Form 10-Q SENOMYX INC For: Sep 30

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
Or
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

 

Commission File Number: 000-50791

 

SENOMYX, INC.

(Exact name of registrant as specified in its charter)

 

Delaware (State or other jurisdiction of incorporation or organization)		33-0843840 (I.R.S. Employer Identification No.)
4767 Nexus Centre Drive San Diego, California 92121 (Address of principal executive offices) (Zip code)		(858) 646-8300 (Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.

 

Larger accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	Smaller reporting company ☐

 

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Total shares of common stock outstanding as of the close of business on October 21, 2016: 45,004,285

 

 

SENOMYX, INC.

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION		3
Item 1.	Condensed Financial Statements (Unaudited)	3
	Condensed Balance Sheets as of September 30, 2016 and December 31, 2015	3
	Condensed Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2016 and 2015	4
	Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	5
	Notes to Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
PART II. OTHER INFORMATION		19
Item 1A.	Risk Factors	19
Item 4.	Mine Safety Disclosures	32
Item 6.	Exhibits	32
SIGNATURES		33

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.

CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

SENOMYX, INC.

CONDENSED BALANCE SHEETS

(In thousands, except for share and per share data)

(Unaudited)

 

		September 30, 2016				December 31, 2015
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	3,671			$	4,818
Short-term investments available-for-sale			12,055				18,136
Accounts receivable			4,721				3,193
Inventories			2,013				2,434
Other current assets			787				660
Total current assets			23,247				29,241
Property and equipment, net			2,876				3,334
Total assets		$	26,123			$	32,575
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities		$	5,125			$	5,303
Deferred rent			72				559
Leasehold incentive obligation			219				219
Deferred revenues			190				3,511
Total current liabilities			5,606				9,592
Deferred rent			1,959				1,886
Leasehold incentive obligation			1,408				1,573
Stockholders’ equity:
Preferred stock, $.001 par value; 7,500,000 shares authorized; no shares issued or outstanding at September 30, 2016 (unaudited) and December 31, 2015			—				—
Common stock, $.001 par value; 120,000,000 shares authorized at September 30, 2016 (unaudited) and December 31, 2015; 44,996,160 and 44,503,820 shares issued and outstanding at September 30, 2016 (unaudited) and December 31, 2015, respectively.			45				45
Additional paid-in capital			291,608				286,991
Accumulated other comprehensive income (loss)			(2	)			(27	)
Accumulated deficit			(274,501	)			(267,485	)
Total stockholders’ equity			17,150				19,524
Total liabilities and stockholders’ equity		$	26,123			$	32,575

 

See accompanying notes to condensed financial statements.

 

 

SENOMYX, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
Revenues:
Development revenues		$	3,472			$	4,432			$	11,912			$	13,375
Commercial revenues			2,548				2,961				6,925				5,237
Total revenues			6,020				7,393				18,837				18,612
Operating expenses:
Cost of commercial revenues			316				179				832				430
Research, development and patents			5,240				6,162				16,159				18,311
Selling, general and administrative			2,945				3,466				8,919				9,599
Total operating expenses			8,501				9,807				25,910				28,340
Loss from operations			(2,481	)			(2,414	)			(7,073	)			(9,728	)
Other income			20				9				57				26
Net loss			(2,461	)			(2,405	)			(7,016	)			(9,702	)
Other comprehensive income:
Unrealized gain (loss) on investments			(3	)			2				25				14
Comprehensive loss		$	(2,464	)		$	(2,403	)		$	(6,991	)		$	(9,688	)
Net loss per share, basic and diluted		$	(0.05	)		$	(0.05	)		$	(0.16	)		$	(0.22	)
Shares used in calculating net loss per share, basic and diluted			44,819,053				44,069,792				44,726,011				43,798,244

 

See accompanying notes to condensed financial statements.

 

 

SENOMYX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Nine Months Ended September 30,
		2016				2015
Operating activities
Net loss		$	(7,016	)		$	(9,702	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			564				893
Accretion of premium on available-for-sale securities			124				110
Amortization of leasehold incentive obligation			(165	)			(293	)
Stock-based compensation for employees and non-employee directors			3,353				3,903
Stock-based compensation for non-employees			37				28
Change in operating assets and liabilities:
Accounts receivable			(1,528	)			(375	)
Inventories			421				(971	)
Other current assets			(110	)			81
Accounts payable, accrued expenses and other current liabilities			(178	)			257
Deferred revenues			(3,321	)			(1,356	)
Deferred rent			(414	)			1,460
Net cash used in operating activities			(8,233	)			(5,965	)
Investing activities
Purchases of property and equipment			(106	)			(637	)
Purchases of available-for-sale securities			(7,935	)			(7,201	)
Maturities of available-for-sale securities			13,900				12,879
Net cash provided by investing activities			5,859				5,041
Financing activities
Proceeds from issuance of common stock, net of issuance costs			1,227				3,038
Net cash provided by financing activities			1,227				3,038
Net change in cash and cash equivalents			(1,147	)			2,114
Cash and cash equivalents at beginning of period			4,818				3,961
Cash and cash equivalents at end of period		$	3,671			$	6,075
Supplemental disclosure of cash flow information:
Purchases of inventories included in accounts payable, accrued expenses and other current liabilities at period end		$	—			$	—
Purchases of property and equipment included in accounts payable, accrued expenses and other current liabilities at period end		$	—			$	21

 

See accompanying notes to condensed financial statements.

 

 

SENOMYX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.	Organization and Summary of Significant Accounting Policies

 

Organization and Business

 

Senomyx, Inc. (“we”, “us” or “our”) was incorporated in Delaware in September 1998 and commenced operations in January 1999. We use proprietary taste receptor technologies to discover, develop and commercialize innovative flavor ingredients for the packaged food, beverage and ingredient supply industries to improve the nutritional profile of their products and generate cost of goods savings while maintaining or improving taste. Our current programs focus on the development and/or commercialization of sweet, savory and salt flavor ingredients, bitter blockers and cooling agents.

 

We currently have product discovery, development and commercialization collaborations with four of the world’s leading packaged food, beverage and ingredient companies: Ajinomoto Co., Inc., Firmenich SA, Nestlé SA and PepsiCo, Inc. Our collaboration agreements generally provide for license fees, research and development funding, reimbursement of certain costs, development milestone payments based upon our achievement of research or development goals and, in the event of commercialization, commercial milestone payments, minimum periodic royalties and royalties on sales of products incorporating our flavor ingredients. We also sell certain flavor ingredients directly to flavor companies for inclusion in a flavor system for re-sale to food and beverage companies.

 

Basis of Presentation

 

The financial statements at September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 are unaudited. The unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial information therein. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be reported for the year ending December 31, 2016. For more complete financial information, these financial statements, and the notes thereto, should be read in conjunction with the audited financial statements for the year ended December 31, 2015, including the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”).

 

Use of Estimates

 

The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

We consider all highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents. Cash equivalents are recorded at cost, which approximates market value.

 

Investments Available-for-Sale

 

Our surplus cash is generally invested in United States Treasuries, United States government agency bonds and corporate notes with maturity dates of two years or less from the settlement date. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity with all amortization and accretion included in interest income. Our investments are classified as available-for-sale and carried at estimated fair value, with unrealized gains and losses reported in accumulated other comprehensive income as a separate component of stockholders’ equity. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. Interest on securities classified as available-for-sale is included in interest income.

 

Fair Value of Financial Instruments other than Investments Available-for-Sale

 

The carrying amount of cash and cash equivalents, accounts receivables, accounts payable and accrued expenses are considered to be representative of their respective fair value because of the short-term nature of those items.

 

 

Accounts Receivable

 

We extend credit to our customers in the normal course of business based upon an evaluation of the customer’s credit history, financial condition and other factors. Estimates of allowances for uncollectible receivables are determined by evaluating individual customer circumstances, historical payment patterns, length of time past due and other factors. At September 30, 2016 and December 31, 2015, we did not have any allowances for uncollectible receivables.

 

Inventories

 

Inventories consist entirely of purchased finished goods. Inventories are valued at lower of cost (on a moving average basis) or market value. We are required to make assumptions regarding the level of reserves required to value items at the lower of cost or market. These assumptions require us to analyze forecasted demand, pricing trends, margins, product life cycles and qualitative factors given the limited sales history of our products, and to make judgments and estimates regarding excess or obsolete inventory. At September 30, 2016 and December 31, 2015, we did not have any reserves for lower of cost or market, excess or obsolete inventory.

 

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Simplifying the Measurement of Inventory, which requires an entity to measure inventory within the scope of this ASU at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this guidance more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (“IFRS”). This accounting guidance is effective for us beginning in the first quarter of 2018. We do not expect this updated standard to have a material impact on our financial statements and related disclosures.

 

Revenue Recognition

 

Development Revenues

 

Development revenues are based on our product discovery, development and commercialization collaboration agreements. Some of our collaboration agreements contain multiple elements, including technological and territorial licenses and research and development services. In accordance with these agreements, we may be eligible for license fees, research and development funding, development milestone payments, cost reimbursements, royalty payments, minimum periodic royalty payments and commercial milestone payments. Development revenues include revenues from license fees, research and development funding, the achievement of development milestones and cost reimbursements.

 

Pursuant to the Revenue Recognition – Multiple-Element Arrangements Topic of the FASB ASC, each required deliverable is evaluated to determine if it qualifies as a separate unit of accounting. For us, this determination is generally based on whether the deliverable has “stand-alone value” to the customer. The arrangement’s consideration is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price; and (iii) best estimate of selling price, or BESP. The BESP reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis. We expect, in general, to use the BESP for allocating consideration to each deliverable. In general, the consideration allocated to each unit of accounting is then recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. For multiple-element arrangements entered into prior to January 1, 2011 and not materially modified thereafter, we continue to apply our prior accounting policy with respect to such arrangements.

 

Non-refundable license fees, if not associated with our future performance, are recognized when received. Non-refundable license fees, if associated with our future performance obligations, are attributed to a specific program or collaboration and recognized over the period of service for that specific program or collaboration. Amounts received for research funding are recognized as revenues as the services are performed. Revenue is deferred for fees received before earned. Revenues from development milestones are accounted for in accordance with the Revenue Recognition – Milestone Method Topic of the FASB ASC. Milestones are recognized when earned, as evidenced by written acknowledgment from the collaborator or other persuasive evidence that the milestone has been achieved, provided that the milestone event is substantive. A milestone event is considered to be substantive if its achievability was not reasonably assured at the inception of the agreement and our efforts led to the achievement of the milestone or the milestone was due upon the occurrence of a specific outcome resulting from our performance. If both of these criteria are not met, the milestone payment is recognized over the remaining minimum period of our performance obligations under the agreement. We assess whether a milestone is substantive at the inception of each agreement. Revenues from cost reimbursement are recognized when earned, as evidenced by written acknowledgment from the collaborator or other persuasive evidence.

 

 

Commercial Revenues

 

Commercial revenues from collaboration agreements include royalties on sales made by our collaborators of products incorporating our flavor ingredients, minimum periodic royalty payments and revenues from the achievement of commercial milestones. Commercial revenues also include direct sales of our flavor ingredients to flavor companies.

 

Royalties on sales made by our collaborators of products incorporating our flavor ingredients are recognized when a royalty report or other persuasive evidence is received, which is generally one quarter in arrears. Non-refundable minimum periodic royalty payments are recognized as revenues over the related royalty periods. Royalty terms are specific to each collaboration and collaborator and can vary from year to year. These terms vary based on factors such as the characteristics of the flavor ingredient and the product categories and geographies licensed by the collaborator. Periodically, as contractually specified, our collaborators are required to provide a report detailing all sales of products containing our flavor ingredients. To the extent that calculated royalties on sales of such products exceed the minimum periodic royalty payments made to date, the collaborators are required to remit to us the difference between royalties calculated and minimum periodic royalty payments made to date. We recognize this difference as royalties on product sales at the time the report is received. To the extent that minimum periodic royalty payments through the end of any applicable period exceed calculated royalties, we are not required to refund the difference. Revenues from commercial milestones are recognized when earned, as evidenced by written acknowledgment from the collaborator or other persuasive evidence that the milestone has been achieved, because we have no further performance obligations related to the commercial milestones.

 

Revenues from direct sales of our flavor ingredients are recorded when there is persuasive evidence that an arrangement exists, title has passed, collection is reasonably assured and the price is fixed or determinable. We generally do not offer discounts, rebates or a general right of return on sales of flavor ingredients.

 

New Accounting Guidance

 

In May 2014, the FASB issued accounting guidance on the recognition of revenue from customers, which will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Under this guidance, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects that the entity expects in exchange for the goods or services. This guidance also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is currently effective for fiscal years beginning after December 15, 2017, and interim periods within those years. The guidance allows entities to select one of two methods of adoption, either the full retrospective approach, meaning the guidance would be applied to all periods presented, or modified retrospective, meaning the cumulative effect of applying the guidance would be recognized as an adjustment to our opening retained earnings new balance at January 1, 2018, along with providing certain additional disclosures. We have not yet selected a transition method nor have we determined the effect of the new guidance on our ongoing financial reporting.

 

Cost of Commercial Revenues

 

Cost of commercial revenues represents royalties payable under our third-party licensing agreements and the cost of goods sold related to direct sales, including related shipping and handling costs.

 

Research, Development and Patents

 

Research and development costs, including those incurred in relation to our collaboration agreements, are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, facilities and depreciation, research and development supplies, licenses and outside services. Such research and development costs totaled $4.8 million and $5.7 million for the three months ended September 30, 2016 and 2015, respectively, and $14.8 million and $16.9 million for the nine months ended September 30, 2016 and 2015, respectively.

 

Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. We include all external costs related to the filing of patents related to development in Research, Development and Patents expenses. Such patent-related expenses totaled $417,000 and $474,000 for the three months ended September 30, 2016 and 2015, respectively, and $1.3 million and $1.4 million for the nine months ended September 30, 2016 and 2015, respectively.

 

 

Stock-Based Compensation

 

Total stock-based compensation expenses recognized for the three and nine months ended September 30, 2016 and 2015 was as follows (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
Research, development and patents		$	484			$	568			$	1,481			$	1,637
Selling, general and administrative			608				751				1,909				2,294
		$	1,092			$	1,319			$	3,390			$	3,931

 

At September 30, 2016, total unrecognized estimated compensation expenses related to non-vested stock options granted prior to that date was $6.0 million, which is expected to be recognized over a weighted average period of 1.8 years.

 

Net Loss Per Share

 

Basic earnings per share (“EPS”) is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common share equivalents include the dilutive effect of in-the-money shares, which is calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share, the amount of compensation cost, if any, for future service that we have not yet recognized, and the amount of estimated tax benefits that would be recorded in paid-in capital, if any, when the share is exercised are assumed to be used to repurchase shares in the current period. For purposes of this calculation, options to purchase common stock are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

 

The following table sets forth the computation of basic and diluted net loss per share for the respective periods.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
Numerator:
Net loss (in thousands)		$	(2,461	)		$	(2,405	)		$	(7,016	)		$	(9,702	)
Denominator:
Weighted average common shares			44,819,053				44,069,792				44,726,011				43,798,244
Basic and diluted net loss per share		$	(0.05	)		$	(0.05	)		$	(0.16	)		$	(0.22	)
Outstanding antidilutive securities not included in diluted net loss per share calculation:
Options to purchase common stock			10,698,768				11,138,658				10,698,768				11,138,658

 

Comprehensive Income (Loss)

 

The Comprehensive Income Topic of the FASB ASC requires that all components of comprehensive income (loss), including net income (loss), be reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Our accumulated other comprehensive income (loss) as of September 30, 2016 and December 31, 2015 consisted of unrealized gains and losses on investments available-for-sale and is reported in stockholders’ equity.

 

Segment Reporting

 

We operate in one business segment, which is the development and commercialization of flavor ingredients. All of our operations are located in the United States.

 

 

Recent Accounting Pronouncements

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new guidance, management will be required to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The provisions of this ASU are effective for annual periods beginning after December 15, 2016, and for annual and interim periods thereafter; early adoption is permitted. We have not elected to early adopt and are currently evaluating the potential changes from this ASU to our future financial reporting and disclosures.

 

In February 2016, the FASB issued ASU 2106-02, Leases. Under the new guidance, lessees will be required to recognize assets and liabilities for most leases. The provisions of this ASU are effective for annual periods beginning after December 15, 2018, and for interim periods within those years; early adoption is permitted. We have not elected to early adopt and are currently evaluating the potential changes from this ASU to our future financial reporting and disclosures.

 

2.	Balance Sheet Details

 

Short-Term Investments Available-for-Sale

 

The following is a summary of short-term investments available-for-sale at September 30, 2016 (in thousands):

 

		Amortized Cost				Unrealized Gain				Unrealized Loss				Estimated Fair Value
United States government agency bonds		$	5,491			$	1			$	—			$	5,492
Corporate bonds			6,566				—				(3	)			6,563
		$	12,057			$	1			$	(3	)		$	12,055

 

The following is a summary of short-term investments available-for-sale at December 31, 2015 (in thousands):

 

		Amortized Cost				Unrealized Gain				Unrealized Loss				Estimated Fair Value
United States government agency bonds		$	7,717			$	—			$	(8	)		$	7,709
Corporate bonds			10,447				—				(20	)			10,427
		$	18,164			$	—			$	(28	)		$	18,136

 

Investments we consider to be temporarily impaired at September 30, 2016 were as follows (in thousands, except for number of investments):

						Less than 12 Months of Temporary Impairment
		Number of investments				Estimated Fair Value				Unrealized Losses
Corporate bonds			7			$	4,765			$	(3	)

 

We believe that the decline in value of these securities is temporary and primarily related to the change in market interest rates since purchase and that it is more likely than not that we will be able to hold these securities to maturity. Therefore we anticipate full recovery of their amortized cost basis at maturity.

 

Gross realized gains and losses on available-for-sale securities were immaterial during the three and nine months ended September 30, 2016 and 2015. As of September 30, 2016, all available-for-sale securities had maturity dates within one year.

 

3.	Fair Value Disclosures

 

The following table presents information about our financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2016, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. We classify money market funds and United States Treasuries as Level 1 assets.

 

Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. We obtain the fair value of Level 2 financial instruments from a third-party professional pricing service using quoted market prices for identical or comparable instruments. The professional pricing service gathers market prices from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources. The service uses these multiple prices as inputs into a distribution-curve based algorithm to determine a fair value. We then validate the quoted fair values provided by the professional pricing service by comparing the service’s assessment of the fair values of our Level 2 investment portfolio balance against the fair values of our Level 2 investment portfolio balance provided by our investment managers. We classify United States government agency bonds and corporate bonds as Level 2 assets. There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2016 or 2015.

 

 

Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. We do not hold any Level 3 assets or liabilities.

 

The fair value as of September 30, 2016 for assets that have recurring measurements are shown below (in thousands):

 

						Fair Value Measurement at Reporting Date Using
		Balance as of September 30, 2016				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Money market funds		$	2,693			$	2,693			$	—			$	—
United States government agency bonds			5,492				—				5,492				—
Corporate bonds			6,563				—				6,563				—
		$	14,748			$	2,693			$	12,055			$	—

 

4.	Product Discovery, Development and Commercialization Collaborations

 

In September 2016, we entered into an agreement with PepsiCo, Inc. that extends PepsiCo’s research funding for Senomyx’s natural sweet taste program for an additional three years, through September 2019. Under the agreement, we will receive up to $18.0 million in research and development payments, payable in equal quarterly installments over the three-year research period beginning October 2016. In addition, PepsiCo has also agreed to reimburse us for certain specified out-of-pocket expenses that we may incur during the course of the research program. PepsiCo has the option to extend the natural sweet taste research program for two additional years, which would result in additional research funding commitments and payments during the extension of the research program. PepsiCo will have non-exclusive rights for commercial development of natural sweeteners and natural sweet enhancers discovered, developed and selected under the collaboration for use in all non-alcoholic beverage categories on a worldwide basis. We will be eligible for milestone payments based on the achievement of predetermined goals as well as royalty payments upon the sale of products containing natural sweeteners or natural sweet enhancers selected under the collaboration. The agreement did not impact our results of operations for the three and nine months ended September 30, 2016.

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements, related notes and the “Risk Factors” included in this quarterly report on Form 10-Q and the audited financial statements, notes thereto as of and for the year ended December 31, 2015 and the “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission, or SEC. Operating results are not necessarily indicative of results that may occur in future periods.

 

Certain statements contained in this quarterly report on Form 10-Q, including statements regarding the development, growth and expansion of our business, our intent, belief or current expectations, primarily with respect to our future operating performance, and the products we expect to offer and other statements regarding matters that are not historical facts, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, and are subject to the “safe harbor” created by these sections. Future filings with the SEC, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may also contain forward-looking statements. Because such statements include risks and uncertainties, many of which are beyond our control, actual results may differ materially from those expressed or implied by such forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements can be found under the caption “Risk Factors,” and elsewhere in this quarterly report on Form 10-Q. Readers are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

 

Overview and Recent Developments

 

We are a leading company using proprietary taste receptor technologies to discover, develop and commercialize innovative flavor ingredients for the packaged food, beverage and ingredient supply industries. We consider flavor ingredients to include flavors, such as savory and cooling, and flavors with modifying properties, such as sweet and salt modifiers and bitter blockers. Flavors with modifying properties is a term used by the flavor industry to describe ingredients that function as part of a flavor system to modify or enhance the flavor profile of a variety of food and beverages. We also have an ongoing effort to discover and develop natural high intensity sweeteners, or HIS. We believe our flavor ingredients, when added as part of a flavor system, will enable packaged food, beverage and ingredient supply companies to improve the nutritional profile (i.e., reduce calories) of their products while maintaining or improving taste and, in certain cases, generating cost of goods savings.

 

Historically, we have derived our revenues from collaborative agreements by licensing our flavor ingredients to our collaborators on an exclusive or co-exclusive basis and receiving royalties and commercial milestones upon commercialization. We currently have collaborative agreements with several of the world’s leading packaged food, beverage and ingredient companies, including Ajinomoto Co., Inc., or Ajinomoto, Firmenich SA, or Firmenich, Nestlé SA, or Nestlé, and PepsiCo, Inc., or PepsiCo. Depending upon the collaboration, our collaboration agreements have generally provided for license fees, research and development funding, reimbursement of certain costs, milestone payments based upon our achievement of research or development goals and, in the event of commercialization, commercial milestones, minimum periodic royalties and royalties on sales of products incorporating our flavor ingredients. As our technology has evolved from concept to commercial products, we have shifted our licensing approach to collaborations for our flavor ingredients and natural HIS. Rather than licensing flavor ingredients and natural HIS to a collaborator on an exclusive or co-exclusive basis, we have begun licensing our ingredients on a non-exclusive basis to expand the addressable market for commercialization. We believe this approach will allow greater commercialization and usage of our ingredients by multiple food, beverage and ingredient supply companies.

 

In addition to revenues from collaborative agreements, we have a complementary commercialization strategy whereby we sell certain of our flavor ingredients directly to flavor companies for re-sale to their food and beverage company customers. The flavor companies add value by incorporating our ingredients into proprietary flavor systems, which include a combination or variety of flavor ingredients, for their customers. To support this direct sales program, we have established relationships with third party manufacturers. Our commercial revenues under the direct sales program are generated from sales of our flavor ingredients to flavor companies and other customers.

 

 

On September 30, 2016, we announced that we entered into an Amended and Restated Collaborative Research, Development, Commercialization and License Agreement with PepsiCo effective as of September 30, 2016. The agreement extends PepsiCo’s research funding for Senomyx’s natural sweet taste program for an additional three years, through September 2019. The research program has been broadened to include the screening and evaluation of plant extracts and plant fractionations owned by PepsiCo in addition to Senomyx’s own natural botanical library.

 

Research and Development Funding: Under the agreement, we will receive $18.0 million in research and development payments, payable in equal quarterly installments over the three year research period. Under certain specified limited circumstances, this level of funding may be reduced, but under no circumstances would this funding be reduced below $15.0 million during the three-year research period. In addition, PepsiCo has also agreed to reimburse us for certain specified out-of-pocket expenses that we may incur during the course of the research program.

 

Extension Option and Termination Rights: PepsiCo has the option to extend the natural sweet taste research program for two additional years, which would result in additional research funding commitments and payments during the extension of the research program.  Quarterly research and development funding will increase by 10% during the period of extension. Both parties have the right to terminate the agreement in the event of the other party’s uncured material breach and PepsiCo also has the unilateral right to terminate the agreement in the event that a direct competitor of PepsiCo acquires more than 30% of our outstanding voting securities.

 

Rights: PepsiCo will have non-exclusive rights for commercial development of natural sweeteners and natural sweet enhancers discovered, developed and selected under the collaboration for use in all non-alcoholic beverage categories on a worldwide basis. Senomyx will have the right to collaborate with any third party concerning the research, development and commercialization of its natural sweet taste program, except with respect to a key competitor of PepsiCo. Senomyx may also not license any selected natural sweet enhancer or natural sweeteners to such key competitor for a period of two years following the receipt of U.S. regulatory approval. Senomyx has immediate rights to collaborate with any third party concerning the research, development and commercialization of its synthetic sweet taste program. PepsiCo will maintain their existing rights to any sweet enhancer selected prior to the Amended and Restated Collaborative Agreement effective date.

 

Milestones/Royalties: We will also be eligible for milestone payments based on the achievement of predetermined goals as well as royalty payments upon the sale of products containing natural sweeteners or natural sweet enhancers selected under the collaboration. If a selected natural sweetener or natural sweet enhancer is discovered solely through PepsiCo’s natural library, PepsiCo will be entitled to a reduction in the royalty payable to Senomyx and to receive a royalty on Senomyx’s commercial revenues generated by such selected ingredient.

 

On October 25, 2016, PepsiCo informed us that it will not be proceeding with a national launch of the reformulated version of Mug Root Beer^® containing Sweetmyx^® S617. However, PepsiCo will continue to sell the reformulated version of Manzanita Sol^® containing Sweetmyx S617 throughout the United States.

 

We have incurred significant losses since our inception in 1998. Our results of operations have fluctuated from period to period and likely will continue to fluctuate substantially in the future based upon:

 

●

the ability and willingness of our product discovery, development and commercialization collaborators to commercialize products incorporating our flavor ingredients into food, beverage and ingredient products, on expected timelines, if at all;

●

our ability to grow our direct sales program;

●

the demand for our collaborators’ and other customers’ products containing our flavor ingredients;

●

the termination, expiration or amendment of any of our product discovery, development and commercialization collaboration agreements;

●

our receipt of milestone payments in any particular period;

●

our ability to enter into new product discovery, development and commercialization collaborations and technology collaborations or to extend the terms of our existing collaboration agreements and our payment obligations, expected revenue and other terms of any of our agreements;

●

our ability, or our collaborators’ ability, to successfully satisfy all pertinent regulatory requirements; and

●

general and industry specific economic conditions which may affect our collaborators’ research and development expenditures and commercialization efforts.

 

 

Results of Operations

 

Three Months Ended September 30, 2016 and 2015

 

Revenues

 

Total revenues were $6.0 million during the third quarter ended September 30, 2016, a decrease from $7.4 million for the third quarter ended September 30, 2015.

 

Development revenues were $3.5 million and $4.4 million for the three months ended September 30, 2016 and 2015, respectively. The $960,000 decrease was primarily attributable to the July 2016 completion of the research funding period of our Sweet Taste Program collaboration with Firmenich.

 

Commercial revenues were $2.5 million and $3.0 million for the three months ended September 30, 2016 and 2015, respectively. The 2015 period included a $1.5 million commercial milestone achieved upon the first commercial sale of products which include our Sweetmyx S617 flavor ingredient. Excluding this one-time milestone, commercial revenues increased by $1.1 million in the 2016 period primarily due to higher royalties related to our Sweet Taste and Bitter Blocker programs and higher direct sales of our flavor ingredients.

 

Revenues under our material collaborations with Firmenich and PepsiCo accounted for approximately 81% and 89% of total revenues for the three months ended September 30, 2016 and 2015, respectively.

 

Cost of Commercial Revenues

 

Costs of commercial revenues were $316,000 and $179,000 for the three months ended September 30, 2016 and 2015, respectively. The increase resulted from higher royalties payable under our third-party licensing arrangements and higher cost of goods sold resulting from increases in direct sales in the 2016 period.

 

Research, Development and Patents Expenses

 

Research, development and patents expenses (including stock-based compensation expenses charged to research and development) were $5.2 million and $6.2 million for the three months ended September 30, 2016 and 2015, respectively. A comparison of research, development and patents expenses by category is as follows (in thousands):

 

		Three Months Ended September 30,
		2016				2015
Salaries and personnel		$	2,438			$	3,062
Facilities and depreciation			990				1,091
Patents and licensing			485				551
Non-cash stock-based compensation			484				568
Research and development supplies			301				366
Outside services			300				267
Miscellaneous			242				257
		$	5,240			$	6,162

 

Salaries and Personnel Expenses for salaries and personnel were $2.4 million and $3.1 million for the three months ended September 30, 2016 and 2015, respectively. The decrease was due to reduced staffing levels in the 2016 period and higher incentive-based compensation expense accruals in 2015.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (including stock-based compensation expenses charged to selling, general and administrative) were $2.9 million for the three months ended September 30, 2016, a decrease of $521,000 from the $3.5 million total for the three months ended September 30, 2015. The decrease resulted from higher incentive-based compensation expense accruals in 2015.

 

 

Nine Months Ended September 30, 2016 and 2015

 

Revenues

 

Total revenues were $18.8 million during the nine months ended September 30, 2016, an increase from $18.6 million for the nine months ended September 30, 2015.

 

Development revenues were $11.9 million and $13.4 million for the nine months ended September 30, 2016 and 2015, respectively. The $1.5 million decrease was primarily due to the July 2016 completion of the research funding period of our Sweet Taste Program collaboration with Firmenich and lower research funding related to our Salt Taste Program in 2016.

 

Commercial revenues were $6.9 million and $5.2 million for the nine months ended September 30, 2016 and 2015, respectively. The $1.7 million increase primarily resulted from higher royalties related to our Sweet Taste, Bitter Blocker and Savory Taste programs and higher direct sales of our flavor ingredients. The increases in royalties and direct sales were partially offset by a $1.3 million decrease in commercial milestone revenues.

 

Revenues under our material collaborations with Firmenich and PepsiCo accounted for approximately 82% and 88% of total revenues for the nine months ended September 30, 2016 and 2015, respectively.

 

Cost of Commercial Revenues

 

Costs of commercial revenues were $832,000 and $430,000 for the nine months ended September 30, 2016 and 2015, respectively. The increase resulted from higher royalties payable under our third-party licensing arrangements and higher cost of goods sold resulting from increases in direct sales in the 2016 period.

 

Research, Development and Patents Expenses

 

Research, development and patents expenses (including stock-based compensation expenses charged to research and development) were $16.2 million and $18.3 million for the nine months ended September 30, 2016 and 2015, respectively. A comparison of research, development and patents expenses by category is as follows (in thousands):

 

		Nine months Ended September 30,
		2016				2015
Salaries and personnel		$	7,628			$	9,064
Facilities and depreciation			2,980				3,409
Patents and licensing			1,581				1,633
Non-cash stock-based compensation			1,481				1,637
Research and development supplies			991				1,024
Outside services			801				873
Miscellaneous			697				671
		$	16,159			$	18,311

 

Salaries and Personnel Expenses for salaries and personnel were $7.6 million and $9.1 million for the nine months ended September 30, 2016 and 2015, respectively. The decrease primarily resulted from reduced staffing levels in 2016.

 

Facilities and Depreciation Facilities and depreciation expenses were $3.0 million and $3.4 million for the nine months ended September 30, 2016 and 2015, respectively. The decrease in the 2016 period was due to lower depreciation expenses as certain scientific equipment became fully depreciated.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (including stock-based compensation expenses charged to selling, general and administrative) were $8.9 million for the nine months ended September 30, 2016, a decrease of $680,000 from the $9.6 million total for the nine months ended September 30, 2015. The decrease was primarily attributable to reduced non-cash stock-based compensation expenses which resulted from a lower fair value for stock options granted in 2016 based on the lower price of our common stock at the respective option grant dates.

 

 

Liquidity and Capital Resources

 

Since our inception, we have financed our business primarily through our product discovery and development collaborations, private and public placements of stock, royalties and interest income. As of September 30, 2016, we had received $255.4 million in non-refundable license fees, research and development payments, cost reimbursements and milestone payments from our collaboration agreements. In addition, we had received $210.1 million in proceeds from the sales of common and preferred stock, $32.7 million in royalties and commercial payments and $12.6 million in interest income.

 

At September 30, 2016, we had $15.7 million in cash, cash equivalents and investments available-for-sale as compared to $23.0 million at December 31, 2015, a decrease of $7.3 million. This decrease is primarily due to the net use of cash to fund our operations.

 

Operating Activities

 

Operating activities used cash of $8.2 million and $6.0 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in cash used in operating activities primarily resulted from a decrease in research funding received and an increase in rent payments, partially offset by a decrease in net loss.

 

Investing Activities

 

Investing activities provided cash of $5.9 million and $5.0 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in cash provided by investing activities primarily resulted from the timing of maturities of available-for-sale securities and a $531,000 decrease in purchases of property and equipment in the 2016 period.

 

Financing Activities

 

Financing activities provided cash of $1.2 million and $3.0 million for the nine months ended September 30, 2016 and 2015, respectively. The decrease in cash provided by financing activities reflects decreased proceeds from the issuance of common stock through the employee stock purchase plan and the exercise of stock options.

 

As of September 30, 2016, future minimum payments due under our contractual obligations are as follows (in thousands):

 

		Payments Due by Period
		Total				Less than 1 year				1-3 years				4-5 years				After 5 years
Operating leases		$	20,866			$	2,642			$	5,261			$	5,872			$	7,091
License payments			470				184				256				30				—
Total		$	21,336			$	2,826			$	5,517			$	5,902			$	7,091

 

As of September 30, 2016, we had no long-term debt obligations.

 

Our license agreement with the University of California calls for annual maintenance fees, which commenced in 2006, or royalties or service revenues on sales of any products developed using technologies licensed under the agreement. Royalties are calculated as a percentage of applicable sales and are included in cost of commercial revenues. The agreement specifies minimum annual royalty payments which continue through the expiration of the last to expire patent licensed under the agreement. Royalties currently paid under the agreement exceed the minimum annual royalty.

 

Our future capital uses and requirements depend on numerous forward-looking factors. These factors may include, but are not limited to, the following:

 

●

our ability to generate flavor ingredient sales under our direct sales program;

●

our ability to maintain product discovery, development and commercialization collaborations;

●

the rate of progress and cost of research and development activities;

●

the terms and timing of any collaborative, licensing and other arrangements that we may establish;

●

the cost of growing our direct sales program, including purchases of inventory;

●

the number and scope of our research activities;

●

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

 

●

the proceeds from the issuance of common stock upon the exercise of stock options;

●

the effect of competing technological and market developments; and

●

the extent to which we acquire or in-license new products, technologies or businesses.

 

We believe our available cash, cash equivalents, investments and existing sources of funding will be sufficient to satisfy our anticipated operating and capital requirements through at least the next 12 months.

 

Until we can generate significant cash from our operations, we expect to continue to fund our operations with existing cash resources that were primarily generated from license payments, research and development payments and milestone payments under our product discovery and development collaborations and from the proceeds of offerings of our equity securities. We may also consider raising additional cash from the sale of equity or other securities.

 

From September 30, 2016 through the remaining life of our current collaboration agreements, we are currently entitled to receive from our collaborators a total of $19.1 million for non-refundable research and development funding. This does not include any additional payments we may receive related to the following events:

 

●

the achievement of milestones;

●

the earning of royalties from the sale of products containing our flavor ingredients;

●

the earning of any minimum periodic royalty payments;

●

direct sales of flavor ingredients;

●

the earning of any cost reimbursements; and

●

the signing of new collaborations or extensions of existing collaborations.

 

We may not receive the payments if the collaborations are terminated, amended or not renewed, or if we do not achieve the milestones set forth in the collaboration agreements. In addition, the timing of the receipt of milestone payments in particular is uncertain, as we may achieve milestones significantly earlier or later than we currently expect. We cannot predict at this time the level of our collaborators’ royalty-generating sales, as these sales to date have been based on launches of new products without established sales histories, or the level of flavor ingredient sales under our direct sales program.

 

We continue to pursue additional collaborations which could result in additional revenues. We may not recognize revenues for license fees, research and development funding, milestones, minimum periodic royalties or royalties if the collaborations are terminated or amended, or if we do not achieve the milestones set forth in the collaboration agreements. Our expenses will vary based upon the forward-looking factors listed above.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2016 and 2015, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as special purpose or structured finance entities, which would have been established for the purposes of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to revenue recognition, stock-based compensation, uncollectible receivables, excess and obsolete inventories, long-lived assets, accrued liabilities and income taxes. These estimates are based on historical experience and various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the recognition of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of United States interest rates. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency or other derivative financial instruments.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Prior to the filing of this quarterly report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a - 15(e) or 15d -15(e) of the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q.

 

An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls will prevent all errors or potential fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 

PART II. OTHER INFORMATION

 

ITEM 1A.

RISK FACTORS

 

The following sets forth risk factors associated with our business. The risk factors set forth below with an asterisk (*) next to the title contain changes to the description of the risk factors associated with our business previously disclosed in Item 1A. of our annual report on Form 10-K for the year ended December 31, 2015. Additional risks and uncertainties that we are unaware of may also become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In these circumstances, the market price of our common stock could decline.

 

Risks Related To Our Business

 

We are substantially dependent on our current and any future product discovery and development collaborators to develop and commercialize any flavor ingredients we may discover.

 

Under our current royalty-based business model, we are substantially dependent on our current and any other possible future collaborators to commercialize any flavor ingredients that we successfully develop and to provide the sales, marketing and distribution capabilities required for the success of our business. We have no control over the amount and timing of resources that our current or any future collaborators may devote to our programs or potential products. Our collaborators may decide not to devote the necessary resources to the commercialization of our flavor ingredients and may choose not to incorporate our flavor ingredients into any or all of their products within their exclusive or co-exclusive product fields on a timely basis or at all. Although our collaboration agreements vary, in some situations a collaborator may have the ability to return rights to one or more of our licensed flavor ingredients in some or all product categories or licensed territories and discontinue any associated minimum annual royalty obligations for those flavor ingredients, product categories or territories, as the case may be. A collaborator may elect to take any of these actions for any number of reasons, including as a result of unfavorable publicity regarding our flavor ingredients or our research methods, or if our flavor ingredients do not have the characteristics desired by the collaborator. These characteristics include, among other things, modifying properties, stability under various manufacturing and use conditions, solubility, taste, cost and an adequate safety profile. If these collaborators fail to conduct their commercialization, sales and marketing or distribution activities successfully and in a timely manner, or if our existing collaborators terminate their collaboration agreements with us prior to the expiration of the agreements, it will delay our ability to commercialize our flavor ingredients, we will earn little or no royalty revenues from our flavor ingredients and we will not be able to achieve our objectives or build a sustainable or profitable business.

 

Even if we or our collaborators receive regulatory approval and incorporate our flavor ingredients into products, those products may never be commercially successful.

 

Even if we discover and develop flavor ingredients with appropriate attributes required for use in commercial products and we obtain the necessary regulatory authorizations through the Flavor and Extract Manufacturers Association (FEMA) Expert Panel’s review and determination of our flavor ingredients as Generally Recognized as Safe (GRAS) or other regulatory approvals, the commercial utility for a novel flavor ingredient that we develop may ultimately be more limited than we expect. Our success depends to a significant degree upon successful commercial launches of food, beverage and ingredient products incorporating our flavor ingredients. If these products fail to achieve or subsequently maintain market acceptance or commercial viability, our business would be significantly harmed because our commercial revenues are dependent upon consumer sales of these products. In addition, we may be unable to maintain our existing collaborations or attract new product discovery and development collaborators or new customers for our direct sales program. Many factors may affect the willingness of food and beverage companies to launch new or reformulated products incorporating our flavor ingredients and the market acceptance and commercial success of any potential products incorporating flavor ingredients, including:

 

●

health concerns, whether actual or perceived, regarding our flavor ingredients or those of our competitors;

●

unfavorable publicity regarding our flavor ingredients or our research methods;

●

the timing of market entry as compared to competitive products;

●

whether our collaborators devote sufficient financial and other resources to promote our flavor ingredients;

●

the pricing of products that contain our flavor ingredients relative to other competing products;

●

the costs and market risks of reformulating existing products;

●

the rate of adoption of products by our collaborators and other companies in the flavor industry; and

●

any product labeling that may be required by United States or foreign regulatory agencies for products incorporating our flavor ingredients.

 

 

We are dependent on our current and any future product discovery and development collaborators for our research and development funding.

 

A key element of our current strategy is to commercialize our flavor ingredients and natural HIS through collaboration agreements. To date, substantially all of our research and development funding has been derived solely from research and development payments, license fees, milestone payments and cost reimbursement payments received under our collaborations. Substantially all of our research and development funding in the foreseeable future will result from these types of payments from these collaborations until such time, if ever, that we earn more significant royalties on future sales of consumer products incorporating our flavor ingredients or begin to generate meaningful revenues from our direct sales program.

 

Our current collaborators may not renew their agreements with us or we may not be able to enter into additional collaboration agreements with third parties due to the exclusive nature of our current product discovery and development collaborations. Each of our current collaboration agreements provides for the use of flavor ingredients within one or more defined food, beverage and ingredient product fields on an exclusive, co-exclusive or non-exclusive basis for the respective collaborator during the collaboration period specified in the agreement. In the case of exclusive agreements, or co-exclusive agreements where all fields and geographies are granted, we will not be able to enter into additional collaborations with any other food, beverage and ingredient company covering the same product field during the applicable collaboration period.

 

In addition, our collaborators’ competitors may not wish to do business with us at all due to our relationship with our collaborators and under some agreements we have agreed to arrangements where we would not launch competing products or collaborate with a collaborator’s competitor for a limited period of time even after the conclusion of the applicable collaboration period. Consolidation in our target markets may also limit the number of potential collaborators. Further, if we do not achieve our research and development objectives under our existing collaboration agreements prior to the expiration of the collaboration period, our collaborators may elect not to renew these agreements on terms that are acceptable to us.

 

If any or all of our current material agreements with our collaborators expire, are amended, or are terminated, or if we are unable to, or elect not to, renew or enter into new collaboration agreements, our research and development funding could significantly decline or be substantially eliminated, which would have a material adverse effect on our business, financial condition and results of operations.

 

We may not be able to commercialize the flavor ingredients in our portfolio that we currently control, which could negatively impact our results of operations and market share.

 

We have several flavor ingredients in our portfolio that we have discovered and developed but that are not currently exclusively licensed to a third party collaborator for one or more product categories and/or geographies, including, but not limited to, our Savorymyx^® UM80 (S807), Sweetmyx^® SR96 (S9632) and Sweetmyx SR69 (S6973) flavor ingredients for which we have worldwide rights in all products, Bittermyx^® BB68 (S6821) for which we have worldwide rights in certain products, and Savorymyx UM33 (S336), for which we have certain rights in Japan and worldwide rights, outside of Asia, in all products. We currently intend to commercialize these and potentially other flavor ingredients under our direct sales program; however, we also retain the flexibility to consider licensing the rights to any flavor ingredients that we control to a third party collaborator.

 

There can be no assurance that our direct sales program will be successful or that we will enter into any new business arrangements for any of our flavor ingredients that are not currently exclusively licensed to a third party collaborator. We may encounter difficulties in growing our direct sales program or entering into any new business arrangements that we elect to pursue. The direct sales selling cycle may take longer than we anticipate or may be at a slow rate. Any of these events could also delay our anticipated timelines, prevent the successful commercialization of our flavor ingredients, negatively impact our financial results, and delay or prevent us from ever achieving or sustaining profitability.

 

We may be unsuccessful in our efforts to discover, develop and commercialize natural sweet taste ingredients.*

 

 We are currently expending significant resources attempting to discover, develop and commercialize novel no- or low-calorie natural high intensity sweeteners, or HIS, and natural sweet modifiers. While we have been successful in the past discovering, developing and commercializing artificial flavor ingredients, we have never commercialized a flavor ingredient derived from our library of natural compounds, and our success commercializing artificial flavor ingredients in the past does not ensure that we will have similar success discovering, developing and commercializing natural sweet taste modifiers and high intensity sweeteners.

 

The discovery of natural sweet taste flavor ingredients requires significant time and resources in order to screen our library of natural compounds to identify potent natural sweet taste modifiers and/or HIS. Following the discovery of any natural sweet taste flavor ingredient, we must also expend significant resources attempting to optimize the applicable natural compound before being able select potential product candidates. Conducting this research is a time-consuming, expensive and uncertain process that may take years to complete, and we may never generate a viable natural sweet taste modifier and/or HIS as a result.

 

 

Even if we are able to generate a viable natural high intensity sweetener, we do not believe that any natural high intensity sweetener would qualify for a FEMA GRAS determination for its use as a sweetener, and therefore would likely require a different approval process, including submission through the FDA GRAS notification process, which would be significantly more expensive and timely to complete. There can be no assurance that any natural high intensity sweetener that we generate will satisfy the specific regulatory processes, including any applicable foreign regulatory approval requirements, which may limit or prevent collaborators from selling products containing any natural high intensity sweetener that we may create.

 

Even if we successfully develop natural sweet taste modifier and/or high intensity sweeteners with appropriate attributes required for use in commercial products, and we obtain the necessary regulatory approvals, our ability to scale up the manufacturing of our natural ingredients to enable their market launch will be dependent upon third parties being able to ferment or biosynthesize/manufacture such ingredients as we do not have the ability or expertise to do in-house. The fermentation or biosynthesis of a natural compound is very challenging and can be done only by a limited number of companies. If we are unable to successfully identify and collaborate with a third party capable of fermenting or biosynthesizing any natural ingredient that we are able to develop, we will not be able to scale up the manufacturing of such product to enable its market launch and our ability to successfully commercialize such product would be prohibited. In addition, we will have limited or no control over these third parties, and because we could not ensure the actual fermentation or biosynthesis of our natural high intensity sweeteners or the ability of our suppliers to comply with applicable legal and regulatory requirements, our ability to successfully commercialize natural ingredients may be limited.

 

Furthermore, due to ongoing uncertainty and changes to applicable laws and standards, there is a possibility that any HIS or flavor ingredient derived from our library of natural compounds could ultimately be categorized as an artificial, not natural, ingredient even if it is found in nature. If this were to occur, it would likely have a negative impact on the consumer appeal of any sweet modifier or HIS we develop from our library of natural compounds, and could deter food, beverage and ingredient products from incorporating the HIS or flavor ingredients. If this were to occur, our ability to successfully commercialize these ingredients would be limited and it could have a material adverse effect on our business, financial condition and results of operations.

 

We may seek additional capital to fund our operations.

 

If we are unable to successfully commercialize our flavor ingredients through royalty-based collaborations or direct sales, or enter into new product discovery and development collaborations with third parties, we will likely need to obtain additional capital, reduce our ongoing expenses and/or modify our strategy to continue our operations. In addition, our business and operations may change in a manner that would consume available resources at a greater rate than anticipated, or we may decide that for other reasons it is in our best interests to seek additional capital. In such an event, we may need to raise substantial additional capital to, among other things:

 

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fund research, discovery or development programs;

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advance product candidates into and through the safety evaluation and regulatory approval process;

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acquire rights to products or product candidates, technologies or businesses;

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support the commercialization of our flavor ingredients; and

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prosecute, maintain and enforce our intellectual property rights.

 

If we pursue additional capital to continue our operations, we cannot assure you that additional financing will be available on terms acceptable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, identify and develop flavor ingredients and natural HIS, develop technologies or otherwise respond to competitive pressures could be significantly limited. In addition, if financing is not available, we may need to alter our strategies, reduce our ongoing expenses or cease operations. In addition, issuances of debt or additional equity could impact the rights of the holders of our common stock, may dilute our stockholders’ ownership and may impose restrictions on our operations. These restrictions could include limitations on additional borrowing, specific restrictions on the use of our assets as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. Even assuming the Company is successful in securing additional sources of financing to fund continued operations, there can be no assurance that the proceeds of such financing will be sufficient to fund operations until such time, if at all, that the Company generates sufficient revenue from our products to sustain and grow our operations.

 

 

Disagreements or disputes with a collaborator or customer of our direct sales program could adversely impact our business operations and prospects.

 

From time to time we have disagreements or disputes with our collaborators regarding various subject matters, such as the interpretation of contractual rights and obligations under our agreements, the design of development studies for our flavor ingredients and intellectual property matters. Because we depend on our collaborators to fund our research and development programs and commercialize our flavor ingredients, any disputes or disagreements with our collaborators could disrupt our business operations and adversely impact our ability to maintain existing collaborations or secure new collaborations. We may also have disagreements or disputes with customers of our direct sales program regarding various subject matters such as the interpretation of contractual rights and obligations under our terms and conditions of sale. Whenever we become involved in a dispute or litigation with any collaborator or customer, we might have to spend significant amounts of money, time and effort to defend our position and we may not be successful. Even if we are successful, any dispute could divert management attention and resources from other strategic, commercial and research priorities.

 

We expect that our results of operations will fluctuate from period to period, and this fluctuation could cause our stock price to decline.

 

Our operating results have fluctuated in the past and are likely to vary significantly in the future based upon a number of factors, many of which we have little or no control over. We operate in a highly dynamic industry and future results could be subject to significant fluctuations. These fluctuations could cause us to fail to meet or exceed our published guidance or financial expectations of securities analysts or investors, which could cause our stock price to decline rapidly and significantly. Revenue and expenses in future periods may be greater or less than revenue and expenses in the immediately preceding period or in the comparable period of the prior year. Therefore, period-to-period comparisons of our operating results are not necessarily a good indication of our future performance. Some of the factors that could cause our operating results to fluctuate include:

 

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the ability and willingness of our product discovery, development and commercialization collaborators to commercialize products incorporating our flavor ingredients into food, beverage and ingredient products, on expected timelines, if at all;

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our ability to enter into new product discovery and development collaborations and technology collaborations or to extend the terms of our existing collaboration agreements and our payment obligations, expected revenue and other terms of any of our agreements;

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the termination, expiration or amendment of any of our product discovery and development collaboration agreements;

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our ability to grow our direct sales program;

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the demand for our collaborators’ and other customers’ products containing our flavor ingredients;

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our receipt of milestone payments in any particular period;

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our ability, or our collaborators’ ability, to successfully satisfy all pertinent regulatory requirements; and

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general and industry specific economic conditions which may affect our collaborators’ research and development expenditures and commercialization efforts.

 

We have a history of operating losses and we may not achieve or maintain profitability.

 

We have not been profitable and have generated substantial operating losses since we were incorporated in September 1998. We expect to incur additional losses in the future. The extent and duration of our future losses will depend, in part, on the rate of increase in our operating expenses and the rate of growth, if any, in our revenues from our existing and any future product discovery and development collaborations as well as from our direct sales program and other sources that may become available to us in the future. To date, substantially all of our revenues have come from research and development funding, license fees, cost reimbursement and milestone payments under our product discovery and development collaborations. In order for us to generate further royalty revenues and become profitable, we must successfully retain our existing product discovery and development collaborations and our collaborators must further commercialize products incorporating one or more of our flavor ingredients, from which we can derive additional royalty revenues, or we must successfully grow our direct sales program or alternative strategies where we receive revenues from other sources. Our ability to generate commercial revenue is uncertain and will depend upon, among other things, our ability to meet particular commercialization, research and development objectives.

 

 

If we or our collaborators are unable to obtain and maintain the GRAS determination by FEMA or other regulatory approval required before certain of our flavor ingredients can be incorporated into products that are sold, we would be unable to commercialize our flavor ingredients and our business would be adversely affected.

 

In the United States, flavor ingredients are regulated under the Food, Drug and Cosmetic Act, or FD&C Act. Flavor ingredients that qualify for the GRAS review process are generally intended to be consumed in small quantities and have data supporting their safety under conditions of intended use. The Food Additive Amendments of 1958 prompted the flavor industry to establish in 1960 the FEMA Expert Panel whose purpose is to administer the FEMA GRAS review program for flavor ingredients.

 

Depending on the amount or intended use of a particular flavor ingredient added to a product and the number of product categories in which the flavor ingredient will be incorporated, specific safety assessment protocols and regulatory processes must be satisfied before we or our collaborators can commercially market and sell products containing any flavor ingredients that we may discover. A key element of our strategy is to develop flavor ingredients that may be subject to review under the FEMA GRAS process. Obtaining and maintaining a GRAS determination or other regulatory approval can be costly and take many years.

 

In our experiences with the savory, sweet, bitter and cool programs, safety studies, preparation and FEMA GRAS review has historically ranged from 12 to 18 months and cost up to approximately $1.5 million per flavor ingredient. This experience may not be representative of the timing and cost for current and future programs. The FEMA GRAS process may take longer than 12 to 18 months and cost more than $1.5 million depending on the properties of the flavor ingredient, and if we elect to perform additional safety studies or if additional safety studies are requested by the FEMA Expert Panel or one of our collaborators or are necessary to explain unexpected safety study findings. There is a risk that one or more of our product candidates for which we seek FEMA GRAS determination may not qualify for a FEMA GRAS determination for specific categories or at all. This may occur for a variety of reasons, including the flavor ingredient’s intended use, the amount of the flavor ingredient intended to be added to foods and beverages, the number of product categories in which the flavor ingredient will be incorporated, whether the flavor ingredient imparts sweetness, the safety profile of the flavor ingredient and the FEMA Expert Panel’s interpretation of the safety data. For example, we do not believe that any natural high intensity sweetener that we discover would qualify for a FEMA GRAS determination for its use as a sweetener. Even if we obtain a GRAS determination with respect to a flavor ingredient, the U.S. Food and Drug Administration, or FDA, has the ability to challenge such determination or one or more of our collaborators may insist on additional studies, which could materially adversely affect our ability to market products on schedule or at all. In the event that a particular flavor ingredient does not qualify for FEMA GRAS determination or if one or more of our collaborators requires additional studies, we could be required to pursue a longer and more expensive approval process or dedicate our development efforts to alternative ingredients, which would further delay commercialization. In addition, laws, regulations or FDA practice governing the regulatory approval process, the availability of the GRAS determination process or the manufacture or labeling of such products, may change in a manner that could adversely affect our ability to commercialize products on schedule or at all and may also harm our ability to maintain our existing collaboration agreements or enter into new collaborations.

 

We must secure and maintain regulatory approvals of our flavor ingredients through various governmental bodies outside the United States. The applicable regulations are complex and subject to change, which may adversely impact our ability to commercialize our flavor ingredients internationally.

 

Sales of our flavor ingredients outside of the United States will be subject to foreign regulatory requirements, which are determined by multiple governing bodies, such as the Joint FAO/WHO Expert Committee on Food Additives, or JECFA, and the European Food Safety Authority, or EFSA, and in some instances individual countries, such as China, Indonesia and Japan. These foreign regulatory requirements are complex and constantly changing, sometimes quite unpredictably, due, in part, to changes in agendas of political, business and social activist groups as well as government priorities. We may be required to incur substantial costs to comply with current or future laws and regulations, or new interpretations of existing laws and regulations, and our operations, business or financial condition could be adversely affected by such future requirements or interpretations of existing requirements.

 

A Generally Recognized as Safe, or GRAS, determination in the United States or in any other jurisdiction does not ensure approval in other jurisdictions because the requirements from jurisdiction to jurisdiction may vary widely and may change over time. In most cases, whether or not a GRAS determination has been obtained in the United States, approval of a product by the applicable regulatory authorities for a foreign country must still be obtained prior to manufacturing or marketing the product in that country. For example, we are aware of ongoing activities that are intended to clarify the regulatory approval process for flavor ingredients within the EU. Because of the inherent uncertainty associated with the regulatory approval process outside the United States, predicting the outcome or timing of review of any of our submissions to foreign regulatory authorities, present or in the future, is difficult. Accordingly, our estimates and forecasts for those submissions and potential approvals may not be accurate. The process of obtaining foreign approvals could result in significant delays, difficulties and costs for us and require additional safety studies and additional expenses. If we experience delays or if we fail to comply with these regulatory requirements or to obtain and maintain required approvals, our ability to generate revenue will be diminished.

 

 

We and our collaborators may not be successful in overcoming these regulatory hurdles, which could result in product launch delays, unanticipated expenses, termination of collaborations and flavor ingredients not being approved for incorporation into consumer products in one or more geographies. In addition, even after regulatory approval of our flavor ingredients, we may become aware of new information that suggests our flavor ingredients are unsuitable for consumer use, in which case our regulatory approvals may be revoked or we may elect to voluntarily cease the commercialization of those ingredients. These consequences would have a material adverse effect on our business financial condition and results of operations.

 

Our business and operating results may be adversely affected by unfavorable economic and market conditions.

 

A significant portion of our current business model depends on our ability to maintain and enter into new collaborative research, development and commercialization agreements with leading food, beverage and ingredient companies. Our collaboration agreements typically require our collaborators to make a significant commitment of capital and other resources. In most instances these investments are discretionary on the part of our collaborators. The current weak global economic conditions may reduce the amount of discretionary investment that our current and prospective collaborators may be willing to make in our programs as well as the demand for our flavor ingredients in general. In some instances the result may be that companies elect to defer or delay entering into a collaboration agreement with us, or existing collaborators may amend, terminate or not renew an existing program when it expires. Therefore, weak economic conditions, or a reduction in research and development funding, even if economic conditions improve, would likely adversely impact our business, operating results and financial condition in a number of ways, including longer business development cycles, unfavorable financial or other commercial terms, and longer development timelines.

 

If we lose our key personnel or are unable to attract and retain qualified personnel, it could adversely affect our business.

 

Our success depends to a significant degree upon the continued contributions of our executive officers, management and scientific staff. We have entered into employment letter agreements with each of our executive officers; however, all of our employees are at-will employees, which means that either we or the employee may terminate their employment at any time. In addition, we currently have no key person insurance. If we are not able to attract and retain the necessary personnel to accomplish all of our business objectives, we may experience constraints that will adversely affect our ability to meet the demands of our current or any future product discovery and development collaborators in a timely fashion, to support our independent discovery and development programs or to pursue our direct sales program. In addition, we may be delayed or unable to develop new product candidates, commercialize our existing product candidates or achieve our other business objectives as a result of any future loss of our other executive officers or key members of our management or scientific staff, which could cause our stock price to decline. Moreover, the loss of the services of one or more of our executive officers or key members of our management or scientific staff could negatively impact the relationships we have with our collaborators.

 

If we acquire products, technologies or other businesses, we will incur a variety of costs, may have integration difficulties and may experience numerous other risks that could adversely affect our business.

 

If appropriate opportunities become available, we may consider acquiring businesses, technologies or products that we believe are a strategic fit with our business. We may also consider reacquiring rights to flavor ingredients that are currently licensed to one or more of our collaborators. We have limited, if any, experience in identifying acquisition targets, successfully acquiring them and integrating them into our current infrastructure. We may not be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. In addition, future acquisitions might be funded by issuances of debt or additional equity, which could impact your rights as a holder of our common stock and may dilute your ownership percentage. Any of the foregoing could have a significant adverse effect on our business, financial condition and results of operations.

 

We may encounter difficulties managing growth, which could adversely affect our business.

 

Our strategy includes entering into and working on simultaneous flavor ingredient discovery and development programs across multiple markets. We may choose to increase headcount in the future in order to meet our strategic objectives, which may place a strain on us, our management and our resources. Our ability to effectively manage our operations, growth and various projects requires us to continue to improve our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented employees. We may not be able to successfully implement these tasks on a larger scale and, accordingly, we may not achieve our research, development and commercialization goals. If we fail to improve our operational, financial and management information systems, or fail to effectively monitor or manage our new and future employees or our growth, our business would suffer significantly. In addition, no assurance can be made that we will be able to maintain adequate facilities to house our staff, conduct our research or achieve our business objectives.

 

 

Risks Related To Production and Supply

 

We rely on third parties to manufacture our flavor ingredients on a commercial scale.

 

We do not have experience in manufacturing nor do we have the resources or facilities to manufacture flavor ingredients on a commercial scale. Therefore, the commercialization of our flavor ingredients depends in part on our or our collaborators’ ability to manufacture, or to contract with third-party manufacturers of our flavor ingredients, on a large scale, at a competitive cost, with the specified quality and in accordance with relevant food, beverage and ingredient regulatory requirements. Any such collaborators or third-party manufacturers may encounter manufacturing difficulties at any time that could result in delays in the commercialization of potential flavor ingredients.

 

Our inability to find capable manufacturing capacity or to enter into agreements on acceptable terms with third party manufacturers could delay commercialization of any products we may develop and may harm our relationships with our existing and any future product discovery and development collaborators and our customers. Moreover, if we or our collaborators are required to change from one third-party manufacturer to another for any reason, the commercialization of our products may be delayed further. In addition, if any manufacturer of our flavor ingredients fail to comply with the FDA’s good manufacturing practice regulations or similar regulations in other countries, then we or our collaborators may be subject to adverse regulatory action including product recalls, warning letters and withdrawal of our products, or our collaborators’ or customers’ products, from the market, any of which may harm our reputation and our business.

 

Further, because our flavor ingredients are regulated as food products under the FD&C Act, we and the third parties with which we collaborate or contract to manufacture, process, pack, import or otherwise handle our products or our product ingredients, may be required to comply with certain registration, prior notice submission, recordkeeping and other regulatory requirements. Failure of any party in the chain of distribution to comply with any applicable requirements under the FD&C Act or any new regulations implemented by the FDA, or similar regulations in other countries, may adversely affect the manufacture and/or distribution of our products in commerce.

 

We currently expect to rely on outside suppliers for our flavor ingredients to support our direct sales program, including Firmenich as sole supplier of our sweet flavor ingredients. If Firmenich or other suppliers are unable to supply us with our required amounts of our flavor ingredients on a timely basis, our results of operations may be adversely affected.

 

We have agreed to utilize Firmenich as our exclusive manufacturer of any sweet flavor ingredient for our direct sales program that Firmenich has selected to develop under the terms of our collaboration agreement. We have also entered into supply agreements with manufacturers for our savory flavor ingredients and bitter blockers and may enter into additional manufacturing arrangements in the future. Because Firmenich and our other suppliers are third party manufacturers, we have only limited control over the timing and level of their production volumes. If Firmenich or our other suppliers fail to supply us with required amounts of our flavor ingredients under our agreements, we would not be able to meet our customers’ demands unless we were able to utilize alternative sources of supply, which may be more costly and may not even be available on acceptable terms or within an acceptable timeframe. Accordingly, if Firmenich or our other suppliers are unable to supply us with our required amounts of flavor ingredients on a timely basis and with acceptable quality, it may have a material adverse effect on our results of operations.

 

We face risks associated with inventory. If our inventory cannot be sold, our results of operations and/or financial position may be adversely affected.

 

To ensure adequate inventory supply for our direct sales program, we must forecast inventory needs of certain of our flavor ingredients and place orders with our manufacturers before firm orders are placed by our customers. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of product to deliver to our customers. We may also be required to purchase substantial amounts of flavor ingredients in order to establish manufacturing relationships with third parties or to give potential customers greater confidence in the reliability of our supply. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which may have a material adverse effect on our results of operations and/or financial position.

 

 

Risks Related To Our Industry

 

Our ability to compete in the flavor ingredient market may decline if we do not adequately protect our proprietary technologies.

 

Our success depends in part on our ability to obtain and maintain intellectual property protection for our technologies and flavor ingredients. Patent positions may be highly uncertain and may involve complex legal and factual questions, including the ability to establish patentability of sequences relating to taste receptors, proteins, chemical synthesis techniques, compounds and methods for using them to modulate taste for which we seek patent protection. No consistent standard regarding the allowability or enforceability of claims in many of our pending patent applications has emerged to date. As a result, we cannot predict the breadth of claims that will ultimately be allowed in our patent applications, if any, including those we have in-licensed or the extent to which we may enforce these claims against our competitors. The degree of future protection for our proprietary rights is therefore highly uncertain and we cannot assure you that:

 

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we were or will be the first to file patent applications or to invent the subject matter claimed in patent applications relating to the technologies upon which we rely;

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others will not independently develop similar or alternative technologies or duplicate any of our technologies;

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others did not publicly disclose our claimed technology before we conceived the subject matter included in any of our patent applications;

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any of our patent applications will result in issued patents , or if issued, that any of our existing and future patent claims will be held valid and enforceable against third-party infringement;

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the use of our technologies and flavor ingredients will not infringe any third-party patent or intellectual property;

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our issued patent claims will not be challenged, potentially invalidated or potentially circumvented by third parties;

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our issued patent claims relating to our technologies will be sufficiently broad to protect our flavor ingredients and technologies and our customers’ use of our flavor ingredients and technologies;

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any of our patent applications will not result in interferences or disputes with third parties regarding priority of invention or the validity of any issued patent;

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any patents that have issued or may be issued to us, our collaborators or our licensors will provide a basis for commercially viable products or will provide us with any competitive advantages or will not be challenged by third parties;

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we will develop additional proprietary technologies that are patentable;

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our issued and future patent claims directed to naturally occurring materials will issue or continue to be valid in the U.S.;

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the patents of others will not have an adverse effect on our ability to do business; or

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new proprietary technologies from third parties, including existing licensors, will be available for licensing to us on reasonable commercial terms, if at all.

 

In addition, patent law outside the United States is uncertain and in many countries intellectual property laws are undergoing review and revision. The laws of some countries do not protect intellectual property rights to the same extent as domestic laws. It may be necessary or useful for us to participate in opposition proceedings to determine the validity of our competitors’ patents, litigation to enforce our or our licensed intellectual property against others or to defend the validity of any of our or our licensors’ future patents, which could result in substantial costs and would divert our efforts and attention from other aspects of our business. We cannot be certain of the outcome of any such proceedings or litigation.

 

Technologies licensed to us by others, or in-licensed technologies, are important to our business. In particular, we depend on technology related to certain taste receptor sequences that we license from the University of California and others and technology related to compound libraries that we license from third parties. In addition, we may in the future acquire rights to additional technologies by licensing such rights from existing licensors or from third parties. Such in-licenses may be costly. Also, we generally do not control the patent prosecution, maintenance or enforcement of in-licensed technologies. Accordingly, we are unable to exercise the same degree of control over this intellectual property as we do over our internally developed technologies. Moreover, some of our academic institution licensors, collaborators and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technologies and other confidential information in connection with our collaborations, our ability to protect our proprietary information or obtain patent protection in the future may be impaired, which could have a significant adverse effect on our business, financial condition and results of operations.

 

 

Disputes concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and extremely costly and could delay our research and development efforts.

 

Our commercial success, if any, will be significantly harmed if we infringe the patent rights of third parties or if we breach any license or other agreements that we have entered into with regard to our technology or business. Our success will also depend, in part, on our ability to prevent others from infringing our patent rights.

 

We are aware of other companies and academic institutions that have been performing research in the areas of taste modulation and flavor ingredients. In particular, other companies, academic institutions and inventor applicants have announced that they have conducted taste-receptor or ion channel research and have published data on taste receptor sequence information and taste receptors or filed patent applications or obtained patent protection on taste modulation or taste receptors and their uses, including Ajinomoto, California Institute of Technology, Cargill, Chromocell Corp., Colorado State University, Columbia University, Dendreon, Duke University, the German Institute of Human Nutrition, Givaudan SA, International Flavors & Fragrances Inc., Johannes Gutenberg University, Kyushu University, Monell Chemical Senses Corp., Mount Sinai School of Medicine, the National Institutes of Health, Nestlé, Novartis, NutraSweet, Nutrinova GMBH, Pfizer, Inc., Sloan Kettering, Symrise, Tate & Lyle, The Scripps Research Institute, Unilever, the University of California, the University of Miami, the University of Tokyo, the University of Wisconsin, Virginia Commonwealth University and Wiessenbach. To the extent any of these companies, academic institutions or inventor applicants currently have, or obtain in the future, broad patent claims, such patents could block our ability to use various aspects of our discovery and development process and might prevent us from developing or commercializing newly discovered flavor ingredients or otherwise conducting our business. In addition, it is possible that some of the flavor ingredients that are discovered using our technology may not be patentable or may be covered by intellectual property of third parties.

 

The life sciences and other technology industries are characterized by extensive litigation regarding patents and other intellectual property rights. Many life sciences and other technology companies have employed intellectual property litigation as a way to gain a competitive advantage. We may become involved in litigation, interference proceedings, derivative proceedings, oppositions, reexamination, protest or other potentially adverse intellectual property proceedings as a result of alleged infringement by us of the rights of others or as a result of priority of invention disputes with third parties. Third parties may also challenge the validity of any of our issued patents in litigation or in opposition, reexamination, or inter partes review proceedings. Similarly, we may initiate proceedings to enforce our patent rights and prevent others from infringing our or our licensed intellectual property rights. In any of these circumstances, we might have to spend significant amounts of money, time and effort defending our position and we may not be successful. In addition, any claims relating to the infringement of third-party proprietary rights or proprietary determinations, or validity determinations, even if not meritorious, could result in costly litigation, lengthy governmental proceedings, divert management’s attention and resources, or require us to enter into royalty or license agreements that are not advantageous to us.

 

Should any person have filed patent applications or obtained patents that claim inventions also claimed by us, we may have to participate in an interference proceeding or derivative proceeding declared by the relevant patent regulatory agency to determine priority of invention or derivation and, thus, the right to a patent for these inventions in the United States. Such a proceeding could result in substantial cost to us even if the outcome is favorable. Even if successful on priority grounds, an interference action may result in loss of claims based on patentability grounds raised in the interference action. Litigation, interference proceedings, derivative proceedings, or other proceedings could divert management’s time and efforts. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management’s time and disruption in our business. Uncertainties resulting from initiation and continuation of any patent proceeding or related litigation could harm our ability to compete and could have a significant adverse effect on our business, financial condition and results of operations.

 

An adverse ruling arising out of any intellectual property dispute, including an adverse decision as to the priority of our inventions or invalidity of our patents, could undercut or invalidate our intellectual property position. An adverse ruling could also subject us to significant liability for damages, including possible treble damages, prevent us from using technologies or developing products, or require us to negotiate licenses to disputed rights from third parties. Although patent and intellectual property disputes in the technology area are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include license fees and ongoing royalties. Furthermore, necessary licenses may not be available to us on satisfactory terms, if at all. Failure to obtain a license in such a case could have a significant adverse effect on our business, financial condition and results of operations.

 

 

If we are unable to protect our trade secrets and other proprietary information, we could lose any competitive advantage we may have, which could adversely affect our business.

 

We rely in part on trade secret protection for our confidential and proprietary information, knowhow and processes. Our policy is to execute proprietary information and invention agreements with our employees and consultants upon the commencement of an employment or consulting relationship. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not be disclosed to third parties. These agreements also generally provide that inventions conceived by the individual in the course of their employment shall be our exclusive property. Similarly, in the course of our collaborations or in the negotiation of potential collaborations we often disclose confidential and proprietary information under written agreements that obligate those third parties to keep our information confidential and to use our confidential information only for the purposes that we specify. There can be no assurance that we will be able to effectively enforce these agreements or that proprietary information is our exclusive property. There can be no assurance that the subject proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or that we can meaningfully protect our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

 

Many potential competitors, including those who have greater resources and experience than we do, may develop products or technologies that make ours obsolete or noncompetitive.

 

The life sciences and other technology industries are characterized by rapid technological change, and the area of sensory or taste receptor research is a rapidly evolving field. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. Technological developments by others may result in our flavor ingredients and technologies becoming obsolete.

 

In particular, we face substantial competition from companies pursuing the commercialization of products and services relevant to taste using more traditional methods for the discovery of flavor ingredients, or for the reduction of salt, sugar, monosodium glutamate, or MSG, or bitter taste. These competitors include leading flavor companies, such as Firmenich, Givaudan SA, International Flavors & Fragrances Inc., Symrise and Takasago. These companies provide flavors and other ingredients, such as essential oils, extracts and distillates, to consumer products companies for use in a wide variety of products including foods, beverages, confectionaries, dairy products and pharmaceuticals. Competitors currently developing or marketing high intensity sweeteners include Ajinomoto, BRAIN AG, or Biotechnology Research and Information Network AG, Cargill, GLG Life Tech, Natur Research Ingredients, Nutrasweet, Nutrinova GMBH, PureCircle Limited and Tate & Lyle. Competitors currently developing or marketing menthol or cooling agents include International Flavors and Fragrances, Givaudan, Jindal Drugs, Mentha & Allied, Sharp Menthol, Symrise and Takasago. We currently compete and will continue to compete in the future with these companies in collaborating with and selling flavor ingredients for incorporation in food and beverage products. Many of these companies have substantially greater capital resources, research and development resources and experience, manufacturing capabilities, regulatory expertise, sales and marketing resources, established relationships with consumer products companies and production facilities.

 

Savory flavor ingredients, particularly inosine monophosphate, or IMP, are commercially available, and we will compete with the companies that produce these flavor ingredients. IMP is widely available and is a generally accepted food additive by the food, beverage and ingredient industries. As a result, our existing and future collaborators may choose to incorporate IMP or similar savory flavor ingredients into their food, beverage and ingredient products instead of our savory flavor ingredients. We may compete with bitter masking or bitter blocking compounds, such as adenosine 5’ monophosphate, or AMP. We may also compete with known methods for reducing sodium, such as the use of potassium chloride in combination with flavors and masking agents. In addition, we may compete with existing cooling agents, such as menthol and WS-3, which are currently in use.

 

We may in the future face competition from life sciences and other technology companies and other commercial enterprises. These entities engage as we do in biotechnology, biology or chemistry research and could apply this technology to the discovery and development of flavor ingredients. We are aware of one other company, Chromocell Corp., which is involved in research for the discovery and development of sweet flavor modifiers, bitter blockers and salt substitutes. We cannot guarantee that products developed as a result of our competitors’ existing or future collaborations will not compete with our flavor ingredients.

 

Universities and public and private research institutions are also potential competitors. While these organizations primarily have educational objectives, they may develop proprietary technologies related to the sense of taste or secure patent protection that we may need for the development of our technologies and products. We may attempt to license these proprietary technologies, but these licenses may not be available to us on acceptable terms, if at all.

 

 

Our competitors, either alone or with their collaborative partners, may succeed in developing technologies or discovering flavor ingredients that are more effective, more affordable or more easily commercialized than ours, and our competitors may obtain intellectual property protection or commercialize products sooner than we do. Developments by others may render our product candidates or our technologies obsolete. In addition, our current product discovery and development collaborators are not prohibited from entering into research and development collaboration agreements with third parties in any product field. Our failure to compete effectively would have a significant adverse effect on our business, financial condition and results of operations.

 

Many of the patent applications we and our licensors have filed have not yet been substantively examined and may not result in patents being issued.

 

Many of the patent applications filed by us and our licensors have not been substantively examined by the United States Patent and Trademark Office and in foreign patent offices and may result in granted patents with claims of narrow scope that may not sufficiently deter competitors or may not result in patents being issued. Some of these patent applications claim sequences that were identified from different publicly available sequence information sources such as the High-Throughput Genomic Sequences division of GenBank. It is difficult to predict whether all of our or our licensors’ applications will ultimately be found to be patentable or, if so, to predict the scope of any allowed claims. In addition, the disclosure in our or our licensors’ patent applications, particularly in respect of the utility of our claimed inventions, may not be sufficient to meet the statutory requirements for patentability in all cases. As a result, it is difficult to predict whether all of our or our licensors’ applications will be allowed, or, if so, to predict the scope of any allowed claims or the enforceability of the patents. Even if enforceable, others may be able to design around any patents or develop similar technologies that are not within the scope of such patents. Our and our licensors’ patent applications may not issue as patents that will provide us with any protection or competitive advantage, which may have a material adverse effect on our business.

 

The Supreme Court determined in the Myriad decision that some isolated naturally occurring nucleic acids are ineligible for United States patent protection. This decision may raise concerns as to the validity of some or all of our granted claims, and those in our licensors’ patents, and the patentability of our or our licensors’ pending claims, which are directed to isolated, naturally occurring nucleic acids. Also, while the Supreme Court in the Myriad decision did not address the patentability of other isolated, naturally occurring materials (i.e., non-nucleic acids), it is possible that later courts may determine that other isolated naturally occurring materials are similarly ineligible for United States patent protection. This may raise concerns as to the validity of some or all of our granted claims, and those in our licensors’ patents, which are directed to isolated naturally occurring materials such as isolated, naturally occurring taste receptor polypeptides or isolated, naturally occurring flavor ingredients. In recently issued interim guidance, the United States Patent and Trademark Office has interpreted the Myriad decision as applying to any isolated naturally occurring material including non-nucleic acids. Thus, pending patent applications filed by us or our licensors that are directed to isolated naturally occurring materials may not issue in the United States, which could have a significant adverse effect on our business, financial condition and results of operations.

 

Risks Related to Quality and Safety

 

Concerns with safety and quality could cause customers to avoid products that contain our flavor ingredients.

 

Adverse publicity about the safety of certain foods due to the actual or potential existence of certain artificial flavors or other ingredients has heightened the sensitivities of many consumers. These safety and quality issues, whether real or perceived, may discourage customers from buying products containing or perceived to contain the ingredients which give rise to such concerns. We could be adversely affected if our customers or the ultimate consumers of our products lose confidence in the safety and quality of our flavor ingredients. Any negative perceptions about the safety and quality of our flavor ingredients could adversely affect our business and financial condition.

 

We may be sued for product liability and exposed to other product safety-related risks, which could adversely affect our business and harm our reputation.

 

Because our business strategy involves the development and sale of commercial products incorporating our flavor ingredients, we may be sued for product liability and we may also be the subject of product recalls, product seizures and related adverse publicity. Product liability claims and recalls of products that contain any of our flavor ingredients could result from such things as contamination, spoilage, product misbranding or product tampering, whether real or perceived.

 

 

From time to time we receive reports of observed effects after individuals taste solutions or products that include novel flavor ingredients that we are testing or developing, including reports such as irritation of the mouth, tingling of the tongue, lips or gums, and modulation or loss of taste sensation. Our practice is to track reports of any observed effects and, in particular, to evaluate whether any adverse effect may be related to our novel flavor ingredient or whether another cause is determinable. In some instances, these effects may be observed only at higher levels of use or exposure, in which case we may elect to proceed with development, and subsequent commercialization, of a novel flavor ingredient at use levels that we believe are appropriate for only a subset of all potential applications. Nevertheless, we may be held liable if any flavor ingredient we test, develop or commercialize, or any product our collaborators test, develop or commercialize that incorporates any of our flavor ingredients, causes injury or illness or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or consumer use. In addition, the safety studies we must perform and the regulatory approvals we must obtain prior to incorporating our flavor ingredients into a commercial product will not protect us from any such liability.

 

Any alleged illness or injury associated with any of our flavor ingredients, product defect, product liability judgment or product recall may negatively impact our financial results depending on the reaction of our collaborators, scope, competitive reaction, and consumer attitudes. Even if such an allegation or product liability claim lacks merit, cannot be substantiated, is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our flavor ingredients or products that incorporate our flavor ingredients caused illness, injury or death could adversely affect our reputation with existing and potential collaborators and licensees and our corporate image and could cause a decline in our stock price.

 

Our product liability insurance may not be sufficient to cover our potential liabilities in the case of a product recall or other safety-related claims.

 

Our product liability insurance may not fully cover our potential liabilities associated with the sale of commercial products incorporating any of our flavor ingredients. Insurance coverage for such risks may be expensive and difficult to obtain, and we may be unable to obtain coverage in the future on acceptable terms, if at all. Our inability to obtain sufficient insurance coverage to protect against potential product liability claims could prevent or inhibit the commercialization of products developed by us or our product discovery and development collaborators. We may be obligated to indemnify our product discovery and development collaborators or customers of our direct sales program for product liability or other losses they incur as a result of our flavor ingredients. Any indemnification we receive from such collaborators or customers for product liability that does not arise from our flavor ingredients may not be sufficient to satisfy our liability to injured parties. If we are sued for any injury caused by our flavor ingredients or products incorporating our flavor ingredients, our liability could exceed our total assets.

 

We use hazardous materials. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

 

Our discovery and development process requires our employees to routinely handle hazardous chemical, radioactive and biological materials. Our operations also produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials. As a result of the increase in size of our operations, we are now classified as a large quantity generator of hazardous waste. This classification may result in increased scrutiny of our operations by the Environmental Protection Agency. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental regulations may impair our discovery and development efforts.

 

In addition, we cannot entirely eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Our insurance policies have limited coverage for damages or cleanup costs related to hazardous waste disposal or contamination. We may be forced to curtail operations or be sued for any injury or contamination that results from our use or the use by others of these materials, and our liability may exceed our total assets.

 

 

Risks Related To Our Common Stock

 

The price of our common stock is volatile.

 

The market prices for securities of biotechnology companies historically have been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Since our initial public offering in June 2004, the price of our common stock has ranged from approximately $1 per share to approximately $23 per share. The market price of our common stock may fluctuate in response to many factors, including:

 

●

delays in commercialization of our flavor ingredients;

●

failure of any of our flavor ingredients, if approved, to achieve commercial success;

●

developments concerning our collaboration agreements;

●

our ability to generate significant revenues from our direct sales program;

●

fluctuations in our operating results;

●

public concern as to the safety of our flavor ingredients or other unfavorable publicity regarding our flavor ingredients or our research methods;

●

developments related to the United States and international regulatory approval of our products;

●

results of safety evaluation of our flavor ingredients;

●

government regulation;

●

the discovery of a product defect or the commencement of a product recall;

●

an allegation of illness or injury relating to our flavor ingredients, whether meritorious or not, or any product liability judgment;

●

developments in patent or other proprietary rights;

●

announcements of technological innovations by us or others;

●

changes in our management, key personnel or members of our Board of Directors;

●

future sales of our common stock by existing stockholders, officers or directors;

●

comments by securities analysts; and

●

general market conditions.

 

Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us more complicated and the removal and replacement of our directors and management more difficult.

 

Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions may also make it difficult for stockholders to remove and replace our board of directors and management. These provisions:

 

●

authorize the issuance of “blank check” preferred stock by our board of directors, without stockholder approval, which could increase the number of outstanding shares and prevent or delay a takeover attempt;

●

limit who may call a special meeting of stockholders;

●

prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and

●

establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

 

In addition, the requirements of Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a third party from acquiring us.

 

We have never paid cash dividends on our capital stock and we do not anticipate paying dividends in the foreseeable future.

 

We have paid no cash dividends on any of our classes of capital stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 6.

EXHIBITS

 

 

Exhibit Number		Description of Document
3.1		Amended and Restated Certificate of Incorporation as currently in effect (filed as Exhibit 3.1 to Registration Statement File No. 333-113998).
3.2		Amended and Restated Bylaws as currently in effect (filed as Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on December 20, 2007).
4.1		Form of Common Stock Certificate (filed as Exhibit 4.1 to Registration Statement File No. 333-113998).
10.1		Letter agreement dated July 27, 2016 between Senomyx, Inc. and PepsiCo, Inc.
10.2*		Amended and Restated Collaborative Research, Development, Commercialization and License Agreement dated September 30, 2016 between Senomyx, Inc. and PepsiCo, Inc.
31.1		Certification of John Poyhonen, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Antony Rogers, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of John Poyhonen, Chief Executive Officer, and Antony Rogers, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial statements from the Senomyx, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in eXtensible Business Reporting Language (XBRL): (i) condensed balance sheets, (ii) condensed statements of operations, (iii) condensed statements of cash flows, and (iv) notes to condensed financial statements.

---

 

*     Confidential treatment has been granted or requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

 

 

SIGNATURES

 

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

 

	Senomyx, Inc.
Date: October 27, 2016	By:	/S/ JOHN POYHONEN
		John Poyhonen President, Chief Executive Officer and Director (on behalf of the registrant and as the registrant’s Principal Executive Officer)
	By:	/S/ ANTONY ROGERS
		Antony Rogers Senior Vice President and Chief Financial Officer (on behalf of the registrant and as the registrant’s Principal Financial and Accounting Officer)

 

 

33

Exhibit 10.1

 

 

 

July 27, 2016

CONFIDENTIAL

 

Rene Lammers, Ph.D

SVP, PepsiCo Global Beverage R&D

700 Anderson Hill Road

Purchase, New York 10577

 

Re:	Extension of Collaboration Agreement

 

Dear Dr. Lammers:

 

This letter agreement (“Letter Agreement”) confirms the terms of our agreement to extend, on an interim basis, the term of the Collaborative R&D Period under that certain Collaborative Research, Development, Commercialization and License Agreement between PepsiCo, Inc. (“PepsiCo”) and Senomyx, Inc. (“Senomyx”) dated August 16, 2010, as last amended on March 31, 2014, (the “Collaboration Agreement”), to facilitate the negotiation of a longer extension of the Naturals Collaborative R&D Programs, to be memorialized by an amendment and restatement of the Collaboration Agreement (the “Amended and Restated Collaboration Agreement”). Except as defined herein, all defined terms shall have the meanings ascribed to them in the Collaboration Agreement. The parties hereby agree as follows:

 

1.     Term of the Collaborative R&D Period: The Collaborative R&D Period under the Collaboration Agreement shall be extended for an additional forty-five (45) days (“Interim Extension Period”) and the Collaborative R&D Period will conclude and expire automatically on September 30, 2016. Except as contemplated in this Letter Agreement, all terms and conditions of the Collaboration Agreement shall remain unchanged and in full force and effect during the Interim Extension Period.

 

2.     Negotiation of Amended and Restated Collaboration Agreement: Each of Senomyx and PepsiCo will use its best efforts from the date hereof through September 30, 2016, to negotiate in good faith a longer extension of the Naturals Collaborative R&D Programs to be memorialized by the Amended and Restated Collaboration Agreement, taking into account the terms set forth in the non-binding term sheet dated July 1, 2016. During the Interim Extension Period, Senomyx will not grant to any Third Party rights to Senomyx Technology relating to the Synthetic Enhancing Compound Program, the Natural Enhancing Compound Program and the Natural Sweetener Compound Program for use in Exclusive Product Categories.

 

3.     Payment: PepsiCo agrees to pay Senomyx research funding associated with the Interim Extension Period in the amount of One Million and One Hundred Thousand United States Dollars ($1,100,000). Upon execution of this Letter Agreement, Senomyx shall send PepsiCo an invoice for such amount and PepsiCo shall remit payment within 60 days. All such funding amounts shall be used by SENOMYX to perform the agreed activities allocated to SENOMYX as outlined in the existing Research Plans and shall be non-refundable and non-creditable.

 

4.      Public Disclosures. Senomyx shall file a current report on Form 8-K that will publicly disclose the material terms of this Letter Agreement as required under applicable securities laws. Thereafter, PEPSICO and SENOMYX may each disclose to Third Parties, the information contained in such current report without the need for further approval by the other party. Except for the Form 8-K, the parties agree to protect the terms of this Letter Agreement as Confidential Information under the terms of that certain Mutual Nondisclosure Agreement between Senomyx and PepsiCo, Inc. dated April 13, 2016.

 

5.     Governing Law. This Letter Agreement will be governed by the laws of the State of Delaware, as such laws are applied to contracts entered into and to be performed entirely within such state. Disputes that may arise under this Letter Agreement shall be governed by Section 16.4 of the Collaboration Agreement.

 

If the foregoing is acceptable to you, please indicate your agreement in the space provided below, whereupon signing, it shall become a valid, legal, and binding obligation on the parties, their successors, and assigns, on the date set forth below.

 

 

		Very truly yours,
		SENOMYX, INC.
		/S/ JOHN POYHONEN
		John Poyhonen
		President and CEO

 

 

The undersigned hereby acknowledge and agree to the foregoing on behalf of PEPSICO, INC., on July 28, 2016:

 

PEPSICO, INC.

 

/S/ Hendrik Lammers

Hendrik Lammers

SVP, Global Beverages R&D

 

 

4767 Nexus Centre Drive ● San Diego, California 92121 ● Tel: (858) 646-8300 ● Fax: (858) 404-0750

 

Exhibit 10.2

 

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.

 

 

 

AMENDED AND RESTATED

 

COLLABORATIVE RESEARCH,

 

DEVELOPMENT, COMMERCIALIZATION

 

AND LICENSE AGREEMENT

 

 

BETWEEN

 

 

SENOMYX, INC.

 

AND

 

PEPSICO, INC.

 

 

 

 

AMENDED AND RESTATED COLLABORATIVE RESEARCH, DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT

 

This Amended and Restated Agreement (the “Agreement”) is entered into as of September 30, 2016 (the “Amended Effective Date”) by and between SENOMYX, INC., a Delaware Corporation having its principal place of business at 4767 Nexus Centre Drive, San Diego, CA 92121 (“SENOMYX”) and PEPSICO, INC., a North Carolina Corporation, having its principal place of business at 700 Anderson Hill Road, Purchase, NY 10577 (“PEPSICO”).

 

BACKGROUND

 

WHEREAS, SENOMYX and PEPSICO entered into that certain Collaborative Research, Development, Commercialization and License Agreement dated August 16, 2010 (the “Original Effective Date”), as last amended on March 31, 2014 and extended by a Letter Agreement dated July 27, 2016 (the “Original Agreement”) regarding the Synthetic Enhancing Compound Program, the Natural Enhancing Compound Program and the Natural Sweetener Compound Program (as defined in the Original Agreement);

 

WHEREAS, the Original Agreement will expire on September 30, 2016 and the parties desire to extend the Natural Enhancing Compound Program and the Natural Sweetener Compound Program on a non-exclusive basis; and

 

WHEREAS, the parties have agreed to amend and restate the Original Agreement on the terms set forth herein and enter into this Agreement for the purpose of documenting the extension of the Natural Enhancing Compound Program and the Natural Sweetener Compound Program;

 

NOW, THEREFORE, in consideration of the foregoing premises and of the covenants, representations and agreements set forth below, the parties hereby agree as follows:

 

THE AGREEMENT

 

1.	Definitions

 

Certain capitalized terms are defined in Appendix A and incorporated into this Agreement by reference.

 

2.	Collaborative R&D Program

 

2.1     The goals of each Collaborative R & D Program between PEPSICO and SENOMYX are as set forth below. The parties will collaborate in the specified Synthetic Enhancing Compound Program, the Natural Enhancing Compound Program and the Natural Sweetener Compound Program during the respective Collaborative R & D Period for such program.

 

 

The Synthetic Enhancing Compound Program shall be focused on the identification of Synthetic Enhancing Compounds with respect to the Target Sweeteners. The Natural Enhancing Compound Program shall be focused on the identification of Natural Enhancing Compounds of Target Sweeteners. The Natural Sweetener Compound Program shall be focused on the identification of Natural Sweetener Compounds.

 

2.2     During the applicable Collaborative R & D Period for a given Collaborative R&D Program, SENOMYX will provide access to PEPSICO, during regular business hours on reasonable notice, of individual (with respect to [¹] as set forth below) and aggregate results of research performed by SENOMYX under such Collaborative R&D Program including, but not limited to, […***…] at the regularly scheduled quarterly meetings of the Steering Committee, with […***…] in which relevant information regarding the progress of such Collaborative R&D Program will be presented.

 

The content of the foregoing meetings and […***…] will include individual and aggregate results and updates on […***…] Collaboration Compounds that have been […***…] Collaboration Compounds for which […***…]. For the avoidance of doubt, this Section 2.2, and the information provided by SENOMYX hereunder, is designed to give PEPSICO an understanding of the scientific progress and related results of research performed by SENOMYX under each Collaborative R&D Program. Subject to the exceptions in Section 13.4, Information provided to PEPSICO hereunder will be considered Confidential Information of SENOMYX pursuant to the Agreement.

 

During the Term of the Agreement PEPSICO will also provide updates of research and development performed by PEPSICO and its Affiliates under this Agreement (e.g. results of […***…]). Such updates will be provided at the regularly scheduled quarterly meetings of the applicable Steering Committee, and will be presented either in slides or other written reports. PEPSICO will also contractually require and use commercially reasonable efforts to cause that […***…] provide Senomyx with written quarterly updates of any equivalent activities that […***…] perform with respect to Selected Compounds.

 

2.3     PEPSICO shall have the option (“Extension Option”) to extend the Collaborative R & D Period of the Naturals Collaborative R & D Program for an additional two year period. In order for PEPSICO to exercise the Extension Option, PEPSICO must notify SENOMYX at least […***…] prior to the end of such Collaborative R & D Period. In such event, the Collaborative R & D Period of the Naturals Collaborative R & D Program shall automatically be extended for two years at 110% of the level of annual funding set forth under Section 8.2.1 for the Naturals Collaborative R & D Program.

 

 

2.4     Within [²] after the Amended Effective Date, PEPSICO and SENOMYX shall mutually select an independent third party auditor with botany expertise (“Auditor”) for purposes of taking inventory and comparing the contents of the PepsiCo Library and SENOMYX Library. The Auditor shall execute a confidentiality agreement in a form acceptable to both parties. Each of the parties shall submit to the Auditor […***…] in its respective library. The Auditor shall compare […***…] received from PepsiCo and SENOMYX, taking into account overlapping plant […***…] and prepare […***…], which will be made available to both SENOMYX and PEPSICO.

 

Following the completion of the Auditor’s review of the PEPSICO Library and the SENOMYX Library, the Auditor will develop a prioritized list of plant […***…] to establish a combined library (“Combined Library”). The criteria for prioritizing the screening and evaluation of the Combined Library will be mutually agreed upon by SENOMYX, PEPSICO and the Auditor taking into account the following approaches: […***…]

 

SENOMYX and PEPSICO shall proceed to […***…] pertaining to the Naturals Collaborative R&D Program as set forth in Schedule 4.1 (which may be amended by the parties from time to time) and PEPSICO and SENOMYX will […***…]. If SENOMYX acquires or purchases additional libraries to be used for the Naturals Collaborative R&D Program, such libraries shall be added to the SENOMYX Library […***…] to PEPSICO (unless authorized by PEPSICO) and shall revise the research plan set forth in Schedule 4.1 to reflect such additional libraries.

 

3.	Steering Committee

 

3.1     Formation of Steering Committee

 

No later than ten days after the Original Effective Date, the parties will establish a joint steering committee for each of the Synthetic Enhancing Compound Program, Natural Enhancing Compound Program and Natural Sweetener Compound Program (each, a “Steering Committee”). Each party may elect to have its Steering Committee members be the same for any of the respective programs.

 

 

3.2     Role of Steering Committee

 

The Steering Committees will manage the applicable Collaborative R&D Program and will:

 

(a)

provide strategic direction and performance criteria for the applicable Collaborative R&D Program during the applicable Collaborative R&D Period;

 

(b)

monitor progress and communicate status of the applicable Collaborative R&D Program during the applicable Collaborative R&D Period;

 

(c)

facilitate the cooperation of the parties under the applicable Collaborative R&D Program during the applicable Collaborative R&D Period;

 

(d)

[3] described in Section 8.2.4 associated with Natural Compounds for the Natural Enhancing Compound Program and the Natural Sweetener Compound Program;

 

(e)

determine […***…] under the applicable Research Plan for each of the Synthetic Enhancing Compound Programs, the Natural Enhancing Compound Program and the Natural Sweetener Compound Program;

 

(f)

review and amend, if necessary, the applicable Research Plan;

 

(g)

designate the Intended Purpose for Selected Enhancing Compounds;

 

(h)     provide input into the applicable Regulatory Plan;

 

(i)

review the Commercialization Plans for any Selected Compounds; and

 

(j)

communicate during the applicable Commercialization Period regarding the development of Selected Compound(s) under the applicable Collaborative R & D Program and the commercialization of Products incorporating Selected Compounds.

 

3.3     Composition

 

Each Steering Committee will consist of […***…] representatives officially designated by SENOMYX and […***…] representatives officially designated by PEPSICO, all of whom may change from time to time as provided below. Beginning on the Amended Effective Date, the Steering Committee shall be comprised of the current SENOMYX designees and PEPSICO designees in effect immediately prior to the Amended Effective Date. Each party may change its Steering Committee representative(s) upon written notice to the other party. If a Steering Committee member is unable to participate in a meeting, such Steering Committee member may delegate its voting powers to a delegate from its company.

 

 

3.4     Operation

 

Each official member of each Steering Committee will have one vote. All Steering Committee decisions will be made by unanimous vote and at a meeting where all [⁴] members (or their delegates as permitted under Section 3.3) participate. Any unresolved disputes will be subject to the procedures outlined in Section 16.4, or as otherwise mutually agreed upon by the parties in writing.

 

3.5     Meetings

 

Each Steering Committee will first meet no later than thirty days after the Original Effective Date and, unless otherwise mutually agreed, […***…] per year during the applicable Collaborative R&D Period and the applicable Commercialization Period of this Agreement using mutually agreed upon meeting locations and formats including teleconferencing and videoconferencing. In order to reduce costs, unless both parties consent, each quarterly Steering Committee meeting for the Natural Enhancing Compound Program, Synthetic Enhancing Compound Program and the Natural Sweetener Compound Program, as applicable, will take place consecutively on the same date(s). Each party […***…] relating to the meetings and activities of the Steering Committees. Subject to the approval of the applicable Steering Committee, which shall not be unreasonably withheld, each party may request the attendance of subject matter experts, who may or may not be employees of either party, as desired at Steering Committee meetings as non-voting, unofficial, ad-hoc members.

 

3.6     Minutes

 

During the applicable Collaborative R & D Period and the Commercialization Period, SENOMYX will promptly prepare and deliver to the members of the Steering Committee, the minutes of meetings of the applicable Steering Committee for review and approval by both parties.

 

4.	Research Plans.

 

4.1     Research Plans

 

During the Original Collaborative R&D Period, SENOMYX will prepare one Research Plan for the Synthetic Enhancing Compound Program and a second Research Plan for both the Natural Enhancing Compound Program and Natural Sweetener Compound Program and, after review by PEPSICO, such Research Plans will be submitted to the applicable Steering Committee(s) for approval at the first meeting of the Steering Committee (which pursuant to Section 3.5 will take place within thirty days of the Original Effective Date). The Research Plans will reflect the PEPSICO Criteria, which SENOMYX will use to help guide research priorities for the applicable Collaborative R & D Program. The Research Plans will be attached to the minutes of the applicable Steering Committee meeting. A new Research Plan […***…] is attached hereto as Schedule 4.1 (and may be amended by the parties from time to time). SENOMYX shall develop and present to PEPSICO an updated Research Plan for the Naturals Collaborative R&D Program [⁵] prior to the expiration of the Naturals Collaborative R&D Program based on the progress of the programs through such date.

 

 

4.2     Implementation of Research Plans and Data Packages

 

SENOMYX will use its commercially reasonable efforts, using the resources received under Section 8.2, to perform the activities allocated to SENOMYX as outlined in the Research Plans during the applicable Collaborative R & D Period for each of the Synthetic Enhancing Compound Program, Natural Enhancing Compound Program and Natural Sweetener Compound Program. SENOMYX will designate a project team comprising personnel with the technical qualifications and expertise that are reasonably required to accomplish such activities outlined in the Research Plans. If there are any changes in the members of the project team, SENOMYX will ensure that replacement members will have the equivalent technical qualifications and expertise.

 

During the applicable Collaborative R & D Period under the applicable Research Plan, SENOMYX will provide PEPSICO with information on […***…] (“Data Package(s)”) and […***…] for full evaluation (the […***…] shall be determined by the Steering Committee). The Data Package for a Collaboration Compound shall include the information set forth in Appendix B, including, without limitation, […***…] for the specified Collaboration Compound […***…].

 

PEPSICO will use commercially reasonable efforts to perform the activities allocated to PEPSICO in accordance with the Research Plans, including the evaluation of the Data Packages provided by SENOMYX for Collaboration Compounds.

 

Upon expiration of the applicable Collaborative R & D Period, the parties’ research and development obligations under the applicable Research Plan will expire.

 

4.3     Notification of Selected Compound

 

By no later than […***…] following receipt of a Data Package and the […***…] as set forth in Section 4.2 for a given Collaboration Compound (“Selection Date”), PEPSICO may, upon written notice to SENOMYX, select such Collaboration Compound for which it received such Data Package during the applicable Collaborative R & D Period for development pursuant to Section 5, but in any event such selection must be made […***…]. If PEPSICO timely selects a Collaboration Compound by written notice to SENOMYX no later than the Selection Date for such Collaboration Compound, such Collaboration Compound will thereafter be deemed a “Selected Compound” and PEPSICO and its Affiliates shall have the license rights to such Selected Compound set forth in Section 9.

 

 

With respect to Selected Enhancing Compounds, promptly after the time of selection, [⁶] will designate the specific Target Sweetener(s) that the Selected Compound may be used to enhance under the license grants in Section 9 (“Intended Purpose”). […***…] and […***…] shall be treated as in the same category of Intended Purpose. Such Selected Compound must meet the definition of Enhancing Compound for each such designated Target Sweetener. The parties acknowledge and agree that the Intended Purpose for each Selected Enhancing Compound shall be for the use of such Selected Enhancing Compound only […***…]. With respect to Selected Compounds that are Natural Sweetener Compounds, “Intended Purpose” shall mean […***…].

 

5.	Development.

 

5.1     Regulatory Approvals

 

5.1.1

Regulatory Approvals for Selected Enhancing Compounds.

 

Promptly following selection of any Selected Enhancing Compound pursuant to Section 4.3, SENOMYX will use commercially reasonable efforts to perform the […***…] for such Selected Enhancing Compound and to pursue the Regulatory Plan for such Selected Enhancing Compound. SENOMYX will provide to the Steering Committee an updated Regulatory Plan (updated from the […***…]), which will include a description of […***…]. Within […***…] of selection of any Selected Enhancing Compound pursuant to Section 4.3, the Steering Committee will meet and discuss in good faith […***…].

 

SENOMYX shall solicit PEPSICO input to such Regulatory Plan during the regular Steering Committee process, but in the event of any disagreement between the parties SENOMYX shall have final decision making authority.

 

SENOMYX will exclusively own all regulatory filings made or filed for a Selected Enhancing Compound, and any such regulatory filings for such Selected Enhancing Compounds will be subject to the license grants pursuant to Section 9.

 

SENOMYX shall provide PEPSICO with copies of all such filings and approvals, which, subject to the exceptions in Section 13.4, will be considered SENOMYX Confidential Information.

 

The implementation of the Regulatory Plan for a Selected Enhancing Compound will:

 

(i)     commence upon PEPSICO’s selection of such Selected Enhancing Compound; and

 

(ii)     end upon (a) […***…] in the […***…], or (b) upon […***…] [⁷] of the Regulatory Plan by the Steering Committee. SENOMYX will provide PEPSICO with reasonable access, upon advance notice and during normal business hours, to the appropriate SENOMYX personnel responsible for such regulatory filings for the purpose of ongoing discussions of the subject matter among the parties between regularly scheduled Steering Committee meetings.

 

 

5.1.2

Regulatory Approvals for Selected Natural Sweetener Compounds.

 

Promptly following selection of any Selected Natural Sweetener Compound pursuant to Section 4.3, SENOMYX will use commercially reasonable efforts to perform the anticipated safety studies (based on the Regulatory Plan) for such Selected Natural Sweetener Compound. Within […***…] of selection, the Steering Committee will meet and discuss in good faith […***…]. The Steering Committee will also consider and discuss whether the Regulatory Plan for selected Natural Sweetener Compounds should contemplate Regulatory Approval […***…].

 

SENOMYX shall solicit PEPSICO input to such Regulatory Plan during the regular Steering Committee process, but in the event of any disagreement between the parties SENOMYX shall have final decision making authority.

 

SENOMYX will exclusively own all regulatory filings made or filed for a Selected Natural Sweetener Compound, and any such regulatory filings for such Selected Natural Sweetener Compounds will be subject to the license grants pursuant to Section 9. SENOMYX shall provide PEPSICO with copies of all such filings and approvals, which, subject to the exceptions in Section 13.4, will be considered SENOMYX Confidential Information. SENOMYX will provide PEPSICO with reasonable access, upon advance notice and during normal business hours, to the appropriate SENOMYX personnel responsible for such regulatory filings for the purpose of ongoing discussions of the subject matter among the parties between regularly scheduled Steering Committee meetings.

 

The implementation of the Regulatory Plan for a Selected Natural Sweetener Compound will:

 

(i)     commence upon PEPSICO’s selection of such Selected Natural Sweetener Compound; and

 

(ii)     end upon (a) […***…], or (b) upon an […***…] of the Regulatory Plan by the Steering Committee.

 

 

5.2     Costs of Regulatory Filings

 

5.2.1     Selected Enhancing Compounds

 

SENOMYX will be responsible for [⁸] out-of-pocket costs associated with […***…] for Regulatory Approval for each Selected Enhancing Compound. For any out-of-pocket costs associated with Regulatory Approval of any Selected Enhancing Compound in excess of such amount, […***…] as of the date when such […***…], provided that […***…], and PEPSICO will reimburse SENOMYX for […***…] after receipt of invoice (with supporting documentation) for such […***…] from SENOMYX, together with […***…]. By way of example, (1) if […***…] for use in the Field and […***…], then PEPSICO’s obligation to reimburse SENOMYX for out-of-pocket costs […***…]; or (2) if […***…] for use in the Field and […***…], then PEPSICO’s obligation to reimburse SENOMYX for […***…].

 

For any […***…] associated with Regulatory Approval contemplated by the Regulatory Plan other than […***…], PEPSICO and SENOMYX will […***…] as of the date when such […***…], provided that […***…] such […***…], and PEPSICO will reimburse SENOMYX for […***…] after receipt of invoice (with supporting documentation) for such out-of-pocket costs, together with […***…].

 

All reimbursement payments under this Section 5.2.1 are non-refundable and non-creditable.

 

5.2.2     Selected Natural Sweetener Compounds or Analog Compounds

 

SENOMYX will be responsible for […***…] (based on the Regulatory Plan) of each Selected Natural Sweetener Compound or Selected Analog Compound. After such amount has been reached […***…] Selected Natural Sweetener Compound or Selected Analog Compound. For any […***…] associated with Regulatory Approval of any Selected Natural Sweetener Compound or Selected Analog Compound in excess of […***…], PEPSICO will reimburse SENOMYX for […***…] [⁹] incurred by SENOMYX within […***…] after receipt of invoice (with supporting documentation) for such […***…] from SENOMYX, together with such detail relating to such costs as are reasonably required by PEPSICO. By way of example, (1) if […***…] for use in the Field and […***…] (and provided the use by the other licensee is included in the request for Regulatory Approval), then PEPSICO’s obligation to reimburse SENOMYX for out-of-pocket costs […***…]; or (2) if […***…] for use in the Field and […***…] (and provided such uses are included in the request for Regulatory Approval), then PEPSICO’s obligation to reimburse SENOMYX for […***…].

 

 

All reimbursement payments under this Section 5.2.2 are non-refundable and non-creditable.

 

5.3      Safety Evaluation of Collaboration Compounds

 

SENOMYX will have sole control and manage all safety studies for any Collaboration Compound. PEPSICO and its Affiliates and permitted sublicensees […***…].

 

The results of all safety studies for any Collaboration Compound shall be owned by SENOMYX and such results shall be deemed SENOMYX Confidential Information hereunder, subject to the exceptions in Section 13.4. SENOMYX will provide PEPSICO with reasonable access, upon advance notice and during normal business hours, to the appropriate personnel responsible for such safety studies for the purpose of ongoing discussions of the subject matter among the parties between regularly scheduled Steering Committee meetings.

 

During the applicable Collaborative R&D Period, SENOMYX shall provide PEPSICO with copies of the results of all such safety studies for all Collaboration Compounds which were part of a Data Package for PEPSICO’s internal evaluation. SENOMYX will provide PEPSICO with such results for any Selected Compounds both during and following the Collaborative R & D Period, for so long as such Collaboration Compound remains a Selected Compound.

 

5.4     Cooperation

 

PEPSICO and its Affiliates will cooperate to the extent reasonably necessary to assist SENOMYX in the performance of the foregoing activities and SENOMYX will provide PEPSICO with copies of all regulatory filings and supporting data and regulatory determinations on the Selected Compound(s), which, subject to the exceptions in Section 13.4, shall be considered Confidential Information of SENOMYX. PEPSICO will contractually require and use commercially reasonable efforts to cause its permitted sublicensees to cooperate to the extent reasonably necessary to assist SENOMYX in the performance of the foregoing activities. SENOMYX and its Affiliates will cooperate to the extent reasonably necessary to assist PEPSICO, its Affiliates and their permitted sublicensees in the performance of the foregoing activities.

 

 

In addition, each party is obligated to:

 

(i)     [¹⁰] relating to any Compounds licensed under this Agreement and will keep the other party updated of […***…]; and

 

(ii)     report such […***…].

 

With respect to (i) above, PEPSICO and its Affiliates shall involve SENOMYX in any […***…] and will provide access to SENOMYX to all related information and SENOMYX shall involve PEPSICO in any […***…] and will provide access to PEPSICO to all related information. PEPSICO will contractually require and use commercially reasonable efforts to cause its sublicensees to report any such […***…] directly to SENOMYX, involve SENOMYX in any […***…] and provide access to SENOMYX to all related information. Upon prior notice to PEPSICO, notwithstanding Section 13 of this Agreement, each party may provide such information to its […***…] Compound.

 

6.	Commercialization

 

6.1     Commercialization Plans

 

As an overall goal of the Commercialization Plans, PEPSICO desires to market current and new Products incorporating Selected Compounds. Within […***…] of selection of each Selected Compound pursuant to Section 4.3, PEPSICO will prepare in good faith a detailed plan for the commercialization of Products incorporating such Selected Compound that includes, […***…] in Section 6.2 (the “Commercialization Plan(s)”). Each Commercialization Plan will reflect the mutual intention of the parties to commence the commercialization of a Selected Compound as soon as possible following the first Regulatory Approval of a Selected Compound in each country. The Commercialization Plans for each Selected Compound will be attached to the minutes of the applicable Steering Committee meeting. Subject to the exceptions in Section 13.4, the Commercialization Plans will be considered Confidential Information of PEPSICO under this Agreement.

 

6.2     Format of Commercialization Plans

 

PEPSICO agrees that it will […***…] each Commercialization Plan the following information for PEPSICO, its Affiliates and permitted sublicensees:

 

 

(i)

[11] consistent with the mutual intention of the parties as set forth in Section 6.1 above;

 

(ii)

specific diligence timelines for PEPSICO (and its Affiliates and permitted sublicensees) and SENOMYX; (e.g. key activities related to […***…])

 

(iii)

the worldwide […***…] Products incorporating the applicable Selected Compound broken out by […***…].

 

(iv)

estimated […***…] of Selected Compound to be […***…];

 

(v)

projected […***…] Products incorporating the applicable Selected Compound; and

 

(vi)

[…***…] information on […***…] of Products incorporating the applicable Selected Compound.

 

Thereafter PEPSICO will update each Commercialization Plan on an […***…] basis in good faith for the remainder of the applicable Commercialization Period. Such updated Commercialization Plans shall, […***…] include quantifiable information, including […***…] submitted to SENOMYX at least […***…]. PEPSICO shall […***…] the Commercialization Plans and the Steering Committee will meet as appropriate to review and discuss progress against the Commercialization Plan. In accordance with the Commercialization Plans, PEPSICO will be responsible for formulating and testing Products incorporating Selected Compounds including the cost associated with such activities.

 

Notwithstanding the foregoing, PEPSICO is […***…] and shall […***…] as contemplated by Section 8.5 of this Agreement.

 

 

7.	Rights, Obligations and Limitations of the Parties

 

7.1 Exclusivity in the Exclusive Product Categories with Respect to Selected Compounds

 

For so long as PEPSICO is paying the MARs during the Commercialization Period for a particular Minimum Annual Royalty Category, and subject to Sections 9.5.2 and 9.6.1 and PEPSICO’s continuing compliance with the other material terms of this Agreement, with respect to any Selected Synthetic Enhancing Compound selected during the Original Collaborative R&D Period in that particular Minimum Annual Royalty Category for which PEPSICO is paying MARs, SENOMYX agrees not to [¹²] for use of such Selected Synthetic Enhancing Compound […***…] (e.g., for the purpose of […***…] for which PEPSICO […***…]). Notwithstanding the foregoing, this paragraph 7.1 shall not apply with respect […***…] for which a […***…] or is terminated under Sections 8.5 (because PEPSICO declines to commence or continue paying MARs for a Selected Compound), 11.1 (because PEPSICO declines to pay for patent costs under Section 11.1) or otherwise.

 

7.1.1 Synthetic Enhancing Compound Program 

 

Subject to Section 9.5.2, during only the Original Collaborative R&D Period, SENOMYX agrees not to […***…] to SENOMYX Technology to a Third Party for use in the discovery or commercialization of Synthetic Compounds that have an enhancing effect on the sweetness of a Target Sweetener and that are intended for use as a sweetness enhancer in any Exclusive Product Category. Notwithstanding the foregoing, SENOMYX is permitted at any time to provide research and development services and/or grant any rights in SENOMYX Technology to a Third Party(ies) for use in the discovery or commercialization of Synthetic Compounds that have a primary sweetness enhancing effect on a sweetener that is not a Target Sweetener and that also enhance the sweetness of a Target Sweetener […***…] in in vitro assays and product prototypes at a concentration that is […***…]. Such sweetness comparison will be measured in Taste Tests. By way of illustration, but not limitation, in Taste Tests Synthetic Compound A enhances the sweetness of […***…] and enhances the sweetness of […***…] and at a concentration of […***…] Synthetic Compound A has sweetness on its own that is […***…] (based on Taste Tests). Such Synthetic Compound is not considered an Enhancing Compound for sucrose. Accordingly, SENOMYX would be permitted to provide research and development services and/or grant to Third Party(ies) rights in SENOMYX Technology for use in the discovery or commercialization of such Synthetic Compound in an Exclusive Product Category for use as an enhancer of the sweetness of sucralose at such concentrations or below; provided, however, that during the applicable Collaborative R & D Period for the Synthetic Enhancing Compound Program SENOMYX shall not grant any rights in SENOMYX Technology for use as an enhancer of the sweeteners of a Target Sweetener and that are intended for use as a sweetness enhancer in an Exclusive Product Category.

 

 

During the Commercialization Period SENOMYX will not violate its exclusivity commitments in Section 7.1 [¹³]. Subject to Section 7.1 above […***…], after expiration of the Original Collaborative R&D Period for the Synthetic Enhancing Compound Program and for the remainder of the Term, SENOMYX may provide research and development services and/or grant rights to SENOMYX Technology to Third Parties for use in the discovery or commercialization of Synthetic Compounds that are not Selected Compounds in any field of use, and nothing in this Agreement will prevent or limit the foregoing.

 

After the conclusion and expiration of the Synthetic Enhancing Compound Collaborative R&D Period, SENOMYX agrees to offer PEPSICO, on a non-exclusive basis, the ability to undertake testing or studies of Synthetic Enhancing Compounds discovered by SENOMYX after the Amended Effective Date and advanced into safety studies by SENOMYX (which shall include a 28 day acute toxicology studies) to evaluate the sweet taste enhancement of such Synthetic Enhancing Compounds for use in the Field; provided, however, that (i) the parties shall enter into a separate material transfer agreement, in a form acceptable to both parties, governing the evaluation of such Synthetic Enhancing Compounds; and (ii) SENOMYX shall have no obligation to provide PEPSICO with the opportunity to evaluate any Synthetic Enhancing Compounds if such evaluation is prohibited by SENOMYX’s Third Party agreements. If SENOMYX enters into a Third Party agreement that would prohibit PEPSICO from conducting evaluations of the aforementioned Synthetic Enhancing Compounds, SENOMYX will provide written notification to PEPSICO of such prohibition within […***…] following the execution of such agreement.

 

7.1.2 Natural Enhancing Compound Program

 

Subject to Section 9.5.2, during only the Original Collaborative R&D Period for the Natural Enhancing Compound Program, SENOMYX agrees not to provide research and development services or grant any rights to SENOMYX Technology to a Third Party for use in the discovery or commercialization of Natural Compounds that have an enhancing effect on the sweetness of a Target Sweetener and that are intended for use as a sweetness enhancer in any Exclusive Product Category.

 

Beginning on the Amended Effective Date, Senomyx may provide research and development services and/or grant rights to SENOMYX Technology to Third Parties for use in the discovery or commercialization of Natural Enhancing Compounds in any field of use (including the Field), and nothing in this Agreement will prevent or limit the foregoing. Subject to Section 7.3, SENOMYX may offer and grant rights to any Natural Enhancing Compound, including Selected Compounds discovered using the PepsiCo Exclusive Plant List portion of the PepsiCo Library, to any Third Party for use in all product categories and for all purposes, including for the Intended Purpose in the Field and nothing in this Agreement will prevent or limit the foregoing. Notwithstanding the foregoing, SENOMYX agrees that it shall not provide access (e.g. product formulation, development work or samples) in the Exclusive Product Categories to Selected Natural Enhancing Compounds to Third Parties who have not participated in funding research and development of Natural Compounds (including participation in the pro-rata calculations of reimbursement for expenses relating to safety studies, regulatory approvals, or intellectual property prosecution) that are intended for use as an enhancer until SENOMYX has received United States Regulatory Approval. Upon receipt of United States Regulatory Approval for a Selected Natural Enhancing Compound, the compound can be offered by SENOMYX to any Third Party in the Exclusive Product Categories, including Third Parties that have not funded research of SENOMYX.

 

 

7.1.3 Natural Sweetener Compound Program

 

Subject to Section 9.5.2, during the Original Collaborative R & D Period for the Natural Sweetener Compound Program, SENOMYX agrees not to provide research and development services or grant any rights to SENOMYX Technology to a Third Party for use in the discovery or commercialization of Natural Compounds that are intended for use as a sweetener in any Exclusive Product Category.

 

Beginning on the Amended Effective Date, Senomyx may provide research and development services and/or grant rights to SENOMYX Technology to Third Parties for use in the discovery or commercialization of Natural Compounds in any field of use (including the Fields), and nothing in this Agreement will prevent or limit the foregoing. Subject to Section 7.3, SENOMYX may offer and grant rights to any Natural Sweetener Compound and Analog Compounds, including Selected Compounds discovered using the PepsiCo Exclusive Plant List portion of the PepsiCo Library, to any Third Party for use in all product categories and for all purposes, including for the Intended Purpose in the Field and nothing in this Agreement will prevent or limit the foregoing. Notwithstanding the foregoing, SENOMYX agrees that it shall not provide access (e.g. product formulation, development work or samples) in the Exclusive Product Categories to Selected Natural Sweetener Compounds and Selected Analog Compounds to Third Parties who have not participated in funding research and development of Natural Sweetener Compounds (including participation in the pro-rata calculations of reimbursement for expenses relating to safety studies, regulatory approvals, or intellectual property prosecution) that are intended for use as a sweetener until SENOMYX has received United States Regulatory Approval. Upon receipt of United States Regulatory Approval for a Selected Natural Sweetener Compound or Selected Analog Compound, the compound can be offered by SENOMYX in the Exclusive Product Categories to any Third Party, including Third Parties that have not funded SENOMYX research.      

 

7.2     Co-Exclusive Product Category and Outside the Fields

 

Nothing in this Agreement shall be deemed to restrict or otherwise limit SENOMYX from providing research and development services and/or granting rights to SENOMYX Technology (i) to Third Parties with respect to use of Compounds outside the Field for any purpose (including for enhancing sweetness of a Target Sweetener or acting as a sweetener) or for any purpose in the Field other than enhancing the sweetness of a Target Sweetener or acting as a sweetener, (ii) to one other party (and such party’s Affiliates) (except to the extent otherwise converted to non-exclusive as contemplated by this Agreement) with respect to use of Compounds selected during the Original Collaborative R&D Period as an enhancer of sweetness of a Target Sweetener in the Co-Exclusive Product Category; or (iii) to one other party (and such party’s Affiliates) (except to the extent otherwise converted to non-exclusive as contemplated by this Agreement) with respect to use of Natural Compounds selected during the Original Collaborative R&D Period as a sweetener in the Co-Exclusive Product Category.

 

 

7.3      Third Parties

 

During the Collaborative R&D Period, SENOMYX agrees that: (i) it shall not provide research and development services to [¹⁴] with respect to Natural and Synthetic Sweetener Compounds, Natural Enhancing Compounds and Analog Compounds for use of such Compounds in the Field; (ii) it shall not license or provide access (e.g. product formulation, development work or samples) to Selected Natural Sweetener Compounds, Selected Natural Enhancing Compounds or Selected Analog Compounds in the Exclusive Product Categories to […***…] prior to the second anniversary of the date that SENOMYX receives United States Regulatory Approval for the applicable Selected Compound.

 

7.4     Manufacturing

 

PEPSICO and its Affiliates will be responsible for all costs associated with manufacturing and commercial scale-up of Selected Compounds including manufacturing optimization costs. In addition, PEPSICO and its Affiliates shall bear all manufacturing related costs for any material required for its internal evaluations including prototype and product development efforts.

 

If PEPSICO or its Affiliates elects to outsource the manufacture of Selected Compounds to a Third Party, […***…].

 

8.	Financial Terms

 

8.1 Nonrefundable Payment

 

In consideration for (i) SENOMYX’s initiation of the Synthetic Enhancing Compound Program, the Natural Enhancing Compound and the Natural Sweetener Program, (ii) SENOMYX’s agreement to provide future R&D services on an exclusive or co-exclusive basis during the Original Collaborative R&D Period, PEPSICO shall pay to SENOMYX a nonrefundable payment of [¹⁵], of which […***…] has been previously paid by PEPSICO to SENOMYX in connection with the execution of the Term Sheet and the remaining […***…] of which shall be paid by PEPSICO to SENOMYX within […***…] of the Effective Date. Such payment shall be non-refundable and non-creditable. SENOMYX acknowledges that the foregoing payment was already paid by PEPSICO in 2010.

 

 

8.2     Research Support

 

8.2.1 Annual Funding Amount

 

Each year during the first four years of the Original Collaborative R&D Period, PEPSICO will pay SENOMYX annual funding as follows:

 

●     […***…] for the Synthetic Enhancing Compound Program

 

●     […***…] for the Natural Sweetener Compound Program; and

 

●

[…***…] for the Natural Enhancing Compound Program.

 

Beginning after the Amended Effective Date, PEPSICO will pay SENOMYX annual funding for the period of time beginning October 1, 2016 as follows:

 

●

[…***…] for the Natural Sweetener Compound Program and the Natural Enhancing Compound Program.

 

●

[…***…] for the Natural Sweetener Compound Program and the Natural Enhancing Compound Program if the Extension Option is exercised by PEPSICO.

 

All such funding amounts shall be used by SENOMYX to perform the agreed activities allocated to SENOMYX as outlined in the Research Plans and shall be non-refundable and non-creditable.

 

The parties recognize that the funding quoted above for the program work performed after the Amended Effective Date is based on an assumption of […***…] from the […***…] PepsiCo Library estimated to be approximately […***…]. Should the auditor identify the […***…] PepsiCo Library to be less than […***…]% of the estimate, then the parties will mutually revise the funding amounts for the programs conducted after the Amended Effective Date, any such adjustments shall take effect beginning on the first day of the quarter following the receipt of the auditor’s report. Notwithstanding the foregoing, in no event shall the funding amounts for the programs conducted after the Amended Effective Date be less than […***…] per year.

 

8.2.2 Timing of Payment

 

The annual funding payments under Section 8.2.1 shall be made in […***…]. At the beginning of each calendar quarter, SENOMYX will invoice PEPSICO for one-fourth of the annual amount. PEPSICO shall pay such amount to SENOMYX [¹⁶] following receipt of invoice.

 

 

8.2.3 Excluded Items

 

The annual funding payments under Section 8.2.1 do not include PEPSICO’s costs associated with providing support for the collaboration including, without limitation, PEPSICO’s obligations related to reimbursable and advanced expenses which PEPSICO has specifically agreed to pay under this Agreement.

 

8.2.4     Natural Compounds

 

The […***…] out-of-pocket costs associated with Natural Compounds for the Natural Enhancing Compound Program and the Natural Sweetener Program. The […***…] for the first year of the Original Collaborative R & D Period will be […***…]. The […***…] for the first calendar year of Naturals Programs under the Amended Effective Date will be […***…]. PEPSICO shall reimburse SENOMYX for all […***…] associated with Natural Compounds under these programs (as may be […***…] according to the immediately following sentence), such as costs to […***…] activities for Natural Compounds; provided, however, that in the event that such costs exceed […***…], PEPSICO shall have the right to pre-approve the scope of such activities and their associated costs. PEPSICO’s reimbursement obligation for such expenses shall be […***…] for such costs. If SENOMYX is […***…] for such expenses, PEPSICO will […***…].

 

8.3     Milestone Payments

 

PEPSICO will pay SENOMYX the non-creditable, non-refundable milestone payments described below upon the occurrence of the following milestone events, as determined by the Steering Committee. All milestone payments are non-refundable and non-creditable. PepsiCo shall pay such milestone payments to Senomyx following receipt of invoice on […***…].

 

8.3.1     Synthetic Enhancing Compound Program

 

a)     Milestone #1: […***…] upon […***…];

 

b)     Milestone #2: […***…] upon […***…]; and

 

 

c)     Milestone #3: [¹⁷] for each […***…].

 

8.3.2 Natural Enhancing Compound Program

 

a)

Milestone #1: […***…] upon […***…];

 

b)

Milestone #2: […***…] upon […***…]; and

 

c)

Milestone #3: […***…] for each […***…].

 

8.3.3 Natural Sweetener Compound Program

 

a)

Milestone #1: […***…] upon […***…];

 

b)

Milestone #2: […***…] upon […***…]; and

 

c)

Milestone #3: […***…] for each […***…].

 

8.4

Royalties

 

8.4.1

Synthetic Enhancing Compounds

 

With respect to licenses under Section 9 for Selected Sucrose Enhancing Compounds, PEPSICO shall pay SENOMYX a royalty on Beverages and Beverage Bases incorporating a Selected Enhancing Compound sold by PEPSICO and its Affiliates equal to the amount determined in accordance with the attached Schedule 8.4.1(A).

 

With respect to licenses under Section 9 for Selected Fructose or HFCS Enhancing Compounds, PEPSICO shall pay SENOMYX a royalty on Beverages and Beverage Bases incorporating a Selected Enhancing Compound sold by PEPSICO and its Affiliates equal to the amount determined in accordance with the attached Schedule 8.4.1(B).

 

 

The amount actually due per Unit Case will be determined separately for each Beverage and Beverage Base based on [¹⁸] applicable to such Beverage or Beverage Base as reflected in Schedule 8.4.1(A) or 8.4.1(B), as the case may be, for the applicable Calendar Quarter. In no event shall SENOMYX be entitled to receive a royalty on a Beverage for which it has already been paid a royalty on a Beverage Base used to manufacture that same Beverage.

 

8.4.2

Natural Sweetener Compounds, Natural Enhancing Compounds and Analog Compounds

 

With respect to licenses under Section 9 for either Selected Natural Sweetener Compounds, Selected Natural Enhancing Compounds, or Selected Analog Compounds, PEPSICO shall pay SENOMYX a royalty (“Royalty Rate”) on Beverages and Beverage Bases incorporating such Selected Compound sold by PEPSICO and its Affiliates, […***…]. The licenses from SENOMYX to commercialize the Selected Compound as further provided in Sections 9.2 and 9.3.2 […***…].

 

SENOMYX agrees that the Royalty Rate offered to PEPSICO (and its Affiliates) for each Selected Compound will be […***…].

 

In the event SENOMYX offers any Third Party […***…], then […***…]. Notwithstanding the foregoing, SENOMYX shall not be obligated […***…].

 

8.4.3

Royalties Under Sublicenses to Ingredient Suppliers

 

With respect to sublicenses to Ingredient Suppliers under Section 9.6, PEPSICO shall pay, or shall cause the Ingredient Supplier sublicensees to directly pay (provided that PEPSICO guarantees such direct payments) a royalty of […***…]% on Net Sales […***…][¹⁹]. Any royalties received by SENOMYX with respect to […***…] will not count toward satisfaction of MARs due from PEPSICO under Section 8.5.

 

 

During the Term of this Agreement, […***…]. Following the termination of this Agreement, the provisions of Section 14.5 shall apply.

 

8.4.4

No Off-Set. For the avoidance of doubt, subject to Section 8.9 below, there is no reduction or off-set of royalties for other payments under this Agreement, such as up-front payments, research funding, milestone payment or reimbursement payments.

 

8.4.5

Royalty for More than One Selected Compound. If a particular Product incorporates more than one Selected Compound, then […***…] set forth above will be applied and the royalty shall be […***…].

 

8.4.6

Royalty Due […***…]. Earned royalties under Section 8.4.1 and 8.4.2 shall be calculated and due on sales of Beverages and Beverage Bases incorporating Selected Compounds as follows:

 

i) […***…] at least one Valid Claim covering […***…] of the applicable Selected Compound or Beverages or Beverage Bases incorporating such Selected Compound; (b) […***…] Beverages or Beverages Bases incorporating the applicable Selected Compound […***…] if such Beverages or Beverage Bases […***…] at least one Valid Claim covering […***…] the applicable Selected Compound or Beverages or Beverage Bases incorporating such Selected Compound; and (c) where Beverages or Beverage Bases […***…] that incorporate the applicable Selected Compound that […***…] where SENOMYX has at least one Valid Claim covering […***…] Beverages or Beverage Bases incorporating such Selected Compound.

 

ii) With respect to Selected Natural Enhancing Compounds, Selected Natural Sweetener Compounds and Selected Analog Compounds, in countries where applicable Selected Compounds are […***…] for a period that is the longer of: (a) […***…] following the receipt of United States Regulatory Approval of a Selected Compound or (b) for so long as SENOMYX has at least one Valid Claim [²⁰] applicable Selected Compound or Beverages or Beverage Bases […***…] Selected Compound (1) in the country where the applicable Selected Compound or Beverages or Beverage Bases […***…]; (2) in a country where Beverages or Beverage Bases […***…], or (3) in a country where the applicable Selected Compound is […***…].

 

 

8.5     Minimum Annual Royalties

 

8.5.1     Minimum Annual Royalty Schedules for Compounds Selected during the Original Collaborative R&D Period

 

PEPSICO shall pay SENOMYX minimum annual royalties (“MARs”) only for Selected Compound selected during the Original Collaborative R&D Period based on the schedules specified below. MARs will be calculated on a per Minimum Annual Royalty Category basis for the 5 Minimum Annual Royalty Categories described below […***…].

 

On a Selected Compound-by-Selected Compound basis, not later than […***…] following the receipt of the first Regulatory Approval a Selected Compound in a Major Country that authorizes the use of the Selected Compound in any Exclusive Product Category, PEPSICO may, upon […***…] prior written notice, notify SENOMYX of its election to not pay MARs for the applicable Minimum Annual Royalty Category for such Selected Compound for future periods (a “Conversion Notice”). At the end of such […***…] notice period under a Conversion Notice, PEPSICO’s licenses with respect to such Selected Compound under Section 9.3.1 shall be automatically converted […***…] without any further action by either party and PepsiCo’s obligation to pay MARs for such Selected Compound in its Minimum Royalty Category shall terminate. For avoidance of doubt, any MARs due for a partial Calendar Year will be calculated in a manner consistent with the provisions of Section 14.5. During said […***…] period, and notwithstanding any conflicting provisions of this Agreement (including Section 7.1), with respect to any Selected Compound for which SENOMYX has received a Conversion Notice SENOMYX shall be free to (i) grant to one or more Third Parties a right to evaluate and perform development activities using such Selected Compound in the Exclusive Product Categories, and to make and have made such Selected Compound for purposes of such evaluation and development activities, and (ii) collaborate and perform research and development activities with or on behalf of a Third Party relating to such Selected Compound; provided, however that Senomyx may not grant to the Third Party any rights to sell such Selected Compound or any non-alcoholic beverage that incorporates such Selected Compound, in the Exclusive Product Categories that is effective before the end of such [²¹] notice period for the given Selected Compound. After the end of such […***…] notice period under a Conversion Notice, the restrictions set forth in Sections 7.1 shall no longer be applicable with respect to such Selected Compound notwithstanding any future election by PEPSICO to pay MARs for another Selected Compound in the same Minimum Annual Royalty Category as would have applied to the earlier Selected Compound for which PEPSICO delivered a Conversion Notice. Such election to deliver a Conversion Notice and conversion to a […***…] license for a Selected Compound shall not relieve PEPSICO from its obligations to SENOMYX with respect to such Selected Compound under this Agreement other than the obligation to pay the applicable MARs under this Section 8.5 after the end of such […***…] period following a Conversion Notice. Accordingly, for avoidance of doubt, PEPSICO shall continue to be responsible for payment to SENOMYX of any royalties as set forth in Section 8.4.

 

 

Unless SENOMYX has received a Conversion Notice for a given Selected Compound during the […***…] period referenced above, the MARs due thereafter for the applicable Minimum Annual Royalty Category shall be non-cancellable and payable during the remainder of the Commercialization Period for the applicable Minimum Annual Royalty Category, except that (i) with respect to […***…], the obligation to pay MARs in a given Minimum Annual Category (i.e., Sections 8.5.1.3 and 8.5.1.4) will end in the Calendar Year in which there no longer exists a Valid Claim covering the […***…] of a Selected Enhancing Compound in the applicable Minimum Annual Category […***…], and (ii) with respect to […***…], the obligation to pay MARs in a given Minimum Annual Category (i.e., Sections 8.5.1.1 and 8.5.1.2) will end in the Calendar Year in which there no longer exists a Valid Claim covering […***…] of a Enhancing Compound in the applicable Minimum Annual Category […***…].

 

8.5.1.1     Selected Compounds that are […***…]

 

During the Commercialization Period for Selected Compounds that are […***…], PEPSICO will pay the following MARs to SENOMYX:

 

●

[…***…] for the first Commercialization Year;

 

●

[22] for the second Commercialization Year;

 

●

[…***…] for the third Commercialization Year;

 

●

[…***…] for the fourth Commercialization Year; provided, however, that if any Selected Compound that is a […***…] has […***…] before the beginning of the third Commercialization Year, the payment amount for the fourth Commercialization Year will be […***…]; and

 

●

[…***…] for the fifth Commercialization Year and each Commercialization Year thereafter (subject to adjustment as provided in Section 8.6 below); provided, however, that if any Selected Compound that is a […***…] has […***…] before the beginning of the fourth Commercialization Year, the payment amount for the fifth Commercialization Year and each Commercialization Year thereafter will be […***…] (subject to adjustment as provided in Section 8.6 below).

 

8.5.1.2     [Intentionally Omitted].

 

8.5.1.3     Selected Compounds that are […***…]

 

During the Commercialization Period for Selected Compounds that are […***…], PEPSICO will pay the following MARs to SENOMYX:

 

●

[…***…] for the first Commercialization Year;

 

●

[…***…] for the second Commercialization Year;

 

●

[…***…] for the third Commercialization Year;

 

●

[…***…] for the fourth Commercialization Year; and

 

●

[…***…] for the fifth Commercialization Year and each Commercialization Year thereafter (subject to adjustment as provided in Section 8.6 below).

 

 

8.5.1.4     [Intentionally Omitted]

 

8.5.1.5     [Intentionally Omitted]

 

8.5.1.6 Royalty Shortfall

 

The amount due under this Section 8.5 for any Commercialization Year is the amount, if any, by which the MARs specified for the applicable Minimum Annual Royalty Category for that Commercialization Year period exceeds the royalties actually paid on Beverages and Beverage Bases incorporating Selected Compounds with respect to the applicable Minimum Annual Royalty Category during such Commercialization Year (“Royalty Shortfall(s)”). The Royalty Shortfalls shall be calculated separately for each Minimum Annual Royalty Category.

 

For the avoidance of doubt, if PEPSICO selects multiple Collaboration Compounds within any of the five Minimum Annual Royalty Categories, the Royalty Shortfall shall be due for that category and not for each Selected Compound within that category.

 

8.6     Adjustment of Values for Minimum Royalties

 

With respect to each Minimum Royalty Category, the MARs will be adjusted for the [²³] year of the applicable Commercialization Period and beyond, for inflation/deflation using the Consumer Price Index as set forth below. The first adjustment will be effective on the […***…] anniversary of the commencement of the applicable Commercialization Period and annually on each anniversary thereafter, and shall be calculated as follows:

 

●

MAR for the applicable Commercialization Year = […***…]

 

Such amount as calculated shall be the applicable MAR for the given Minimum Royalty Category to be paid until the next date for adjustment hereunder.

 

●

The “Unadjusted Base MAR” for purposes of each MAR adjustment shall be […***…], as the case may be, in the case of Selected Compounds that are […***…], as the case may be, in the case of Selected Compounds that are […***…] in the case of Selected Compounds that are […***…] in the case of Selected Compounds that are […***…] as the case may be, in the case of Selected Compounds that are […***…].

 

●

%CPI Increase/Decrease = […***…]

 

 

•

The “Comparison CPI” shall be the unadjusted Consumer Price Index for the December of the Calendar Year [24] the applicable annual adjustment and the “Base CPI” shall be the unadjusted Consumer Price Index for December of the Calendar Year which is […***…] such Calendar Year.

 

8.7     Payment Terms

 

8.7.1 Timing

 

As set forth in this Agreement, the royalties will be paid within […***…] days after the end of each calendar quarter period in which such royalties are earned during the Commercialization Period for each Product incorporating a Selected Compound. All Royalty Shortfalls will be paid within […***…] days after the end of each Commercialization Year.

 

8.7.2 Reporting

 

With each such quarterly payment, PEPSICO, its Affiliates and permitted sublicensees will furnish to SENOMYX the Royalty Report, which sets forth on a country-by-country, enhancer-by-enhancer basis, sweetener-by-sweetener basis and Product-by-Product basis the relevant sales information for PEPSICO and the applicable Affiliates and permitted sublicensees including:

 

i.)

In the case of sales by PEPSICO and its Affiliates […***…] incorporating a Selected Compound sold;

 

ii.)

the royalties payable in United States dollars;

 

iii.)

the method used to calculate the royalty payment, including the applicable PSR and Cost of Selected Compound for each Beverage or Beverage Base incorporating a Selected Compound ;

 

iv.)

the method used to calculate the applicable Consumer Price Index adjustments of the MARs and adjustments of the applicable royalties under Section 8.4.1 based on changes to the parameters described in Schedules 8.4.1(A) and 8.4.1(B);

 

v.)

the exchange rate used;

 

vi.)

in the case of sublicenses to Ingredient Suppliers under Section 9.6, the Net Sales and the total number of units of each such Ingredient Supply Product sold, if applicable; and

 

vii.)

other information employed to calculate the royalty payment for such Product incorporating such Selected Compound.

 

 

The contents of such Royalty Reports shall, subject to the exceptions in Section 13.4, be considered Confidential Information of PEPSICO and SENOMYX agrees not to disclose such contents except to the extent necessary for SENOMYX to enforce its rights under this Agreement or if disclosure is permitted under Section 13.5 or 13.7.

 

8.8      Currency of Payment

 

All payments to be made under this Agreement, including the royalties payable to SENOMYX by PEPSICO, its Affiliates and permitted sublicensees, will be paid in United States dollars by wire transfer (or other means acceptable to SENOMYX) to a bank account designated by SENOMYX.

 

With respect to each quarter, for countries other than the United States, whenever conversion of any amounts or payments from any foreign currency are required, such conversion will be made at the rate of exchange reported in The Wall Street Journal on the last business day of the applicable reporting period.

 

8.9     Taxes Withheld

 

Any income or other tax that PEPSICO or any of its Affiliates or permitted sublicensees are required by a government agency to withhold and pay on behalf of SENOMYX with respect to the royalties payable under this Agreement will be deducted from and offset against such royalties prior to remittance to SENOMYX. PEPSICO will use commercially reasonable efforts to give or cause to be given to SENOMYX by its Affiliates and permitted sublicensees such assistance as may reasonably be necessary to enable SENOMYX to claim exemption from, or credit for, the tax so deducted, and, in each case, will use commercially reasonable efforts to promptly furnish to SENOMYX proper evidence of the taxes paid on SENOMYX’s behalf.

 

8.10     Intentionally Omitted

 

8.11

PEPSICO Library Royalty

 

In the event PEPSICO commercializes a Selected Compound discovered using a species listed on the PEPSICO Exclusive Plant List, PEPSICO shall be entitled to receive a reduction in the Royalty Rate on Beverages and Beverage Bases incorporating such Selected Compound sold by PEPSICO and its Affiliates, [²⁵].

 

In the event SENOMYX commercializes or licenses rights to a Third Party to use a compound discovered using a species listed on the PEPSICO Exclusive Plant List, PEPSICO shall be entitled to receive a royalty (referred to herein as “PEPSICO Royalty”) from SENOMYX equal to […***…] (i) within twelve (12) months following the selection if the compound is a Selected Compound; and (ii) […***…] [²⁶]. The PEPSICO Royalty shall be determined on a compound-by-compound basis and may differ for […***…]. Any PEPSICO Royalty owed by SENOMYX to PEPSICO shall be paid within […***…] days after the end of each calendar quarter period in which such PEPSICO Royalty was earned. With each such quarterly payment, SENOMYX will furnish to PEPSICO a Royalty Report. The contents of the aforementioned Royalty Reports shall, subject to the exceptions in Section 13.4, be considered Confidential Information of SENOMYX and PEPSICO agrees not to disclose such contents except to the extent necessary for PEPSICO to enforce its rights under this Agreement or if disclosure is permitted under Section 13.5 or 13.7.

 

 

8.12     Records of Unit Sales, Net Sales and Royalty Calculations

 

8.12.1     Records Relating to Royalties

 

Each of PEPSICO and SENOMYX will, and will cause its Affiliates and permitted sublicensees, as applicable, to keep complete and accurate records of sales and all other information necessary to calculate (i) royalties due to SENOMYX for any Product incorporating a Selected Compound; and (ii) the PEPSICO Royalty, respectively The records for a given year will be maintained by each party and its respective Affiliates and permitted sublicensees, as applicable, for a period of […***…] following submission of the related Royalty Report for that year. The records for a given year will be in sufficient detail to allow the accrued royalties to be determined in accordance with United States generally accepted accounting principles (which shall mean the international financial reporting standards (“IFRS”) at such time as IFRS becomes the generally accepted accounting standard in the United States and the applicable laws require that a party use IFRS) and to verify the royalty payments pursuant to Section 8.4.

 

8.12.2     Attestation of Records Relating to Royalties

 

Each party, with reasonable written notice to the other party, and no more than […***…] per calendar year, will have the right to cause a nationally recognized independent, certified public accountant […***…] to review such records relating to the royalty payments at the place or places of business where such records are customarily kept by PEPSICO, its Affiliates and sublicensees or SENOMYX, as applicable, in order to provide an attestation, based upon accounting procedures […***…] (the “Attestation”), of the accuracy of the reports of each party’s royalty payments. Such accountant must execute a confidentiality agreement prior to entering the applicable premises, obligating such accountant to keep all information disclosed to it confidential and will only be permitted to disclose to the party requesting the Attestation, whether there was any discrepancy between royalty payments made by PEPSICO (or its Affiliates or sublicensees) or SENOMYX, as the case may be, under this Agreement and the actual royalty required to be so paid and, if so, the extent of the discrepancy and any information necessary to explain the cause of the discrepancy. The party requesting the Attestation will bear the full cost of such Attestation unless such Attestation discloses an underpayment of more than [²⁷] from the amount of the royalties due under this Agreement, in which event, the party being audited will bear the full cost of such Attestation. Upon conclusion of such Attestation, any underpayment shall be promptly paid by the party being audited and any overpayment made by the party being audited will be promptly refunded by the party requesting the Attestation.

 

 

Each party will, and will cause its Affiliates and sublicensees, as applicable, to cooperate with the Attestation under this Section 8.12.2 including, without limitation, promptly and at their own expense providing additional supporting information and records in the event that the nationally recognized independent certified public accountant performing such Attestation requests such information or records. Such additional information and records shall relate to royalties payable for Products sold by PEPSICO, its Affiliates or permitted sublicensees or the PEPSICO Royalty, as the case may be. In the case of the sublicense to Ingredient Suppliers pursuant to Section 9.6, SENOMYX may obtain the information described herein directly from sublicensee or request that PEPSICO promptly obtain such information from such sublicensee.

 

Each party agrees not to disclose Confidential Information concerning royalty payments reports, and all other information learned in the course of an Attestation, except to the extent necessary for the requesting party to enforce its rights under this Agreement or if disclosure is permitted under Section 13.5 or 13.7.

 

9.

Grants

 

Subject to the terms and conditions of this Agreement, SENOMYX hereby grants to PEPSICO and its Affiliates and PEPSICO hereby grants to SENOMYX the rights expressly set forth below.

 

9.1

Non-exclusive Grant by SENOMYX of Rights Regarding Evaluation of Compounds and Collaboration Compounds

 

With respect to the Synthetic Enhancing Compound Program and the Natural Enhancing Compound Program, subject to the terms and conditions of this Agreement, SENOMYX hereby grants to PEPSICO and its Affiliates a nontransferable, non-exclusive, non-sublicensable worldwide license during the applicable Collaborative R & D Period under the Target IP to use Analog Compounds, Sweetener Compounds and Enhancing Compounds that SENOMYX delivers, in the Steering Committee’s reasonable discretion and taking into consideration the applicable PEPSICO Criteria, to PEPSICO in the course of the applicable Collaborative R&D Program. Such Compounds and Enhancing Compounds may only be used for the intended purpose of evaluating the sweetness effect on enhancing a Target Sweetener in the Field.

 

 

With respect to the Natural Sweetener Compound Program, subject to the terms and conditions of this Agreement, SENOMYX hereby grants to PEPSICO and its Affiliates a nontransferable, non-exclusive, non-sublicensable worldwide license during the Collaborative R & D Period for the Natural Sweetener Compound Program under the Target IP to use Natural Sweetener Compounds and Analog Compounds that SENOMYX delivers, in the Steering Committee’s reasonable discretion taking into consideration the applicable PEPSICO Criteria, to PEPSICO in the course of the Collaborative R&D Program. Such Natural Sweetener Compounds and Analog Compounds may only be used for the intended purpose of evaluating the effect as a sweetener in the Field.

 

9.2

Non-exclusive Grant by SENOMYX of Rights to Make, Have Made, Use and Sell Selected Compounds

 

Subject to the terms and conditions of this Agreement and to the parties further agreeing to written Royalty terms as prescribed in Section 8.4.2 (in the case of Natural Compounds and Analog Compounds), SENOMYX hereby grants to PEPSICO and its Affiliates a nontransferable, non-exclusive, non-sublicensable (except as provided in Section 9.6 below), worldwide license under the Target IP for each Selected Compound during the applicable Commercialization Period, [²⁸] Selected Enhancing Compounds, Selected Natural Sweetener Compounds, or Selected Analog Compounds, as the case may be, for incorporation into Products […***…]. Each Selected Enhancing Compound will only be used by PEPSICO and its Affiliates (or permitted sublicensees) at an Enhancing Compound Concentration. Only the license under this Section 9.2 […***…] Selected Enhancing Compounds for incorporation into Ingredient Supply Products in the Third Party Beverage Manufacturer Product Categories will be sublicensable to Ingredient Supplier sublicensees in accordance with Section 9.6.1.

 

9.3

Grant of Rights by SENOMYX Regarding Beverages and Beverage Bases that Incorporate Selected Compounds

 

9.3.1 Synthetic Enhancing Compounds

 

Subject to the terms and conditions of this Agreement, SENOMYX hereby grants to PEPSICO and its Affiliates […***…] license under the Target IP for each Selected Synthetic Enhancing Compound selected during the Original Collaborative R&D Period, […***…] Beverages and Beverage Bases that incorporate the applicable Selected Synthetic Enhancing Compound, […***…]. This […***…] license shall continue during the term of the Commercialization Period for the applicable Selected Synthetic Enhancing Compound (except to the extent otherwise converted to non-exclusive as specifically contemplated by this Agreement). Each Selected Synthetic Enhancing Compound will only be used by PEPSICO and its Affiliates at an Enhancing Compound Concentration. For the avoidance of doubt, the foregoing shall not be construed to prevent SENOMYX from exercising its rights and performing its obligations under this Agreement.

 

 

9.3.2 Natural Enhancing Compound, Natural Sweetener Compound and Analog Compounds

 

Subject to the terms and conditions of this Agreement and to the parties further agreeing to written Royalty terms as prescribed in Section 8.4.2, SENOMYX hereby grants to PEPSICO and its Affiliates a nontransferable, non-exclusive, non-sublicensable, worldwide license under the Target IP for each Selected Natural Enhancing Compound, Selected Natural Sweetener Compound and Selected Analog Compound [²⁹] Beverages and Beverage Bases that incorporate the applicable Selected Natural Enhancing Compound, Selected Natural Sweetener Compound or Selected Analog Compound, as the case may be, […***…]. This non-exclusive license shall continue during the term of the Commercialization Period for the applicable Selected Natural Enhancing Compound, Selected Natural Sweetener Compound or Selected Analog Compound, as the case may be. Each Selected Natural Enhancing Compound will only be used by PEPSICO and its Affiliates at an Enhancing Compound Concentration. For the avoidance of doubt, the foregoing shall not be construed to prevent SENOMYX from exercising its rights and performing its obligations under this Agreement.

 

9.4

Co-Exclusive Grant of Rights by SENOMYX Regarding Powdered Beverages incorporating certain Selected Synthetic Compounds

 

Subject to the terms and conditions of this Agreement, SENOMYX hereby grants to […***…] license under the Target IP for each Selected Synthetic Enhancing Compound selected during the Original Collaborative R&D Period […***…] dry powdered Beverages incorporating the applicable Selected Synthetic Enhancing Compound solely […***…]. This Co-Exclusive license shall continue during the term of the Commercialization Period for the applicable Selected Synthetic Compound (except to the extent otherwise […***…] as specifically contemplated by this Agreement). Each Selected Synthetic Enhancing Compound will only be used by PEPSICO and its Affiliates at an Enhancing Compound Concentration. For the avoidance of doubt, the foregoing shall not be construed to prevent SENOMYX from exercising its rights and performing its obligations under this Agreement.

 

 

9.5     Limitation on Licenses

 

9.5.1     Sales of Collaboration Compounds or Selected Compounds

 

Notwithstanding anything to the contrary in this Agreement, none of the rights granted in this Agreement are intended to give PEPSICO or its Affiliates the right to sell Compounds, Collaboration Compounds or Selected Compounds other than as part of a Beverage or Beverage Base; however, PEPSICO may sublicense its rights to Ingredient Suppliers to sell Ingredient Supply Products as expressly authorized by Section 9.6.1.

 

9.5.2     Specifically Excluded Rights

 

Notwithstanding anything to the contrary in this Agreement, PEPSICO shall have no rights under this Agreement with respect to Compounds S2383, S8475, S9632 and S6973 (including salt forms thereof). SENOMYX will be free to license Compounds S2383, S8475, S9632 and S6973 (including salt forms thereof) to an Affiliate(s) or a Third Party(ies), and to enter into discovery and development collaborations with an Affiliate(s) or a Third Party(ies), in the Field for the purpose of developing and commercializing such Compounds, without restrictions or limitations and without any obligation to PEPSICO under Section 7 above.

 

9.5.3     Restrictions; No Implied Licenses

 

Subject to the licenses expressly granted in this Section 9, SENOMYX will retain all rights under the SENOMYX Technology and all other intellectual property Controlled by SENOMYX, and PEPSICO and its Affiliates agree that: (i) with respect to Synthetic Enhancing Compounds and SENOMYX Technology in general, while a Valid Claim is in effect covering the particular SENOMYX Technology, to not knowingly practice, either directly or by indirectly supporting or funding the research and development activities of an Affiliate, sublicensee or any other Third Party, such SENOMYX Technology except pursuant to the licenses expressly granted to PEPSICO and its Affiliates in this Section 9; and (ii) with respect to Natural Compounds and Analog Compounds, for a period that is the longer of (a) [³⁰] following the receipt of United States Regulatory Approval of a Selected Compound or (b) while a Valid Claim is in effect covering the particular SENOMYX Technology, to not knowingly practice, either directly or by indirectly supporting or funding the research and development activities of an Affiliate, sublicensee or any other Third Party, such SENOMYX Technology except pursuant to the licenses expressly granted to PEPSICO and its Affiliates in this Section 9. No right or license under any Patent Rights or any Know-How of either party is granted or shall be granted by implication. All such rights or licenses are or shall be granted only as expressly provided in the terms of this Agreement.

 

 

9.6     Sublicenses

 

9.6.1     Ingredient Suppliers

 

The licenses granted by SENOMYX to PEPSICO and its Affiliates under this Section 9 are not sublicensable, except to Ingredient Suppliers as specifically set forth in this Section 9.6.

 

During the Original Collaborative R&D Period, PEPSICO will [³¹] to sublicense its rights under Section 9.2 to Ingredient Suppliers to make, have made, use and sell Ingredient Supply Products to Third Parties solely for incorporation into Third Party Manufacturer Beverages and Third Party Manufacturer Beverage Bases in the Third Party Beverage Manufacturer Product Categories. PEPSICO’s right to sublicense in the Third Party Beverage Manufacturer Product Categories as described in this Section 9.6.1, shall not limit PEPSICO’s exclusivity rights in Sections 7.1 and 9.3.1 for the Exclusive Product Categories. If PEPSICO sublicenses to Ingredient Suppliers as described in this Section 9.6, PEPSICO will be allowing the use of the Selected Enhancing Compounds for incorporation into Third Party Manufacturer Beverages and Third Party Manufacturer Beverage Bases in the Third Party Beverage Manufacturer Product Categories. For avoidance of doubt, in accordance with the provisions of Section 9.2, each Ingredient Supply Product shall only be used by Ingredient Suppliers and Third Parties for their respective Intended Purpose and at an Enhancing Compound Concentration. The aforementioned PEPSICO rights to sublicense to Ingredient Suppliers the rights […***…] Ingredient Supply Products to Third Parties solely for incorporation into Third Party Manufacturer Beverages and Third Party Manufacturer Beverage Bases in the Third Party Beverage Manufacturer Product Categories […***…]. Notwithstanding the foregoing, if during the Original Collaborative R&D Period, PEPSICO sublicensed the rights applicable to a specified Selected Enhancing Compound to a specified Ingredient Supplier, such […***…].

 

Beginning on the Amended Effective Date, PEPSICO may elect, in its sole discretion, to sublicense its rights under the Target IP for each Selected Enhancing Compound […***…] Selected Enhancing Compounds solely for incorporation into Beverages and Beverage Bases in the Field.

 

 

PEPSICO agrees and acknowledges that except as otherwise provided herein, with respect to any Selected Compound, SENOMYX shall have the express right to license, without limitation, its rights under the Target IP for each Selected Compound including directly to any Third Party to make, have made, import, use and sell Ingredient Supply Products in any country for incorporation into Third Party Manufacturer Beverages and Third Party Manufacturer Beverage Bases in the Third Party Beverage Manufacturer Product Categories.

 

9.6.2 Obligations Related to Sublicenses to Ingredient Suppliers

 

PEPSICO will [³²] to enforce the obligations imposed upon a permitted Ingredient Supplier sublicensee under the applicable sublicense (including, without limitation, the field of use limitations restricted to the Third Party Beverage Manufacturer Product Categories and the Intended Purpose limitations).

 

If PEPSICO (or any of its Affiliates) […***…] of any use by a permitted sublicensee using Selected Compound(s) outside of the Third Party Beverage Manufacturer Product Categories field of use that is sublicensable by PEPSICO under this Agreement or other than for the applicable Intended Purpose or at the applicable Enhancing Compound Concentration, then PEPSICO (and its Affiliates) will promptly: (i) notify SENOMYX; (ii) investigate the suspected activities and […***…] to remove any unauthorized use […***…]; and (iii) terminate the sublicense agreement with any sublicensee that fails to immediately cease the unauthorized activity. PEPSICO will use commercially reasonable efforts to keep SENOMYX updated regarding the nature of the unauthorized use and steps taken under (ii) and (iii).

 

All sublicenses under this Section 9.6 will be subject to written sublicense agreements. The scope of the rights and licenses granted to each sublicensee under such sublicense agreement shall be no greater than the scope of the rights and license granted to PEPSICO under Section 9.2. […***…], each sublicense agreement will, to the extent applicable, include the rights of and obligations […***…], assignment to PEPSICO of all rights to inventions and know-how resulting from their work (which shall ultimately be assigned between PEPSICO and SENOMYX in accordance with the intellectual property provisions of this Agreement), the confidentiality and non-use restrictions in a manner consistent with PEPSICO ’s obligations under Section 13, record keeping and independent certified public accountant attestation provisions substantially similar to those set forth in Section 8.12, and the indemnification obligations consistent with PEPSICO’s obligations under Sections 15.6.3 and 15.6.4). Each sublicense agreement must contain an affirmative statement by the sublicensee of its agreement to comply with the relevant provisions of this Agreement (as amended and restated). Each sublicense agreement will require the Ingredient Supplier sublicensee to enter into written agreements with its purchasers of Ingredient Supply Products that include the purchaser’s agreement to use Ingredient Supply Products solely (a) in Third Party Manufacturer Beverages and Third Party Manufacturer Beverage Bases in the Third Party Beverage Manufacturer Product Categories and (b) for their respective Intended Purpose and at an Enhancing Compound Concentration. PEPSICO will promptly notify SENOMYX of any sublicense agreements, but in any case not later than [³³] following its execution. PEPSICO will keep SENOMYX informed of all such sublicenses and will, upon request of SENOMYX, provide SENOMYX with a copy of such written agreement(s), which shall be unredacted except that […***…] PEPSICO will collect and guarantee payment of the royalty payments (royalties on Net Sales) due, directly or indirectly, to SENOMYX from Ingredient Supplier sublicensees under Section 8.4.3 and summarize and deliver all reports due, directly or indirectly, to SENOMYX from such sublicensees. PEPSICO shall remain responsible for the full and faithful performance of all its obligations under this Agreement, irrespective of whether the same are delegated, expressly or by implication, by PEPSICO to a sublicensee. Such delegation shall not in any way diminish, reduce or eliminate any of PEPSICO’s obligations under this Agreement, and PEPSICO shall remain primarily liable for such obligations.

 

 

For the avoidance of doubt, all Co-Exclusive and Exclusive licenses granted to PEPSICO under this Agreement are not sublicensable (except as expressly permitted herein). In addition, if any Exclusive or Co-Exclusive license is converted to a non-exclusive license under Sections 8.5, 11.1 or otherwise, the non-exclusive (converted) license will continue to be non-sublicensable.

 

9.7 Obligations Relating to Affiliates

 

PEPSICO assumes the responsibility for performance due by its Affiliates of all obligations imposed upon PEPSICO under this Agreement. PEPSICO is also responsible for and guarantees payment to SENOMYX of royalties due on sales of Beverages and Beverage Bases by an Affiliate. In the event that an Affiliate of PEPSICO ceases to meet the definition of “Affiliate” at any time, the licenses granted to such Affiliate under this Agreement will automatically terminate.

 

9.8

Non-Exclusive Grant of Rights from PEPSICO to SENOMYX for Research Purposes

 

Subject to the terms and conditions of this Agreement, PEPSICO and its Affiliates hereby grants to SENOMYX […***…] license during the Collaboration R & D Period to use (i) the PEPSICO Technology for research purposes related to any given Collaborative R & D Program under this Agreement with the right to grant sublicenses for such research purposes only, and (ii) the PepsiCo Exclusive Plant List portion of the PepsiCo Library for purposes related to the Natural Enhancing Compound Program and Natural Sweetener Compound Collaborative Program with the right to grant sublicenses for such purposes only; provided, however, that any such sublicense shall be subject to the prior written approval of PEPSICO, which shall not be unreasonably withheld.

 

 

All sublicenses under this Section 9.8 will be subject to written sublicense agreements. The scope of the rights and licenses granted to each sublicensee under such sublicense agreement shall be no greater than the scope of the rights and license granted to SENOMYX under this Agreement. The sublicense agreements will, to the extent applicable, include all of the rights of and obligations due to PEPSICO and contained in this Agreement. Each sublicense agreement must contain an affirmative statement by the sublicensee of its agreement to comply with the relevant provisions of this Agreement. SENOMYX shall remain responsible for the full and faithful performance of all of its obligations under this Agreement, and shall assume liability for any breaches by any SENOMYX sublicensee.

 

10.	Ownership of Intellectual Property

 

10.1     Transfer of Rights

 

Each of the parties retains all rights not expressly licensed or assigned in this Agreement. Except as otherwise expressly provided in this Agreement, nothing in this Agreement is intended to convey or transfer ownership or the grant of any license or sublicense by one party to the other party of any rights in any Confidential Information, Patent Rights or Know-How Controlled by a party.

 

10.2     SENOMYX Inventions

 

SENOMYX will own all Inventions and other Know-How made solely by its employees and agents and all Patent Rights claiming such Inventions and Know-How; provided, however, SENOMYX hereby irrevocably assigns to PEPSICO all interest in and to any such Inventions and Know-How that consist solely of [³⁴], and all Patent Rights claiming such Inventions and other Know-How, and SENOMYX agrees to give PEPSICO prompt notice of the making, conceiving or reducing to practice of any such Inventions. Any such Inventions and Know-How to be assigned to PEPSICO shall be deemed PEPSICO Confidential Information. In the event that SENOMYX is legally unable to assign such rights to PEPSICO, then SENOMYX agrees either to waive the enforcement of such rights against PEPSICO and any sublicensees and assignees, or to grant PEPSICO an exclusive, irrevocable, perpetual, worldwide, fully-paid license, with right to sublicense through multiple tiers of sublicense, to such rights. For the avoidance of doubt, SENOMYX will own Inventions and other Know-How that (i) consist of Natural Enhancing Compounds or Natural Sweetener Compounds identified from the PEPSICO Library, […***…]. PEPSICO and its Affiliates hereby irrevocably assign to SENOMYX all interest in and to any such Inventions and other Know-How and all Patent Rights claiming such Inventions and Know-How. Any such Inventions and Know-How to be assigned to SENOMYX shall be deemed SENOMYX Confidential Information. In the event that PEPSICO or its Affiliates are legally unable to assign such rights to SENOMYX, then PEPSICO and its Affiliates agree either to waive the enforcement of such rights against SENOMYX and any sublicensees and assignees, or to grant SENOMYX an exclusive, irrevocable, perpetual, worldwide, fully-paid license, with right to sublicense through multiple tiers of sublicense, to such rights.

 

 

10.3     PEPSICO Inventions

 

Except as otherwise provided herein, PEPSICO will own all Inventions and other Know-How made solely by its employees and agents, including those related to [³⁵], to the extent that such Inventions and other Know-How do not […***…], and all Patent Rights claiming such Inventions and Know-How, and SENOMYX will have no rights to such Inventions, Know-How and product formulations, except as set forth in the following paragraph and in Section 9.8. Nothing herein shall grant to SENOMYX any rights to PEPSICO’s proprietary or confidential product formulas or production processes of the Beverages or Beverage Bases that incorporate Selected Compounds.

 

PEPSICO and its Affiliates hereby irrevocably assign to SENOMYX all interest in and to any such Inventions and other Know-How that consist solely of […***…], and all Patent Rights claiming such Inventions and Know-How, and PEPSICO and its Affiliates agree to give SENOMYX prompt notice of the making, conceiving or reducing to practice of any such Inventions. Any such Inventions and Know-How to be assigned to SENOMYX shall be deemed SENOMYX Confidential Information. In the event that PEPSICO or its Affiliates are legally unable to assign such rights to SENOMYX, then PEPSICO and its Affiliates agree either to waive the enforcement of such rights against SENOMYX and any sublicensees and assignees, or to grant SENOMYX an exclusive, irrevocable, perpetual, worldwide, fully-paid license, with right to sublicense through multiple tiers of sublicense, to such rights.

 

10.4     Joint Inventions

 

All Inventions conceived jointly by one or more employees or agents of SENOMYX or of any of its Affiliates and one or more employees or agents of PEPSICO or of any of its Affiliates (the “Joint Inventions”) and all Joint Patent Rights will be owned jointly by PEPSICO and SENOMYX, except as provided below.

 

PEPSICO and its Affiliates hereby irrevocably assign to SENOMYX all interest in and to any Joint Inventions that (i) consist of Natural Enhancing Compounds or Natural Sweetener Compounds identified from the PEPSICO Library, (ii) consist of Analog Compounds or (iii) consist solely of [³⁶], and methods of making such compounds, and all Joint Patent Rights claiming such Joint Inventions. In the event that PEPSICO or its Affiliate is legally unable to assign such rights to SENOMYX, then PEPSICO and its Affiliates agree either to waive the enforcement of such rights against SENOMYX and any sublicensees and assignees, or to grant SENOMYX an exclusive, irrevocable, perpetual, worldwide, fully-paid license, with right to sublicense through multiple tiers of sublicense, to such rights. For the avoidance of doubt, Inventions assigned to SENOMYX under this Section 10.4, will no longer be considered Joint Inventions/Joint Patent Rights and will thereafter be considered SENOMYX Technology and will be deemed SENOMYX Confidential Information.

 

 

SENOMYX hereby irrevocably assigns to PEPSICO all interest in and to any Joint Inventions that consist solely of […***…] to the extent that such […***…], and all Joint Patent Rights claiming such Joint Inventions. In the event that SENOMYX is legally unable to assign such rights to PEPSICO, then SENOMYX agrees either to waive the enforcement of such rights against PEPSICO and any sublicensees and assignees, or to grant PEPSICO an exclusive, irrevocable, perpetual, worldwide, fully-paid license, with right to sublicense through multiple tiers of sublicense, to such rights. For the avoidance of doubt, Inventions assigned to PEPSICO under this Section 10.4, will no longer be considered Joint Inventions/Joint Patent Rights and will thereafter be considered PEPSICO Technology and will be deemed PEPSICO Confidential Information.

 

10.5     Other Inventions

 

Any Inventions not included in Sections 10.2, 10.3, or 10.4 will be owned by their inventors.

 

10.6     Markings, Inventorship and Assignment of Inventions

 

PEPSICO agrees to mark and to cause any Affiliate, Bottler or permitted sublicensee to mark any Products (or their containers or labels) made, sold or otherwise disposed of by it or them with any notice of Patent Rights, which shall be made in accordance with applicable law, if mutually desirable by the parties or necessary under applicable law to enable the SENOMYX Patent Rights or Joint Patent Rights, as applicable, to be enforced to their full extent in any country where Beverages or Beverage Bases incorporating Selected Compounds are made, used, or sold.

 

 

United States patent law will determine inventorship of patentable inventions. SENOMYX and PEPSICO agree to execute all documentation necessary to perfect all assignments of Inventions, Know-How and Patent Rights contemplated in this Agreement.

 

11.	Patent Prosecution and Maintenance

 

11.1     Prosecution of Patent Rights Solely Owned by a Party

 

Subject to Section 12.3 below, each party will solely control the right to file, prosecute (including an opposition or interference) and maintain Patent Rights solely owned by that party or assigned to that party. Each party will bear the cost of filing, prosecuting and maintaining the patents and patent applications associated with inventions solely owned by that party or assigned to that party. With respect to Target IP for Selected Compound(s), PEPSICO will reimburse SENOMYX for [³⁷]. By way of example, patent applications directed to composition of matter of a Selected Compound, use of a Selected Compound in comestible compositions, and methods of making a Selected Compound would be subject to a reimbursement obligation.

 

With respect to each Selected Compound, for so long as PEPSICO maintains its exclusive license under Section 9.3.1 for such Selected Compound, in the case where SENOMYX […***…] directed to Target IP for such Selected Compound […***…], then at least […***…]. SENOMYX agrees to […***…] with respect to such patent applications that are […***…]. SENOMYX will […***…] of all proceedings related to the […***…] for Selected Compounds […***…] SENOMYX hereunder, including, without limitation, by […***…]. SENOMYX will provide to PEPSICO invoices (with supporting documentation) to establish the reasonable out-of-pocket cost incurred for filing, prosecuting and maintaining each patent or patent application in each country. Such invoices may be […***…]. With respect to patent applications after PEPSICO has selected a Selected Compound for so long as PEPSICO maintains its exclusive license under Section 9.3.1, the parties will discuss and agree at least [³⁸] before the due date of international filings or at least […***…] before the due date of […***…], in which countries/regions to file patent applications claiming Selected Compounds. Notwithstanding the foregoing, if PEPSICO decides it does not wish to have a patent application claiming a Selected Compound(s) either (i) filed or (ii) prosecuted in a particular country or PEPSICO decides that it does not wish to have maintained a patent claiming a Selected Compound(s), in a particular country, SENOMYX may still (a) file or (b) prosecute such patent application, or may maintain such patent in such country; […***…] and any rights granted to PEPSICO, its Affiliates and sublicensees under Sections 7 and 9 with respect to any such patents in such country will terminate or become non-exclusive at the sole discretion of SENOMYX. In such event, SENOMYX may provide research and development services and/or grant rights to SENOMYX Technology to Third Parties for the applicable Selected Compounds in such country in any field of use, and nothing in this Agreement will prevent or limit the foregoing.

 

 

PEPSICO shall hold all such information disclosed to it under this Section 11, subject to the exceptions in Section 13.4, as Confidential Information of SENOMYX.

 

11.2     Prosecution of Joint Patent Rights

 

SENOMYX will have the first right to file, prosecute (including an opposition or interference) and maintain Joint Patent Rights. PEPSICO will use commercially reasonable efforts to cooperate in, the filing, prosecution and maintenance of Joint Patent Rights and will share equally in reasonable expenses incurred with respect thereto.

 

12.	Intellectual Property Enforcement and Defense of Claims

 

12.1     Defense of Infringement Claims for SENOMYX Technology

 

PEPSICO and its Affiliates and permitted sublicensees will cooperate with SENOMYX, at SENOMYX’s expense, in the defense of any suit, action or proceeding against SENOMYX or SENOMYX’s Affiliates alleging the infringement of the intellectual property rights of a Third Party due to SENOMYX’s or PEPSICO’s or any of their Affiliates’ or sublicensees’ use of any SENOMYX Technology or any technology claimed under Joint Patent Rights under this Agreement.

 

The parties must notify each other promptly in writing of the commencement of any such suit, action, proceeding or claim of infringement.

 

At the expense of SENOMYX, PEPSICO and its Affiliates and permitted sublicensees will give to SENOMYX full and sole authority, information and assistance necessary to defend, hire counsel, make decisions or settle on any terms, any such suit, action or proceeding against SENOMYX or SENOMYX’s Affiliates and PEPSICO and its Affiliates and permitted sublicensees will in good faith execute all documents, provide pertinent records, and take all other actions, including requiring persons within its control to give testimony, which may be reasonably required in connection with the defense or settlement of such litigation. SENOMYX will bear the expense of the defense or settlement of any such suit. SENOMYX will have full and sole authority to settle any such suit except that SENOMYX will not settle any such suit in a manner that is reasonably likely to have a material adverse impact to PEPSICO without the prior written consent of PEPSICO, which shall not be unreasonably withheld.

 

 

12.2     Defense of Infringement Claims for PEPSICO Technology

 

SENOMYX will cooperate with PEPSICO, at PEPSICO’s expense, in the defense of any suit, action or proceeding against PEPSICO or PEPSICO’s Affiliates alleging the infringement of the intellectual property rights of a Third Party due to PEPSICO’s or SENOMYX’s or any of their Affiliates’ use of any PEPSICO Technology or any technology claimed under Joint Patent Rights under this Agreement.

 

The parties must notify each other promptly in writing of the commencement of any such suit, action, proceeding or claim of infringement.

 

At the expense of PEPSICO, SENOMYX will give to PEPSICO full and sole authority, information and assistance necessary to defend, hire counsel, make decisions or settle on any terms, any such suit, action or proceeding against PEPSICO or PEPSICO’s Affiliates and SENOMYX will in good faith execute all documents, provide pertinent records, and take all other actions, including requiring persons within its control to give testimony, which may be reasonably required in connection with the defense or settlement of such litigation. PEPSICO will bear the expense of the defense or settlement of any such suit. PEPSICO will have full and sole authority to settle any such suit except that PEPSICO will not settle any such suit in a manner that is reasonably likely to have a material adverse impact to SENOMYX without the prior written consent of SENOMYX, which shall not be unreasonably withheld.

 

12.3     Intellectual Property Enforcement

 

With respect to Target IP for use of a Selected Compound in the Exclusive Product Categories for which PEPSICO has an exclusive license under Section 9.3.1, SENOMYX shall have the first right, but not the obligation to commence a particular infringement action against a Third Party or take other steps to resolve such alleged infringement; provided that, if SENOMYX does not bring such action or take such other steps within [³⁹] of receiving notice, PEPSICO, after notifying SENOMYX in writing, will be entitled to bring such infringement action or any other appropriate action or claim at its own expense; provided, however, that if SENOMYX has commenced negotiations with an alleged infringer for discontinuance of such infringement within such […***…] period, SENOMYX shall have an additional […***…] to conclude its negotiations before PEPSICO may bring suit for such infringement or take other similar action. In the event PEPSICO brings such suit for infringement or takes other similar action, SENOMYX shall have the right to join in such infringement suit or similar action at its own expense (and SENOMYX will join if required by the laws of the jurisdiction). In any such action, both SENOMYX and PEPSICO may employ counsel of its own choice at its own expense. The party conducting such action will consider in good faith the other party’s comments on the conduct of such action and will have full and sole authority, information and assistance necessary to defend, hire counsel, make decisions or settle on any terms, any such suit, action or proceeding and the other party will in good faith execute all documents, provide pertinent records, and take all other actions, including requiring persons within its control to give testimony, which may be reasonably required in connection with the defense or settlement of such litigation. In the event SENOMYX brings such suit, SENOMYX will be entitled to retain the entire recovery, if any. In the event PEPSICO brings such suit, any recovery will be applied first to [⁴⁰] expenses and […***…]. The party conducting the action will have the right to deduct all court costs it pays for such enforcement from any recovery from any settlement or judgment that is attributable to the losses of the other party under such action.

 

 

13.	Treatment of Confidential Information: Reporting Requirements, Publicity, Law and Regulations

 

13.1     Confidentiality

 

Subject to the terms and conditions of this Agreement, SENOMYX and PEPSICO each agree that, during the Term and for a period of […***…] thereafter, it will keep confidential, and will cause its Affiliates to keep confidential, all Confidential Information that is disclosed to it or to any of its Affiliates by the other party. Neither SENOMYX nor PEPSICO nor any of their respective Affiliates will use the other party’s Confidential Information except as expressly permitted in this Agreement.

 

13.2     Disclosure to Related Parties

 

SENOMYX and PEPSICO each agree that any disclosure of the other party’s Confidential Information to any officer, employee, contractor, consultant, sublicensee or agent of the other party or of their respective Affiliates:

 

i)

will be made only if and to the extent necessary to carry out its responsibilities under this Agreement and to exercise the rights granted hereunder;

 

ii)

will be limited to the extent consistent with such responsibilities and rights; and

 

iii)

will be provided only to such persons or entities who are under an obligation of confidentiality no less stringent than as set forth in this Agreement.

 

 

Each party will use reasonable efforts to take such action, and to cause its Affiliates to take such action, to preserve the confidentiality of each other’s Confidential Information, which will be the same efforts as it would customarily take to preserve the confidentiality of its own similar Confidential Information.

 

13.3     Return of Confidential Material

 

Upon termination of this Agreement, each party, upon the other party’s request, will return or destroy all Confidential Information received from the other party, including all copies and extracts of documents, within [⁴¹] of the request of the other party; provided, however, one copy of the Confidential Information may be retained in a secure location with limited access for legal purposes only. Moreover, following the conclusion or termination of the Naturals Collaborative R&D Period, SENOMYX shall return any unused portions of PepsiCo Exclusive Plant List portion of the PepsiCo Library along with […***…] to PEPSICO.

 

13.4     Exceptions to Confidential Information

 

Confidential Information will not include any information, which the receiving party can prove by competent written evidence:

 

i)

is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available to the public;

 

ii)

is known by the receiving party at the time of receiving such information, as evidenced by its records;

 

iii)

is hereafter furnished to the receiving party without restriction as to disclosure or use by a Third Party lawfully entitled to furnish such information;

 

iv)

is independently developed by the employees, agents or contractors of the receiving party without the aid, application or use of the disclosing party’s Confidential Information; or

 

v)

is the subject of a written permission to disclose provided by the disclosing party.

 

A party may also disclose Confidential Information of the other party where required to do so by law or legal process; provided, however, that, in such event, the party required to disclose such information must give advance written notice of such disclosure to the other party and must cooperate with the other party’s efforts to seek, at the request and expense of the other party, all confidential treatment and protection for such disclosure as is permitted by applicable law.

 

 

13.5     Confidential Material Terms

 

The parties agree that the material terms, including financial terms, of this Agreement will be considered Confidential Information of both parties. Notwithstanding the foregoing, either party may disclose such material terms and the contents of any Royalty Report (and in the case of [⁴²]) in legal proceedings or as are required to be disclosed in its financial statements, by law, or under an obligation of confidentiality to bona fide potential sublicensees (in the case of disclosure to a sublicensee, only those portions of the Agreement that are applicable to the potential sublicense may be disclosed). Either party will have the further right to disclose such material terms of this Agreement and the contents of any Royalty Report under an obligation of confidentiality to any potential acquirer, merger partner, bank, venture capital firm, or other investor or financial institution for the purpose of evaluating such investment, transaction or to obtain financing.

 

13.6     Confidential Research Information

 

The parties agree that all results and data generated from the research under each Collaborative R&D Program will be owned exclusively by SENOMYX and, subject to the exceptions in Section 13.4, considered Confidential Information of SENOMYX, subject to the confidentiality requirements of Section 13. Accordingly, for the avoidance of doubt, the parties further agree that Senomyx shall have the authority to include any results and data that it generates in the course of each Collaborative R&D Program in any patent application , or in connection with the prosecution, maintenance or enforcement of any patent or patent application, or in connection with regulatory filings or other submissions to regulatory authorities without the prior consent or approval of PEPSICO. PEPSICO will not provide to a Third Party any Materials provided by SENOMYX to PEPSICO.

 

 

13.7     Permitted Use and Disclosures

 

Each party may use or disclose Confidential Information disclosed to it by the other party

 

i)

to the extent such information is included in the PEPSICO Technology, SENOMYX Technology or Joint Patent Rights, and

 

ii)

to the extent such use or disclosure is reasonably necessary and permitted in the exercise of the rights granted hereunder in:

 

a)

filing or prosecuting patent applications;

 

b)

prosecuting or defending litigation;

 

c)

complying with applicable governmental regulations, or court orders or otherwise submitting information to tax or other governmental authorities;

 

d)

conducting clinical trials or other safety studies for Selected Compounds or other regulatory approval applications for Selected Compounds;

 

e)

submitting information for food additive approval applications or other regulatory approval applications for Selected Compounds; or

 

f)

making a permitted sublicense or otherwise exercising rights expressly granted to the other party pursuant to the terms of this Agreement.

 

If a party is required to make any such disclosure of the other party’s Confidential Information as described in this Section 13.7, it will give reasonable advance notice of such disclosure to the other party where reasonably possible and will use its reasonable efforts to secure confidential treatment of such Confidential Information in consultation with the other party prior to such disclosure (whether through protective orders or otherwise) and disclose only the minimum necessary to comply with such requirements.

 

13.8     Use of Data for Promotional Purposes

 

Either party may (i) make public statements regarding Collaboration Compounds, Selected Compounds, or Beverages or Beverage Bases incorporating Selected Compounds by announcing the achievement of milestones therefor, following consultation with the other party and with the written consent of the other party to the form and content of the public statement which shall not be unreasonably withheld, conditioned or delayed, and (ii) without the prior consent of the other party, make public statements regarding the overall success rate(s) (excluding any competitively sensitive information of PEPSICO) achieved by and/or for its customers with the use SENOMYX Technology; provided, however, that it may not disclose any chemical structures, screens or the other party’s identity.

 

13.9     Publication of Results

 

Subject to the express provisions of this Agreement, results and data obtained by either party in the course of the collaboration may be submitted for publication by SENOMYX to the extent such publication [⁴³], in each case in accordance with SENOMYX’s customary practices. SENOMYX will send a copy of the proposed publication to PEPSICO for its approval which shall not be unreasonably withheld, conditioned or delayed.

 

13.10     Publicity

 

Except as required by law and as provided in this Agreement, neither party may make any public announcement or otherwise disclose the terms of this Agreement without the prior written consent of the other party, which consent will not be unreasonably withheld. Notwithstanding the foregoing, not more than two (2) business days following the Original Effective Date, the parties will issue a joint press release in a form mutually acceptable to both parties and not more than four (4) business days following the Original Effective Date SENOMYX shall file a current report on Form 8-K that will publicly disclose the material terms of the Original Agreement as required under applicable securities laws. Furthermore, SENOMYX may issue a press release in a form mutually acceptable to both parties not more than two (2) business days following the Amended Effective Date, and not more than four (4) business days following the Amended Effective Date SENOMYX shall file a current report on Form 8-K that will publicly disclose the material terms of this Agreement as required under applicable securities laws. Thereafter, PEPSICO and SENOMYX may each disclose to Third Parties the information contained in such press release or current report without the need for further approval by the other party

 

 

14.	Term, Early Conclusion, and Termination

 

14.1     Term

 

The term of this Agreement will begin on the Original Effective Date and will continue through the end of the Commercialization Period, unless terminated earlier in accordance with the provisions of Section 14.2, 14.3 or 14.4 hereof (the “Term”).

 

14.2     Termination for Breach

 

A party has the right to terminate this Agreement at any time for a material breach of this Agreement by the other party, provided that the breaching party has not cured such breach within [⁴⁴] after written notice thereof by the non-breaching party, except that in the case of failure to timely pay amounts owed such cure period shall be […***…]. In the event of a termination by SENOMYX due to PEPSICO’s material breach, PEPSICO shall continue to be responsible for reimbursement of its portion off any non-cancellable expenditures that SENOMYX has incurred prior to receipt of such notice of termination and which PEPSICO agreed to pay under this Agreement. The non-breaching party, upon termination of this Agreement, may seek any damages and remedies available to it at law or in equity.

 

14.3     Termination By Mutual Agreement

 

The parties may terminate this Agreement at any time, in whole or in part, by mutual written agreement executed by both parties.

 

14.4     Termination By PEPSICO

 

PEPSICO may terminate this Agreement in its entirety upon written notice to SENOMYX not later than sixty days following (i) the merger or consolidation of SENOMYX with a Direct PEPSICO Competitor or (ii) the acquisition by a Direct PEPSICO Competitor of ownership or control of more than 30% of the outstanding securities having voting rights for the election of directors of SENOMYX. For purposes of this Section 14.4, “control” shall mean direct or indirect beneficial ownership.

 

 

Following conclusion of the Collaborative R & D Period for all three Collaborative R & D Programs, PEPSICO may terminate this Agreement in its entirety without cause upon ninety (90) days prior written notice to SENOMYX.

 

In the event of termination of this Agreement by PEPSICO under this Section 14.4, PEPSICO shall continue to be responsible for reimbursement of its portion of any non-cancellable expenditures that SENOMYX has incurred prior to receipt of such notice of termination and which PEPSICO agreed to pay under this Agreement.

 

14.5     Effect of Termination

 

Upon termination of this Agreement, all rights and obligations of the parties under this Agreement will terminate, except as expressly provided in this Section 14.5 and Section 14.6, and, without limiting the generality of the foregoing, PEPSICO and its Affiliates will have no right to practice the Target IP or use the Target IP, and SENOMYX shall have full and unfettered rights to exploit the Target IP, and all rights, title and interest in and to the Target IP shall remain the sole property of SENOMYX.

 

Expiration or termination of this Agreement will not relieve the parties of any obligation accruing before such expiration or termination (including, without limitation, payment of accrued royalties). PEPSICO will be obligated to pay SENOMYX a pro rata portion of all MARs due as of the effective date of termination (as described in further detail below).

 

In the event of the expiration or termination of this Agreement, the MARs for the final Commercialization Year for each Selected Compound shall be calculated by [⁴⁵] (i) […***…] under Section 8.4.1 and Section 8.4.2 in such final Commercialization Year for each Minimum Annual Royalty Category from (ii) […***…] (a) […***…] by (b) the […***…] in such Commercialization Year.

 

Upon termination of this Agreement for any reason, SENOMYX, at its sole discretion, shall determine whether PEPSICO shall cancel or assign to SENOMYX any and all sublicense agreements executed by Ingredient Suppliers. Notwithstanding the foregoing, in the event that PEPSICO has sublicensed the rights applicable to a Selected Synthetic Enhancing Compound […***…] under Section 9.6.1 prior to the Amended and Effective Date and this Agreement terminates for any reason (other than […***…]), then SENOMYX shall promptly notify […***…]. Not later than […***…] following […***…] receipt of such notice, […***…] that were properly sublicensed (in accordance with Section 9.6 of this Agreement) by PEPSICO […***…] prior to the termination of this Agreement […***…] [⁴⁶] such licensed rights and of […***…] to (i) […***…] applicable to PEPSICO relating to the sublicensed Selected Enhancing Compounds under this Agreement (including the […***…] set forth in this Agreement) and (ii) […***…] with PEPSICO, which in no case […***…] this Agreement. All […***…] under this Agreement shall be deemed to […***…] notwithstanding the termination of this Agreement and […***…]. In that circumstance, notwithstanding the […***…] properly made by PEPSICO under Section 9.6.1 and […***…], SENOMYX shall not be deemed to […***…].

 

 

14.6     Survival

 

The obligations and rights of the parties under Sections 5.1.1 (third paragraph only), 5.1.2 (third paragraph only), 5.3 (second paragraph only), 5.4 (other than first paragraph), 8.10, 8.12, 10, 11, 12, 13, 14.5, 14.6, 15, 16 and Appendix A, will survive termination or expiration of this Agreement.

 

15.	Warranties and Indemnification

 

15.1     Mutual Representations and Warranties

 

The parties make the following representations and warranties to each other:

 

15.2     Corporate Power

 

Each party hereby represents and warrants that as of the Original Effective Date and the Amended Effective Date, such party:

 

(i)

is duly organized, validly existing under the laws of the state of its incorporation, and in good standing;

 

(ii)

has all requisite corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted; and

 

(iii)

is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on its ability to perform its obligations under this Agreement.

 

 

15.3     Due Authorization

 

Each party hereby represents and warrants that as of the Original Effective Date and the Amended Effective Date, such party:

 

(i)

has the requisite corporate power and authority and the legal right to execute and deliver this Agreement and to perform its obligations hereunder;

 

(ii)

has taken all necessary action on its part to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder and the grant of rights extended by it hereunder, and no action or corporate procedure is necessary to authorize this Agreement, the performance of its obligations hereunder or the grant of rights extended hereunder.

 

15.4     Binding Agreement

 

Each party hereby represents and warrants to the other that as of the Original Effective Date and the Amended Effective Date:

 

(i)

this Agreement has been duly executed and delivered on its behalf and is a legal and valid obligation binding upon it and is enforceable in accordance with its terms;

 

(ii)

the execution, delivery and performance of this Agreement by such party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it; and

 

(iii)

all necessary consents, approvals and authorizations of all governmental authorities and other persons required to be obtained by it in connection with the Agreement have been obtained.

 

15.5     Warranties Regarding SENOMYX Technology

 

SENOMYX warrants to PEPSICO as of the Original Effective Date and the Amended Effective Date the following:

 

15.5.1

SENOMYX Express Warranties

 

As of the Original Effective Date and the Amended Effective Date:

 

(i)

To the best of SENOMYX’s knowledge, SENOMYX has the lawful right to license the Target IP in existence on the Effective Date to PEPSICO in accordance with the terms of this Agreement;

 

 

(ii)

SENOMYX is not precluded under any license or other agreement with a Third Party from entering into this Agreement and granting the rights to PEPSICO provided hereunder;

 

(iii)

To the best of SENOMYX’s knowledge, the activities to be performed by SENOMYX under this Agreement will not infringe any patents, copyrights, trademarks or other intellectual property rights of a Third Party; and

 

(iv)

SENOMYX has not been served with a Third Party suit, nor otherwise received written notice, or verbal notice to any current SENOMYX officer, of any allegation of infringement, relating to the SENOMYX Technology.

 

15.5.2

SENOMYX Disclaimer

 

EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES SET FORTH IN SECTION 15.5.1, SENOMYX (INCLUDING ITS OFFICERS, EMPLOYEES AND AGENTS) EXPRESSLY DISCLAIMS ANY FURTHER REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, RELATING TO SENOMYX TECHNOLOGY; INCLUDING ANY EXPRESS OR IMPLIED WARRANTY

 

(i)

OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF SENOMYX TECHNOLOGY OR SENOMYX PATENT RIGHTS; AND

 

(ii)

THAT THE PRACTICE OF SENOMYX TECHNOLOGY WILL NOT INFRINGE A PATENT, COPYRIGHT, TRADEMARK OR OTHER RIGHT OF A THIRD PARTY; AND

 

(iii)

REGARDING THE PATENTABILITY OF ANY SENOMYX TECHNOLOGY, INCLUDING SENOMYX TECHNOLOGY CLAIMED IN PATENT APPLICATIONS AS PART OF SENOMYX PATENT RIGHTS.

 

15.5.3

SENOMYX Indemnification.

 

SENOMYX hereby agrees to defend and indemnify PEPSICO, and its respective officers, directors, employees, agents and Affiliates (collectively, the “PEPSICO Indemnitees”) from and against all damages or other amounts payable by PEPSICO Indemnitees to a Third Party, including reasonable attorneys’ fees and costs of litigation, resulting from a claim, demand, action, suit or other proceeding brought or threatened by a Third Party against a PEPSICO Indemnitee based on SENOMYX’s material breach of the terms of this Agreement (including any material breach of any warranties) or SENOMYX’s negligence or willful misconduct including but not limited to, product liability claims arising out of any tests conducted solely by SENOMYX on any Compounds and any environmental claims against PEPSICO Indemnitees relating to SENOMYX’s performance or failure to perform under this Agreement. IN NO EVENT WILL SENOMYX BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES SUFFERED BY PEPSICO RESULTING FROM THIS AGREEMENT.

 

 

15.6     Warranties Relating to PEPSICO Technology

 

PEPSICO represents and warrants to SENOMYX as of the Original Effective Date and the Amended Effective Date the following:

 

15.6.1

PEPSICO Express Warranties

 

As of the Original Effective Date and the Amended Effective Date (with respect to PEPSICO Technology) and as of the Amended Effective Date (with respect to PEPSICO Library):

 

(i)

To the best of PEPSICO’s knowledge, PEPSICO has the lawful right to license (or sublicense, as the case may be) the PEPSICO Technology and PEPSICO Library to SENOMYX in accordance with the terms of this Agreement; and

 

(ii)

PEPSICO is not precluded under any license or other agreement with a Third Party from entering into this Agreement and granting the rights to SENOMYX provided hereunder.

 

15.6.2

PEPSICO Disclaimer

 

EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE WARRANTIES SET FORTH IN SECTION 15.6.1, PEPSICO (INCLUDING ITS OFFICERS, EMPLOYEES AND AGENTS) EXPRESSLY DISCLAIMS ANY FURTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, RELATING TO PEPSICO TECHNOLOGY, INCLUDING ANY EXPRESS OR IMPLIED WARRANTY

 

(i)

OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF PEPSICO TECHNOLOGY OR PEPSICO PATENT RIGHTS; AND

 

(ii)

THAT THE PRACTICE OF PEPSICO TECHNOLOGY WILL NOT INFRINGE A PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHT OF A THIRD PARTY; AND

 

(iii)

REGARDING THE PATENTABILITY OF ANY PEPSICO TECHNOLOGY, INCLUDING PEPSICO TECHNOLOGY CLAIMED IN PATENT APPLICATIONS AS PART OF PEPSICO PATENT RIGHTS.

 

 

15.6.3

PEPSICO Indemnification

 

PEPSICO hereby agrees to defend and indemnify SENOMYX, its Affiliates and its and their respective officers, directors, employees and agents (collectively, the “SENOMYX Indemnitees”) from and against all damages or other amounts payable by SENOMYX Indemnitees to a Third Party, including reasonable attorneys’ fees and costs of litigation, resulting from a claim, demand, action, suit or other proceeding brought or threatened by a Third Party against a SENOMYX Indemnitee based on:

 

(i)

material breach by PEPSICO of the terms of this Agreement (including any material breach of any warranties) or negligence or willful misconduct of PEPSICO or its Affiliates including but not limited to, product liability claims arising out of any tests conducted solely by PEPSICO or its Affiliates on any Compounds and any environmental claims against SENOMYX Indemnitees relating to PEPSICO’s (or any of its Affiliates) performance or failure to perform under this Agreement;

 

(ii)

any development, testing, manufacture, use, handling, storage, sale, or other disposition of a Selected Compound or Beverage or Beverage Base incorporating a Selected Compound or other Product by or through PEPSICO or its Affiliates or Bottlers or its permitted sublicensees;

 

(iii)

a product liability claim on any Product; and

 

(iv)

the practice by PEPSICO, its Affiliates or its permitted sublicensees of any license granted hereunder.

 

IN NO EVENT WILL PEPSICO BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES SUFFERED BY SENOMYX RESULTING FROM THE EXERCISE OF ANY RIGHTS GRANTED IN ACCORDANCE WITH THIS AGREEMENT.

 

15.6.4

PEPSICO Indemnification Of Certain SENOMYX Licensors

 

PEPSICO hereby agrees to indemnify, defend and hold [⁴⁷] and its respective officers, sponsors, directors, employees, and agents harmless from and against all damages or other amounts payable to a Third Party, including reasonable attorneys’ fees and costs, of any (i) […***…] arising out of the development, testing, manufacture, use, handling, storage, sale or other disposition by PEPSICO or its Affiliates of a Selected Compound, Beverages or Beverage Bases incorporating a Selected Compound and (ii) resulting or arising from the exercise of rights by PEPSICO and its Affiliates under the licenses granted under Section 9.

 

 

16.	Miscellaneous

 

16.1     Force Majeure

 

Neither party will lose any rights hereunder or be liable to the other party for damages or losses on account of failure of performance by the defaulting party (other than a payment default) if the failure is occasioned by war, fire, explosion, flood, (e.g. El Niño), earthquake, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting party; provided, however, that the party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure and thereafter takes all reasonable steps to mitigate any such delay in performance hereunder and any damages that may be incurred by the other party thereby.

 

16.2     Governing Law and Jurisdiction

 

This Agreement will be governed by the laws of the State of Delaware, as such laws are applied to contracts entered into and to be performed entirely within such state.

 

16.3     Binding Effect

 

This Agreement will be binding upon and inure to the benefit of the successors and permitted assigns of the parties.

 

16.4     Dispute Resolution

 

The parties recognize that disputes as to certain matters may, from time to time, arise during the Term, which relate to either party’s rights and/or obligations hereunder. It is the objective of the parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to arbitration. The parties agree that prior to any arbitration concerning this Agreement, SENOMYX’s [⁴⁸] and PEPSICO’s […***…] or another corporate officer of PEPSICO with the title of Executive Vice President or higher, will meet in person, or by video-conferencing and will use best efforts to resolve any disputes concerning this Agreement.

 

Within […***…] of a formal request by either party to the other party, either party may, by written notice to the other party, have such dispute referred to their respective officers designated, or their successors, for attempted resolution by good faith negotiations, such good faith negotiations to begin within thirty days after such notice is received. Any dispute arising out of or relating to this Agreement which is not resolved between the parties or the designated officers of the parties pursuant to this Section 16.4 will be resolved by final and binding arbitration conducted in New York, New York (unless the parties mutually agree to another location) in accordance with the rules of the American Arbitration Association. The arbitration will be conducted by a single, neutral arbitrator who is knowledgeable in the general subject matter at issue in the dispute.

 

The parties will agree on the arbitrator and if they cannot agree, the arbitrator will be selected in accordance with the procedures of the American Arbitration Association.

 

 

In conducting the arbitration, the arbitrator will

 

(i)

determine what discovery will be permitted, consistent with the goal of limiting the cost and time which the parties must expend for discovery (and provided that the arbitrators will permit such discovery they deem necessary to permit an equitable resolution of the dispute),

 

(ii)

ensure that the total time of the arbitration from filing to a final decision or executed settlement agreement is less than six months, and

 

(iii)

be able to decree any and all relief of an equitable nature, including, but not limited to, such relief as a temporary restraining order, a preliminary injunction, a permanent injunction, specific performance or repletion of property.

 

The arbitrator will also be able to award damages and recommend injunctions.

 

The parties will share equally the arbitrator’s fees and expenses pending the resolution of the arbitration.

 

The decision of the arbitrator will be final and binding on the parties and may be sued on or enforced by the party in whose favor it runs in any court of competent jurisdiction at the option of such party.

 

Notwithstanding anything to the contrary in this Section 16.4, either party may seek immediate injunctive or other interim relief from any court of competent jurisdiction with respect to any breach of Sections 10 or 13 hereof, or otherwise to enforce and protect the Patent Rights, copyrights, trademarks, or other intellectual property rights Controlled by such party. In addition, arbitration will not be used to resolve disputes concerning Patent Rights. Disputes concerning Patent Rights, including, but not limited to, disputes concerning patent ownership, claim language, claim scope and issues of validity will be settled in a court of law. Any arbitration ruling that relies on an interpretation of Patent Rights will have no binding effect in a court of law on any Patent Rights related to this Agreement, unless such Patent Rights have been adjudicated in a court of law. In no event will a demand for arbitration be made after the date when the institution of a legal or equitable proceeding based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Notwithstanding the foregoing or the outcome of the arbitration proceeding, each party will bear its own expenses including, without limitation, attorneys’ fees and court costs, even if the arbitrators have the discretion to award such fees and costs to the prevailing party.

 

16.5     Severability

 

If any term of this Agreement or the application thereof to any party or circumstance is, to any extent, held to be invalid or unenforceable, then the remainder of this Agreement, or the application of such term to parties or circumstances other than those as to which it is held invalid or unenforceable, will not be affected thereby and each term of this Agreement will be valid and enforced to the fullest extent permitted by law. The parties agree to renegotiate such term in good faith in order to provide a reasonably acceptable alternative to the term that is invalid or unenforceable, it being the intent of the parties that the basic purposes of this Agreement are to be effectuated.

 

 

16.6     Independent Contractors

 

It is expressly agreed that PEPSICO and SENOMYX will be independent contractors and that the relationship between the parties will not constitute a partnership or agency of any kind. Neither PEPSICO nor SENOMYX will have the authority to make any statements, representations or commitments of any kind, or to take any action, which will be binding on the other party, without the prior written authorization of the other party to do so.

 

16.7     Entire Agreement

 

This Agreement sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the parties, on the Original Effective Date, and supersedes and terminates all prior agreements and understandings between the parties, with respect to the subject matter hereof (including, without limitation, the Term Sheet with the exception of the indemnity provisions therein which shall expressly survive and continue in full force and effect). For the avoidance of doubt, the Mutual Nondisclosure Agreement shall continue to apply with respect to the activities of the parties prior to the Original Effective Date. There are no prior or contemporaneous covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the parties other than as set forth in this Agreement.

 

16.8     Amendment

 

No subsequent alteration, amendment, change or addition to this Agreement will be binding upon the parties unless reduced to writing and signed by the respective authorized officers of the parties.

 

16.9     Interpretation

 

This Agreement will not be strictly construed against either party. Any conflict between the terms set forth in the text of this Agreement and the terms of any Appendix hereto will be resolved in favor of the text of this Agreement.

 

16.10     Waiver

 

Except as specifically provided for in this Agreement, the waiver from time to time by either of the parties of any rights or the failure to exercise any remedy will not operate or be construed as a continuing waiver of the same right or remedy or any of the other of such party’s rights or remedies provided in this Agreement.

 

 

16.11     Construction

 

The term “Article” or “Section” can refer to any single paragraph level found in this Agreement or any collection of multiple paragraphs.

 

16.12     No Third Party Beneficiaries

 

No Third Party, including any employee of any party to this Agreement (except as specifically provided in this Agreement) will have or acquire any rights by reason of this Agreement. Nothing contained in this Agreement will be deemed to constitute the parties partners with each other or any Third Party.

 

16.13     Notices

 

Any notices or communications provided for in this Agreement to be made by either party to the other party must be in writing, in English, and will be made by prepaid air mail or overnight carrier with return receipt addressed to the other party at its address set forth below. Any such notice or communication may also be given by hand, or facsimile to the appropriate designation. Notices will be sent:

 

	If to SENOMYX, to:	SENOMYX, Inc. 4767 Nexus Centre Drive San Diego, CA 92121 Facsimile number: (858) 404-0750
	Attention: [...***...]
	If to PEPSICO, to:	PepsiCo, Inc. 700 Anderson Hill Road Purchase, New York 10577 Facsimile number: (914) 249-8339
	Attention: […***…]

 

By like notice, either party may specify or change an address to which notices and communications must be thereafter sent. Notices sent by mail, facsimile or overnight carrier will be effective upon receipt and notices given by hand will be effective when delivered.

 

16.14     Assignment

 

Neither party may assign any of its rights or obligations under this Agreement in any country to any Third Party without the prior written consent of the non-assigning party, which consent may be withheld in the sole discretion of the non-assigning party. 

 

 

Notwithstanding the preceding sentence, either party may assign its rights and obligations under this Agreement without the consent of the other party:

 

(i)

to a successor to substantially all of the business of such party to which this Agreement relates, whether by merger, sale of stock, sale of assets or other transaction; or

 

(ii)

to any Affiliate.

 

Notwithstanding the foregoing, any such assignment to an Affiliate will not relieve the assigning party of its responsibilities for performance of its obligations under this agreement.

 

Subject to the foregoing, this Agreement shall inure to the benefit of each party, its successors and permitted assigns. Any assignment of this Agreement in contravention of this Section 16.14 shall be null and void.

 

16.15     Merger or Consolidation

 

This Agreement will survive any merger or consolidation of either party with or into another party and no consent for any such merger, consolidation or similar reorganization will be required.

 

16.16     Counterparts

 

This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

 

16.17 Law and Regulation

 

While carrying out the obligations set forth in the Agreement, the parties will ensure compliance with all applicable laws and regulations, including, without limitation, all environmental, competition and import and export laws and regulations.

 

 

 

[Remainder of Page Intentionally Left Blank]

 

 

IN WITNESS WHEREOF, the parties, through their authorized officers, have executed this Agreement as of the Amended Effective Date.

 

 

 

Senomyx, Inc.          PepsiCo, Inc.

 

By:	/s/ John Poyhonen		By:	/s/ Mehmood Khan
Name:	John Poyhonen		Name:	Mehmood Khan
Title:	President and Chief Executive Officer		Title:	Vice Chair/ Chief Scientist
Date:	September 28, 2016		Date:	September 29, 2016

 

 

 

 

[Signature Page to Amended and Restated Collaborative Research, Development, Commercialization and License Agreement between Senomyx, Inc. and PepsiCo, Inc.]

 

 

COLLABORATIVE RESEARCH, DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT

 

APPENDIX A - DEFINITIONS

 

“Affiliate” means any corporation, company, partnership, joint venture, association or other entity, which directly or indirectly controls, is controlled by or is under common control with a party. As used in this definition, the term “control” means direct or indirect beneficial ownership of fifty percent or more of the outstanding securities having voting rights for the election of directors in a corporation or of the comparable equity interest in any other type of entity. With respect to PEPSICO, “Affiliate” [...***...].

 

“Agreement” means this agreement, together with all appendices attached hereto, as it may be amended or supplemented from time to time hereafter by a written agreement executed by authorized representatives of both parties.

 

“Amended Effective Date” means the date first set forth on which this Agreement is signed by the last of the parties required to execute it.

 

“Analog Compounds” mean Compounds which are analogs of Natural Compounds that do not exist in nature and function as a sweetener at the intended level of use and are discovered after the Amended Effective Date.

 

“Beverages” means non-alcoholic beverages sold under the trademark(s) of PEPSICO or its Affiliates (including, without limitation, […***…]) packaged and sold for use or consumption by an end user, whether in a ready-to-drink format, or as a dry-powdered, liquid or frozen concentrate.

 

“Beverage Base” means concentrated flavor combinations made and sold by PEPSICO or its Affiliates, such as bases sold to a Bottler or for foodservice for use in fountain drinks, which are then used to make Beverages which are intended for use or consumption by an end user. For the avoidance of doubt, the Beverage Base is not packaged and sold for end use by consumers.

 

“Bottlers” means bottlers of Beverages authorized by PEPSICO or one of its Affiliates to sell Beverages under the trademarks of PEPSICO or one of its Affiliates.

 

“Calendar Quarter” means each three month period during a Calendar Year commencing on January 1, April 1, July 1 and October 1.

 

“Calendar Year” means a period of a year beginning January 1 and ending December 31.

 

“Co-Exclusive” means, with reference to a license granted by SENOMYX under Section 9.4, that, in addition to the license granted to PEPSICO and its Affiliates under Section 9.4, SENOMYX may grant a comparable license (i.e., a worldwide license under SENOMYX’s intellectual property to make, have made, use and sell dry-powdered non-alcoholic beverages incorporating Compounds) to only one (1) party (and such party’s Affiliates). SENOMYX and PEPSICO acknowledge and agree that such other co-exclusive licensee may be an Ingredient Supplier that is authorized to manufacture and sell a Selected Compound to a Third Party manufacturer of non-alcoholic beverages.

 

 

“Co-Exclusive Product Category” means all dry-powdered non-alcoholic beverages. For the avoidance of doubt, the Co-Excusive Product Category does not include any Therapeutics or other products which are not non-alcoholic beverages such as table top or bulk packaged sweeteners/enhancers, powdered coffee creamers (whether dairy or non-dairy) or semi-liquid products, such as drinkable, spoonable or squeezable yogurt.

 

“Collaboration Compounds” means Enhancing Compounds, Analog Compounds and Natural Sweetener Compounds.

 

“Collaborative R&D Period” means with respect to (i) the Synthetic Enhancing Compound Program the period beginning on the Original Effective Date and concluding on September 30, 2016; (ii) the Natural Enhancing Compound Program and the Natural Sweetener Compound Program, the period beginning on the Original Effective Date and ending September 30, 2019, except that such period may be extended with respect to such programs by PEPSICO’s exercise of the Extension Option in accordance with Section 2.3.

 

“Collaborative R&D Program” means any of the Synthetic Enhancing Compound Program, Natural Enhancing Compound Program and/or Natural Sweetener Program.

 

“Commercialization Period” (determined with respect to each Selected Compound individually) means the period (a) beginning on the earlier of (i) with respect to a Selected Enhancing Compound, the first anniversary of the date of the first [⁵¹] for use of such Selected Enhancing Compound in at least one product category licensed to PEPSICO under this Agreement, (ii) with respect to a Selected Natural Sweetener Compound, the first anniversary of the date of the first Regulatory Approval of such Selected Natural Sweetener Compound authorizing the use of such Selected Natural Sweetener Compound in a Major Country in at least one product category licensed to PEPSICO under this Agreement, or (iii) the first commercial sale by PEPSICO or any of its Affiliates or permitted sublicensee of a Product incorporating such Selected Compound and (b) ending on the date that there no longer exists a Valid Claim in a Patent Right Controlled by SENOMYX or its Affiliates covering the manufacture, use or sale of such Selected Compound(s) or Product incorporating such Selected Compound(s) in any country in which the Selected Compound is manufactured or sold, or where Products incorporating Selected Compounds are manufactured or sold. In the event that PEPSICO does not select at least one Selected Compound under a given Collaborative R&D Program as contemplated by Section 4.3, then with respect to that Collaborative R&D Program the Commercialization Period will automatically expire and terminate.

 

“Commercialization Plan” has the meaning set forth in Section 6. 

 

 

“Commercialization Year” means with respect to each Selected Compound, the twelve (12) month periods beginning the first day of the calendar quarter immediately following commencement of the applicable Commercialization Period and each twelve (12) month period thereafter.

 

“Compound(s)” means (i) a substance(s) that enhances the sweetness intensity of a sweetener, or (ii) a Natural Compound that is a sweetener.

 

“Confidential Information” means all information, Inventions and Know-How disclosed by one party to the other party, whether pursuant to this Agreement, or the Mutual Nondisclosure Agreement, including, without limitation, information and material (whether or not patentable) regarding technology, products, research, development, manufacturing, marketing, finances, personnel or other business information or objectives which is designated as confidential in writing by the disclosing party, whether by letter or by the use of an appropriate stamp or legend, prior to or at the time any such material, trade secret or other information is disclosed by the disclosing party to the other party. Notwithstanding the foregoing to the contrary, Inventions, Know-How or other information which is orally, electronically or visually disclosed by a party, or is disclosed in writing without an appropriate letter, stamp or legend, will constitute Confidential Information of a party if the disclosing party, within 30 days after such disclosure, delivers to the other party a written document or documents describing the Inventions, Know-How or other information and referencing the place and date of such oral, visual, electronic or written disclosure and the names of the persons to whom such disclosure was made.

 

“Control” or “Controlled” means, with respect to intellectual property, information or Materials, possession by a party, as of the Original Effective Date or during the applicable Collaborative R&D Period, of the ability to grant a license or sublicense in accordance with the terms of this Agreement, without violating the terms of any agreement between such party and any Third Party that is in effect on the Original Effective Date.

 

“Consumer Price Index” means the Consumer Price Index for All Urban Consumers (CPI-U) U.S. City Average, by expenditure category and commodity and service group, for the food and beverages expenditure category, as published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100). If the 1982-84 base of the Consumer Price Index is hereafter changed, then the new base will be converted to the 1982-84 base and the base as so converted shall be used. In the event that the Bureau ceases to publish the Consumer Price Index at least once a year, then the successor or most nearly comparable Index thereto selected by SENOMYX and approved by PEPSICO shall be used. Changes in the Consumer Price Index will be measured based on annual average (e.g. percent change in annual average from 2010 to 2011).

 

“Cost of Selected Compound” means the actual gross amount invoiced (in US$) to PEPSICO or its Affiliate by a Third Party in good faith in an arm’s length transaction for the manufacture, sale and delivery of a Selected Compound on a per Unit Case basis, including [...***...][...***...]. The Cost of Selected Compound will be calculated for each Calendar Quarter during the Commercialization Period, for each Beverage and Beverage Base, based on actual amounts purchased by PEPSICO and its Affiliates of the Selected Compound […***…] and the actual amounts of such Selected Compound used in a given Beverage or Beverage Base, as the case may be. In the event that PEPSICO or any of its Affiliates elect to manufacture a Selected Compound, then the Cost of a Selected Compound will be the actual cost for such Selected Compound, determined on a per Unit Case basis for a given Beverage and Beverage Base, during the applicable Calendar Quarter. Actual costs of such Selected Compound shall be comprised of […***…]. If the Selected Compound is purchased from a Third Party […***…], and not […***…], then the gross amount invoiced for the Selected Compound will be deemed […***…] during the applicable period. If the Selected Compound is purchased […***…], and not […***…], then any […***…] as the Cost of Selected Compound […***…] of Selected Compound […***…].

 

 

“Data Package” has the meaning set forth in Section 4.2.

 

“Direct PEPSICO Competitor” means, as of the relevant date of determination, a company which has annual consolidated revenue of […***…] and in which greater than […***…] for the last full fiscal year of such company is generated by […***…].

 

“Enhancing Compound(s)” means Natural Enhancing Compound(s) and/or Synthetic Enhancing Compound(s).

 

“Enhancing Compound Concentration” means the Enhancing Compound is […***…] at which such Enhancing Compound […***…], as measured in Taste Tests.

 

“European Regulatory Approval” means Regulatory Approval by the European Food Safety Authority (“EFSA”).

 

 

“Exclusive” means, with reference to a license granted by SENOMYX under Section 9.3.1, exclusive as to Third Parties and SENOMYX.

 

“Exclusive Product Categories” means all non-alcoholic beverage product categories including liquid and frozen concentrates, but excluding the Co-Exclusive Product Category. For the avoidance of doubt, the Exclusive Product Categories do not include any Therapeutics, or other products which are not non-alcoholic beverages such as [...***...].

 

“Extension Option” shall have the meaning set forth in Section 2.3.

 

“Extract(s)” is the resulting liquid, solid or semisolids prepared from a two-step process involving the complete or partial separation/removal of desired portions of the plant matter with suitable solvents followed by the evaporation of all nearly all of the solvent

 

“FEMA” means the Flavor and Extract Manufacturers Association.

 

“FEMA GRAS” means the process by which a compound is determined to be Generally Recognized as Safe by the FEMA expert panel.

 

“FEMA GRAS Determination” means receipt of notification from FEMA of determination as Generally Recognized As Safe (“GRAS”).

 

“FEMA GRAS Studies” means the safety studies and manufacture of GMP material to support FEMA GRAS Determination set forth in the applicable Research Plan. SENOMYX, in its sole discretion, may supplement the list of FEMA GRAS Studies at any time, which will be reflected in the minutes for the applicable Steering Committee meeting.

 

“Field” means the Exclusive Product Categories and the Co-Exclusive Product Category.

 

“[…***…] Categories” means the following subset of the Third Party Beverage Manufacturer Product Categories: […***…]. For the avoidance of doubt, each of the […***…] Categories must be within the definition of Third Party Beverage Manufacturer Product Categories.

 

●

[…***…]

 

●

[…***…]

 

●

[…***…] [...***...]

 

●

[…***…]

 

“Ingredient Supplier” means a company that is primarily in the business of providing ingredients, flavors or food additives to food or beverage customers.

 

“Ingredient Supply Product(s)” means Selected Enhancing Compound(s) sold as […***…] intended for use in a nonalcoholic beverage; and […***…] in each case intended for use in a Third Party Beverage Manufacturer Product Category.

 

“Initial Regulatory Plan” has the meaning set forth in Section 4.2.

 

“Intended Purpose” has the meaning set forth in Section 4.3.

 

“Invention” means any invention, including any new and useful process, method, or composition of matter, or improvement thereto, whether or not patentable, made in the course of the applicable Collaborative R&D Program.

 

“Joint Invention” has the meaning set forth in Section 10.4 .

 

“Joint Patent Rights” means all Patent Rights containing one or more claims to a Joint Invention.

 

“Know-How” means information and data, whether or not patentable, which is not generally known to the public, including, without limitation, designs, concepts, formulae, software, techniques, practices, processes, methods, knowledge, skill, experience, expertise, technical information and data, including pharmacological, toxicological and clinical test data, analytical and quality control data, patent and legal data or marketing, sales and manufacturing data.

 

“Major Countries” means […***…]. A “Major Country” means any of the foregoing.

 

“MARs” has the meaning set forth in Section 8.5.1.

 

“[…***…]” means the […***…] from which all […***…].

 

“Materials” mean antagonists, agonists, inhibitors, compounds, and chemicals, including without limitation, Compounds, Collaboration Compounds and Selected Compounds. 

 

 

“Minimum Annual Royalty Categories” means the following categories and “Minimum Annual Royalty Category” means any one of the following categories[...***...].

 

“[…***…]” means […***…].

 

“Mutual Nondisclosure Agreement” means the Mutual Nondisclosure Agreement entered into between SENOMYX and Pepsi Cola Company dated […***…], as amended on […***…] and […***…].

 

“Natural Ago-Enhancing Compounds” means a Natural Compound under the Control of SENOMYX that when […***…] that is equivalent to […***…] in an in vitro assay and in Taste Tests.

 

“Naturals Collaborative R&D Program” shall mean the Natural Enhancing Compound Program and the Natural Sweetener Compound Program.

 

“Natural Compound(s)” means a compound(s) that exists in nature. A compound is still considered “Natural” if it is manufactured through processes other than plant extraction.

 

“Natural Enhancing Compound(s)” means a Natural Compound under the Control of SENOMYX that allows for at least […***…].

 

“Natural Enhancing Compound Program” means the research and development program to discover Natural Enhancing Compounds and develop any Selected Natural Enhancing Compounds, pursuant to the applicable Research Plan.

 

“Natural Sweetener Compound(s)” means a Natural Compound(s) under the Control of SENOMYX that (a) is a sweetener and is not an Enhancing Compound, or (b) is a Natural Ago-Enhancing Compound , in either case where such Natural Compound(s) meets the desired criteria set forth by the Steering Committee and incorporated into the minutes of the applicable Steering Committee.

 

 

“Natural Sweetener Compound Program” means the research and development program to discover Natural Sweetener Compounds and develop any Selected Natural Sweetener Compounds pursuant to the applicable Research Plan.

 

“Net Sales” means, with respect to any Ingredient Supply Product, [...***...] by Ingredient Suppliers on any sales or other transfer of the Ingredient Supply Product, less the following items:

 

i)

[…***…];

 

ii)

[…***…];

 

iii)

[…***…];

 

iv)

[…***…]; and

 

v)

[…***…].

 

“Original Collaborative R&D Period” means (i) with respect to Synthetic Enhancing Compounds, that period of time between the Original Effective Date through September 30, 2016; (ii) with respect to Natural Enhancing Compounds and Natural Sweetener Compounds, that period of time between the Original Effective Date and the Amended Effective Date.

 

“Original Effective Date” means August 16, 2010.

 

“Patent Rights” means all rights associated with all U.S. or foreign (including regional authorities such as the European Patent Office) regular or provisional patents or patent applications, including any continuation, continuation-in-part, renewal, request for continued examination or division thereof or any substitute application therefor or equivalent thereof, and any patent issuing thereon, including any reissue, reexamination or extension thereof and any confirmation patent, substitutions, confirmations, revalidations, revisions or registration patent or patent of additions based on any such patent.

 

“PEPSICO Criteria” means the list of criteria that PEPSICO has established as desirable for PEPSICO’s evaluation of a Collaboration Compound (including, for example, […***…]) which shall be presented to the applicable Steering Committee and reflected in the minutes at the meeting at which such criteria are first presented, which shall be not later than […***…][…***…], as such criteria may be updated by [...***...], and which will be reflected in the minutes for the applicable Steering Committee meeting.

 

 

“PEPSICO Exclusive Plant List” means a list […***…] determined by the Auditor to be found solely and exclusively in the PEPSICO Library and not duplicated in SENOMYX Library […***…].

 

“PEPSICO Know-How” means all Know-How Controlled by PEPSICO as of the Original Effective Date that is not covered by PEPSICO’s Patent Rights and that is provided to SENOMYX and necessary or appropriate for the activities to be conducted by SENOMYX under this Agreement.

 

“PEPSICO Library” shall mean that portion of plant […***…] owned by PEPSICO from which the PEPSICO Exclusive Plant List will be derived for use in the Natural Enhancing Compound Program and Natural Sweetener Compound Program […***…].

 

“PEPSICO Patent Rights” means all Patent Rights Controlled by PEPSICO as of the Original Effective Date, including, without limitation, any Patent Rights containing one or more claims to an Invention made solely by employees or agents of PEPSICO, but excluding any Joint Patent Rights, that are provided to SENOMYX for the activities to be conducted under this Agreement.

 

“PEPSICO Technology” means PEPSICO Patent Rights and PEPSICO Know-How.

 

“Percentage of Sweetener Reduction or PSR” means […***…]. The PSR will be adjusted on a […***…] basis to reflect any changes to a product formula that were implemented […***…]. With respect to a Beverage Base, the PSR will be calculated by […***…].

 

With respect to a Beverage that is a […***…] product that PEPSICO or its Affiliates […***…], the Selected Compound’s PSR will be calculated as (a) the total […***…] the total […***…] [...***...] by (b) the total […***…] the Selected Compound);

 

 

With respect to a Beverage for which PEPSICO or its Affiliates does not […***…], the Selected Compound’s PSR will be calculated in accordance with […***…].

 

“Products” means Beverages, Beverage Bases, and Ingredient Supply Products.

 

“Regulatory Approval” means, with respect to a Collaboration Compound, any regulatory approvals, licenses, permits or consents issued by any governmental authority, authorizing the use of such Collaboration Compound in the Field.

 

“Regulatory Plan” means an Initial Regulatory Plan as updated as contemplated under Section 5.1.

 

“Research Plans” means the detailed scientific research and development plans that define the key activities, responsibilities of the parties, research milestones and timelines for the Synthetic Enhancing Compound Program, Natural Enhancing Compound Program and Natural Sweetener Program.

 

“Royalty Report” shall mean the royalty statement furnished by a party in sufficient detail to permit confirmation of the accuracy of the royalty payment made in accordance with the accounting procedures set forth in Section 8.12.1.

 

“Royalty Shortfall” has the meaning set forth in Section 8.5.1.6.

 

“Selected Analog Compound(s)” means a Selected Compound(s) that is an Analog Compound(s).

 

“Selected Compound(s)” has the meaning set forth in Section 4.3.

 

“Selected Enhancing Compound(s)” means a Selected Compound(s) that is an Enhancing Compound(s)

 

“Selected Natural Enhancing Compound(s)” means a Selected Compound(s) that is a Natural Enhancing Compound(s).

 

“Selected Natural Sweetener Compound(s)” means a Selected Compound(s) that is a Natural Sweetener Compound(s).

 

“Selected Synthetic Enhancing Compound(s)” means a Selected Compound(s) that is a Synthetic Enhancing Compound(s). 

 

 

“SENOMYX Know-How” means all Know-How that is not covered by the SENOMYX Patent Rights and that is necessary or appropriate for the activities to be conducted under this Agreement, and which is Controlled by SENOMYX as of the Original Effective Date or developed by SENOMYX in the course of the Collaborative R&D Program.

 

“SENOMYX Library” means the approximately [...***...] plant […***…] owned by SENOMYX […***…].

 

“SENOMYX Patent Rights” mean all Patent Rights that are necessary or appropriate for the activities to be conducted under this Agreement, and which are Controlled by SENOMYX as of the Original Effective Date or developed by SENOMYX in the course of the Collaborative R&D Program, but excluding any Joint Patent Rights.

 

“SENOMYX Technology” means all of the SENOMYX Patent Rights and SENOMYX Know-How, including Target IP.

 

“Synthetic Compound” means any Compound that is not a Natural Compound.

 

“Synthetic Enhancing Compound” means a Synthetic Compound under the Control of SENOMYX that allows for at least […***…].

 

“Synthetic Enhancing Compound Program” means the research and development program to discover Synthetic Enhancing Compounds and develop any Selected Synthetic Enhancing Compounds, pursuant to the applicable Research Plan.

 

“Target IP” means the SENOMYX Patent Rights and SENOMYX Know-How claiming or covering […***…].

 

“Target Sweetener(s)” means sucrose, fructose and high fructose corn syrup (“HFCS”).

 

“Taste Tests” means based on the […***…].

 

“Term” has the meaning set forth in Section 14.1.

 

“Term Sheet” means the Term Sheet entered into between the parties dated June 23, 2010.

 

“Therapeutics” means any Compound(s) which […***…].

 

 

“Third Party(ies)” means any party other than SENOMYX or PEPSICO or their respective Affiliates.

 

“Third Party Beverage Manufacturer Product Categories” means all Third Party Manufacturer Beverages and Third Party Manufacturer Beverage Bases in the Exclusive Product Categories, except for the following specified product categories: Carbonated Soft Drinks, Hydration Beverages, Juices and Juice Flavored Drinks, and RTD Tea.

 

●

[…***…]

 

●

[…***…]

 

●

[…***…]

 

●

[…***…]

 

Notwithstanding the foregoing, each of the above-referenced product categories […***…] specifically excludes all beverages that contain […***…]% or greater milk (or milk substitute, such as soy milk) content.

 

“Third Party Collaborator” means any Third Party with whom SENOMYX has entered into an agreement after the Amended Effective Date for purposes of discovering or commercializing Natural Compounds that are intended for use as a sweetener and/or enhancer in all product categories.

 

“Third Party Manufacturer Beverages” means non-alcoholic beverages sold under the trademark(s) of a Third Party intended for use or consumption by an end user, whether in a ready-to-drink format, or as a liquid or frozen concentrate. Third Party Manufacturer Beverages excludes all dry-powdered beverages.

 

“Third Party Manufacturer Beverage Bases” means concentrated flavor combinations made and sold by a Third Party (such as bases sold to a bottler or for foodservice for use in fountain drinks) which are then used to make non-alcoholic beverages that are intended for use or consumption by an end user.

 

 

 

“Unit Case” means the equivalent of 192 ounces of finished beverage ready for consumption. With respect to powdered, liquid and frozen concentrates, it means the amount of concentrate for making 192 ounces of finished beverage.

 

“United States Regulatory Approval” means Regulatory Approval in the United States of America.

 

“Valid Claim” means a claim of a pending patent application or an issued patent within the Patent Rights Controlled by SENOMYX or any of its Affiliates, which has not (i) expired or been canceled; (ii) been declared invalid by an unreversed and unappealable decision of a court or other appropriate body of competent jurisdiction; (iii) been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise; or (iv) been abandoned.

 

 

COLLABORATIVE RESEARCH, DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT

 

Appendix B – Data Package Information

 

The following is a summary of the information to be provided in each Data Package. From time to time, the Steering Committee may consider revisions to this Appendix B. Any such revisions are subject to the approval of the Steering Committee and will be attached to the minutes of the applicable Steering Committee.

 

1.

Data Package Contents

 

a.

[...***...] for applicable Collaboration Compound

i.

[…***…]

ii.

[…***…]

iii.

[…***…]

iv.

[…***…]

v.

[…***…]

vi.

[…***…]

vii.

[…***…] will be included in an appendix.

 

b.

[…***…] of applicable Collaboration Compound

i.

[…***…]

ii.

[…***…]

iii.

[…***…]

iv.

[…***…]

 

 

c.

Summary of [...***...] of applicable Collaboration Compound in […***…]

 

A summary will be provided of the […***…]. The […***…] will be included in an appendix. The results of the […***…] will reflect the following with respect to SENOMYX’s […***…]:

 

i.

[…***…]

ii.

[…***…]

iii.

[…***…]

iv.

[…***…]

 

d.

[…***…] for the applicable Enhancing Compound (applies to […***…] Only)

i.

[…***…]

ii.

[…***…]

iii.

[…***…]

 

e.

[…***…] Plan

 

SENOMYX’s preliminary plan to pursue regulatory approval for the applicable Collaboration Compound as set forth in Section 4.2 of the Agreement. The […***…].

 

 

2.

Additional Data Package Contents for [...***...]

 

In addition to the information set forth above, for a […***…] the Data Package(s) will also include a section regarding […***…]

 

SCHEDULE 4.1

 

Following execution of the Amended and Restated R&D Agreement, SENOMYX and PEPSICO shall meet to engage the Auditor and to determine an apportionment of responsibilities for the Natural Programs. The outcome will be a mutually agreed-to Combined Library list. This list may be amended from time to time, with the consent of both parties, to reflect changes in the libraries, including additions to a library.

 

[...***...] SENOMYX and PEPSICO will […***…] based on the prioritized combined library list in […***…]. SENOMYX will then conduct […***…] with the following goals in mind, […***…]:

 

●

[…***…]

 

●

[…***…]

 

●

[…***…]

 

A technical team of SENOMYX and PEPSICO professionals will be formed and will hold scheduled calls […***…] to discuss progress and priorities of the programs. This team will determine ratings for top tested materials to be presented at the Steering Committee meetings and may reprioritize the workflow based on results.

 

The activities to be undertaken by the parties are set forth on the work flow chart set forth on the following page, which may be amended from time to time:

Step	Name	Action	Requirements	Preferred responsibility
[…***…]	[...***...]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]

 

 

 

Step	Name	Action	Requirements	Preferred responsibility
[…***…]	[...***...]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]

 

 

SCHEDULE 8.4.1 (A)

 

Royalties Per Unit Case – Sucrose Enhancing Compounds

 

[...***...]

 

		[…***…]
		[…***…]	[…***…]	[…***…]	[…***…]
		[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]

 

[…***…]

 

 

 

[...***...]

 

 

 

[...***...]

 

 

 

 

[...***...]

 

 

SCHEDULE 8.4.1 (B)

 

Royalties Per Unit Case – Fructose Enhancing Compounds

 

[...***...]

 

		[…***…]
		[…***…]	[…***…]	[…***…]	[…***…]
		[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]
[…***…]	[…***…]	[…***…]	[…***…]	[…***…]	[…***…]

 

[…***…]

 

 

 

[...***...]

 

 

 

 

[...***...]

 

 

 

 

[...***...]

 

 

 

 

[...***...]

 

 

***Confidential Treatment Requested

EXHIBIT 31.1

 

CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, John Poyhonen, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Senomyx, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: October 27, 2016	/S/ JOHN POYHONEN
	John Poyhonen
	President, Chief Executive Officer and Director

 

 

 

EXHIBIT 31.2

 

CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Antony Rogers, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Senomyx, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: October 27, 2016	/S/ ANTONY ROGERS
	Antony Rogers Senior Vice President and Chief Financial Officer

 

 

EXHIBIT 32

 

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

In connection with the quarterly report of Senomyx, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), John Poyhonen, President, Chief Executive Officer and Director of the Company, and Antony Rogers, Senior Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of his or her knowledge, that:

 

(1)  the Report to which this certification is attached as Exhibit 32 fully complies with the requirements of Section 13(a) and Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

 

(2)  the information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.

 

Date: October 27, 2016	/S/ JOHN POYHONEN		/S/ ANTONY ROGERS
	John Poyhonen		Antony Rogers
	President, Chief Executive Officer and Director		Senior Vice President and Chief Financial Officer

 

 

This certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18 of the Exchange Act. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.