, as the case may be, determines that further research using a Joint Target is unlikely to yield a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound, as the case may be, or (ii) a Lead Compound is not selected for Lead Optimization following Lead Generation using a given Joint 11 Target and the Parties have not agreed to undertake additional research as provided in Section 3.8 with respect to that Joint Target, then the Research Term or Development Term, as the case may be, relating to the given Joint Target shall terminate. In either such case, the JSC or the JDC, as the case may be, shall document the reasons for termination of the Research Program or Development Program, as the case may be, including the known or suspected reasons that Compounds failed to meet the guidelines or criteria established for a Lead Compound, if applicable, to provide a basis for potential re-instatement of such programs under Sections 3.10 and 3.11 and Sections 4.10.4 and 4.10.5, respectively. 2.4.6 For each project undertaken during the Research Program or Development Program, as the case may be, the JSC or the JDC will select either Athersys, 3DP or both to maintain comprehensive project projections, budgets and tracking reports in accordance with the Lead Optimization Plan, the Pre-Clinical Development Plan and the Clinical Development Plan. 2.4.7 The JSC and the JDC shall have such other responsibilities as are expressly set forth elsewhere in this Agreement or as are assigned to it as mutually agreed upon by the Parties. 2.5 Voting. Regardless of the number of representatives from each ------ Party, each Party shall present one consolidated view and have one vote on any issue in dispute. If the JSC or the JDC fails to reach agreement on any matter within the scope of its responsibilities as described in this Agreement or as expressly delegated to the JSC or the JDC by written agreement of the Parties, the dispute shall be resolved as provided in ARTICLE 15. 2.6 Opinion of Patent Counsel. The JSC may, at its discretion, retain ------------------------- patent counsel to provide an analysis and legal opinion regarding possible infringement of Third Party patents by the use of Joint Targets or Compounds in the Research Program. ARTICLE 3 RESEARCH PROGRAM 3.1 Goal of Research Program. The goal of the Research Program is to ------------------------ identify at least one Compound as a Lead Compound for each of the 3DP Target, the Athersys Target and the [* *] Joint Targets. Schedule 1.14 graphically ------------- depicts the elements of the Research Program and its relationship to elements of the Development Program. 3.2 Selection of Athersys Target and 3DP Target. Promptly following ------------------------------------------- the Effective Date, Athersys shall select the Athersys Target and 3DP shall select the 3DP Target. In the event that the Parties each select the same Target, that Target shall become one of the [* *] Joint Targets. A Party can reject the selection by the other Party of a 3DP Target or Athersys Target prior to initiation of Screen Development: 3.2.1 if the rejecting Party reasonably believes that use of such 3DP Target or Athersys Target, as applicable, would create a commercially unacceptable risk of infringement of dominating Patent Rights of Third Parties; 12 3.2.2 for which the rejecting Party has a preexisting, ongoing and active internal research program for which cell line development or screening has commenced before its designation as an Athersys Target or 3DP Target, as applicable; or 3.2.3 for which the rejecting Party has a preexisting exclusive collaborative arrangement with a Third Party or is engaged in bona fide negotiations with a Third Party regarding the same before its designation as an Athersys Target or a 3DP Target, as applicable. 3.3 Rejection. Notwithstanding the foregoing, if a Party rejects the --------- selection of the other Party's designation of a 3DP Target or Athersys Target, as applicable, such rejecting Party may not designate such rejected Target as its own 3DP Target or Athersys Target, as applicable. 3.4 Selection/Rejection of Joint Targets. In addition to any Targets ------------------------------------ that become Joint Targets pursuant to Section 3.2, the JSC shall select additional Targets from among the Candidate Targets until there are a total of [* *] Joint Targets. The Parties will strive to select Joint Targets that (i) are complementary to both Parties' current therapeutic area/disease focus for its internal drug discovery efforts and (ii) are amenable to screening in a Primary Screen. Either Party can reject the selection of a Joint Target prior to initiation of Screen Development: 3.4.1 if that Party reasonably believes that use of such Target would create a commercially unacceptable risk of infringement of dominating Patent Rights of Third Parties; 3.4.2 for which a Party has a preexisting, ongoing and active internal research program for which cell line development or screening has commenced before its designation as a Joint Target; 3.4.3 for which a Party has a preexisting exclusive collaborative arrangement with a Third Party or is engaged in bona fide negotiations with a Third Party regarding the same before its designation as a Joint Target; 3.4.4 that, for either scientific, technical or business reasons in such Party's reasonable judgment, do not have a reasonable likelihood of leading to a commercially successful Product that is a Small Molecule; or 3.4.5 that does not have a readily identifiable market size or value significant enough to justify the anticipated Research Program and Development Program investments of such Party. 3.5 Athersys Responsibilities. ------------------------- 3.5.1 As specifically described in Schedule 3.5, Athersys shall ------------ be responsible for Screen Development using the RAGE-VT Technology in Primary Screens and Secondary Screens and the screening of Compounds provided by 3DP using the Athersys Target, the 3DP Target and the Joint Targets. 3.5.2 Athersys shall use reasonable efforts to develop all Primary Screens using the Athersys Target, the 3DP Target and the Joint Targets and to screen Compounds provided by 13 3DP in all such Primary Screens in parallel. To the extent that resource limitations preclude such parallel efforts, first priority shall be given to [* *] Joint Targets after which the 3DP Target shall be given priority over the Athersys Target, which shall be given priority over the remaining Joint Target; provided, however, that it is acknowledged that due to uncontrollable biological variability Targets may be developed at different rates which may preclude parallel or preferred screening sequence. Athersys shall use reasonable efforts to screen all Compounds provided by 3DP for screening against each Joint Target and the 3DP Target. To the extent that resource limitations require prioritization of screening, 3DP shall prioritize the Compounds for screening against Targets. Athersys, at its own discretion, may screen any or all Compounds provided by 3DP against the Athersys Target. 3.5.3 Athersys shall develop replacement screens using the 3DP Target as provided in Section 3.6.2. 3.5.4 Athersys shall be responsible for selecting the Athersys Target and for approving the Primary Screens and Secondary Screens developed by Athersys using the Athersys Target. 3.6 3DP Responsibilities. -------------------- 3.6.1 As specifically described in Schedule 3.6 during Lead ------------ Generation, 3DP will be responsible for providing subsets of [* *] Compounds from the 3DP Probe Library for screening by Athersys in Primary Screens and Secondary Screens of the Joint Targets, the Athersys Target and the 3DP Target, and for all subsequent Compounds synthesized from the iterative rounds of chemistry from the 3DP Synthetically Accessible Library and utilizing elements of its Directed Diversity(R) Technology during Lead Generation using Joint Targets, the Athersys Target and the 3DP Target. 3.6.2 3DP shall be responsible for selecting the 3DP Target and for approving the Primary Screens and Secondary Screens developed by Athersys using the 3DP Target as set forth in Schedule 3.5. If 3DP reasonably determines ------------ that a Primary Screen or a Secondary Screen is unlikely to perform adequately to yield a Lead Compound, then, subject to there being sufficient time remaining in the Research Term, Athersys shall attempt to develop a replacement screen using its existing capabilities on the same Target. 3.7 Completion of Lead Generation. Lead Generation with respect to a ----------------------------- particular Target shall be deemed completed when at least one Compound is selected as a Lead Compound or a maximum of [* *] rounds of iterative chemical synthesis of Compounds selected from the 3DP Synthetically Accessible Libraries with a [* *] Compounds are synthesized, subject to Iterative Chemistry Limitations or screening results that do not provide a structure-activity relationship. 3.8 Additional Efforts. The JSC may determine that efforts additional ------------------ to those assigned to a Party in this Agreement (including the efforts set forth in the Schedules hereto), e.g., selectivity assays, cell biology assays, animal modeling, toxicological studies, ADME studies, etc., are warranted at any time during the Research Program with respect to the Joint 14 Targets. In this case, the JSC will assign responsibility for such additional efforts to a Party or will outsource the efforts subject to the cost sharing provisions of Section 7.1. 3.9 Termination of Research Program For a Joint Target. Upon -------------------------------------------------- termination of the Research Term for a Joint Target, as provided in Section 2.4.5, or upon expiration of the Research Term for a Joint Target: 3.9.1 subject to Section 3.11, all further activities with respect to such Joint Target hereunder shall cease; 3.9.2 the Joint Target shall be counted as one of the [* *] Joint Targets; and 3.9.3 this Agreement shall terminate with respect to such Joint Target unless reinstated under Section 3.11. 3.10 Optional 3DP Continued Research. 3DP, at its election any time ------------------------------- during the [* *] period immediately following the termination date of the Research Term for a Joint Target, may request in writing to Athersys to continue the Research Program for the Joint Target independently of Athersys and at 3DP's sole cost and expense. If 3DP so elects, Athersys shall provide 3DP with the cells for the Primary Screen(s) and Secondary Screen(s) and the related know-how for that Joint Target, and grants to 3DP a non-exclusive, royalty-free license to use such cells during the remainder of such [* *] period after notice by 3DP solely for the purpose of continuing research to attempt to identify Lead Compound(s) for that Joint Target. Should 3DP be successful in obtaining new data or developing reasons that it believes overcome the prior reasons of the JSC for terminating the Research Program, 3DP shall notify the JSC of such under Section 3.11. Should 3DP be unsuccessful during such period in obtaining new data or developing reasons that overcome the prior reasons of the JSC for terminating the Research Program, 3DP shall return or destroy, as directed by Athersys, the cells for the Primary Screen(s) and Secondary Screen(s), return all physical embodiments of know-how provided by Athersys associated therewith, and destroy all copies, in whole or in part, of such embodiments, and this Agreement shall terminate with respect to such Joint Target. 3.11 Re-instatement of Terminated Joint Target. If, at any time during ----------------------------------------- the [* *] period immediately following the Research Term for a Joint Target, 3DP obtains new data that overcomes, or believes that changed circumstances overcome, the prior reasons of the JSC for terminating the Research Program, 3DP shall notify the JSC of such. Upon agreement of the JSC that the reasons advocated by 3DP do overcome the JSC's prior reasons for termination of the Research Program, 3DP shall give Athersys written notice thereof and of the reasons and changed circumstances leading to the desire to reinitiate the Research Program for such Joint Target. In that case, Athersys shall within [* *] of receiving such notice, give notice to 3DP that it does or does not want to reinitiate the Research Program for such Joint Target under the terms of this Agreement; provided, however, that Athersys shall not be entitled to accept re-instatement of the Research Program for such Joint Target if Athersys has entered an agreement with a Third Party to co-develop (cost sharing, as opposed to having merely licensed out the cells) Small Molecule drugs for that Joint Target. If Athersys does not give notice within such time period, notifies 3DP that 15 it does not desire to reinitiate the Research Program for such Joint Target, or has agreed to co-develop that Joint Target with a Third Party, then 3DP shall have the right to continue research and/or development on its own or with a Third Party and Athersys shall be deemed to have opted out, as provided in Section 4.9, as of the initiation of Lead Optimization Opt-Out Point, but such exclusive right of 3DP as the Funding Party therein shall be subject to any then existing rights Athersys has granted or agreed to grant to a Third Party, and Section 6.1 shall not apply. For the avoidance of doubt and notwithstanding anything to the contrary herein, the Research Term for any Joint Target shall not extend and may not be reinstated under this Section 3.11 beyond [* *] from the Effective Date, absent mutual agreement to the contrary. For the further avoidance of doubt, during the [* *] period immediately following the Research Term for a Joint Target, Athersys may not grant rights in the Joint Target to a Third Party that would preclude 3DP from re-instating the Research Program under this Agreement. 3.12 [* *]: 3.12.1 [* *]; 3.12.2 [* *]; 3.12.3 [* *]; 3.12.4 [* *]; and 3.12.5 [* *]. 3.13 Expansion of Research Program. If the Parties mutually agree, the ----------------------------- Research Program will be expanded by adding additional targets identified by Athersys through the RAGE-PE Technology or RAGE-VT Technology. 3DP and Athersys shall discuss and agree to relative values of the RAGE-PE Technology or RAGE-VT Technology and the ThermoFluor(R) Technology in conjunction with such expansion of the Research Program. The Parties acknowledge that Targets other than the Targets used in the expanded Research Program may be more amenable to the application of the ThermoFluor(R) Technology for screening purposes, in addition to use of screens developed by Athersys. ARTICLE 4 DEVELOPMENT PROGRAM 4.1 Goal of Development Program; Development Plans. The goal of the ---------------------------------------------- Development Program is to move at least one Joint Lead Compound forward and to develop it into a Joint Product for each of the [* *] Joint Targets. Schedule -------- 1.14 graphically depicts the elements of the Development Program and its - ---- relationship to the Research Program. The responsibilities and obligations of Athersys and 3DP in the Development Program shall be described in a Lead Optimization Plan for each Joint Target and related Joint Lead Compound, in a Pre-Clinical Development Plan for each Joint Safety Assessment Compound and in a Clinical Development Plan for each Joint Development Compound. Such plans shall address the specific roles and responsibilities of each Party, budgets (for the completion of the particular 16 Development Program activity, i.e., Lead Optimization, Pre-Clinical Development, ---- Phase I, Phase II or Phase III) tasks to be outsourced, timelines, key "go/no go" decisions, objectives for each major activity including, manufacturing of pre-clinical, clinical and commercial supplies, chemical profiles required to advance Compounds, pre-clinical and clinical study plans including study endpoints, formulation, development, regulatory and marketing strategies. The Parties, through the JSC and the JDC, shall use diligent efforts in preparing such plans (1) to achieve a 50/50 balance in utilization of their respective internal resources to the extent possible, (2) to exploit the relative strengths and skills of each Party, and (3) to utilize outsourcing to complement the Parties' collective strengths, skills and resources and otherwise to avoid unduly straining the resources of a Party. 4.2 Responsibilities During the Development Program. The Athersys ----------------------------------------------- Target and the 3DP Target and the progress of Athersys Lead Compounds and 3DP Lead Compounds through Lead Optimization, Pre-Clinical Development, Development and commercialization are excluded from the Development Program. 3DP shall have full responsibility for and control over 3DP Lead Compounds, 3DP Safety Assessment Compounds, 3DP Development Compounds and 3DP Products. Athersys shall have full responsibility for and control over development of Athersys Lead Compounds, Athersys Safety Assessment Compounds, Athersys Development Compounds and Athersys Products. All matters pertaining to the Joint Lead Compounds, Joint Safety Assessment Compounds and Joint Development Compounds during the Development Program shall be managed by the JSC for Joint Lead Compounds and by the JDC for Joint Safety Assessment Compounds and Joint Development Compounds. 4.3 Determination to Move from Lead Generation to Lead Optimization. --------------------------------------------------------------- 3DP shall determine whether or not to progress 3DP Compounds for which Lead Generation is completed into Lead Optimization. Athersys shall determine whether or not to progress Athersys Compounds for which Lead Generation is completed into Lead Optimization. Subject to Section 4.4, the JSC shall determine whether or not to progress Joint Compounds for which Lead Generation is completed into Lead Optimization. 4.4 Progression into Lead Optimization. The JSC shall progress Joint ---------------------------------- Compounds for which Lead Generation is completed into Lead Optimization if it reasonably determines that: 4.4.1 there is sufficient understanding of the structure-activity relationships to design new Joint Compounds that are likely to have greater Potency and to have adequate selectivity to justify investing in Lead Optimization, Pre-Clinical Development and Clinical Development; 4.4.2 a commercially feasible method for synthesizing such new Compounds is foreseeable or reasonably anticipated and the area of chemistry under consideration does not involve a commercially unacceptable risk of violation of others' Intellectual Property; 4.4.3 an economically reasonable strategy for conducting Lead Optimization, Pre-Clinical Development and Clinical Development is reasonably foreseeable; and 17 4.4.4 the reasonably foreseeable market opportunity for a Joint Product justifying the anticipated investment in a Development Program may reasonably be expected to result from Lead Optimization. Upon consideration of the foregoing criteria and designation of a Joint Compound as a Joint Lead Compound, the JSC shall develop a Lead Optimization Plan for each Joint Target and related Joint Lead Compounds as provided in Section 4.1. 4.5 Athersys Responsibilities. During the Development Program and to ------------------------- the extent consistent with its internal capabilities, Athersys shall be responsible for developing models for pre-clinical confirmation of pharmacological activity, and screening Joint Lead Compounds and Joint Safety Assessment Compounds. 4.6 3DP Responsibilities. During the Development Program and to the -------------------- extent consistent with its internal capabilities, 3DP shall be responsible for medicinal chemistry aspects of Lead Optimization and synthesizing derivatives of Joint Lead Compounds during Lead Optimization. 4.7 Progression into Pre-Clinical Development and Clinical ------------------------------------------------------ Development. The JSC shall determine when to terminate Lead Optimization using - ----------- Joint Lead Compounds and whether or not to designate such Joint Lead Compounds as Safety Assessment Compounds for Pre-Clinical Development. The JDC shall determine how to progress a Safety Assessment Compound through Pre-Clinical Development and onwards into and through Clinical Development. 4.8 Development Efforts. Each Party will exercise its reasonable ------------------- efforts and diligence in developing Joint Lead Compounds, Joint Safety Assessment Compounds and Joint Development Compounds and in undertaking all investigations and actions required to obtain appropriate Regulatory Approvals to develop and market Joint Products. 4.9 Opting Out. ---------- 4.9.1 Discontinuing Party; Funding Party. Either Party may ---------------------------------- terminate its responsibilities under this Agreement with respect to any or all Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds as provided in Section 14.3. In this event, the other Party shall have the exclusive right and, at its election, may continue to develop the relevant compound or compounds and the Party opting out (the "Discontinuing Party") shall ------------------- provide reasonable ongoing assistance during a reasonable transition period. The Discontinuing Party shall have no continuing funding obligations after the Opt-Out Point, and the other Party (the "Funding Party"), if it elects to ------------- continue the Development Program, [* *] (i.e., Lead Optimization, Pre-Clinical ---- Development, Phase I, Phase II, or Phase III) [* *], whichever is shorter; provided, however, such budget funding obligation shall not apply if the Funding Party licenses out, assigns or sells rights in such compound [* *]. 18 4.9.2 Discontinuing Party Duties. In the event that Athersys -------------------------- becomes a Discontinuing Party for a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound, Athersys will provide 3DP with the cells for the Primary Screen(s) and Secondary Screen(s) and the related know-how for that Joint Target. In the event that 3DP becomes a Discontinuing Party for a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound, 3DP will provide Athersys with the know-how associated with such Compound(s) for that Joint Target. 4.10 Termination of Development Program for a Joint Compound. If ------------------------------------------------------- (i) the JSC or the JDC, as applicable, determines not to progress a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound on to the next stage of the Development Program or (ii) both Parties opt-out with respect to continued development of any Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound (i.e., both Parties become Discontinuing Parties), then: 4.10.1 the JSC or JDC shall promptly give written notice to the Parties confirming such termination or mutual opt-out; 4.10.2 subject to Section 4.10.5, all further activities with respect to such Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound, as the case may be, hereunder shall cease; 4.10.3 the Development Term shall expire and this Agreement shall terminate with respect to such Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound, as the case may be, unless reinstated under Section 4.10.5; and 4.10.4 at 3DP's request, during the [* *] period immediately following the expired Development Term, Athersys shall promptly provide 3DP with the cells for the Primary Screen(s) and Secondary Screen(s) and the related know-how for that Joint Target, and grants to 3DP a non-exclusive, royalty-free license to use such cells during the remainder of such [* *] period after 3DP's request solely for the purpose of generating data that may cause the Parties to re-instate the Development Program; and 4.10.5 except for the purpose of generating data that may cause the Parties to re-instate the Development Program, during this [* *], neither 3DP nor Athersys, independent of the other Party, shall use the Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound for Lead Optimization, Pre-Clinical Development or Clinical Development unless 3DP or Athersys, as the case may be, first (a) obtains the agreement of the JSC that changed circumstances warrant re-instating the Development Program for such Compound and that the prior reasons of the JSC for terminating the Development Program have been overcome and (b) offers to the other Party the ability to re-instate Lead Optimization, Pre-Clinical Development or Clinical Development under this Agreement and to extend the Development Term for this purpose and such other Party opts-out in accordance with Section 4.9. A Party's failure to accept re-instatement of the Development Program within [* *] of receiving a valid request under subsection 4.10.6(b) shall be deemed an opt-out in accordance with Section 4.9. 19 ARTICLE 5 COMMERCIALIZATION 5.1 Commercialization of Joint Products. Unless a Party has elected ----------------------------------- to opt out in accordance with Section 4.9, upon the initiation of a Phase III trial for a Joint Development Compound, or earlier if the Parties mutually agree, the Parties shall, enter into a written agreement setting forth the terms under which the Parties will jointly commercialize the Joint Product. While the basis of cost and profit sharing will be [* *], items to be covered in such agreement will include which countries to launch directly, where to partner, how many field forces will detail product, who will promote a Joint Product, how pricing will be determined, and sales and marketing strategy. 5.2 Division of Revenues for Joint Products. --------------------------------------- 5.2.1 Profits from commercialization of a Joint Product by the Parties shall be shared [* *] by the Parties. LMPs derived from a Joint Product as well as any royalties paid by a Third Party to the Parties derived from Net Sales by such Third Party of a Joint Product shall also be shared [* *]. 5.2.2 In the event that a Party elects to opt out as provided in Section 4.9, and if the other Party elects to continue the Development Program as a Funding Party, then the Funding Party shall share Profits or LMPs derived from commercializing the former Joint Product, i.e., the then Athersys Product or the then 3DP Product, as the case may be, and shall pay a royalty on Net Sales thereof, the value of which shall depend upon the point at which the Discontinuing Party discontinued funding, as provided in Schedule 5.2. ------------ 5.3 Athersys Product Commercialization. ---------------------------------- 5.3.1 Upon commercialization by Athersys of an Athersys Product, Athersys shall pay 3DP an amount equal to [* *] of Profits of such Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net Sales of the Athersys Product. 5.3.2 If Athersys licenses, assigns or sells to a Third Party the rights to an Athersys Product during Lead Optimization for such Athersys Product, then Athersys shall pay 3DP an amount equal to [* *] of LMPs of such Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net Sales of the Athersys Product by such Third Party. 5.3.3 If Athersys licenses, assigns or sells to a Third Party the rights to an Athersys Product during Pre-Clinical Development for such Athersys Product, then Athersys shall pay 3DP an amount equal to [* *] of LMPs of such Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net Sales of the Athersys Product by such Third Party. 5.3.4 If Athersys licenses, assigns or sells to a Third Party the rights to an Athersys Product during Phase I for such Athersys Product, then Athersys shall pay 3DP an 20 amount equal to [* *] of LMPs of such Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net Sales of the Athersys Product by such Third Party. 5.3.5 If Athersys licenses, assigns or sells to a Third Party the rights to an Athersys Product during Phase II for such Athersys Product, then Athersys shall pay 3DP an amount equal to [* *] of LMPs of such Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net Sales of the Athersys Product by such Third Party. 5.3.6 If Athersys licenses, assigns or sells to a Third Party the rights to an Athersys Product during Phase III for such Athersys Product, then Athersys shall pay 3DP an amount equal to [* *] of LMPs of such Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net Sales of the Athersys Product by such Third Party. 5.3.7 With respect to each license, assignment or sale, the amounts payable under the foregoing Sections 5.3.1 through 5.3.6 are all mutually exclusive of one another such that Athersys shall only pay such amounts and royalties under the first to occur of any such Section for the same transaction and as exemplified in Schedule 5.3.7. Any royalty obligation will -------------- continue only for the duration of the Royalty Term. Section 5.2.2, but not this Section 5.3, shall apply to commercialization, license, assignment or sale of Athersys Products which are former Joint Products for which 3DP opted out. [* *]. 5.4 3DP Product Commercialization. ----------------------------- 5.4.1 Upon commercialization by 3DP of a 3DP Product, 3DP shall pay Athersys an amount equal to [* *] of Profits of 3DP Product. In addition, 3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP Product. 5.4.2 If 3DP licenses, assigns or sells to a Third Party the rights to a 3DP Product during Lead Optimization for such 3DP Product, then 3DP shall pay Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition, 3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP Product by such Third Party. 5.4.3 If 3DP licenses, assigns or sells to a Third Party the rights to a 3DP Product during Pre-Clinical Development for such 3DP Product, then 3DP shall pay Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition, 3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP Product by such Third Party. 5.4.4 If 3DP licenses, assigns or sells to a Third Party the rights to a 3DP Product during Phase I for such 3DP Product, then 3DP shall pay Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition, 3DP shall pay to 21 Athersys a royalty equal to [* *] of Net Sales of the 3DP Product by such Third Party. 5.4.5 If 3DP licenses, assigns or sells to a Third Party the rights to a 3DP Product during Phase II for such 3DP Product, then 3DP shall pay Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition, 3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP Product by such Third Party. 5.4.6 If 3DP licenses, assigns or sells to a Third Party the rights to a 3DP Product during Phase III for such 3DP Product, then 3DP shall pay Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition, 3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP Product by such Third Party. 5.4.7 With respect to each license, assignment or sale, the amounts under the foregoing Sections 5.4.1 through 5.4.6 are all mutually exclusive of one another such that 3DP shall only pay such amounts and royalties under the first to occur of any such Section for the same transaction and as exemplified in Schedule 5.3.7. Any royalty obligation will continue only for the -------------- duration of the Royalty Term. Section 5.2.2, but not this Section 5.4, shall apply to commercialization, license, assignment or sale of 3DP Products which are former Joint Products for which Athersys opted out. [* *]. ARTICLE 6 EXCLUSIVITY 6.1 Athersys Restriction. Subject to any obligations of Athersys that -------------------- exist prior to designation of a Candidate Target as a Joint Target, during the Research Term, Development Term and Royalty Term for each of the 3DP Target and the Joint Targets, respectively, Athersys shall not, through use of the RAGE-VT Technology, RAGE-PE Technology or otherwise, (i) provide the 3DP Target or the Joint Targets to any Third Party for Small Molecule drug discovery or development against the 3DP Target or the Joint Targets or (ii) run Small Molecule screens against the 3DP Target or Joint Targets for purposes of drug discovery or development directed thereto, except as explicitly allowed pursuant to the terms of this Agreement. For the avoidance of doubt, the foregoing shall not be construed to restrict Athersys' ability to license to others or use itself the 3DP Target or Joint Targets for purposes of developing therapeutics other than Small Molecule drugs and/or counterscreening, i.e., screening to determine specificity for another drug discovery target. 6.2 3DP Restriction. During the Research Term, Development Term and --------------- Royalty Term for each of the Athersys Target and the Joint Targets and the Athersys Lead Compound and Joint Lead Compounds, respectively, 3DP shall not, through the use of its 3DP Probe Library, 3DP Synthetically Accessible Library, DiscoverWorks(TM) Technology or otherwise, use or provide its chemically synthesizable libraries with or to any Third Party for screening Small Molecules against the Joint Targets or the Athersys Target. 22 ARTICLE 7 COSTS AND FINANCIAL RECORD KEEPING 7.1 Research Program Costs. Athersys and 3DP agree to provide their ---------------------- relevant technologies as set forth in Schedule 3.5 and Schedule 3.6, ------------ ------------ respectively, in support of the Research Program. The costs incurred by each Party for such support are considered equivalent and there will be no requirement for any financial settlement between the Parties in respect of the application of the technologies of either Party for such purpose. The Parties estimate that the total cost for the Research Program will be [* *] for each Target, i.e., [* *] for each Party and for each Target ("Research Program ---------------- Costs"). If the JSC determines, in accordance with Section 3.8, that efforts - ----- additional to those assigned to a Party in this Agreement including the Schedules hereto, e.g., selectivity assays, cell biology assays, animal ---- modeling, toxicological studies, ADME studies, etc., are warranted at any time during the Research Program with respect to the Joint Targets, then the Parties shall share these costs equally. The JSC will select patent counsel to provide an analysis and legal opinion regarding possible infringement of Third Party patents by the use of proposed Joint Targets, with such costs to be shared equally between the Parties. Each Party will be responsible for the expense for any independent analysis on the Joint Targets, or the 3DP Target or the Athersys Target, that it may choose to obtain. 7.2 Development Program Costs. For Joint Lead Compounds, Joint Safety ------------------------- Assessment Compounds and Joint Development Compounds, the Parties will mutually agree which Party or contract organization shall conduct each task beyond Lead Generation, recognizing each Party's then-existing competencies and expertise. All costs and expenses for activities during the Development Program will be shared equally, including, without limitation, the costs of FTEs, at the FTE Rate, and out-of-pocket costs paid to Third Parties in accordance with budgeted items approved by the JSC or JDC, as applicable, and set forth in the Lead Optimization Plans, Pre-Clinical Development Plans, and Clinical Development Plans. To the extent any such cost or expense will exceed such pre-approved budgeted item by more than the lesser of (a) [* *] or (b) [* *], the Party incurring such excess cost or expense shall be solely responsible for such cost or expense unless such additional amount was approved in advance by the JSC or the JDC, as applicable. 7.3 Record Keeping. For a period of two (2) years after the end of -------------- the Development Term, the Parties shall keep complete and accurate records of its FTEs and out-of-pocket costs and expenses directly related to the Development Program to the extent made or incurred by such Party during the Development Program. 7.4 Quarterly Reconciliation. ------------------------ 7.4.1 Within thirty (30) days following the end of each calendar quarter, Athersys shall submit to 3DP a written report setting forth in reasonable detail, separately with respect to each Joint Lead Compound, Joint Safety Assessment Compound and Joint Development Compound, all FTEs and out-of-pocket costs and expenses to the extent made or incurred by Athersys during the Development Program and in accordance with Section 7.2. 23 7.4.2 Within thirty (30) days following the end of each calendar quarter, 3DP shall submit to Athersys a written report setting forth in reasonable detail, separately with respect to each Joint Target, Joint Lead Compound, Joint Safety Assessment Compound and Joint Development Compound, all FTEs and out-of-pocket costs and expenses to the extent made or incurred by 3DP during the Development Program and in accordance with Section 7.2. 7.4.3 Within forty-five (45) days following the end of each calendar quarter, 3DP shall submit to Athersys a written report setting forth in reasonable detail the costs and expenses incurred by each Party during the Development Program and the calculation of any net amount owed by Athersys to 3DP or by 3DP to Athersys, as the case may be, in order to ensure an equal sharing of such costs and expenses during the Development Program. The net amount payable shall be paid by 3DP or Athersys, as the case may be, within fifteen (15) days after receipt of such written report, without regard to any dispute as to the amounts under this Section 7.4.3; provided that the amounts are in accordance with Section 7.2, and that, in the event of a dispute, the disputing Party shall provide written notice within such fifteen (15) day period after receipt of the written report in question, specifying in detail such dispute. The Parties shall promptly thereafter meet and negotiate in good faith a resolution to such dispute. In the event that the Parties are unable to resolve such dispute within thirty (30) days after notice by the disputing Party, the matter shall be resolved in a manner consistent with the procedures set forth in Section 15.2, provided, that, in the case that the matter has not been resolved by the Chief Executive Officers, such matter shall be referred to an internationally recognized independent accounting firm acceptable to both Parties for binding resolution. Any outstanding amounts payable following resolution shall be subject to interest calculated using the prime rate plus three percent (3%) for the time from which the amounts should have been paid until the time of actual payment. 7.5 Audits. Each Party shall keep complete and accurate records of ------ the underlying costs and expense data relating to the reports and payments required by Section 7.4. Each Party will have the right once annually at its own expense to have an independent, certified public accountant, selected by such Party and reasonably acceptable to the other Party, review any such records of the other Party in the location(s) where such records are maintained by the other Party upon reasonable notice and during regular business hours and under obligations of strict confidence, for the sole purpose of verifying the basis and accuracy of payments made, in each case within the prior twenty-four (24) month period. If the review of such records reveals that the other Party has failed to accurately report information, then the other Party shall promptly pay to the auditing Party any resulting amounts due, together with interest calculated using the prime rate plus three percent (3%) for the time from which the amounts should have been paid until the time of actual payment. If any amounts due under Section 7.4 as a result of such audit are greater than five percent (5%) of the amounts actually due for a calendar year, the other Party shall pay all of the costs of such review. If a Party in good faith disputes any conclusion of the accounting firm under this Section 7.5, including that such Party owes additional amounts, then such Party shall inform the other Party by written notice within thirty (30) days of receipt of a copy of the audit in question, specifying in detail such dispute. The Parties shall promptly thereafter meet and negotiate in good faith a resolution to such dispute. In the event that the Parties are unable to resolve such dispute within thirty (30) days after notice by the disputing Party, the matter shall be resolved in a manner consistent with the procedures set forth in Section 24 15.2, provided, that, in the case that the matter has not been resolved by the Chief Executive Officers, such matter shall be referred to an internationally recognized independent accounting firm acceptable to both Parties for binding resolution. Any amounts payable at the conclusion of such dispute shall include interest calculated using the prime rate plus three percent (3%) for the time from which the amounts should have been paid until the time of actual payment. ARTICLE 8 CROSS-LICENSES 8.1 License Grant by 3DP. -------------------- 8.1.1 3DP grants to Athersys a royalty-free, non-exclusive license under its Patent Rights and know-how to use Compounds for purposes of discovering and developing an Athersys Lead Compound, an Athersys Safety Assessment Compound and/or an Athersys Development Compound. This license shall terminate when and to the extent it is no longer required for the stated purposes. For the avoidance of doubt, this license includes the right to sublicense rights in Athersys Lead Compounds, Athersys Safety Assessment Compounds and Athersys Development Compounds to Third Parties for the purpose of licensing out rights in an Athersys Product as contemplated by Sections 5.3.2 - 5.3.6. 8.1.2 3DP grants to Athersys the exclusive right, with the right to grant sublicenses, under 3DP's Patent Rights and know-how, to make, have made, use, import, offer for sale and sell Athersys Products under the terms of this Agreement. The license grant under this Section 8.1.2 is present, shall terminate when and to the extent it is no longer required for the stated purposes and is not conditioned upon the Parties reaching agreement as to the form and substance of any future separate license agreement, if any, documenting such license. 8.2 License Grant by Athersys. ------------------------- 8.2.1 Athersys grants to 3DP a royalty-free, non-exclusive license under Athersys' Patent Rights and know-how to use the cell lines developed by Athersys that express the 3DP Target for Lead Generation, Lead Optimization, Pre-Clinical Development and Clinical Development of 3DP Compounds, 3DP Lead Compounds, 3DP Safety Assessment Compounds and 3DP Development Compounds under this Agreement. This license shall be exclusive in the field of Small Molecule drug discovery and development. This license shall terminate when and to the extent it is no longer required for the stated purposes. 8.2.2 Athersys grants to 3DP a royalty-free, non-exclusive license to use the cell lines developed by Athersys that express the Joint Targets for Lead Generation, Lead Optimization, Pre-Clinical Development and Clinical Development of Joint Compounds, Joint Lead Compounds, Joint Safety Assessment Compounds and Joint Development Compounds under this Agreement. This license shall terminate when and to the extent it is no longer required for the stated purposes or as may be otherwise provided in the commercialization agreement contemplated under Section 5.1. 8.2.3 Athersys grants to 3DP the exclusive right, with the right to grant sublicenses, under its Patent Rights and know-how, to make, have made, use, import, offer for 25 sale and sell, under the terms of this Agreement, 3DP Products. The license under this Section 8.2.3 is present, shall terminate when and to the extent it is no longer required for the stated purposes and is not conditioned upon the Parties reaching agreement as to the form and substance of any future separate license agreement, if any, documenting such license. 8.2.4 If 3DP wishes to use cell lines developed by Athersys to screen Compounds against Targets other than the 3DP Target or Joint Targets, 3DP will notify Athersys and Athersys and 3DP shall use good faith efforts to agree to a license upon commercially reasonable terms for such additional screening. 8.3 3DP's Libraries. Notwithstanding: (i) the exclusive license --------------- granted to Athersys in ARTICLE 8, (ii) the ownership by Athersys of Athersys Lead Compounds synthesized by Athersys, Athersys Development Compounds and Athersys Safety Assessment Compounds as provided in ARTICLE 11, (iii) any Patent Rights Athersys may acquire as a result of Lead Optimization under this Agreement, or (iv) anything to the contrary in this Agreement, 3DP shall have the free and unencumbered right to use the 3DP Synthetically Accessible Library, the 3DP Probe Library, any other 3DP Small Molecule chemical compound libraries, as they exist now or in the future and including each and every compound in the libraries even if the compounds are Athersys Lead Compounds, Athersys Safety Assessment Compounds, Athersys Development Compounds or Athersys Products, solely for purpose of screen development and lead generation by 3DP (such terms to be construed as consistently as possible with the terms "Screen Development" and "Lead Generation" as defined hereunder). ARTICLE 9 RESEARCH PROGRAM AND DEVELOPMENT PROGRAM RECORD KEEPING 9.1 Laboratory Notebooks. All work conducted by either Party in the -------------------- course of the Research Program and the Development Program shall be completely and accurately recorded, in sufficient detail and in good scientific manner, in laboratory notebooks kept separately from the other research and development activities of the Party. 9.2 Audit. On reasonable notice, and at reasonable intervals, each ----- Party shall have the right to inspect and copy all such records of the other Party reflecting inventions, ideas, information or data developed in the course of or work done under the Research Program or the Development Program, to the extent reasonably required to carry out its respective obligations and to exercise its respective rights hereunder. Notwithstanding the definition of "Confidential Information," all such records shall constitute Confidential Information of the Party creating such records. 9.3 Policies for Maintaining Records; Assignments of Inventions. In ----------------------------------------------------------- order to protect the Parties' Patent Rights under U.S. law in any inventions conceived or reduced to practice during or as a result of the Research Program or the Development Program, each Party agrees to maintain a policy which requires its employees to record and maintain all data and information developed during the Research Program and Development Program in such a manner as to enable the Parties to use such records to establish the earliest date of invention and/or diligence to reduction to practice. At a minimum, the policy shall require such individuals to record all inventions generated by them in standard laboratory notebooks which are dated and corroborated 26 by non-inventors on a regular, contemporaneous basis. The policy shall also require all employees engaged in the Research Program or Development Program to assign all Intellectual Property conceived or reduced to practice in connection therewith to their respective employer, and the Parties shall ensure that each such employee has signed such an agreement before any work on the Research Program or Development Program commences. ARTICLE 10 CONFIDENTIAL INFORMATION 10.1 Confidentiality Obligations. The Parties agree that, for the term --------------------------- of this Agreement and for ten (10) years thereafter, either Party that receives Confidential Information (a "Receiving Party") from the other Party (a --------------- "Disclosing Party") shall keep completely confidential and shall not publish or ---------------- otherwise disclose and shall not use for any purpose (except as expressly permitted hereunder) any Confidential Information furnished to it by the Disclosing Party pursuant to this Agreement (including without limitation, know-how), except to the extent that it can be established by the Receiving Party that such Confidential Information: (a) was already known to the Receiving Party, other than under an obligation of confidentiality from the Disclosing Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the Receiving Party in breach of this Agreement; (d) was subsequently lawfully disclosed to the Receiving Party by a Third Party; (e) can be shown by written records to have been independently developed by the Receiving Party without reference to the Confidential Information received from the Disclosing Party and without breach of any of the provisions of this Agreement; or (f) is information that the Disclosing Party has specifically agreed in writing that the Receiving Party may disclose. The obligations of confidentiality and non-use set forth in this Section 10.1 shall also apply to biological material and chemical compounds and associated information (including without limitation know-how) disclosed by one Party to the other prior to or during the Term. 10.2 Written Assurances and Permitted Uses of Confidential ----------------------------------------------------- Information. - ----------- 10.2.1 Each Party shall inform its employees and consultants who perform work on the Research Program or the Development Program, of the obligations of confidentiality specified in Section 10.1 and all such persons shall be bound by the terms of confidentiality set forth therein. 10.2.2 The Receiving Party may disclose Confidential Information to the extent the Receiving Party is compelled to disclose such information by a court or other tribunal of competent jurisdiction; provided however, that in such case the Receiving Party shall immediately give notice to the Disclosing Party so that the Disclosing Party may seek a protective order or other remedy from said court or tribunal. In any event, the Receiving Party shall disclose only that portion of the Confidential Information that, in the opinion of its legal counsel, is legally required to be disclosed and will exercise reasonable efforts to ensure that any such information so disclosed will be accorded confidential treatment by said court or tribunal. 27 10.2.3 To the extent it is reasonably necessary or appropriate to fulfill its obligations and exercise its rights under this Agreement, either Party may disclose Confidential Information to its Affiliates, on a need-to-know basis on condition that such Affiliates agree to keep the Confidential Information confidential for the same time periods and to the same extent as such Party is required to keep the Confidential Information confidential under this Agreement. 10.2.4 The existence and the terms and conditions of this Agreement which the Parties have not specifically agreed to disclose pursuant to this Section 10.2 shall be treated by each Party as Confidential Information of the other Party. 10.3 Publication. 3DP and Athersys, by mutual consent, will jointly ----------- determine to publish or publicly present the results of the Research Program or Development Program (the "Results") subject to the following terms and ------- conditions: 10.3.1 As soon as reasonably necessary after its formation, the JSC or JDC, as applicable, will establish a long term strategic publication plan governing publication of the Results and public appearances (congresses, presentations, press releases, advisory boards and the like) with the goal to use and combine all existing data to support and maximize the commercial success of the Products (the "Publication Plan"). The Parties will each provide, from ---------------- time to time, a list of proposed publications regarding Joint Compounds, Joint Lead Compounds, Joint Safety Assessment Compounds, Joint Development Compounds, Joint Targets or Joint Products to the JSC or JDC, as applicable, for mutual approval, and a list of proposed publications regarding its own Compounds, Lead Compounds, Safety Assessment Compounds, Development Compounds, Targets or Products to the JSC or JDC, as applicable, for review and comment provided that no approval will be required by the JSC or JDC, as applicable, or the other Party for those Compounds, Lead Compounds, Safety Assessment Compounds, Development Compounds, Targets or Products that are not jointly owned. Authorship of each publication will be determined at time of submission for publication based on the contributions provided thereto. 10.3.2 The Party proposing to publish or publicly present the Results (the "Publishing Party") will submit thirty (30) days in advance, a ---------------- draft of any proposed manuscript or speech to the other Party (the "Non-Publishing Party") for comments from the other Party and the JSC or JDC, as -------------------- applicable, and, if such proposed manuscript or speech involves Joint Compounds, Joint Lead Compounds, Joint Safety Assessment Compounds, Joint Development Compounds, Joint Targets or Joint Products, for approval by the JSC or JDC, as applicable, and inclusion in the Publication Plan. 10.3.3 The Parties will use their best efforts to gain the right to review proposed publications by consultants or contractors relating to the subject matter of the Research Program. 10.3.4 No Party may publish Confidential Information of the other Party, the use of which is restricted under this ARTICLE 10, without the consent of the other Party. 10.3.5 If the Parties determine that patent protection is suitable for any information or results desired to be published or such results or information is the subject of patent protection, no Party may publish such information or results without first obtaining 28 approval from patent counsel in charge of prosecuting that patent application (who shall take into consideration the absolute novelty requirements of applicable jurisdictions). 10.3.6 This ARTICLE 10 shall be inapplicable to the publication of information presented in substantially the same form in which was previously published or disclosed to the public, and to any other disclosures which, on the advice of counsel, are required by law to be disclosed. 10.4 Permitted Disclosures. Notwithstanding anything to the contrary --------------------- herein, either Party may, upon the advice of its counsel and without the prior consent of the other Party, disclose or publish Confidential Information, the name or the trademarks of the other Party or information concerning the Research Program or Development Program as required by law, government regulation, court order or alternative dispute resolution process, including without limitation in connection with filings with the U.S. Securities and Exchange Commission or otherwise pursuant to applicable securities laws and regulations, filings with the Internal Revenue Service and otherwise pursuant to applicable tax laws and regulations, or to comply with discovery or similar requests in litigation and alternative dispute resolution proceedings; provided, however, in any such case the Party seeking to make such disclosure or publication, if permissible under all laws or regulations, provides the other Party with advance written notice of such disclosure or publication and provides the other Party with a reasonable opportunity to secure protection of the Confidential Information therein. ARTICLE 11 PATENTS AND INTELLECTUAL PROPERTY 11.1 Ownership; Inventions. --------------------- 11.1.1 Inventions. Inventorship for patentable inventions ---------- conceived or reduced to practice during the course of the performance of activities pursuant to this Agreement shall be determined in accordance with U.S. patent laws for determining inventorship. Subject to Section 11.1.2, ownership shall be initially determined based on inventorship. In the event of a dispute regarding inventorship, if the Parties are unable to resolve such inventorship dispute, the JSC shall establish a procedure to resolve such dispute, which may include engaging a Third Party patent attorney jointly selected by the Parties to resolve such dispute. 11.1.2 Ownership. --------- (a) Joint Targets, Joint Lead Compounds, Joint Safety ------------------------------------------------- Assessment Compounds, Joint Development Compounds and Joint Products. - -------------------------------------------------------------------- (i) Subject to Sections 11.1.2(a)(ii) and 11.1.2(e), each Party shall own a fifty percent (50%) undivided interest in all inventions, discoveries and research information made, conceived, reduced to practice or generated jointly by employees or agents of both Parties relating to Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds, Joint Development Compounds and Joint Products. Each Party shall promptly notify the other upon the making, conceiving or reducing to practice of any invention or discovery referred to in this Section 11.1.2(a)(i). For purposes of this Section 11.1.2(a)(i), Joint 29 Lead Compounds shall only include Compounds that are synthesized through medicinal chemistry during Lead Optimization and all other Lead Compounds shall be owned, as between the Parties, by 3DP. (ii) In the event that either a Research Term for a Joint Target expires or is terminated with no corresponding follow-on Development Program or a Development Program for a Joint Target is terminated with no corresponding follow-on Product, then as between the Parties, (A) Athersys shall own all right, title and interest in and to the Joint Target and any inventions, discoveries and research made, conceived, reduced to practice or generated solely by either Party or jointly by employees or agents of both Parties, subject to Sections 3.12.4 and 4.10.5, as applicable, and 3DP shall execute all further instruments to document Athersys' ownership therein as reasonably requested by Athersys, and (B) 3DP shall own all right, title and interest in and to the Compounds screened against such Joint Target. (iii) Notwithstanding 11.1.2(a)(ii), in the event that either a Research Term for a Joint Target expires or is terminated with no corresponding follow-on Development Program or a Development Program for a Joint Target is terminated with no corresponding follow-on Product, then as between the Parties, each Party shall own a fifty percent (50%) undivided interest in and to all right, title and interest in and to any inventions, discoveries and research information made, conceived, reduced to practice or generated jointly by employees or agents of both Parties relating to disease pathways or mechanisms of action (e.g., a discovery that a certain Joint Target is useful as a drug discovery target for a new indication or a discovery that a class of drugs acts against a Joint Target). Each Party shall promptly notify the other upon the making, conceiving or reducing to practice of any invention or discovery referred to in this Section 11.1.2(a)(iii). Each Party shall execute all further instruments to document each other's ownership therein as reasonably requested by the other Party. (b) Athersys Targets, Athersys Lead Compounds, Athersys --------------------------------------------------- Safety Assessment Compounds, Athersys Development Compounds and Athersys - ------------------------------------------------------------------------ Product. As between the Parties, Athersys shall exclusively own all Athersys - ------- Lead Compounds, Athersys Safety Assessment Compounds and Athersys Development Compounds that are synthesized by Athersys through the use of its own chemistries and that are not identical to Compounds provided by 3DP, subject only to Patent Rights deriving from patent applications filed by 3DP prior to Athersys' synthesis thereof. Athersys shall be the owner of inventions, discoveries and research information made, conceived, reduced to practice or generated relating to an Athersys Target, Athersys Lead Compound, Athersys Safety Assessment Compound, Athersys Development Compound or Athersys Product. In the event an employee, agent or other person under obligations to assign inventions or discoveries to 3DP is deemed an inventor of such inventions or discoveries that relate to an Athersys Target, Athersys Lead Compound, Athersys Safety Assessment Compound, Athersys Development Compound or Athersys Product, then 3DP hereby assigns its entire right, title and interest in such invention to Athersys and shall execute all further instruments to document such assignment as reasonably requested by Athersys. For purposes of this Section 11.1.2(b), Athersys Lead Compounds shall only include Compounds that are synthesized by Athersys through medicinal chemistry during Lead 30 Optimization and all other Lead Compounds, subject to Section 11.1.2(a), shall be owned, as between the Parties, by 3DP. (c) 3DP Targets, 3DP Lead Compounds, 3DP Safety ------------------------------------------- Assessment Compounds, 3DP Development Compounds and 3DP Products. 3DP shall be - ---------------------------------------------------------------- the owner of inventions, discoveries and research information made, conceived, reduced to practice or generated relating to a 3DP Target, 3DP Lead Compound, 3DP Safety Assessment Compound, 3DP Development Compound or 3DP Product. In the event an employee, agent or other person under obligations to assign inventions or discoveries to Athersys is deemed an inventor of such inventions or discoveries that relate to a 3DP Target, 3DP Lead Compound, 3DP Safety Assessment Compound, 3DP Development Compound, 3DP Target or 3DP Product, then Athersys hereby assigns its entire right, title and interest in such invention to 3DP, and shall execute all further instruments to document such assignment as reasonably requested by 3DP. (d) Compounds. As between the Parties, 3DP shall retain --------- its ownership and Patent Rights and other intellectual property rights in all Compounds delivered to Athersys. 3DP shall be the owner of inventions, discoveries and research information made, conceived, reduced to practice or generated by 3DP or by Athersys relating to all Compounds screened against Joint Targets and Compounds that during Lead Generation do not become Joint Lead Compounds, 3DP Lead Compounds or Athersys Lead Compounds. In the event an employee, agent or other person under obligations to assign inventions or discoveries to Athersys is deemed an inventor of such inventions or discoveries that relate to a Compound that did not become Joint Lead Compounds, 3DP Lead Compounds or an Athersys Lead Compound, then Athersys hereby assigns its entire right, title and interest in such invention to 3DP, and shall execute all further instruments to document such assignment as reasonably requested by 3DP. (e) Ownership After Opt-Out. From the Opt-Out Point, ----------------------- the Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds, as the case may be, shall be (a) owned exclusively by the Funding Party, (b) subject to the division of Profits and LMPs and subject to the royalty sharing provisions as set forth in Section 5.2.2, and (c) for all other purposes, (i) if Athersys is the Funding Party, then considered an Athersys Lead Compound, Athersys Safety Assessment Compound or Athersys Development Compound, as applicable, or (ii) if 3DP is the Funding Party, then considered a 3DP Lead Compound, 3DP Safety Assessment Compound or 3DP Development Compound, as applicable. Athersys or 3DP, as the case may be, shall execute all further instruments to document ownership in the former Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds, as the case may be, as reasonably requested by the owner thereof. For purposes of this Section 11.1.2(e), Joint Lead Compounds and Athersys Lead Compounds shall only include Compounds that are synthesized through medicinal chemistry during Lead Optimization. 11.2 Prosecution and Maintenance of Patent Rights. The responsibility -------------------------------------------- for (a) preparing, filing and prosecuting patent applications (including reissue, continuing, divisional, and substitute applications and any foreign counterparts thereof); (b) for maintaining any Patent Rights; and (c) for managing any interference or opposition proceedings relating to the foregoing ((a), (b) and (c) collectively, "Patent Prosecution") covering an invention ------------------ conceived or reduced to practice during the course of the performance of activities pursuant to this Agreement shall be the responsibility of the Party owning such invention. All Patent Prosecution expenses, including attorneys' fees, incurred by a Party in the performance of Patent Prosecution of an invention owned by one Party shall be borne by such Party. All Patent 31 Prosecution costs, including attorneys' fees, relating to Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds shall be shared by the Parties in accordance with Section 11.3. 11.3 Prosecution and Maintenance of Joint Targets, Joint Lead -------------------------------------------------------- Compounds, Joint Safety Assessment Compounds and Joint Development Compounds. - ---------------------------------------------------------------------------- 11.3.1 Filing. The JSC or JDC, as appropriate, shall determine ------ whether to conduct Patent Prosecution with respect to jointly-owned inventions. The JSC or the JDC, as appropriate, will assign responsibility to one Party to act as the lead Party for the Patent Prosecution of such patent(s) and application(s); provided, however, that both Parties shall be entitled to actively participate in such Patent Prosecution and shall jointly decide upon the strategy and content of Patent Prosecution activities. The lead Party shall keep the JSC or the JDC, as appropriate, and the other Party informed of the status of all matters affecting such patents and applications and Patent Prosecution, including providing a copy of all correspondence from all governmental authorities, and consulting on the strategy and content of submissions to such governmental authorities in advance of any Patent Prosecution submissions. 11.3.2 Costs. All costs incurred by the Parties in carrying out ----- the foregoing Patent Prosecution for inventions relating to Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds shall be borne by the Parties at equal shares, unless otherwise agreed in writing. 11.3.3 Discontinuance. If the lead Party elects not to continue -------------- pursuing Patent Prosecution with respect to any rights within Patent Rights for inventions relating to Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds, then the prosecuting Party shall, subject to any contractual obligations to Third Parties, notify the other Party in writing of such election at least thirty (30) days prior to the last available date for action to preserve such Patent Rights. If such other Party elects to continue Patent Prosecution, such other Party may do so and all costs and expenses shall be shared by the Parties in accordance with Section 11.3.2. 11.4 Cooperation. Each Party hereby agrees: ----------- 11.4.1 to make its employees, agents and consultants reasonably available to the other Party (or to the other Party's authorized attorneys, agents or representatives), to the extent reasonably necessary to enable the lead Party to undertake Patent Prosecution; 11.4.2 to provide the other Party with copies of all material correspondence pertaining to Patent Prosecution with the U.S. Patent and Trademark Office or its foreign counterparts; 11.4.3 to cooperate, if necessary and appropriate, with the other Party in gaining patent term extensions wherever applicable to Patent Rights; and 32 11.4.4 to endeavor in good faith to coordinate its efforts with the other Party to minimize or avoid interference with the Patent Prosecution of the other Party's patent applications. 11.5 Third Party Infringement. ------------------------ 11.5.1 Notice. Except as provided in Section 11.5.2, each Party ------ shall promptly provide, but in on event later than thirty (30) days, the other with written notice reasonably detailing any known or alleged infringement of the other Party's Patent Rights by a Third Party. 11.5.2 Notice-ANDA Filing. Each Party shall promptly provide to ------------------ the other Party copies of any allegations of alleged patent invalidity or non-infringement of a patent or patents with respect to technology used in the Research Program, Development Program or of a Target, Compound or Product pursuant to a certification under 21 U.S.C. ss. 355(b)(2)(A)(iv) by a Third Party filing an Abbreviated New Drug Application thereunder. Such copies shall be provided promptly, but in any event within ten (10) business bays, of receipt of such certification. 11.5.3 Infringement Proceedings. Each Party shall have the sole ------------------------ right, but not the obligation, to institute and direct legal proceedings against any Third Party believed to be infringing the Patent Rights of such Party, that covers an invention that relates to such owning Party's Target, Lead Compound, Safety Assessment Compound, Development Compound or Product; provided, however, that the Parties shall mutually agree on a course of action for instituting and directing legal proceedings against any Third Party believed to be infringing any such Patent Rights that relates to Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds, Joint Development Compounds or Joint Products. All costs, including attorneys' fees, relating to such legal proceedings shall be borne by the Party that owns such Patent Rights or, in the case of Patent Rights that relate to Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds, Joint Development Compounds or Joint Products, shared equally by the Parties. If the Parties share the expenses, the Parties shall each recover its expenses after which all damages will be shared by the Parties in proportion to their actual damages. If only one Party is bearing the expense, then the Party not bearing any of the expense shall, after the other Party recovers its expenses, receive a share of the remaining compensatory damages in proportion to its actual damages up to the percentage such Party would have received had it received a share of Profits, LMPs and/or a royalty on Net Sales in accordance with Schedule 5.2 and Sections 5.3 and 5.4, as the case ------------ may be. 11.5.4 Cooperation in Patent Infringement Proceedings. In the ---------------------------------------------- event that either 3DP or Athersys takes action pursuant to this Section 11.5, the other Party shall cooperate to the extent reasonably necessary and at the first Parties' sole expense. Upon the reasonable request of the first Party, such other Party shall join the suit and shall be represented in any such legal proceedings using counsel of its own choice. Neither Party shall settle any claim or proceeding relating to Patent Rights owned in whole or in part by the other Party without the prior written consent of such other Party, which consent shall not be unreasonably withheld. 33 11.6 Other Intellectual Property Infringement. ---------------------------------------- 11.6.1 Notice. ------ (a) Each Party shall notify the other in writing of any allegations it receives from a Third Party that technology used in the Research Program, Development Program or a Product infringes the intellectual property rights of such Third Party. Such notice shall be provided promptly, but in no event after more than fifteen (15) business days, following receipt of such allegations (b) In the event that a Party receives notice that it or any of its Affiliates have been individually named as a defendant in a legal proceeding by a Third Party alleging infringement of a Third Party patent or other intellectual property right as a result of the manufacture, production, use, development, sale or distribution of technology used in the Research Program, Development Program or of a Target, Compound or Product, such Party shall immediately notify the other Party in writing and in no event notify them later than ten (10) business days after the receipt of such notice. Such written notice shall include a copy of any summons or complaint (or the equivalent thereof) received regarding the foregoing. 11.6.2 Cooperation. Each Party shall assist the other and ----------- cooperate in the defense of such allegations at each Party's own expense. 11.6.3 Settlement. The Parties shall keep each other informed of ---------- the status of and of their respective activities regarding any litigation or settlement thereof concerning Targets, Compounds or Products; provided however, that no settlement or consent judgment or other voluntary final disposition of a suit under this Section may be undertaken without the consent of the other Party if such settlement would require the other Party to be subject to an injunction or to make a monetary payment or would otherwise adversely affect the other Party's rights under this Agreement. 11.7 Patent Term Extensions. The Parties shall cooperate in good faith ---------------------- with each other in gaining patent term extension wherever applicable. 11.7.1 The Parties shall determine which patents covering joint inventions shall be extended. 11.7.2 All filings for such extension shall be made by the Party responsible for Patent Prosecution covering such joint invention; provided, however, that in the event that the Party who is responsible for such Patent Prosecution elects not to file for an extension, such Party shall (i) inform the other Party of its intention not to file and (ii) grant the other Party the right to file for such extension. ARTICLE 12 REPRESENTATIONS AND WARRANTIES 12.1 Authority. Each Party represents and warrants that as of the --------- Effective Date it has the full right, power and authority to enter into this Agreement and that this Agreement has been 34 duly executed by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable in accordance with its terms. 12.2 Commercially Reasonable Efforts. Each Party represents and ------------------------------- warrants that it will use good faith commercially reasonable and diligent efforts to develop Products, consistent with sound business judgment and to perform the activities for which it is responsible under the Research Program and Development Program. 12.3 No Conflicts. Each Party represents and warrants that the ------------ execution, delivery and performance of this Agreement do not conflict with, or constitute a breach or default under any of its charter or organizational documents, any law, order, judgment or governmental rule or regulation applicable to it, or any material agreement, contract, commitment or instrument to which it is a party. 12.4 No Existing Third Party Rights. Each Party represents and ------------------------------ warrants that its obligations under this Agreement are not encumbered by any rights granted by such Party to any Third Parties that are or may be inconsistent with the rights and licenses granted in this Agreement. 12.5 Intellectual Property. Each Party represents and warrants to the --------------------- other that as of the Effective Date: 12.5.1 it is not aware of any claim made against it asserting the invalidity, misuse, unregisterability, unenforceability or non-infringement of any of its Intellectual Property that is the subject of this Agreement or challenging its right to use or ownership of any of such Intellectual Property or making any adverse claim of ownership thereof; and 12.5.2 it is not aware of any pending or threatened claim or litigation which alleges that its activities to date relating to the Intellectual Property that is the subject of this Agreement have violated, or by conducting its business as currently proposed to be conducted hereunder would violate, the Intellectual Property rights of any other person or Third Party; and 12.5.3 it is not aware of Intellectual Property rights of any Third Party that, with respect to Athersys' representation and warranty, validly cover the use of the RAGE-VT Technology or, with respect to 3DP's representation and warranty, validly cover the use of 3DP's libraries and combinatorial chemistry technologies, in each case as contemplated under this Agreement. 12.6 Access to Athersys Cell Lines. ----------------------------- 12.6.1 Athersys represents and warrants to 3DP that for the 3DP Target and Joint Targets, 3DP Lead Compound(s) and Joint Lead Compounds, 3DP Safety Assessment Compound(s) and Joint Safety Assessment Compounds and 3DP Development Compounds and Joint Development Compounds, 3DP will have access to cell lines produced using the RAGE-VT Technology and expressing the 3DP Target and as required under the applicable Lead Optimization Plans, Pre-Clinical Development Plans and Clinical Development Plans, the Joint Targets, for 3DP's internal experimentation within the Research Programs and Development 35 Programs outlined herein, for those purposes set forth in Sections 3.11 and 4.10.5, as well as the equivalent programs and plans that 3DP develops for 3DP Lead Compounds, 3DP Safety Assessment Compounds and 3DP Development Compounds. 12.6.2 3DP represents and warrants to Athersys that 3DP will only use such cell lines with the 3DP Target and Joint Targets, 3DP Lead Compound(s) and Joint Lead Compounds, 3DP Safety Assessment Compound(s) and Joint Safety Assessment Compounds and 3DP Development Compounds and Joint Development Compounds within the Research Programs and Development Programs outlined herein, and for a Joint Target, Joint Compound, Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound, only as required under the applicable Lead Optimization Plan, Pre-Clinical Development Plan and Development Plan, for those purposes set forth in Sections 3.11 and 4.10.5, as well as the equivalent programs and plans that 3DP develops for 3DP Lead Compounds, 3DP Safety Assessment Compounds and 3DP Development Compounds. 12.7 Access to 3DP Compounds. ----------------------- 12.7.1 3DP represents and warrants to Athersys that for the Athersys Target and Joint Targets, Athersys Lead Compound(s) and Joint Lead Compounds, Athersys Safety Assessment Compound(s) and Joint Safety Assessment Compounds and Athersys Development Compound(s) and Joint Development Compounds, Athersys will have access to selected Compounds from 3DP Probe Library and to the focused libraries created from the 3DP Synthetically Accessible Library as required under the applicable Lead Optimization Plans, Pre-Clinical Development Plans and Clinical Development Plans and for Athersys' internal experimentation within the Research Programs and Development Programs outlined herein as well as the equivalent programs and plans that Athersys develops for Athersys Lead Compounds, Athersys Safety Assessment Compounds and Athersys Development Compounds. 12.7.2 Athersys represents and warrants to 3DP that Athersys will only use such libraries and technology with the Athersys Target and Joint Targets, Athersys Lead Compound(s) and Joint Lead Compounds, Athersys Safety Assessment Compound(s) and Joint Safety Assessment Compounds, and Athersys Development Compound(s) and Joint Development Compounds within the Research Programs and Development Programs outlined herein and only as required under the applicable Lead Optimization Plan, Pre-Clinical Development Plan and Clinical Development Plan as well as the equivalent programs and plans that Athersys develops for Athersys Lead Compounds, Athersys Safety Assessment Compounds and Athersys Development Compounds. 12.8 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS ------------------------ AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. ARTICLE 13 INDEMNIFICATION 36 13.1 Indemnification by Athersys. Athersys shall indemnify, defend and --------------------------- hold 3DP, its Affiliates and their permitted contractors and agents, employees, officers and directors (the "3DP Indemnitees") harmless from and against any and --------------- all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or lawsuits related to (a) Athersys' performance of its obligations under this Agreement; (b) the manufacture, use or sale of Products by Athersys and its Affiliates, sublicensees, distributors and agents; (c) a material breach by Athersys of any of its covenants, representations or warranties set forth in this Agreement; or (d) claims that the development or commercialization of any Athersys Target, Athersys Compound, Athersys Lead Compound, Athersys Safety Assessment Compound, Athersys Development Compound or Athersys Product infringes the Intellectual Property rights of a Third Party, except to the extent such claims or suits result from the material breach of any of the provisions of this Agreement, gross negligence or willful misconduct of the 3DP Indemnitees. Upon the assertion of any such claim or suit, the 3DP Indemnitees shall promptly notify Athersys thereof and Athersys shall appoint counsel reasonably acceptable to the 3DP Indemnitees to represent the 3DP Indemnitees with respect to any claim or suit for which indemnification is sought. The 3DP Indemnities shall not settle any such claim or suit without the prior written consent of Athersys, unless the 3DP Indemnitees shall have first waived their rights to indemnification hereunder. 13.2 Indemnification By 3DP. 3DP shall indemnify, defend and hold ---------------------- Athersys, its Affiliates and their permitted contractors and agents, employees, officers and directors (the "Athersys Indemnitees") harmless from and against -------------------- any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or lawsuits related to (a) 3DP's performance of its obligations under this Agreement; (b) the manufacture, use or sale of Products by 3DP and its Affiliates, sublicensees, distributors and agents; (c) a material breach by 3DP of any of its covenants, representations or warranties set forth in this Agreement; or (d) claims that the development or commercialization of any 3DP Target, 3DP Compound, 3DP Lead Compound, 3DP Safety Assessment Compound, 3DP Development Compound or 3DP Product infringes the Intellectual Property rights of a Third Party, except to the extent that such claims or suits result from the material breach of any of the provisions of this Agreement, gross negligence or willful misconduct of the Athersys Indemnitees. Upon the assertion of any such claim or suit, the Athersys Indemnitees shall promptly notify 3DP thereof and 3DP shall appoint counsel reasonably acceptable to the Athersys Indemnitees to represent the Athersys Indemnitees with respect to any claim or suit for which indemnification is sought. The Athersys Indemnitees shall not settle any such claim or suit without the prior written consent of 3DP, unless the Athersys Indemnitees shall have first waived their rights to indemnification hereunder. 13.3 Insurance Proceeds. Any indemnification hereunder shall be made ------------------ net of any insurance proceeds recovered by the indemnified Party; provided, however, that if, following the payment to the indemnified Party of any amount under this ARTICLE 13, such indemnified Party recovers any insurance proceeds in respect of the claim for which such indemnification payment was made, the indemnified Party shall promptly pay an amount equal to the amount of such proceeds (but not exceeding the amount of such indemnification payment) to the indemnifying Party. 37 13.4 Insurance. Each Party shall maintain insurance, including product --------- liability insurance, with respect to its activities hereunder. Such insurance shall be in such amounts and subject to such deductibles as the Parties may agree based upon standards prevailing in the industry at the time. Each Party may satisfy its obligations under this Section through self-insurance to the same extent. ARTICLE 14 TERM AND TERMINATION 14.1 Term. The Research Program shall commence upon the Effective ---- Date, and, unless all or a portion of the Research Program is extended by mutual written agreement of the Parties, shall expire as to each Joint Target, the 3DP Target and the Athersys Target, at the end of its Research Term. The Development Program under this Agreement shall expire as to each Lead Compound, Safety Assessment Compound and Development Compound upon expiration of its Development Term. This Agreement shall terminate in its entirety upon expiration of all Research Terms and their corresponding periods thereafter set forth in Sections 3.10 and 3.11, all Development Terms and their corresponding periods thereafter set forth in Sections 4.10.4 and 4.10.5 and Royalty Terms. 14.2 Extension of Research Program. If the Parties expand the Research ----------------------------- Program as provided in Section 3.13, the JSC shall extend the Research Term as appropriate therefor. 14.3 Partial Termination. Either Party may, independently of the other ------------------- Party and the JSC or JDC, elect to discontinue its funding of Lead Optimization, Pre-Clinical Development or Clinical Development, or commercialization of a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development Compound related to a Joint Target or Joint Product, as applicable, by giving written notice thereof to the other Party prior to any of the following points in time (each, an "Opt-Out Point"): ------------- 14.3.1 Initiation of Lead Optimization; 14.3.2 Initiation of Pre-Clinical Development; 14.3.3 Initiation of the first Phase I trial; 14.3.4 Initiation of the first Phase II trial; 14.3.5 Initiation of the first Phase III trial; or 14.3.6 Any time after Phase III is completed and all study reports have been finalized. 14.4 Breach. The failure by a Party to comply with any of the material ------ obligations contained in this Agreement shall entitle the other Party to give notice to have the default cured. If such default is not cured within sixty (60) days after the receipt of such notice, or diligent steps are not taken to cure if by its nature such default could not be cured within sixty (60) days, the notifying Party shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, and in addition to any other remedies that may be available to it, to terminate 38 this Agreement with respect to a given Joint Lead Compound, Joint Safety Assessment Compound, or Joint Development Compound or, depending upon the materiality of the breach to the entire Agreement, to terminate this Agreement in its entirety; provided, however, that such right to terminate shall be stayed in the event that, during such 60-day period, the Party alleged to have been in default shall have: (a) initiated arbitration in accordance with ARTICLE 15, below, with respect to the alleged default, and (b) diligently and in good faith cooperated in the prompt resolution of such arbitration proceedings. 14.5 Insolvency or Bankruptcy. ------------------------ 14.5.1 Either Party may, in addition to any other remedies available by law or in equity, terminate this Agreement by written notice to the other Party in the event the latter Party shall have become insolvent or bankrupt, or shall have an assignment for the benefit of its creditors, or there shall have been appointed a trustee or receiver of the other Party or for all or a substantial part of its property or any case or proceeding shall have been commenced or other action taken by or against the other Party in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up, arrangement or readjustment of its debts or any other relief under any bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect, or there shall have been issued a warrant of attachment, execution, restraint or similar process against any substantial part of the property of the other Party, and any such event shall have continued for ninety (90) days undismissed, unbonded and undischarged. 14.5.2 All rights and licenses granted under or pursuant to this Agreement by Athersys or 3DP are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to "Intellectual Property" as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that the Parties as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code, the Party hereto which is not a Party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such Intellectual Property and all embodiments or descriptions of such licensed Intellectual Property, and same, if not already in their possession, shall be promptly delivered to it (a) upon any such commencement of a bankruptcy proceeding upon its written request therefor, unless the Party subject to such proceedings elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the nondebtor Party. 14.6 Survival of Obligations. The termination or expiration of this ----------------------- Agreement shall not relieve the Parties of any obligations accruing prior to such termination, and any such termination shall be without prejudice to the rights of either Party against the other. The provisions of Sections 3.12.2, 3.12.4, 7.3, 7.5, 12.8, 14.6 and 14.7 and Articles 1, 8, 10, 11, 13, 15 and 16 shall survive any termination of this Agreement. 39 14.7 Effects of Termination. ---------------------- 14.7.1 If a Party elects to partially terminate this Agreement in accordance with Section 14.3, then such terminating Party will receive royalties and a share of the Profits and/or LMPs in accordance with Schedule 5.2; ------------ provided, however,[* *]. For the avoidance of doubt, there shall be no limit on the amount a terminating Party may receive for royalties on Net Sales other than the Royalty Term. 14.7.2 If a Party terminates this Agreement pursuant to Section 14.4 or 14.5 between any two of the Opt-Out Points, then such terminated Party shall be entitled to receive a share of the Profits, LMPs and royalties as set forth on Schedule 5.2 for the last fully-completed Opt-Out Point prior to the ------------ effective date of such termination; provided, however, [* *]. For the avoidance of doubt, there shall be no limit on the amount a terminated Party may receive for royalties on Net Sales other than the Royalty Term. ARTICLE 15 DISPUTE RESOLUTION 15.1 Dispute Resolution Process. Both Parties understand and -------------------------- appreciate that their long term mutual interest will be best served by affecting a rapid and fair resolution of any claims or disputes which may arise out of services performed under this contract or from any dispute concerning the terms of this Agreement. Therefore, both Parties agree to use their best efforts to resolve all such disputes as rapidly as possible on a fair and equitable basis. Toward this end, both Parties agree to develop and follow a process for presenting, rapidly assessing, and settling claims on a fair and equitable basis that takes into account the precise subject and nature of the dispute. 15.2 Dispute Resolution Panel. If any dispute or claim arising under ------------------------ this Agreement cannot be readily resolved by the Parties pursuant to the process described above, then the Parties agree to refer the matter to a panel consisting of the Chief Executive Officer of 3DP and the Chief Executive Officer of Athersys or their designees for review and a non-binding resolution. A copy of the terms of this Agreement, agreed upon facts (and areas of disagreement), and concise summary of the basis for each side's contentions will be provided to both such officers who shall review the same, confer and attempt to reach a mutual resolution of the issue. 15.3 Arbitration. ----------- 15.3.1 If the matter has not been resolved utilizing the foregoing process and the Parties are unwilling to accept the non-binding decision of the dispute resolution panel, either or both Parties may elect to pursue definitive resolution through binding arbitration, which the Parties agree to accept in lieu of litigation or other legally available remedies (with the exception of injunctive relief where such relief is necessary to protect a Party from irreparable harm pending the outcome of any such arbitration proceeding). Binding arbitration shall be settled in accordance with the Rules of the American Arbitration Association by a panel of three arbitrators chosen in accordance with such Rules. If such dispute relates primarily to Patents relating to 40 Products, such arbitrators shall be selected in such a manner to ensure that they will have sufficient technical expertise and training to handle such a dispute. 15.3.2 As set forth in Section 16.14, this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware without regard to the conflicts of laws provisions of Delaware. The arbitration will be held in Wilmington, Delaware. Judgment upon the award rendered may be entered in any court having jurisdiction and the Parties hereby consent to the said jurisdiction and venue, and further irrevocably waive any objection which either Party may have now or hereafter to the laying of venue of any proceedings in said courts and to any claim that such proceedings have been brought in an inconvenient forum, and further irrevocably agree that a judgment or order in any such proceeding shall be conclusive and binding upon the Parties and may be enforced in the courts of any other jurisdiction. ARTICLE 16 MISCELLANEOUS PROVISIONS 16.1 Entire Agreement. This Agreement and each of the Schedules hereto ---------------- constitute and contain the entire understanding and agreement of the Parties respecting the subject matter of this Agreement and cancels and supersedes any all prior negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter. 16.2 Further Actions. Each Party agrees to execute, acknowledge and --------------- deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 16.3 Binding Effect. This Agreement and the rights granted herein -------------- shall be binding upon and shall inure to the benefit of 3DP, Athersys and their successors and permitted assigns. 16.4 Assignment. Neither Party shall assign this Agreement without the ---------- prior written consent of the other Party; provided, however, that either Party may assign this Agreement without the prior written consent of the other in connection with the sale or transfer of substantially all of its assets that relate to this Agreement, or in the event of its merger or consolidation or change of control or similar transaction, or to a wholly-owned Affiliate of a Party. Any permitted assignee shall assume all obligations of its assignor under this Agreement. 16.5 No Implied Licenses. No rights to any other patents, know-how or ------------------- technical information, or other intellectual property rights, other than as explicitly identified herein, are granted or deemed granted by this Agreement. Except as provided in Section 10.4, no right, expressed or implied, is granted by this Agreement to a Party to use in any manner the name or any other trade name or trademark of the other Party in connection with the performance of this Agreement. 16.6 No Waiver. No waiver, modification or amendment of any provision --------- of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. The failure of either Party to assert a right hereunder or to insist upon 41 compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition. 16.7 Force Majeure. The failure of a Party to perform any obligation ------------- under this Agreement by reason of acts of God, acts of governments, riots, wars, strikes, accidents or deficiencies in materials or transportation or other causes of a similar magnitude beyond its control shall not be deemed to be a breach of this Agreement. 16.8 Independent Contractors. Both Parties are independent contractors ----------------------- under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute 3DP or Athersys as partners or joint venturers with respect to this Agreement. Neither Party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any other contract, agreement or undertaking with any Third Party. 16.9 Notices and Deliveries. Any formal notice, request, delivery, ---------------------- approval or consent required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given when it is received, whether delivered in person, transmitted by facsimile with contemporaneous confirmation, or delivery by registered letter (or its equivalent) or delivery by certified overnight courier service, to the Party to which it is directed at its address shown below or such other address as such Party shall have last given by notice to the other Parties. If to Athersys: with a copy to: Athersys, Inc. Jones, Day, Reavis & Pogue 3201 Carnegie Avenue North Point Cleveland, OH 44115-2634 901 Lakeside Avenue Fax: (216) 361-9495 Cleveland, OH 44114-2304 ATTN: Chief Executive Officer ATTN: Thomas Briggs, Esq. If to 3DP: with a copy to: 3-Dimensional Pharmaceuticals, Inc. Morgan, Lewis & Bockius LLP 1020 Stony Hill Road, Suite 300 1701 Market Street Yardley, PA 19067 Philadelphia, PA 19103-2921 Fax: (267) 757-7283 ATTN: Chief Executive Officer ATTN: Edward Lentz, Esq. 16.10 Public Announcements. The Parties will agree upon the timing and -------------------- content of any initial press release, attached hereto as Schedule 16.10, or other public communications relating to this Agreement and the transactions contemplated herein. 16.10.1 Except to the extent already disclosed in that initial press release or other public communication, no public announcement concerning the existence or the terms of this 42 Agreement or concerning the transactions described herein shall be made, either directly or indirectly, by Athersys or 3DP, except as set forth in Section 10.4, without first obtaining the approval of the other Party and agreement upon the nature, text, and timing of such announcement, which approval and agreement shall not be unreasonably withheld. 16.10.2 The Party desiring to make any such public announcement shall provide the other Party with a written copy of the proposed announcement in sufficient time prior to public release to allow such other Party to comment upon such announcement, prior to public release. 16.11 Headings. The captions to the sections and articles in this -------- Agreement are not a part of this Agreement, and are included merely for convenience of reference only and shall not affect its meaning or interpretation. 16.12 Severability. If any provision of this Agreement becomes or is ------------ declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, so long as the Agreement, taking into account said voided provision(s), continues to provide the Parties with the same practical economic benefits as the Agreement containing said voided provision(s) did on the Effective Date. If, after taking into account said voided provision(s), the Parties are unable to realize the practical economic benefit contemplated on the Effective Date, the Parties shall negotiate in good faith to amend this Agreement to reestablish the practical economic benefit provided the Parties on the Effective Date. 16.13 No Consequential Damages. IN NO EVENT SHALL EITHER PARTY OR ANY ------------------------ OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER DAMAGES. 16.14 Applicable Law. This Agreement shall be governed by and -------------- interpreted in accordance with the laws of the State of Delaware without reference to its conflicts of laws provisions. 16.15 Counterparts. This Agreement may be executed in counterparts, or ------------ facsimile versions, each of which shall be deemed to be an original, and both of which together shall be deemed to be one and the same agreement. [Signature Page Follows] 43 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the Effective Date, each copy of which shall for all purposes be deemed to be an original. ATHERSYS, INC. By:______________________________________ Name: Title: 3-DIMENSIONAL PHARMACEUTICALS, INC. By:______________________________________ Name: Title: SIGNATURE PAGE TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Schedule 1.10 Candidate Targets ----------------- I. Joint Targets ------------- [* *]. II. 3DP Target ---------- [* *]. III. Athersys Target --------------- [* *]. SCHEDULE 1.10 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Schedule 1.14 ------------- Compound and Work Flow ---------------------- Compounds Targets Lead Generation Research Program (ends) Lead Development Compound Program (begins) Lead Optimization JSC Safety Assessment (ends) Compound JDC Pre-Clinical Development (begins) Development Compound Clinical Development (IND, Phases I,II,III (and IV), NDA and Regulatory Approval) Product SCHEDULE 1.14 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Schedule 1.30 ------------- [* 1 entire page has been omitted pursuant to a confidential treatment request*] SCHEDULE 1.30 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Schedule 3.5 ------------ [* 2 pages have been omitted pursuant to a confidential treatment request *] SCHEDULE 3.5 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Schedule 3.6 [* 1 entire page has been omitted pursuant to a confidential treatment request*] SCHEDULE 3.6 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Schedule 5.2 Revenue Sharing with Discontinuing Party ---------------------------------------- The outline below illustrates revenue sharing in the event a Party opts-out as provided in Section 4.9. [* *]. 1.1 If the Discontinuing Party discontinues funding prior to Lead Optimization, and 1.1.1 if the Funding Party licenses, assigns or sells the former Joint Lead Compound prior to initiation of Lead Optimization, then the Funding Party shall pay to the Discontinuing Party [* *] of LMPs received from such outlicensing, assignment or sale as well as [* *] of any royalty received by the Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising the former Joint Lead Compound. [* *]; 1.1.2 if the Funding Party licenses, assigns or sells the former Joint Lead Compound during Lead Optimization, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.1.3 if the Funding Party licenses, assigns or sells the former Joint Lead Compound during Pre-Clinical Development, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.1.4 if the Funding Party licenses, assigns or sells the former Joint Lead Compound during Phase I, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.1.5 if the Funding Party licenses, assigns or sells the former Joint Lead Compound during Phase II, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.1.6 if the Funding Party licenses, assigns or sells the former Joint Lead Compound during or after Phase III, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.1.7 in addition to any amounts the Funding Party may owe to the Discontinuing Party under the foregoing Sections 1.1.2 - 1.1.6 of this Schedule -------- 5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to - --- [* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s)) of Product comprising the former Joint Lead Compound; and SCHEDULE 5.2 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT 1.1.8 with respect to each license, assignment or sale, the amounts under Sections 1.1.1 - 1.1.6 are mutually exclusive such that the Funding Party shall only owe to the Discontinuing Party the first of such amounts to occur and no other such amounts for the same transaction and as exemplified in Schedule -------- 5.3.7. Any royalty obligation will last for the duration of the Royalty Term. - ----- 1.2 If the Discontinuing Party discontinues funding prior to Pre-Clinical Development, and 1.2.1 if the Funding Party licenses, assigns or sells the former Joint Safety Assessment Compound prior to initiation of Pre-Clinical Development, then the Funding Party shall pay to the Discontinuing Party [* *] of LMPs received from such outlicensing, assignment or sale as well as [* *] of any royalty received by the Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising the former Joint Safety Assessment Compound. [* *]; 1.2.2 if the Funding Party licenses, assigns or sells the former Joint Safety Assessment Compound during Pre-Clinical Development, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.2.3 if the Funding Party licenses, assigns or sells the former Joint Safety Assessment Compound during Phase I, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.2.4 if the Funding Party licenses, assigns or sells the former Joint Safety Assessment Compound during Phase II, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.2.5 if the Funding Party licenses, assigns or sells the former Joint Safety Assessment Compound during or after Phase III, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; and 1.2.6 in addition to any amounts the Funding Party may owe to the Discontinuing Party under the foregoing Sections 1.2.2 - 1.2.5 of this Schedule -------- 5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to - --- [* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s)) of Product comprising the former Joint Safety Assessment Compound; and 1.2.7 with respect to each license, assignment or sale, the amounts under Sections 1.2.1 - 1.2.5 are mutually exclusive such that the Funding Party shall only owe to the Discontinuing Party the first of such amounts to occur and no other such amounts for the same transaction and as exemplified in Schedule -------- 5.3.7. Any royalty obligation will last for the duration of the Royalty Term. - ----- 1.3 If the Discontinuing Party discontinues funding prior to initiation of a Phase I trial SCHEDULE 5.2 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT 1.3.1 if the Funding Party licenses, assigns or sells the former Joint Development Compound prior to initiation of Phase I, then the Funding Party shall pay to the Discontinuing Party [* *] of LMPs received from such outlicensing, assignment or sale as well as [* *] of any royalty received by the Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising the former Joint Development Compound. [* *]; 1.3.2 if the Funding Party licenses, assigns or sells the former Joint Development Compound during Phase I, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale 1.3.3 if the Funding Party licenses, assigns or sells the former Joint Development Compound during Phase II, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; 1.3.4 if the Funding Party licenses, assigns or sells the former Joint Development Compound during or after Phase III, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; and 1.3.5 in addition to any amounts the Funding Party may owe to the Discontinuing Party under the foregoing Sections 1.3.2 - 1.3.4 of this Schedule -------- 5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to - --- [* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s)) of Product comprising the former Joint Development Compound; and 1.3.6 with respect to each license, assignment or sale, the amounts under Sections 1.3.1 - 1.3.4 are mutually exclusive such that the Funding Party shall only owe to the Discontinuing Party the first of such amounts to occur and no other such amounts for the same transaction and as exemplified in Schedule -------- 5.3.7. Any royalty obligation will last for the duration of the Royalty Term. - ----- 1.4 If the Discontinuing Party discontinues funding prior to initiation of a Phase II trial 1.4.1 if the Funding Party licenses, assigns or sells the former Joint Development Compound prior to initiation of Phase II, then the Funding Party shall pay to the Discontinuing Party [* *] of LMPs received from such outlicensing, assignment or sale as well as [* *]of any royalty received by the Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising the former Joint Development Compound. [* *]; 1.4.2 if the Funding Party licenses, assigns or sells the former Joint Development Compound during Phase II, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; SCHEDULE 5.2 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT 1.4.3 if the Funding Party licenses, assigns or sells the former Joint Development Compound during or after Phase III, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; and 1.4.4 in addition to any amounts the Funding Party may owe to the Discontinuing Party under the foregoing Sections 1.4.2 - 1.4.3 of this Schedule -------- 5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to - --- [* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s)) of Product comprising the former Joint Development Compound; and 1.4.5 with respect to each license, assignment or sale, the amounts under Sections 1.4.1 - 1.4.3 are mutually exclusive such that the Funding Party shall only owe to the Discontinuing Party the first of such amounts to occur and no other such amounts for the same transaction and as exemplified in Schedule -------- 5.3.7. Any royalty obligation will last for the duration of the Royalty Term. - ----- 1.5 If the Discontinuing Party discontinues funding prior to initiation of a Phase III trial 1.5.1 if the Funding Party licenses, assigns or sells the former Joint Development Compound prior to initiation of Phase III, then the Funding Party shall pay to the Discontinuing Party [* *] of LMPs received from such outlicensing, assignment or sale as well as [* *] of any royalty received by the Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising the former Joint Development Compound. [* *]; 1.5.2 if the Funding Party licenses, assigns or sells the former Joint Development Compound during or after Phase III, then the Funding Party shall pay to the Discontinuing Party [* *] of LMP received from such outlicensing, assignment or sale; and 1.5.3 in addition to any amounts the Funding Party may owe to the Discontinuing Party under the foregoing Section 1.5.2 of this Schedule 5.2, the ------------ Funding Party shall pay to the Discontinuing Party a royalty equal to [* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s)) of Product comprising the former Joint Development Compound. Any royalty obligation will last for the duration of the Royalty Term. 2.1 If the Discontinuing Party discontinues funding: 2.1.1 prior to Lead Optimization, and the Funding Party fully funds Lead Optimization, Pre-Clinical Development and Clinical Development and commercialization, then the Funding Party shall pay to the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of the Net Sales of such Product comprising the former Joint Lead Compound; 2.1.2 prior to Pre-Clinical Development and the Funding Party fully funds Pre-Clinical Development and Clinical Development and commercialization, then the Funding Party shall pay SCHEDULE 5.2 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT to the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of the Net Sales of such Product comprising the former Joint Safety Assessment Compound; 2.1.3 prior to Phase I and the Funding Party fully funds Clinical Development and commercialization, then the Funding Party shall pay to the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of the Net Sales of such Product comprising the former Joint Development Compound; 2.1.4 prior to Phase II and the Funding Party fully funds Phase II and Phase III Clinical Development and commercialization, then the Funding Party shall pay to the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of the Net Sales of such Product comprising the former Joint Development Compound; and 2.1.5 prior to Phase III and the Funding Party fully funds Phase III Clinical Development and commercialization, then the Funding Party shall pay to the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of the Net Sales of such Product comprising the former Joint Development Compound. 2.1.6 With respect to each license, assignment or sale, the amounts under Sections 2.1.1 - 2.1.5 are mutually exclusive such that the Funding Party shall only owe to the Discontinuing Party the first of such amounts to occur and no other such amounts for the same transaction under such Sections or under Sections 1.1.1 - 1.5.3 of this Schedule 5.2 and as exemplified in Schedule ------------ -------- 5.3.7. Any royalty obligation will last for the duration of the Royalty Term. - ----- SCHEDULE 5.2 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Schedule 5.3.7 -------------- Examples of Mutually Exclusive Transactions Concerning Amounts Payable Under Schedule 5.2, Section 5.3 and Section 5.4 ------------------------------------------------------- Illustrative Example 1: - ----------------------- Athersys opts out at the initiation of Pre-Clinical Development and 3DP elects to continue as a Funding Party. 3DP completes Pre-Clinical Development successfully developing a Development Compound and then: Action: 3DP licenses during Phase I to Third Party X for the territory of the - ------ United States, Canada and Mexico. Result: Under Section 1.2.3 of Schedule 5.2, 3DP pays to Athersys [* *] ------ of the LMP received from the licensing and, under Section 1.2.6 of Schedule 5.2, [* *] of Net Sales of Products comprising the Development Compound by Third Party X in the United States, Canada and Mexico, but no other fees under Schedule 5.2 in connection with the transaction. Action: 3DP enters into a co-development and co-commercialization agreement - ------ during Phase II with Third Party Y for the territory of Europe and agrees to sell the rights in the Product in Europe should it be approved therein. Result: Under Section 1.2.4, 3DP pays Athersys [* *] of the LMP ------ received from the transaction, and, under Section 1.2.6 of Schedule 5.2, [* *] of Net Sales of Products comprising the Development Compound by Third Party Y in Europe. Action: Subsequently, 3DP sells the co-commercialization rights to the Product - ------ in Europe to Third Party Y after regulatory approval. Result: Notwithstanding the earlier transaction with Third Party Y ------ because the sale of rights was pursuant to a different transaction than the earlier license to Third Party Y, under Section 1.2.5 of Schedule 5.2, 3DP would pay Athersys [* *] of the LMP received from the sale and, under Section 1.2.6 of Schedule 5.2, [* *] of Net Sales of Products comprising the Development Compound by Third Party Y in Europe, but no other fees under Schedule 5.2 in connection with the sale. Illustrative Example 2/1/: - ------------------------- Action: Athersys licenses an Athersys Product to Company A for Territory M for X dollars. SCHEDULE 5.3.7 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Result: Athersys pays to 3DP [* *] of X (depending on which of 5.3.2, ------ 5.3.3, 5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in the amount of [* *] of the Net Sales by Company A in Territory M. Action: Subsequently, Athersys licenses rights in the same Product to Company A - ------ for Territory N for Y Dollars. Result: Athersys pays [* *] of Y (depending on which of 5.3.2, 5.3.3, ------ 5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in the amount of [* *] of the Net Sales by Company A in Territory N. Action: Athersys retains right in Territory O, and subsequently, Athersys - ------ markets the same Product in Territory O. Result: Athersys pays to 3DP [* *] of its Profits on the sale of the ------ Athersys Product and also pays to 3DP a royalty in the amount of [* *] of its Net Sales, as provided in Section 5.3.1. Illustrative Example 3/2/: - ------------------------- Action: 3DP licenses a 3DP Product to Company A worldwide for X dollars, - ------ retaining a co-marketing right in Territory M. Result: 3DP pays to Athersys [* *] of X (depending on which of 5.4.2, ------ 5.4.3, 5.4.4, 5.4.5, and 5.4.6 apply) and also pays to Athersys a royalty in the amount of [* *] of the Net Sales by Company A. Action: In accordance with the terms of the agreement with Company A, 3DP - ------ co-markets the same 3DP Product in Territory M. Result: 3DP pays to Athersys [* *] of its Profits on the sale of the ------ 3DP Product and also pays to Athersys a royalty in the amount of [* *] of its Net Sales in Territory M, as provided in Section 5.4.1. Illustrative Example 4/1/: - ------------------------- Action: Athersys licenses an Athersys Product to Company A for Indication M for - ------ X dollars. Result: Athersys pays to 3DP [* *] of X (depending on which of 5.3.2, ------ 5.3.3, 5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in the amount of [* *] of the Net Sales by Company A for Indication M. Action: Subsequently, Athersys licenses rights in the same Athersys Product to - ------ Company B for Indication N for Y Dollars. SCHEDULE 5.3.7 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT Result: Athersys pays to 3DP [* *] of Y (depending on which of 5.3.2, 5.3.3, 5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in the amount of [* *] of the Net Sales by Company B for Indication N. Action: Subsequently, Athersys agrees to co-promote with Company A the same - ------ Athersys Product for Indication O in consideration for an up-front payment (Z Dollars) and a share of the combined Athersys-Company A profits based on the number of details provided by Athersys. Result: Athersys pays to 3DP [* *] of its share of Profits on the ------ co-promotion of the Athersys Product for Indication O and also pays to 3DP a royalty in the amount of [* *] of the Net Sales for Indication O, as provided in Section 5.3.1. In addition, Athersys pays to 3DP [* *] of Z (depending on which of 5.3.2, 5.3.3, 5.3.4, 5.3.5, and 5.3.6 apply). Illustrative Example 5/2/: - ------------------------- Action: 3DP licenses a 3DP Product to Company A worldwide for X dollars. - ------ Result: 3DP pays to Athersys [* *] of X (depending on which of 5.4.2, 5.4.3, 5.4.4, 5.4.5, and 5.4.6 apply) and also pays to Athersys a royalty in the amount of [* *] of the Net Sales by Company A. Action: 3DP subsequently licenses a 3DP Product line-extension (e.g., new - ------ formulation) to Company A worldwide for Y dollars. Result: 3DP pays to Athersys [* *] of Y (depending on which of 5.4.2, 5.4.3, 5.4.4, 5.4.5, and 5.4.6 apply) and also pays to Athersys a royalty in the amount of [* *] of the Net Sales by Company A of the 3DP Product line-extension. Notes: - ------ /1/ For purposes of illustrative examples 2 and 4, "Athersys Product," does not include a Product developed against a formerly Joint Target. If the Athersys Product used in the example was formerly developed against a Joint Target, then Section 5.2 and Schedule 5.2 would apply. /2/ For purposes of illustrative examples 3 and 5, "3DP Product," does not include a Product developed against a formerly Joint Target. If the 3DP Product used in the example was formerly developed against a Joint Target, then Section 5.2 and Schedule 5.2 would apply. SCHEDULE 5.3.7 TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
Schedule 16.10 Press Release ------------- Athersys, Inc. 3-Dimensional Pharmaceuticals Media Inquiries Investor Inquiries - -------------- ----------------------------- --------------- ------------------ Kathryn Garvey Scott Horvitz Noonan/Russo Rx Communications Director of Strategic VP, Finance and Administration Glenn Silver Melody Carey Planning & Investor Relations 267-757-7208 212-696-4455, ext. 271 917-322-2571 216 431-9900 ext. 223 horvitz@3dp.com g.silver@noonanrusso.com mcarey@rxir.com ir@athersys.com --------------- ---------------------------------------------- - ---------------
FOR IMMEDIATE RELEASE- DRAFT dated October 24 ATHERSYS AND 3-DIMENSIONAL PHARMACEUTICALS FORM DRUG DISCOVERY AND DEVELOPMENT COLLABORATION - -------------------------------------------- Cleveland, Ohio and Yardley, Pa, October XX, 2001 - Athersys, Inc. and 3-Dimensional Pharmaceuticals Inc. (Nasdaq: DDDP) today announced a collaboration to discover, develop and commercialize novel, small molecule pharmaceuticals by screening against therapeutically relevant drug targets derived from the G-Protein Coupled Receptor (GPCR) family of proteins. This collaboration combines Athersys' functional genomics expertise with 3-Dimensional Pharmaceutical's (3DP) small molecule drug development capabilities for rapid drug identification and optimization of drug candidates. Under the terms of the agreement, the companies will jointly select a number of biologically validated targets having commercial or therapeutic value to be included in the collaboration. Certain small molecule drug candidates identified from the collaboration will be jointly developed, with the companies sharing future development costs and commercialization rights, while others will be retained exclusively by each of the parties for future development and commercialization. Athersys will employ its proprietary RAGE (Random Activation of Gene Expression(TM)) technology platform to provide the collaboration access to cell lines that express the selected drug targets. Athersys will use the cell lines to develop screens for drug discovery and screen compounds using 3DP's DiscoverWorks(R) platform. 3DP will employ its DiscoverWorks(R) platform to identify and optimize lead compounds active against the validated targets. 3DP's technologies can be applied to virtually any disease target, and are used to produce small molecule compounds suitable for drug development in a more timely and cost-effective manner and with a higher probability of success than conventional methods. "This collaboration combines two powerful drug discovery and development technologies, making it possible for Athersys and 3DP to rapidly discover and develop small molecule compounds against the biologically validated GPCR targets that Athersys and 3DP select for development," commented Gil Van Bokkelen, Ph.D., Chairman, President and Chief Executive Officer of Athersys. "This marks another important milestone for Athersys as we continue to expand our drug development capabilities by establishing strategic partnerships with companies that have developed highly complementary technology platforms." "We see this collaboration as a highly synergistic combination of strong biology and chemistry capabilities that will quickly achieve positive results," said David C. U'Prichard, Ph.D., Chief Executive Officer of 3DP. "Access to proprietary, validated targets for drug discovery and development is a key objective of 3DP and we are very pleased to enter into this collaboration with Athersys." 3DP (http://www.3dp.com) is an integrated bio-pharmaceuticals company dedicated to revolutionizing small molecule drug discovery and development. 3DP's proprietary platform, DiscoverWorks(R), can be applied to virtually any potential drug target. It produces drug candidates suitable for faster development, with fewer resources and a higher probability of success than using conventional drug discovery methods. 3DP is developing its own drug pipeline and collaborates with other pharmaceutical companies in discovery and development. Athersys is a functional genomics and biopharmaceutical company engaged in the development, application and commercialization of novel gene expression tools and therapeutic products. The company's research and development programs are focused on its two proprietary platform technologies: RAGE (Random Activation of Gene Expression(TM)) and SMC(TM) (Synthetic Microchromosome(TM)) vector system. RAGE is a novel gene expression system that provides the unique ability to produce protein from virtually every gene in the human genome, without requiring the cloning of individual genes or use of cDNA libraries. RAGE greatly accelerates the identification and validation of novel drug targets by enabling the direct correlation of a disease process or characteristic with expression of a specific protein. As a result, RAGE has powerful applications in functional genomics; the generation of validated drug targets; discovery of novel antibody drug targets; structural proteomics and rational drug design; and the production of protein therapeutics. Athersys is developing novel therapeutic products based on its proprietary technologies, through partnerships and internal research and development programs. This press release and further information on Athersys, Inc. can be found on the World Wide Web at: www.athersys.com. ----------------- # # # For Athersys: Statements herein that are not descriptions of historical facts are forward-looking and subject to risk and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including risks relating to the early stage of products under development; uncertainties related to patent protection; uncertainties relating to clinical trials; dependence on third parties, including strategic partners, collaborators and key personnel; and risks relating to the development and commercialization, if any, of Athersys' proposed products (such as effectiveness of our products, marketing, manufacturing, safety, regulatory, patent or product liability, supply, competition and other risks). For 3DP: Statements in this press release that are not strictly historical are "forward-looking" statements which involve a high degree of risk and uncertainty. Such statements are only predictions, and the actual events of results may differ materially from those projected in such forward-looking statements. Factors that could cause or contribute to differences include, but are not limited to, risks associated with our new and uncertain technologies, clinical trials and product development, the long and arduous process of obtaining regulatory approval, our dependence on existing strategic alliances and new collaborations, our dependence on patents and proprietary rights, our ability to protect and enforce our patents and proprietary rights, the development and availability of competitive products or technologies, our ability to attract and retain talented employees and our ability to manage our expansion as a company increasingly focused on internal product research and development. EX-10.47 4 dex1047.txt DISCOVERWORKS DRUG DISCOVERY COLLABORATION AGREEMENT EXHIBIT 10.47 CONFIDENTIAL NOTE: Certain portions of this Collaboration Agreement and its exhibits, which are identified by the symbol "[* *]", have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. DISCOVERWORKS(R) DRUG DISCOVERY COLLABORATION AGREEMENT THIS DISCOVERWORKS(R) DRUG DISCOVERY COLLABORATION AGREEMENT is made as of the Effective Date by and between 3-Dimensional Pharmaceuticals, Inc., a Delaware corporation having its principal place of business at Three Lower Makefield Corporate Center, 1020 Stony Hill Road, Suite 300, Yardley, PA 19067, USA ("3DP"), and Janssen Pharmaceutica, N.V., having its place of business at Turnhoutseweg 30, 2340 Beerse, Belgium and The R.W. Johnson Pharmaceutical Research Institute, a division of Ortho-McNeil Pharmaceutical, Inc. having a place of business at U.S. Route 202, Raritan, NJ 08869, USA (collectively, with its Affiliates, referred to herein as "Janssen"). 3DP and Janssen may be referred to herein as a "Party" or, collectively, as the "Parties." Reference to a Party herein shall include its Affiliates (as hereinafter defined) unless otherwise indicated. WHEREAS, 3DP is engaged in discovery research for a variety of biologically-active compounds and the development of technologies to facilitate such research, and 3DP has developed and is patenting systems for identifying and generating chemical compounds having desired pharmaceutical properties; WHEREAS, Janssen is engaged in research, development and commercialization of biologically-active compounds for the treatment of human diseases; and WHEREAS, 3DP and Janssen desire to enter into a research collaboration to allow Janssen and 3DP to identify Prototype Compounds (as defined herein) active against selected targets that may be developed and commercialized by Janssen. NOW, THEREFORE, in consideration of the mutual promises and undertakings set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE 1 DEFINITIONS The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, shall have the meaning set forth below or, if not listed below, the meaning designated in places throughout this Agreement. 1.1 "Active Compound" means a compound(s) claimed by a Valid Claim of a 3DP Patent, Joint Patent or Research Program Patent Right. 1.2 "Affiliate" means, with respect to either Party, any corporation or other business entity, which controls, is controlled by, or is under common control with such Party. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls at least fifty percent (50%) of the voting stock or other ownership interest of the other corporation or entity (or alternatively, such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction), or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint at least fifty percent (50%) of the members of the governing body of the corporation or other entity. 1.3 "Agreement" means this DiscoverWorks(R) Drug Discovery Collaboration Agreement, including its Schedules, as may be amended from time to time. 1.4 "Back-up Compound" means a compound selected from the Focused Library which has activity against a Target, that is reserved as a back-up for an Active Compound or Licensed Product having activity against the same Target, and is not intended to be developed or commercialized unless development and/or commercialization of such Active Compound or Licensed Product is terminated and such compound becomes a Replacement Compound. 1.5 "Combination Product" means a Licensed Product that includes one or more active ingredients in addition to an Active Compound. 1.6 "Confidential Information" means all confidential and proprietary technical and/or commercial information that has or could have value or utility in a Party's business, or the unauthorized disclosure of which could be detrimental to the Party's interests, including information, inventions, Know-how, data and materials relating to the Research Program or to the Licensed Products, and shall include, without limitation, research, technical, clinical development, manufacturing, marketing, financial, personnel and other business information and plans, whether in oral, written, graphic or electronic form, except to the extent that it can be established by the Receiving Party (as defined in Section 7.1) that such Confidential Information: (a) was already known to the Receiving Party, other than under an obligation of confidentiality from the Disclosing Party (as defined in Section 7.1); (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party; (c) 2 became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the Receiving Party in breach of this Agreement; (d) was subsequently lawfully disclosed to the Receiving Party by a Third Party; (e) can be shown by written records to have been independently developed by or for the Receiving Party without reference to the Confidential Information received from the Disclosing Party and without breach of any of the provisions of this Agreement; or (f) is information that the Disclosing Party has specifically agreed in writing that the Receiving Party may disclose. 1.7 "Control" or "Controlled" means possession of the ability to grant a license or sublicense of Patents, know-how or other intangible rights as provided for herein without violating the terms of any contract or other arrangements with any Third Party. 1.8 "DirectedDiversity(R)Technology" means the technology described in: (a) the 3DP Patents identified in Schedule 1.8, ------------ and (b) associated proprietary 3DP know-how used to identify Hits, Prototype Compounds, and Active Compounds. 1.9 "DiscoverWorks(R) Technology" means 3DP's full panoply of drug discovery and compound and library synthesis technologies, including without limitation the technologies currently known as DirectedDiversity(R) Technology, ThermoFluor(R) Technology, 3DP Synthetically Accessible Libraries and 3DP Probe Libraries, notwithstanding that all such technologies and resources may not be utilized under this Agreement. 1.10 "Effective Date" means December 28, 2001. 1.11 "Extended Research Term" means a period of time, mutually agreed upon by the Parties, following conclusion of the Stage A Term or Stage B Term or of an earlier Extended Research Term, during which the Research Program is conducted. An Extended Research Term may apply to either or both the Stage A Term and the Stage B Term and is part of the Research Term. 1.12 "Field" means the research, development and commercialization of compounds for use in therapeutic, prophylactic and diagnostic products in humans or animals. The Field shall specifically exclude [* *]. 1.13 "First Commercial Sale" means, with respect to a given Licensed Product, the first shipment of Licensed Product for use or consumption by the public of such Licensed Product in a country after all required approvals, including marketing and pricing approvals, have been granted by the applicable governmental drug regulatory agency of such country. 3 1.14 "Focused Library" means a library of compounds selected from the 3DP Synthetically Accessible Library using DirectedDiversity(R)Technology and synthesized by 3DP. 1.15 "FTE" means a full time equivalent employee (i.e., one full-time or multiple part-time employees aggregating to one full-time employee) employed by 3DP and assigned to work on the Research Program with such time and effort to constitute one employee working on the Research Program on a full-time basis consistent with normal business and scientific practice (at least forty (40) hours per week of dedicated effort; on an annual basis, at least forty (40) hours per week of dedicated effort for at least forty-eight (48) weeks per year). 1.16 "Generic Equivalent" means a pharmaceutical product that is being sold in a country without infringing a claim of a Patent Right covering a Licensed Product being sold hereunder by Janssen, which would have infringed such claim of a Patent Right, or which would have prevented a Third Party from selling the same Active Compound that is part of the Licensed Product, if such claim of a Patent Right were in force in that country. 1.17 "Hit" means a compound in the 3DP Probe Library having a confirmed structure that (i) is identified from the screening of a Target; (ii) modulates [* *], as measured using ThermoFluor(R) Technology, and (iii) passes the ThermoFluor(R) validation tests set forth on Schedule 1.17. 1.18 "IND" means an investigational new drug application filed with the U.S. Food and Drug Administration or successor agency ("FDA") as more fully defined in 21 C.F.R.ss.312.3, a CTX, or their respective equivalents in any country. 1.19 "Initiation of Prototype Compound Optimization" means the receipt of written notice from Janssen to 3DP indicating that Prototype Compound Optimization activities have been initiated by Janssen for a Prototype Compound. Such notice shall, among other things, specifically identify the Prototype Compound and its Target, the project champion, and the site at which work is being conducted. 1.20 "Janssen Know-how" means any and all technical information, inventions, developments, discoveries, software, know-how, methods, techniques, formulae, data, processes and other proprietary ideas, whether or not patentable or copyrightable, that are first conceived, discovered, developed or reduced to practice in the conduct of Prototype Compound Optimization or the Janssen Research Program. 1.21 "Janssen Patent" means those Patent Rights that claim discoveries or inventions that (i) were conceived and/or reduced to practice solely by Janssen employees or by a Third Party acting under authority of Janssen prior to the Effective Date; or (ii) were conceived and/or reduced to practice solely by Janssen employees or by 4 a Third Party acting under authority of Janssen during the Term but after the completion of the Research Program and the [* *] period following the Initiation of Prototype Compound Optimization for each Prototype Compound, on a compound-by-compound basis; and (iii) claiming a method, apparatus, composition of matter, material, manufacture or business method relating to Hits, Prototype Compounds, Active Compound or Licensed Products. 1.22 "Janssen Research Program" means activities of Janssen during the Term that are intended to lead to the discovery of compounds having activity against a Target, and the further optimization, identification and/or discovery of such compounds, excluding any activities of Janssen which occur prior to the Effective Date or after the [* *] period following the Initiation of Prototype Compound Optimization for each Prototype Compound, on a compound-by-compound basis. 1.23 "Joint Patent" means those Patent Rights that claim discoveries or inventions that (i) were conceived and/or reduced to practice jointly by Janssen and 3DP employees or by a Third Party acting under authority of Janssen or 3DP during the Term but after completion of the Research Program and the [* *] period following the Initiation of Prototype Compound Optimization for each Prototype Compound, on a compound-by-compound basis; and (ii) claiming a method, apparatus, composition of matter, material, manufacture or business method relating to Hits, Prototype Compounds, Active Compound or Licensed Products. 1.24 "Joint Steering and Management Committee" or "JSMC" shall have the meaning and roles ascribed to it in Article 4. 1.25 "Know-how" means unpatented technical and other information, including information comprising or relating to concepts, discoveries, inventions, data, designs, formulae, ideas, methods, models, assays, research plans, procedures, designs for experiments and tests and results of experimentation and testing (including results of research or development) processes (including manufacturing processes, specifications and techniques), laboratory records, chemical, pharmacological, toxicological, clinical, analytical and quality control data, trial data, case report forms, data analyses, reports or summaries and information contained in submissions to, and information from, ethical committees and regulatory authorities. 1.26 "Licensed Product" means a pharmaceutical product containing an Active Compound, a Prototype Compound, a Replacement Compound or a Back-Up Compound as an active ingredient. 5 1.27 "Major Country" means the United States, Japan, the United Kingdom, France, Germany, or Italy. 1.28 "NDA" means a new drug application filed pursuant to 21 U.S.C. Section 505(b)(1) including all documents, data and other information concerning a Licensed Product which are necessary for or included in, FDA approval to market a Licensed Product and all supplements and amendments, including supplemental new drug applications, that may be filed with respect to the foregoing as more fully defined in 21 C.F.R. ss.314.50 et. seq. 1.29 "Net Sales" means the gross amounts invoiced by Janssen, its Affiliates or sublicensees for sales of Licensed Product in finished package form (ready for use by the ultimate consumer) in the Territory to a Third Party, including, but not limited to, sales to wholesalers or other customers typical in each country in bona fide, arm's length transactions. In the event Janssen does not sell directly to such customers in one or more countries, electing instead to utilize another party as a distributor to those customers, it is understood that Net Sales shall include sales by the distributor rather than Janssen's sales to the distributor. In determining Net Sales, certain deductions may be taken against the gross amount invoiced. These allowable deductions are: 1.29.1 (i) discounts, including cash discounts, discounts to managed care or similar organizations or government organizations, administrative fees paid to pharmacy benefits managers; (ii) rebates paid or credited, including government rebates such as Medicaid chargebacks or rebates; (iii) retroactive price reductions or allowances actually allowed or granted from the billed amount; and (iv) commercially reasonably promotional allowances actually granted to customers as reflected on the same invoice as for the sale of Licensed Product; 1.29.2 credits or allowances actually granted upon claims, rejections or returns of such sales of Licensed Products, including government mandated recalls and recalls that Janssen reasonably believes are in the best interest of the consumer, it being understood that if the recalled Licensed Product is resupplied, Net Sales shall be calculated based on the resupplied quantities at the price previously charged, provided that the cause of the recall was not due to the negligence of Janssen; 1.29.3 taxes, duties or other governmental charges levied on or measured by the billing amount when included in billing, as adjusted for rebates, charge-backs and refunds; and 1.29.4 freight, postage, shipping and insurance charges to the extent included on the same invoice by Janssen or its Affiliates or sublicensee for delivery of such Licensed Products. 6 In the case of discounts on packages of products or services which include Licensed Product in those countries of the Territory in which such is legally permissible ("Packages"), the discount applied to Licensed Product within the Package shall be no greater than the discount determined by discounting the list price of the Licensed Product in the Package by the average percentage discount of list prices of all products of Janssen in the same Package, calculated as follows: Average percentage ( A ) Discount on a = ( 1- --- ) x 100 Particular Package ( B ) where A equals the total discounted value of a particular Package of products, and B equals the sum of the undiscounted value of the same Package of products. Janssen shall provide 3DP with reasonable documentation supporting the percentage discounts with respect to each product within such Package. A "sale" of a Licensed Product is deemed to occur upon the invoicing, or if no invoice is issued, upon the earlier of shipment or transfer of title in the Licensed Product to a Third Party. With respect to Combination Products, Net Sales for such Combination Product sold by Janssen shall be determined by the Parties to this Agreement in good faith based on the relative value of the Active Compound and the additional active ingredients that are included in the Combination Product. 1.30 "Patent Rights" means all U. S. patent applications or issued patents, including, but not limited to, provisionals, divisionals, continuations, continuations-in-part, reissues, reexaminations and extensions derived therefrom, such as patent term restorations, supplementary protection certificates, etc., as well as all foreign patents (including PCTs) and foreign patent counterparts to the foregoing. 1.31 "Prototype Compound" means a compound discovered using information obtained from a Hit in the course of Prototype Compound Generation, as described in Section 2.2, having a dissociation constant [* *] as determined in a dose response experiment and which demonstrates a desired activity against a Target in a molecular or cellular functional assay. Prototype Compounds will have pharmaceutically acceptable properties as determined by the JSMC prior to initiation of Prototype Compound Generation and [* *]. Prototype Compounds will be identified as Prototype Compounds by the JSMC within [* *] of delivery of data [* *]. For purposes of clarity, the Janssen may, at its discretion, select a compound as a Prototype Compound even if such compound does not meet the criteria set forth above. 7 1.32 "Prototype Compound Generation" means a program for discovering Prototype Compounds using information obtained from Hits, and iterative rounds of chemistry and the 3DP Synthetically Accessible Library to make Focused Libraries for rescreening using ThermoFluor(R) Technology against such Target as more fully described in Section 2.2. 1.33 "Prototype Compound Optimization" means a program conducted by Janssen for further optimizing, identifying and/or developing a Prototype Compound or a compound discovered in the course of the Janssen Research Program, to improve the structure-activity relationships, potency, selectivity, pharmacokinetics, pharmacodynamics and acute safety of such Prototype Compound or such compound discovered in the course of the Janssen Research Program, to identify an Active Compound. 1.34 "Replacement Compound" shall have the meaning attributed thereto in Section 5.8. 1.35 "Replacement Target" shall have the meaning attributed thereto in Section 2.3. 1.36 "Research Plan" means the description of the research activities of the Parties for particular Targets in the performance of the Research Program, including an allocation of FTEs to be used for various tasks and a timeline for such tasks. A draft of the Research Plan is attached hereto as Schedule 1.36. ------------- 1.37 "Research Program" means research activities of the Parties during the Research Term, as described in Article 2, that are intended to lead to the discovery of Hits and Prototype Compounds, excluding Prototype Compound Optimization. 1.38 "Research Program Know-how" means Know-how conceived or developed during the conduct of the Research Program. 1.39 "Research Program Patent Rights" means those Patent Rights that claim discoveries or inventions that were conceived and/or reduced to practice by Janssen or 3DP or jointly by Janssen and 3DP or by a Third Party acting under authority of Janssen or 3DP in the course of the Research Program or a Janssen Research Program and during the [* *] period following the Initiation of Prototype Compound Optimization for each Prototype Compound on a compound-by-compound basis and relating to the Research Program or Janssen Research Program. 1.40 "Research Term" shall have the meaning attributed thereto in Section 10.1. 1.41 "Stage A" means the research activities undertaken by the Parties pursuant to Article 2 as part of the Research Program with respect to the first and second Targets to be provided by Janssen to 3DP. 8 1.42 "Stage A Commencement Date" means the Effective Date. 1.43 "Stage A Term" means the period beginning on the Stage A Commencement Date through the first anniversary thereof, during which Stage A of the Research Program is conducted. 1.44 "Stage B" means the research activities undertaken by the Parties pursuant to Article 2 as part of the Research Program with respect to the third and fourth Targets to be provided by Janssen to 3DP. 1.45 "Stage B Commencement Date" means the date on which Janssen provides written notice of the third and fourth Targets to 3DP. 1.46 "Stage B Term" means the period beginning on the Stage B Commencement Date through the first anniversary thereof, during which Stage B of the Research Program is conducted. 1.47 "Target" means a protein against which Hits are identified and Prototype Compounds are to be optimized in the Research Program. Targets, as defined herein, shall also include Replacement Targets once such targets become Targets pursuant to Section 2.3. 1.48 "Term" shall have the meaning ascribed thereto in Section 10.2. 1.49 "Territory" means the entire world. 1.50 "ThermoFluor(R) Technology" means the technology described in: (a) the 3DP Patents identified in Schedule 1.50, and (b) ------------- associated proprietary 3DP Know-how used to evaluate ligand binding parameters of Hits, Prototype Compounds, and Active Compounds. 1.51 "Third Party" means an individual, corporation or other entity other than a Party or any of its Affiliates. 1.52 "3DP Patent" means those Patent Rights that claim discoveries or inventions that (i) were conceived and/or reduced to practice solely by 3DP employees or by a Third Party acting under authority of 3DP prior to the Effective Date; or (ii) were conceived and/or reduced to practice solely by 3DP employees or by a Third Party acting under authority of 3DP during the Term, but after completion of the Research Program and the [* *] period following the Initiation of Prototype Compound Optimization for each Prototype Compound, on a compound-by-compound basis; and (iii) claiming a method, apparatus, composition of matter, material, manufacture or business method relating to Hits, Prototype Compounds, Active Compound or Licensed Products. 9 1.53 "3DP Probe Library" means the sample compound library or any subset thereof, comprised of proprietary and non-proprietary compounds which are owned or Controlled by 3DP or to the extent not encumbered by a bona fide third party interest, that have been synthesized for the purposes of fulfilling 3DP's obligations under this Agreement, which is used for the screening of Targets using ThermoFluor(R) Technology for the purpose of identification of Hits, Prototype Compounds, or Active Compounds. While the individual non-proprietary compounds in the 3DP Probe Library are not proprietary, the collection itself, and the list, as a whole, of non-proprietary compounds included in the collection, are the "Confidential Information" of 3DP. 1.54 "3DP Synthetically Accessible Library" means 3DP's virtual compound library as it exists from time to time from which 3DP Probe Libraries have been selected, and from which Focused Libraries will be selected. 1.55 "Valid Claim" means (a) a claim of an issued and unexpired patent included within the Patent Rights, which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, or (b) a claim of a pending patent application included within the Patent Rights, which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of such application; provided, however, if a claim of a pending application included within the Patent Rights has not issued within six (6) years after the filing date from which such claim takes priority, such claim of a pending application shall no longer be a Valid Claim for purposes of this definition until such patent application issues. ARTICLE 2 RESEARCH PROGRAM 2.1 Supply of Targets. Janssen shall supply 3DP with four (4) Targets, the first and second of which are identified in Schedule 2.1 attached hereto, in quantities and of quality ------------ sufficient to perform the Research Program pursuant to the Research Plan. The third and fourth Targets shall be provided to 3DP by Janssen no later than [* *], or as otherwise agreed by the Parties. All such Targets shall be supplied to 3DP in the form of proteins. 2.2 Prototype Compound Generation. Depending on the nature and source of each Target, 3DP will have the following obligations. 3DP shall initially screen the Target against a screening library, selected by 3DP from the 3DP Probe Library and totaling approximately one hundred thousand (100,000) compounds per Target. If such initial screening produces no Hits, the JSMC may ask 3DP to 10 perform a secondary screen of a reasonable number of additional compounds from the 3DP Probe Library and 3DP will undertake such secondary screen. If the initial screening or the secondary screening produces Hits, 3DP will undertake rounds of iterative chemistry. Each round will include the synthesis of Focused Libraries containing up to [* *] but not less than [* *] compounds (unless such compounds are subject to the limitations set forth in Schedule 2.2 or such other ------------ maximum and minimum compound numbers as the Parties may agree upon) per round. 3DP shall continue to perform iterative rounds of chemistry until the first to occur of the following: 2.2.1 a Prototype Compound is identified in accordance with Section 1.28; or 2.2.2 a maximum of [* *] total rounds of iterative chemistry are performed to generate Focused Libraries from the 3DP Synthetically Accessible Library; or 2.2.3 a maximum of [* *] compounds contained in Focused Libraries are synthesized and screened using DiscoverWorks(R) Technology from the 3DP Synthetically Accessible Library. 2.3 Replacement Targets. 2.3.1 If neither initial screening nor the secondary screening of the compounds from the 3DP Probe Library produces any Hits against that Target, then Janssen may identify, subject to approval by 3DP and the JSMC, a replacement Target ("Replacement Target") against which 3DP will conduct Prototype Compound Generation pursuant to Section 2.2 for the remainder of the applicable Stage A Term or Stage B Term. 2.3.2 If Prototype Compound Generation of such Replacement Target is incomplete at the end of the applicable Stage A Term or Stage B Term, then at Janssen's request, 3DP will continue and complete the Prototype Compound Generation pursuant to Section 2.2 for such Replacement Target at the same FTE rate of compensation paid to 3DP as recited in Section 5.2. 2.3.3 Janssen may select a total of up to [* *] Replacement Targets pursuant to the provisions of this Section 2.3. 2.3.4 Any Replacement Targets identified by Janssen may be disapproved by 3DP only (i) in order to avoid potential conflicts with respect to prior contractual obligations and current internal 3DP programs, (ii) for lack of suitability with ThermoFluor(R) Technology, (iii) because 3DP reasonably believes that use of such Replacement Target would infringe a valid and enforceable third party patent, or (iv) because the Target is for the primary 11 purpose of identifying drugs specifically intended for [* *]. 2.4 Prototype Compounds. Upon identification of a Prototype Compound in accordance with Section 1.28, (a) the Prototype Compound, along with all Back-Up Compounds shall be licensed to Janssen for Prototype Compound Optimization and further development and commercialization as provided in Section 6.4 herein and (b) 3DP shall provide Janssen with the structure and protocol for synthesis of such Prototype Compound within [* *] of the JSMC identifying it as a Prototype Compound. Janssen shall promptly inform 3DP upon Initiation of Prototype Compound Optimization. 2.5 Back-up Compounds. On a Target-by-Target basis, upon identification of a Prototype Compound, all the Compounds in the Focused Libraries having activity against such Target equivalent or better than the activity needed to be considered a Hit against that Target shall constitute Back-Up Compounds. On the first anniversary of initiation of Prototype Compound Optimization for a Prototype Compound that has activity against a Target, Janssen shall identify a total of up to [* *] compounds from the Focused Libraries having activity against the same Target to be designated as Back-up Compounds. On the second anniversary of initiation of Prototype Compound Optimization for such Prototype Compound, Janssen shall identify a total of up to [* *] compounds from the [* *] compounds previously identified and having activity against the same Target to be designated Back-up Compounds. If a Back-up Compound is selected for development as a Replacement Compound, the [* *] period following the initiation of Prototype Compound Optimization for each Prototype Compound on a compound-by-compound basis during which Janssen Know-how shall be disclosed by Janssen to 3DP for 3DP to prepare, file, prosecute and maintain Research Program Patent Rights pursuant to Article 8, will be deemed to have restarted on the date of notification of such selection. 2.6 No Grant of License to DiscoverWorks(R) Technology. Notwithstanding any provision to the contrary in this Agreement, no license to any portion of the DiscoverWorks(R) Technology, including any related Know-how, is hereby granted by 3DP to Janssen under this Agreement or otherwise. ARTICLE 3 RESEARCH AND DEVELOPMENT EFFORTS 3.1 Research Efforts. Each Party shall use commercially reasonable efforts to perform its responsibilities and fulfill its obligations under this Agreement. As used herein, the term "commercially reasonable efforts" will mean efforts 12 consistent with such Party's normal scientific and business practice, as applied to other programs of similar scientific and commercial potential. 3.2 Allocation of FTEs. 3DP shall dedicate, and Janssen shall fund, [* *] FTEs to Stage A of the Research Program for the Stage A Term and [* *] FTEs to Stage B of the Research Program for the Stage B Term, unless otherwise agreed by the Parties in writing. 3.3 Disclosure of Research Program Results. The JSMC will provide quarterly written reports to the Parties presenting a meaningful summary of the work performed on the Research Program and Prototype Compound Optimization. In addition, on reasonable request by Janssen or 3DP, 3DP or Janssen will make presentations to the JSMC of its activities under this Agreement to inform the JSMC of the details of the work done under this Agreement during the Research Term and the [* *] period following the Initiation of Prototype Compound Optimization for each Prototype Compound, on a compound-by-compound basis. Know-how and other information regarding the Research Program or Prototype Compound Optimization disclosed by one Party to the other Party pursuant hereto may be used only in accordance with the rights granted under this Agreement. Within thirty (30) days following the end of each calendar quarter, the Parties shall each exchange and provide to the JSMC chairperson and secretary a written report summarizing in reasonable detail the work performed by it under the Research Program or Prototype Compound Optimization during the preceding calendar quarter. 3.4 Prototype Compound Optimization Continuing Report Responsibility. For each compound identified as a Prototype Compound or Active Compound, Janssen shall, until the issuance of the last Research Program Patent Right, provide a report of its activities, and/or those of its Affiliates and sublicensees, toward the development, use and/or commercialization of such Prototype Compound or Active Compound. Such report relating to Prototype Compound Optimization shall be submitted to 3DP semi-annually and shall set forth in reasonable detail, with supporting data, the results of work performed on such compound, including, without limitation, all material information and data generated during such period not previously provided to 3DP pursuant to Section 8.3, reasonably necessary to enable 3DP to prepare, file, prosecute and maintain Research Program Patent Rights. If no results of work performed on such compound have been obtained by Janssen during the six-month period after the preceding semi-annual report, Janssen will so inform 3DP. In no event shall Janssen provide such a report relating to Prototype Compound Optimization less frequently than semi-annually. After achievement of the milestone in Section 5.7.2 for an Active Compound, Janssen will thereafter provide to 3DP reports relating to such Active Compound annually. Janssen will provide timely notice, in good faith, of its decision to discontinue its and/or its Affiliates' and 13 sublicensees' activities toward the development, use and/or commercialization of a Prototype Compound, Active Compound and/or Licensed Product. 3.5 Material Transfer. In order to facilitate the Research Program, either Party (a "Supplying Party") may provide to the other Party (a "Receiving Party") certain information (including chemical structures), biological materials or chemical compounds, including without limitation any compounds from the 3DP Synthetically Accessible Library, 3DP Probe Library or Focused Library (collectively, the "Substances") owned by or licensed to the Supplying Party (other than under this Agreement) and available for use by either Party in furtherance of the Research Program. Except as otherwise provided under this Agreement, all information or Substances delivered to the Receiving Party shall remain the sole property of the Supplying Party, shall be used only in furtherance of the Research Program and shall be solely under the control of the Receiving Party, shall not be used or delivered to or for the benefit of any Third Party without the prior written consent of the Supplying Party, and shall not be used in research or testing involving human subjects except pursuant to an approved Janssen clinical trial. Because not all of their characteristics may be known, the Substances supplied under this Section 3.6 must be used with prudence and appropriate caution in any experimental work. THE SUBSTANCES ARE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE SUBSTANCES WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY. 3.6 Insurance. Each party shall maintain appropriate insurance with respect to its activities hereunder, in amounts customary in the pharmaceutical and biotechnology industries. 3.7 Liability. Each Party shall be responsible for, and hereby assumes, any and all risks of personal injury or property damage attributable to the gross negligent or willful acts or omissions, during the term of the Research Program, of that Party or its Affiliates, and their respective directors, officers, employees and agents. ARTICLE 4 RESEARCH PROGRAM GOVERNANCE 4.1 Joint Steering and Management Committee. 3DP and Janssen agree to establish a Joint Steering and Management Committee (the "JSMC"), and shall each designate three members selected by their respective R&D management to form the JSMC. The chairperson of the JSMC shall be selected by Janssen. 3DP 14 shall select the secretary to the JSMC. Each Party may replace its representatives at any time, upon notice to the other Party. Any member of the JSMC may designate a substitute to attend and perform the functions of that member at any meeting of the JSMC. The JSMC shall review the Research Plan for the Stage A Term within 30 days after the Effective Date. Thereafter, the Research Plan shall be updated by the JSMC in writing as changes are made to the Research Program on at least an annual basis. 4.2 Responsibilities of the JSMC. The JSMC shall be responsible for: 4.2.1 Adopting, reviewing and amending the Research Plan to implement the Research Program; 4.2.2 Overseeing the progress of research in the Research Program; 4.2.3 Monitoring Prototype Compound Optimization and the Janssen Research Program and providing a forum for meetings and updates relating to Prototype Compound Optimization and the Janssen Research Program until the issuance of the last Research Program Patent Right; 4.2.4 Allocation of funded FTEs across the Targets, and within each Target; 4.2.5 Reviewing results from the screening of the 3DP Probe Library and Focused Libraries in connection with selecting the additional compounds from the 3DP Probe Library to be screened by 3DP or synthesized by 3DP, and the identification of Hits and Prototype Compounds; 4.2.6 Defining quality criteria for identification of Hits and Prototype Compounds pursuant to Sections 1.29 and 1.16; such criteria to be defined within sixty (60) days after the Effective Date; and 4.2.7 Reviewing and approving publications and other public disclosures related to the subject matter of the Research Program. 4.3 JSMC Meetings. During the Research Term, the JSMC shall meet in person or by teleconference on a calendar quarter basis (provided that at least one meeting per year shall be in person) or more frequently as necessary and as may be agreed upon, with each Party bearing all travel and related costs for its representatives. After the end of the Research Term, but during the [* *] period following the initiation of Prototype Compound Optimization for each Prototype Compound, on a compound-by-compound basis, the JSMC shall meet in person or by teleconference at least semi-annually. Thereafter, the JSMC shall meet on an ad hoc basis as needed to perform the responsibilities designated to the JSMC. In addition to periodic meetings, the members of the JSMC shall communicate regularly by telephone, electronic mail, facsimile, or other method, as deemed necessary or appropriate. 15 4.4 JSMC Decision-Making Process. Each Party shall have one vote on all matters decided by the JSMC, and decisions by the JSMC shall be made by unanimous vote of the parties. The Parties shall attempt to resolve any disagreement between the Parties within the JSMC using the objectives and principles of this Agreement as the basis for settling such disputes. Any disagreement that cannot be resolved by a vote of the JSMC shall be subject to the procedures set forth in Article 13. 4.5 Minutes of JSMC Meetings. Within two (2) weeks after each JSMC meeting, the secretary of the JSMC shall prepare and distribute minutes of the meeting, which shall provide a description in reasonable detail of the discussions had at the meeting and a list of any actions, decisions or determinations approved by the JSMC. The JSMC secretary shall be responsible for circulation of all draft and final minutes. Draft minutes shall be first circulated to the chairperson, edited by the chairperson and then circulated in final draft form to all members of the JSMC sufficiently in advance of the next meeting to allow adequate review and comment prior to the meeting. Minutes shall be approved or disapproved, and revised as necessary, at the next meeting of the JSMC. Final minutes shall be distributed to the members of the JSMC. 4.6 Management of Matters Outside the Jurisdiction of the JSMC. Matters outside the scope of the Research Program and internal to each Party are not under the purview of the JSMC. Such matters include, but are not limited to the following: internal personnel policies and programs; budgeting, finance, commercial and marketing strategies; Prototype Compound Optimization; and development and commercialization decisions. However, the Parties may, at their sole discretion, communicate with each other on those matters which, while outside the scope of the Research Program, influence the conduct or term of the Research Program or the development or commercialization of any Hit, Prototype Compound, or Active Compound. ARTICLE 5 FINANCIAL TERMS 5.1 Technology Access Fee. Janssen agrees to pay a nonrefundable technology access fee of [* *] within thirty (30) days after the Effective Date. 5.2 FTE Reimbursement Fees. 5.2.1 Janssen agrees to pay 3DP for [* *] Stage A FTEs at a rate of [* *] per FTE per year. Such funding shall be payable by Janssen to 3DP in a single nonrefundable payment of [* *] by same day wire transfer and shall be paid concurrently with the Technology Access Fee. 16 5.2.2 Janssen agrees to pay 3DP for [* *] Stage B FTEs [* *] per FTE per year. Such funding shall be payable by Janssen to 3DP in a single nonrefundable payment of [* *] by same day wire transfer and shall be paid concurrently with the Technology Access Fee. 5.3 Costs. Except as otherwise provided in this Agreement, or as may be agreed from time to time by the Parties in writing, 3DP and Janssen will each bear all of its own expenses incurred in connection with the Research Program including but not limited to any capital expenses for equipment to carry out the Research Program. 5.4 Extended Term Fees. The level of reimbursement for FTEs in any Extended Research Term shall be negotiated in good faith by the Parties. 5.5 Research Audit. 3DP shall maintain complete and accurate records tracking the number of FTEs carrying out the Research Program. During the Research Term and for one year thereafter, upon Janssen's reasonable request, 3DP shall make such records available no more than twice a year during normal business hours for examination at Janssen 's expense for the sole purpose of verifying for Janssen whether or not 3DP is using the average required number of FTEs to carry out the Research Program as specified in the Research Plan. Should it be determined that 3DP has used fewer than the required FTEs during any period of the Research Term, Janssen shall receive a credit for the lost FTE time against any future payments owed to 3DP (or if the Parties mutually agree, the lost FTE time will be made up in subsequent quarters); or if no future payments will be owed by Janssen to 3DP, a payment shall be made by 3DP to Janssen for the lost FTE time. 5.6 Fees for Early Termination of the Research Program. If Janssen terminates the Research Program without cause, pursuant to the provisions of Section 10.3, prior to the end of the Research Term, Janssen agrees to pay to 3DP a termination fee equal to [* *]. 5.7 Milestone Payments. The following milestones shall become due and payable by Janssen to 3DP within sixty (60) days after accomplishment of the following milestones: 5.7.1 Upon the identification by the JSMC of the first Prototype Compound for each Target: [* *]; 5.7.2 Upon submission of an IND and expiration of the thirty (30) day waiting period without disapproval by the FDA or its foreign counterpart for each Active Compound: [* *]; and 17 5.7.3 Upon filing and acceptance by the FDA of an NDA for each Active Compound: [* *]. 5.8 Milestone Payment Credit. In the event that any milestone payment is made pursuant to Section 5.7 with respect to a Prototype Compound or Active Compound selected for development (an "Original Compound"), where, after the payment of any such milestones, such development terminates and, at any time after such termination, a Back-up Compound is selected for development (a "Replacement Compound"), then Janssen shall be entitled to a credit against milestone payments due with respect to the Replacement Compound, in the amount equal to all milestone payments actually paid with respect to the Original Compound prior to termination of development of such Original Compound. 5.9 Milestone Press Release. Within ten (10) days of the achievement of the milestone(s) set forth in Section 5.7, 3DP shall, at its discretion and subject to Janssen's prior written approval (such approval not to be unreasonably withheld or delayed) issue a press release announcing, by way of example, the achievement of a milestone, the identification of a Prototype Compound (excluding any structural information), and such other information as mutually agreed by the Parties. 5.10 Royalty Rate. Janssen shall pay 3DP a royalty of [* *] on annual Net Sales. 5.11 Royalty Rate Reduction. 5.11.1 Generic Equivalent. If, in any quarterly royalty reporting period, (i) a third Party commences selling a product which is a Generic Equivalent of the Licensed Product in a country in the Territory and (ii) such Unlicensed Unit Sales (as defined below) amount to the following percentages of Janssen's Unit Sales of the Licensed Product in such country in the same royalty reporting period, the royalty rate on Net Sales shall be reduced in such country in accordance with the percentages below and such lower royalty rate shall then apply on the Net Sales in such country as long as the Unlicensed Unit Sales amount to the particular percentage of Janssen's Unit Sales of the Licensed Product in such country in the same royalty reporting period. Unlicensed Unit Sales Royalty Rate Reduction* (as a % of Janssen Unit Sales) (% of Royalty Rate) ------------------------------ ------------------- [* *] [* *] [* *] [* *] 18 [* *] [* *] * A royalty rate reduction will, however, only be applicable if Janssen also experiences a decrease in Net Sales of the applicable Licensed Product in that country from the Net Sales of the applicable Licensed Product in the same royalty reporting period in the previous calendar year in the same country. For purposes of this Section 5.11.1, (i) "Unlicensed Unit Sales" and "Janssen Unit Sales" shall be deemed to mean the total grams of the Active Compound contained in the Third Party product (irrespective of dosage form) and the Licensed Product (irrespective of dosage form), respectively, as reflected on the label of each such Licensed Product and Third Party product; and (ii) Unlicensed Unit Sales shall be determined by the sales reports of IMS America Ltd. of Plymouth Meeting, Pennsylvania ("IMS") or any successor to IMS or any other independent sales auditing firm selected by Janssen and reasonably acceptable to 3DP. Janssen shall bear all costs of providing 3DP with such information. If Janssen is entitled to a royalty reduction based on Unlicensed Unit Sales pursuant to this Section 5.11.1 for any royalty reporting period, Janssen shall submit the sales report of IMS or such other independent firm, as applicable, for the relevant royalty reporting period to 3DP, together with Janssen 's or its Affiliates' or sublicensees' sales report for the relevant royalty reporting period. Such sales reports for each royalty reporting period in which Janssen is entitled to such royalty reduction shall be submitted with the royalty report for such royalty reporting period submitted pursuant to Section 5.15. 5.11.2 Third Party Patents. If Patent Rights of a Third Party should exist in any country during the Term which are required to manufacture, use sell the Licensed Product, and if it should prove in Janssen's reasonable judgment (as supported by an opinion from outside patent counsel which counsel is acceptable to both Parties) impractical or impossible for Janssen, its Affiliates or its sublicensee to continue the activity or activities licensed hereunder without obtaining a royalty bearing license from such Third Party under such Patent Rights in said country, then Janssen shall be entitled to a credit against the royalty payments due hereunder of an amount equal to the royalty paid to such Third Party, not to exceed [* *] of the royalty rate due under this Agreement, arising from the manufacture, use or sale of the Licensed Product in said country. 5.11.3 Compulsory License. If at any time and from time to time a Third Party in any country shall, under the right of a compulsory license granted or ordered to be granted by a competent governmental authority, 19 manufacture, use or sell any Licensed Product, with respect to which royalties would be payable pursuant to Section 5.10 hereof, then Janssen may reduce the royalty on sales in such country of such Licensed Product according to the rates specified in Section 5.11.1. 5.12 Royalty Period. The royalty payments set forth in Section 5.9 shall be payable for each Licensed Product on a product-by-product and country-by-country basis from the time of First Commercial Sale of Licensed Product in such country until the later of: (a) [* *] from the time of First Commercial Sale of Licensed Product in such country; or (b) until the last-to-expire or -lapse of Patent Rights containing a Valid Claim with respect to the Active Compound (including without limitation a Replacement Compound) which is an ingredient of such Licensed Product in such country. 5.13 Royalty Conditions. No royalties shall be due upon the sale or other transfer among Janssen, its Affiliates, licensees or sublicensees, but in such cases the royalty shall be due and calculated upon Janssen's or its Affiliate's, licensee's or sublicensee's Net Sales of Licensed Product to the first independent Third Party. 5.14 Mode of Payment. All payments to 3DP hereunder shall be made by wire transfer of United States Dollars in the requisite amount to the account designated by 3DP which is attached hereto as Schedule 5.14; provided, however, that any notice by ------------- 3DP of a change in such account shall not be effective until thirty (30) days after receipt thereof by Janssen. Payments shall be free and clear of any taxes due by Janssen (other than withholding and other taxes imposed on 3DP), fees or charges, to the extent applicable. For purposes of computing royalty payments for Net Sales made outside of the United States, such royalties shall be converted into U.S. Dollars, by applying the rate of exchange as used by Janssen's global accounting system which reflects the average exchange rate for the applicable payment period. 5.15 Quarterly Royalty Reports. During the Term and commencing with the First Commercial Sale of each Licensed Product, Janssen shall furnish or cause to be furnished to 3DP on a quarterly basis, a written report or reports covering each quarter (each such quarter being sometimes referred to herein as a "reporting period") showing: 5.15.1 Gross invoiced sales and total deductions used to calculate Net Sales of each Licensed Product sold by Janssen and its sublicensees during the reporting period on a country-by-country basis. For the United States only, twice per calendar year, Janssen shall provide to 3DP a report showing all itemized deductions from gross sales to Net Sales. In any Major Country or country which represents ten percent (10%) or more of world wide gross invoiced sales (other than the United States), to the extent that there are significant variances in total deductions from gross 20 invoiced sales to Net Sales from one quarter to another, Janssen shall, at 3DP's reasonable request, provide a reasonably detailed explanation as to such increase. 5.15.2 The royalties, payable in U.S. Dollars, which shall have accrued hereunder in respect of such Net Sales. 5.15.3 The exchange rates used, if any, in converting into U.S. Dollars, from the currencies in which sales were made. 5.15.4 Dispositions of such Licensed Product other than pursuant to sale for cash, if such data is normally reported in royalty reports of other licensed products. 5.15.5 Any withholding taxes required to be paid from such royalties. 5.16 Royalty Payment Due Date; Accrual. Royalties which have accrued during any month and are required to be shown on a final quarterly sales report provided for hereunder shall be due and payable on the date such final quarterly sales report is due. In addition, at the end of each calendar year in which royalties are paid hereunder, Janssen agrees to reconcile estimated or accrued rebates and discounts taken during such calendar year in accordance with its standard reconciliation practices and make any necessary adjustment in the next calendar quarter in which royalties are due and payable. 5.17 Royalty Report Timing. Janssen shall provide flash sales reports to 3DP [* *] after the close of each reporting period, and final reports shall be due [* *] following the close of each reporting period. 5.18 Currency Exchange. In the case of sales of any Licensed Product outside the United States, royalty payments by Janssen to 3DP shall be converted to U.S. Dollars in accordance with Janssen's current customary and usual procedures for calculating same which are the following: the rate of currency conversion shall be calculated using a simple monthly period average of the end "spot rates" provided by Brown Brothers Harriman, 59 Wall Street, NY, NY 10005, for each quarter, or if such rate is not available, the spot rate as published by a leading United States commercial bank for such accounting period. This method of conversion is consistent with Janssen's current accounting methods. Janssen shall give 3DP prompt written notice of any changes to Janssen's customary and usual procedures for currency conversion, which shall only apply after such notice has been delivered and provided that such changes continue to maintain a set methodology for currency conversion. 21 5.19 Records Retention. With respect to any products for which royalties are due pursuant to this Agreement, Janssen and its Affiliates and any licensees or sublicensees shall keep records, for two (2) years, of such Net Sales in sufficient detail to confirm the accuracy of the royalty calculations hereunder. At the request of 3DP, Janssen shall permit an independent certified accountant of nationally recognized standing appointed by 3DP and reasonably acceptable to Janssen, during normal business hours and upon reasonable notice, to examine these records solely to the extent necessary to verify such calculations. Such investigation shall be at the expense of 3DP unless it reveals a discrepancy in Janssen's favor of more than [* *], in which event it shall be at Janssen's expense. 5.20 Taxes. The Party receiving royalties and other payments under this Agreement shall pay any and all taxes levied on account of such payment. If any taxes are required to be withheld by the paying Party, it shall: (a) deduct such taxes from the remitting payment, (b) pay the taxes, in a timely manner, to the proper taxing authority, and (c) send proof of payment to the other Party and certify its receipt by the taxing authority within sixty (60) days following such payment. ARTICLE 6 OWNERSHIP; GRANT OF LICENSE RIGHTS 6.1 Ownership of Libraries. 3DP shall retain its ownership rights to the compounds in the 3DP Probe Library and the 3DP Synthetically Accessible Library and in any Focused Library developed by 3DP pursuant to this Agreement. 6.2 No Reverse Engineering. Janssen shall not, and shall not cause or assist any Third Party to, use any data or information derived from the Research Program or the 3DP Probe Library or the 3DP Synthetically Accessible Library to design, create or supplement a compound library. 6.3 Ownership of Targets. Janssen shall retain any ownership rights Janssen may have in any Targets Janssen provides to 3DP pursuant to this Agreement, and 3DP shall have a right to use such Targets solely for the purpose of performing its obligations under the Research Program pursuant to the terms of this Agreement. During the Research Term [* *], 3DP shall not use Targets in any work it conducts with Third Parties. During the Research Term [* *], 3DP shall not enter into a drug discovery or development agreement with any Third Party on the same Target or Targets. 6.4 Ownership of Hits and Prototype Compounds; Janssen Exclusive License. 3DP shall retain any proprietary rights, title and interest in and appurtenant to Hits, Prototype Compounds and any other compounds in the Focused Library; provided, however, that Janssen shall have an exclusive, worldwide license under 22 3DP Patents, Joint Patents and Research Program Patent Rights (even as to 3DP), with the right to sublicense, to conduct research, develop, make, have made, use, sell, have sold, offer for sale or import Prototype Compounds, Replacement Compounds, Active Compounds, Back-Up Compound or Licensed Products in the Field. Notwithstanding the foregoing, 3DP shall retain the right to use any Prototype Compounds, Back-up Compounds, Replacement Compounds, Active Compounds, or any other compounds in the Focused Library that are used in Licensed Products to conduct research; provided, however, that 3DP shall not publish results of such research and shall not provide Active Compounds, Prototype Compounds, Replacement Compounds, or Back-Up Compounds to any Third Party during the Term [* *]. ARTICLE 7 CONFIDENTIAL INFORMATION 7.1 Confidentiality Obligations. The Parties agree that, for the Term and for five (5) years thereafter, either Party (a "Receiving Party") that receives Confidential Information from the other Party (a "Disclosing Party") shall keep, and shall endeavor to ensure that its officers, directors and employees keep, confidential and shall not publish or otherwise disclose and shall not use for any purpose (except as expressly permitted hereunder) any Confidential Information furnished to it by the Disclosing Party pursuant to this Agreement (including without limitation, Know-how). The obligations of confidentiality and non-use set forth in this Section 7.1 shall also apply to biological material and chemical compounds and associated information (including, without limitation, Know-how) disclosed by one Party to the other prior to or during the Term; provided however, that such obligation of confidentiality and non-use shall not apply to Janssen with respect to compounds that are assigned to Janssen or exclusively licensed to Janssen by 3DP. 7.2 Written Assurances and Permitted Uses of Confidential Information. 7.2.1 Each Party shall inform its employees and consultants who perform work on the Research Program, of the obligations of confidentiality specified in Section 7.1 and all such persons shall be bound by the terms of confidentiality set forth therein. 7.2.2 The Receiving Party may disclose the Disclosing Party's Confidential Information to the extent the Receiving Party is compelled to disclose such information by a judicial or administrative authority of competent jurisdiction, including but not limited to submitting information to tax authorities or complying with any discovery or similar request for production of documents in litigation or similar alternative dispute resolution proceedings; provided however, that in such case the Receiving 23 Party shall give notice, in a timely fashion, to the Disclosing Party so that the Disclosing Party may seek a protective order or other remedy from said authority. In any event, the Receiving Party shall disclose only that portion of the Confidential Information that, in the opinion of its legal counsel, is legally required to be disclosed and will exercise reasonable efforts to ensure that any such information so disclosed will be accorded confidential treatment by said court or tribunal. 7.2.3 To the extent it is reasonably necessary or appropriate to fulfill its obligations and exercise its rights under this Agreement, either Party may disclose Confidential Information to its Affiliates on a need-to-know basis on condition that such Affiliates agree to keep the Confidential Information confidential for the same time periods and to the same extent as such Party is required to keep the Confidential Information confidential under this Agreement, and to any regulatory authorities to the extent reasonably necessary to obtain regulatory approvals. 7.2.4 To the extent that it is reasonably necessary or appropriate to fulfill its obligations, either Party may disclose Confidential Information to the U.S. Patent and Trademark Office or any foreign counterparts thereof, in order to comply with the rules governing disclosure of material information during patent examination. 7.2.5 The existence and the terms and conditions of this Agreement which the Parties have not specifically agreed to disclose pursuant to this Section 7.2 shall be treated by each Party as Confidential Information of the other Party. 7.3 Permitted Disclosures for Business Development Purposes. Notwithstanding the foregoing or any other provision in this Agreement to the contrary, 3DP may disclose statistics and masked informational data for presentations to investors or to scientific audiences, based on the research data produced pursuant to the activities under this Agreement, including without limitation, success rates; and excluding Confidential Information identifying, for example, specific Prototype Compounds, Active Compounds, Targets, Hits, Back-Up Compounds, Replacement Compounds, Research Program Patent Rights, chemical names, chemical structures and their activities. 7.4 Notification. Both Parties recognize that each may wish to publish the results of their work relating to the Research Program. However, both Parties also recognize the importance of acquiring patent protection on Licensed Products. Consequently, 3DP shall not make any publication relating to any Prototype Compound, Replacement Compound, Active Compound or Licensed Product without the prior written permission of Janssen and any proposed publication by either Party relating to the Research Program or Prototype Compound 24 Optimization shall comply with this Article 7. At least sixty (60) days before a manuscript is to be submitted to a publisher, the publishing Party will provide the JSMC with a copy of the manuscript. If the publishing Party wishes to make an oral presentation, it will provide the JSMC with a copy of the abstract (if one is submitted) at least sixty (60) days before it is to be submitted. The publishing Party will also provide to the JSMC a copy of the text of the presentation, including all slides, posters and any other visual aids, at least sixty (60) days before the presentation is made. 7.5 Review of Proposed Publications. The JSMC will review the manuscript, abstract, text or any other material provided under Section 7.4 to determine if patentable subject matter is disclosed. The JSMC will notify the publishing Party within sixty (60) days of receipt of the proposed publication if the JSMC determines that patentable subject matter is or may be disclosed, or if the JSMC believes Confidential Information or proprietary information is or may be disclosed. If it is determined by the JSMC that patent applications should be filed, the publishing Party shall delay its publication or presentation for a period not to exceed ninety (90) days from the JSMC's notification to the publishing Party to allow time for the filing of patent applications covering patentable subject matter. In the event that the delay needed to complete the filing of any necessary patent application will exceed the ninety (90)-day period, the Parties will discuss the need for obtaining an extension of the publication delay beyond the ninety (90)-day period. If it is determined by the JSMC that confidential or proprietary information is being disclosed, the JSMC will attempt to arrive at an agreement on mutually acceptable modifications to the proposed publication to avoid such disclosure. The publishing Party of any manuscript, text or oral presentation will acknowledge the other Party for its contribution to the material being published or presented and to the Research Program. ARTICLE 8 PATENT RIGHTS AND INTELLECTUAL PROPERTY 8.1 Ownership; Inventions. Inventorship for patentable inventions conceived and reduced to practice during the course of the performance of activities pursuant to this Agreement shall be determined in accordance with U.S. patent laws for determining inventorship. Janssen Patents shall be owned by Janssen, 3DP Patents shall be owned by 3DP, and Joint Patents shall be jointly owned by the Parties. Research Program Patent Rights shall be owned by 3DP, regardless of inventorship, and Janssen agrees to assign to 3DP its rights in any Research Program Patent Rights having Janssen employees as sole or joint inventors. In the event of a dispute regarding inventorship, if the parties are unable to resolve such inventorship dispute, the Parties shall establish a procedure to resolve such dispute, which may include engaging a Third Party patent attorney jointly selected by the Parties to resolve such dispute. Each Party will cooperate with the other to 25 the extent reasonably necessary to execute assignments and other documentation as may be required. 8.2 Disclosure of Patentable Inventions. Each Party shall promptly provide to the other any invention disclosure submitted in the normal course of business and disclosing an invention arising during the Research Program and [* *] period following the Initiation of Prototype Compound Optimization for each Prototype Compound, on a compound-by-compound basis, and relating to Hits, Prototype Compounds, Active Compounds, Back-Up Compounds or Replacement Compounds. 8.3 Disclosure of Janssen Know-how. During the [* *] period following the initiation of Prototype Compound Optimization for each Prototype Compound on a compound-by-compound basis, Janssen shall promptly provide 3DP with complete written disclosures of any potentially patentable technology derived from the Research Program, the Janssen Research Program and/or Prototype Compound Optimization. 8.4 3DP Patentable Inventions and Know-How. 8.4.1 3DP Patent Prosecution. (a) Selection of Outside Counsel. Before retaining any law firm and/or patent attorney for the preparation and prosecution of any patent applications which are Research Program Patent Rights, 3DP shall inform Janssen of the identity of such law firm and/or patent attorney it desires to employ and the Parties will discuss such firm and/or attorney. 3DP will consider any suggestions from Janssen regarding the selection of a law firm and/or patent attorney for handling preparation, prosecution and maintenance of Research Program Patent Rights and Janssen may disapprove any law firm and/or patent attorney proposed by 3DP, such approval not to be unreasonably withheld or delayed. (b) Prosecution and Maintenance. During the Term, 3DP shall prepare, file, prosecute and maintain 3DP Patents (at 3DP's sole expense) and Research Program Patent Rights (at Janssen's sole expense) and use reasonable efforts to initially file all such patent applications in the United States. For Research Program Patent Rights, Janssen shall provide a list of countries in which such patent applications shall be filed reasonably in advance of 3DP's estimated filing date. 3DP shall file such patent applications in each indicated country. 26 (c) Discontinuance. If 3DP does not intend to file for patent protection or does not wish to continue preparation, prosecution or maintenance of Research Program Patent Rights, then it shall give at least forty-five (45) days advance notice to Janssen, and in no event less than a reasonable period of time for Janssen to act in its stead. In such case, Janssen may elect at its sole discretion to continue preparation, filing and prosecution or maintenance of the discontinued patent at its sole expense. 3DP shall execute such documents and perform such acts as may be reasonably necessary for Janssen to file or to continue prosecution or maintenance of such patent. Discontinuance may be elected on a country-by-country basis or for a patent application or patent series in total. 8.4.2 Cooperation. 3DP shall consult with Janssen and shall keep Janssen continuously informed of all material matters relating to the preparation, filing, prosecution and maintenance of Research Program Patent Rights covered by this Agreement, including, but not limited to, disclosing to Janssen the complete text of all such Research Program Patent Rights. In addition, 3DP shall provide Janssen with copies of all material correspondence with the applicable patent office. 8.5 Janssen Patentable Inventions and Know-How. 8.5.1 Janssen Patent Prosecution. (a) Prosecution and Maintenance. During the Term, Janssen shall, at its own expense, prepare, file, prosecute and maintain Janssen Patents and use reasonable efforts to file initially all such patent applications in countries in which Janssen would file patent applications in its normal business practice for comparable technology. (b) Discontinuance. If Janssen does not intend to file for Patent protection or does not wish to continue preparation, prosecution or maintenance of a Janssen Patent, then it shall give at least forty-five (45) days advance notice to 3DP, and in no event less than a reasonable period of time for 3DP to act in its stead. In such case, 3DP may elect at its sole discretion to continue preparation, filing and prosecution or maintenance of the discontinued patent at its sole expense. Janssen shall execute such documents and perform such acts as may be reasonably necessary for 3DP to file or to continue prosecution or maintenance of such patent. Discontinuance may be elected on a country-by-country basis or for a patent application or patent series in total. 27 8.5.2 Cooperation. Janssen shall consult with 3DP and shall keep 3DP continuously informed of all material matters relating to the preparation, filing, prosecution and maintenance of Janssen Patents covered by this Agreement, including, but not limited to, disclosing to 3DP the complete text of all such Janssen Patents. 8.6 Joint Patents 8.6.1 The Parties shall jointly determine whether to prepare, file, prosecute and maintain any Joint Patents. Janssen shall act as the lead Party for the prosecution and maintenance of such Joint Patents. 8.6.2 Janssen shall keep 3DP apprised of the status of each Joint Patent and shall seek the advice of 3DP with respect to patent strategy and drafting applications and shall give reasonable consideration to any suggestions or recommendations of 3DP concerning the preparation, filing, prosecution, maintenance and defense thereof. Each Party shall be responsible for 50% of the cost of such filings. 8.6.3 The Parties shall cooperate reasonably in the prosecution of all Joint Patents and shall share all material information relating thereto, including all material communications from patent offices, promptly after receipt of such information. 8.6.4 If, during the term of this Agreement, Janssen intends to allow any Joint Patent to lapse or to abandon any such Joint Patent, Janssen shall, whenever practicable, notify 3DP of such intention at least sixty (60) days prior to the date upon which such Joint Patent shall lapse or become abandoned but in no event less than a reasonably sufficient time to prevent such lapse or abandonment, and 3DP shall thereupon have the right, but not the obligation, to assume responsibility for the prosecution, maintenance and defense thereof and all expenses related thereto. 8.7 Assistance. Each Party hereby agrees: 8.7.1 to make its employees, agents and consultants reasonably available to the other Party (or the other Party's authorized attorneys, agents or representatives), to the extent reasonably necessary to enable the Prosecuting Party to undertake preparation, filing, prosecution and maintenance of its Patent Rights; 8.7.2 to cooperate, if necessary and appropriate, with the other Party in gaining patent term extensions wherever applicable to Patent Rights; and 28 8.7.3 to endeavor in good faith to coordinate its efforts with the other Party to minimize or avoid interference with the preparation, filing, prosecution and maintenance of the other Party's Patent Rights. 8.8 Initial Filing if Made Outside of the United States. The Parties agree to use reasonable efforts to ensure that any Patent Rights filed outside of the United States prior to a U.S. filing will be in a form sufficient to establish the date of original filing as a priority date for the purposes of a subsequent U.S. filing. 8.9 Infringement Claims by Third Parties. 8.9.1 Notice. If the manufacture, use or sale of an Active Compound or any Licensed Product results in a claim or a threatened claim by a Third Party against a Party hereto for patent infringement or for inducing or contributing to patent infringement ("Infringement Claim"), the Party first having notice of an Infringement Claim shall promptly notify the other in writing. The notice shall set forth the facts of the Infringement Claim in reasonable detail. 8.9.2 Defense. Janssen shall have the right but not the obligation to defend any suit resulting from an Infringement Claim at its expense. 3DP shall cooperate and assist Janssen in any such litigation at Janssen's expense. In the event Janssen declines to take steps with respect to such infringement within [* *] following notice of such infringement, 3DP shall have the right to do so at its expense. 8.9.3 Settlement. In the event that the manufacture, use or sale of the Active Compound or the Licensed Product in a country would infringe Third Party Patent Rights and a license to such Third Party Patent Rights is available, and Janssen in its sole discretion seeks such a license, the Parties agree: (a) Subject to Section 5.11.2, Janssen shall be responsible for all costs associated with acquiring such Third Party license; and (b) Janssen shall use reasonable efforts to obtain required licenses under the Third Party Patents, with a right to sublicense to 3DP. 8.10 Patent Assignment. Neither Party may assign its interest in rights under Research Program Patent Rights or any Patent Rights claiming an Active Compound or Licensed Product, except with the prior written consent of the other Party, such consent not to be unreasonably withheld or delayed; provided, however, that either Party may assign such rights without consent of the other Party to a permitted assignee under this Agreement. 8.11 Infringement Claims Against Third Parties. 29 8.11.1 Cooperation. 3DP and Janssen each agree to take reasonable actions to protect 3DP Patents, Janssen Patents, Joint Patents or Research Program Patent Rights from infringement. If one Party brings any such action or proceeding, the other Party may be joined as a Party plaintiff if necessary for the action or proceeding to proceed and, in case of joining, the other Party agrees to give the first Party reasonable assistance and authority to file and to prosecute such suit. The other Party shall be reimbursed for any costs associated with its participation. 8.11.2 Notice. If any 3DP Patent, Janssen Patent, Joint Patents and/or Research Program Patent Rights is infringed by a Third Party in any country in connection with the manufacture, use and/or sale of an Active Compound or Licensed Product in such country, the Party to this Agreement first having knowledge of such infringement, or knowledge of a reasonable probability of such infringement, shall promptly notify the other in writing. The notice shall set forth the known facts of such infringement in reasonable detail. 8.11.3 Institution of Proceedings. (a) 3DP shall have the primary right, but not the obligation, to institute, prosecute and control with its own counsel, any action or proceeding with respect to infringement of a 3DP Patent or Research Program Patent Rights. Janssen shall have the right, at its own expense, to be represented in such action by its own counsel; provided, however, no settlement may be entered into by 3DP without the written consent of Janssen, which consent shall not be unreasonably withheld or delayed, if such settlement would have a material adverse effect on Janssen's interests. (b) With respect to Joint Patents, Janssen shall have the primary right, but not the obligation, to institute, prosecute and control any action or proceeding with respect to infringement of such Joint Patents, by counsel of its own choice and at its own expense; provided, however, 3DP may participate in such proceedings, represented by counsel of its own choice and at its own expense, no settlement may be entered into by Janssen without the written consent of 3DP, which consent shall not be unreasonably withheld or delayed. (c) Janssen shall have the sole right to enforce any rights under the Janssen Patents at its own expense. 8.11.4 Failure to Institute Proceedings. If the Party having the primary right to institute proceedings under Section 8.11.3 (hereinafter referred to as the 30 "First Prosecuting Party") fails to institute, prosecute or control such action or prosecution within a period of one hundred eighty (180) days after receiving notice of the infringement from the other Party (hereinafter referred to as the "Second Prosecuting Party"), then the Second Prosecuting Party shall have the right to bring and control any such action by counsel of its own choice, and the First Prosecuting Party shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. The First Prosecuting Party shall cooperate with the Second Prosecuting Party in such effort, including being joined as a party to such action if necessary. 8.11.5 Costs. The Party bringing suit under this Article shall bear all costs of the suit and shall retain any damages or other monetary awards recovered. 8.11.6 Settlement. The parties shall keep each other informed of the status of and of their respective activities regarding any litigation or settlement thereof concerning Licensed Products in the Field. A settlement or consent judgment or other voluntary final disposition of a suit brought by a Party under this Section 8.11 may be entered without the consent of the other Party; provided such settlement, consent judgment or other disposition does not admit the invalidity or unenforceability of any Patent Rights; and provided further, that any rights to continue the infringing activity in such settlement, consent judgment or other disposition shall be limited to the product or activity that was the subject of the suit. 8.12 Notices Relating to the Act. 3DP shall notify Janssen of the issuance of each U.S. patent included among the 3DP Patents, Research Program Patent Rights and Joint Patents wherein 3DP is the filing Party, giving the date of issue and patent number for each such patent. 3DP and Janssen each shall immediately give notice to the other of any certification filed under the "U.S. Drug Price Competition and Patent Term Restoration Act of 1984" (hereinafter the "Act"), including, but not necessarily limited to, notices pursuant toss.ss.101 and 103 of the Act from persons who have filed an abbreviated NDA ("ANDA") or a "paper" NDA claiming that 3DP Patents, Janssen Patents, Joint Patents or Research Program Patent Rights are invalid or that infringement will not arise from the manufacture, use or sale of any Active Compound or Licensed Product by a Third Party. 8.12.1 If Janssen decides not to bring infringement proceedings against the entity making such a certification, Janssen shall give notice to 3DP of its decision not to bring suit within twenty-one (21) days after receipt of notice of such certification. 8.12.2 3DP may then, but is not required to, bring suit against the party that filed the certification. 31 8.12.3 Any suit by Janssen or 3DP shall either be in the name of Janssen or in the name of 3DP, or jointly in the name of Janssen and 3DP, as may be required by law. 8.12.4 For purposes of this Section, the Party not bringing suit shall execute such legal papers necessary for the prosecution of such suit as may be reasonably requested by the Party bringing suit. 8.13 Patent Term Extensions. 3DP hereby authorizes Janssen to (a) provide in any NDA a list of patents which includes 3DP Patents, Joint Patents and Research Program Patent Rights owned by 3DP that relate to such Licensed Product and such other information as Janssen believes is appropriate; (b) commence suit for infringement of 3DP Patents, Joint Patents and Research Program Patent Rights underss.271(e) (2) of Title 35 of the United States Code; and (c) exercise any rights that may be exercisable by 3DP as patent owner under the Act, including without limitation, applying for an extension of the term of any patent included in 3DP Patents, Joint Patents and Research Program Patent Rights. In the event that applicable law in any country provides for the extension of the term of any patent included among Research Program Patent Rights owned by 3DP, such as under the Act, the Supplementary Certificate of Protection of the Member States of the European Union and other similar measures in any other country, 3DP shall apply for and use its reasonable efforts to obtain such an extension or, should the law require Janssen to so apply, 3DP hereby gives permission to Janssen to do so. Janssen and 3DP agree to cooperate with one another in obtaining such extension. 3DP agrees to cooperate with Janssen or its sublicensee, as applicable, in the exercise of the authorization granted herein and shall execute such documents and take such additional action as Janssen may reasonably request in connection therewith, including, if necessary, permitting itself to be joined as a Party in any suit for infringement brought by Janssen hereunder. ARTICLE 9 INDEMNIFICATION 9.1 Indemnification by Janssen. Janssen shall indemnify, defend and hold 3DP and its agents, employees and directors (the "3DP Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or lawsuits related to (a) Janssen's performance of its obligations under this Agreement; or (b) patent infringement related to 3DP's use of the Targets pursuant to this Agreement; or (c) patent infringement or product liability for bodily injury and/or property damage related to Janssen's development activities with compounds identified under the Research Program and/or with Licensed Products; or (d) the manufacture, use or sale of Licensed Products by Janssen, sublicensees, distributors and agents, except to the extent such claims or suits result from the 32 breach of any of the provisions of this Agreement, gross negligence or willful misconduct of the 3DP Indemnitees. Upon the assertion of any such claim or suit, the 3DP Indemnitees shall promptly notify Janssen thereof and shall permit Janssen to assume direction and control of the defense of the claim (including the selection of counsel and the right to settle it at the sole discretion of Janssen, provided that such settlement does not impose any material obligation on the 3DP Indemnitees), and shall cooperate as requested (at the expense of Janssen) in the defense of the claim. 9.2 Indemnification By 3DP. 3DP shall indemnify, defend and hold Janssen and its agents, employees and directors (the "Janssen Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or lawsuits related to 3DP's performance of its obligations under this Agreement, except to the extent that such claims or suits result from the breach of any of the provisions of this Agreement, gross negligence or willful misconduct of the Janssen Indemnitees. Upon the assertion of any such claim or suit, the Janssen Indemnitees shall promptly notify 3DP thereof and shall permit 3DP to assume direction and control of the defense of the claim (including the selection of counsel and the right to settle it at the sole discretion of 3DP, provided that such settlement does not impose any material obligation on the Janssen Indemnitees), and shall cooperate as requested (at the expense of 3DP) in the defense of the claim. ARTICLE 10 TERM AND TERMINATION 10.1 Term of Research Program. The Research Program shall commence upon the Effective Date, and unless earlier terminated as provided herein, shall expire on the last to expire of the Stage A Term or the Stage B Term or any Extended Research Term (the "Research Term"). 10.2 Term of Agreement. This Agreement shall commence upon the Effective Date and shall terminate: (a) thirty (30) days after notice, in good faith, by one Party to the other Party, following the termination or expiration of the Research Term, if no compound, which was identified as a Prototype Compound, is being optimized, developed, commercialized and/or sold by Janssen or 3DP, or (b) upon the identification and commercialization of one or more Licensed Products, upon expiration of Janssen's obligation to pay royalties hereunder (the "Term"). 10.3 Termination of the Research Program Without Cause. Subject to the provisions of Section 5.6, Janssen may terminate the Research Program upon ninety (90)-days advance written notice during the Research Term provided, however, [* *]. 33 10.4 Breach. The failure by a Party to comply with any of the material obligations contained in this Agreement shall entitle the other Party to give notice to have the default cured. If such default is not cured within sixty (60) days after the receipt of such notice, or diligent steps are not taken to cure if by its nature such default cannot be cured within sixty (60) days, the notifying Party shall be entitled, without prejudice to any of its other rights conferred to it by this Agreement, and in addition to any other remedies that may be available to it, to terminate the Research Program and/or this Agreement; provided, however, that such right to terminate shall be stayed in the event that, during such sixty (60)-day period, the Party alleged to have been in default shall have: (a) initiated arbitration in accordance with Article 13, below, with respect to the alleged default, and (b) diligently and in good faith cooperated in the prompt resolution of such arbitration proceedings. 10.5 No Waiver. The right of a Party to terminate the Research Program and/or this Agreement, as provided in this Article 10, shall not be affected in any way by its waiver or failure to take action with respect to any prior default. 10.6 Insolvency or Bankruptcy. 10.6.1 Either Party may, in addition to any other remedies available by law or in equity, terminate the Research Program and/or this Agreement by written notice to the other Party in the event the latter Party shall have become insolvent or bankrupt, or shall have an assignment for the benefit of its creditors, or there shall have been appointed a trustee or receiver of the other Party or for all or a substantial part of its property or any case or proceeding shall have been commenced or other action taken by or against the other Party in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up, arrangement or readjustment of its debts or any other relief under any bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect, or there shall have been issued a warrant of attachment, execution, distraint or similar process against any substantial part of the property of the other Party, and any such event shall have continued for ninety (90) days undismissed, unbonded and undischarged. 10.6.2 All rights and licenses granted under or pursuant to this Agreement by Janssen or 3DP are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to "Intellectual Property" as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that the Parties as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code, the Party 34 hereto which is not a party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in their possession, shall be promptly delivered to them (a) upon any such commencement of a bankruptcy proceeding upon their written request therefor, unless the Party subject to such proceedings elects to continue to perform all of their obligations under this Agreement, or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by a nonsubject party. 10.7 Consequences of Termination of the Research Program. 10.7.1 In the event of termination of the Research Program by Janssen pursuant to the provisions of Sections 10.4 or 10.6, 3DP shall (i) promptly transfer to Janssen copies, whether in written or electronic form, of all data, reports, records and materials (including any Research Program Know-how) in 3DP's possession or control which relate to the Research Program; (ii) return to Janssen all relevant records and materials, whether in written or electronic form, in 3DP's possession or control containing Confidential Information of Janssen; and (iii) furnish to Janssen all unused Substances provided to 3DP by Janssen in connection with the Research Program. Thereafter, Janssen shall have no further obligation to fund the Research Program, but the remainder of the Agreement shall, including without limitation, Janssen's rights to continue Prototype Compound Optimization for those Prototype Compounds identified as such pursuant to Section 1.29, remain in force and effect until expiration of the term of the Agreement, unless it is sooner terminated as provided in this Agreement. 10.7.2 In the event of termination of the Research Program by 3DP pursuant to the provisions of 10.4 or 10.6, or if Janssen terminates the Research Program pursuant to the provisions of Section 10.3, Janssen shall (i) promptly transfer to 3DP copies, whether in written or electronic form, of all data, reports, records and materials (including any Research Program Know-how) in Janssen's possession or control which relate to the Research Program; (ii) return to 3DP all relevant records and materials, whether in written or electronic form, in Janssen's possession or control containing Confidential Information of 3DP; and (iii) furnish to 3DP all unused Substances, if any, provided to Janssen by 3DP in connection with the Research Program. Thereafter, the remainder of the Agreement shall remain in force and effect until expiration of the term of the Agreement, unless it is sooner terminated as provided in this Agreement. 35 10.7.3 Either Party's termination of the Research Program pursuant to Section 10.3, 10.4 and/or 10.6 shall be without prejudice to, and shall not affect, any of the Parties' respective rights and obligations under this Agreement that do not specifically relate to the Research Program. Without limiting the generality of the foregoing, Janssen's rights to exploit the Licensed Products under any Research Program Patent Rights and Research Program Know-how, if such licenses are in operation, in accordance with the terms of this Agreement, shall not be affected by any such termination. 10.8 Consequences of Termination of this Agreement. Upon termination of this Agreement, all remaining records and materials in a Party's possession or control containing the other Party's Confidential Information and to which the former Party does not retain rights hereunder shall promptly be returned, except that one (1) copy shall be retained by legal counsel for the former Party. 10.9 Survival of Obligations. The termination or expiration of this Agreement shall not relieve the Parties of any obligations accruing prior to such termination, and any such termination shall be without prejudice to the rights of either Party against the other. The provisions of Sections 3.7, 5.15, 5.16, 6.1, 6.2, 6.3, 8.1, 10.8, 14.1, 14.14, 14.15 and Articles 1, 7, 9 and 13 shall survive any termination of this Agreement. ARTICLE 11 DEVELOPMENT, REGULATORY AND COMMERCIALIZATION RESPONSIBILITIES 11.1 Commercial Responsibilities. Janssen agrees to use commercially reasonable efforts consistent with its normal business practices, and in no event less than efforts standard in the pharmaceutical industry, to develop and commercialize Licensed Products. Such efforts shall be efforts consistent with efforts used by Janssen (in each case comparable efforts will be measured against such efforts used by Janssen for marketing in the country where the commercialization takes place for that Licensed Product) in commercializing its own products that are similar with regard to, for example, market potential, price per treatment, patient population, and competitive position. Janssen shall use commercially reasonable efforts consistent with its normal business practices to effect the commercial launch of Licensed Products in the Major Countries within [* *] of Regulatory Approval in such Major Countries. 11.2 Janssen's Marketing Obligations For Licensed Product. All business decisions, including, without limitation, the design, sale, price and promotion of Licensed Products under this Agreement and the decisions whether to market any particular Licensed Product shall be within the sole discretion of Janssen. 36 11.3 Janssen Responsibilities. Janssen shall be responsible for all development, regulatory filings and related submissions that are made in connection with the commercialization of Licensed Products developed by Janssen and all commercialization activities with respect to Licensed Products, and shall do so at Janssen's sole discretion and expense. The JSMC will provide annual written reports to the Parties presenting a meaningful summary of the development and commercialization activities undertaken for each Licensed Product for the Term. ARTICLE 12 REPRESENTATIONS AND WARRANTIES 12.1 Authority. Each Party represents and warrants that as of the Effective Date it has the full right, power and authority to enter into this Agreement and that this Agreement has been duly executed by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable in accordance with its terms. 12.2 No Conflicts. Each Party represents and warrants that the execution, delivery and performance of this Agreement does not conflict with, or constitute a breach or default under, any of its charter or organizational documents, any law, order, judgment or governmental rule or regulation applicable to it, or any material agreement, contract, commitment or instrument to which it is a party. 12.3 No Existing Third Party Rights. Each Party represents and warrants that its obligations under this Agreement are not encumbered by any rights granted by such Party to any Third Parties that are or may be inconsistent with the rights and licenses granted in this Agreement. 12.4 Permitted Use of Targets. Janssen represents and warrants that it has the legal right to use and permit 3DP to use all Targets provided to 3DP for Research Program activities under this Agreement. 12.5 Continuing Representations. The representations and warranties of each Party contained in this Article 12 shall survive the execution and delivery of this Agreement and shall remain true and correct at all times during the Term with the same effect as if made on and as of such later date. 12.6 Disclaimer of Warranties. 3DP MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE 3DP DISCOVERWORKS(R) TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN PARTICULAR, 3DP OFFERS NO REPRESENTATION OR WARRANTY THAT THE USE OF ALL OR ANY PART OF THE 3DP DISCOVERWORKS(R) TECHNOLOGY UNDER THIS 37 AGREEMENT WILL RESULT IN THE DISCOVERY OR THE SUCCESSFUL COMMERCIALIZATION OF A LICENSED PRODUCT FOR USE AGAINST THE TARGET IN THE FIELD. 12.7 No Infringement. To the best of its knowledge as of the Effective Date, 3DP represents and warrants that the use of the DirectedDiversity(R)Technology and ThermoFluor(R)Technology does not infringe any Patent Rights of a Third Party. 12.8 Infectious Disease Targets. Janssen covenants that the Targets and Replacement Targets that are provided by Janssen for screening pursuant to this Agreement are not provided for the primary purpose of identifying [* *]. ARTICLE 13 DISPUTE RESOLUTION 13.1 Any dispute concerning or arising out of this Agreement or concerning the existence or validity hereof shall be determined by the following procedure: 13.1.1 Dispute Resolution and Arbitration. In the case of any disputes between the Parties arising from this Agreement, and in case this Agreement does not provide a solution for how to resolve such disputes, the Parties shall discuss and negotiate in good faith a solution acceptable to both Parties and in the spirit of this Agreement. If after negotiating in good faith pursuant to the foregoing sentence, the Parties fail to reach agreement within sixty (60) days, then the Chief Executive Officer of 3DP and the Chairman Research & Development Pharmaceuticals shall discuss in good faith an appropriate resolution to the dispute. If these executives fail, after good faith discussions, to reach an amicable agreement within sixty (60) days, then either Party may upon written notice to the other submit the dispute to binding arbitration pursuant to Section 13.2. 13.2 Arbitration. Any claim, dispute or controversy arising out of or in connection with or relating to this Agreement, (including, without limitation, disputes with respect to the rights and obligations of the Parties following termination) not settled by the procedures set forth in Section 13.1 above or the breach or alleged breach of a material provision of this Agreement shall be adjudicated by arbitration in accordance with the Arbitration Proceedings as set forth in Schedule 13.2 attached hereto. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Entire Agreement. This Agreement and each of the Schedules hereto constitute and contain the entire understanding and agreement of the Parties respecting the 38 subject matter of this Agreement and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter. 14.2 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 14.3 Binding Effect. This Agreement and the rights granted herein shall be binding upon and shall inure to the benefit of 3DP, Janssen and their successors and permitted assigns. 14.4 Assignment. Neither Party may assign this Agreement without the prior written consent of the other Party; provided, however, that either Party may assign this Agreement without the prior written consent of the other Party in connection with the sale or transfer of substantially all of its assets that relate to this Agreement, or in the event of its merger or consolidation or change of control or similar transaction. Any permitted assignee shall assume all obligations of its assignor under this Agreement. 14.5 No Implied Licenses. No rights to any other patents, Know-how or technical information, or other intellectual property rights, other than as explicitly identified herein, are granted or deemed granted by this Agreement. No right, express or implied, is granted by this Agreement to a Party to use in any manner the name or any other trade name or trademark of the other Party in connection with the performance of this Agreement. 14.6 No Waiver. No waiver, modification or amendment of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. The failure of either Party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition. 14.7 Force Majeure. The failure of a Party to perform any obligation under this Agreement by reason of acts of God, acts of governments, riots, wars, strikes, accidents or deficiencies in materials or transportation or other causes of a similar magnitude beyond its control shall not be deemed to be a breach of this Agreement. 14.8 Independent Contractors. Both Parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute 3DP or Janssen as partners or joint venturers with respect to this Agreement. Neither Party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the 39 other Party or to bind the other Party to any other contract, agreement or undertaking with any Third Party. 14.9 Notices and Deliveries. Any formal notices, request, delivery, approval or consent required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given when it is received, whether delivered in person, transmitted by facsimile with contemporaneous confirmation, delivered by registered letter (or its equivalent) or delivered by overnight courier service (receipt required), to the Party to which it is directed at its address shown below or such other address as such Party shall have last given by notice to the other Parties. If to Janssen: with a copy to: Johnson & Johnson Pharmaceutical Johnson & Johnson Research & Development, LLC One Johnson & Johnson Plaza U.S. Route 202 New Brunswick, New Jersey 08933 Raritan, NJ 08869 ATTN: Chairman ATTN: Chief Patent Counsel FAX: 908-707-1895 FAX: 732-524-2138 If to 3DP: with a copy to: 3-Dimensional Pharmaceuticals, Inc. Morgan, Lewis & Bockius LLP Three Lower Makefield Corporate Center 1701 Market Street 1020 Stony Hill Road, Suite 300 Philadelphia, PA 19103 Yardley, PA 19067 ATTN: Chief Executive Officer ATTN: Manya S. Deehr, Esq. FAX: 267-757-7248 FAX: 215-963-5299
14.10 Public Announcements. On or shortly after the Effective Date, 3DP shall issue a press release with respect to entering into this Agreement in the form attached hereto as Schedule 14.10. -------------- 14.11 Headings. The captions to the sections and articles in this Agreement are not a part of this Agreement, and are included merely for convenience of reference only and shall not affect its meaning or interpretation. 14.12 Severability. In the event that any provision of this Agreement shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid or unenforceable provision had not been included herein. 40 14.13 No Consequential Damages. IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER DAMAGES. 14.14 Applicable Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware without reference to its conflicts of laws provisions. 14.15 Advice of Counsel. Janssen and 3DP have each consulted with counsel of their choice regarding this Agreement, and each acknowledges and agrees that this Agreement shall not be deemed to have been drafted by one Party or another and will be construed accordingly. 14.16 Counterparts. This Agreement may be executed in counterparts, or facsimile versions, each of which shall be deemed to be an original, and both of which together shall be deemed to be one and the same agreement. 41 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written, each copy of which -shall for all purposes be deemed to be an original. 3-DIMENSIONAL PHARMACEUTICALS, INC. JANSSEN PHARMACEUTICA, N.V. By: __________________________ By: __________________________ Name: David C. U'Prichard, Ph.D. Name: __________________________ Title: Chief Executive Officer Title: __________________________ THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE, a division of Ortho-McNeil Pharmaceutical, Inc. By: __________________________ Name: __________________________ Title: __________________________ 42 Schedule 1.8 DIRECTED DIVERSITY(R) PATENTS - -------------------------------------------------------------------------------- TITLE COUNTRY SERIAL FILING PATENT ISSUE DATE NUMBER DATE NUMBER - -------------------------------------------------------------------------------- [* The entire table, consisting of 1 page, has been omitted pursuant to a confidential treatment request *] 43 Schedule 1.17 THERMOFLUOR(R) VALIDATION TESTS [* *] [* *] [* 1 entire page has been omitted pursuant to a confidential treatment request *] 44 Schedule 1.36 RESEARCH PLAN [* 1 entire page has been omitted pursuant to a confidential treatment request *] 45 Schedule 1.50 THERMOFLUOR(R) PATENTS - -------------------------------------------------------------------------------- TITLE COUNTRY SERIAL FILING PATENT ISSUE DATE NUMBER DATE NUMBER - -------------------------------------------------------------------------------- [* The entire table, consisting of 1 page, has been omitted pursuant to a confidential treatment request *] 46 Schedule 2.1 TARGETS TARGET 1: [* *] [* *] TARGET 2: [* *] [* *] [* 2 pages have been omitted pursuant to a confidential treatment request *] 47 Schedule 2.2 [* 1 entire page has been omitted pursuant to a confidential treatment request *] 48 Schedule 5.14 WIRE INSTRUCTIONS [* 1 entire page has been omitted pursuant to a confidential treatment request *] 49 Schedule 13.2 ARBITRATION PROCEEDINGS 1.1 (a) Any dispute, controversy or claim arising out of or related to this Agreement, or the interpretation, application, breach, termination or validity thereof, including any claim of inducement by fraud or otherwise, which claim would, but for this provision, be submitted to arbitration shall, before submission to arbitration, first be mediated through non-binding mediation in accordance with the Model Procedures for the Mediation of Business Disputes promulgated by the CPR Institute for Dispute Resolution, or successor ("CPR") then in effect, except where those rules conflict with these provisions, in which case these provisions control. The mediation shall be conducted in Wilmington, Delaware and shall be attended by a senior executive with authority to resolve the dispute from each of the operating companies that are Parties. (b) The mediator shall be neutral, independent, disinterested and shall be selected from a professional mediation firm such as ADR Associates or JAMS/ENDISPUTE or CPR. (c) The parties shall promptly confer in an effort to select a mediator by agreement. In the absence of such an agreement within 10 days of initiation of the mediation, the mediator shall be selected by CPR as follows: CPR shall provide the parties with a list of at least 15 names. Each party shall exercise challenges for cause, two peremptory challenges, and rank the remaining candidates within 5 working days of receiving the CPR list. The parties may together interview the three top-ranked candidates for no more than one hour each and, after the interviews, may each exercise one peremptory challenge. The mediator shall be the remaining candidate with the highest aggregate ranking. (d) The mediator shall confer with the parties to design procedures to conclude the mediation within no more than 45 days after initiation. Under no circumstances may the commencement of arbitration under Section 1.2 hereof be delayed more than 45 days by the mediation process specified herein absent contrary agreement of the parties. (e) Each party agrees not to use the period or pendency of the mediation to disadvantage the other party procedurally or otherwise. No statements made by either side during the mediation may be used by the other or referred to during any subsequent proceedings. (f) Each party has the right to pursue provisional relief from any court, such as attachment, preliminary injunction, replevin, etc., to avoid irreparable harm, 50 maintain the status quo, or preserve the subject matter of the ------ --- arbitration, even though mediation has not been commenced or completed. 1.2 (a) Following the mediation procedures set forth in Section 1.1, any dispute, claim or controversy arising from or related in any way to this Agreement or the interpretation, application, breach, termination or validity thereof, including any claim of inducement of this Agreement by fraud or otherwise, will be submitted for resolution to arbitration pursuant to the rules then pertaining of CPR, except where those rules conflict with these provisions, in which case these provisions control. The arbitration will be held in Wilmington, Delaware. (b) The panel shall consist of three arbitrators chosen from the CPR Panels of Distinguished Neutrals (or, by agreement, from another provider of arbitrators) each of whom is a lawyer with at least 15 years experience with a law firm or corporate law department of over 25 lawyers or was a judge of a court of general jurisdiction. In the event the aggregate damages sought by the claimant are stated to be less than $5 million, and the aggregate damages sought by the counterclaimant are stated to be less than $5 million, and neither side seeks equitable relief, then a single arbitrator shall be chosen, having the same qualifications and experience specified above. Each arbitrator shall be neutral, independent, disinterested, impartial and shall abide by The Code of Ethics for Arbitrators in Commercial Disputes approved by the AAA. There shall be no ex parte communications with an arbitrator either -- ----- before or during the arbitration, relating to the dispute or the issues involved in the dispute or the arbitrator's views on any such issues. (c) The parties agree to cooperate (1) to attempt to select the arbitrator(s) by agreement within 45 days of initiation of the arbitration, including jointly interviewing the final candidates, (2) to meet with the arbitrator(s) within 45 days of selection and (3) to agree at that meeting or before upon procedures for discovery and as to the conduct of the hearing which will result in the hearing being concluded within no more than 9 months after selection of the arbitrator(s) and in the award being rendered within 60 days of the conclusion of the hearings, or of any post-hearing briefing, which briefing will be completed by both sides within 45 days after the conclusion of the hearings. (d) In the event the parties cannot agree upon selection of the arbitrator(s), CPR will select arbitrator(s) as follows: CPR shall provide the parties with a list of no less than 25 proposed arbitrators (15 if a single arbitrator is to be selected) having the credentials referenced above. Within 25 days of receiving such list, the parties shall rank at least 65% of the proposed arbitrators on the initial CPR list, after exercising cause challenges. The parties may then interview the five candidates (three if a single arbitrator is to be selected) with the highest combined rankings for no more than one hour each and, following the interviews, may exercise one peremptory challenge each. The panel will consist of the remaining three 51 candidates (or one, if one arbitrator is to be selected) with the highest combined rankings. In the event these procedures fail to result in selection of the required number of arbitrators, CPR shall select the appropriate number of arbitrators from among the members of the various CPR Panels of Distinguished Neutrals, allowing each side challenges for cause and three peremptory challenges each. (e) In the event the parties cannot agree upon procedures for discovery and conduct of the hearing meeting the schedule set forth in Section 1.2(c) above, then the arbitrator(s) shall set dates for the hearing, any post-hearing briefing, and the issuance of the award in accord with the Section 1.2(c) schedule. The arbitrator(s) shall provide for discovery according to those time limits, giving recognition to the understanding of the parties that they contemplate reasonable discovery, including document demands and depositions, but that such discovery be limited so that the Section 1.2(c) schedule may be met without difficulty. In no event will the arbitrator(s), absent agreement of the parties, allow more than a total of ten days for the hearing or permit either side to obtain more than a total of 40 hours of deposition testimony from all witnesses, including both fact and expert witnesses, or serve more than 20 individual requests for documents, including subparts, or 20 individual requests for admission or interrogatories, including subparts. Multiple hearing days will be scheduled consecutively to the greatest extent possible. (f) The arbitrator(s) must render their award by application of the substantive law of the State of Delaware and are not free to apply "amiable compositeur" or "natural justice and equity." The arbitrator(s) shall render a written opinion setting forth findings of fact and conclusions of law with the reasons therefor stated. A transcript of the evidence adduced at the hearing shall be made and shall, upon request, be made available to either party. The arbitrator(s) shall have power to exclude evidence on grounds of hearsay, prejudice beyond its probative value, redundancy, or irrelevance and no award shall be overturned by reason of such ruling on evidence. To the extent possible, the arbitration hearings and award will be maintained in confidence. (g) The United States District Court for the District in which the arbitration is held may enter judgment upon any award. In the event the panel's award exceeds $5 million in monetary damages or includes or consists of equitable relief, or rejects a claim in excess of that amount or for that relief, then the court shall vacate, modify or correct any award (including remanding to the arbitrators for further proceedings) where the arbitrators' findings of fact are clearly erroneous, and/or where the arbitrators' conclusions of law are erroneous; in other words, the court will undertake the same review as if it were a federal appellate court reviewing a district court's findings of fact and conclusions of law rendered after a bench trial. An award for less than $5 million in damages and not including equitable relief, 52 or which neither rejects a claim in excess of that amount or for that relief, may be vacated, modified or corrected only pursuant to the Federal Arbitration Act. The parties consent to the jurisdiction of the above-specified Court for the enforcement of these provisions, the review specified herein, and the entry of judgment on any award. In the event such Court lacks jurisdiction, then any court having jurisdiction of this matter may enter judgment upon any award and provide the same relief, and undertake the same review, as specified herein. (h) In the event the expanded judicial review provided for under Section 1.2(g) above is not available from the court as a matter of law, the party unable to obtain such review may instead obtain review of the arbitrators' award or decision by a single appellate arbitrator (the "Appeal Arbitrator") selected from the CPR list of distinguished neutrals and pursuant to selection procedures specified in Section 1.2(d) above. If CPR cannot provide such services, the parties will together select another provider of arbitration services that can. No Appeal Arbitrator shall be selected unless he or she can commit to rendering a decision within forty-five days following oral argument as provided in this paragraph. Any such review must be initiated within thirty (30) days following the date the court declines the expanded review specified in Section 1.2(g) above. In the event timely review is sought, the Appeal Arbitrator will make the same review of the arbitration panel's ruling and its bases that the U.S. Court of Appeals of the Circuit where the arbitration hearings are held would make of findings of fact and conclusions of law rendered by a district court after a bench trial and then modify, vacate or affirm the arbitration panel's award or decision accordingly, or remand to the panel for further proceedings. The Appeal Arbitrator will consider only the arbitration panel's findings of fact and conclusions of law, pertinent portions of the hearing transcript and evidentiary record as submitted by the parties, opening and reply briefs of the party pursuing the review, and the answering brief of the opposing party, plus a total of no more than four (4) hours of oral argument evenly divided between the parties. The party seeking review must submit its opening brief and any reply brief within seventy-five (75) and one hundred thirty (130) days, respectively, following the date the court declines the expanded review specified in Section 1.2(g); whereas, the opposing party must submit its responsive brief within one hundred ten (110) days of that date. Oral argument shall take place within five (5) months after the court declines the expanded review specified in Section 1.2(g), and the Appeal Arbitrator shall render a decision within forty-five (45) days following oral argument. That decision will be final and not subject to further review, except pursuant to the Federal Arbitration Act. (i) Each party has the right before or, if the arbitrator(s) cannot hear the matter within an acceptable period, during the arbitration to seek and obtain from the appropriate court provisional remedies such as attachment, preliminary injunction, replevin, etc. to avoid irreparable harm, maintain the status quo, or preserve the subject matter of the arbitration. 53 (j) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY JURY. (k) EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE, EXEMPLARY OR MULTIPLIED DAMAGES FROM THE OTHER. (l) EACH PARTY HERETO WAIVES ANY CLAIM OF CONSEQUENTIAL DAMAGES FROM THE OTHER. (m) EACH PARTY HERETO WAIVES ANY CLAIM FOR ATTORNEYS' FEES AND COSTS AND PREJUDGMENT INTEREST FROM THE OTHER. 54 SCHEDULE 14.10 PRESS RELEASE FOR IMMEDIATE RELEASE
Corporate Contact Media Inquiries Investor Inquiries - ----------------- --------------- ------------------ 3-Dimensional Pharmaceuticals Noonan/Russo Communications Rx Communications Scott Horvitz Glenn Silver Melody Carey VP, Finance and Administration 212-696-4455, ext. 271 917-322-2571 267-757-7208 g.silver@noonanrusso.com mcarey@rxir.com horvitz@3dp.com ------------------------ - ---------------
3-DIMENSIONAL PHARMACEUTICALS ANNOUNCES DISCOVERWORKS(R)DRUG DISCOVERY ALLIANCE WITH JOHNSON & JOHNSON PHARMACEUTICAL RESEARCH & DEVELOPMENT Yardley, PA, January 7, 2002 - 3-Dimensional Pharmaceuticals, Inc. (Nasdaq:DDDP) (3DP) today announced a drug discovery alliance that will apply 3DP's proprietary technologies to discover and optimize small molecule drug leads directed to genomics targets identified by Johnson & Johnson Pharmaceutical Research & Development, L.L.C. Under terms of the agreement, 3DP will receive an upfront technology access fee and committed research funding during the research collaboration period. 3DP is also eligible to receive milestone payments and royalties on any sales of resulting products. 3DP (http://www.3dp.com) is an integrated bio-pharmaceuticals company dedicated to revolutionizing small molecule drug discovery and development. 3DP's proprietary platform, DiscoverWorks, can be applied to virtually any potential drug target. It produces drug candidates suitable for faster development , with fewer resources and a higher probability of success than using conventional drug discovery methods. 3DP is developing its own drug pipeline and collaborates with other pharmaceutical companies in discovery and development. ### Statements in this press release that are not strictly historical are "forward looking" statements which involve a high degree of risk and uncertainty. Such statements are only predictions, and the actual events of results may differ materially from those projected in such forward-looking statements. Factors that could cause or contribute to differences include, but are not limited to, risks associated with our new and uncertain technologies, clinical trials and product development, the long and arduous process of obtaining regulatory approval, our dependence on existing strategic alliances and new collaborations, our dependence on patents and proprietary rights, our ability to protect and enforce our patents and proprietary rights, the development and availability of competitive products or technologies, our ability to attract and retain talented employees and our ability to manage our expansion as a company increasingly focused on internal product research and development. 55 EX-10.48 5 dex1048.txt LICENSE AGREEMENT Exhibit 10.48 LICENSE AGREEMENT GLAXOSMITHKLINE AND 3-DIMENSIONAL PHARMACEUTICALS, INC. Note: Certain portions of this License Agreement and its exhibits, which - ---- are identified by the symbol "[* *]", have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. LICENSE AGREEMENT ----------------- THIS LICENSE AGREEMENT (hereinafter "AGREEMENT"), made as of the _____ day of January, 2002, between SmithKline Beecham Corporation, a Pennsylvania corporation having a place of business at One Franklin Plaza, Philadelphia, PA 19101 ("SBC") and Glaxo Group Limited, a company incorporated in England and Wales, having an office at Greenford Road, Greenford, Middlesex, UB6 OHE, United Kingdom ("GGL" and, together with SBC, GlaxoSmithKline or "GSK") and 3- Dimensional Pharmaceuticals, Inc., a Delaware corporation having a place of business at Three Lower Makefield Corporate Center, 1020 Stony Hill Road, Yardley, PA 19067 (herein referred to as "3DP"), WITNESSETH THAT: ---------------- WHEREAS, GSK is the owner of all right, title and interest in certain patents, identified in Appendix B hereto, and know-how, relating to two thrombopoietin peptide mimetics known internally at GSK as AF13948 and AF15705, as well as to certain PEGylated forms of these compounds known internally at GSK as GW350805 and GW395058, respectively; WHEREAS GSK was developing, but has discontinued development of, GW350805 and W395058; and WHEREAS, 3DP desires to obtain an exclusive license, and GSK is willing to grant an exclusive license to develop and commercialize such compounds on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the covenants and obligations expressed herein, and intending to be legally bound, and otherwise to be bound by proper and reasonable conduct, the parties agree as follows: 1. DEFINITIONS ----------- 1.01 "AFFILIATE" shall mean any corporation or other entity that controls, is controlled by or is under common control with a party to this Agreement. A corporation or other entity, as applicable, shall be regarded as in control of another corporation or other entity if it owns or directly or indirectly controls at least fifty percent (50%) of the voting stock of the other corporation or (a) in the absence of the ownership of at least fifty percent (50%) of the voting stock of a corporation or (b) in the case of a non-corporate entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non- corporate entity, as applicable. Page 1 1.02 "EFFECTIVE DATE" shall mean the date as of which this Agreement is effective and shall be the date of this Agreement first written above. 1.03 "FIELD" shall the mean the development, manufacture and sale of products that are peptides or modified peptides, including but not limited to PRODUCTS, that exhibit activity mimetic to thrombopoietin and that [* *]; excluding however for all purposes the development, manufacture and sale of products that [* *], including but not limited to PRODUCTS, [* *]. 1.04 "KNOW-HOW" shall mean the technical information and know-how that is owned or controlled by GSK as of the EFFECTIVE DATE and that is necessary or useful for the development, manufacturing or regulatory approval of a PRODUCT and shall include, without limitation, biological, chemical, pharmacological, toxicological, clinical, assay, control and manufacturing data and any other information specifically relating to a PRODUCT. A non-comprehensive list of documentation encompassed within KNOW-HOW is set forth on Appendix A attached hereto, which may be amended from time to time by mutual agreement of the parties. In addition, if in the course of providing the services described in Appendix E, GSK develops additional information or know-how that is necessary or useful for the development, manufacturing or regulatory approval of a PRODUCT, KNOW-HOW shall also include such additional information and know-how. For the avoidance of doubt, it is understood and agreed that LICENSOR shall have no obligation to complete or finalize any draft reports or collections of data that may be included within KNOW-HOW. 1.05 "LICENSEE" shall mean 3DP. 1.06 "LICENSOR" shall mean GSK. 1.07 "NDA" shall mean an application for marketing approval of a pharmaceutical product in any country of the world. 1.08 "PATENTS" shall mean the patents and patent applications that are owned by LICENSOR as of the EFFECTIVE DATE, or to which LICENSOR otherwise has the right to grant licenses as of the EFFECTIVE DATE and that generically or specifically claim a PRODUCT or compositions thereof, methods of manufacturing a PRODUCT or compositions thereof, or methods of using a PRODUCT or compositions thereof. Also included within the definition of PATENTS are all continuations, continuations-in-part, divisions, patents of addition, utility models, reissues, renewals, extensions and supplementary patent certificates derived from or based on such patents and patent applications. The list of U.S. and PCT patent applications and patents encompassed within PATENTS as of the EFFECTIVE DATE is set forth in Appendix B attached hereto. Promptly following the EFFECTIVE DATE, LICENSOR shall amend Appendix B to include all patent applications and patents encompassed within PATENTS. In addition, PATENTS shall also include patents and patent applications filed in Page 2 accordance with Section 7.01 as well as all continuations, continuations-in- part, divisions, patents of addition, utility models, reissues, renewals, extensions and supplementary patent certificates derived from or based on such patents and patent applications. 1.09 "PRODUCT" shall mean any of AF15705, AF13948, GW350805 and GW395058, each of which is more fully described on Appendix C, including alternative PEGylated or otherwise-modified forms thereof and including pharmaceutical compositions comprising such compounds or modified forms thereof, as well as any derivatives thereof that are discovered or developed by LICENSEE during the term of this AGREEMENT. "PRODUCTS" shall mean all of AF15705, AF13948, GW350805 and GW395058 and all alternative PEGylated or otherwise-modified forms thereof and including pharmaceutical compositions comprising such compounds or modified forms thereof, as well as any derivatives thereof that are discovered or developed by LICENSEE during the term of this AGREEMENT. 1.10 "TERRITORY" shall mean all the countries and territories in the world. 1.11 "THIRD PARTY(IES)" shall mean any party other than a party to this Agreement or an AFFILIATE of either party. 2. GRANT ----- 2.01 LICENSOR hereby grants to LICENSEE an exclusive license, with the right to grant sublicenses, under the PATENTS and KNOW-HOW to make, have made, use, offer to sell, sell and import products in the FIELD in the TERRITORY, subject to the terms and conditions of this Agreement. 3. PAYMENTS AND ROYALTIES ---------------------- 3.01 In consideration for the exclusive license to PATENTS and KNOW-HOW granted to LICENSEE by LICENSOR under this Agreement, LICENSEE shall make the following stock issuances to LICENSOR (to be split equally between each GSK entity comprising LICENSOR) in accordance with the Stock Purchase Agreement attached hereto as Appendix D: 1. 500,000 shares of Common Stock of LICENSEE to be issued within five (5) business days after the EFFECTIVE DATE; 2. [* *] shares of Common Stock of LICENSEE to be issued within ten (10 days of the effective date of [* *], i.e., within ten (10) days of the date on which LICENSEE [* *]or to an analogous agency under the laws and regulations of any other country; 3. [* *] shares of Common Stock of LICENSEE to be issued within ten (10) days of [* *]; Page 3 4. [* *] shares of Common Stock of LICENSEE to be issued within ten (10) days of [* *]; 5. [* *] shares of Common Stock of LICENSEE to be issued with ten (10) days of [* *]. [* *] 3.02 The stock issuances specified in Section 3.01 shall be the sole consideration for all rights granted to LICENSEE hereunder and for all obligations assumed by LICENSOR hereunder. 3.03 LICENSEE shall give LICENSOR prompt written notice of occurrence of each of the development milestones identified in Section 3.01(2),(3),(4), and (5). 4. DEVELOPMENT AND REGISTRATION ---------------------------- 4.01 As of the EFFECTIVE DATE, LICENSEE shall have full control and authority over, and shall be solely responsible for PRODUCTS, including but not limited to the development, registration, manufacture and commercialization of PRODUCTS in the TERRITORY. LICENSEE will exercise its reasonable efforts and diligence in developing and commercializing a PRODUCT in accordance with its business, legal, medical and scientific judgment, and in undertaking investigations and actions required to obtain appropriate governmental approvals to market a PRODUCT in the TERRITORY. All such activity shall be undertaken at LICENSEE's expense. 4.02 LICENSEE shall keep LICENSOR informed in writing, on an annual basis, of the status of the development of PRODUCTS throughout the TERRITORY. 4.03 Except as specified in Appendix E and in Section 4.04, LICENSOR shall have no obligation to provide any support to LICENSEE, whether financially, internal resource or otherwise, for the development and commercialization of PRODUCTS under the terms of this Agreement or otherwise. 4.04 Except to the extent transferred to LICENSEE pursuant to this Agreement, LICENSOR shall maintain its data, records, reports, and other information relating to the research and development of PRODUCTS to the same extent, and with the same level of care, as it would for other pharmaceutical products that it discovers, develops and directly commercializes, provided that such data, records, reports, and other information are in its possession or control as of the EFFECTIVE DATE. 5. SUPPLY, DISTRIBUTION AND LABELING --------------------------------- Page 4 5.01 LICENSEE shall be solely responsible for providing its clinical, promotional and commercial requirements of PRODUCTS throughout the TERRITORY. 5.02 LICENSEE shall be solely responsible for the distribution in the TERRITORY of PRODUCTS. 5.03 At Licensee's discretion, PRODUCTS sold by LICENSEE or its permitted sublicensees in the TERRITORY may bear a legend on its packaging stating that such PRODUCT is sold under a license from LICENSOR and/or bearing the patent numbers of patents claiming the PRODUCT that have been granted in the country of sale; provided that the exact content of such legend must be approved by LICENSOR prior to commercial launch in the TERRITORY if LICENSEE elects to use such legends. LICENSOR shall bear no responsibility for any limitation on damages recoverable from an infringer in an infringement suit as provided for under Section 7.05 herein if LICENSEE elects under this Section 5.03 to omit the US patent numbers of patents claiming the PRODUCT. 6. EXCHANGE OF INFORMATION, TRANSITIONAL SERVICES, AND CONFIDENTIALITY ------------------------------------------------------------------- 6.01 LICENSOR shall compile and transfer to LICENSEE, KNOW-HOW, including but not limited to the documentation listed on Appendix A, and shall otherwise provide certain transitional services, all as described in Appendix E. The obligation to transfer KNOW-HOW extends only to KNOW-HOW known to GSK as of EFFECTIVE DATE or developed by GSK prior to acceptance of an IND for a PRODUCT. 6.02 During the term of this Agreement and for five (5) years thereafter, irrespective of any termination earlier than the expiration of the term of this Agreement, LICENSOR shall not use or reveal or disclose to THIRD PARTIES any confidential information received from LICENSEE without first obtaining the written consent of LICENSEE, except as may be required to be disclosed to a governmental agency, in which case LICENSOR shall give LICENSEE prior notice of the details of such disclosure and of the requirements therefor. This confidentiality obligation shall not apply to such information which is or becomes a matter of public knowledge, or is already in the possession of LICENSOR, or is disclosed to LICENSOR by a THIRD PARTY having the right to do so, or is subsequently and independently developed by employees of LICENSOR or AFFILIATES thereof who had no knowledge of the confidential information disclosed. LICENSOR shall take reasonable measures to assure that no unauthorized use or disclosure is made by others to whom access to such information is granted. 6.03 During the term of this Agreement and for five (5) years thereafter, irrespective of any termination earlier than the expiration of the term of this Agreement, LICENSEE shall not use or reveal or disclose to THIRD PARTIES any confidential information received from Page 5 LICENSOR in accordance with this Agreement or under the Confidential Information Agreement between LICENSOR and LICENSEE dated June 16, 2001, without first obtaining the written consent of LICENSOR. This confidentiality obligation shall not apply to KNOW-HOW or to such information which is or becomes a matter of public knowledge, or is already in the possession of LICENSEE, or is disclosed to LICENSEE by a THIRD PARTY having the right to do so, or is subsequently and independently developed by employees of LICENSEE or AFFILIATES thereof who had no knowledge of the confidential information disclosed. LICENSEE shall take reasonable measures to assure that no unauthorized use or disclosure is made by others to whom access to such information is granted. 6.04 Either party to this Agreement may release the announcement attached hereto as Appendix F. Otherwise, no public announcement or other disclosure to THIRD PARTIES concerning the existence of or terms of this Agreement shall be made, either directly or indirectly, by any party to this Agreement, except as may be legally required or as may be required for recording purposes, without first obtaining the written approval of the other party and agreement upon the nature and text of such announcement or disclosure; provided however, that in the event of any disclosure required by law or required for recording purposes, the disclosing party shall notify the other party prior to any such disclosure and reasonably cooperate with any requests to limit or otherwise protect any such disclosures. The above notwithstanding, without the prior consent of LICENSOR, LICENSEE may disclose to third parties information concerning the development and commercialization of PRODUCTS provided that it shall not disclose the terms of this Agreement, except to the extent already disclosed by the announcement attached as Appendix F, without the prior written consent of LICENSOR. A party desiring to make any other public announcement or other disclosure shall inform the other party of the proposed announcement or disclosure in reasonably sufficient time prior to release, and shall provide the other party with a written copy thereof, in order to allow such other party to comment upon such announcement or disclosure. 6.05 LICENSOR shall not submit for written or oral publication any manuscript, abstract or the like which includes data or other information relating to either PRODUCT without first obtaining the prior written consent of LICENSEE. 6.06 Nothing in this Agreement shall be construed as preventing or in any way inhibiting LICENSEE from complying with statutory and regulatory requirements governing the development, manufacture, use and sale or other distribution of PRODUCTS in any manner that it reasonably deems appropriate, including, for example, by disclosing to regulatory authorities confidential or other information received from LICENSOR or THIRD PARTIES. Page 6 6.07 All confidential information disclosed by one party to the other shall remain the intellectual property of the disclosing party. In the event that a court or other legal or administrative tribunal, directly or through an appointed master, trustee or receiver, assumes partial or complete control over the assets of a party to this Agreement based on the insolvency or bankruptcy of such party, the bankrupt or insolvent party shall promptly notify the court or other tribunal (i) that confidential information received from the other party under this Agreement remains the property of the other party and (ii) of the confidentiality obligations under this Agreement. In addition, the bankrupt or insolvent party shall, to the extent permitted by law, take all steps necessary or desirable to maintain the confidentiality of the other party's confidential information and to ensure that the court, other tribunal or appointee maintains such information in confidence in accordance with the terms of this Agreement. 7. PATENT PROSECUTION AND LITIGATION ---------------------------------- 7.01 Each party shall have and retain sole and exclusive title to all inventions, discoveries and know-how which are made, conceived, reduced to practice or generated solely by its employees, agents, or other persons acting under its authority in the course of or as a result of the performance of activities under this Agreement. Each party shall own a fifty percent (50%) undivided interest in all such inventions, discoveries and know-how made, conceived, reduced to practice or generated jointly by employees, agents, or other persons acting under the authority of both parties in the course of or as a result of the performance of activities under this Agreement. For the avoidance of doubt, it is understood and agreed that LICENSOR is not obligated to, and has no intent of being involved at all with LICENSEE in the development or commercialization of PRODUCT under this Agreement, and that the responsibility for the development and commercialization of PRODUCT rests solely with LICENSEE, except as provided in Appendix E and in Section 4.04. LICENSOR shall have the right to file, prosecute and maintain patent applications and patents directed to inventions and discoveries that are owned in whole by LICENSOR in accordance with this Section 7.01. LICENSEE shall have the right to file, prosecute and maintain patent applications and patents directed to inventions and discoveries that are owned in whole by LICENSEE in accordance with this Section 7.01. Both parties shall have the right to file, prosecute and maintain patent applications and patents directed to inventions and discoveries that are jointly owned by LICENSEE and by LICENSOR in accordance with this Section 7.01 and the parties shall agree upon which of them shall take the lead in filing, prosecuting and maintaining such patent applications at the equal expense of both parties. If either party declines to exercise its rights to file, prosecute and maintain patent applications or patents hereunder, the other party shall have the right to file, prosecute and maintain such patent applications and patents at its own expense. Page 7 7.02 LICENSOR shall disclose to LICENSEE the complete texts of all patents and patent applications that are PATENTS as well as of all correspondence to or from the U.S. Patent and Trademark Office, and other patent offices around the world, relating to such patents and patent applications, as well as all information received concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving a PATENT anywhere in the TERRITORY. All such disclosures shall be subject to the provisions of Section 6.03. LICENSEE shall have the right to comment upon all patent office communications concerning such patents and patent applications as well as on all proposed responses to such communications. 7.03 In addition, LICENSOR shall consult with patent attorneys appointed by LICENSEE prior to taking any action that would result in the narrowing of claims that cover the making, using, or selling of a PRODUCT, or that would otherwise reduce the patent coverage for a PRODUCT, provided that the fees and expenses of the appointed patent attorneys shall be paid by LICENSEE. LICENSEE shall have the right to assume responsibility for any PATENT or any part of a PATENT that covers the making, using or selling of a PRODUCT and that LICENSOR intends to abandon or otherwise cause or allow to be forfeited. 7.04 In the event of the institution of any suit by a THIRD PARTY against LICENSOR, LICENSEE or its sublicensees for patent infringement involving the manufacture, use, sale, distribution or marketing of PRODUCT anywhere in the TERRITORY, the party sued shall promptly notify the other party in writing. LICENSEE shall have the right but not the obligation to defend such suit at its own expense. LICENSOR and LICENSEE shall assist one another and cooperate in any such litigation at the other's reasonable request without expense to the requesting party. 7.05 In the event that LICENSOR or LICENSEE becomes aware of actual or threatened infringement of a patent claim in a PATENT, which claim covers the making, using, or selling of a product in the FIELD anywhere in the TERRITORY, that party shall promptly notify the other party in writing. LICENSEE shall have the first right but not the obligation to bring, at its own expense, an infringement action against any THIRD PARTY and, if required in order to bring or maintain such action or to recover the full measure of damages, to use LICENSOR's name in connection therewith and to include LICENSOR as a party thereto. If LICENSEE does not commence a particular infringement action within ninety (90) days, LICENSOR, if LICENSEE consents, shall be entitled to bring such infringement action at its own expense. The party conducting such action shall have full control over its conduct, including settlement thereof, subject to Paragraph 7.07. In any event, LICENSOR and LICENSEE shall assist one another and cooperate in any such litigation at the other's reasonable request without expense to the requesting party. Page 8 7.06 LICENSOR and LICENSEE shall recover their respective actual out-of- pocket expenses, or equitable proportions thereof, associated with any litigation or settlement thereof from any recovery made by any party. Any excess amount shall be kept by the party that conducted the litigation. 7.07 The parties shall keep one another informed of the status of and of their respective activities regarding any litigation or settlement thereof concerning PRODUCT, provided that no settlement or consent judgment or other voluntary final disposition of any suit defended or action brought by one party pursuant to this Article 7 may be entered into without the consent of the other party if such settlement would require the non-settling party to be subject to an injunction outside the FIELD or to make a monetary payment for which the non- settling party is not indemnified by the settling party or would adversely affect the non-settling party's rights under this Agreement. 8. TRADEMARKS AND NON-PROPRIETARY NAMES ------------------------------------ 8.01 LICENSEE, at its expense, shall be responsible for the selection, registration and maintenance of all trademarks that it employs in connection with PRODUCT in the TERRITORY and shall own and control such trademarks. Nothing in this Agreement shall be construed as a grant of rights, by license or otherwise, to LICENSOR to use such trademarks for any purpose. 9. TERM AND TERMINATION -------------------- 9.01 Unless otherwise terminated, this Agreement shall expire upon the expiration, lapse or invalidation of the last remaining PATENT in any country of the TERRITORY that covers the making, using, selling, or importing of PRODUCT. Expiration of this Agreement under this provision shall not preclude LICENSEE from continuing to market PRODUCT and to use KNOW-HOW without further payments to LICENSOR. 9.02 If either party fails or neglects to perform material covenants or provisions of this Agreement and if such default is not corrected within thirty (30) days after receiving written notice from the other party with respect to such default, such other party shall have the right to terminate this Agreement by giving written notice to the party in default; provided, however, that if such default is contested in accordance with Article 14, then the termination shall not take effect until the matter is finally resolved. 9.03 LICENSEE may terminate this Agreement at any time and at its discretion by giving thirty (30) days written notice thereof to LICENSOR. Upon any termination by LICENSOR pursuant to Section 9.02 or LICENSEE pursuant to this Section 9.03, in addition to the provisions of Article 10 below, LICENSEE shall return to LICENSOR any KNOW-HOW Page 9 provided to LICENSEE hereunder. In addition, LICENSEE shall grant to LICENSOR a license under LICENSEE's rights in all pre-clinical, clinical, regulatory, manufacturing and other documentation and related know-how and patents relating to PRODUCTS developed and/or commercialized hereunder under commercially reasonable terms to be negotiated in good faith between the parties. 9.04 Either party may terminate this Agreement if, at any time, the other party shall file in any court or agency pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of the party or of its assets, or if the other party proposes a written agreement of composition or extension of its debts, or if the other party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or if the other party shall propose or be a party to any dissolution or liquidation, or if the other party shall make an assignment for the benefit of creditors. 9.05 Notwithstanding the bankruptcy of LICENSOR, or the impairment of performance by LICENSOR of its obligations under this Agreement as a result of bankruptcy or insolvency of LICENSOR, LICENSEE shall be entitled to retain the licenses granted herein, subject to LICENSOR's rights to terminate this Agreement for reasons other than bankruptcy or insolvency as expressly provided in this Agreement. 10. RIGHTS AND DUTIES UPON TERMINATION ---------------------------------- 10.01 Upon termination of this Agreement, LICENSOR shall have the right to retain any shares of Common Stock of LICENSEE already issued to LICENSOR by LICENSEE under this Agreement or the Stock Purchase Agreement, and LICENSEE shall issue to LICENSOR all shares of Common Stock that may be due as of the effective date of termination under Section 3.01. 10.02 Termination of this Agreement shall terminate all outstanding obligations and liabilities between the parties arising from this Agreement, including without limitation the licenses granted in Article 2 hereof, except those described in Paragraphs 6.02, 6.03, 6.07, 7.01, 9.01, 9.03, 11.06, 13.01 and 14.01 and Article 10, as well as any other provision which, by its terms, is stated to survive the termination or expiration of this Agreement. In addition, any other provision required to interpret and enforce the parties rights and obligations under this Agreement shall also survive, but only to the extent that such survival is required for the full observation and performance of this Agreement by the parties hereto. 10.03 Termination of the Agreement in accordance with the provisions hereof shall not limit remedies that may be otherwise available in law or equity. Page 10 11. WARRANTIES AND REPRESENTATIONS ------------------------------ 11.01 LICENSOR represents and warrants that, except as listed in Appendix G: 11.1.1. it has the right to enter into this Agreement; 11.1.2. as of the EFFECTIVE DATE, to its belief and knowledge, but without any inquiry or investigation, the claims in the PATENTS listed on Appendix B that cover the making, using or selling of a PRODUCT are valid and enforceable; 11.1.3. as of the EFFECTIVE DATE, to its belief and knowledge, but without any inquiry or investigation, there are no third party patents or other intellectual property rights that would preclude or inhibit LICENSEE from making, using, or selling PRODUCTS in the Field; 11.1.4. as of the EFFECTIVE DATE, to its belief and knowledge, but without any inquiry or investigation, there are no third party liens or other encumbrances, including but not limited to encumbrances arising from contracts with third parties, on the PRODUCTS or on the PATENTS listed on Appendix B for use in the Field; 11.1.5. it has disclosed or will timely disclose to LICENSEE all information and data relevant to the safety of the PRODUCTS. 11.02 Nothing in this Agreement shall be construed as a warranty that PATENTS are valid or enforceable or that their exercise does not infringe any patent rights of THIRD PARTIES. 11.03 [* *]. 11.04 LICENSEE acknowledges that, in entering into this Agreement, LICENSEE has independently evaluated any information supplied by LICENSOR and related to PRODUCT and PATENTS before making its decision to enter into this Agreement and to undertake the commitments and obligations set forth herein, except that LICENSEE has relied upon the representations and warranties by LICENSOR expressly recited in Section 11.01. LICENSEE expressly acknowledges that it is solely responsible for the development and commercialization of PRODUCT and that, except as expressly set forth herein, LICENSOR has no obligation to provide assistance in any manner to LICENSEE in the development and commercialization of PRODUCT. 11.05 LICENSEE warrants that, with respect to any sublicense which it shall be entitled to grant under this Agreement, it shall secure all appropriate covenants, obligations and rights from any such sublicensee to ensure that such sublicensee can comply with all of LICENSEE' covenants and obligations to LICENSOR under this Agreement. LICENSEE agrees that it shall comply with all reasonable requests from LICENSOR to use reasonable endeavors to enforce requested provisions of such sublicense agreements. Page 11 11.06 LICENSEE shall indemnify and hold harmless LICENSOR and its Affiliates with respect to any and all claims, suits, causes of action, damages and costs (including reasonable attorney's fees) (hereinafter "Claims") asserted by any Third Party against LICENSEE and/or LICENSOR and arising from any of LICENSEE'S actions or omissions under this Agreement, including without limitation any claims for illness, injury, death or other damage resulting from LICENSEE or its AFFILIATES manufacture, use or sale of PRODUCT, except to the extent: 11.6.1. such Claims are due to the negligence or willful misconduct of LICENSOR or to breach by LICENSOR of its representations and warranties under Section 11.01 11.6.2. LICENSOR fails to give LICENSEE prompt notice of such Claims, fails to permit LICENSEE to control the defense or settlement of such Claims, or fails to reasonably cooperate with LICENSEE in the defense of such Claims; provided however that LICENSEE shall not settle any claim that imposes an injunction on LICENSOR outside of the FIELD or imposes a monetary judgement on LICENSOR for which LICENSOR is not indemnified by LICENSEE or otherwise adversely affects LICENSOR's rights outside the FIELD. 11.07 Immediately upon the first administration of a PRODUCT to a human in accordance with this Agreement, and for a period of at least five (5) years after the expiration of this Agreement or earlier termination, LICENSEE shall obtain and/or maintain, at its sole cost and expense, product liability insurance in amounts, which are reasonable and customary in the U.S. pharmaceutical industry for companies that are of similar size and similarly situated as LICENSEE. Such product liability insurance shall insure against all liability, including product liability, personal liability, physical injury or property damage. LICENSEE shall provide written proof of the existence of such insurance to LICENSOR upon request therefor. 12. FORCE MAJEURE ------------- 12.01 If the performance of any part of this Agreement by either party, or of any obligation under this Agreement, is prevented, restricted, interfered with or delayed by reason of any cause beyond the reasonable control of the party liable to perform, unless conclusive evidence to the contrary is provided, the party so affected shall, upon giving written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party shall use its reasonable best efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed. When such circumstances arise, the parties shall discuss what, if any, modification of the terms of this Agreement may be required in order to arrive at an equitable solution. Page 12 13. GOVERNING LAW ------------- 13.01 This Agreement shall be deemed to have been made in Pennsylvania and its form, execution, validity, construction and effect shall be determined in accordance with the laws of Pennsylvania. 14. DISPUTE RESOLUTION ------------------ 14.01 Any dispute, controversy or claim arising out of or relating to this Agreement, including termination thereof (hereinafter collectively referred to as "Dispute") shall be attempted to be settled by the parties, in good faith, by submitting each such Dispute to appropriate senior management representatives of each party in an effort to effect a mutually acceptable resolution thereof. In the event no mutually acceptable resolution is achieved in a reasonable period of time, then either party may submit the Dispute to binding arbitration in accordance with the relevant rules of the American Arbitration Association and the result of such arbitration shall be binding upon the parties and shall be final. Any such arbitration shall take place in Philadelphia, Pennsylvania. 15. SEPARABILITY ------------ 15.01 In the event any portion of this Agreement shall be held illegal, void or ineffective, the remaining portions hereof shall remain in full force and effect. 15.02 If any of the terms or provisions of this Agreement are in conflict with any applicable statute or rule of law, then such terms or provisions shall be deemed inoperative to the extent that they may conflict therewith and shall be deemed to be modified to conform with such statute or rule of law. 15.03 In the event that the terms and conditions of this Agreement are materially altered as a result of Paragraphs 15.01 or 15.02, the parties will renegotiate the terms and conditions of this Agreement to resolve any inequities. 16. ENTIRE AGREEMENT ---------------- 16.01 This Agreement, entered into as of the date first written above, constitutes the entire agreement between the parties relating to the subject matter hereof and supersedes all previous writings and understandings, including but not limited to the Confidential Information Agreement between LICENSOR and LICENSEE dated June 16, 2001. No terms or provisions of this Agreement shall be varied or modified by any prior or subsequent statement, conduct or act of either of the parties, except that the parties may amend this Agreement by written instruments specifically referring to and executed in the same manner as this Agreement. Page 13 17. NOTICES ------- 17.01 Any notice required or permitted under this Agreement shall be sent by air mail, postage pre-paid, to the following addresses of the parties: LICENSEE To: 3-Dimensional Pharmaceuticals, Inc. Three Lower Makefield Corporate Center 1020 Stony Hill Road Yardley, PA 19067 Attn: Chief Executive Officer Fax No.: 267-757-7283 Copy to: Morgan, Lewis & Bockius, LLP 1701 Market Street Philadelphia, PA 19103-2921 Fax No. 215-963-5299 Attention: Edward T. Lentz, Esq. and Linda Griggs, Esq. LICENSOR To: GlaxoSmithKline 1250 Collegeville Road Collegeville, PA 19426-0989 Attn: Mr. Osagie Imasogie V.P. and Director, Genetics and Discovery Ventures Fax: 610-917-4234 Copy to: GlaxoSmithKline Corporate Law Department One Franklin Plaza 200 North 16th Street / FP2360 Philadelphia, PA 19102 Attn: General Counsel Fax: 215-751-3935 17.02 Any notice required or permitted to be given concerning this Agreement shall be effective upon receipt by the party to whom it is addressed. Page 14 18. ASSIGNMENT ---------- 18.01 This Agreement and the licenses herein granted shall be binding upon and inure to the benefit of the successors in interest of the respective parties. Neither this Agreement nor any interest under this Agreement shall be assignable by either party without the written consent of the other; provided, however, that either party may assign this Agreement to (i) any AFFILIATE or (ii) any corporation with which it may merge or consolidate, or to which it may transfer all or substantially all of its assets , without obtaining the consent of the other party; provided further that any such assignee shall agree to be bound by the terms and conditions of this Agreement. For the avoidance of doubt, LICENSEE's obligations under the Stock Purchase Agreement and Registration Rights Agreement shall not be affected by any such assignment. 19. RECORDING --------- 19.01 LICENSEE shall have the right, at any time, to record, register, or otherwise notify this Agreement in appropriate governmental or regulatory offices anywhere in the TERRITORY, and LICENSOR shall provide reasonable assistance to LICENSEE in effecting such recording, registering or notifying. 20. EXECUTION IN COUNTERPARTS ------------------------- 20.01 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Page 15 IN WITNESS WHEREOF, the parties, through their authorized officers, have executed this Agreement as of the date first written above. 3-DIMENSIONAL PHARMACEUTICALS, INC. BY: --------------------------------- TITLE: ------------------------------ SMITHKLINE BEECHAM CORPORATION BY: --------------------------------- TITLE: ------------------------------ GLAXO GROUP LIMITED BY: --------------------------------- TITLE: ------------------------------ Page 16 LICENSE AGREEMENT GLAXOSMITHKLINE - 3DP APPENDIX A Documentation Encompassed Within KNOW-HOW Appendix A Documentation Encompassed Within KNOW-HOW ----------------------------------------- GSK agrees to supply the following documentation to the extent such information is in its possession at the time of the Effective Date. If electronic versions are available, information will be supplied electronically. If only hardcopy information is available then hardcopy will be supplied. [* 2 pages have been omitted pursuant to a confidential treatment request *] Electronic version of the Confidential Data Package A-1 Appendix A continued Documentation Encompassed Within KNOW-HOW - ----------------------------------------- The following documentation was available in the due diligence notebooks and GSK agrees to supply this information to 3DP. [* *]
INDI Subject Document No. Document/1/ Title Author [* *] [* *] [* *] [* *] [* *]
[* The entire table, consisting of 3 pages, has been omitted pursuant to a confidential treatment request *] A-3 [* *]
INDI Subject Document No. Document/1/ Title Author [* *] [* *] [* *] [* *] [* *]
[* The entire table, consisting of 2 pages, has been omitted pursuant to a confidential treatment request *] A-6 [* *]
Date From To Subject [* *] [* *] [* *] [* *]
[* The entire table, consisting of 3 pages, has been omitted pursuant to a confidential treatment request *] A-8 [* *]
INDI Subject Document No. Document/1/ Title Author [* *] [* *] [* *] [* *] [* *]
[* The entire table, consisting of 5 pages, has been omitted pursuant to a confidential treatment request *] A-11 [* *]
Created or Last Subject Document Format Contents Modified [* *] [* *] [* *] [* *] [* *]
[* The entire table, consisting of 1 page, including a portion of one footnote, has been omitted pursuant to a confidential treatment request *] Notes: 1) A single report may be reissued and appear in more than one INDI document files. 2) Electronic copy not available. Only pages or sections relevant to [* *] provided. A-16 LICENSE AGREEMENT GLAXOSMITHKLINE - 3DP APPENDIX B PATENTS AND APPLICATIONS U.S. PATENTS ------------ [* *] U.S. PENDING PATENT APPLICATIONS -------------------------------- [* *] PCT APPLICATIONS ---------------- [* *] NON-U.S. PATENTS AND APPLICATIONS --------------------------------- Any and all non-U.S. patents that claim priority to one or more of the U.S. Patents, U.S. Pending Patent Applications and PCT Applications set forth above. A complete list will be provided by GSK. B-1 LICENSE AGREEMENT GLAXOSMITHKLINE - 3DP APPENDIX C DESCRIPTION OF COMPOUNDS AF13948 ------- [* *] AF15705 ------- [* *] GW350805 -------- [* *] GW395058 -------- [* *] C-1 STOCK PURCHASE AGREEMENT and REGISTRATION RIGHTS AGREEMENT GLAXOSMITHKLINE - 3DP Appendix D STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement") is made as of January___, 2002 --------- by and among 3-Dimensional Pharmaceuticals, Inc., a Delaware corporation ( "3DP"), SmithKline Beecham Corporation, a Pennsylvania corporation ("SBC"), --- --- and Glaxo Group Limited, a company incorporated in England and Wales ("GGL" --- and, together with SBC, "GSK"). --- WITNESSETH THAT: WHEREAS, 3DP and GSK are entering into a License Agreement simultaneously with the execution of this Agreement whereby GSK is granting to 3DP an exclusive license to certain patents and know-how described in such License Agreement (the "License"); ------- WHEREAS, pursuant to the License Agreement and in consideration for the License, 3DP has agreed to issue shares of its common stock, par value $.001 per share (the "3DP Common Stock"), in equal amounts to SBC and GGL in accordance with the ---------------- terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound, hereby agree as follows: 1. Authorization of the Shares. 3DP has authorized the issuance and sale ---------------------------- to SBC and GGL of up to 2,400,000 shares of its Common Stock (the "Shares"). ------ 2. Purchase and Sale of the Shares. Subject to the terms and conditions -------------------------------- of this Agreement and the terms and conditions of the License Agreement, and in consideration for the grant of the License by GSK to 3DP, 3DP agrees to issue and sell, the following number of Shares, such amount of Shares to be issued in equal amounts to SBC and GGL: (a) 500,000 shares of 3DP Common Stock to be issued within five (5) business days after the Closing Date; (b) [* *] shares of 3DP Common Stock to be issued within ten (10) days of the effective date of [* *], i.e., within ten (10) days of the date on which 3DP [* *] or to an analogous agency under the laws and regulations of any other country; D-1 (c) [* *] shares of 3DP Common Stock to be issued within ten (10) days of [* *]; (d) [* *] shares of 3DP Common Stock to be issued within ten (10) days of [* *]; and (e) [* *] shares of 3DP Common Stock to be issued within ten (10) days of [* *]. [* *]. In addition, for the purposes of this Section 2, the terms "Product" and "IND" shall have the meanings ascribed to ------- --- such terms in the License Agreement. For purposes of this Agreement, the Shares to be issued pursuant to Section 2(a) shall be referred to herein as the "Initial Shares" and the Shares -------------- to be issued upon achievement of the milestones identified in Section 2(b), (c), (d) and (e) shall be referred to herein as the "Contingent Shares." ----------------- 2.1 Adjustments. If, on or prior to the issuance of any of the ------------ Shares, 3DP should split or combine shares of 3DP Common Stock, or pay a stock dividend or other stock distribution in 3DP Common Stock, or otherwise change the 3DP Common Stock into any other securities, or make any other dividend or distribution on the 3DP Common Stock, then the number of Shares issuable will be appropriately adjusted to reflect such split, combination, dividend or other distribution or change. No fractions of any Shares shall be issued pursuant to this Agreement and the Shares issued hereunder shall be rounded up to the nearest whole number of shares. [* *]. 3. Closing. The issuance of the Initial Shares will occur within five -------- business days of the execution of the License Agreement (the "Closing Date") at ------------ the offices of 3DP's counsel or at such other place as may be agreed upon by 3DP and GSK. On the Closing Date, 3DP will deliver to GSK, or a representative of GSK, stock certificates representing the Initial Shares, each such certificate to be registered in the name of SBC and GGL, as applicable, or in the name of a nominee designated by SBC or GGL. The issuance of the Contingent Shares shall be made within ten days following the achievement of the milestones referenced in Sections 2(b), (c), (d) and (e). 3DP's obligation to issue the Contingent Shares will terminate upon the termination or expiration of the License Agreement in accordance with its terms and will be conditioned on a material breach or default not having occurred under this Agreement. 4. Representations, Warranties and Covenants of 3DP. 3DP hereby ------------------------------------------------ represents and warrants to, and covenants with, SBC and GGL, as follows: 4.1 Organization. 3DP is duly incorporated and validly existing in ------------ good standing under the laws of the jurisdiction of its incorporation. 3DP has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and as described in the documents (including the exhibits thereto) filed by 3DP under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), since the end of its most recently ------------ completed fiscal year through the date D-2 hereof, including, without limitation, its report on Form 10-K for the year ended December 31, 2000, its quarterly reports on Form 10-Q for the quarters ending September 30, 2001, June 30, 2001 and March 31, 2001 and, its current reports on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on September 28, 2001 and January 3, 2001, (the "Exchange Act Documents") --- ---------------------- and is registered or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the location of the properties owned or leased by it requires such qualification and where the failure to be so qualified would have a material adverse effect upon the financial condition or results of operations of 3DP (a "Material Adverse ---------------- Effect"), and no proceeding has been instituted in any such jurisdiction, - ------ revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. 4.2 Due Authorization and Valid Issuance. 3DP has all requisite ------------------------------------ power and authority to execute, deliver and perform its obligations under this Agreement, and the Agreement has been duly authorized and validly executed and delivered by 3DP and constitutes a legal, valid and binding agreement of 3DP enforceable against 3DP in accordance with its terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Shares being purchased by SBC and GGL hereunder will, upon issuance pursuant to the terms hereof, be duly authorized, validly issued, fully-paid and nonassessable. 4.3 Non-Contravention. The execution and delivery of this Agreement, ----------------- the issuance of the Shares to be sold by 3DP under the License Agreement and this Agreement, the fulfillment of the terms of the Agreement and the consummation of the transactions contemplated hereby will not: (a) conflict with or constitute a violation of, or default (with the passage of time or otherwise) under, (i) any material bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which 3DP is a party or by which its properties are bound, (ii) the charter, by-laws or other organizational documents of 3DP, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to 3DP or its properties, except in the case of clauses (i) and (iii) for any such conflicts, violations or defaults which are not reasonably likely to have a Material Adverse Effect; or (b) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of 3DP or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which 3DP is a party or by which it is bound or to which any of the material property or assets of 3DP is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States or any other person is required for the execution and delivery of the Agreement and the valid issuance and sale of the Shares to be sold pursuant to the Agreement, other than such as have been D-4 made or obtained, and except for any post-closing securities filings or notifications required to be made under federal or state securities laws. 4.4 Capitalization. The capitalization of 3DP as of September 30, -------------- 2001 is as set forth in the most recent applicable Exchange Act Documents, increased as set forth in the next sentence. 3DP has not issued any capital stock since that date other than pursuant to (a) employee benefit plans disclosed in the Exchange Act Documents, or (b) outstanding warrants, options or other securities disclosed in the Exchange Act Documents. Except as set forth in or contemplated by the Exchange Act Documents, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in 3DP, or any contract, commitment, agreement, understanding or arrangement of any kind to which 3DP is a party or of which 3DP has knowledge and relating to the issuance or sale of any capital stock of 3DP, any such convertible or exchangeable securities or any such rights, warrants or options. No further approval or authorization of any stockholder, the Board of Directors of 3DP or others is required for the issuance and sale of the Shares. Except as disclosed in the Exchange Act Documents, there are no stockholder agreements, voting agreements or other similar agreements with respect to the capital stock of 3DP to which 3DP is a party or, to the knowledge of 3DP, between or among any of 3DP's stockholders. 4.5 Legal Proceedings. There is no material legal or governmental ----------------- proceeding pending or, to the knowledge of 3DP, threatened to which 3DP is or may be a party or of which the business or property of 3DP is subject that is required to be disclosed and that is not so disclosed in the Exchange Act Documents. To the knowledge of 3DP, there are no facts which, if known by a potential claimant, governmental authority or self regulatory organization, would give rise to a claim or proceeding which would be reasonably likely to have a Material Adverse Effect. 4.6 No Violations. 3DP is not in violation of its charter, bylaws, ------------- or other organizational document, or in violation of any law, administrative regulation, ordinance or order of any court, self regulatory organization or governmental agency, arbitration panel or authority applicable to 3DP, which violation, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect, or in default (and there exists no condition which, with the passage of time or otherwise, would constitute a default) in any material respect in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which 3DP is a party or by which 3DP is bound or by which the properties of 3DP are bound, which would be reasonably likely to have a Material Adverse Effect. 4.7 Intellectual Property. Except as specifically disclosed in the --------------------- Exchange Act Documents (a) 3DP owns or possesses sufficient rights to use all material patents, patent rights, trademarks, copyrights, licenses, inventions, trade secrets, trade names, know-how, confidential information and other intellectual property (collectively, "Intellectual Property") described or --------------------- referred to in the Exchange Act Documents as owned or possessed by it or that are necessary for the conduct of its D-5 business as now conducted or as proposed to be conducted as described in the Exchange Act Documents except where the failure to currently own or possess such Intellectual Property would not have a Material Adverse Effect, (b) 3DP is not, to its knowledge, infringing, and has not received any notice of, nor has any knowledge of, any asserted infringement by 3DP of, any rights of a third party with respect to any Intellectual Property that, individually or in the aggregate, would have a Material Adverse Effect and (c) 3DP has not received any notice of, or has any knowledge of, infringement by a third party with respect to any Intellectual Property rights of 3DP that, individually or in the aggregate, would have a Material Adverse Effect. 4.8 Financial Statements; Accountants. The financial statements of --------------------------------- 3DP and the related notes contained in the Exchange Act Documents present fairly in all material respects the financial position of 3DP as of the dates indicated, and the results of its operations and cash flows for the periods therein specified, and such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods specified therein, except as may be included in the notes to such financial statements, or in the case of unaudited financial statements, as may be permitted by the rules of the SEC for Form 10-Q under the Exchange Act and except as disclosed in the Exchange Act Documents. Arthur Andersen LLP and Richard A. Eisner & Company, LLP, who 3DP expects will consent to the inclusion in the Registration Statement of its opinion with respect to the financial statements to be incorporated by reference from 3DP's Annual Report on Form 10-K for the year ended December 31, 2001 into the Registration Statement and the prospectus which forms a part thereof, are independent accountants as required by the Securities Act and the rules and regulations promulgated thereunder. 4.9 No Material Adverse Change. Except as disclosed in the Exchange -------------------------- Act Documents, since September 30, 2001, there has not been (a) any material adverse change in the financial condition, or results of operations of 3DP, (b) any material adverse event affecting 3DP, (c) any material obligation, direct or contingent, incurred by 3DP, except obligations incurred in the ordinary course of business, (d) any dividend or distribution of any kind declared, paid or made on the capital stock of 3DP, or (e) any loss or damage (whether or not insured) to the physical property of 3DP which has been sustained that is material to 3DP. 4.10 Nasdaq Compliance. 3DP's Common Stock is registered pursuant to ----------------- Section 12(g) of the Exchange Act and is listed on the Nasdaq National Market of The Nasdaq Stock Market, Inc. (the "Nasdaq National Market"), and 3DP has taken ---------------------- no action designed to, or likely to have the effect of, terminating the registration of the 3DP Common Stock under the Exchange Act or de-listing the 3DP Common Stock from the Nasdaq National Market, nor has 3DP received any notification that the SEC or the National Association of Securities Dealers, Inc. ("NASD") is contemplating terminating such registration or listing. ---- 4.11 Reporting Status. 3DP has filed in a timely manner all ---------------- documents that 3DP was required to file under the Exchange Act during the 12 months preceding the date of this Agreement. 3DP's Exchange Act Documents complied in all material respects with the SEC's requirements as of their respective filing dates, and the information contained therein as of the date thereof, and such information, taken as a whole as of the date hereof, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of D-5 the circumstances under which they were made not misleading. 3DP is eligible to register the resale of the Shares on a registration statement on Form S-3 under the Act. 4.12 Listing. 3DP will comply with all of the requirements of the ------- NASD with respect to the issuance of the Shares and the listing thereof on the Nasdaq National Market. 4.13 Private Offering. Assuming that the representations and ---------------- warranties of SBC and GGL set forth in Section 5.1 are accurate, the offer and sale of Shares pursuant to this Agreement are exempt from registration under the Securities Act. 4.14 Reservation of Shares. 3DP shall maintain sufficient authorized --------------------- but unissued shares of 3DP Common Stock to meet its obligations to deliver the Contingent Shares pursuant to Sections 2(b), (c), (d) and (e) under this Agreement. 4.15 Reporting of Public Information for Rule 144. With a view to -------------------------------------------- making available the benefits of Rule 144 under the Securities Act (or any similar or successor rule which may at any time permit the sale of the Shares to the public without registration), 3DP agrees to (i) make and keep public information available, as those terms are defined in Rule 144 under the Securities Act, (ii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of 3DP under the Securities Act and the Exchange Act, and (iii) furnish to each of SBC or GGL a copy of the most recent annual or quarterly report of 3DP, and such other reports and documents so filed by 3DP as each of SBC or GGL may reasonably request in availing itself of Rule 144 (or any similar or successor rule). 5. Representations, Warranties and Covenants of SBC and GGL. -------------------------------------------------------- 5.1 Accredited Investor. Each of SBC and GGL represents and warrants ------------------- to, and covenants with, 3DP that: (a) it is an "accredited investor" as defined in Regulation D under the Securities Act and is also knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in securities presenting an investment decision like that involved in the purchase of the Shares, including investments in comparable companies, and has had the opportunity to request, receive, review and consider all information that it deemed relevant in making an informed decision to purchase the Shares; (b) it is acquiring the Initial Shares identified in Section 2(a) of this Agreement and the right to acquire the Contingent Shares identified in Sections 2(b), (c), (d) and (e), subject to the achievement by 3DP of the milestones identified in those subsections and pursuant to the terms and conditions of the License Agreement, in the ordinary course of its business and for its own account for investment only and with no present intention of distributing any of such Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares; (c) it will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, applicable state securities laws and the respective rules and regulations promulgated thereunder; and (d) it has, in connection with its decision to purchase the number of Shares set forth in Section 2 of this Agreement, relied only upon the Exchange Act Documents, any materials requested and received pursuant to clause (a) above and the representations and warranties of 3DP contained herein. Each of SBC and GGL understands that neither this issuance nor its acquisition of the Shares has been D-6 registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of its investment intent as expressed herein. 5.2 Authority. Each of SBC and GGL further represents and warrants --------- to, and covenants with, 3DP that (a) it has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (b) this Agreement and the License Agreement constitute valid and binding obligations of each of SBC and GGL enforceable against them in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 No Investment Advice. Each of SBC and GGL understands that -------------------- nothing in the Exchange Act Documents, this Agreement or any other materials presented to them in connection with the purchase and sale of the Shares constitutes legal, tax or investment advice. Each of SBC and GGL has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Shares. 5.4 Limitations on Resale. Each of SBC and GGL understand that the --------------------- Shares may not be transferred unless the Shares have been registered under the Securities Act and any applicable state securities law or, in the opinion of counsel satisfactory to the issuer, the sale or disposition of the Shares may lawfully be made without compliance with the registration requirements of the Securities Act. Except with the consent of 3DP, each of SBC and GGL will not, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of any of the Initial Shares or Contingent Shares or any interests therein, including through short sales, swaps, derivatives or other instruments or arrangements which have the purpose or effect of transferring the risk of ownership of such Shares (all of the foregoing referred to herein as "Transfer") -------- prior to the first anniversary of (x) the Closing Date in the case of the Initial Shares or the Contingent Shares issued pursuant to Section 2(b), or (y) the date of achievement of the relevant milestone in the case of the Contingent Shares issued pursuant to Sections 2(c), 2(d) or 2(e) (the "Lock Up"). In ------- addition, until January 8, 2005, in any three-month period, neither SBC nor GGL will Transfer any of the Initial Shares or Contingent Shares in an amount of Shares that exceeds the greater of (i) one percent of the number of shares of 3DP Common Stock outstanding as shown by the most recent report or statement published by 3DP, or (ii) the average weekly reported volume of trading in shares of 3DP Common Stock on the Nasdaq National Market or such other national securities exchange as such shares may be traded, during the four calendar weeks preceding the date of execution of the transaction, provided, however, that the foregoing volume limitations shall not apply to any sales by SBC or GGL pursuant to an Underwritten Offering (as that term is defined in the Registration Rights Agreement). Notwithstanding the limitations set forth in this Section 5.4, each of SBC and GGL may Transfer its Shares to an Affiliate, as such term is defined in the License Agreement. D-7 5.5 Legends. The certificates evidencing the Shares to be delivered -------- to each of SBC and GGL will bear restrictive legends substantially in the following forms as long as applicable: THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE ENCUMBERED OR DISPOSED OF, AND NO LIEN, CHARGE OR OTHER ENCUMBRANCE MAY BE CREATED THEREON UNLESS SUCH SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAW, OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, THE SALE OR DISPOSITION THEREOF MAY LAWFULLY BE MADE WITHOUT COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CONTRACTUAL RESTRICTIONS ON TRANSFER PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT DATED JANUARY_____, 2002 (THE "AGREEMENT") BY AND AMONG THE ISSUER, SMITHKLINE BEECHAM CORPORATION AND GLAXO GROUP LIMITED. SUCH SHARES MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE ENCUMBERED OR DISPOSED OF, AND NO LIEN, CHARGE OR OTHER ENCUMBRANCE MAY BE CREATED THEREON AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER, ASSIGNMENT, PLEDGE OR OTHER ENCUMBRANCE EXCEPT TO THE EXTENT SUCH ACTIONS ARE IN COMPLIANCE WITH THE AGREEMENT. 6. Survival of Representations, Warranties and Agreements. ------------------------------------------------------ Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by 3DP, SBC and GGL herein will survive the execution of this Agreement, the delivery to SBC and GGL of the Shares being purchased and the payment therefor, provided, however, that such representations and warranties need only be accurate as of the date of such execution and delivery as of the Closing Date. 7. Registration of the Shares. The parties shall enter into a -------------------------- Registration Rights Agreement dated the date hereof in substantially the form attached hereto as Exhibit A with respect to the Shares. D-8 8. Conditions of SBC's and GGL's Obligations . The obligations of SBC and ------------------------------------------ GGL under the License and this Agreement to purchase the Shares from 3DP are subject to the fulfillment on or before the Closing Date of each of the following conditions, any of which may be waived in writing by SBC or GGL: 8.1 Representation and Warranties. The representation and warranties ----------------------------- of 3DP contained in this Agreement shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made as of the Closing Date, except to the extent of changes caused by the transactions expressly contemplated herein. 8.2 Performance of Obligations. 3DP shall have performed and -------------------------- complied in all material respects with all agreements, obligations and conditions contained in the License Agreement and this Agreement that are required to be performed or complied with by it on or before the Closing Date. 8.3 Compliance with Law. On the Closing Date, the issuance by 3DP of -------------------- the Shares and the execution of the License Agreement by SBC and GGL shall be legally permitted by all laws and regulations to which 3DP, SBC and GGL are subject and no preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting or otherwise restraining such acquisition shall be in effect. 8.4 The License Agreement. The License Agreement shall be in full --------------------- force and effect and shall not have been terminated by any of the parties thereto nor shall any of the parties given notice of such termination. 8.5 Opinion of Legal Counsel. SBC and GGL shall have received an ------------------------ opinion of Morgan Lewis & Bockius, LLP, counsel to 3DP, with respect to the matters in Sections 4.1, 4.2, and 4.3 herein, dated as of the Closing Date and in form and substance reasonably acceptable to SBC and GGL. 9. Conditions to 3DP's Obligations. 3DP's obligations under this ------------------------------- Agreement to sell and issue the Shares to SBC and GGL are subject to the fulfillment on or before the Closing Date of each of the following conditions, any of which may be waived in writing by 3DP: 9.1 Representations and Warranties. The representation and warranties -------------------------------- of SBC and GGL contained in the License Agreement and this Agreement shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made as of the Closing Date, except to the extent of changes caused by the transactions expressly contemplated herein. 9.2. Performance of Obligations. Each of SBC and GGL shall have -------------------------- performed and complied in all material respects with all agreements, obligations and conditions contained in the License Agreement and this Agreement that are required to be performed or complied with by it on or before the Closing Date. D-9 9.3. Compliance with Law. On the Closing Date, the issuance by 3DP -------------------- of the Shares and the execution of the License by SBC and GGL shall be legally permitted by all laws and regulations to which 3DP and SBC and GGL are subject and no preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting or otherwise restraining such acquisition shall be in effect. 9.4. The License Agreement. The License Agreement shall be in full --------------------- force and effect and shall not have been terminated by any of the parties thereto nor shall any of the parties given notice of such termination. 9.5 The Registration Rights Agreement. The parties shall have ---------------------------------- executed the Registration Rights Agreement as set forth in Section 7. 10. Notices. All notices, requests, consents and other communications ------- hereunder will be in writing, will be mailed (a) if within the United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, by facsimile or e-mail, or (b) if delivered from outside the United States, by international express courier, facsimile or e-mail. All such notices will be deemed given (a) if delivered by first-class registered or certified mail, three business days after so mailed, (b) if delivered by nationally recognized overnight carrier, one business day after so mailed, (c) if delivered by International Federal Express, two business days after so mailed, and (d) if delivered by facsimile or e-mail, upon electronic confirmation of receipt and will be delivered as addressed as follows: (a) If to 3DP, to: 3-Dimensional Pharmaceuticals, Inc. Three Lower Makefield Corporate Center 1020 Stony Hill Road Yardley, PA 19067 Attn: David C. U'Prichard, Ph.D Chief Executive Officer Fax: (267) 757-7204 ___ (b) With a copy to: Morgan Lewis & Bockius LLP After January 18, 2002 ---------------------- 111 Pennsylvania Ave., NW Washington, DC 20004 Fax: (202) 739-3001 D-11 Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq. Before January 18, 2002 ----------------------- 1800 M Street, N.W. Washington, D.C. 20036 Fax: (202) 467-7176 Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq. (c) If to the Licensors, to: GlaxoSmithKline 1250 Collegeville Road Collegeville, PA 19426-0989 Attn: Mr. Osagie Imasogie V.P. and Director, Genetics and Discovery Ventures Fax: (610) 917-4234 (d) With a copy to:. GlaxoSmithKline Corporate Law Department One Franklin Plaza 200 North 16th Street/FP2355 Philadelphia, PA 19102 Attn: General Counsel Fax: (215) 751-3935 11. Changes. This Agreement may not be modified or amended except ------- pursuant to an instrument in writing signed by 3DP and each of SBC and GGL. 12. Headings. The headings of the various sections and subsections of -------- this Agreement have been inserted for convenience of reference only and will not be deemed to be part of this Agreement and do not affect its interpretation. 13. Severability. In case any provision contained in this Agreement ------------ should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein will not in any way be affected or impaired thereby. 14. Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the successors in interest of the respective parties. Neither this Agreement nor any interest under this Agreement shall be assignable by either party without the written consent of the other; provided, however, that either party may assign this Agreement without the written consent of the other party to any D-11 corporation with which it may merge or consolidate, or to which it may transfer all or substantially all of its assets; provided, further, that SBC or GGL may assign this Agreement without the written consent of 3DP to an Affiliate; provided, further, that, in any case, any such assignee shall agree to be bound by the terms and conditions of this Agreement. 15. Governing Law. This Agreement will be governed by, and construed in ------------- accordance with, the internal laws of the State of Pennsylvania, without giving effect to the principles of conflicts of law. 16. Entire Agreement. This Agreement, together with the License Agreement ---------------- and Registration Rights Agreement, constitutes the entire agreement between the parties relating to the subject matter hereof and no party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. 17 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which will constitute an original, but all of which, when taken together, will constitute but one instrument, and will become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. D-12 IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written. 3-DIMENSIONAL PHARMACEUTICALS, INC. BY: ----------------------------------- TITLE: -------------------------------- SMITHKLINE BEECHAM CORPORATION BY: ----------------------------------- TITLE: -------------------------------- GLAXO GROUP LIMITED BY: ----------------------------------- TITLE: -------------------------------- D-13 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of this ____th day of January 2002 between 3-Dimensional Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and SmithKline Beecham Corporation, a Pennsylvania corporation ("SBC"), and Glaxo Group Limited, a company incorporated in England and Wales ("GGL" and, together with SBC, the "Licensors"). RECITALS WHEREAS, the Company and the Licensors are entering into a Stock Purchase Agreement (the "Stock Purchase Agreement") and a License Agreement (the "License Agreement") simultaneously with the execution of this Agreement; WHEREAS, pursuant to the Stock Purchase Agreement, the Company has authorized the issuance and sale of up to 2,400,000 shares of common stock, par value $.001 per share (the "3DP Common Stock"), in equal amounts to SBC and GGL in accordance with the terms of the Stock Purchase Agreement and the License Agreement; and WHEREAS, as a condition of entering into the Stock Purchase Agreement the Licensors have requested that the Company extend to them certain registration rights and other rights as set forth below. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. For the purposes of this Agreement: "Affiliate" of any specified Person, as defined below, means any other Person, as defined below, that, directly or indirectly, is in control of, is controlled by or is under common control with such specified Person. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Commission" means the U.S. Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute and the rules and the regulations of the Commission promulgated thereunder, as in effect from time to time. D-14 "Existing Holder" means each "Holder" of "the Registrable Securities, as defined below, of 3DP as those terms are defined in the Stockholders' Agreement, as defined below. "Investors" means the investors listed on Schedule 1 to the Stockholders' Agreement, as defined below. "Lock Up" has the meaning set forth in Section 5.4 of the Stock Purchase Agreement. "Nasdaq" means the Nasdaq National Market of The Nasdaq Stock Market. "Person" means an individual, partnership, limited partnership, corporation, trust, limited liability company or unincorporated organization or other entity or organization, including a government or agency or political subdivision thereof. "Prospectus" means the prospectus (including any preliminary prospectus, any final prospectus and any prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement, as defined below, in reliance upon Rule 430A under the Securities Act, as defined below) included in a Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares covered by a Registration Statement, and by all other amendments and supplements to such prospectus, including all material incorporated by reference in such prospectus and all documents filed after the date of such prospectus by the Company under the Exchange Act and incorporated by reference therein. "Registrable Shares" means the 2,400,000 shares of 3DP Common Stock (subject to adjustment as provided in Section 2.1 of the Stock Purchase Agreement) that the Company has agreed to sell to the Licensors pursuant to the terms and conditions of the Stock Purchase Agreement, excluding such shares of 3DP Common Stock (i) which have been registered and sold under the Securities Act pursuant to an effective registration statement or (ii) that are held by the Licensors and can be sold to the public pursuant to Rule 144 under the Securities Act without restriction. "Registration Expenses" means all expenses incident to the Company's compliance with the requirements relating to the filing of a Registration Statement registering the Registrable Shares pursuant to this Agreement, including all registration, filing and Nasdaq fees, all fees and expenses of complying with securities or "blue sky" laws, all word-processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "comfort" letters required by or incident to such performance and compliance, premiums and other costs of policies of insurance obtained by the Company against liabilities arising out of the public offering of the Registrable Shares being registered, but excluding fees and disbursements of counsel retained by the Licensors, premiums and other costs of policies of insurance obtained by the Licensors or their agents or Underwriters, as defined below, against liabilities arising out of the public offering of the Registrable Shares being registered, any fees and D-15 disbursements of Underwriters and all underwriting discounts and commissions and transfer taxes, if any, relating to the Registrable Shares. "Registration Statement" means a registration statement filed under the Securities Act, as defined below, by the Company pursuant to the provisions of Section 2 or 3 of this Agreement, including the Prospectus contained in such registration statement, any amendments and supplements to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference into such registration statement. "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission promulgated thereunder, as in effect from time to time. "Stockholders' Agreement" means the Third Amended and Restated Stockholders' Agreement between the Company and the Investors dated as of March 31, 2000. "Underwriter" means the underwriter(s) of the Registrable Shares designated by the Licensors, with respect to a Registration Statement filed pursuant to Section 2 or 3 of this Agreement. "Underwritten Offering" means an offering of shares of 3DP Common Stock, including the Registrable Shares, by which the shares of 3DP Common Stock are sold to an underwriter for reoffering to the public. 2. DEMAND REGISTRATION. (a) REQUEST FOR DEMAND REGISTRATION. Subject to the provisions of Section 2(c) of this Agreement, the registration rights of the Existing Holders set forth in the Stockholders' Agreement and the limitations on transfer contained in Section 5.4 of the Stock Purchase Agreement, at any time after the Lock Up, the Licensors will have the right to require the Company to register for offer and sale under the Securities Act all or a portion, [* *], of the Registrable Shares then outstanding. To exercise this right, the Licensors must provide the Company with a joint written request specifying the number of the Registrable Shares that they want the Company to register and the Licensors' intended method(s) of distribution. If desired, the Licensors will be entitled to select one or more nationally recognized investment banks to serve as Underwriters for an Underwritten Offering made pursuant to this Section 2, subject to the approval of the Company, which approval will not be unreasonably withheld or delayed. The Licensors acknowledge that the Company may include in a Registration Statement filed pursuant to this Section 2 shares of 3DP Common Stock for resale by other holders of 3DP Common Stock, including the Existing Holders, or for the account of the Company; provided, however, that if the shares of 3DP Common Stock included by the Company and the Existing Holders D-16 constitute at least a majority of the shares of 3DP Common Stock included on a Registration Statement filed pursuant to this Section 2, such Registration Statement will be deemed to be filed pursuant to Section 3 of this Agreement. (b) ALLOCATION OF UNDERWRITTEN OFFERING. If the Company files a Registration Statement at the request of the Licensors pursuant to this Section 2 to register the Registrable Shares for an Underwritten Offering and includes in such Registration Statement additional shares of 3DP Common Stock for sale by the Company (the "Company Shares"), any of the Existing Holders (the "Existing Holders' Shares") or any other holders of 3DP Common Stock (the "Other Holders' Shares") and the total number of shares of 3DP Common Stock proposed to be included in such Registration Statement will, in the opinion of the Underwriter selected by the Licensors, exceed the maximum number of shares of 3DP Common Stock that can be marketed either at a price reasonably related to the then-current market value of the shares, or without otherwise materially and adversely affecting the Underwritten Offering, then the Company will exclude from such Underwritten Offering in such amount as necessary, in the opinion of the Underwriter(s), to successfully complete the Underwritten Offering (i) first, the Other Holders' Shares, if any, and (ii) second, the Registrable Shares, the Company Shares, and the Existing Holders' Shares, on a pro rata basis based on the number of shares of 3DP Common Stock sought to be included in the Registration Statement by the Licensors, the Company and the Existing Holders. (c) OBLIGATION TO EFFECT DEMAND REGISTRATION. Following receipt of any notice from the Licensors pursuant to Section 2(a), the Company shall use its reasonable best efforts to file a Registration Statement to register under the Securities Act, for public sale in accordance with the method(s) of disposition specified in such notice, the number of the Registrable Shares specified in such notice. The Company shall be obligated to register the Registrable Shares on [* *] in connection with requests made by the Licensors pursuant to Section 2(a); provided, however, that the Licensors must make such requests on a joint basis and provided further, however, that such obligation to effect the registration shall be deemed satisfied, subject to Section 2(d) below, only when a Registration Statement covering all of the Registrable Shares specified in notices received pursuant to Section 2(a) shall have become effective. (d) RIGHT TO WITHDRAW REGISTRATION STATEMENT. The Licensors may request that the Company rescind or withdraw a Registration Statement filed pursuant to this Section 2, by giving written notice to the Company, with the following consequences: (i) if the Registration Statement is rescinded prior to being filed with the Commission, such rescinded Registration Statement shall not be counted as a Registration Statement requested pursuant to this Section 2 for purposes of Section 2(c); and (ii) if the Registration Statement is withdrawn after being filed with the Commission but prior to D-17 becoming effective, such withdrawn Registration Statement will not be counted as a Registration Statement for purposes of Section 2(c) if the Licensors (A) have reimbursed the Company for all out-of-pocket expenses, including Registration Expenses, reasonably incurred by the Company with respect to such withdrawn Registration Statement or (B) reasonably believed that the Registration Statement contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein not misleading, notified the Company of such belief and requested that the Company correct the alleged misstatement or omission but the Company refused to correct such alleged misstatement or omission. (e) ADDITIONAL LIMITATIONS ON DEMAND REGISTRATION. The Company will not be obligated to file a Registration Statement pursuant to this Section 2: (i) until after 90 days after the effective date of the first registration statement filed by the Company at the request of the Existing Holders pursuant to Section 6.1 of the Stockholders' Agreement (provided that such restriction shall not apply if the Company's obligations under Section 6.1 of the Stockholders' Agreement have been terminated pursuant to Section 6.13 of the Stockholders' Agreement); (ii) more than one time in any twelve-month period; (iii) if the Company has sent notice to the Licensors pursuant to Section 3(a) of this Agreement that it proposes to file a registration statement to register shares of 3DP Common Stock and is diligently pursuing such registration; (iv) during any period in which a distribution of shares of 3DP Common Stock is ongoing or any other registration statement pursuant to which shares of 3DP Common Stock are to be or were sold (other than a registration statement filed for the offer or sale of 3DP Common Stock under a shelf registration statement on Form S-3 (except during a distribution of shares of 3DP Common Stock under such shelf registration statement), or an employee benefit plan, dividend reinvestment plan or rights plan or on Form S-8 or S-4 or any successor forms) has been filed and not withdrawn or has been declared effective within the prior 90 days; (v) during any period when the Company is precluded from selling any shares of 3DP Common Stock as a result of an agreement made in connection with a firm commitment underwriting; or (vi) during any time when the Company has determined in good faith that the filing of a Registration Statement would require the disclosure of material information which the Company has a bona fide reason to maintain as confidential; provided, however, that any such delay shall not exceed 60 days. (f) EFFECTIVENESS. The Company will use its reasonable best efforts, subject to receipt of all necessary information from the Licensors (or any Affiliate of the Licensors who is assigned registration rights pursuant to this Agreement), to cause any Registration Statement filed pursuant to this Section 2 to become effective and to maintain the effectiveness of any such Registration Statement to enable the Licensors to sell the Registrable Shares included in any such Registration Statement on a delayed or continuous basis as permitted by Rule 415 under the Securities Act, and from time to time D-18 will amend or supplement such Registration Statement and the Prospectus contained therein as and to the extent necessary to comply with the Securities Act and any applicable state securities statute or regulation; provided, however, that the Company will not be obligated to maintain the effectiveness of such Registration Statement once the Registrable Shares included in the Registration Statement no longer meet the definition of the Registrable Shares. 3. PIGGYBACK REGISTRATION. (a) REQUEST FOR PIGGYBACK REGISTRATION. If the Company at any time proposes to register shares of 3DP Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other holders of 3DP Common Stock, including the Existing Holders, or both (other than registration statements filed for the offer or sale of 3DP Common Stock under an employee benefit plan, dividend reinvestment plan or rights plan or on Form S-8 or S-4 or any successor forms), each such time it will give written notice to the Licensors of its intention to do so. Upon the written request of the Licensors, which request must (i) specify the number of the Registrable Shares that the Licensors want included on such registration statement and the intended method(s) of disposition of the Registrable Shares and (ii) be given to the Company within ten (10) calendar days of the date of the Company's notice, the Company will use reasonable best efforts to cause such the Registrable Shares to be included in the registration statement proposed to be filed by the Company subject to the allocation provisions set forth in paragraph (b) or (c) of this Section 3. (b) ALLOCATION OF UNDERWRITTEN OFFERING INITIATED BY THE COMPANY. If the Company initiates the filing of a registration statement for an Underwritten Offering and the total number of shares of 3DP Common Stock proposed to be included in such registration statement will, in the opinion of the managing underwriter(s) selected by the Company, exceed the maximum number of shares of 3DP Common Stock that can be marketed either at a price reasonably related to the then-current market value of the shares, or without otherwise materially and adversely affecting the Underwritten Offering, then the Company will exclude from such Underwritten Offering in such amount as necessary, in the opinion of the managing underwriter(s), to successfully complete the Underwritten Offering (i) first, the Other Holders' Shares, if any (ii) second, the Registrable Shares, and (iii) third, the Existing Holders' Shares, if any. (c) ALLOCATION OF UNDERWRITTEN OFFERING INITIATED BY THE EXISTING HOLDERS. If the Existing Holders initiate the filing of a registration statement for an Underwritten Offering pursuant to Section 6.1 of the Stockholders' Agreement and the total number of shares of 3DP Common Stock proposed to be included in such registration D-19 statement will, in the opinion of the managing underwriter(s) selected by such Existing Holders, exceed the maximum number of shares of 3DP Common Stock that can be marketed either at a price reasonably related to the then-current market value of the shares, or without otherwise materially and adversely affecting the Underwritten Offering, then the Company will exclude from such Underwritten Offering in such amount as necessary, in the opinion of the managing underwriter(s), to successfully complete the Underwritten Offering (i) first, the Other Holders' Shares, if any, and (ii) second, the Registrable Shares and the Company Shares on a pro rata basis based on the number of shares of 3DP Common Stock sought to be included in the Registration Statement by the Licensors and the Company. 4. REGISTRATION PROCEDURES. If and whenever the Company is under an obligation pursuant to this Agreement to use its reasonable best efforts to file a Registration Statement for the Registrable Shares, the following provisions will apply: (a) The Company will furnish to the Licensors, at least five (5) business days prior to the time that the Registration Statement is declared effective by the Commission, a copy of the Registration Statement initially filed with the Commission and will furnish to the Licensors copies of each amendment thereto and each amendment or supplement, if any, to the Prospectus included therein as promptly as practicable after the filing thereof. (b) Subject to Section 2(e) of this Agreement, the Company will use its reasonable best efforts to promptly take such action as may be reasonably necessary so that (i) the Registration Statement, when it becomes effective, and any amendment thereto and the Prospectus forming part thereof and any amendment or supplement thereto (and, in each case, every report or other document incorporated therein by reference), comply in all material respects with the Securities Act and the Exchange Act, as applicable, and the respective rules and regulations thereunder, (ii) the Registration Statement and any amendment thereto do not, when the Registration Statement or the amendment becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) the Prospectus forming part of the Registration Statement, and any amendment or supplement to such Prospectus, do not, at any time during any period during which the Company is required to keep the Registration Statement continuously effective pursuant to this Agreement, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that the Licensors provide to the Company the information about the Licensors required to be included in the Prospectus. D-20 (c) The Company will, promptly upon learning of any of the following events, advise the Licensors, and will confirm such advice in writing if so requested by the Licensors: (i) when the Registration Statement and any amendment thereto have been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for such purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Shares included in the Registration Statement for sale in any jurisdiction or the initiation of any proceeding for such purpose; and (v) following the effectiveness of any Registration Statement, of the happening of any event or the existence of any facts that requires the making of any changes in the Registration Statement or the Prospectus included therein so that such Registration Statement and Prospectus do not contain an untrue statement of a material fact and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading (which advice will be accompanied by an instruction to the Licensors to suspend the use of the Prospectus until the requisite changes have been made, which instruction the Licensors agree to follow). At the request of the Licensors, the Company will prepare a supplement or amendment to the Registration Statement or the Prospectus so that as of the date of such amendment or supplement the amended or supplemented Registration Statement and Prospectus do not contain an untrue statement of a material fact and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading. (d) The Company will promptly notify the Licensors of its receipt of any notification of any stop order issued by the Commission suspending the effectiveness of the Registration Statement. D-21 (e) The Company will furnish to the Licensors, without charge, at least one copy of the Registration Statement and any post-effective amendments and supplements thereto, including financial statements and schedules and, if the Licensors so request in writing, all reports, other documents and exhibits that are filed with or incorporated by reference into the Registration Statement. (f) The Company will, during the period during which the Company is required to keep a Registration Statement continuously effective pursuant to this Agreement, deliver to the Licensors, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in the Registration Statement and any amendment or supplement thereto as the Licensors may reasonably request. (g) Prior to any offering of the Registrable Shares pursuant to the Registration Statement, the Company will use reasonable efforts to (i) register, qualify or cooperate with the Licensors and their counsel in connection with the registration or qualification of such of the Registrable Shares for offer and sale under the securities or "blue sky" laws of such jurisdictions within the United States as the Licensors may reasonably request, (ii) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers and sales in such jurisdictions for the period during which the Company is required to keep the Registration Statement continuously effective under this Agreement and (iii) take any and all other actions reasonably requested by the Licensors that are necessary or advisable to enable the disposition in such jurisdictions of such Registrable Shares; provided, however, that in no event will the Company be obligated to qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to so qualify but for this Agreement or file any general consent to service of process or subject itself to tax in any jurisdiction where it would not otherwise be required to do so but for this Section 4(g). (h) The Company will cooperate with the Licensors to facilitate the timely preparation and delivery of certificates representing the Registrable Shares sold pursuant to the Registration Statement, which certificates will comply with the requirements of Nasdaq, and which certificates will be free of any restrictive legends and in such permitted denominations and registered in such names as the Licensors may request in connection with the sale of the Registrable Shares pursuant to the Registration Statement. (i) In connection with an Underwritten Offering of the Registrable Shares, the Company will use reasonable efforts to: (i) cooperate with the Licensors and their advisors in their efforts to conduct appropriate due diligence as is customary for a company of the size and character of the Company and make such reasonable representations and D-22 warranties in the applicable underwriting agreement to the Underwriter, in form, substance and scope as are customarily made by the Company to underwriters in secondary underwritten offerings of equity; (ii) make available for inspection by the Licensors, the Licensors' advisors, and any attorney, accountant or other agent retained by the Underwriter (collectively, the "Inspectors"), all pertinent financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information (together with the Records, the "Information") reasonably requested by any such Inspector in connection with the preparation of such Registration Statement. Any of the Information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, will not be disclosed by the Inspectors unless (A) the disclosure of such Information is necessary to avoid or correct a misstatement or omission of a material fact in the Registration Statement, (B) the release of such Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (C) such Information has been made generally available to the public. The Licensors and their Inspectors agree that they will, upon learning that disclosure of such Information is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Information deemed confidential; (iii) obtain opinions of counsel to the Company (which counsel and opinions (in form, scope and substance) will be reasonably satisfactory to the Underwriter) addressed to the Underwriter, covering such matters that the Company customarily covers in opinions requested in secondary underwritten offerings of equity, to the extent reasonably required by the applicable underwriting agreement; (iv) obtain "comfort" letters and updates thereof from the independent public accountants of the Company (and, if necessary, from the independent public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to the Licensors (if the Licensors have provided such letter, representation or documentation, if any, required for such "comfort" letter to be so addressed) and the Underwriter, in customary form and covering matters of the type customarily covered in "comfort" letters in connection with secondary underwritten offerings of Company equity; D-23 (v) deliver such certificates as may be reasonably requested by the Licensors and the Underwriter, if any, including certificates to evidence compliance with any conditions contained in the underwriting agreement or other agreements entered into by the Company; and (vi) to take all other steps reasonably necessary to effect the timely registration of the Registrable Shares covered by a Registration Statement contemplated hereby. 5. LICENSORS' AGREEMENTS. (a) The Licensors agree to provide to the Company such information regarding the Licensors, the Registrable Shares and the Licensors' intended method of disposition as the Company may from time to time reasonably request; provided, however, that such information shall be used only in connection with the filing of a Registration Statement or as otherwise required by the Commission. If the Registration Statement refers to the Licensors, the Licensors shall promptly (i) notify the Company of the existence of any fact of which the Licensors, individually or jointly, become aware or the happening of any event which relates to the Licensors or the distribution of the Registrable Shares that causes the Registration Statement to contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make any statements therein not misleading, or the Prospectus included in such Registration Statement to contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make any statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) provide to the Company such information which relates to the Licensors' distribution of the Registrable Shares as shall be necessary to enable the Company to prepare a supplement or post- effective amendment to such Registration Statement or related Prospectus or any document incorporated therein by reference or file any other documents required so that such Registration Statement will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) NOTICE TO DISCONTINUE. The Licensors agree that, upon receipt of any notice from the Company to discontinue using the Prospectus, the Licensors will promptly discontinue the disposition of the Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until the Company advises the Licensors that dispositions D-24 pursuant to the Registration Statement can resume and it delivers to the Licensors copies of any required supplemented or amended Prospectus. 6. INDEMNIFICATION AND CONTRIBUTION. (a) Upon the registration of the Registrable Shares pursuant to Section 2 or 3 of this Agreement, the Company will indemnify and hold harmless the Licensors and each Underwriter, selling agent or other securities professional, if any, that facilitates the disposition of the Registrable Shares, and each of their respective officers and directors and each Person who controls the Licensors, such Underwriter, selling agent or other securities professional within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such Person being sometimes referred to as an "Indemnified Person"), against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares are to be registered under the Securities Act, or any Prospectus contained therein or furnished by the Company to any Indemnified Person, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company hereby agrees to reimburse such Indemnified Person for any legal or other documented expenses reasonably incurred by it in connection with investigating or defending any such action or claim as promptly as practicable after such expenses are incurred; provided, however, that the Company will not be liable to any such Indemnified Person in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement or Prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such Indemnified Person or its agent(s) expressly for use therein; provided further, however, that the Company will not be liable to the extent that any loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (i) the use of any Prospectus after such time as the obligation of the Company to keep the same effective and current has expired, or (ii) the use of any Prospectus after such time as the Company has advised the Licensors in writing that a supplement thereto or a post-effective amendment to the Registration Statement is required; and provided further, however, that the Company will not be liable to any Indemnified Person to the extent that any loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Indemnified Person's failure to send or give a copy of the final prospectus or supplement to the Person asserting an untrue statement or alleged D-25 untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of the Registrable Shares to such Person if such statement or omission was timely corrected in such final prospectus or supplement. (b) The Licensors agree, as a consequence of the inclusion of the Registrable Shares in a Registration Statement, and each Underwriter, selling agent or other securities professional, if any, that facilitates the disposition of the Registrable Shares will agree, as a consequence of facilitating such disposition of the Registrable Shares, severally and not jointly, to (i) indemnify and hold harmless the Company, its directors and officers and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities or expenses to which the Company or such other Person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by the Licensors, such Underwriter, selling agent or other securities professional or its agent expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by any Person entitled to indemnity (an "Indemnitee") under paragraphs (a) or (b) of this Section 6 of notice of the commencement of any action or claim, such Indemnitee will, if a claim in respect thereof is to be made against an indemnitor under this Section 6 (an "Indemnitor"), notify such Indemnitor in writing of the commencement thereof; but the omission to so notify the Indemnitor will not relieve it from any liability that it may have to any Indemnitee except to the extent of any actual prejudice. In case any such action will be brought against any Indemnitee, it will notify an Indemnitor of the commencement thereof, such Indemnitor will be entitled to participate therein and, to the extent that it wishes, jointly with any other Indemnitor similarly notified, to assume the defense thereof, with counsel satisfactory to such Indemnitee, and, after notice from the Indemnitor to such Indemnitee of its election so to assume the defense thereof, such Indemnitor will not be liable to such Indemnitee under this Section 6 for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnitee, in connection with the defense thereof. No Indemnitor will, without the written consent of the Indemnitee, effect the settlement or compromise of, or D-26 consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnitee is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the Indemnitee from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any Indemnitee. (d) If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to, or insufficient to hold harmless, an Indemnitee under paragraphs (a) or (b) of this Section 6 in respect of any losses, claims, damages, liabilities (or actions or proceedings in respect thereof) or expenses referred to therein, then each Indemnitor will contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, liabilities (or actions or proceedings in respect thereof) or expenses in such proportion as is appropriate to reflect the relative fault of the Indemnitor and the Indemnitee in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities (or actions, or proceedings in respect thereof) or expenses, as well as any other relevant equitable considerations. The relative fault of such Indemnitor and Indemnitee will be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnitor or by such Indemnitee, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined solely by pro rata allocation (even if the Licensors or any Underwriter, selling agents or other securities professionals or all of them were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an Indemnitee as a result of the losses, claims, damages, liabilities (or actions or proceedings in respect thereof) or expenses referred to above will be deemed to include any legal fees or expenses reasonably incurred by such Indemnitee in connection with investigating or defending any such action or claim except to the extent any legal fees are incurred after the Indemnitor assumes the defense of the litigation as set forth in Section 6(c) above. No Person guilty of fraudulent misrepresentation (as used in Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The obligations of the Licensors and any Underwriter, selling agents or other securities professionals under this Section 6(d) to contribute will be several in proportion to the percentage of the principal amount of the Registrable Shares registered or underwritten, as the case may be, by them and not joint. D-27 The obligations of the Company under this Section 6 will be in addition to any liability which the Company may otherwise have to any Indemnitee and the obligations of any Indemnified Person under this Section 6 of this Agreement will be in addition to any liability which such Indemnified Person may otherwise have to the Company. The remedies provided in this Section 6 are not exclusive and will not limit any rights or remedies that may otherwise be available to an Indemnitee at law or in equity. 7. UNDERWRITING AGREEMENT. Notwithstanding the provisions of Sections 4 and 6 of this Agreement, to the extent that the Licensors and the Company enter into an underwriting or similar agreement with respect to a Registration Statement, which agreement contains provisions covering one or more issues addressed in Sections 4 and 6, the provisions contained in such Sections addressing such issue or issues shall be superceded with respect to such Registration Statement by such other agreement. 8. EXPENSES OF REGISTRATION. [* *]. 9. DAMAGES. [* *]. 10. MISCELLANEOUS. (a) NOTICES. All notices, requests, consents and other communications hereunder will be in writing, will be mailed (a) if within the United States, by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, by facsimile or e-mail, or (b) if delivered from outside the United States, by international express courier, facsimile or e-mail. Notwithstanding anything in this Agreement to the contrary, the Company's obligation to deliver or give notice to the Licensors shall be satisfied by the delivery or giving of notice to SBC. All obligations of the Licensors to deliver or give notice to the Company shall be satisfied by the delivery or giving of such notice by SBC and GGL jointly. All such notices will be deemed given (a) if delivered by first-class registered or certified mail, three business days after so mailed, (b) if delivered by nationally recognized overnight carrier, one business day after so mailed, (c) if delivered by International Federal Express, two business days after so mailed, and (d) if delivered by facsimile or e-mail, upon electronic confirmation of receipt and will be delivered as addressed as follows: (i) If to the Company, to: 3-Dimensional Pharmaceuticals, Inc. Three Lower Makefield Corporate Center 1020 Stony Hill Road Yardley, PA 19067 Attn: David C. U'Prichard, Ph.D Chief Executive Officer Fax: (267) 757-7204 D-28 (ii) With a copy to: Morgan Lewis & Bockius LLP After January 18, 2002 ---------------------- 111 Pennsylvania Ave., NW Washington, DC 20004 Fax: (202) 739-3001 Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq. Before January 18, 2002 ----------------------- 1800 M Street, N.W. Washington, D.C. 20036 Fax: (202) 467-7176 Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq. (iii) If to Licensors, to: GlaxoSmithKline 1250 Collegeville Road Collegeville, PA 19426-0989 Attn: Mr. Osagie Imasogie V.P. and Director Genetics and Discovery Ventures Fax: (610) 917-4234 (iv) With a copy to: GlaxoSmithKline Corporate Law Department One Franklin Plaza 200 North 16th Street/FP2355 Philadelphia, PA 19102 Attn: General Counsel Fax: (215) 751-5349 (b) CHANGES. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and each of SBC and GGL. (c) HEADINGS. The headings of the various sections and subsections of this Agreement have been inserted for convenience of reference only and will not be deemed to be part of this Agreement and do not affect its interpretation. D-29 (d) SEVERABILITY. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein will not in any way be affected or impaired thereby. (e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the successors in interest of the respective parties. Neither this Agreement nor any interest under this Agreement shall be assignable by either party without the written consent of the other; provided, however, that SBC or GGL may assign this Agreement without the written consent of the Company to any Affiliate; provided, further, that any such assignee shall agree to be bound by the terms and conditions of this Agreement. (f) GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the internal laws of the State of Pennsylvania, without giving effect to the principles of conflicts of law. (g) ENTIRE AGREEMENT. This Agreement, together with the License Agreement and Stock Purchase Agreement, constitutes the entire agreement between the parties relating to the subject matter hereof and no party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. (h) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will constitute an original, but all of which, when taken together, will constitute but one instrument, and will become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. 11. EFFECTIVENESS. This Agreement shall become effective as of the Closing Date, as defined in Section 3 of the Stock Purchase Agreement. In the event that the Stock Purchase Agreement is terminated pursuant to its terms and the issuance of the Shares, as defined in Section 1 of the Stock Purchase Agreement, on the Closing Date does not occur, this Agreement shall be null and void and of no further force and effect. D-30 IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written. 3-DIMENSIONAL PHARMACEUTICALS, INC. BY: ---------------------------------- TITLE: ------------------------------- SMITHKLINE BEECHAM CORPORATION BY: ---------------------------------- TITLE: ------------------------------- GLAXO GROUP LIMITED BY: ---------------------------------- TITLE: ------------------------------- D-31 LICENSE AGREEMENT GLAXOSMITHKLINE - 3DP Appendix E LICENSOR Services 1. Within [* *] following the EFFECTIVE DATE, GSK shall deliver to 3DP the KNOW-HOW relating to the manufacture of GW395058 by the processes that were used or to be used by GSK to prepare pre-clinical, clinical, and commercial supplies of GW395058, including but not limited to manufacturing protocols, operating procedures, process controls, environmental issues and controls, Drug Master Files, intermediates, reagents, drug samples, suppliers, DMPK immunoassay protocols, indirect and direct costs of goods, quality assurance and quality control, stability testing, yields, purity, impurities, by-products, and product specifications. GSK shall also provide final and draft reports ("as is" as of the EFFECTIVE DATE) of information and data related to manufacturing GW395058 to the extent in GSK's possession or control. GSK shall use reasonable efforts to ensure that the information provided under this paragraph is all such information in GSK's possession or control as of the EFFECTIVE DATE. 2. Within [* *] following the EFFECTIVE DATE, GSK shall deliver to 3DP KNOW-HOW comprising: 2.1. the documentation relating to pre-clinical studies of GW395058 that are listed in Appendix A; 2.2. pre-clinical and clinical development plans for PRODUCTS; 2.3. any other information or data that is available to GSK and that is reasonably believed by GSK to be necessary or useful for the development and marketing of PRODUCTS, including but not limited to Project Team Meeting Minutes. 3. For [* *] following the EFFECTIVE DATE, GSK shall provide to 3DP such additional reports, data, and records that it has in its possession as of the EFFECTIVE DATE and that 3DP and GSK mutually agree are necessary or useful for the development or commercialization of PRODUCTS. 4. Until [* *], GSK shall make those of its employees who have relevant knowledge reasonably available to 3DP for consultation concerning the pre-clinical development of GW395058, previous regulatory interactions between GSK and the FDA relating to GW395058, and manufacturing of GW395058, provided such consultations shall not in the aggregate exceed [* *] and further provided that GSK then E-1 currently has employees who have the experience and knowledge relating to PRODUCTS to be able to provide such consultation. 5. Until [* *], GSK shall provide to 3DP such additional reports, data, and records that it has in its possession as of the EFFECTIVE DATE and that are requested by 3DP and that are required to respond to inquiries by the FDA or an analogous agency outside the U.S. 6. All requests by 3DP for reports, data, records, and consultations pursuant to this Appendix E shall be directed to a person or persons that GSK may designate for this purpose. E-2 LICENSE AGREEMENT GLAXOSMITHKLINE - 3DP APPENDIX F Press Release
Corporate Contact Media Inquiries Investor Inquiries - --------------------------------- --------------------------- ------------------ 3-Dimensional Pharmaceuticals Noonan/Russo Communications Rx Communications Scott Horvitz Glenn Silver Melody Carey VP, Finance and Administration 212-696-4455, ext. 271 917-322-2571 267-757-7208 g.silver@noonanrusso.com mcarey@rxir.com horvitz@3dp.com ------------------------ --------------- - ----------------
FOR IMMEDIATE RELEASE --------------------- 3-DIMENSIONAL PHARMACEUTICALS licenses TPO Peptide from GlaxoSmithKline --------- Yardley, PA, January 7th, 2002 - 3-Dimensional Pharmaceuticals, Inc. (Nasdaq: DDDP) (3DP) today announced that the Company has entered into an exclusive licensing agreement with GlaxoSmithKline (GSK), giving it worldwide development, marketing and distribution rights to GSK's pre-IND compound GW 395058 for the prevention and treatment of thrombocytopenia, or low blood platelet count. GW 395058 is a pegylated synthetic thrombopoietin (TPO) mimetic peptide that stimulates the human body to increase its production of blood platelets, which are responsible for regulating the clotting process. 3DP's initial development focus will be on chemotherapy induced thrombocytopenia because of the frequency with which cancer patients undergoing certain chemotherapy regimens experience thrombocytopenia. The condition can prolong blood clotting times, increase the risk of bruising, and, in extreme cases, prompt internal hemorrhaging. These side effects frequently disrupt cancer treatment protocols, including delays in, and the lowering of chemotherapy dosing regimens. "Thrombocytopenia is the unfortunate consequence of a wide range of diseases and disease treatments," said David U'Prichard, Ph.D., Chief Executive Officer of 3DP. "We see GW 395058 as an important addition to our rapidly growing pipeline of treatment and supportive therapies for cancer. In addition, we believe there could be significant upside potential from the development of GW 395058 for various non-cancer related indications. We are pleased that we have been able to successfully negotiate this transaction with GSK's Genetics & Discovery Ventures Team" F-1 The current standard of care for thrombocytopenia is a platelet transfusion; however, there are a number of potentially negative side effects associated with this procedure. About one third of the two million platelet transfusions administered each year in the United States are given to cancer patients, while the remainder are given to patients with a variety of conditions including coronary bypass and hepatic surgery, HIV/AIDS, hepatitis B and C, and idiopathic thrombocytopenia purpura. Under the terms of the agreement, all payments by 3DP to GSK will be made in the form of 3DP stock. 3DP will make an initial upfront payment of 500,000 shares and future milestone payments based on achievement of certain key development and regulatory events. In total, 3DP may provide 2.4 million shares to GSK. About 3DP 3DP (http://www.3dp.com) is an integrated bio-pharmaceuticals company dedicated to revolutionizing small molecule drug discovery and development. 3DP's proprietary platform, DiscoverWorks, can be applied to virtually any potential drug target. It produces drug candidates suitable for faster development, with fewer resources and a higher probability of success than using conventional drug discovery methods. 3DP is developing its own drug pipeline with a strategic focus in the therapeutic areas of oncology and metabolism, and collaborates with other pharmaceutical companies in discovery and development. # # # F-2 LICENSE AGREEMENT GLAXOSMITHKLINE - 3DP Appendix G Exceptions to Representations and Warrants [* 1 entire page has been omitted pursuant to a confidential treatment request *] G-1 EX-11.1 6 dex111.txt STATEMENT OR COMPUTATION OF PER SHARE INCOME Exhibit 11.1 3-Dimensional Pharmaceuticals, Inc. Computation of per share loss
Twelve Months Ended December 31, ----------------------------------- 2001 2000 ---- ---- Net loss $ (11,442,000) $ (8,152,000) Declared and accrued cumulative dividends on preferred stock (396,000) ----------------------------------- Net loss to common stockholders $ (11,442,000) $ (8,548,000) =================================== Basic Weighted average shares of common stock outstanding 21,736,892 8,956,741 Less: weighted average shares subject to repurchase (111,305) (178,966) ----------------------------------- Weighted average shares used in computing basic net loss per share 21,625,587 8,777,776 ----------------------------------- Basic net loss per share $ (0.53) $ (0.97) =================================== Diluted Shares used in computing basic net loss per share 21,625,587 8,777,776 Add: weighted average of dilutive securities - - ----------------------------------- Shares used in computing diluted net loss per share 21,625,587 8,777,776 Diluted net loss per share $ (0.53) $ (0.97) =================================== Pro forma: Net loss to common stockholders ($ 8,548,000) Add: declared and accrued cumulative dividends on preferred stock 396,000 ------------- Net loss ($ 8,152,000) ============= Shares used to compute basic net loss per share 8,777,776 Pro forma adjustment to reflect the weighted- average effect of assumed conversion of convertible preferred stock 6,858,051 Add: common shares subject to repurchase with accelerated vesting provision 27,011 Shares used in computing pro forma basic ------------- net loss per share 15,662,837 ------------- Pro forma basic net loss per share $ (0.52) ============= Diluted pro forma: Shares used in computing pro forma basic net loss per share 15,662,837 Add: weighted average of dilutive securities - Shares used in computing pro forma diluted ------------- net loss per share 15,662,837 Pro forma diluted net loss per share $ (0.52) =============
EX-23.1 7 dex231.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 19, 2002 included in this Form 10-K into the Company's previously filed Registration Statements on Form S-8, File Nos. 333-54890 and 333-61978. /s/ Arthur Andersen LLP Philadelphia, Pa. March 29, 2002 EX-23.2 8 dex232.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We hereby consent to the incorporation of our report dated February 7, 2001, with respect to our audit of the financial statements as of December 31, 2000 and for each of the years in the two-year period then ended of 3-Dimensional Pharmaceuticals, Inc., included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, File Nos. 333-54890 and 333-61978. /s/ Richard A. Eisner & Company, LLP New York, New York March 29, 2002 -----END PRIVACY-ENHANCED MESSAGE-----