10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

     (Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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: 0-27066

PHARMACYCLICS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware	94-3148201
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

995 E. Arques Avenue
Sunnyvale, California    94085-4521
(Address of principal executive offices including zip code)

(408) 774-0330
(Registrant's telephone number, including area code)

    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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [  ],

    As of October 31, 2001, there were 16,137,904 shares of the Registrant's Common Stock outstanding, par value $0.0001 per share.

PHARMACYCLICS, INC.
Form 10-Q
INDEX

PART I. Financial Information	Page
Item 1. Financial Statements (unaudited):
Condensed Balance Sheets as of          September 30, 2001 and June 30, 2001	3
Condensed Statements of Operations for the          three months ended September 30, 2001 and 2000	4
Condensed Statements of Cash Flows for the          three months ended September 30, 2001 and 2000	5
Notes to Condensed Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Factors that May Affect Future Operating Results	8
PART II. Other Information
Item 1. Legal Proceedings	18
Item 2: Changes in Securities	18
Item 3: Defaults Upon Senior Securities	18
Item 4: Submission of Matters to a Vote of Security Holders	18
Item 5: Other Information	19
Item 6. Exhibits and Reports on Form 8-K	19
Signatures	20

PHARMACYCLICS^® , the "pentadentate" logo , XCYTRIN^® , ANTRIN^® and LUTRIN^® are registered U.S. trademarks; OPTRIN™ is a trademark of Pharmacyclics, Inc. Other trademarks, trade names or service marks used herein are the property of their respective owners.

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

PHARMACYCLICS, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
(unaudited; in thousands)

                                                            September 30,  June 30,
                                                                2001         2001
                                                            -----------  -----------
                          ASSETS
   Current assets:
     Cash and cash equivalents ........................... $    52,254  $    51,391
     Marketable securities ...............................      90,121      101,391
     Prepaid expenses and other current assets ...........       2,319        2,265
                                                            -----------  -----------
          Total current assets ...........................     144,694      155,047
   Property and equipment, net ...........................       5,304        5,174
   Other assets ..........................................         729          752
                                                            -----------  -----------
                                                           $   150,727  $   160,973
                                                            ===========  ===========

           LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
     Accounts payable .................................... $     3,055  $     4,599
     Accrued liabilities .................................       2,693        1,861
                                                            -----------  -----------
          Total current liabilities ......................       5,748        6,460
   Deferred rent .........................................         166          158
                                                            -----------  -----------
          Total liabilities ..............................       5,914        6,618
                                                            -----------  -----------
   Stockholders' equity:
     Preferred stock .....................................          --           --
     Common stock ........................................           2            2
     Additional paid-in capital ..........................     275,130      274,952
     Accumulated other comprehensive income ..............       1,075        1,093
     Deficit accumulated during development stage ........    (131,394)    (121,692)
                                                            -----------  -----------
         Total stockholders' equity ......................     144,813      154,355
                                                            -----------  -----------
                                                           $   150,727  $   160,973
                                                            ===========  ===========

The accompanying notes are an integral part of these financial statements.

PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)

                                              Three Months Ended
                                                 September 30,
                                              ------------------
                                                2001      2000
                                              --------  --------

Contract revenues .......................... $     --  $    110
                                              --------  --------
Operating expenses:
     Research and development ..............    9,570    10,039

     Marketing, general and administrative .    2,087     1,234
                                              --------  --------
            Total operating expenses .......   11,657    11,273
                                              --------  --------
Loss from  operations ......................  (11,657)  (11,163)

Interest and other income, net .............    1,955     2,948
                                              --------  --------
Net loss ................................... $ (9,702) $ (8,215)
                                              ========  ========


Basic and diluted net loss per share ....... $  (0.60) $  (0.51)
                                              ========  ========
Shares used to compute basic and
    diluted net loss per share .............   16,122    16,031
                                              ========  ========

The accompanying notes are an integral part of these financial statements.

PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)

                                                                    Three Months Ended
                                                                       September 30,
                                                                   --------------------
                                                                      2001       2000
                                                                   ---------  ---------
Cash flows from operating activities:
   Net loss ..................................................... $  (9,702) $  (8,215)
Adjustments to reconcile net loss to net cash used in
operating activities:
   Depreciation and amortization ................................       562        318
   Stock compensation expense ...................................        47         22
   Changes in assets and liabilities:
      Prepaid expenses and other assets .........................       (31)      (883)
      Accounts payable ..........................................    (1,544)     2,232
      Accrued liabilities .......................................       832        329
      Deferred rent .............................................         8         (3)
                                                                   ---------  ---------
         Net cash used in operating activities ..................    (9,828)    (6,200)
                                                                   ---------  ---------
Cash flows from investing activities:
   Purchase of property and equipment ...........................      (692)      (346)
   Purchases of marketable securities ...........................   (19,017)   (12,700)
   Proceeds from maturities of marketable securities ............    30,269      8,138
                                                                   ---------  ---------
        Net cash provided by (used in) investing activities .....    10,560     (4,908)
                                                                   ---------  ---------
Cash flows from financing activities:
   Payments under capital lease obligations .....................       --         (27)
   Proceeds from sale of stock ..................................       131        621
                                                                   ---------  ---------
        Net cash provided by financing activities ...............       131        594
                                                                   ---------  ---------
Increase (decrease) in cash and cash equivalents ................       863    (10,514)
Cash and cash equivalents at beginning of the period ............    51,391     43,536
                                                                   ---------  ---------
Cash and cash equivalents at end of the period .................. $  52,254  $  33,022
                                                                   =========  =========

The accompanying notes are an integral part of these financial statements.

PHARMACYCLICS, INC.
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Principles

Basis of Presentation

The accompanying unaudited condensed financial statements of Pharmacyclics, Inc. (the "company" or "Pharmacyclics") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required for complete financial statements. In the opinion of management, the accompanying unaudited, condensed financial statements reflect all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the company's interim financial information. These financial statements and notes should be read in conjunction with the audited financial statements of the company included in the company's Annual Report on Form 10-K for the year ended June 30, 2001 filed with the Securities and Exchange Commission on September 14, 2001.

The results of operations for the three months ended September 30, 2001 are not necessarily indicative of the operating results that may be reported for the fiscal year ending June 30, 2002 or for any other future period.

Revenue Recognition

Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable and collectibility is reasonably assured. License and milestone fees are recognized as revenue when earned over the period of the arrangement, as evidenced by achievement of the specified milestones and the absence of any on-going obligation. Contract revenue is recognized as earned, primarily based on costs incurred to total estimated costs at completion, pursuant to the terms of each agreement. License, milestone, contract and grant revenues are not subject to repayment. Any amounts received in advance of performance are recorded as deferred revenue.

Research and Development Costs

Research and development costs are expensed as incurred and include costs associated with the company's internal programs as well as costs incurred in connection with contract research performed pursuant to collaborative agreements. Research and development costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities which conduct certain research activities on behalf of the company.

Cash Equivalents and Marketable Securities

All highly liquid marketable securities purchased with an original maturity date of three months or less are considered to be cash equivalents. The company has classified all its marketable securities as "available-for-sale." Unrealized gains and losses on marketable securities held are included in other comprehensive income (loss). Gains and losses on marketable securities sold are recorded based on the specific identification method and are included in the results of operations.

Note 2 - Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share excludes potential common stock if their effect is antidilutive. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method). Options and warrants to purchase 3,376,224 and 2,572,442 shares of common stock were outstanding at September 30, 2001 and 2000, respectively.

Note 3 - Comprehensive Loss

Comprehensive loss includes unrealized gains (losses) on available-for-sale securities which are excluded from the results of operations.

The company's comprehensive losses were as follows (in thousands):

                                       Three Months Ended
                                           September 30,
                                      --------------------
                                        2001       2000
                                      ---------  ---------
Net loss ........................... $  (9,702) $  (8,215)
Change in net unrealized gains and
  losses on available-for-sale
  securities .......................       (18)       533
                                      ---------  ---------
Comprehensive loss ................. $  (9,720) $  (7,682)
                                      =========  =========

Note 4 - Recent Accounting Pronouncements

In July 2001, The Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations", and No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under a single method -- the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment upon initial adoption of the Statement and on an annual basis going forward. The company will adopt SFAS 142 in the first quarter of fiscal year 2003. The company believes that the adoption of these standards will have no impact on its financial statements.

In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. This Statement supersedes FASB Statement No. 121 and APB 30, however, this Statement retains the requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is classified as held for sale. This Statement addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. Management does not expect the adoption of SFAS 144 to have a material impact on the Company's financial position and results of operations.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Factors that May Affect Future Operating Results

In addition to historical information, this report contains predictions, estimates and other forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from any future performance suggested in this report as a result of the factors, including those discussed in "Factors That May Affect Future Operating Results," elsewhere in this report and in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001.

Overview

Pharmacyclics is a pharmaceutical company focused on the development of products that improve existing therapeutic approaches to cancer, atherosclerosis and retinal disease. We are conducting a multicenter international Phase III clinical trial of XCYTRIN^® (motexafin gadolinium) Injection to improve the efficacy of radiation therapy of tumors that have spread to the brain resulting from a variety of cancers, including those of the lung and breast. We have completed patient enrollment and follow-up in this study and, after completion of data analysis, expect to be able to announce a top-line analysis of the results by the end of calendar year 2001. We have completed patient enrollment in a multicenter Phase II trial with XCYTRIN for the treatment of glioblastoma multiforme, a malignant primary brain tumor. Patient enrollment has been completed in a Phase IIb clinical trial for LUTRIN^® (motexafin lutetium) Injection as a photosensitizer for use in the photodynamic therapy of patients with recurrent breast cancers to the chest wall that have failed standard therapies. Through our Cooperative Research and Development Agreement, the National Cancer Institute is conducting Phase I trials of XCYTRIN for treatment of both primary adult and pediatric brain tumors, pancreatic cancer and lung cancer and of LUTRIN for prostate and cervical cancer. We are now conducting a multicenter randomized Phase II clinical trial with ANTRIN^® (motexafin lutetium) Injection photoangioplasty for treatment of patients with peripheral arterial disease and recently completed enrollment in a Phase I trial for treatment of coronary artery disease. In addition, Alcon has completed a Phase II clinical trial with OPTRIN™ (motexafin lutetium) Injection for the photodynamic therapy of patients with a degenerative disease of the retina caused by growth of small blood vessels in the retina known as age-related macular degeneration. Alcon conducted this trial under a 1997 evaluation and license agreement that gave Alcon the right to conduct worldwide development, marketing and sales of OPTRIN for ophthalmology indications. In October 2001, Alcon gave up its rights under the evaluation and license agreement.

To date, we have devoted substantially all of our resources to research and development. We have not derived any commercial revenues from product sales. We have incurred significant operating losses since our inception in 1991 and, as of September 30, 2001, had an accumulated deficit of approximately $131.4 million. We expect to continue to incur significant operating losses until the commercialization of our products generates sufficient revenues to cover our expenses. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. Our achieving profitability depends upon our ability, alone or with others, to successfully complete the development of our products under development, and obtain required regulatory clearances and successfully manufacture and market our products.

Results of Operations

Revenues

Revenues were $0 for the three months ended September 30, 2001 compared to $110,000 for the three months ended September 30, 2000. Revenue in fiscal 2001 consisted of contract revenue associated with the company's corporate collaboration agreement with Nycomed Amersham plc to sell and market LUTRIN outside the United States, Canada and Japan. This agreement was terminated in the fourth quarter in fiscal 2001.

Research and Development

Research and development expenses decreased $469,000 (5%) to $9,570,000 in the three months ended September 30, 2001, from $10,039,000 in the three months ended September 30, 2000. The decrease in expense is due to lower drug costs ($1,913,000) in the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. Until commercial viability of such products are demonstrated and necessary regulatory approvals are received, the company will charge all such amounts to research and development expense. This decrease was partially offset by increases in personnel costs due to increased headcount to support the trials and expanded research efforts ($1,270,000). Research and development expenses can vary significantly quarter-to-quarter based on the timing of clinical trials and drug substance purchases. Generally, we expect research and development expenses to increase in fiscal 2002 as we continue development of our products.

Marketing, General and Administrative

Marketing, general and administrative expenses increased $853,000 (69%) to $2,087,000 in the three months ended September 30, 2001 from $1,234,000 in the three months ended September 30, 2000. The increase was primarily due to an increase in marketing expenses to promote awareness of the company's products ($395,000), higher facility and information systems expenses to support the growth in headcount ($194,000), and increases in administration personnel costs due to increases in headcount to support the company's growth ($156,000). We expect marketing, general and administrative expenses to continue to grow in 2002 as the company continues to increase awareness of the company's product and to build infrastructure to support the company's expected growth.

Interest and Other Income, Net

Interest and other income, net decreased $993,000 (34%) to $1,955,000 in the three months ended September 31, 2001 from $2,948,000 in the three months ended September 30, 2000. The decrease is primarily due to the lower cash, cash equivalents and marketable securities balances combined with lower interest rates being earned by these balances.

Liquidity and Capital Resources

Our principal sources of working capital have been private and public equity financings and proceeds from collaborative research and development agreements, as well as grant and contract revenues and interest income.

As of September 30, 2001, we had approximately $142,375,000 in cash, cash equivalents and marketable securities. Net cash used in operating activities of $9,828,000 in the three months ended September 30, 2001 was primarily due to the company's net loss and decrease in accounts payable, partially offset by an increase in accrued liabilities. Net cash used in operating activities of $6,200,000 for the three months ended September 30, 2000 resulted primarily from the net loss for the period and an increase in prepaid expenses and other assets, partially offset by an increase in accounts payable.

Net cash provided by investing activities of $10,560,000 for the three months ended September 30, 2001 consisted primarily of proceeds from the maturities of marketable securities, net of purchases of investments. Net cash used in investing activities of $4,908,000 for the three months ended September 30, 2000 consisted primarily of purchases of marketable securities, net of maturities of marketable securities.

Net cash provided by financing activities of $131,000 and $594,000 for the three months ended September 30, 2001 and 2000, respectively, primarily consisted of proceeds from the sale of stock under the company's stock plans.

Based on the current status of our product development and commercialization plans, we believe cash, cash equivalents and marketable securities will be adequate to satisfy our capital needs through at least the calendar year 2002. However, our actual capital requirements will depend on many factors, including the status of product development; the time and cost involved in conducting clinical trials and obtaining regulatory approvals; filing, prosecuting and enforcing patent claims; competing technological and market developments; and our ability to market and distribute our products and establish new collaborative and licensing arrangements.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. The factors described above will impact our future capital requirements and the adequacy of our available funds. We may be required to raise additional funds through public or private financings, collaborative relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to existing stockholders and debt financing, if available, may involve restrictive covenants. Collaborative arrangements, if necessary to raise additional funds, may require us to relinquish rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed could have a material adverse effect on our business, financial condition and results of operations.

Recent Accounting Pronouncements

In July 2001, The Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations", and No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under a single method -- the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment upon initial adoption of the Statement and on an annual basis going forward. The company will adopt SFAS 142 in the first quarter of fiscal year 2003. The company believes that the adoption of these standards will have no impact on its financial statements.

In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. This Statement supersedes FASB Statement No. 121 and APB 30, however, this Statement retains the requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is classified as held for sale. This Statement addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. Management does not expect the adoption of SFAS 144 to have a material impact on the Company's financial position and results of operations.

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than two years. Assuming a hypothetical increase in interest rates of one percentage point, the fair value of our total investment portfolio as of September 30, 2001 would have potentially declined by $394,000.

One of our cancelable drug supply agreements is denominated in a foreign currency. We have not entered into any agreements or transactions to hedge the risk associated with potential fluctuations in currencies; accordingly, we are subject to foreign currency exchange risk related to this contract. While we may enter into hedge or other agreements in the future to actively manage this risk, we do not believe this risk is material to our financial statements.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

Risks Related to Pharmacyclics

All of our product candidates are in development, and we cannot be certain that any of our products under development will be commercialized

To be profitable, we must successfully research, develop, obtain regulatory approval for, manufacture, introduce, market and distribute our products under development. The time frame necessary to achieve these goals for any individual product is long and uncertain. Before we can sell any of our products under development, we must demonstrate through preclinical (animal) studies and clinical (human) trials that each product is safe and effective for human use for each targeted disease. We have conducted and plan to continue extensive and costly clinical trials to assess the safety and effectiveness of our potential products. We cannot be certain that we will be permitted to begin or continue our planned clinical trials for our potential products, or if permitted, that our potential products will prove to be safe and to produce their intended effects.

The completion rate of our clinical trials depends upon, among other factors, the rate of patient enrollment. We may fail to obtain adequate levels of patient enrollment in our clinical trials. Delays in planned patient enrollment may result in increased costs, delays or termination of clinical trials, which could have a material adverse effect on us.

Additionally, demands on our clinical staff have been increasing and we expect they will continue to increase as a result of later-stage clinical trials of our products in development and our monitoring of additional clinical trials. We may fail to effectively oversee and monitor these many simultaneous clinical trials, which would result in increased costs or delays of our clinical trials. Even if these clinical trials are completed, we may fail to complete and submit a new drug application as scheduled. Even if we are able to submit a new drug application as scheduled, the Food and Drug Administration may not clear our application in a timely manner or may deny the application entirely.

Data already obtained from preclinical studies and clinical trials of our products under development do not necessarily predict the results that will be obtained from later preclinical studies and clinical trials. Moreover, data such as ours is susceptible to varying interpretations which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a product under development could delay or prevent regulatory clearance of the potential product and would materially harm our business. Our clinical trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approval or may not result in marketable products.

We have a history of operating losses and we expect to continue to have losses in the future

We have incurred significant operating losses since our inception in 1991 and, as of September 30, 2001, had an accumulated deficit of approximately $131.4 million. We expect to continue to incur substantial additional operating losses until the commercialization of our products generates sufficient revenues to cover our expenses. Our achieving profitability depends upon our ability, alone or with others, to successfully complete the development of our products under development, and obtain required regulatory clearances and successfully manufacture and market our proposed products. To date, we have not generated revenue from the commercial sale of our products. All revenues to date are primarily from license and milestone payments and, to a lesser extent, funding from one government research grant.

Failure to obtain product approvals or comply with ongoing governmental regulations could adversely affect our business

The manufacture and marketing of our products and our research and development activities are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the United States and abroad. Before receiving FDA clearance to market a product, we will have to demonstrate that the product is safe and effective on the patient population and for the diseases that will be treated. Clinical trials, manufacturing and marketing of products are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices. As a result, clinical trials and regulatory approval can take a number of years to accomplish and require the expenditure of substantial resources. Data obtained from clinical trials are susceptible to varying interpretations which could delay, limit or prevent regulatory clearances. For example, we compared the results of our Phase Ib/II clinical trial of XCYTRIN to historical data using a 528-patient database containing information on clinical features and outcomes in comparable patients receiving treatment with identical doses of radiation alone. Historical analyses have many limitations and, while supportive, are not considered proof that XCYTRIN improved the outcome of patients enrolled in the study.

In addition, we may encounter delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. We may encounter similar delays in foreign countries. We may be unable to obtain requisite approvals from the FDA and foreign regulatory authorities, and even if obtained, such approvals may not be on a timely basis, or they may not cover the clinical uses that we specify.

Marketing or promoting a drug for an unapproved use is subject to very strict controls. Furthermore, clearance may entail ongoing requirements for post-marketing studies. The manufacture and marketing of drugs are subject to continuing FDA and foreign regulatory review and later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market. Any of the following events, if they were to occur, could delay or preclude us from further developing, marketing or realizing full commercial use of our products, which in turn would have a material adverse effect on our business, financial condition and results of operations:

• failure to obtain or maintain requisite governmental approvals;
• failure to obtain approvals of clinically intended uses of our products under development; or
• identification of serious and unanticipated adverse side effects in our products under development.

Manufacturers of drugs also must comply with the applicable FDA good manufacturing practice regulations, which include quality control and quality assurance requirements as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to ongoing periodic inspection by the FDA and corresponding state agencies, including unannounced inspections, and must be licensed before they can be used in commercial manufacturing of our products. We or our present or future suppliers may be unable to comply with the applicable good manufacturing practice regulations and other FDA regulatory requirements. We have not been subject to a GMP inspection by the FDA or any state agency. We may be subject to delays in commercializing our products for photodynamic therapies due to delays in approvals of the third-party light sources required for these products.

Acceptance of our products in the marketplace is uncertain, and failure to achieve market acceptance will harm our business

Even if approved for marketing, our products may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including:

• the receipt of regulatory approvals for the uses that we are studying;
• the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products and diagnostic and/or imaging techniques; and
• pricing and reimbursement policies of government and third-party payors such as insurance companies, health maintenance organizations and other plan administrators.

Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products.

We may fail to adequately protect or enforce our intellectual property rights or secure rights to third-party patents

A number of third-party patent applications have been published, and some have issued, relating to biometallic and expanded porphyrin chemistries. It is likely that competitors and other third parties have and will continue to file applications for and receive patents relating to similar or even the same compositions, methods or designs as those of our products. If any third-party patent claims are asserted against the company's products and are upheld as valid and infringed, we could be prevented from practicing the subject matter claimed in such patents, require license(s) or have to redesign our products or processes to avoid infringement. Such licenses may not be available or, if available, may not be on terms acceptable to us. Alternatively, we may be unsuccessful in any attempt to redesign our products or processes to avoid infringement. Litigation or other legal proceedings may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could result in substantial cost to the company, and diversion of our efforts.

We are aware of several U.S. patents owned or licensed to Schering AG that relate to pharmaceutical formulations and methods for enhancing magnetic resonance imaging. We have obtained the opinion of special patent counsel that the technologies we employ for our imaging product under development and magnetic resonance imaging detectable compounds do not infringe the claims of such patents. Nevertheless, Schering AG may still choose to assert one or more of those patents. If any of our products were legally determined to be infringing a valid and enforceable claim of any such patents, our business could be materially adversely affected. Further, any allegation by Schering AG that we infringed their patents would likely result in significant legal costs and require the diversion of substantial management resources. Schering AG sent communications to us suggesting that our oral magnetic resonance imaging contrast agent, CITRA VU, may infringe certain of their patents. We are aware that Schering AG has asserted patent rights against at least one other company in the contrast agent imaging market and that a number of companies have entered into licensing arrangements with Schering AG with respect to one or more of such patents. We cannot be certain that we would be successful in defending a lawsuit or able to obtain a license on commercially reasonable terms from Schering AG, if required.

We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We require our employees, consultants, advisors and collaborators to execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements typically provide that all materials and confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances, and that all inventions arising out of the relationship with Pharmacyclics shall be our exclusive property. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer our information and techniques, or otherwise gain access to our proprietary technology. We may be unable to meaningfully protect our rights in unpatented proprietary technology.

We rely heavily on third parties

We currently depend heavily and will depend heavily in the future on third parties for support in product development, manufacturing, marketing and distribution. We depend upon the National Cancer Institute for the sponsoring and funding of certain of the clinical trials of our XCYTRIN radiation enhancer and LUTRIN photosensitizer products in development. We cannot be certain that the National Cancer Institute will enlist support for all such trials or that it will continue our funding. If the National Cancer Institute did not support such trials, we may have to fund the continuation of such trials ourselves or reduce the number of disease types in our clinical trials. We cannot be certain that any of these parties will fulfill their obligations in a manner that maximizes our revenues. Our failure to receive milestone payments or any reduction or discontinuance of efforts by our partners or the termination of these alliances could have a material adverse effect on our business, financial condition and results of operations.

We may be unsuccessful in entering into additional strategic alliances for the development or commercialization of other product candidates. Even if we did enter into any such alliances, they may not be on terms favorable to us or they may ultimately be unsuccessful.

We have no expertise in the development of light sources and associated light delivery devices required for our photoangioplasty and photodynamic therapy products under development. Successful development, manufacturing, approval and distribution of our photosensitization products will require third party participation for the required light sources, associated light delivery devices and other equipment. We currently obtain lasers from Diomed, Inc. and cylindrically diffusing light fibers from CardioFocus, Inc. on a purchase order basis, and such entities are under no obligation to continue to deliver light devices on an ongoing basis. Failure to maintain such relationships may require us to develop additional supply sources which may require additional clinical trials and regulatory approvals and could materially delay commercialization of our LUTRIN and ANTRIN products under development. We may be unable to establish or maintain relationships with other supply sources on a commercially reasonable basis, if at all, or alternatively, the enabling devices may not receive regulatory approval for use in photoangioplasty or photodynamic therapy.

We have limited manufacturing experience and thus rely heavily upon contract manufacturers

We must manufacture our products in commercial quantities, either directly or through third parties, in compliance with regulatory requirements and at an acceptable cost. We do not own manufacturing facilities necessary to provide clinical and commercial quantities of our products.

We have entered into commercial supply agreements with three manufacturers who each manufacture a separate component of our texaphyrin drug substance. In fiscal 2001, we took delivery of commercial quantities of XCYTRIN drug substance. Due to the addition of these manufacturers, we must demonstrate to the FDA the substantial equivalence of the materials produced by these manufacturers to the materials used in our clinical trials to date, with the exception of our Phase II clinical trial for treatment of a malignant primary brain tumor. Failure to demonstrate equivalence of the material produced by these manufacturers could involve performing additional clinical trials and could have a material adverse effect on our business, financial condition and results of operations.

We have entered into an agreement with Cook Pharmaceutical Solutions (acquired by Baxter Healthcare Corporation in August 2001) to formulate, fill, package and label clinical and commercial quantities of XCYTRIN. Cook also supplies us with clinical quantities of ANTRIN and LUTRIN. Any interruption of supply of our products from Cook could have a material adverse affect on our business, financial condition and results of operations.

Any failure by these third parties to supply our requirements or the National Cancer Institute's requirements for clinical trial materials would jeopardize the completion of such trials and could therefore have a material adverse effect on us.

We lack marketing and sales experience

We currently have limited marketing, sales and distribution experience. We must develop a sales force with technical expertise. We have no experience in developing, training or managing a sales force. We will incur substantial additional expenses in developing, training and managing such an organization. We may be unable to build such a sales force, the cost of establishing such a sales force may exceed any product revenues, or our direct marketing and sales efforts may be unsuccessful. In addition, we compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against such other companies.

Our capital requirements are uncertain and we may have difficulty raising needed capital in the future

We have expended and will continue to expend substantial funds to complete the research, development and clinical testing of our products. We will require additional funds for these purposes, to establish additional clinical-and commercial-scale manufacturing arrangements and to provide for the marketing and distribution of our products. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable from operations or additional sources of financing, we may have to delay, reduce the scope of or eliminate one or more of our research or development programs which would materially and adversely affect our business, financial condition and operations.

We believe that our cash, cash equivalents and investments, will be adequate to satisfy our capital needs through at least calendar year 2002. However, our actual capital requirements will depend on many factors, including:

• continued progress of our research and development programs;
• our ability to establish collaborative arrangements;
• progress with preclinical studies and clinical trials;
• the time and costs involved in obtaining regulatory clearance;
• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
• competing technological and market developments; and
• our ability to market and distribute our products and establish new collaborative and licensing arrangements.

We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources which may be dilutive to existing stockholders. In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development that we would otherwise seek to develop or commercialize ourselves.

Risks Related to Our Industry

We face rapid technological change and intense competition

The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our products under development or technologies noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors' financial, marketing, manufacturing and other resources.

We are a relatively new enterprise and are engaged in the development of novel therapeutic technologies. As a result, our resources are limited and we may experience technical challenges inherent in such novel technologies.

Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic, diagnostic and imaging effects than our products. We are aware that one of our competitors in the market for photodynamic therapy drugs has received marketing approval of a product for certain uses in the United States and other countries. Our competitors may develop products that are safer, more effective or less costly than our products and, therefore, present a serious competitive threat to our product offerings.

The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our products even if commercialized. The diseases for which we are developing our therapeutic products can also be treated, in the case of cancer, by surgery, radiation and chemotherapy, and in the case of atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to maintain and open blood vessels. These treatments are widely accepted in the medical community and have a long history of use. The established use of these competitive products may limit the potential for our products to receive widespread acceptance if commercialized.

The price of our common stock may be volatile

The market prices for securities of small capitalization biotechnology companies, including ours, have historically been highly volatile. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The market price of our common stock may fluctuate significantly due to a variety of factors, including:

• the results of preclinical testing and clinical trials by us or our competitors;
• technological innovations or new therapeutic products;
• governmental regulation;
• developments in patent or other proprietary rights;
• litigation;
• public concern as to the safety of products developed by us or others;
• comments by securities analysts; and
• general market conditions in our industry.

In addition, if any of the risks described in these "Risk Factors" actually occurred, it could have a dramatic and material adverse impact on the market price of our common stock.

We are subject to uncertainties regarding health care reimbursement and reform

The continuing efforts of government and insurance companies, health maintenance organizations and other payors of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could have a material adverse effect on our business, financial condition and results of operations.

Our ability to commercialize our products successfully will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as HMOs. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our products. The cost containment measures that health care payors and providers are instituting and the effect of any health care reform could materially adversely affect our ability to operate profitably.

Our business exposes us to product liability claims

The testing, manufacture, marketing and sale of our products involve an inherent risk that product liability claims will be asserted against us. Although we are insured against such risks up to a $10,000,000 annual aggregate limit in connection with clinical trials and commercial sales of our products, our present product liability insurance may be inadequate. A successful product liability claim in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable or reasonable terms. In addition, product liability coverage may cease to be available in sufficient amounts or at an acceptable cost. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our pharmaceutical products. A product liability claim or recall would have a material adverse effect on our reputation, business, financial condition and results of operations.

Our business involves environmental risks

In connection with our research and development activities and our manufacture of materials and products, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Although we believe that we have complied with the applicable laws, regulations and policies in all material respects and have not been required to correct any material noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development involves the controlled use of hazardous materials, including but not limited to certain hazardous chemicals and radioactive materials. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources.

Part II. Other Information

Item 1. Legal Proceedings

None

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

On October 31, 2001, at the Company's 2001 Annual Meeting of Stockholders, the following matters were submitted and voted on by stockholders and were adopted:

1. The election of Miles R. Gilburne, Loretta M. Itri, M.D., Richard M. Levy, Ph.D., Richard A. Miller, M.D., William R. Rohn and Craig C. Taylor by the stockholders to serve on the Board of Directors.

The results of the vote are as follows:

	Total Vote for Each Director	Total Vote Withheld from Each Director
Miles R. Gilburne	13,807,544	120,988
Loretta M. Itri, M.D.	13,807,534	120,998
Richard M. Levy, Ph.D.	13,803,334	125,198
Richard A. Miller, M.D.	13,282,445	646,087
William R. Rohn	13,807,434	121,098
Craig C. Taylor	13,807,444	121,088

2. The amendment of the Company's Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of the Company's common stock from 24,000,000 to 49,000,000.

The results of the vote are as follows:

For	Against	Abstain
11,628,858	1,993,399	306,275

3. The amendment of the Company's 1995 Stock Option Plan (the "Option Plan") in order to increase the total number of shares of common stock authorized for issuance over the term of the Option Plan by an additional 560,000 shares.

The results of the vote are as follows:

For	Against	Abstain
9,764,532	3,851,664	312,336

4. The amendment of the Company's Non-Employee Directors Stock Option Plan (the "Directors Option Plan") in order to increase the total number of shares of common stock authorized for issuance over the term of the Directors Option Plan by an additional 25,000 shares.

The results of the vote are as follows:

For	Against	Abstain
11,630,816	1,986,980	310,736

5. The amendment of the Company's 1995 Employee Purchase Plan (the "Purchase Plan") in order to increase the total number of shares of common stock authorized for issuance over the term of the Option Plan by an additional 200,000 shares.

The results of the vote are as follows:

For	Against	Abstain
13,477,223	143,347	307,962

6. The ratification of the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ending June 30, 2002.

The results of the vote are as follows:

For	Against	Abstain
13,594,840	30,667	303,025

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

a.	Exhibits
	10.1	Employment agreement, dated August 14, 2001, by and between the Company and Timothy G. Whitten
	10.2+	Supply Agreement, dated August 17, 2001, by and between the Company and EMS-DOTTIKON AG.

b.	Reports on Form 8-K
	None

+ Confidential treatment has been requested for certain portions of this agreement. Such omitted confidential information has been designated by an asterisk and has been filed separately with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 as amended, pursuant to an application for confidential treatment.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, (the"Exchange Act") the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PHARMACYCLICS, INC.

(Registrant)

Dated: November 8, 2001 By:  /s/ RICHARD A. MILLER, M.D.

Richard A. Miller, M.D.

President and Chief Executive Officer

Dated: November 8, 2001 By:  /s/ LEIV LEA

Leiv Lea

Vice President, Finance and Administration and Chief Financial Officer

INDEX TO EXHIBITS

Exhibit No.	Exhibit Description
10.1	Employment agreement, dated August 14, 2001, by and between the Company and Timothy G. Whitten
10.2+	Supply Agreement, dated August 17, 2001, by and between the Company and EMS-DOTTIKON AG.
+	Confidential treatment has been requested for certain portions of this agreement. Such omitted confidential information has been designated by an asterisk and has been filed separately with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 as amended, pursuant to an application for confidential treatment.

EX-10.1

Exhibit 10.1

PHARMACYCLICS, INC.
995 East Arques Avenue
Sunnyvale, CA 94086-4593

August 14, 2001

Dear Tim:

On behalf of the Company's Board of Directors, I am pleased to make you an offer to join the Company as its Senior Vice President of Marketing and Sales. The purpose of this letter is to set forth the terms of your proposed employment with the Company, including your compensation level and benefit entitlements.

1. Employment and Duties.

A. The Company will employ you as Senior Vice President of Marketing and Sales, commencing not later than September 15, 2001, and you will accordingly make yourself available on a full-time basis to assume that position on or before such date. In that position, you will report directly to the President.

2. Compensation.

A. Your initial base salary will be at the rate of $260,000 per year. Your base salary will be subject to adjustment by the Company's Board of Directors on an annual basis.

B. Your base salary will be paid at periodic intervals in accordance with the Company's payroll practices for salaried employees.

C. You will be eligible for the executive bonus plan currently in place for other executives in the company for fiscal year 2002. The range of possible payments under this plan is 0-10% of base salary depending on the achievement of various corporate milestones. These payments will be prorated based on your employment start date.

D. The Company will deduct and withhold, from the base salary and bonuses payable to you hereunder, any and all applicable Federal, state and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Company under applicable statute or regulation.

3. Employee Stock Options.

As soon as possible after you join theCompany as Senior Vice President of Marketing and Sales you will be granted a stock option to purchase 100,000 shares of Pharmacyclics Common Stock (the "First Option") and an option to purchase an additional 50,000 shares of Pharmacyclics Common Stock (the "Second Option"). Each option will have an exercise price equal to 100% of the fair market value of the Pharmacyclics Common Stock on the grant date and will have a maximum term of 10 years, subject to earlier termination upon your cessation of employment with the Company. The First Option will become exercisable as follows: the option will become exercisable for 20,000 shares upon completion of one year of service after your date of hire, and then the option will become exercisable for the remaining 80,000 shares in a series of 48 equal successive monthly installments upon completion of each month of service thereafter. The Second Option will become exercisable as follows: following the first 24 months of full-time employment, the option will become exercisable in a series of 36 equal successive monthly installments upon completion of each month of service thereafter. All vesting under your options will cease upon your termination of employment. The remaining terms and conditions of your options will be in accordance with the standard provisions utilized for stock option grants under the Company's 1995 Stock Option Plan.

4. Signing Bonus.

You will receive a signing bonus of $150,000 divided into two parts; $75,000 will be paid on the completion of one month of full-time employment and an additional $75,000 will be paid on the completion of six months of employment.

5. Severance Payment.

If within the first one year of full-time employment the company terminates your employment or substantially decreases your compensation or responsibilities without Cause (as defined in paragraph 13 below) or you terminate your employment due to the Company's requirement that you relocate to its headquarters in Sunnyvale, California, you will be entitled to receive one year of base salary payable in twelve equal monthly increments. If within the second year of full-time employment, the company terminates your employment or substantially decreases your compensation or responsibilities without Cause (as defined in paragraph 13 below) or you terminate your employment due to the Company's requirement that you relocate to its headquarters in Sunnyvale, California, you will be entitled to receive six months of base salary payable in six equal monthly increments. If within the third year of full-time employment, the company terminates your employment or substantially decreases your compensation or responsibilities without Cause (as defined in paragraph 13 below), you will be entitled to receive six months of base salary payable in six equal monthly increments.

In addition to the severance payments described above, you and your family will continue to receive the same medical and dental benefits you received while an employee of the Company during the period of time during which you are entitled to severance payments unless your family's medical and dental benefits are covered to any extent under another employer's health benefit program.

6. Relocation.

The Company may, at any time after June 30, 2002, notify you that you are required to relocate to its headquarters in a reasonable period of time following such notification. The Company agrees that a "reasonable time" would include the period of time necessary so as not to cause you to have to relocate while your children are in school. Should the company require you to relocate to the California location on a permanent basis, you will be entitled to reimbursement from the Company for the reasonable costs you incur to move your household to the San Francisco Bay area. These costs will be reimbursed upon receipt of a suitable prepared expense report with documented receipts. Expenses to be reimbursed include the cost of packing and moving household goods, moving up to two personal automobiles, travel expenses for you and your immediate family (economy class airfare and ground transportation) and temporary housing when you arrive. In addition, subject to the approval of the Board of Directors, the Company will provide you with a loan, some part of which will be forgivable in 5 equal amounts over 5 years on the anniversary dates of the loan provided that you are employed by the Company on such dates, in an amount to be determined at the time of your relocation, but in no event less than $500,000, for the purpose of purchasing a home in the San Francisco Bay area. Also, in no event shall the forgivable portion of the loan be in an amount less than $250,000. Such loan will be evidenced by a promissory note and will be secured by an interest in the purchased property.

7. Involuntary Termination Upon Change in Control.

You will be entitled to the same agreement and conditions made available to other executives of the company.

8. Expense Reimbursement.

You will be entitled to reimbursement from the Company for all customary, ordinary and necessary business expenses incurred by you in the performance of your duties hereunder, provided you furnish the Company with vouchers, receipts and other details of such expenses within thirty (30) days after they are incurred.

9. Fringe Benefits.

You will be eligible to participate in any group life insurance plan, group medical and/or dental insurance plan, accidental death and dismemberment plan, short-term disability program and other employee benefit plans, including the Section 401(k) plan and the Employee Stock Purchase Plan, which are made available to employees of the Company and for which you otherwise qualify.

10. Vacation.

You will accrue paid vacation benefits in accordance with the Company policy in effect for executive officers.

11. Restrictive Covenants.

During the period of service as Senior Vice President of Marketing and Sales

1. you will devote your full working time and effort to the performance of your duties as Senior Vice President of Marketing and Sales; and
2. except as approved by the President & CEO you will not directly or indirectly, whether for your own account or as an employee, consultant or advisor, provide services to any business enterprise other than the Company.

However, you will have the right to perform such incidental services as are necessary in connection with (a) your private passive investments, (b) your charitable or community activities, and (c) your participation in trade or professional organizations, but only to the extent such incidental services do not interfere with the performance of your services as Senior Vice President of Marketing and Sales.

12. Proprietary Information.

Upon the commencement of your services as Senior Vice President of Marketing and Sales you will sign and deliver to the Company the standard-form Proprietary Information and Inventions Agreement required of all key employees of the Company.

13. Termination of Employment.

A. Your employment as Senior Vice President of Marketing and Sales pursuant to this agreement will be entirely at will.

B. The Company may terminate your employment under this agreement at any time for any reason, with or without Cause (as defined below). If your employment is terminated without Cause, the Company must provide you with at least thirty (30) days prior written notice.

C. You may terminate your employment under this agreement at any time for any reason upon thirty (30) days prior written notice to the Company.

D. The Company may at any time, upon written notice, terminate your employment hereunder for Cause. Such termination will be effective immediately upon such notice.

For purposes of this agreement, your employment with the Company will be deemed to have been involuntarily terminated for Cause if your services are terminated by the Company for one or more of the following reasons:

1. acts of fraud or embezzlement or other intentional misconduct which adversely affects the Company's business, or
2. failure or refusal in a material respect to follow reasonable policies or directions established by the Board of Directors and/or President or gross negligence, incompetence or dishonesty in the performance of your services as Senior Vice President of Marketing and Sales, or
3. misappropriation or unauthorized disclosure or use of the Company's proprietary information.

Please indicate your acceptance of the foregoing provisions of this employment agreement by signing the enclosed copy of this agreement and returning it to the Company.

Very truly yours,

PHARMACYCLICS, INC.

By /s/ Richard A. Miller, M.D.
Title: President and Chief Executive Officer

ACCEPTED BY AND AGREED TO

Signature: /s/ Timothy G. Whitten

Dated: August 21, 2001

EX-10.2

[***] Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the Commission pursuant to Rule 24b-2.

CONFIDENTIAL TREATMENT REQUESTED - EDITED COPY

Exhibit 10.2

SUPPLY AGREEMENT

This Supply Agreement (the "Agreement") is entered into as of August 17, 2001 (the "Effective Date"), between EMS-Dottikon AG, having an address at Hembrunnstrasse 17, CH-5605, Dottikon, Switzerland ("DOTTIKON"), and Pharmacyclics, Inc., a Delaware corporation, having its principal executive offices at 995 E. Arques Avenue, Sunnyvale, California 94085-4521 ("PCYC"). DOTTIKON and PCYC are sometimes referred to herein individually as a "Party" and collectively as the "Parties."

Recitals

Whereas, PCYC is engaged in the development of and owns or has a license to certain rights relating to its proprietary compounds motexafin lutetium and motexafin gadolinium, each of which is a human pharmaceutical agent for the treatment of certain diseases, and wishes to develop, market and commercially distribute such agents;

Whereas, DOTTIKON has expertise in conducting the cGMP manufacturing of bulk pharmaceutical intermediates;

Whereas, DOTTIKON and PCYC are parties to that certain Feasibility Evaluation Agreement [ *** ] as amended, regarding DOTTIKON's conduct of certain process scale-up and cGMP fine chemicals manufacturing services for PCYC;

Whereas, PCYC now desires to have DOTTIKON manufacture, label, package, test and ship bulk forms of its proprietary pharmaceutical intermediates, and DOTTIKON desires to undertake such activities, on the terms hereinafter set forth;

Now, Therefore, in consideration of the foregoing premises and the mutual promises hereinafter set forth, the Parties hereby agree as follows:

ARTICLE 1

Definitions.

As used herein, the following capitalized terms shall have the following meanings:

1. "Acceptable Product" means a Batch of Product Manufactured by DOTTIKON and delivered to PCYC hereunder that meets the Release Criteria for such Product, as determined pursuant to Section 4.2.
2. "Batch" means a specific quantity of a Product that (a) is intended to have uniform character and quality within specified limits, and (b) is produced according to a single manufacturing order during the same cycle of manufacture.
3. "Business Day" means any day on which banks are open for business in both the United States and Switzerland, other than a Saturday, Sunday or any day that is a national holiday in either the United States or Switzerland.
4. "Capacity" means, with respect to each Product to be Manufactured by DOTTIKON hereunder, DOTTIKON's Manufacturing capacity for such Product, as set forth in the applicable Product Appendix.
5. "Confidential Information" shall have the meaning ascribed in Section 12.1.
6. "Controlled" means, with respect to any material, information or intellectual property right, possession of the ability by a Party to grant access, a license, or a sublicense to such material, Information or intellectual property right as provided for herein without violating an agreement with a Third Party as of the time such Party would be first required hereunder to grant the other Party such access, license or sublicense.
7. "Current Good Manufacturing Practices" or "cGMP" means: (a) the good manufacturing practices required by the FDA and set forth in the FD&C Act or FDA regulations (including without limitation 21 CFR 210 and 211 and Part 11), policies, or guidelines, in effect at any time during the term of this Agreement, for the manufacture and testing of pharmaceutical materials as applied to bulk pharmaceuticals or their intermediates, as applicable; and (b) the corresponding requirements of each applicable Regulatory Authority, in each case as may be further specified in the applicable Product Appendix.
8. "DOTTIKON Technology" means (a) all inventions that are necessary or useful for the Manufacture, use or sale of a Product, Drug Product or Drug Substance and all patents (including without limitation reissues, re-examinations and inventor's certificates) covering such inventions; and (b) all information, trade secrets and know-how that are necessary or useful for the Manufacture, use or sale of a Product, Drug Product or Drug Substance, in each case that are Controlled by DOTTIKON during the term of this Agreement.
9. "Drug Master File" or "DMF" means, with respect to each Product Manufactured by DOTTIKON hereunder, a drug master file covering DOTTIKON's Manufacture of such Product in accordance with 21 CFR 314.420, as may be amended from time to time, and any foreign equivalents.
10. "Drug Product" means a filled and finished pharmaceutical product for clinical use, or for commercial use and/or sale, that employs or incorporates one or more Products.
11. "Drug Substance" means a bulk form of the pharmaceutically active compound motexafin lutetium or motexafin gadolinium, as applicable.
12. "Facility" means DOTTIKON's Manufacturing facility located in [ *** ] or such other Manufacturing facility as may be set forth in the applicable Product Appendix.
13. "FDA" means the United States Food and Drug Administration or any successor entity thereto.
14. "FD&C Act" means the United States Federal Food, Drug and Cosmetic Act, as may be amended from time to time.
15. "Field" means [ *** ]
16. "Force Majeure Event" shall have the meaning ascribed in Article 14.
17. "Identification Testing Standards" means the identification standards for each PCYC Material to be supplied hereunder as set forth in the applicable Product Appendix.
18. "Improvements" shall have the meaning ascribed in Section 1.4 of the Prior Agreement.
19. "IND" means an Investigational New Drug Application filed with the FDA, or a corresponding application filed with any other Regulatory Authority.
20. "Intellectual Property" means any and all inventions, improvements, information and know-how, including without limitation those related to processes, compositions of matter and methods of use, made by or on behalf of either Party individually or jointly, arising out of the performance of this Agreement, whether protectable by patent or as a trade secret, and all intellectual property rights therein and thereto.
21. "Intermediate" means an intermediate compound required for the synthesis of a Drug Substance.
22. "Manufacture," "Manufactured" or "Manufacturing" means the synthesis, processing, preparation, handling, packaging and labeling of Products, the storage and testing of Materials and Products, and the cleaning of the equipment used in the foregoing activities.
23. "Master Batch Record" means, with respect to each Product to be Manufactured hereunder, the approved formal set of instructions for the Manufacture of such Product, as further described in Section 6.1.
24. "Materials" means, with respect to each Product to be Manufactured hereunder, the raw material, primary packaging, secondary packaging and labeling to be used in the Manufacture of such Product hereunder.
25. "Materials Specifications" means, with respect to each of the Materials for a particular Product, the written specifications for each of such Materials as set forth in the applicable Product Appendix.
26. "Material Supply Breach" means:
1. DOTTIKON's falling more than [ *** ] behind its schedule for its Manufacturing campaign with respect to any Purchase Order submitted by PCYC and accepted by DOTTIKON pursuant to Section 3.4, as such schedule is provided to PCYC pursuant to Section 3.4.3; or
2. DOTTIKON's failure to supply to PCYC at least [ *** ] of the quantity of Acceptable Product set forth in any Purchase Order submitted to and accepted by DOTTIKON pursuant to Section 3.4 by the delivery date set forth in such Purchase Order.

Except with respect to Section 13.2.2, "Material Supply Breach" shall include DOTTIKON's failure to meet such its Manufacturing obligations as described in subsection (a) or (b) above due to a Force Majeure Event.

27. "NDA" means a New Drug Application filed with the FDA or any other regulatory filing necessary to obtain marketing approval from a Regulatory Authority.
28. "Packaging Specifications" means, with respect to each Product to be Manufactured hereunder, the written specifications for the packaging of such Product as set forth in the applicable Product Appendix, as such specifications may be amended from time-to-time by written agreement of the Parties.
29. "PCYC Materials" means, with respect to each Product to be Manufactured hereunder, those Materials for such Product that PCYC is obligated to supply as set forth in the applicable Product Appendix.
30. "PCYC Technology" means all patents (including without limitation, reissues, re-examinations and inventor's certificates) covering the Manufacture of Products hereunder, and all information, trade secrets and know-how related thereto, that is Controlled by PCYC during the term of this Agreement.
31. "Prior Agreement" means the Feasibility Evaluation Agreement entered into between the Parties [ *** ] as amended.
32. "Product" means an Intermediate to be Manufactured by DOTTIKON for PCYC hereunder.
33. "Product Appendix" means, for each Product to be Manufactured hereunder, the Product Specifications, the price per kilogram and the validation and Manufacturing activities to be performed by DOTTIKON for such Product, including without limitation the testing programs and development schedules, and any other information that the Parties deem appropriate. Each Product Appendix shall be agreed upon by the Parties as further described in Section 2.1. The documentation comprising the Product Appendices shall be attached and incorporated herein as Schedule 1.33 hereto, and may be amended only by the Parties' written agreement.
34. "Product Specifications" means, with respect to each Product to be Manufactured hereunder, the written specifications for the testing of such Product, as detailed in the applicable Product Appendix, as such specifications may be amended from time-to-time by written agreement of the Parties.
35. "Purchase Orders" means written purchase orders provided by PCYC to DOTTIKON, which shall specify: (a) the quantity of Product to be Manufactured by DOTTIKON, (b) the Purchase Price of such Product as set forth in the applicable Product Appendix, (c) the dates on which such Product shall be shipped, and (d) the shipping address(es) designated by PCYC.
36. "Purchase Price" means, with respect to each Product to be Manufactured hereunder, the price per kilogram of such Product as set forth in the applicable Product Appendix.
37. "QC Sample" shall have the meaning ascribed in Section 4.1.
38. "Regulatory Approval" means all authorizations by the appropriate Regulatory Authority necessary for use, development, Manufacture, distribution, promotion or sale of a Product, Drug Substance or Drug Product in a particular regulatory jurisdiction.
39. "Regulatory Authority" means any national, supranational, regional, state or local regulatory agency, department or other government entity with the authority to approve and regulate the use, development, Manufacture, distribution or sale of a Product or Drug Product in a regulatory jurisdiction. "Regulatory Authority" shall also include any non-governmental group licensed by an entity described in the preceding sentence to perform inspections, audits and/or reviews.
40. "Release Criteria" shall have the meaning ascribed in Section 4.2.1.
41. "Released Executed Batch Record" means the completed Batch record and associated deviation reports, investigation reports and certificates of analysis created by DOTTIKON for each Batch Manufactured hereunder, including written confirmation that such Batch record has been reviewed and approved by DOTTIKON's quality assurance unit.
42. "Test Methods" means, with respect to each Product Manufactured hereunder, the written procedures for evaluating compliance with the applicable Product Specifications, as set forth in the applicable Product Appendix.

ARTICLE 2

Product Appendices

1. Product Appendices.
1. For each Product to be Manufactured by DOTTIKON hereunder, the Parties shall agree in writing upon a Product Appendix, as follows: For all Products that PCYC desires DOTTIKON to Manufacture hereunder, PCYC shall prepare and deliver to DOTTIKON two (2) copies of the corresponding Product Appendix. DOTTIKON shall either sign such Product Appendix and return one (1) copy to PCYC, or shall return to PCYC an amended Product Appendix acceptable to DOTTIKON, in each case within [ *** ] of receipt of such Product Appendix from PCYC. In the latter case, if such amended Product Appendix is not acceptable to PCYC, then PCYC shall so notify DOTTIKON within [ *** ] of PCYC's receipt of such amended Product Appendix, and the Parties shall promptly meet in order to resolve in good faith any outstanding disagreements with respect to such amended Product Appendix.
2. Notwithstanding any other provision of this Section 2.1, this Agreement shall not be deemed to be amended or modified in any manner by any provision of any Product Appendix. Notwithstanding the foregoing, a particular Product Appendix may supersede a particular term of this Agreement, solely with respect to the work that is the subject of such Product Appendix, only if such Product Appendix specifically and expressly sets forth the intent that such term shall be so superseded.
2. Amendments to Product Appendix. Each Product Appendix may be amended from time to time, as the Parties' experience with the development, Manufacture, testing and use of the applicable Product warrants, upon mutual written agreement of PCYC and DOTTIKON.

ARTICLE 3

Manufacturing

1. Agreement to Purchase and Supply. During the term of this Agreement, PCYC agrees to purchase from DOTTIKON and DOTTIKON agrees to Manufacture, sell and deliver to PCYC, such quantities of each Product as may be set forth on Purchase Orders placed by PCYC and accepted by DOTTIKON, pursuant to the terms and conditions of this Agreement (including without limitation the applicable Product Appendix).
2. Supply of Materials.
1. DOTTIKON shall supply, at its expense, all Materials necessary to Manufacture each Product other than the PCYC Materials.
2. PCYC shall supply, at its expense, all PCYC Materials necessary to Manufacture each Product hereunder. PCYC shall deliver or cause to be delivered a reasonably sufficient amount of the applicable PCYC Materials for each Product to be Manufactured hereunder to the applicable Facility sufficiently in advance of the date of delivery set forth in the applicable Purchase Order such that DOTTIKON can fill such Purchase Orders, which required advance time, as well as any storage requirements for such PCYC Materials, shall be set forth in the applicable Product Appendix.
3. Upon receipt of the PCYC Materials as set forth above, DOTTIKON shall review the accompanying certificate(s) of analysis and test the PCYC Materials for conformance with the Identification Testing Standards, in accordance with the analytical test methods set forth in the applicable Product Appendix. Both the Identification Testing Standards and related analytical test methods may be amended from time to time upon mutual written agreement of PCYC and DOTTIKON.
4. Within [ *** ] of receipt of the PCYC Materials described in Section 3.3.1, or such other period as may be specified in the applicable Product Appendix, DOTTIKON shall determine if such PCYC Materials meet the applicable Identification Testing Standards. If DOTTIKON determines that such PCYC Materials meet the Identification Testing Standards, then such PCYC Materials shall be used by DOTTIKON in performing its Manufacturing obligations under this Agreement. If DOTTIKON determines that any such PCYC Materials do not meet the Identification Testing Standards, then DOTTIKON shall make no use of such non-conforming PCYC Materials and shall promptly confer with PCYC to determine how to proceed. DOTTIKON shall return, rework or destroy any non-conforming PCYC Materials as directed by PCYC in writing and at PCYC's expense.
5. From the time of delivery of the PCYC Materials to DOTTIKON until the earlier of (a) delivery by DOTTIKON of Product, or (b) return or destruction of the PCYC Materials by DOTTIKON that do not meet the Identification Testing Standards, each in the manner provided in this Agreement, DOTTIKON shall bear all risk of loss of such PCYC Materials. DOTTIKON shall comply with all applicable laws, rules, regulations and guidelines in the use, storage, handling and transportation of the PCYC Materials. PCYC shall retain all right, title and interest in and to all PCYC Materials at all times.
3. Forecasts. During the term of this Agreement, PCYC shall provide to DOTTIKON [ *** ] a written rolling forecast of the quantities of such Product it intends in good faith to purchase under this Agreement during [ *** ] For example, the forecast provided at [ *** ] will cover the quantities of Products to be delivered during [ *** ] Each such forecast shall have the following effect, except as otherwise set forth in the applicable Product Appendix:
1. [ *** ]
2. [ *** ]
1. [ *** ]; and
2. [ *** ]; and
3. [ *** ]
4. Purchase Orders.
1. All purchases of Products shall be made pursuant to Purchase Orders which shall be delivered to the Facility, or such other location as agreed to in writing by the Parties, at least [ *** ] in advance of the date of shipment specified in such Purchase Order, or to such other location and/or within such other time period as may be specified in the applicable Product Appendix.
2. DOTTIKON shall ship all Products as set forth in Section 4.5 by the date and in the quantities specified in the applicable Purchase Order. PCYC shall be obligated to buy and DOTTIKON shall be obligated to sell only the quantities of Product which are subject to a Purchase Order accepted by DOTTIKON; [ *** ] as may be described in the applicable Product Appendix. DOTTIKON shall be obligated to accept any Purchase Order that does not require DOTTIKON to Manufacture a Product in quantities in excess of DOTTIKON's Capacity for such Product, and shall use its best efforts to accept any Purchase Order in excess thereof. Any Purchase Order (or portion thereof) for which PCYC has not received a written rejection from DOTTIKON within [ *** ] of DOTTIKON's receipt of such Purchase Order shall automatically be deemed accepted by DOTTIKON.
3. Within [ *** ] following its acceptance of a Purchase Order, DOTTIKON shall provide to PCYC a written schedule of its intended Manufacturing campaign for fulfilling such Purchase Order.
4. To the extent that the terms of a Purchase Order are inconsistent with the terms of this Agreement, this Agreement shall control. No Purchase Order shall be deemed to amend, modify or supplement this Agreement or any Product Appendix.
5. Purchase Orders and the acceptance or rejection thereof shall be submitted by facsimile to the attention of the contact person or department specified in the applicable Product Appendix, and confirmed by mail, unless otherwise agreed in the applicable Product Appendix.
5. Amendment or Cancellation of Purchase Order. PCYC may amend or cancel any Purchase Order by providing DOTTIKON written notice of such amendment or cancellation no later than [ *** ] after DOTTIKON's acceptance of the original Purchase Order, or such other period as may be set forth in the applicable Product Appendix. In the event that PCYC amends or cancels any Purchase Order, DOTTIKON's sole and exclusive remedy shall be as follows: PCYC shall reimburse DOTTIKON for any non-cancelable, out-of-pocket costs of Materials and processing reasonably incurred by DOTTIKON in fulfilling such amended or canceled Purchase Order up to the time of DOTTIKON's receipt of such notice of amendment or cancellation. Such reimbursement shall only be made to the extent of costs that are not otherwise recoverable by DOTTIKON. Title in all Materials for which PCYC so reimburses DOTTIKON shall vest in PCYC. Such Materials shall not be used for any purpose other than the Manufacture of Products for PCYC hereunder, unless otherwise agreed in writing by PCYC. At PCYC's request, all Materials paid for by PCYC under this Section 3.5 shall be shipped to PCYC.
6. Testing of Batches by DOTTIKON. DOTTIKON will test each Batch of Product in accordance with the applicable Test Methods and Product Specifications, and shall supply PCYC with a certificate of analysis confirming that such Batch meets the applicable Product Specifications and Packaging Specifications at the time of batch release if practicable, but in any event no later than with shipment of the QC Sample. DOTTIKON shall hold and store samples from each Batch in accordance with Section 6.3.1. If DOTTIKON notices any testing or material manufacturing discrepancies during the Manufacturing of a Product, DOTTIKON shall promptly notify PCYC. PCYC may retest a Product as more fully set forth in Section 4.2 to confirm that it meets the applicable Product Specifications and Packaging Specifications.
7. DOTTIKON Covenant. DOTTIKON shall not (a) sell, provide or transfer any Product to any third party, nor (b) use, allow any third party to use nor otherwise dispose of any Product, except in each case as specifically set forth in this Agreement or as expressly authorized by PCYC in writing. PCYC shall retain all right, title and interest in and to the Products Manufactured hereunder at all times.
8. Material Supply Breach.
1. If, within [ *** ] following receipt of written notice from PCYC that a Material Supply Breach has occurred, (a) DOTTIKON has failed to deliver to PCYC a plan detailing how DOTTIKON will cure such Material Supply Breach to PCYC's satisfaction, or (b) PCYC has accepted such plan to cure such Material Supply Breach and DOTTIKON fails to adhere to such plan to PCYC's reasonable satisfaction, then in addition to any other rights that PCYC may have at law or equity, [ *** ] Notwithstanding the foregoing, if a Material Supply Breach occurs [ *** ]
2. If DOTTIKON reasonably anticipates that there is a substantial likelihood that a Material Supply Breach will occur, then DOTTIKON shall promptly notify PCYC in writing thereof. Upon receipt of such notice, the Parties shall promptly confer to discuss the circumstances and magnitude of such potential Material Supply Breach, and to determine in good faith whether there are any reasonable steps that DOTTIKON could take to avoid such Material Supply Breach. [ *** ]
3. If PCYC cancels any Purchase Orders as described in this Section 3.8, then upon PCYC's request DOTTIKON shall promptly, but no later than [ *** ] after receipt of PCYC's request, (a) ship to PCYC or its designee, [ *** ] any PCYC Materials delivered to DOTTIKON under Section 3.2.2 for use in Manufacturing such Product which have not been consumed in the Manufacture of such Product, and (b) [ *** ]
9. Subcontractors. DOTTIKON may not subcontract its obligations under this Agreement to any third party or affiliate without PCYC's prior written consent or as specifically set forth in the applicable Product Appendix. All such subcontractors shall agree in writing to be bound by the terms of this Agreement prior to conducting any work hereunder.
10. DOTTIKON's Facility. All Manufacture of Products hereunder shall be conducted at the Facility. In the event that DOTTIKON sells or otherwise transfers ownership or control of the Facility to any third party or affiliate, such third party or affiliate shall expressly assume DOTTIKON's obligations hereunder in writing; provided, however, that any such assumption shall not relieve DOTTIKON of any liability for such third party's or affiliate's failure to perform under this Agreement. DOTTIKON hereby expressly waives any requirement that PCYC exhaust any right, power or remedy, or proceed directly against such third party or affiliate, for any obligation or performance hereunder prior to proceeding directly against DOTTIKON.
11. [ *** ]

ARTICLE 4

Delivery and Acceptance

1. Quality Control Sample of Product. Prior to the shipment of any Batch of Product, DOTTIKON shall provide PCYC with (a) a quality control sample of such Batch as specified in the applicable Product Appendix (the "QC Sample") for the purpose of confirming that such Batch meets the Product Specifications; (b) one copy of the corresponding Released Executed Batch Record, together with written confirmation that such Batch record has been reviewed and approved by DOTTIKON's quality assurance unit; and (c) a certificate of analysis for such Batch.
2. Acceptance and Rejection of Product.
1. PCYC may reject any Batch delivered hereunder that does not conform with the applicable Master Batch Record, DOTTIKON's standard operating procedures, certificate of analysis, Product Specifications or Packaging Specifications, or applicable documentation or process requirements (collectively, the "Release Criteria") based upon PCYC's testing of the QC Sample in accordance with the Test Methods and review of the Released Executed Batch Record. Any such notice of rejection shall be in writing and shall indicate the reasons for such rejection. Such notice is to be delivered to DOTTIKON within [ *** ] from PCYC's receipt of the QC Sample, Released Executed Batch Record and certificate of analysis from the designated carrier or such other period as may be specified in the applicable Product Appendix (the "Testing Period"). If DOTTIKON does not receive such notice of rejection by the end of the Testing Period, then PCYC shall be deemed to have accepted such Batch.
2. (a) After notice of rejection is given, PCYC shall cooperate with DOTTIKON in establishing the root cause of the rejection and shall deliver to DOTTIKON a sample of the allegedly non-conforming QC Sample for DOTTIKON's evaluation. DOTTIKON will evaluate process issues and other reasons for such non-compliance. DOTTIKON shall notify PCYC in writing as promptly as reasonably possible whether it disputes PCYC's basis for any rejection, but in any event no later than [ *** ] after its receipt of PCYC's notice of rejection or such other period as may be specified in the applicable Product Appendix (the "Response Period"). If PCYC does not receive such notice of dispute by the end of the Response Period, then DOTTIKON shall be deemed to agree with PCYC's rejection of such Batch.
2. If DOTTIKON provides PCYC notice, in accordance with subsection (a) above, that it disputes PCYC's determination that a QC Sample does not meet the Release Criteria, then such QC Sample shall be submitted to a mutually acceptable, independent third party laboratory to determine whether such QC Sample conforms to the Release Criteria. The Parties shall use commercially reasonable efforts to locate such a third party laboratory in Switzerland, but if no such laboratory can be located within [ *** ] following PCYC's receipt of DOTTIKON's notice of dispute, then the Parties may select a laboratory located elsewhere. The Parties agree that such third party laboratory's determination shall be final and binding.
1. If the third party laboratory determines that such QC Sample meets the Release Criteria, then PCYC shall be deemed to have accepted such Batch, and shall pay for such Batch as set forth in Section 5.2.
2. If the third party laboratory determines that such Product does not meet the Release Criteria, then such Batch shall be deemed rightfully rejected, and PCYC shall have no further obligation under this Agreement with respect to such Batch.
3. [ *** ]
3. [ *** ]
3. Any Batch accepted by PCYC under this Section 4.2 shall remain subject to DOTTIKON's warranties in Sections 8.2 and 8.3.
3. Replacement Batches. Whether or not DOTTIKON accepts PCYC's basis for rejection of a Batch under Section 4.2, promptly following receipt of a notice of such rejection and receipt of the applicable PCYC Materials from PCYC, DOTTIKON shall use its best efforts at PCYC's written request to replace such rejected Batch. PCYC shall purchase such replacement Batch at the applicable Purchase Price, subject to its acceptance of such Batch pursuant to Section 4.2.
4. Destruction of Product. Neither Party may destroy any Product rejected by PCYC under Section 4.2.1 until the independent third party laboratory determines whether such Product meets such Release Criteria and provides written notification to the Parties with respect to such determination, unless DOTTIKON accepts PCYC's basis for such rejection. Thereafter, DOTTIKON shall have the obligation to destroy, or have destroyed, at its cost, all such rejected Product. Upon DOTTIKON's written request and at DOTTIKON's cost, PCYC shall return to DOTTIKON any rejected Product. The method of such destruction shall be in compliance with all national, federal, state and local laws, rules and regulations.
5. Delivery of Product. All deliveries of Product and QC Samples shall be shipped FCA (INCOTERMS 2000) the Facility to a location designated by PCYC, using a carrier acceptable to PCYC. All Batches shall be so shipped within [ *** ] of acceptance of each Batch pursuant to Section 4.2 unless otherwise agreed in writing by the Parties. PCYC shall be responsible for all freight and delivery charges, including without limitation insurance charges, and shall assume all risk of loss of the Product and QC Samples after transfer of possession to the designated carrier. All Product and QC Samples shall be delivered to PCYC free and clear of all liens, claims and encumbrances.

ARTICLE 5

Purchase Price and Payment.

1. Purchase Price. Subject to the terms of this Section 5.1, PCYC shall pay DOTTIKON the applicable Purchase Price for each shipment of Product delivered by DOTTIKON and accepted by PCYC pursuant to Section 4.2. The Purchase Price shall be deemed to be full compensation for all work performed by DOTTIKON relating to the Manufacture and supply of such Product hereunder, including without limitation all Materials provided by DOTTIKON for use in such Manufacture, all inspection and testing activities performed by DOTTIKON and delivery of such Product as set forth in Section 4.5 and all overhead, unless expressly provided otherwise herein or in the applicable Product Appendix.
2. Payment. Each Product Manufactured and supplied hereunder shall be invoiced at the applicable Purchase Price following PCYC's acceptance thereof pursuant to Section 4.2. Payments by PCYC shall be made in U.S. dollars by check mailed to DOTTIKON by regular air mail or courier within [ *** ] from the date of DOTTIKON's shipment of the applicable Batch, or in such other manner as the Parties may agree in writing.
3. Records. DOTTIKON shall keep accurate records in sufficient detail to permit the determination of all invoices and fees payable, credits due and quantities of Product Manufactured hereunder. Within [ *** ] following a request by PCYC, DOTTIKON shall permit PCYC or its designee to examine such records during ordinary business hours for the purpose of verifying the correctness of any such invoices, fees, credits and quantities. DOTTIKON shall retain such records for at least [ *** ] from the date of each invoice to which such records pertain or for such longer period as may be required by any Regulatory Authority.

ARTICLE 6

Quality Assurance; Regulatory.

1. Master Batch Record. Each Master Batch Record for each Product shall be prepared and maintained in DOTTIKON's standard format by DOTTIKON, using PCYC's master formula and technical support. Each Master Batch Record must be approved by Pharmacyclics' [ *** ] groups.
2. Audits.
1. PCYC shall have the right to conduct a general audit of the Facility and of the equipment, system, processes and related documentation used in the Manufacture of Products to evaluate compliance with cGMP [ *** ] PCYC may make recommendations to DOTTIKON based on such audit, and DOTTIKON agrees to give such recommendations good faith consideration. DOTTIKON shall be responsible for compliance with cGMP and shall promptly take such action, at its expense, as may be necessary to bring said equipment, system, processes, documentation and Facility into conformance therewith.
2. In the event that PCYC notifies DOTTIKON following an audit under Section 6.2.1 that DOTTIKON is not in compliance with cGMP, and DOTTIKON disagrees with such finding, then the Parties shall promptly meet to resolve in good faith the issues relating to such alleged non- compliance.
3. Reasonable notice will be provided by PCYC to DOTTIKON to schedule the date of such audit. If DOTTIKON needs to cancel such audit due to events outside of DOTTIKON's reasonable control (e.g., FDA inspection unrelated to the Product, act of God, etc.), DOTTIKON will immediately contact PCYC to reschedule the audit as soon as possible.
4. PCYC's failure to exercise its right to audit the Facility will not represent a waiver of any future exercise of this right or of any other rights under this Agreement, nor does it represent acceptance of any conditions past or present that might exist or result from such conditions at the Facility.
3. Regulatory Matters; Records.
1. DOTTIKON shall keep documentation and records in accordance with the requirements of cGMP. DOTTIKON shall provide fully-executed copies of all documents approved by PCYC promptly following signature of such documents by each Party's authorized representative. DOTTIKON will provide to PCYC copies of all documentation and information relating to the Manufacture, processing, packaging and shipping of Product and/or required to support PCYC's NDAs (or INDs, if appropriate) or other regulatory submissions, including but not limited to information relating to Batch records, specifications, methods, method validations, equipment and the Facility, for review and inclusion as necessary in PCYC's regulatory submissions. DOTTIKON shall maintain all records and documentation under this Section 6.3 and any inspection samples and data for at least [ *** ] past the expiration dates of each Batch or for such longer period as may be required by cGMP or other regulations promulgated by the Regulatory Authorities applicable to the relevant Product
2. Prior to DOTTIKON's destruction of any of the records or documentation described in Section 6.3.1, DOTTIKON shall notify PCYC in writing specifically identifying the records or documentation that it wishes to destroy. PCYC shall have [ *** ] from its receipt of such notice to notify DOTTIKON that it desires to receive such records or documentation. In such event, such records or documentation shall be delivered to PCYC or its designee at PCYC's expense. If PCYC does not notify DOTTIKON that it desires to receive such records or documentation within such [ *** ] period, then DOTTIKON shall be free to destroy such records or documentation.
3. DOTTIKON shall be solely responsible, at its expense, for obtaining and maintaining all Regulatory Approvals required for it to carry out its development, regulatory and Manufacturing obligations hereunder. DOTTIKON agrees to cooperate fully with PCYC in PCYC's efforts to obtain and maintain any Regulatory Approval which may be required for the use of the Products, or the Manufacture and/or marketing of Drug Products, in any country. Such efforts shall include, without limitation, (a) providing information in DOTTIKON's possession that is useful or required by PCYC to submit regulatory filings or obtain or maintain Regulatory Approvals with respect to Products and/or Drug Products, including all information necessary for PCYC to complete the CMC portions of its regulatory filings; (b) allowing the use of DOTTIKON's name in any such filings; and (c) taking any and all other actions reasonably required to assist PCYC or its designee in obtaining Regulatory Approval of Drug Products.
4. Upon the request of any Regulatory Authority, such entity shall have access to observe and inspect the Facility and DOTTIKON's quality and manufacturing documents and procedures used for the Manufacture of any Product, including process development and Manufacturing operations, and to audit such Facility, documents and procedures for compliance with cGMP and/or other applicable regulatory standards. DOTTIKON shall give PCYC immediate notice of any upcoming inspections or audits by a Regulatory Authority of the Facility, documents and/or procedures relating to any Product Manufactured hereunder, and shall provide PCYC the opportunity to conduct a pre-inspection of the Facility and such documents and procedures, and to observe and participate in such inspection or audit.
5. DOTTIKON also agrees to notify PCYC within [ *** ] of any written or oral inquiries, notifications, or inspection activity by any Regulatory Authority in connection with any Product. DOTTIKON shall provide a reasonable written description to PCYC of any such inquiries, notifications or inspections promptly (but in no event later than [ *** ] after such visit or inquiry. DOTTIKON shall furnish to PCYC (a) within [ *** ] after receipt, any report or correspondence issued by the Regulatory Authority in connection with such visit or inquiry, including but not limited to any FDA Form 483 (List of Inspectional Observations) or warning letter, and (b) not later than [ *** ] prior to the time it provides to a Regulatory Authority, copies of any and all proposed written responses or explanations relating to items set forth above (each, a "Proposed Response"), in each case purged only of trade secrets or other confidential or proprietary information of DOTTIKON that are unrelated to the obligations under this Agreement or are unrelated to Products. DOTTIKON shall discuss with PCYC any comments provided by PCYC on the Proposed Response and the Parties shall mutually agree on the final written response or explanation to be provided to the Regulatory Authority. After the filing of a response with the appropriate Regulatory Authority, DOTTIKON will notify PCYC of any further contacts with a Regulatory Authority relating to DOTTIKON's Manufacture of Products.
6. DOTTIKON shall promptly notify PCYC of any other production issues or other information of which DOTTIKON becomes aware that may affect the regulatory status of a Product or the ability of DOTTIKON to supply a Product in accordance with PCYC's forecasted requirements.
7. DOTTIKON agrees to promptly rectify or resolve any deficiencies noted by a Regulatory Authority in a report or correspondence issued to DOTTIKON, and that are based on DOTTIKON's performance under this Agreement, at DOTTIKON's expense.
8. Each Party shall promptly notify the other of new regulatory requirements of which it becomes aware which are relevant to the Manufacture of a Product under this Agreement and which are required by the FDA, other applicable Regulatory Authority or other applicable laws or governmental regulations, and shall confer with each other with respect to the best means to comply with such requirements.
4. Drug Master File. DOTTIKON shall file and maintain the appropriate DMF for its Manufacture of each Product hereunder, at DOTTIKON's expense, except as otherwise agreed in writing by the Parties. DOTTIKON shall provide PCYC and its affiliates, partners, licensees and designees with letters of authorization to reference such DMF in their respective filings with the FDA and other Regulatory Authorities. Upon PCYC's request, DOTTIKON shall provide PCYC with copies of such DMFs.
5. Stability Testing. Except as otherwise set forth in the applicable Product Appendix: PCYC shall have the initial responsibility for performing stability testing of each commercial Product; such responsibility shall be transferred to DOTTIKON at a time to be mutually agreed by the Parties in writing.
6. Changes in Manufacture.
1. DOTTIKON shall not alter any processing steps with respect to the Manufacture of each Product, as such steps are set forth in the NDA, DMF (or IND, if appropriate), applicable Manufacturing protocols, Master Batch Records or any other document governing such steps, unless requested in writing by PCYC's authorized [ *** ] representatives designated in the applicable Product Appendix.
2. DOTTIKON may, from time to time, suggest to PCYC changes DOTTIKON may wish to make in the Manufacture of a Product, the location of Manufacture within the Facility, the equipment used to Manufacture such Intermediate or Product or the process used to Manufacture such Intermediate or Product. DOTTIKON shall notify PCYC of any such suggested changes via DOTTIKON's change notice procedure, but shall not implement any such changes until signature approval has been received from PCYC's authorized [ *** ] representatives designated in the applicable Product Appendix. PCYC shall have no obligation to accept any such suggestions. Any such changes shall be made in accordance with both DOTTIKON's and PCYC's change control policies and procedures.
3. In the event that [ *** ], unless otherwise agreed by the Parties in writing:
1. [ *** ] and
2. [ *** ]

For clarity, [ *** ]

4. If facility, process, equipment or system changes are required of DOTTIKON as a result of requirements set forth by a Regulatory Authority, regardless of whether such requirements are in force as of the Effective Date, then DOTTIKON shall have sole responsibility of implementing such changes, at DOTTIKON's sole expense.
7. Emergency Access. The Parties agree that in case of an emergency with the potential to affect the quality of any Product, a PCYC representative shall have [ *** ] to DOTTIKON's Facility, personnel, records and documents for the purpose of dealing with such emergency, and shall have the right to audit the Facility for cause as set forth in Section 6.2.1.
8. Compliance with Laws. In its performance under this Agreement, DOTTIKON shall comply, to the extent applicable, with all applicable present and future orders, regulations, requirements and laws of the United States federal, state and local authorities and agencies, and all other Regulatory Authorities, including without limitation all laws and regulations applicable to the transportation, storage, use, handling and disposal of hazardous materials. DOTTIKON represents and warrants to PCYC that it has and will maintain during the term of this Agreement all Regulatory Approvals, including without limitation health, safety and environmental permits, necessary for the conduct of the actions and procedures that it undertakes pursuant to this Agreement.

ARTICLE 7

Complaints; Recalls.

1. Complaints and Adverse Reactions.
1. DOTTIKON shall advise PCYC of any complaints, adverse reaction reports, safety issues or toxicity issues relating to any Product of which it becomes aware, regardless of the origin of such information, within the time frame required by cGMP and 21 CFR 312 and 314, and the corresponding regulations of the applicable Regulatory Authorities (collectively, the "Regulations"), but in no event later than [ *** ] from the initial complaint or report. PCYC shall notify DOTTIKON promptly, but in no event later than [ *** ] of complaints that are relevant to the Manufacturing activities conducted by DOTTIKON hereunder, except where such complaints or adverse reactions are due to inherent Product characteristics or arise from the activities of third parties unrelated to DOTTIKON.
2. PCYC shall retain and manage complaints in accordance with the Regulations. The Parties hereby agree to cooperate with one another and with any Regulatory Authority in the evaluation and investigation of any complaint, claim or adverse reaction report related to the Manufacture of a Product with the intention of promptly complying with the Regulations.
3. If any such event occurs, DOTTIKON shall retain any unused supplies of such Product and its associated Materials (including without limitation PCYC Materials), and all associated Batch and other production records in such manner as PCYC may reasonably direct. Such retention shall be at PCYC's expense, except to the extent that such event is caused by DOTTIKON's wrongful act or omission. DOTTIKON agrees to respond to PCYC in respect to such complaint investigations involving DOTTIKON's Manufacturing of a Product or services rendered hereunder as soon as reasonably possible but in any case within [ *** ] from receipt by DOTTIKON of the report of such complaint and sample (if available), or in the case of a serious adverse event, within [ *** ] from receipt of the report of such complaint and sample (if available). PCYC and/or its designee shall serve as the sole point of contact with the FDA or other applicable governmental entity concerning any complaints, adverse reaction reports, safety issues or toxicity issues with respect to the Product.
2. Product Defects. If either Party becomes aware at any time of any defect or the possibility of any defect associated with any Product Manufactured by DOTTIKON hereunder, such Party will notify the other Party immediately and confirm the notification as soon as possible in writing.
3. Recalls.
1. PCYC shall notify DOTTIKON promptly if any Drug Product employing or incorporating a Product Manufactured by DOTTIKON hereunder is the subject of a recall, market withdrawal or correction, to the extent that such recall, market withdrawal or correction is due to such Product being employed or incorporated into such Drug Product. PCYC and/or its designee shall have the sole responsibility for the handling and disposition of any such recall, market withdrawal or correction.
2. If a recall is required as a result of DOTTIKON's breach of any of its warranties set forth in Section 8.2 hereof, then DOTTIKON shall reimburse PCYC for the Purchase Price of such Product and all other reasonable costs and expenses associated with such Drug Product recall, market withdrawal or correction, but only to the extent that the foregoing costs and expenses are attributable to DOTTIKON's breach of its warranties hereunder. [ *** ] In all other events of a recall, market withdrawal or correction, all costs and expenses incurred in connection with such Drug Product recall, market withdrawal or correction shall be borne by PCYC.
3. PCYC and/or its designee shall serve as the sole point of contact with the FDA or other applicable Regulatory Authority concerning any recall, market withdrawal or correction with respect to such Drug Product.

ARTICLE 8

Representations and Warranties.

1. Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party that: (a) the person executing this Agreement is authorized to execute this Agreement; (b) this Agreement is legal and valid and the obligations binding upon such Party are enforceable by their terms; and (c) the execution, delivery and performance of this Agreement does not conflict with any agreement, instrument or understanding, oral or written, to which such Party may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.
2. DOTTIKON Product Warranties. DOTTIKON warrants that all Products Manufactured by DOTTIKON hereunder shall, at the time of delivery to PCYC's designated carrier: (a) conform to the applicable Product Specifications and Packaging Specifications; (b) have been Manufactured, handled, stored, labeled, packaged and transported in accordance with the Master Batch Records, and with cGMP and all other applicable laws, regulations and other requirements of all applicable Regulatory Authorities; and (c) not be (i) adulterated or misbranded by DOTTIKON within the meaning of the FD&C Act, or (ii) an article that may not be introduced into interstate commerce under the provisions of Sections 404 or 505 of the FD&C Act. DOTTIKON further represents and warrants that all computer systems used to gather, process or report cGMP related data in connection with its activities hereunder are compliant with 21 CFR Part 11 or that a program is in place to bring them to such a level of compliance.
3. No Debarment or Convictions. DOTTIKON represents and warrants that: (a) it has not and will not use in any capacity the services of any persons debarred under 21 U.S.C. 335a(a) or 335a(b) in connection with its Manufacture of any Product hereunder; (b) neither DOTTIKON nor any DOTTIKON official or employee has been convicted of a felony under Federal law for conduct relating to the development or approval, including the process for development or approval, of any drug, product, NDA, abbreviated NDA or IND; and (c) no DOTTIKON official or employee has been convicted of a felony under United States law for conduct otherwise relating to the regulation of any drug substance or drug product under the FD&C Act.
4. Intellectual Property. DOTTIKON represents and warrants that: (a) PCYC's practice of the Improvements, Intellectual Property and/or DOTTIKON Technology as contemplated herein will not infringe upon the intellectual property rights of any third party; (b) none of the Improvements, Intellectual Property or DOTTIKON Technology has been misappropriated from any third party nor is the result of any misuse of any third party's intellectual property; and (c) there is no action, suit or proceeding pending or that has been threatened, orally or in writing, against DOTTIKON, with respect to the infringement or misappropriation of any third party's intellectual property rights through the creation or use of the Improvements, Intellectual Property or DOTTIKON Technology.

ARTICLE 9

Indemnification.

1. Indemnification by DOTTIKON. Subject to PCYC's compliance with Section 9.3, DOTTIKON shall indemnify, defend and hold harmless PCYC and its directors, officers, employees and agents from all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including without limitation reasonable attorneys' fees) or disbursements of any kind and nature whatsoever arising out of property damage or personal injury (including without limitation death) of third parties (collectively, "Claims"), to the extent that such Claims arise from any: (a) breach by DOTTIKON of any of its obligations under this Agreement including without limitation any of its warranties and representations hereunder, (b) negligent acts or omissions or willful misconduct of DOTTIKON or its employees or agents, and/or (c) infringement of any third party patents or other proprietary rights by DOTTIKON's manufacturing processes.
2. Indemnification by PCYC. Subject to DOTTIKON's compliance with Section 9.3, PCYC shall indemnify, defend and hold harmless DOTTIKON and its directors, officers, employees and agents from all Claims to the extent that such Claims arise from any: (a) breach by PCYC of any of its obligations under this Agreement including without limitation any of its warranties and representations hereunder, (b) negligent acts or omissions or willful misconduct of DOTTIKON or its employees or agents, (c) personal injury caused by adverse reaction to the formula of a Drug Product employing or incorporating a Product Manufactured by DOTTIKON hereunder, and/or (d) the promotion, labeling, marketing, distribution, use or sale of any Drug Product employing or incorporating a Product Manufactured by DOTTIKON hereunder, but in each case only to the extent that such liability is not covered by DOTTIKON's indemnification obligations under Section 9.1.
3. Indemnification Procedures.
1. A Party (the "Indemnitee") which intends to claim indemnification under this Article 9 shall promptly notify the other Party (the "Indemnitor") in writing of any action, claim or other matter in respect of which the Indemnitee or any of its directors, officers, employees or agents, intend to claim such indemnification; provided, however, the failure to provide such notice within a reasonable period of time shall not relieve the Indemnitor of any of its obligations hereunder except to the extent the Indemnitor is prejudiced by such failure.
2. The Indemnitee shall permit, and shall cause its directors, officers, employees and agents to permit, the Indemnitor at its discretion to settle any such action, claim or other matter, and the Indemnitee agrees to the complete control of such defense or settlement by the Indemnitor. Notwithstanding the foregoing, the Indemnitor shall not enter into any settlement that would adversely affect the Indemnitee's rights hereunder, nor impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights, without Indemnitee's prior written consent, which shall not be unreasonably withheld or delayed. No such action, claim or other matter shall be settled without the prior written consent of the Indemnitor, which shall not be unreasonably withheld or delayed.
3. The Indemnitor shall not be responsible for any attorneys' fees or other costs incurred other than as provided herein. The Indemnitee and its directors, officers, employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or other matter covered by the indemnification obligations of this Article 9. The Indemnitee shall have the right, but not the obligation, to be represented in such defense by counsel of its own selection and at its own expense.

ARTICLE 10

Insurance.

DOTTIKON shall at all times maintain general liability (including product liability) insurance coverage, at its own expense in full force and effect, [ *** ] with a responsible insurance carrier. Such insurance shall not be terminated or reduced without providing PCYC with at least [ *** ] advance written notice. PCYC may request certification of the existence and maintenance of this insurance coverage at any time.

ARTICLE 11

Intellectual Property; License Grants.

1. License Grant by PCYC. During the term of this Agreement, and subject to the terms and conditions of this Agreement, PCYC hereby grants to DOTTIKON a non-exclusive, royalty-free license, without the right to sublicense, under the PCYC Technology, solely to Manufacture Products for PCYC as provided herein.
2. [ *** ]
1. [ *** ]
1. [ *** ] or
2. [ *** ]
2. Except in the cases described in Section 11.2.1 above, [ *** ]
3. Upon PCYC's request, [ *** ]
3. Ownership of Intellectual Property.
1. PCYC shall be the sole and exclusive owner of all Intellectual Property. DOTTIKON agrees to assign, and shall automatically be deemed to have assigned, DOTTIKON's entire right, title and interest in and to all Intellectual Property to PCYC. Upon request by PCYC, and without additional consideration, DOTTIKON agrees to promptly execute documents, testify and take such other acts at PCYC's expense as PCYC may deem necessary or desirable to procure, maintain, perfect, and enforce the full benefits, enjoyment, rights, title and interest of the Intellectual Property on a worldwide basis, and to render all necessary or reasonably requested assistance in making application for and obtaining original, divisional, renewal, or reissued utility and design patents, copyrights, mask works, trademarks, trade secrets, and all other technology and intellectual property rights throughout the world related to any of the Intellectual Property, in PCYC's name and for its benefit.
2. DOTTIKON shall promptly provide PCYC with a copy of any formal invention disclosure document that relates to the Intellectual Property.
3. Intellectual Property shall be deemed to be the Confidential Information of PCYC.
4. [ *** ]
1. If, during the term of this Agreement, [ *** ] shall give [ *** ] written notice thereof. Upon [ *** ] receipt of such notice, the Parties shall [ *** ] as to the [ *** ] including without limitation [ *** ] If the Parties [ *** ] receipt of such notice, then [ *** ] under this Section 11.4.
2. If, during the term of this Agreement, [ *** ] shall first notify [ *** ] in writing. If, within [ *** ] receipt of [ *** ] receives written notice from [ *** ] under Section 11.4.1 as if [ *** ] such written notice from [ *** ] under this Section 11.4.
5. [ *** ] of this Agreement, [ *** ] shall be [ *** ]

ARTICLE 12

Confidentiality.

1. Confidentiality and Exceptions. Except as otherwise provided in this Agreement, all information disclosed by one Party (the "Disclosing Party") to the other Party (the "Receiving Party") pursuant to this Agreement shall be deemed to be the Disclosing Party's "Confidential Information." Confidential Information shall include, but not be limited to, information relating to the structure of any Product, Drug Substance, Drug Product or PCYC Materials, any know-how relating to the Manufacture of any Product, Drug Substance or Drug Product, Manufacturing records and documentation, and the Manufacturing cost, purchase prices and other financial arrangements made pursuant to this Agreement. Each Party agrees that it will take the same steps to protect the confidentiality of the other Party's Confidential Information as it takes to protect its own proprietary and confidential information, which shall in no event be less than reasonable steps. Each Party, and its employees and agents shall protect and keep confidential and shall not use, publish or otherwise disclose to any third party, except as permitted by this Agreement, or with the other Party's written consent, the other Party's Confidential Information. For the purposes of this Agreement, Confidential Information shall not include such information that:
1. was already known to the Receiving Party at the time of disclosure by the Disclosing Party, other than under an obligation of confidentiality; or
2. was generally available to the public or was otherwise part of the public domain at the time of disclosure or became generally available to the public or otherwise part of the public domain after disclosure other than through any act or omission of the Receiving Party in breach of this Agreement; or
3. was lawfully disclosed to the Receiving Party, other than under an obligation of confidentiality, by a third party who had no obligation not to disclose such information to others; or
4. was independently developed by or for the Receiving Party without the aid, application or use of the other Party's Confidential Information by persons who did not have access to such Confidential Information.
2. Authorized Disclosure.
1. Each Party may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary for prosecuting or defending litigation, filing for Regulatory Approvals, complying with applicable laws or regulations or conducting preclinical or clinical trials; provided that if a Party is required by law or regulation to make any such disclosure of the other Party's Confidential Information it will, except where impracticable for necessary disclosures (for example in the event of medical emergency), give reasonable advance notice to the other Party of such disclosure requirement and will use its best efforts assist such other Party to secure a protective order or confidential treatment of such Confidential Information required to be disclosed.
2. Neither Party shall disclose Confidential Information of the other Party in any patent filings without the prior written consent of the disclosing Party.
3. Confidentiality and Publicity. The Parties agree that, except as may otherwise be required by applicable laws, regulations, rules, or orders, including without limitation the rules and regulations promulgated by the United States Securities and Exchange Commission or any comparable Swiss or European authority, and except as may be authorized in Section 12.2, no information concerning this Agreement and the transactions contemplated herein shall be made public by either Party without the prior written consent of the other. The Parties agree that the public announcement of the execution of this Agreement shall be by one or more press releases mutually agreed to by the Parties. A failure of a Party to return a draft of a press release with its proposed amendments or modifications to such press release to the other Party within[ *** ] of such Party's receipt of such press release shall be deemed as such Party's approval of such press release as received by such Party. Each Party agrees that it shall cooperate fully and in a timely manner with the other with respect to all disclosures to the Securities and Exchange Commission and any other governmental and regulatory agencies, including requests for confidential treatment of Confidential Information of either Party included in any such disclosure.
4. Survival of Confidentiality. All obligations of confidentiality and non-use imposed upon the Parties under this Agreement shall continue [ *** ]

ARTICLE 13

Term and Termination of Agreement.

1. Term. This Agreement shall commence upon the Effective Date and, unless terminated sooner in accordance with Section 13.2 or Article 14, shall remain in full force and effect with respect to each Product to be Manufactured hereunder until the date which is five (5) years from the date of Regulatory Approval by the FDA of both of the Drug Substances motexafin gadolinium and motexafin lutetium. Thereafter, this Agreement will automatically renew with respect to such Product for successive two (2) year terms, subject to Section 13.2 and Article 14, unless either Party provides one (1) year written notice to the other Party prior to the expiration of the then- current term that the Agreement shall not be renewed with respect to such Product.
2. Termination for Breach.
1. Either Party may terminate this Agreement upon thirty (30) days prior written notice in the event of a material breach of this Agreement by the other Party which is not cured by the breaching Party within such thirty (30) day period. At the option of the non-breaching Party, such termination may be with respect to the entire Agreement, or only with respect to the Product which is the subject of such material breach.
2. A Material Supply Breach shall be deemed to be a material breach of this Agreement; provided that a Material Supply Breach that is the direct result of a Force Majeure Event shall not be deemed a material breach of this Agreement, but shall entitle PCYC to terminate this Agreement in accordance with Article 14. PCYC shall have the right to terminate this Agreement for an uncured Material Supply Breach as described in Section 13.2.1.
3. In the event that a Party materially breaches this Agreement [ *** ] the other Party shall have the right to terminate this Agreement pursuant to this Section 13.2 either with respect to the Product(s) that is the subject of such material breach or in its entirety, effective upon giving the breaching Party written notice thereof, and without being required to provide the breaching Party the cure period described in Section 13.2.1.
3. Consequences of Expiration/Termination.
1. Upon expiration or termination of this Agreement, except for termination for DOTTIKON's material breach:
1. PCYC agrees to purchase, and DOTTIKON agrees to sell, any quantity of Products Manufactured by DOTTIKON and held by DOTTIKON against the requirements of a Purchase Order on the effective date of termination at the applicable Purchase Price, subject to PCYC's acceptance of such Product pursuant to Section 4.2.
2. At the request of PCYC, DOTTIKON shall fulfill any outstanding Purchase Orders for Product using, at DOTTIKON's option, Materials on hand or on order by DOTTIKON for such Purchase Order, in accordance with the terms of this Agreement. In such event, such Product shall be purchased by PCYC at the applicable Purchase Price, subject to PCYC's acceptance of such Product pursuant to Section 4.2
2. Upon any termination or expiration of this Agreement:
1. All licenses granted pursuant to Sections 11.1, 11.2 and 11.4 shall terminate;
2. DOTTIKON shall return to PCYC all PCYC Materials currently in inventory that are not being used as set forth in Section 13.3.1. PCYC shall pay the shipping costs associated therewith, except that if PCYC terminates this Agreement for DOTTIKON's material breach, then DOTTIKON shall pay such shipping costs.
3. Each Party shall, within sixty (60) days of such termination, return all tangible forms of the other Party's Confidential Information in its possession; provided, however, that each Party may retain an archival copy of such Confidential Information solely for determining the scope of its confidentiality obligations hereunder.
3. If this Agreement is terminated only with respect to one or more Product(s) and not in its entirety, then this Section 13.3 shall apply only with respect to such Product(s).
4. Bankruptcy Rights. In the event that this Agreement is terminated or rejected by a Party or its receiver or trustee under applicable bankruptcy laws due to such Party's bankruptcy, then all rights and licenses granted under or pursuant to this Agreement by such Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the "Bankruptcy Code") and any similar law or regulation in any other country, licenses of rights to "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that all intellectual property rights licensed hereunder, including without limitation any trade secrets, patents or patent applications of a Party in any country covered by the license grants under this Agreement, are part of the "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code subject to the protections afforded the non-terminating Party under Section 365(n) of the Bankruptcy Code, and any similar law or regulation in any other country.
5. Survival. The following provisions shall survive termination of this Agreement: Sections 3.2.5, 3.7, 3.8.3, 4.4, 5.3, 6.3, 11.3, 11.5, 13.3, 13.4 and 13.5, and Articles 7, 9, 12 and 15. Termination of this Agreement shall not relieve either Party of any liability or obligation which accrued hereunder prior to the effective date of such termination, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice either Party's right to obtain performance of any obligation.

ARTICLE 14

Force Majeure Events.

If, by any reason of impediment such as Acts of God, war, rebellion, tumult, riot, civil commotion, insurrection, political disturbance, strike, lock-out, fire, flood, interruption of transportation, embargo, shortages of raw materials, or any other cause or event of a similar nature affecting either Party over which such Party has had no control (a "Force Majeure Event"), such Party cannot perform its obligations hereunder, it shall have the right to postpone the performance of such obligation for the duration of such Force Majeure Event. The Parties shall use all reasonable efforts to avoid or overcome the causes affecting performance, and the Party whose performance is affected by such Force Majeure Event shall fulfill all outstanding obligations as soon as possible. The affected Party shall give facsimile notice to the other Party of the occurrence of such impediment and its anticipated duration and shall subsequently notify the other Party as quickly as possible of the cessation of said cause or event. [ *** ]

ARTICLE 15

Miscellaneous.

1. Notices.
1. Except as expressly stated otherwise in this Agreement or the applicable Product Appendix, all notices, requests and other communications provided for herein (including without limitation any allegation of breach) shall be given or made in writing and shall be deemed to have been duly given if (a) delivered by hand, (b) mailed by certified mail, return receipt requested, or (c) delivered by a recognized courier service, or (d) transmitted by facsimile and confirmed by express courier delivery of a hard copy, with appropriate documentation of delivery, to the intended recipient and, in the case of mail or courier service, at the following address:

PCYC:

Pharmacyclics, Inc.
995 E. Arques Avenue
Sunnyvale, California 94085-4521
Fax: (408) 774-0340
Attention: President
With copies to: General Counsel
Vice President, Chemical Operations

DOTTIKON:

EMS-Dottikon AG
Hembrunnstrasse 17
CH-5605 Dottikon
Switzerland
Fax: 011-41-56-616-8959
Attention: Senior Director, Marketing & Sales

or, as to any Party, at such other address as shall be designated by such Party in a written notice to the other Party. All such communications shall be deemed to have been duly given when hand delivered, or mailed, in each case given or addressed as aforesaid.

2. Routine communications between the Parties relating to quality control, quality assurance and other general Manufacturing issues shall be addressed to the contact persons listed in the applicable Product Appendix. Such communications may be sent be any reasonable method upon which the Parties agree in such Product Appendix.
2. Independent Contractor. The Parties hereunder are independent contractors, and nothing herein shall create any association, partnership, joint venture or the relation of principal and agent between the Parties hereto. Neither Party shall have the authority to bind the other or the others' representatives in any way. Nothing in this Agreement shall constitute one Party as an employee, agent, or general representative of the other Party.
3. Amendments. No provision of this Agreement or of the Product Appendices attached hereto may be modified or supplemented except by an instrument in writing signed by a duly authorized of officer of each Party.
4. Waiver. No failure on the part of either Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
5. Headings. The article and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.
6. Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment without the other Party's consent to a successor-in-interest to substantially all of the business assets of such Party to which this Agreement relates, whether in a merger, sale of stock, sale of assets or other transaction. Any permitted successor or assignee of rights and/or obligations hereunder shall, in a writing to the other Party, expressly assume performance of such rights and/or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 15.6 shall be null and void and of no legal effect. This Agreement shall be binding upon and shall inure to the benefit of each Party's successors-in-interest and permitted assigns.
7. Remedies Cumulative. Unless specifically and expressly provided otherwise, the remedies provided under this Agreement are cumulative, and are not exclusive of other remedies available to a Party in law or equity.
8. Complete Agreement. This Agreement, together with the Product Appendices hereto, which are hereby incorporated into and shall form part of this Agreement, represents the complete agreement between the Parties hereto as to all matters covered hereby or thereby, and supersedes any prior agreements or understanding (oral or written) between the Parties regarding the subject matter hereof. Notwithstanding the foregoing, this Agreement is not intended to replace or supersede the Prior Agreement.
9. Severability. If, for any reason, any provision of this Agreement shall be deemed by a court of competent jurisdiction to be illegal, invalid or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired, and such provision shall be modified to the minimum extent necessary to make such provision consistent with applicable law, and in its modified form such provision shall be enforceable and enforced.
10. Governing Law and Language. This Agreement shall be governed exclusively by laws of [ *** ] as such laws apply to contracts made between, and performed entirely in that [ ***] residents, and [ *** ] hereby consents to the jurisdiction of the courts located in the [ *** ] The official text of this Agreement and any appendices, exhibits and schedules hereto, or any notice given or accounts, reports or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language.
11. Dispute Resolution. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the Parties hereunder, the Parties shall try to settle their differences amicably between themselves by referring the disputed matter to the President of PCYC and the President of DOTTIKON or their designates for discussion and resolution. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and within [ *** ] of such notice the President of PCYC and the President of DOTTIKON or their designates shall meet for attempted resolution by good faith negotiations. If such personnel are unable to resolve such dispute within [ *** ] of initiating such negotiations, each Party may thereafter pursue any and all rights and remedies it may have at law or equity. If mutually agreeable, the Parties may explore alternative forms of dispute resolution, such as mediation and/or arbitration. Notwithstanding any other provision of this Section 15.11, either Party may seek a temporary restraining order or injunction against the other Party in the event of a breach of any confidentiality obligation hereunder, or to prevent a Party's wrongful use of any intellectual property hereunder.
12. United States Dollars. References in this Agreement to "Dollars" or "$" shall mean the legal tender of the United States of America.
13. Counterparts. This Agreement may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument.
14. Ambiguities. Ambiguities, if any, in this Agreement shall not be construed against either Party, regardless of which Party is deemed to have drafted the provision at issue.

In Witness Whereof, the Parties hereto have caused this Agreement to be duly executed and delivered as of the Effective Date.

 

EMS-DOTTIKON, AG By: /s/ H.R. Wittmer Name: Dr. H.R. Wittmer Title: President	PHARMACYCLICS, INC. By: /s/ Richard A. Miller, M.D. Richard A. Miller, M.D. President & Chief Executive Officer
By: /s/ M. Bachmann Name: Dr. M. Bachmann Title: Head of R&D