Form 10-Q Ignyta, Inc. For: Mar 31

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 31, 2015

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: 001-36344

 

 

 

Ignyta, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		45-3174872
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
11111 Flintkote Avenue, San Diego, CA		92121
(Address of principal executive offices)		(Zip Code)

(858) 255-5959

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  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. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨		Smaller reporting company		¨

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

The number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, as of April 30, 2015 was 25,262,023.

 

 

 

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Table of Contents

IGNYTA, INC.

FORM 10-Q – QUARTERLY REPORT

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION		1
Item 1. Condensed Financial Statements (unaudited)		1
Condensed Balance Sheets at March 31, 2015 and December 31, 2014		1
Condensed Statements of Operations and Comprehensive Loss for the three months ended March  31, 2015 and 2014		2
Condensed Statements of Cash Flows for the three months ended March 31, 2015 and 2014		3
Notes to Condensed Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures about Market Risk		22
Item 4. Controls and Procedures		23
PART II – OTHER INFORMATION		23
Item 1. Legal Proceedings		23
Item 1A. Risk Factors		23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3. Defaults Upon Senior Securities		32
Item 4. Mine Safety Disclosures		32
Item 5. Other Information		32
Item 6. Exhibits		33
SIGNATURES		35

 

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PART I – FINANCIAL INFORMATION

 

Item 1.

Condensed Financial Statements

Ignyta, Inc.

Condensed Balance Sheets

 

		March 31, 2015				December 31, 2014
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	43,043,953			$	6,345,663
Short-term investment securities			44,908,611				63,200,563
Prepaid expenses and other current assets			1,531,545				1,731,521
Total current assets			89,484,109				71,277,747
Long-term investment securities			19,611,943				7,086,700
Fixed assets, net			6,551,061				6,280,909
Other assets			596,166				658,716
Total assets		$	116,243,279			$	85,304,072
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	1,844,690			$	975,264
Accrued expenses and other liabilities			4,224,372				4,929,601
Note payable, current portion			3,500,000				1,400,000
Lease payable, current portion			173,847				171,638
Total current liabilities			9,742,909				7,476,503
Note payable, net of current portion and discount			16,797,225				18,830,136
Lease payable, net of current portion			299,889				344,188
Other long-term liabilities			2,581,747				2,705,319
Total liabilities			29,421,770				29,356,146
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par; 10,000,000 shares authorized; no shares issued or outstanding			—				—
Common stock, $0.0001 par; 150,000,000 shares authorized; 25,250,185 and 19,584,769 shares issued and outstanding, respectively			2,525				1,958
Additional paid-in capital			165,913,267				111,561,894
Accumulated deficit			(79,069,190	)			(55,562,586	)
Accumulated other comprehensive loss			(25,093	)			(53,340	)
Total stockholders’ equity			86,821,509				55,947,926
Total liabilities and stockholders’ equity		$	116,243,279			$	85,304,072

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

 

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Ignyta, Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

 

		Three months ended March 31,
		2015				2014
Revenue		$	—			$	—
Expenses:
Research and development			20,215,446				2,182,580
General and administrative			3,024,256				1,761,548
Loss from operations			(23,239,702	)			(3,944,128	)
Other income (expense)
Interest income (expense)			(266,902	)			(135,642	)
Other income (expense)			—				(27,021	)
Total other expense, net			(266,902	)			(162,663	)
Net loss		$	(23,506,604	)		$	(4,106,791	)
Basic and diluted net loss per share		$	(1.15	)		$	(0.28	)
Weighted average shares outstanding – basic and diluted			20,465,612				14,501,276
Comprehensive loss:
Net loss		$	(23,506,604	)		$	(4,106,791	)
Unrealized gain (loss) on available for sale securities			28,247				(31,116	)
Comprehensive loss		$	(23,478,357	)		$	(4,137,907	)

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

 

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Ignyta, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

		Three months ended March 31,
		2015				2014
Cash flows from operating activities:
Net loss		$	(23,506,604	)		$	(4,106,791	)
Adjustments to reconcile net loss to net cash used in operating activities:
In-process research and development charge associated with asset acquisition			11,880,000				—
Stock-based compensation			1,032,216				436,279
Depreciation and amortization of fixed assets			372,080				48,600
Accretion and amortization on debt securities			352,760				83,185
Amortization of non-cash financing costs			67,089				74,360
Other			—				28,200
Increase (decrease) in cash resulting from changes in:
Prepaid expenses and other assets			262,526				(154,816	)
Accounts payable			869,426				303,464
Accrued expenses and other liabilities			(828,801	)			457,837
Net cash used in operating activities			(9,499,308	)			(2,829,682	)
Cash flows from investing activities:
Purchases of investment securities			(19,332,804	)			(49,368,366	)
Maturities and sales of investment securities			24,775,000				1,471,219
Purchases of fixed assets			(642,232	)			(62,646	)
Net cash provided by/(used in) investing activities			4,799,964				(47,959,793	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs			41,438,524				51,581,843
Proceeds from exercise of stock options			1,200				2,905
Repurchase of common stock			—				(1,440	)
Payments on leases payable			(42,090	)			—
Net cash provided by financing activities			41,397,634				51,583,308
Net change in cash and cash equivalents			36,698,290				793,833
Cash and cash equivalents at beginning of period			6,345,663				51,803,716
Cash and cash equivalents at end of period		$	43,043,953			$	52,597,549
Supplemental disclosures of cash flow information:
Interest paid		$	449,400			$	115,333
Income taxes paid		$	—			$	5,304
Noncash investing and financing activities:
Unrealized gain (loss) on available for sale securities		$	28,247			$	(31,116	)

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

 

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Ignyta, Inc.

Notes to Condensed Financial Statements

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization and Nature of Operations

Ignyta, Inc. (“Ignyta” or the “Company”) is incorporated in the state of Delaware and was founded in 2011 (with the name “NexDx, Inc.”). The Company changed its name to “Ignyta, Inc.” on October 8, 2012. The Company is a precision oncology biotechnology company dedicated to discovering or acquiring, then developing and commercializing, targeted new drugs for cancer patients whose tumors harbor specific molecular alterations, as well as novel chemotherapeutics that can potentially provide additional benefit to cancer patients. The Company is pursuing an integrated therapeutic and diagnostic, or Rx/Dx, strategy, where it anticipates pairing its product candidates with biomarker-based companion diagnostics that are designed to identify the patients who are most likely to benefit from the precisely targeted drugs the Company develops.

On October 31, 2013, the Company merged with and into IGAS Acquisition Corp., a wholly owned subsidiary of Ignyta, Inc., a Nevada corporation previously named “Infinity Oil & Gas Company” (“Parent”), formerly a “shell company” under applicable rules of the Securities and Exchange Commission (the “SEC”). The Company changed its name to Ignyta Operating, Inc. in connection with this merger, and it survived the merger as a wholly owned subsidiary of Parent. In the merger, Parent acquired the business of the Company and continued the business operations of the Company. The merger is accounted for as a reverse merger and recapitalization, with the Company as the acquirer and Parent as the acquired company for financial reporting purposes. As a result, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the merger are those of the Company and are recorded at the historical cost basis of the Company, and the consolidated financial statements after completion of the merger will include the assets and liabilities of Parent and the Company, the historical operations of the Company and the operations of the combined enterprise of Parent and the Company from and after the closing date of the merger. As a result of the accounting treatment of the merger and the change in Parent’s business and operations from a shell company to a precision oncology biotechnology company, a discussion of the past financial results of the shell company is not pertinent or material, and the following discussion and analysis of the Company’s financial condition and results of operations are based on the Company’s financial statements. On June 12, 2014, Parent merged with and into the Company, with the Company surviving the merger and changing its name to “Ignyta, Inc.” (the “Reincorporation Merger”). This Reincorporation Merger had no material impact on the accounting of the company.

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.

 

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Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and related SEC rules and regulations. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented. Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Liquidity

The Company had negative cash flow from operations of approximately $9.5 million during the first quarter of 2015 and, as of March 31, 2015, had an accumulated deficit of approximately $79.1 million. The Company is focused primarily on its development programs, and management believes such activities will result in the continued incurrence of significant research and development and other expenses related to those programs. The Company expects that it will need additional capital to further fund development of, and seek regulatory approvals for, its product candidates, and begin to commercialize any approved products. If the clinical trials for any of the Company’s products fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of its product candidates, if approved, fails to achieve market acceptance, the Company may never become profitable. Even if it achieves profitability in the future, the Company may not be able to sustain profitability in subsequent periods. The Company intends to cover its future operating expenses through cash on hand and through additional financing from existing and prospective investors. The Company cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or to its stockholders.

As of March 31, 2015, the Company had cash, cash equivalents and investment securities totaling $107.6 million. While the Company expects that its existing cash, cash equivalents and investment securities will enable it to fund its operations and capital expenditure requirements for at least the next twelve months, having insufficient funds may require the Company to delay, reduce, limit or terminate some or all of its development programs or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market on its own. Failure to obtain adequate financing could eventually adversely affect the Company’s ability to operate as a going concern. If the Company raises additional funds from the issuance of equity securities, substantial dilution to its existing stockholders would likely result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict its ability to operate its business.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Significant estimates used in preparing the financial statements include those assumed in estimating expenses for the Company’s pre-clinical studies and clinical trials, computing the valuation allowance on deferred tax assets, and those assumed in calculating stock-based compensation expense.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents primarily represent amounts invested in money market funds whose cost equals market value.

Investment Securities

Investment securities consist of corporate notes and bonds and commercial paper. The Company classifies its investment securities as available-for-sale at the time of purchase. All investment securities are recorded at estimated fair value. Unrealized gains and losses for available-for-sale investment securities are included in accumulated other comprehensive income, a component of stockholders’ equity. The Company evaluates its investment securities as of each balance sheet date to assess whether those with unrealized loss positions are other-than-temporarily impaired. Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before the recovery of its cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method. No other-than-temporary impairment charges have been recognized since inception.

 

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Fair Value of Financial Instruments

Financial assets and liabilities are measured at fair value, which is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company’s financial instruments consist of cash and cash equivalents, investment securities, prepaid expenses and other assets, accounts payable, accrued expenses, and notes payable. The valuation of assets and liabilities is subject to fair value measurements using a three tiered approach, and fair value measurement is classified and disclosed in one of the following categories:

 

Level 1:		Quoted prices in active markets for identical assets or liabilities;
Level 2:		Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3:		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair value estimates of these instruments at a specific point in time are made based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision.

The book values of all cash and cash equivalents, prepaid expenses and other assets, accounts payable, accrued expenses and notes payable are reasonable estimates of their fair values because of the short nature of these items. The Company reports its available-for-sale securities at their estimated fair values based on quoted market prices for identical or similar instruments.

Credit Risk

Cash is invested in accordance with a policy approved by the Company’s board of directors which specifies the categories, allocations, and ratings of securities that the Company may consider for investment. Management does not believe that the Company’s cash, cash equivalents and available-for-sale investment securities have significant risk of default or illiquidity. This determination is based on discussions with the Company’s treasury managers and a review of the Company’s holdings. While the Company believes that its cash, cash equivalents and available-for-sale investment securities are well diversified and do not contain excessive risk, the Company cannot provide absolute assurance that its investments will not be subject to future adverse changes in market value.

The Company maintains cash balances at various financial institutions. Accounts at these institutions are secured by the Federal Deposit Insurance Corporation. At times these balances exceed federally insured limits. The Company has not experienced any losses in such accounts. With respect to the Company’s available-for-sale investment securities, the primary exposure to market risk is interest rate sensitivity. This means that a change in prevailing interest rates may cause the value of the investment to fluctuate. For example, if the Company purchases a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of this investment will probably decline. Currently, the Company’s holdings are in money market funds and available-for-sale investment securities, and therefore this interest rate risk is minimal. To minimize interest rate risk going forward, the Company intends to continue to maintain its portfolio of cash, cash equivalents and available-for-sale investment securities in a variety of securities consisting of money market funds and debt securities, all with various maturities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. The Company also attempts to time the maturities of its investments to correspond with expected cash needs, allowing it to avoid realizing any potential losses from having to sell securities prior to their maturities.

Clinical Trial and Pre-Clinical Study Accruals

The Company makes estimates of accrued expenses as of each balance sheet date in its financial statements based on the facts and circumstances known to it at that time. Accrued expenses for pre-clinical studies and clinical trials are based on estimates of costs incurred and fees that may be associated with services provided by clinical research organizations, clinical trial investigational sites, and other clinical trial-related vendors. Payments under certain contracts with such parties depend on factors such as successful enrollment of patients, site initiation and the completion of clinical trial milestones. In accruing service fees, management estimates the time period over which services will be performed and the level of effort to be expended in each period. If possible, the Company obtains information regarding unbilled services directly from these service providers. However, the Company may be required to estimate these services based on other information available to it. If the Company underestimates or overestimates the activity or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in the Company’s accruals.

 

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Research and Development

Costs incurred in connection with research and development activities are expensed as incurred. Research and development expenses consist of (i) external research and development expenses incurred under arrangements with third parties, such as contract research organizations, investigational sites and consultants; (ii) employee-related expenses, including salaries, benefits, travel and stock compensation expense; (iii) the cost of acquiring, developing and manufacturing clinical study materials; (iv) facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and laboratory and other supplies, and (v) license fees and other expenses relating to the acquisition of rights to our development programs.

The Company enters into consulting, research and other agreements with commercial firms, researchers, universities and others for the provision of goods and services. Under such agreements, the Company may pay for services on a monthly, quarterly, project or other basis. Such arrangements are generally cancellable upon reasonable notice and payment of costs incurred. Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to the Company by its clinical sites and vendors and other information. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company.

In certain circumstances, the Company is required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the advance payments are deferred and are expensed when the activity has been performed or when the goods have been received.

Stock-Based Compensation

Stock-based compensation cost for equity awards to employees and members of the Company’s board of directors is measured at the grant date, based on the calculated fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting period of the equity grant). Stock options issued to non-employees are accounted for at their estimated fair values determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as an expense during the period the related services are rendered. Restricted stock issued to non-employees is accounted for at its estimated fair value as it vests.

Net Loss per Share

Basic and diluted loss per common share have been computed by dividing the losses applicable to common stock by the weighted average number of common shares outstanding. The Company’s basic and fully diluted loss per common share calculations are the same since the increased number of shares that would be included in the diluted calculation from the assumed exercise of stock equivalents would be anti-dilutive to the net loss in each of the years shown in the financial statements.

The calculations of net loss per share excluded potentially dilutive securities (consisting of outstanding options, warrants, restricted stock and restricted stock units) of approximately 4.1 million and 1.8 million shares as of March 31, 2015 and 2014, respectively.

Recent Accounting Pronouncements

In January 2015, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which eliminates the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The standard is effective for the fiscal year beginning January 1, 2016. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not believe the adoption of this standard will have a material impact on its financial position, results of operations or financial statement disclosures.

In August 2014, the FASB issued an ASU which requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Since this guidance is primarily around certain disclosures to the financial statements, the Company anticipates no impact on its financial position, results of operations or cash flows from adopting this standard. The Company intends to adopt this guidance at the beginning of its first quarter of fiscal year 2016.

In May 2014, the FASB issued an ASU which supersedes or replaces nearly all revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. The Company is evaluating which transition approach to use and its impact, if any, on its financial statements. This ASU is effective for the fiscal year beginning January 1, 2019. Early adoption is not permitted.

Reclassifications.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

 

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3. ASSET ACQUISITION

On March 17, 2015, under the terms of an asset purchase agreement with Cephalon, Inc. (“Cephalon”), an indirect wholly owned subsidiary of Teva Pharmaceutical Industries Ltd. (“Teva”), the Company acquired certain assets relating to four oncology development programs. The development programs that were purchased from Teva include:

 

•

RXDX-105, a small molecule inhibitor of BRAF, EGFR and RET that is currently in a Phase I/II dose escalation clinical trial;

 

•

RXDX-106, a small molecule, pseudo-irreversible inhibitor of AXL and cMET that is in late preclinical development;

 

•

RXDX-107, a nanoformulation of a modified bendamustine with potential activity in solid tumors that is in late preclinical development; and

 

•

RXDX-108, a small molecule inhibitor of the atypical kinase PKCiota that is in preclinical studies. The Company also acquired certain next generation PKCiota inhibitors in addition to the lead compound.

Under the asset purchase agreement, the Company has acquired Cephalon’s right, title and interest in and to certain intellectual property, compounds, products, contracts, records, data and development supplies related to these programs (the “Purchased Assets”), and assumed certain related commitments. The Company did not acquire any marketable products, established customer or employee bases, or any established business, management, operational or resource management processes. Accordingly, the Company recorded this transaction as an asset purchase as opposed to a business combination. As consideration for the Purchased Assets, the Company issued to Cephalon 1,500,000 unregistered shares of the Company’s common stock and assumed certain other third-party obligations (see Note 8).

The acquired assets are in various stages of drug development, ranging from preclinical stage to Phase I clinical trials. As such, the development plans are still being formulated and are as yet incomplete. The Company will be conducting further preclinical studies and making assessments of potential clinical development plans related to these compounds. As the success of the Company’s commercialization of these acquired compounds remains uncertain and the assets in question have no alternative future uses, the Company has recorded an in-process research and development charge of approximately $11.9 million during the three months ended March 31, 2015 based on the value of the net assets exchanged for the Teva assets.

Under the provisions of the asset purchase agreement, the Company paid approximately $0.9 million to Cephalon for drug development supplies, which was included in research and development expenses for the three months ended March 31, 2015. Concurrent with the above transaction, Cephalon also entered into a subscription agreement with the Company whereby Cephalon agreed to purchase an additional 1,500,000 shares of the Company’s common stock at a price of $10.00 per share (see Note 9).

In connection with the asset purchase agreement, the Company entered into a registration rights agreement with Cephalon pursuant to which the Company has agreed to register the shares of the Company’s common stock held by Cephalon. Under the terms of the registration rights agreement, the Company is required to use best efforts to file a registration statement with the SEC on or before December 17, 2015 and to cause such registration statement to be declared effective by the SEC within 90 days after the date the registration statement is filed. The Company may be liable for liquidated damages if it fails to meet such timelines or if the registration statement ceases to remain effective after being declared effective, subject to certain exceptions. The amount of the liquidated damages per applicable thirty-day period is one percent of the aggregate purchase price of the registrable securities then held by each holder, subject to an aggregate cap of ten percent. The Company also agreed to other customary obligations regarding registration, including matters relating to indemnification, maintenance of the registration statement and payment of certain expenses.

4. INVESTMENT SECURITIES

Investments

The following tables summarize the Company’s investment securities as of March 31, 2015 and December 31, 2014:

 

		March 31, 2015 (in thousands)
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Market Value
Available-for-sale securities:
Commercial paper, short-term		$	2,498			$	—			$	—			$	2,498
Corporate debt securities, short-term			42,421				5				(15	)			42,411
Corporate debt securities, long-term			19,627				8				(23	)			19,612
Total		$	64,546			$	13			$	(38	)		$	64,521

 

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		December 31, 2014 (in thousands)
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Market Value
Available-for-sale securities:
Commercial paper, short-term		$	3,896			$	—			$	—			$	3,896
Corporate debt securities, short-term			59,343				—				(38	)			59,305
Corporate debt securities, long-term			7,102				—				(15	)			7,087
Total		$	70,341			$	—			$	(53	)		$	70,288

All of the Company’s available-for-sale investment securities held at March 31, 2015 had maturity dates of less than 18 months. The Company determines the appropriate designation of investments at the time of purchase and reevaluates such designation as of each balance sheet date. Investment securities classified as short-term investments have maturity dates of less than one year from the balance sheet date, while securities classified as long-term investments have maturity dates of greater than one year from the balance sheet date. The cost of securities sold is based on the specific identification method. Amortization of premiums, accretion of discounts, interest, dividend income, and realized gains and losses are included in investment income.

None of the Company’s available-for-sale investment securities was in a material unrealized loss position at March 31, 2015. The Company reviewed its investment holdings as of March 31, 2015 and determined that its unrealized losses were not considered to be other-than-temporary based upon (i) the financial strength of the issuing institution and (ii) the fact that all securities have been in an unrealized loss position for less than twelve months. As such, the Company has not recognized any impairment in its financial statements related to its available-for-sale securities.

The Company has not realized any significant gains or losses on sales of available-for-sale investment securities during 2015 or 2014.

5. FAIR VALUE MEASUREMENTS

The fair value of the Company’s cash, cash equivalents and available-for-sale investment securities at March 31, 2015 and December 31, 2014 were as follows (in thousands):

 

		March 31, 2015																December 31, 2014
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	43,043			$	—			$	—			$	43,043			$	6,346			$	—			$	—			$	6,346
Short-term investments:
Commercial paper			—				2,498				—				2,498				—				3,896				—				3,896
Corporate debt securities			—				42,411				—				42,411				—				59,305				—				59,305
Total short-term investments			—				44,909				—				44,909				—				63,201				—				63,201
Long-term investments:
Corporate debt securities			—				19,612				—				19,612				—				7,087				—				7,087
Total long-term investments			—				19,612				—				19,612				—				7,087				—				7,087
Total assets measured at fair value		$	43,043			$	64,521			$	—			$	107,565			$	6,346			$	70,288			$	—			$	76,634

The Company holds available-for-sale securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its available-for-sale securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures.

 

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6. FIXED ASSETS

Carrying Value of Fixed Assets

Fixed assets consisted of the following at March 31, 2015 and December 31, 2014:

 

		March 31, 2015				December 31, 2014
Manufacturing and lab equipment		$	4,414,172			$	3,837,967
Office furniture			288,030				278,895
Computer equipment and software			523,522				471,415
Leasehold improvements			2,331,748				2,326,963
			7,557,472				6,915,240
Less accumulated depreciation and amortization			(1,006,411	)			(634,331	)
		$	6,551,061			$	6,280,909

Depreciation expense for the three months ended March 31, 2015 and 2014 was $372,080 and $48,600, respectively.

Capital Leases

The Company has entered into capital lease agreements for the purchase of certain lab equipment. Property held under capital leases was as follows:

 

		March 31, 2015				December 31, 2014
Manufacturing and lab equipment		$	635,730			$	635,730
Less accumulated depreciation and amortization			(65,218	)			(16,716	)
		$	570,512			$	619,014

Depreciation expense related to the capital lease equipment was $48,502 and $0 for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, future remaining minimum payments under capital leases totaled approximately $507,000.

7. NOTES PAYABLE

On September 30, 2014, the Company entered into an amended and restated loan and security agreement (the “New Loan Agreement”) with Silicon Valley Bank (“SVB”). The New Loan Agreement replaced the prior loan and security agreement (the “Loan Agreement”) which was first entered into in June 2012, amended in February 2013 and amended and restated in December 2013. The amount borrowed under the New Loan Agreement was increased from $10,000,000 to $21,000,000, with an option to receive an additional $10,000,000, which may be drawn down at any time prior to September 30, 2015 provided the Company has initiated the Phase IIa portion of its ongoing, global Phase I/II clinical study of entrectinib and subject to other customary conditions for funding. All principal and interest due on the prior Loan Agreement was paid in full and the Company was advanced the net proceeds on September 30, 2014. Payments of principal and interest are due on the New Loan Agreement on a fully amortized basis of 30 months in equal monthly installments, commencing after a twelve-month period of interest only payments, such that all amounts owed under the New Loan Agreement will mature on April 1, 2018. The number of months of interest-only payments and the number of months over which the principal will be amortized each will be increased by six months if the second loan tranche has been drawn down or the Company has raised net proceeds of at least $50 million through the offering of its equity securities, in each case prior to October 31, 2015. Upon the final maturity date, the Company will also owe to the lender a final payment equal to 3% of the full principal amount under the New Loan Agreement. The final payment of $630,000, which is based on the initial amount borrowed under the New Loan Agreement, is presented as a debt discount on the related debt to be amortized to interest expense. Interest on the note was fixed on the date of funding at 8.56%. Pursuant to the New Loan Agreement, the Company is bound by certain affirmative and negative covenants setting forth actions that it must and must not take during the term thereof. Upon the occurrence of an event of default under the New Loan Agreement, subject to cure periods for certain events of default, all amounts owed by the Company thereunder shall begin to bear interest at a rate of 11.56% and may be declared immediately due and payable by SVB. The Company has granted SVB a security interest in substantially all of its personal property, rights and assets, other than intellectual property, to secure the payment of all amounts owed to SVB under the New Loan Agreement. The Company has also agreed not to encumber any of its intellectual property without SVB’s prior written consent.

In connection with entering into the New Loan Agreement, the Company issued to SVB and its affiliate warrants to purchase an aggregate of 37,849 shares of its common stock. The fair value of the warrants has been recorded as a debt discount on the related debt and is being amortized to interest expense over the term of the New Loan Agreement.

 

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Future minimum principal payments under the Company’s notes payable are as follows:

 

Year ending December 31,
2015 (9 months)		$	1,400,000
2016			8,400,000
2017			8,400,000
2018			2,800,000
Total		$	21,000,000

If the Company draws down the second loan tranche, it will issue to SVB and its affiliate additional warrants which will be exercisable immediately and have a term of seven years. Those warrants will be exercisable for an aggregate number of shares equal to $135,500 divided by the lower of (a) the trailing 10-day average of the closing price of the Company’s common stock on the Nasdaq Capital Market prior to the funding date of the second loan tranche and (b) the closing price of the Company’s common stock on the Nasdaq Capital Market on the funding date of the second loan tranche, at an exercise price equal to such divisor.

8. COMMITMENTS AND CONTINGENCIES

License agreements

Entrectinib. The Company entered into a license agreement with Nerviano Medical Sciences S.r.l. (“NMS”) on October 10, 2013, which was amended on October 25, 2013, became effective on November 6, 2013, and was amended December 12, 2014. The agreement grants the Company exclusive global rights to develop and commercialize entrectinib, as well as a second product candidate, RXDX-102. As a result of the Phase I results relating to entrectinib that have been seen to date, the Company designated RXDX-102 as a back-up compound to entrectinib. Accordingly, the Company will not devote further development resources to RXDX-102. The Company’s development rights under the license agreement are exclusive for the term of the agreement with respect to entrectinib and RXDX-102 and also, as to NMS, are exclusive for a five-year period with respect to any product candidate with activity against the target proteins of entrectinib and RXDX-102, and include the right to grant sublicenses. The Company is obligated under the license agreement to use commercially reasonable efforts to develop and commercialize a product based on either or both of entrectinib and RXDX-102, at its expense.

The terms of the license agreement provided for an up-front payment to NMS of $7.0 million, which was paid in November 2013 and expensed as research and development (as no future benefit was determined to exist at that time). When and if commercial sales of a product based on either or both of entrectinib or RXDX-102 begin, the Company will be obligated to pay NMS tiered royalties ranging from a mid-single digit percentage to a low double digit percentage (between 10% and 15%) of net sales, depending on the amount of net sales, with standard provisions for royalty offsets to the extent it obtains any rights from third parties to commercialize the product. The Company was also obligated under the terms of the license agreement to engage NMS to perform services valued at $1.0 million prior to December 31, 2014, which obligation had been met prior to that time. The license agreement also requires that the Company makes development and regulatory milestone payments to NMS of up to $105.0 million in the aggregate if specified clinical study initiations and regulatory approvals are achieved across multiple products or indications. Pursuant to the December 2014 amendment to the agreement, the Company paid the initial milestone payment of $10.0 million to NMS in December 2014, which was expensed as research and development (as no future benefit was determined to exist at that time).

RXDX-103 and RXDX-104. On August 4, 2014, the Company entered into a second license agreement with NMS. The agreement grants the Company exclusive global rights to develop and commercialize RXDX-103, as well as a second development program, RXDX-104. Based on preclinical activities relating to RXDX-104, in December 2014, the Company decided to discontinue development of RXDX-104, and the Company will not devote further development resources to this program. The Company’s rights under the agreement are exclusive for the term of the agreement with respect to RXDX-103 and RXDX-104 and also, as to NMS, are exclusive for a five-year period with respect to any product candidate with activity against the target proteins of RXDX-103 and RXDX-104, subject to NMS’s right to develop and commercialize a predecessor compound to RXDX-103 solely for animal indications. The Company is obligated under the license agreement to use commercially reasonable efforts to develop and commercialize a product based on either or both of RXDX-103 and RXDX-104, at its expense.

Under the license agreement, the Company made an up-front payment to NMS of $3.5 million in August 2014, which was expensed to research and development (as no future benefit was determined to exist at that time). When and if commercial sales of a product based on either of RXDX-103 or RXDX-104 begin, the Company will be obligated to pay NMS tiered royalties ranging from a mid-single digit percentage to a low double digit percentage of net sales, depending on annual amounts of net sales, with standard provisions for royalty offsets to the extent it is required to obtain any rights from third parties to commercialize either RXDX-103 or RXDX-104. The Company is also required to make development and regulatory milestone payments to NMS of up to $68.0 million in the aggregate for RXDX-103 if specified clinical study initiations and regulatory approvals are achieved across multiple products or indications.

 

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RXDX-105 and RXDX-106. In connection with the March 2015 asset acquisition from Cephalon, we assumed all rights and obligations under the collaboration agreement dated November 3, 2006, as amended April 17, 2009, between Cephalon, Inc. and Daiichi Sankyo Company, Limited (“Daiichi Sankyo”), as successor-in-interest to Ambit Biosciences Corporation. The collaboration was for the purpose of identifying and developing clinical candidates that demonstrate activity towards the two designated target kinases of the collaboration: the BRAF kinase and the AXL kinase. Under the agreement, both parties contributed certain intellectual property to the collaboration and agreed to a period of exclusivity during which neither party would engage in any research related to a collaboration target compound with any third-party. The collaboration portion of the agreement ended in November 2009, but the agreement remains in effect on a product-by-product, country-by-country basis until all royalty obligations expire. Both parties have a right to terminate the agreement if the other party enters bankruptcy or upon an uncured breach by the other party. The Company may also terminate the agreement in its discretion upon 90 days’ written notice to Daiichi Sankyo.

The Company is solely responsible for worldwide clinical development and commercialization of collaboration compounds, subject to the option of Daiichi Sankyo, exercisable during certain periods following completion of the first proof-of-concept study in humans and only with the consent of the Company, to co-develop and co-promote RXDX-105. If the Company decides to discontinue development of the RXDX-105 program, it must give written notice to Daiichi Sankyo, which will have the right to assume control of that program, subject to diligence obligations and payment of the milestones and royalties to the Company that would otherwise have been paid to Daiichi Sankyo had the Company maintained responsibility for the program.

The agreement requires the Company to make development, regulatory and sales milestone payments to Daiichi Sankyo of up to $44.5 million in the aggregate for RXDX-105, and up to $47.5 million in payments upon the achievement of development, regulatory and sales milestones for RXDX-106. When and if commercial sales of a product based on either of RXDX-105 or RXDX-106 begin, the Company will be obligated to pay Daiichi Sankyo tiered royalties ranging from a mid-single digit percentage to a low double digit percentage of net sales, depending on annual amounts of net sales, with standard provisions for royalty offsets to the extent it is required to obtain any rights from third parties to commercialize either RXDX-105 or RXDX-106. Royalties are payable to Daiichi Sankyo on a product-by-product, country-by-country basis beginning on the date of the first commercial sale in a country and ending on the later of 10 years after the date of such sale in that country or the expiration date of the last to expire licensed patent covering the product in that country.

RXDX-108. In connection with the March 2015 asset acquisition from Cephalon, the Company assumed all rights and obligations under the license agreement dated January 20, 2014, between Teva Branded Pharmaceutical Products R&D, Inc. and Cancer Research Technology Limited (“CRT”). The agreement grants the Company exclusive global rights to develop and commercialize RXDX-108. The Company also received rights to certain other next generation PKCiota inhibitors. The Company is obligated under the license agreement to use commercially reasonable efforts to develop and commercialize a product based on RXDX-108 or the licensed intellectual property, at its expense.

The agreement remains in effect on a product-by-product, country-by-country basis until all royalty obligations expire. Both parties have a right to terminate the agreement if the other party enters bankruptcy or upon an uncured breach by the other party. CRT may also terminate the agreement upon a change in control of the Company by a third party that develops, sells or manufactures tobacco products.

The license agreement requires the Company to make development, regulatory and sales milestone payments to CRT of up to $57.0 million in the aggregate. When and if commercial sales of a product based on the licensed intellectual property begin, the Company will be obligated to pay CRT tiered royalties ranging from a mid-single digit percentage to a low double digit percentage of net sales, depending on annual amounts of net sales. Royalties are payable to CRT on a product-by-product, country-by-country basis beginning on the date of the first commercial sale in a country and ending on the later of 10 years after the date of such sale in that country or the expiration date of the last to expire licensed patent covering the product in that country.

Commitments

On March 31, 2014, the Company entered into an agreement with a contract research organization for clinical studies to be conducted both within and outside the U.S., at an estimated cost of approximately $10.0 million over a two-year period. Through March 31, 2015, approximately $2.7 million has been incurred under this agreement.

The Company leases office space and lab equipment under non-cancelable operating leases expiring on various dates through October 2019. Rent expense under those operating leases for the three months ended March 31, 2015 and 2014 was $133,137 and $69,602, respectively. Future minimum lease payments under the Company’s operating leases totaled $3.5 million as of March 31, 2015.

 

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9. STOCKHOLDERS’ EQUITY

Authorized Shares

The Company is authorized to issue 150,000,000 shares of common stock and 10,000,000 shares of preferred stock, with the preferred stock having the rights, preferences and privileges that the Board of Directors may determine from time to time. Each share of the Company’s common stock is entitled to one vote, and all shares rank equally as to voting and other matters.

Restricted Stock

The Company issued restricted shares in 2011 and 2013. The Company’s restricted stock arrangements allow it to repurchase any unvested shares of stock in the event the holder ceases providing services to the Company. In February 2014, the Company repurchased 400,000 of such restricted shares. No shares were repurchased by the Company during the first quarter of 2015.

At March 31, 2015, the Company had 37,506 shares of restricted stock outstanding that were subject to future vesting (through 2016).

Stock Offerings

In March 2015, concurrent with its asset acquisition agreement with Cephalon (see Note 3), the Company issued and sold 4,158,750 shares of common stock at $10.00 per share to Cephalon and several additional investors in a secondary public offering. The net proceeds from this offering totaled $41.4 million (after deducting transaction costs of $149,000).

In March 2014, the Company completed a secondary public stock offering providing for the issuance and sale to investors of an aggregate of 6,031,750 shares of its common stock at a purchase price of $9.15 per share for net proceeds of approximately $55.2 million (after deducting transaction costs of $3.6 million).

Warrants

As of March 31, 2015, the Company has outstanding common stock warrants to purchase up to an aggregate of 79,516 shares of its common stock. The warrants have exercise prices ranging from $3.00 per share to $7.52 per share, and expire at various dates through September 30, 2021. In April 2015, common stock warrants to purchase 16,666 shares were converted by the holder on a net-exercise basis into 11,838 shares of common stock.

10. EQUITY AWARDS

Equity Incentive Plans

The Company adopted the 2014 Incentive Award Plan (the “2014 Plan”) on June 11, 2014. The 2014 Plan provides for the issuance of equity awards to employees and non-employees of 3,000,000 shares, plus one share for each share subject to a stock option that was outstanding under the Company’s 2011 Stock Incentive Plan, as amended (the “2011 Plan”) prior to the effective date of the 2014 Plan that expires, is forfeited or is settled in cash. As of March 31, 2015, 1,250,396 shares remain available under the 2014 Plan. Prior to the adoption of the 2014 Plan, the Company granted equity awards under the 2011 Plan and the 2014 Employment Inducement Incentive Award Plan (the “Inducement Plan”). No additional equity grants may be made by the Company under either the 2011 Plan or the Inducement Plan.

Options granted under the Company’s equity plans are exercisable at various dates and will expire no more than ten years from their dates of grant. The exercise price of each option to be granted under the 2014 Plan shall be determined by the administrator of the 2014 Plan, which is the Company’s Board of Directors or the Compensation Committee thereof, and shall not be less than 100% of the fair market value of the Company’s common stock on the date the option is granted. Generally, options are granted with an exercise price equal to the fair market value of the Company’s common stock on the date of the option grant. For holders of more than 10% of the Company’s total combined voting power of all classes of stock, incentive stock options may not be granted at less than 110% of the fair market value of the Company’s common stock on the date of grant and for a term not to exceed five years.

Stock-Based Compensation

The following table summarizes stock-based compensation expense for all equity awards to employees and non-employees:

 

		Three months ended March 31, 2015				Three months ended March 31, 2014
Included in research and development		$	468,614			$	174,637
Included in general and administrative			563,602				261,642
Total stock-based compensation expense		$	1,032,216			$	436,279

As of March 31, 2015, unrecognized stock-based compensation expense related to unvested stock-based awards granted under the Company’s equity incentive plans totaled $12.5 million, which is expected to be recognized over a weighted-average period of 3.31 years.

 

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Fair Value of Equity Awards

The Company utilizes the Black-Scholes option pricing model to value awards under its equity plans. Key valuation assumptions include:

 

•

Volatility – volatility is the measure of the amount by which a financial variable, such as a share price, has or is expected to fluctuate during a period. The Company considered the historical volatility of peer companies and business/ economic considerations in order to estimate expected volatility (as the Company not been publicly traded for a significant period).

 

•

Risk-Free Interest Rate – this is the U.S. Treasury rate for the day of each option grant during the quarter having a term that most closely resembles the expected life of the option.

 

•

Dividend Yield – the Company has never declared or paid dividends on common stock and has no plans to do so.

 

•

Expected Life of the Option Term – this is the period of time that the options granted are expected to remain unexercised. Options granted during the period have a maximum contractual term of ten years. The Company estimates the expected life of the option term for employee option grants based on the simplified method (as defined in Staff Accounting Bulletin 110). For non-employee option grants, this is the remaining contractual term of the option.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company assesses the forfeiture rate on an annual basis and revises the rate when deemed necessary.

During the first quarter of 2015, the fair value of options granted was estimated using the following weighted-average assumptions:

 

		Fiscal 2015
Volatility			69.67	%
Risk free interest rate			1.56	%
Dividend yield			0.00	%
Weighted-average expected life of option			6.2 years

The estimated weighted-average per-share fair value of stock options granted during the first quarter of 2015 was $4.68.

Stock Option Activity

A summary of the Company’s stock option activity and related information is as follows:

 

		Options Outstanding				Weighted- Average Exercise Price				Weighted- Average Remaining Term				Aggregate Intrinsic Value
Balance at December 31, 2014			2,991,656			$	6.67				9.21			$	2,482,181
Granted			998,991				7.47
Exercised			(6,666	)			0.18
Forfeited			(21,068	)			7.78
Balance at March 31, 2015			3,962,913			$	6.87				9.19			$	12,191,424
Exercisable at March 31, 2015			593,134			$	5.16				8.54			$	2,842,885

Restricted Stock Units

In 2015, the Company issued 90,000 restricted stock units (“RSUs”) to employees under the 2014 Plan with vesting to occur on either the fourth or fifth anniversary of the grant date. All of these RSUs were outstanding and subject to future vesting as of March 31, 2015.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2014, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2014. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2014 and the caption “Risk Factors” in this Quarterly Report on Form 10-Q.

On October 31, 2013, we merged with and into IGAS Acquisition Corp., a wholly owned subsidiary of Ignyta, Inc., a Nevada corporation previously named “Infinity Oil & Gas Company,” or Parent, formerly a “shell company” under applicable rules of the Securities and Exchange Commission, or the SEC. We survived the merger as a wholly owned subsidiary of Parent. In the merger, Parent acquired our business and continued our business operations. The merger is accounted for as a reverse merger and recapitalization, with us as the acquirer and Parent as the acquired company for financial reporting purposes. As a result, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the merger are ours and are recorded at our historical cost basis, and the consolidated financial statements after completion of the merger will include the assets and liabilities of Parent and us, the historical operations of us and the operations of the combined enterprise of Parent and us from and after the closing date of the merger. As a result of the accounting treatment of the merger and the change in Parent’s business and operations from a shell company to a precision oncology biotechnology company, a discussion of the past financial results of the shell company is not pertinent or material, and the following discussion and analysis of our financial condition and results of operations are based on our financial statements. On June 12, 2014, Parent merged with and into us, with us surviving the merger and changing our name to “Ignyta, Inc.” This merger had no material impact on the accounting of the company. Unless the context indicates or otherwise requires, the terms “we,” “us,” “our” and “our company” refer to (i) Parent and us, its consolidated subsidiary, for discussions relating to periods before and through June 12, 2014, and (ii) us, the surviving company to the June 12, 2014 merger, for discussions relating to periods after June 12, 2014.

Overview

We are a precision oncology biotechnology company dedicated to discovering or acquiring, then developing and commercializing, targeted new drugs for cancer patients whose tumors harbor specific molecular alterations, as well as novel chemotherapeutics that can potentially provide additional benefit to cancer patients. We are pursuing an integrated therapeutic and diagnostic, or Rx/Dx, strategy, where we anticipate pairing our product candidates with biomarker-based companion diagnostics that are designed to identify the patients who are most likely to benefit from the precisely targeted drugs we develop.

Our current development plans focus on our pipeline:

 

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entrectinib, a small molecule tyrosine kinase inhibitor directed to the Trk family tyrosine kinase receptors (TrkA, TrkB and TrkC), ROS1 and ALK proteins, which is in two Phase I/II clinical studies in molecularly defined patient populations for the treatment of solid tumors;

 

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RXDX-105, a small molecule inhibitor of BRAF, EGFR and RET that is currently in a Phase I/II clinical trial for the treatment of solid tumors;

 

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RXDX-106, a small molecule, pseudo-irreversible inhibitor of AXL and cMET that is in late preclinical development;

 

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RXDX-107, a nanoformulation of a modified bendamustine with potential activity in solid tumors that is in late preclinical development;

 

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RXDX-103, a small molecule inhibitor of the cell division cycle 7-related, or Cdc7, protein kinase that is currently at the development candidate stage; and

 

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RXDX-108, a small molecule inhibitor of the atypical kinase PKCiota that is in preclinical studies. We also have rights to next generation PKCiota inhibitors in addition to the lead compound.

We acquired exclusive global development and marketing rights to entrectinib under a license agreement with Nerviano Medical Sciences S.r.l., or NMS, that became effective in November 2013, we acquired exclusive global development and marketing rights to RXDX-103 under a license agreement with NMS that became effective in August 2014, and we acquired our RXDX-105, RXDX-106, RXDX-107 and RXDX-108 development programs in an asset purchase transaction with Cephalon, Inc., an indirect wholly owned subsidiary of Teva Pharmaceutical Industries Ltd., or Teva, in March 2015. We are also pursuing our Spark discovery-stage programs, directed to emerging oncology targets.

 

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Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, assembling our core capabilities in genetic and epigenetic based biomarker and drug target discovery, identifying potential product candidates and developing such candidates. Our product candidate development operations include preparing, managing and conducting preclinical and clinical studies and trials, preparing regulatory submissions relating to those product candidates and establishing and managing relationships with third parties in connection with all of those activities. We expect that in the future, our operations may also, if regulatory approval is obtained, include pursuing the commercialization of our product candidates.

Financial Operations Overview

Revenue

To date, we have not generated any material revenue from services, product sales or otherwise. In the future, we expect that we will seek to generate revenue primarily from product sales, but may also seek to generate revenue from research funding, milestone payments and royalties on future product sales in connection with any out-license or other strategic relationships we may establish.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug and biomarker discovery efforts and the development of our product candidates, which include:

 

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external research and development expenses incurred under arrangements with third parties, such as contract research organizations, or CROs investigational sites and consultants;

 

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employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

 

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the cost of acquiring, developing and manufacturing clinical study materials;

 

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facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and laboratory and other supplies; and

 

•

license fees and other expenses relating to our acquisition of rights to our development programs.

Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

We have not yet begun tracking our internal and external research and development costs on a program-by-program basis. As such, we do not have historical research and development expenditures by program and we use our employee and infrastructure resources across multiple research and development programs.

Research and development activities are central to our business model. Our research and development programs that we expect will be our focus in the immediate future consist of the development of our entrectinib, RXDX-105, RXDX-106, RXDX-107, RXDX-103 and RXDX-108 programs, and drug discovery activities for the development of our Spark programs. All of those research and development programs are in the early stage, and since product candidates in later stages of development generally have higher development costs than those in earlier stages of development, we expect research and development costs relating to each of those programs to increase significantly for the foreseeable future. However, the successful development of any of our product candidates, or any others we may seek to pursue, is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development for our programs, or whether any of our product candidates will reach successful commercialization. We are also unable to predict when, if ever, any net cash inflows will commence from any of the product candidates we currently or may in the future pursue. This lack of predictability is due to the numerous risks and uncertainties associated with developing medicines, many of which, such as our ability to obtain approvals to market and sell those medicines from the U.S. Food and Drug Administration, or FDA, and other applicable regulatory authorities, are beyond our control, including the uncertainty of:

 

•

establishing an appropriate safety profile with toxicology studies adequate to submit to the FDA in an Investigational New Drug application, or IND, or comparable applications to foreign regulatory authorities;

 

•

successful enrollment in and adequate design and completion of clinical trials;

 

•

receipt of marketing approvals from applicable regulatory authorities, including the FDA and comparable foreign authorities;

 

•

establishing commercial manufacturing capabilities or, more likely, seeking to establish arrangements with third-party manufacturers;

 

•

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

 

•

launching commercial sales of the products, if and when approved, including establishing an internal sales and marketing force and/or establishing relationships with third parties for such purpose;

 

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•

developing and commercializing, individually or with third-party collaborators, companion diagnostics; and

 

•

a continued acceptable safety profile of the products following approval, if any.

A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and likelihood of success associated with the development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities, potential commercialization of our product candidates and increased costs of operating as a public company. These increases will likely include increased costs related to facilities expansion, the hiring of additional personnel and increased fees to outside consultants, lawyers and accountants, among other expenses. Additionally, increased costs associated with operating as a public company are expected to include expenses related to services associated with maintaining compliance with requirements of the SEC, insurance and investor relations costs.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which we have prepared in accordance with United States generally accepted accounting principles. The preparation of these condensed financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting periods. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances at the time the estimates are made, the results of which form the basis for making judgments about the book values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We periodically evaluate our estimates and judgments, including those described in greater detail below, in light of changes in circumstances, facts and experience.

Our critical accounting policies are those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. Our significant accounting policies are described in more detail in the notes to our financial statements included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2014.

We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows:

Research and Development

Costs incurred in connection with research and development activities are expensed as incurred. Research and development expenses consist of (i) external research and development expenses incurred under arrangements with third parties, such as contract research organizations, investigational sites and consultants; (ii) employee-related expenses, including salaries, benefits, travel and stock compensation expense; (iii) the cost of acquiring, developing and manufacturing clinical study materials; (iv) facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and laboratory and other supplies; and (v) license fees and other expenses relating to our acquisition of rights to our development programs.

We enter into consulting, research and other agreements with commercial firms, researchers, universities and others for the provision of goods and services. Under such agreements, we may pay for services on a monthly, quarterly, project or other basis. Such arrangements are generally cancellable upon reasonable notice and payment of costs incurred. Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to us by our clinical sites and vendors and other information. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on our behalf.

In certain circumstances, we are required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the advance payments are deferred and are expensed when the activity has been performed or when the goods have been received.

 

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Clinical Trial and Pre-Clinical Study Accruals

We make estimates of accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Accrued expenses for pre-clinical studies and clinical trials are based on estimates of costs incurred and fees that may be associated with services provided by CROs, clinical trial investigational sites, and other clinical trial-related vendors. Payments under certain contracts with such parties depend on factors such as successful enrollment of patients, site initiation and the completion of clinical trial milestones. In accruing service fees, management estimates the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on other information available to us. If we underestimate or overestimate the activity or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals.

Stock-Based Compensation

Stock-based compensation cost for equity awards to employees and members of our board of directors is measured at the grant date, based on the calculated fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting period of the equity grant). Stock options issued to non-employees are accounted for at their estimated fair values determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered. Restricted stock issued to non-employees is accounted for at its estimated fair value as it vests.

Investments

Investments consist of corporate notes and bonds and commercial paper. We classify investments as available-for-sale at the time of purchase. All investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income, a component of stockholders’ equity. We evaluate our investments as of each balance sheet date to assess whether those with unrealized loss positions are other-than-temporarily impaired. Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that we will sell the securities before the recovery of our cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income (expense), net in the statement of operations. No other-than-temporary impairment charges have been recognized since inception.

Recently Issued Accounting Pronouncements

In January 2015, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which eliminates the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The standard is effective for the fiscal year beginning January 1, 2016. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations or financial statement disclosures.

In August 2014, the FASB issued an ASU which requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Since this guidance is primarily around certain disclosures to the financial statements, we anticipate no impact on our financial position, results of operations or cash flows from adopting this standard. We intend to adopt this guidance at the beginning of our first quarter of fiscal year 2016.

In May 2014, the FASB issued an ASU which supersedes or replaces nearly all revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. We are evaluating which transition approach to use and its impact, if any, on our financial statements. This ASU is effective for the fiscal year beginning January 1, 2018. Early adoption is not permitted.

 

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Results of Operations

Comparison of the Three Months Ended March 31, 2015 and 2014

The following table summarizes our results of operations for the three months ended March 31, 2015 and 2014, together with the changes in those items in dollars (in thousands) and as a percentage:

 

		Three months ended March 31,								Dollar				Percentage
		2015				2014				Change				Change
Revenue		$	—			$	—			$	—				—	%
Operating expenses:
Research and development			20,216				2,183				18,033				826	%
General and administrative			3,024				1,762				1,262				72	%
Loss from operations			(23,240	)			(3,945	)			(19,295	)			489	%
Other income (expense), net			(267	)			(162	)			(105	)			65	%
Net loss		$	(23,507	)		$	(4,107	)		$	(19,400	)			472	%

Revenue. We recorded no revenue for the three months ended March 31, 2015 and 2014.

Research and Development Expense. Research and development expense increased by approximately $18.0 million for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, an increase of 826%. During the three months ended March 31, 2015, we recorded an in-process research and development charge of approximately $11.9 million representing the net value of the assets exchanged for the intellectual property assets acquired from Teva. The remaining increase in research and development expenses during 2015 was primarily attributable to an increase in activities relating to development of our entrectinib product candidate. We also incurred an increase between periods for personnel expenses related to hiring and engaging additional employees and consultants to help us advance our product candidates, facilities related expenses as a result of the expansion of our leased facilities space and the additional outside services expense incurred in connection with our March 2015 asset acquisition.

General and Administrative Expense. General and administrative expenses increased by approximately $1.3 million for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, an increase of 72%. The increase in general and administrative expenses was primarily attributable to increases in personnel costs and investor relations, audit, legal and intellectual property costs, some of which resulted from activities relating to operating as a public company.

Other Income (Expense), net. Other income (expense), net consists principally of interest expense on our loan arrangement with Silicon Valley Bank, or SVB, net of the interest income earned on our portfolio of available-for-sale securities. Other expense, net increased by approximately $105,000 for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, an increase of 65%. The increase in other expense, net was due to an increase in interest expense on our obligation to SVB (resulting from the additional borrowings we made during the third quarter of 2014) offset in part by the additional interest income generated by our portfolio of available-for-sale securities (resulting from an increase in investable funds).

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, and through March 31, 2015, we have raised an aggregate of approximately $177.9 million to fund our operations, of which approximately $41.6 million was raised through our issuance and sale of our common stock in a registered direct offering in March 2015, $55.2 million was received from our issuance and sale of our common stock in an underwritten public offering in March 2014, approximately $54.1 million was received from our issuance and sale of our common stock in two private placements in November 2013, approximately $21.0 million was received from the incurrence of indebtedness under our loan agreements with SVB and approximately $6.0 million was received from our issuance and sale of our preferred stock. As of March 31, 2015, we had also received a small amount of funding from our issuance of common stock to our founders in August and September 2011, and from our issuance of common stock upon the exercise from time to time of stock options. As of March 31, 2015, we had approximately $107.6 million in cash, cash equivalents and available-for-sale securities.

Registered Direct Offering. In March 2015 we issued an aggregate of 4,158,750 shares of our common stock in a registered direct offering. All of the shares issued in the offering were sold at a purchase price per share of $10.00 per share, for aggregate gross proceeds of approximately $41.6 million and aggregate net proceeds, after deducting offering fees and expenses, of approximately $41.4 million.

Public Offering. In March 2014, we issued an aggregate of 6,031,750 shares of our common stock in an underwritten public offering.

 

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All of the shares issued in the public offering were sold by the underwriters at a purchase price per share of $9.15, for aggregate gross proceeds of approximately $55.2 million and aggregate net proceeds, after deducting underwriting discounts and commissions and other offering fees and expenses, of approximately $51.6 million.

Private Placements. In November 2013, we entered into securities purchase agreements with accredited investors providing for the issuance and sale to such investors of an aggregate of 9,010,238 shares of our common stock in private placement transactions. All of the shares issued in the private placements were sold at a purchase price per share of $6.00, for aggregate gross proceeds of approximately $54.1 million and aggregate net proceeds, after deducting placement agent and other offering fees and expenses, of approximately $51.0 million.

Amended and Restated Loan Agreement with SVB. In September 2014, we entered into an amended and restated loan agreement with SVB under which we incurred $21.0 million of indebtedness, approximately $11.0 million of which was used to repay our then-existing loan with SVB. We also have an option to receive an additional $10.0 million loan tranche, which may be drawn down by us at any time prior to September 30, 2015, provided that we have initiated the Phase IIa portion of our ongoing, global Phase I/II clinical study of entrectinib and subject to other customary conditions for funding. We are required to pay interest on the borrowings under the amended and restated loan agreement at a fixed, per-annum rate of 8.56% on a monthly basis through October 31, 2015. Thereafter, we will be required to repay the principal plus interest in 30 equal monthly installments. The number of months of interest-only payments and the number of months over which the principal will be amortized will each be increased by six months if the second loan tranche has been drawn down or we have raised net proceeds of at least $50.0 million through the offering of our equity securities, in each case prior to October 31, 2015. Further, the terms of the amended and restated loan agreement require that we make a final lump-sum payment of 3.0% of the principal amount of the loans thereunder. We may elect to prepay all amounts owed under either or both of the loan tranches prior to the maturity date, provided that a prepayment fee is also paid (equal to 2.0% of the amount prepaid if the prepayment occurs prior to September 30, 2015, or 1.0% of the amount prepaid if the prepayment occurs thereafter).

Pursuant to the amended and restated loan agreement, we are bound by certain affirmative and negative covenants setting forth actions that we must and must not take during the term thereof. Upon the occurrence of an event of default under the amended and restated loan agreement, subject to cure periods for certain events of default, all amounts owed by us thereunder shall begin to bear interest at a rate of 11.56% and may be declared immediately due and payable by SVB. We have granted SVB a security interest in substantially all of our personal property, rights and assets, other than intellectual property, to secure the payment of all amounts owed to SVB under the amended and restated loan agreement. We have also agreed not to encumber any of our intellectual property without SVB’s prior written consent.

Preferred Stock Financings. We received approximately $6.0 million from the issuance and sale of our Series A and Series B preferred stock prior to the closing of our October 2013 merger. We received approximately $500,000 from our issuance and sale of an aggregate of 833,334 shares of our Series A preferred stock at a price per share of $0.60 to one investor in October 2011 and March 2012. We received approximately $5.5 million from our issuance and sale of an aggregate of 1,835,000 shares of our Series B preferred stock at a price per share of $3.00 to a number of investors in June 2012 and December 2012. On October 31, 2013, prior to the closing of the merger in which we became the wholly owned subsidiary of Parent, all then-outstanding shares of each series of our preferred stock were voluntarily converted by the holders thereof into shares of our common stock.

Cash Flows

The following table provides information regarding our cash flows for the three months ended March 31, 2015 and 2014:

 

		Three months ended, March 31,
		2015				2014
		(In thousands)
Net cash (used in) operating activities		$	(9,499	)		$	(2,830	)
Net cash provided by/ (used in) investing activities			4,800				(47,959	)
Net cash provided by financing activities			41,397				51,583
Net increase in cash and cash equivalents		$	36,698			$	794

Net Cash Used in Operating Activities. The use of cash in both periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities was approximately $9.5 million during the three months ended March 31, 2015 compared to approximately $2.8 million during the same period of 2014. The increase in cash used in operating activities was driven primarily by an increase in activities relating to development of our entrectinib product candidate.

 

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Net Cash Used in Investing Activities. Net cash provided by investing activities was approximately $4.9 million during the three months ended March 31, 2015 compared to approximately $48.0 million used by such activities during the same period of 2014, primarily reflecting investment activity associated with our available-for-sale securities.

Net Cash Provided by Financing Activities. Net cash provided by financing activities was approximately $41.4 million during the three months ended March 31, 2015, compared to approximately $51.6 million during the same period of 2014. The cash provided by financing activities during both periods was primarily the result of the funds raised through sales of our common stock.

Funding Requirements

We expect our expenses to increase in connection with the ongoing development of our entrectinib, RXDX-105, RXDX-106, RXDX-107, RXDX-103 and RXDX-108 programs, and as we continue the research and development of our Spark programs. In addition, if we obtain marketing approval for any of our product candidates in the future, which we anticipate would not occur for several years, if at all, we expect we would then incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborators with whom we may engage. Further, we expect to incur additional costs associated with operating as a public company.

Even after giving effect to our common stock offerings and our September 2014 loan arrangement with SVB, we expect to need to obtain additional funding in order to continue our operations and pursue our business plans. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We expect that our existing cash, cash equivalents and available-for-sale securities will enable us to fund our operations and capital expenditure requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including:

 

•

the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our development programs;

 

•

the scope, progress, results and costs of companion diagnostic development for our product candidates;

 

•

the achievement of development milestones that trigger payments due to our licensing partners;

 

•

the extent to which we acquire or in-license other medicines, biomarkers and/or technologies;

 

•

the costs, timing and outcome of regulatory review of our product candidates;

 

•

the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval (to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of collaborators with whom we may engage);

 

•

revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

 

•

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and

 

•

our ability to establish and maintain development, manufacturing or commercial collaborations on favorable terms, if at all.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of medicines that we do not expect to be commercially available for many years, if at all. Accordingly, we will likely need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. Any or all of those sources of funding may not be available when needed on acceptable terms or at all. Except for our conditional option to acquire a second loan tranche of $10.0 million from SVB, we do not have any committed external source of additional funds. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the ownership interest of existing equity holders will be diluted. Also, the terms of any additional equity securities that may be issued in the future may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing may not be available when needed and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or

 

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terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Caution on Forward-Looking Statements 

Any statements in this report about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. In some cases, you can identify these forward-looking statements by the use of words or phrases such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should” or “would,” or the negative of these terms or other comparable terminology. Among the factors that could cause actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties inherent in our business including, without limitation: the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our product candidates; the early stage of our product candidates presently under development; our need for additional funds in order to pursue our business plan and the uncertainty of whether we will be able to obtain the funding we need; our ability to obtain and, if obtained, maintain regulatory approval of our current product candidates, and any future product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate; our ability to retain or hire key scientific or management personnel; our ability, with partners, to validate, develop and obtain regulatory approval of companion diagnostics for our product candidates; our ability to protect our intellectual property rights, including patent and other intellectual property rights; our dependence on third-party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators; our ability to develop successful sales and marketing capabilities in the future as needed; the size and growth of the potential markets for any of our product candidates, and the rate and degree of market acceptance of any of our product candidates; competition in our industry; the impact of healthcare reform legislation; regulatory developments in the United States and foreign countries; and other risks detailed under Part II – Item 1A – Risk Factors in this report and under “Part I – Item 1A – Risk Factors” in our most recent Annual Report on Form 10-K, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. This caution is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our cash, cash equivalents and available-for-sale investment securities as of March 31, 2015 consisted primarily of money market funds, short-term commercial paper and corporate debt securities. We do not have any auction rate securities on our balance sheet, as they are not permitted by our investment policy. We maintain cash balances at various financial institutions. Accounts at these institutions are secured by the Federal Deposit Insurance Corporation. At times these balances exceed federally insured limits. We have not experienced any losses in such accounts.

With respect our available-for-sale securities, our primary exposure to market risk is interest rate sensitivity. This means that a change in prevailing interest rates may cause the value of the investment to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of our investment will probably decline. Currently, our holdings are in money market funds and available-for-sale investment securities, and therefore this interest rate risk is minimal. To minimize interest rate risk going forward, we intend to continue to maintain our portfolio of cash, cash equivalents and available-for-sale investment securities in a variety of securities consisting of money market funds and debt securities, all with various maturities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. We also attempt to time the maturities of our investments to correspond with expected cash needs, allowing us to avoid realizing any potential losses from having to sell securities prior to their maturities.

Our cash is invested in accordance with an investment policy approved by our board of directors which specifies the categories, allocations, and ratings of securities we may consider for investment. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. We do not believe our cash, cash equivalents and available-for-sale investment securities have significant risk of default or illiquidity. We

 

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made this determination based on discussions with our investment advisors and a review of our holdings. While we believe our cash, cash equivalents and available-for-sale investment securities are well diversified and do not contain excessive risk, we cannot provide assurance that in the future our investments will not be subject to adverse changes in market value.

In addition, domestic and international equity markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue and the markets continue to remain volatile, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may decline.

 

Item 4.

Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2015 at the reasonable assurance level.

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

We are currently not a party to any material legal proceedings.

 

Item 1A.

Risk Factors

Investing in our common stock involves a high degree of risk. Our Annual Report on Form 10-K for the year ended December 31, 2014 includes a detailed discussion of our risk factors under the heading “Part I, Item 1A – Risk Factors.” Set forth below are certain changes from the risk factors previously disclosed in our Annual Report on Form 10-K. You should carefully consider the risk factors discussed in our Annual Report on Form 10-K as well as the other information in this report before deciding whether to invest in shares of our common stock. The occurrence of any of the risks discussed in the Annual Report on Form 10-K or this report could harm our business, financial condition, results of operations or growth prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Except with respect to our trademarks, the trademarks, trade names and service marks appearing in this report are the property of their respective third party owners.

Risks Related to Our Financial Position and Capital Requirements

We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We are a development-stage company with no approved products, and have generated no material revenue to date and may never generate material revenue or achieve profitability.

We are a development-stage biopharmaceutical company with a limited operating history. We have not generated any material revenue to date and are not profitable, and have incurred losses in each year since our inception. Our net loss for the year ended December 31, 2014 and the quarter ended March 31, 2015 was $40.0 million and $23.5 million, respectively. As of March 31, 2015, we had an accumulated deficit of $79.1 million. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are currently focused on the development of our clinical and preclinical development programs, which we believe will result in our continued incurrence of significant research and development and other expenses related to those programs. If the non-clinical or clinical trials for any of our product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of our product candidates, if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

 

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We expect to need additional funding to continue our operations, which could result in dilution or restrictions on our business activities. We may not be able to raise capital when needed, if at all, which would force us to delay, limit, reduce or terminate our product development programs or commercialization efforts and could cause our business to fail.

Our operations have consumed substantial amounts of cash since inception. We expect to need substantial additional funding to pursue our development programs and launch and commercialize any product candidates for which we receive regulatory approval, which may include building internal sales and marketing forces to address certain markets.

Even after giving effect to the proceeds received from our common stock offerings and our September 2014 loan arrangement with Silicon Valley Bank, or SVB, we expect to require substantial additional capital for the further development and commercialization of our product candidates. Further, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue to expand our ongoing entrectinib and other development programs, including the four development programs we acquired from Cephalon, Inc., an indirect wholly owned subsidiary of Teva Pharmaceutical Industries Limited, or Teva, in March 2015, and if we acquire rights to additional product candidates. For example, in July 2014, we initiated a new, global Phase I/II clinical trial of oral entrectinib in adult patients with metastatic cancer detected to be positive for relevant molecular alterations. In addition, in connection with our acquisition of assets from Teva, we assumed responsibility for an ongoing Phase I/II clinical trial of RXDX-105. We plan to initiate one or more additional clinical trials to study entrectinib and our other product candidates in the future.

In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster than we expect. Accordingly, we expect to need to obtain substantial additional funding in order to continue our operations.

To date, we have financed our operations entirely through equity investments by founders and other investors and the incurrence of debt, and we expect to continue to do so in the foreseeable future. We may also seek funding through collaborative arrangements. Additional funding from those or other sources may not be available when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution to our then existing stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional capital through the incurrence of further indebtedness, as we have done under our loan agreement with SVB and under which our ability to incur additional indebtedness is limited, we would likely become subject to additional covenants restricting our business activities, and holders of debt instruments may have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support research and development, clinical or commercialization activities. If we obtain capital through collaborative arrangements, these arrangements could require us to relinquish rights to our technology or product candidates and could result in our receipt of only a portion of the revenues associated with the partnered products.

If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, limit, reduce or terminate our research and development programs or any future commercialization efforts. Any of these events could significantly harm our business, financial condition and prospects.

Risks Related to Our Employees

If we are not able to attract and retain highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified personnel. We are highly dependent on our management, scientific and medical personnel, especially Jonathan E. Lim, our President, Chief Executive Officer and Chairman of the Board, whose services are critical to the successful implementation of our product candidate development and regulatory strategies. Further, as our approach is built in part upon the drug discovery and development experience of our scientific “drug hunter” team, which we believe is a significant contributor to our competitive advantage, we are dependent on the maintenance and growth of that team with qualified members containing high levels of expertise in specific scientific fields.

 

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We are not aware of any present intention of any of our executive officers or other members of management to leave our company. However, our industry tends to experience a high rate of turnover of management personnel, and our personnel are generally able to terminate their relationships with us on short notice. All of our employment arrangements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior and mid-level managers as well as junior and mid-level scientific and medical personnel, particularly in light of our March 2015 acquisition of four development programs from Teva.

Moreover, there is intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies against which we compete for qualified personnel have greater financial and other resources, different risk profiles, longer histories in the industry and greater ability to provide valuable cash or stock incentives to potential recruits than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we are able to offer as an early-stage company. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.

Risks Related to the Discovery and Development of Our Product Candidates

We are heavily dependent on the success of our current product candidates, which will require significant additional efforts to develop and may prove not to be viable for commercialization.

To date, we have invested significant efforts in the acquisition of our drug programs from NMS and Teva. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize products resulting from these drug programs and any others we may acquire in the future, which may never occur.

Before we could generate any revenues from sales of our product candidates, we must complete the following activities for each of them, any one of which we may not be able to successfully complete:

 

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conduct substantial clinical development;

 

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manage clinical, preclinical and manufacturing activities;

 

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achieve regulatory approvals;

 

•

establish manufacturing relationships;

 

•

build a commercial sales and marketing team, if we choose to market any such product ourselves, or enter into a collaboration to access sales and marketing functions;

 

•

develop and implement marketing strategies;

 

•

develop and/or work with third-party collaborators to develop companion diagnostics and conduct clinical testing and achieve regulatory approvals for those companion diagnostics; and

 

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invest significant additional cash in each of the above activities.

If the results of our ongoing Phase I/II clinical trials of entrectinib and RXDX-105 are not successful, we may not be able to use those results as the basis for advancing these product candidates into further clinical development. In that case, we may not have the resources to conduct new clinical trials, and/or we may determine that further clinical development of these product candidates is not justified and may decide to discontinue the programs. If the results of preclinical testing for our other product candidates are not successful, we may not be able to use those results as the basis for advancing those programs into further development. If studies of our product candidates produce unsuccessful results and we are forced or elect to cease their development, our business and prospects could be substantially harmed, particularly if the product candidates for which development has ceased are at the clinical development stage.

Preclinical and clinical testing of our product candidates that has been conducted to date may not have been performed in compliance with applicable regulatory standards, which could lead to increased costs or material delays for their further development.

We have only recently acquired the rights to develop our programs from NMS and Teva, and the previous development of those programs was conducted wholly by NMS or Teva or any third parties with which they had contracted. As a result, we were not involved with nor did we have any control over any of those development activities. Because we had no input on those development activities, we may discover that all or certain elements of the trials and studies performed by NMS or Teva have not been in compliance with applicable regulatory standards or have otherwise been deficient. If the studies conducted by NMS or Teva are not in full compliance with applicable regulatory standards or are otherwise not eligible for continued development in the United States or elsewhere, then we may be forced to conduct new studies in order to progress their development, which we may not have the funding or other resources to complete and which could severely delay any of our development plans for these product candidates. Any such deficiency in the prior development of these product candidates would significantly harm our business plans and prospects.

 

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Clinical drug development involves a lengthy and expensive process with uncertain outcomes, and any of our clinical trials or studies could produce unsuccessful results or fail at any stage in the testing process.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Additionally, any positive results of preclinical studies and early clinical trials of a product candidate may not be predictive of the results of later-stage clinical trials, such that product candidates may reach later stages of clinical trials and fail to show the desired safety and efficacy traits despite having shown indications of those traits in earlier studies. For example, although the preclinical and early clinical results for our lead product candidate entrectinib have been promising, those results and the results that may be generated in the ongoing Phase I/II clinical trials for this product candidate do not imply that later clinical trials will demonstrate similar results. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. The results of any future clinical trials we conduct may not be successful.

Although there are two clinical trials ongoing for entrectinib and one clinical trial ongoing for RXDX-105, we may experience delays in pursuing those or any other clinical or preclinical studies. Clinical trials can be delayed for a variety of reasons, including delays related to:

 

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obtaining regulatory approval to commence a trial;

 

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engaging leading clinical investigators to conduct or support our clinical trials;

 

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clinical protocol design and development, and reaching consensus with participating investigators on study design;

 

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reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

•

obtaining approval from an independent institutional review board, or IRB, at each trial site;

 

•

enrolling suitable patients to participate in a trial;

 

•

developing and validating companion diagnostics on a timely basis, and utilizing such companion diagnostics on an effective and timely basis;

 

•

changes in formulation, dosing or administration regimens;

 

•

having patients complete a trial or return for post-treatment follow-up;

 

•

clinical sites deviating from the trial protocol or dropping out of a trial;

 

•

regulators instituting a clinical hold due to observed safety findings;

 

•

changes in the regulatory or clinical landscape during the conduct of a trial that impair accrual;

 

•

findings from nonclinical toxicology or safety pharmacology studies or the requirement for such studies;

 

•

adding new clinical trial sites; or

 

•

manufacturing sufficient quantities of product candidate for use in clinical trials.

We currently rely, and we expect to continue to rely, on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. Although we have agreements in place with CROs governing their committed activities and conduct, and we expect we will have similar agreements with other CROs we may engage in the future, we have limited influence over their actual performance. As a result, we ultimately do not have control over a CRO’s compliance with the terms of any agreement it may have with us, its compliance with applicable regulatory requirements, or its adherence to agreed time schedules and deadlines, and a CRO’s failure to perform those obligations could subject any of our clinical trials to delays or failure.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board for the trial, if applicable, or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we were to experience delays in the completion of, or suspension or termination of, any clinical trial for our product candidates, the commercial prospects of the product candidate would be harmed, and our ability to generate product revenues from the product candidate would be delayed or eliminated. In addition, any delays in completing clinical

 

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trials would increase our costs, slow down our product candidate development and approval process and jeopardize regulatory approval of the product candidate. The occurrence of any of these events could harm our business, financial condition and prospects significantly.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

To date, patients treated with entrectinib and RXDX-105 have experienced some drug-related adverse events. Results of our ongoing or future clinical trials of entrectinib and RXDX-105 or trials for our other product candidates could reveal a high and unacceptable severity and frequency of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Further, any observed drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial, or result in potential product liability claims. Any of these occurrences could materially harm our business, financial condition and prospects.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

•

regulatory authorities may withdraw approvals of such product;

 

•

regulatory authorities may require additional warnings on the product’s label;

 

•

we may be required to create a medication guide for distribution to patients that outlines the risks of such side effects;

 

•

we could be sued and held liable for harm caused to patients; and

 

•

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product, if approved, and could significantly harm our business, results of operations and prospects.

Risks Related to Our Dependence on Third Parties

We rely on third parties to conduct preclinical and clinical trials of our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We rely, and expect to continue to rely, upon third-party CROs to execute our preclinical and clinical trials and to monitor and manage data produced by and relating to those trials. However, we may not be able to establish arrangements with CROs when needed or on terms that are acceptable to us, or at all, which could negatively affect our development efforts with respect to our drug product candidates and materially harm our business, operations and prospects.

We currently have only limited control over the activities of the CROs we have engaged to continue the ongoing Phase I/II clinical trials for entrectinib and RXDX-105, and we expect the same to be true for any CROs we may engage in the future. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on any CRO does not relieve us of our regulatory responsibilities. Based on our present expectations, we, our CROs and our clinical trial sites are required to comply with good clinical practices, or GCPs, for all of our product candidates in clinical development. Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in the applicable trial may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving a product candidate for marketing, which we may not have sufficient cash or other resources to support and which would delay our ability to generate revenue from any sales of such product candidate. In addition, our clinical trials are required to be conducted with product produced in compliance with current good manufacturing practice requirements, or cGMPs. Our or our CROs’ failure to comply with those regulations may require us to repeat clinical trials, which would also require significant cash expenditures and delay the regulatory approval process.

Agreements governing relationships with CROs generally provide those CROs with certain rights to terminate the agreements under specified circumstances. If a CRO that we have engaged terminates its relationship with us during the performance of a clinical trial, we would be forced to seek an engagement with a substitute CRO, which we may not be able to do on a timely basis or on commercially reasonable terms, if at all, and the applicable trial would experience delays or may not be completed. In addition, our CROs are not our employees, and except for remedies available to us under any agreements we enter with them, we are unable to control whether or not they devote sufficient time and resources to our clinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or

 

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accuracy of the clinical data they obtain is compromised due to a failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for, or successfully commercialize, the affected product candidates. As a result, our operations and the commercial prospects for the affected product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

We plan to rely completely on third parties to manufacture our preclinical and clinical drug supplies and any approved product candidates, and our operations could be harmed if those third parties fail to provide sufficient quantities of product in accordance with applicable regulatory and contractual obligations.

We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies for use in the conduct of our preclinical studies and clinical trials or commercial quantities of any product candidates that may obtain regulatory approval. As a result, we expect that we will need to rely completely on third-party manufacturers for those services. We currently have a limited supply of entrectinib and our other product candidates. We have entered into non-exclusive clinical supply agreements with two independent third parties for entrectinib, and we are currently reliant completely on Teva for the clinical supply of RXDX-105. We do not currently have arrangements in place for commercial supply of bulk drug substance or drug products. We may not be able to establish these or any other supply relationship when needed, on reasonable terms, or at all. Any failure to secure sufficient supply of our product candidates for preclinical or clinical testing or, in the future, commercial purposes would materially harm our operations and financial results.

We expect that the facilities to be used by any contract manufacturers we engage to manufacture our product candidates will be inspected by the FDA in connection with any NDA that we submit. We will not control the manufacturing process of, and will be dependent on, our contract manufacturing partners for compliance with cGMPs for the manufacture of clinical and, if regulatory approval is obtained, commercial quantities of our product candidates. If any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other comparable foreign authorities, we would be prevented from obtaining regulatory approval for our product candidates or commercializing our products, if approved, unless and until we could engage a substitute contract manufacturer that could comply with such requirements, which we may not be able to do. Any such failure by any of our contract manufacturers would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

We expect to rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our preclinical studies and clinical trials or for commercial sale. We do not have, nor do we expect to enter, any agreements for the production of these raw materials, and we do not expect to have any control over the process or timing of our manufacturers’ acquisition of raw materials needed to produce our product candidates. Any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing preclinical study or clinical trial due to a manufacturer’s need to replace a third-party supplier of raw materials could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates. Additionally, if our manufacturers or we are unable to purchase these raw materials to commercially produce any of our product candidates that gain regulatory approval, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.

Risks Related to Any Commercialization of Our Product Candidates

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. In addition, the competition in the oncology market is intense. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions.

With respect to entrectinib, we are aware of two agents that have been approved by the FDA for ALK-positive NSCLC, Pfizer’s Xalkori^®/crizotinib and Novartis’ Zykadia^®/ceritinib.

With respect to RXDX-105, we are aware of three agents that have been approved by the FDA for BRAF-mutated melanoma, Genentech’s Zelboraf^®/vemurafinib and Novartis’ Taflinar^®/dabrafenib and Mekinist^®/trametinib. We are also aware of three agents that have been approved by the FDA for EGFR-mutated non-small cell lung cancer, Genentech’s and Astellas’ Tarceva^®/erlotinib, Boehringer Ingelheim’s Gilotrif^®/afatinib and AstraZeneca’s Iressa^®/gefitinib. In addition, Bristol-Myers Squibb’s Erbitux^®/cetuximab is approved by the FDA for EGFR-mutated head and neck cancer and colorectal cancer.

With respect to RXDX-107, Teva’s Treanda^®/bendamustine is approved by the FDA for the treatment of chronic lymphocytic lymphoma and B-cell non-Hodgkin lymphoma.

 

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We are also aware of several other products in development targeting TrkA, TrkB, TrkC, ROS1, ALK, BRAF, EGFR, RET, AXL, c-MET, CDC7 and/or aPKCiota, as well as new formulations of bendamustine and other alkylating agents, for the treatment of cancer, some of which may be in a more advanced stage of development than our product candidates. There are also many other compounds directed to other molecular targets that are in clinical development by a variety of companies to treat cancer types that we may choose to pursue with our programs.

Many of our competitors have substantially greater financial, technical and other resources than we do, such as larger research and development staff and experienced marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in certain of our competitors. As a result of these or other factors, these companies may be able to obtain regulatory approval more rapidly than we can and may be more effective in selling and marketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing drug products that are more effective or less costly to produce or purchase on the market than any product candidate we are currently developing or that we may seek to develop in the future. If approved, our product candidates will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors.

Established pharmaceutical companies may invest heavily to accelerate discovery and development of or in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Our competitors may succeed in obtaining patent protection, receiving FDA, EMA or other regulatory approvals, or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business and ability to achieve profitability from future sales of our approved product candidates, if any.

We could be subject to product liability lawsuits based on the use of our product candidates in clinical testing or, if obtained, following marketing approval and commercialization. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to cease clinical testing or limit commercialization of our product candidates.

We could be subject to product liability lawsuits if any product candidate we develop allegedly causes injury or is found to be otherwise unsuitable for human use during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, breach of warranties or other claims. Claims could also be asserted under state consumer protection acts or other laws. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit clinical testing of our product candidates or commercialization, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

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decreased demand for our product candidates;

 

•

injury to our reputation;

 

•

withdrawal of clinical trial participants;

 

•

initiation of investigations by regulators;

 

•

costs to defend the related litigation;

 

•

a diversion of management’s time and our resources;

 

•

substantial monetary awards to trial participants or patients;

 

•

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

•

loss of revenues from product sales; and

 

•

the inability to commercialize our product candidates.

Our inability to retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the clinical testing and commercialization of products we develop. We have obtained product liability insurance covering our Phase I/II clinical trials of entrectinib and RXDX-105. We may wish to obtain additional such insurance covering studies or trials in other countries should we seek to expand those clinical trials or commence new clinical trials in other jurisdictions or increase the number of patients in any clinical trials we may pursue. We also may determine that additional types and amounts of coverage would be desirable at later stages of clinical development of our product candidates or upon commencing commercialization of any product candidate that obtains required approvals. However, we may not be able to obtain any such additional insurance coverage when needed on acceptable terms, or at all. We could be responsible for some or all of the financial costs associated with a product liability claim relating to our development or commercialization activities, in the event that any such claim results in a court judgment or settlement in an amount or of a type that is not covered, in whole or in part, by any insurance policies we may have or that is in excess of the limits of our insurance coverage. We may not have, or be able to obtain, sufficient capital to pay any such amounts that may not be covered by our insurance policies.

 

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Risks Related to Our Intellectual Property

If we breach any of the agreements under which we license from third parties the development and commercialization rights to our product candidates, we could lose license rights that are important to our business and our operations could be materially harmed.

We have in-licensed from NMS the use, development and commercialization rights for our entrectinib and RXDX-103 programs, and we have assumed license agreements from Teva that include rights and obligations relating to our RXDX-105, RXDX-106 and RXDX-108 programs. As a result, our current business plans are dependent upon our satisfaction of certain conditions to the maintenance of those license agreements and the rights we license under them. Each of the license agreements provides that we are subject to diligence obligations relating to the commercialization and development of product candidates, milestone payments, royalty payments and other obligations. In addition to these license agreements, we may seek to enter into additional agreements with other third parties in the future granting similar license rights with respect to other potential product candidates. If we fail to comply with any of the conditions or obligations or otherwise breach the terms of any of these license agreements, or any future license agreement we may enter on which our business or product candidates are dependent, the licensor may have the right to terminate the applicable agreement in whole or in part and thereby extinguish our rights to the licensed technology and intellectual property and/or any rights we have acquired to develop and commercialize certain product candidates. The loss of the rights licensed to us under these license agreements, or any future license agreement that we may enter granting us rights on which our business or product candidates are dependent, would eliminate our ability to further develop the applicable product candidates and would materially harm our business, prospects, financial condition and results of operations.

If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our markets and our business would be harmed.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The standards of patentability and patent eligibility for diagnostic methods, personalized medicine, and biotechnology inventions are evolving and to some extent uncertain, and subject matter that is presently considered to be patentable may not be patentable (and patents directed thereto might not be valid) in the future. The patent applications we own or license may fail to result in issued patents in the United States or in foreign countries. Third parties may challenge the validity, enforceability or scope of any issued patents we own or license or any applications that may issue as patents in the future, which may result in those patents being narrowed, invalidated or held unenforceable. Even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from developing similar products that do not fall within the scope of our patents. If the breadth or strength of protection provided by the patents we hold or pursue is threatened, our ability to commercialize any product candidates with technology protected by those patents could be threatened. Further, if we encounter delays in our clinical trials, the period of time during which we would have patent protection for any covered product candidates after obtaining regulatory approval would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain at the time of filing that we or our licensors are the first to file any patent application related to our product candidates.

Our license agreements relating to our entrectinib, RXDX-103, RXDX-105, RXDX-106 and RXDX-108 development programs grant us an exclusive, worldwide license under a portfolio of patents and patent applications directed to the licensed development programs. We own the rights to composition of matter patents and patent applications directed to our RXDX-106 and RXDX-107 programs. The composition of matter patents in the United States expire in 2029 for the issued patent relating to entrectinib, in 2029 for the issued patent relating to RXDX-103, and in 2030 for the issued patent relating to RXDX-105. There are patent applications pending that cover the composition of matter of RXDX-106, and we expect that if a United States patent issues from one of these applications it will expire in 2032. There are patent applications pending that cover the composition of matter of RXDX-107, and we expect that if a United States patent issues from one of these applications it will expire in 2033. There are patent applications pending that cover the composition of matter of certain compounds related to our RXDX-108 program, and we expect that if a United States patent issues from one of these applications it will expire in 2033. While patent term extensions under the Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be available to extend our patent exclusivity for any of these product candidates, the applicable patents may not meet the specified conditions for eligibility for any such term extension and, even if eligible, we may not be able to obtain any such term extension. Further, we may elect to pursue patent protection relating to our product candidates only in certain jurisdictions. As a result, competitors would be permitted to use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, any of which could compete with our product candidates.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our discovery platform and drug development processes that involve proprietary know-how, information or technology that is not covered

 

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by patents or not amenable to patent protection. Although we require all of our employees and certain consultants and advisors to assign inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, our trade secrets and other proprietary information may be disclosed or competitors may otherwise gain access to such information or independently develop substantially equivalent information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. Any disclosure to or misappropriation by third parties of our trade secret or other confidential information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding any competitive advantage we may derive from this information.

Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant difficulty in protecting and defending our intellectual property both in the United States and abroad. If we are unable to effectively utilize our intellectual property to protect our products, we may not be able to establish or maintain the competitive advantage that we believe is provided by such intellectual property, which could materially and adversely affect our market position and business and operational results.

The patent protection covering some of our product candidates may be dependent on third parties, who may not effectively maintain that protection.

While we expect that we will generally seek to gain the right to fully prosecute and maintain any issued patents and pending patent applications covering product candidates we may in-license from third-party owners, there may be instances when the prosecution and maintenance of issued patents and pending patent applications that cover our product candidates remain controlled by our licensors. For instance, NMS has retained certain patent prosecution and maintenance rights under our license agreements relating to our entrectinib and RXDX-103 programs, Daiichi Sankyo holds certain patent prosecution and maintenance rights under our license agreement relating to our RXDX-105 and RXDX-106 programs and Cancer Research Technology holds certain patent prosecution and maintenance rights under our license agreement relating to our RXDX-108 program. If any of our current or future licensing partners that retain the right to prosecute and maintain patents and pending patent applications covering the product candidates we license from them fail to appropriately prosecute and maintain that patent protection, we may not be able to prevent competitors from developing and selling competing products or practicing competing methods, and our ability to generate revenue from any commercialization of the affected product candidates may suffer.

Risks Related to Managing Any Growth We May Experience

We will need to grow the size of our organization, and we may experience difficulties in managing any growth we may achieve.

As of April 30, 2015, we had 65 employees, 63 of whom were full-time and 2 of whom were part-time. As our development and commercialization plans and strategies develop, we expect to need additional research, development, managerial, operational, sales, marketing, financial, accounting, legal and other resources. We expect future growth to impose significant added responsibilities on members of management, particularly as we continue to expand our ongoing entrectinib and other development programs, including the four development programs we acquired from Teva in March 2015, including:

 

•

effectively managing our clinical trials and submissions to regulatory authorities for marketing approvals;

 

•

effectively managing our discovery research and preclinical development efforts;

 

•

identifying, recruiting, maintaining, motivating and integrating additional employees;

 

•

establishing relationships with third parties essential to our business and ensuring compliance with our contractual obligations to such third parties;

 

•

developing and managing new segments of our internal business, including any sales and marketing functions we elect to establish;

 

•

maintaining our compliance with public company reporting and other obligations, including establishing and maintaining effective internal control over financial reporting and disclosure controls and procedures; and

 

•

improving our managerial, development, operational and finance systems.

We may not be able to accomplish any of those tasks, and our failure to do so could prevent us from effectively managing future growth, if any, and successfully growing our company.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

We have incurred substantial losses during our history and do not expect to become profitable in the foreseeable future and may never achieve profitability. To the extent we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation

 

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undergoes an “ownership change” (generally defined as a cumulative change in equity ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-ownership change net operating loss carryforwards and other pre-ownership change tax attributes to offset its post-ownership change income and taxes may be limited. We may have experienced an ownership change as a result of our October 31, 2013 merger transaction, our November 2013, March 2014 and March 2015 common stock offerings and our March 2015 transaction with Teva, and we may experience one or more ownership changes as a result of future transactions in our stock. As a result we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. As of December 31, 2014, we had federal and state net operating loss carryforwards of approximately $33.0 million and $32.1 million, respectively, that could be limited if the merger, the common stock offerings or the Teva transaction resulted in an ownership change, or if we experience any other ownership change, which could potentially result in increased future tax liability to us.

Risks Related to Ownership of Our Common Stock

Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of April 30, 2015, a total of 25,262,023 shares of our common stock were outstanding. Of those shares, approximately 19,859,833 were freely tradable, without restriction, in the public market. Such shares represented 78.6% of our outstanding shares of common stock as of that date. Any sales of those shares or any perception in the market that such sales may occur could cause the trading price of our common stock to decline.

In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity incentive plans will be eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act, our effective Registration Statements on Form S-8 and any future registration of such shares under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Certain of our executive officers, directors and large stockholders own a significant percentage of our outstanding capital stock. As of April 30, 2015, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 46.8% of our outstanding voting stock (which includes shares they had the right to acquire within 60 days). Accordingly, our directors and executive officers and large stockholders have significant influence over our affairs due to their substantial ownership coupled with the positions of some of these stockholders on our management team, and have substantial voting power to approve matters requiring the approval of our stockholders. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets or other major corporate transaction. This concentration of ownership in our Board of Directors and management team and certain other large stockholders may prevent or discourage unsolicited acquisition proposals or offers for our common stock that some of our stockholders may believe are in their best interest.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

 

Item 3.

Defaults upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

Not applicable.

 

Item 5.

Other Information

None.

 

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Item 6.

Exhibits

EXHIBIT INDEX

 

Exhibit Number		Description of Exhibit
2.1		Agreement and Plan of Reorganization, dated May 7, 2013, by and between Ignyta, Inc. and Actagene Oncology, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2013).
2.2		Agreement and Plan of Merger and Reorganization, dated October 31, 2013, by and among Ignyta, Inc. (then known as Infinity Oil & Gas Company), IGAS Acquisition Corp., and Ignyta, Inc. (then known as Ignyta Operating, Inc.) (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2013).
2.3		Agreement and Plan of Merger, dated June 12, 2014, by and among Ignyta, Inc. (then known as Ignyta Operating, Inc.), and its parent entity Ignyta, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Report on Form 8-K12B filed with the SEC on June 13, 2014).
3.1		Second Amended and Restated Certificate of Incorporation of Ignyta, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 8-K12B filed with the SEC on June 13, 2014).
3.2		Amended and Restated Bylaws of Ignyta, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Report on Form 8-K12B filed with the SEC on June 13, 2014).
4.1		Form of Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 8-K12B filed with the SEC on June 13, 2014).
4.2		Warrant to Purchase Stock, issued to Silicon Valley Bank on June 25, 2012 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2013).
4.3		Warrant to Purchase Stock, issued to Silicon Valley Bank on February 27, 2013 (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2013).
4.4		Warrant to Purchase Common Stock, dated November 6, 2013, issued to Nerviano Medical Sciences S.r.l. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 7, 2013).
4.5		Warrant to Purchase Stock, issued to Silicon Valley Bank on September 30, 2014 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 1, 2014).
4.6		Warrant to Purchase Stock, issued to Life Science Loans, LLC on September 30, 2014 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 1, 2014).
10.1*		Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award under the Ignyta, Inc. 2014 Incentive Award Plan.
10.2		Controlled Equity OfferingSM Sales Agreement, dated as of March 2, 2015, by and between Ignyta, Inc. and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 1.2 to the Company’s Registration Statement on Form S-3 filed with the SEC on March 2, 2015).
10.3		Asset Purchase Agreement, dated March 17, 2015, by and between Ignyta, Inc. and Cephalon, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 17, 2015).
10.4		Registration Rights Agreement, dated March 17, 2015, by and between Ignyta, Inc. and Cephalon, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 17, 2015).
10.5		Form of Subscription Agreement dated March 17, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 17, 2015)
10.6*#		Collaboration Agreement dated November 3, 2006, as amended April 17, 2009, by and between Ignyta, Inc., as successor-in-interest to Cephalon, Inc., and Daiichi Sankyo Company Limited, as successor-in-interest to Ambit Biosciences Corporation.
10.7*#		Licence Agreement dated January 20, 2014, by and between Ignyta, Inc., as successor-in-interest to Teva Branded Pharmaceutical Products R&D, Inc., and Cancer Research Technology Limited.

 

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Exhibit Number		Description of Exhibit
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a –14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a –14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer and 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.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

 

*	Filed herewith.

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

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		IGNYTA, INC.
Date: May 11, 2015		By:		/s/ Jonathan E. Lim, M.D.
				Jonathan E. Lim, M.D. President and Chief Executive Officer

 

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Exhibit 10.1

IGNYTA, INC.

2014 INCENTIVE AWARD PLAN

RESTRICTED STOCK UNIT AWARD GRANT NOTICE AND

RESTRICTED STOCK UNIT AWARD AGREEMENT

Ignyta, Inc., a Delaware corporation (the “Company”), pursuant to its 2014 Incentive Award Plan (the “Plan”), hereby grants to the holder listed below (“Holder”), an award of restricted stock units (“Restricted Stock Units” or “RSUs”) with respect to the number of shares of the Company’s Common Stock (the “Shares”) set forth below. This award for Restricted Stock Units (this “Award”) is subject to all of the terms and conditions as set forth herein and in the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Restricted Stock Unit Agreement”) and the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Restricted Stock Unit Agreement.

 

Holder:
Grant Date:
Total Number of RSUs:
Distribution Schedule:		Subject to the terms of the Restricted Stock Unit Agreement, the RSUs shall be distributable in accordance with Section 1.1 of the Restricted Stock Unit Agreement.
Vesting Schedule:		Subject to the terms of the Restricted Stock Unit Agreement, the RSUs shall vest as follows:

By Holder’s signature below, Holder agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Holder has reviewed the Plan, the Agreement and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Plan, the Agreement and the Grant Notice. Holder hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Agreement or the Grant Notice.

 

IGNYTA, INC.						HOLDER
By:						By:
Print Name:						Print Name:
Title:

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EXHIBIT A

TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE

RESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Restricted Stock Unit Award Agreement (this “Agreement”) is attached, the Company has granted to Holder the right to receive the number of RSUs set forth in the Grant Notice, subject to all of the terms and conditions set forth in this Agreement, the Grant Notice and the Plan.

ARTICLE I

AWARD OF RESTRICTED STOCK UNITS

1.1 Award of Restricted Stock Units.

(a) Award. In consideration of Holder’s continued employment with the Company or any Subsidiary thereof and for other good and valuable consideration, the Company hereby grants to Holder the right to receive the number of RSUs set forth in the Grant Notice, subject to all of the terms and conditions set forth in this Agreement, the Grant Notice and the Plan. Prior to actual issuance of any Shares, the RSUs and the Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.

(b) Vesting. The RSUs subject to the Award shall vest in accordance with the Vesting Schedule set forth in the Grant Notice. Unless and until the RSUs have vested in accordance with the Vesting Schedule set forth in the Grant Notice, Holder will have no right to any distribution with respect to such RSUs. Except as set forth in the Vesting Schedule set forth in the Grant Notice, in the event of Holder’s Termination of Service prior to the vesting of all of the RSUs, any unvested RSUs will terminate automatically without any further action by the Company and be forfeited without further notice and at no cost to the Company.

(c) Distribution of RSUs.

(i) Shares shall be distributed to Holder (or in the event of Holder’s death, to his or her estate) with respect to such Holder’s vested RSUs within sixty (60) days following the vesting date of the RSUs as specified in the Vesting Schedule set forth in the Grant Notice, subject to the terms and provisions of the Plan and this Agreement.

(ii) Unless otherwise determined by the Administrator, all distributions shall be made by the Company in the form of whole Shares.

(iii) Neither the time nor form of distribution of Shares with respect to the RSUs may be changed, except as may be permitted by the Administrator in accordance with the Plan and Section 409A of the Code and the Treasury Regulations thereunder.

(d) Generally. Shares issued under the Award shall be issued to Holder or Holder’s beneficiaries, as the case may be, at the sole discretion of the Administrator, in either (i) uncertificated form, with the Shares recorded in the name of Holder in the books and records of the Company’s transfer agent with appropriate notations regarding the restrictions on transfer imposed pursuant to this Agreement; or (ii) certificate form. In no event will fractional shares be issued upon settlement of the

 

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Award. All distributions shall be made by the Company in the form of whole Shares. In lieu of any fractional Share, the Company shall make a cash payment to Holder equal to the Fair Market Value of such fractional Share on the date the RSUs are settled pursuant to this Section 1.1.

1.2 Tax Withholding. Notwithstanding any other provision of this Agreement:

(a) The Company and its Subsidiaries have the authority to deduct or withhold, or require Holder to remit to the Company or the applicable Subsidiary, an amount sufficient to satisfy applicable federal, state, local and foreign taxes (including the employee portion of any FICA obligation) required by law to be withheld with respect to any taxable event arising pursuant to this Agreement. The Company and its Subsidiaries may withhold or Holder may make such payment in one or more of the forms specified below:

(i) by cash or check made payable to the Company or the Subsidiary with respect to which the withholding obligation arises;

(ii) by the deduction of such amount from other compensation payable to Holder;

(iii) with respect to any tax withholding obligation arising in connection with the distribution of the RSUs, by requesting that the Company and its Subsidiaries withhold a net number of vested Shares otherwise issuable pursuant to the RSUs having a then current Fair Market Value not exceeding the amount necessary to satisfy the tax withholding obligation of the Company and its Subsidiaries based on the minimum applicable statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes;

(iv) with respect to any tax withholding obligation arising in connection with the distribution of the RSUs, with the consent of the Administrator, by tendering to the Company vested Shares having a then current Fair Market Value not exceeding the amount necessary to satisfy the tax withholding obligation of the Company and its Subsidiaries based on the minimum applicable statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes;

(v) with respect to any withholding taxes arising in connection with the distribution of the RSUs, through the delivery of a notice that Holder has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable to Holder pursuant to the RSUs, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company or the Subsidiary with respect to which the tax withholding obligation arises in satisfaction of such withholding taxes; provided that payment of such proceeds is then made to the Company or the applicable Subsidiary at such time as may be required by the Administrator, but in any event not later than the settlement of such sale; or

(vi) in any combination of the foregoing.

(b) With respect to any withholding taxes arising in connection with the RSUs, in the event Holder does not provide timely payment of all sums required pursuant to Section 1.2(a), the Company shall have the right, but not the obligation, to treat such failure as an election by Holder to satisfy all or any portion of Holder’s required payment obligation pursuant to Section 1.2(a)(iii) above. The Company shall not be obligated to deliver any certificate representing Shares issuable with respect to the RSUs to Holder or his or her legal representative unless and until Holder or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Holder resulting from the vesting of the

 

A-2

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RSUs, the distribution of the Shares issuable with respect thereto, or any other taxable event related to the RSUs, provided that no payment shall be delayed under this Section 1.2 if such delay will result in a violation of Section 409A of the Code.

(c) In the event any tax withholding obligation arising in connection with the RSUs will be satisfied under Section 1.2(a)(iii), then the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on Holder’s behalf a whole number of shares from those Shares then issuable to Holder pursuant to the RSUs as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the tax withholding obligation and to remit the proceeds of such sale to the Company or the Subsidiary with respect to which the withholding obligation arises. Holder’s acceptance of this Award constitutes Holder’s instruction and authorization to the Company and such brokerage firm to complete the transactions described in this Section 1.2(c), including the transactions described in the previous sentence, as applicable.

(d) Holder is ultimately liable and responsible for all taxes owed in connection with the RSUs, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the RSUs. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding obligation in connection with the awarding, vesting or payment of the RSUs or the subsequent sale of Shares. The Company and the Subsidiaries do not commit and are under no obligation to structure the RSUs to reduce or eliminate Holder’s tax liability.

1.3 Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any Shares then issuable to Holder pursuant to the RSUs prior to fulfillment of all of the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of such Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable, (c) the obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable, and (d) the receipt of full payment of any applicable withholding tax in accordance with Section 1.2 by the Company or its Subsidiary with respect to which the applicable withholding obligation arises.

ARTICLE II

RESTRICTIONS

2.1 Award and Interests Not Transferable. This Award, including the RSUs awarded hereunder, may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until the Shares issuable pursuant to the Award have been issued, and all restrictions applicable to such Shares have lapsed. This Award and the rights and privileges conferred hereby, including the RSUs awarded hereunder, shall not be liable for the debts, contracts or engagements of Holder or his or her successors in interest and shall not be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

 

A-3

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2.2 Rights as Stockholder. Neither Holder nor any person claiming under or through Holder shall have any of the rights or privileges of a stockholder of the Company in respect of any Shares issuable hereunder unless and until certificates representing such Shares (which may be in uncertificated form) will have been issued and recorded on the books and records of the Company or its transfer agents or registrars, and delivered to Holder (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Holder shall have all the rights of a stockholder of the Company, including with respect to the right to vote the Shares and the right to receive any cash or share dividends or other distributions paid to or made with respect to the Shares.

2.3 Forfeiture and Claw-Back Provisions. Holder hereby acknowledges and agrees that the Award is subject to the provisions of Section 11.5 of the Plan.

2.4 Trading Restrictions. The Company may establish reasonably appropriate periods from time to time during which Holder’s ability to engage in transactions involving the Shares is subject to specific restrictions (“Restricted Periods”). Holder may be subject to restrictions giving rise to a Restricted Period for any reason that the Company determines appropriate, including, restrictions generally applicable to employees or groups of employees or restrictions applicable to Holder during an investigation of allegations of misconduct or conduct detrimental to the Company or any Subsidiary by Holder.

ARTICLE III

OTHER PROVISIONS

3.1 Administration. The Administrator shall have the power to interpret the Plan, this Agreement and the Grant Notice and to adopt such rules for the administration, interpretation and application of the Plan, this Agreement and the Grant Notice as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator will be final and binding upon Holder, the Company and all other interested persons. To the extent allowable pursuant to Applicable Law, no member of the Committee or the Board will be personally liable for any action, determination or interpretation made with respect to the Plan, this Agreement or the Grant Notice.

3.2 Adjustments. Holder acknowledges that the Award, including the vesting of the Award and the number of Shares subject to the Award, is subject to adjustment in the discretion of the Administrator upon the occurrence of certain events as provided in this Agreement and Section 13.2 of the Plan.

3.3 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Holder shall be addressed to Holder at Holder’s last address reflected on the Company’s records. By a notice given pursuant to this Section 3.3, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

3.4 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

A-4

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3.5 Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

3.6 Conformity to Securities Laws. Holder acknowledges that the Plan, this Agreement and the Grant Notice are intended to conform to the extent necessary with all Applicable Laws, including, without limitation, the provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted and may vest or be settled, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to Applicable Law.

3.7 Tax Representations. Holder has reviewed with Holder’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Grant Notice and this Agreement. Holder is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Holder understands that Holder (and not the Company) shall be responsible for Holder’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

3.8 Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Award in any material way without the prior written consent of Holder.

3.9 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Holder and his or her heirs, executors, administrators, successors and assigns.

3.10 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Holder is subject to Section 16 of the Exchange Act, the Plan, the RSUs, the Grant Notice and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

3.11 Not a Contract of Employment. Nothing in this Agreement or in the Plan shall confer upon Holder any right to continue to serve as an employee or other service provider of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Holder at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Holder.

3.12 Entire Agreement. The Plan, the Grant Notice and this Agreement constitute the entire agreement of the parties and supersede in their entirety all oral, implied or written promises, statements, understandings, undertakings and agreements between the Company and Holder with respect to the subject matter hereof, including without limitation, any other oral, implied or written promises, statements, understandings, undertakings or agreements by the Company or any of its representatives regarding equity awards to be awarded to Holder by the Company.

 

A-5

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3.13 Paperless Administration. By accepting this Award, Holder hereby agrees to receive documentation related to the Award by electronic delivery, such as a system using an internet website or interactive voice response, maintained by the Company or a third party designated by the Company.

3.14 Section 409A. This Award is not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “Section 409A”), and, accordingly, the Shares issuable pursuant to the RSUs hereunder shall be distributed to Holder no later than the later of: (i) the fifteenth (15^th) day of the third month following Holder’s first taxable year in which such RSUs are no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15^th) day of the third month following first taxable year of the Company in which such RSUs are no longer subject to substantial risk of forfeiture, as determined in accordance with Section 409A and any Treasury Regulations and other guidance issued thereunder. However, notwithstanding any other provision of the Plan, this Agreement and the Grant Notice, if at any time the Administrator determines that this Award (or any portion thereof) may be subject to Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify Holder or any other person for failure to do so) to adopt such amendments to the Plan, this Agreement or the Grant Notice, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate for this Award either to be exempt from the application of Section 409A or to comply with the requirements of Section 409A. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that Holder may be eligible to receive under this Agreement shall be treated as a separate and distinct payment.

3.15 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.

3.16 Limitation on Holder’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Holder shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs, and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to RSUs, as and when settled pursuant to the terms hereof.

3.17 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which shall be deemed an original and all of which together shall constitute one instrument.

3.18 Broker-Assisted Sales. In the event of any broker-assisted sale of Shares in connection with the payment of withholding taxes as provided in Section 1.2(a)(iii) or (v): (a) any Shares to be sold through a broker-assisted sale will be sold on the day the tax withholding obligation arises or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other participants in the Plan in which all participants receive an average price; (c) Holder will be responsible for all broker’s fees and other costs of sale, and Holder agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the proceeds of such sale exceed

 

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the applicable tax withholding obligation, the Company agrees to pay such excess in cash to Holder as soon as reasonably practicable; (e) Holder acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the applicable tax withholding obligation; and (f) in the event the proceeds of such sale are insufficient to satisfy the applicable tax withholding obligation, Holder agrees to pay immediately upon demand to the Company or its Subsidiary with respect to which the tax withholding obligation arises an amount in cash sufficient to satisfy any remaining portion of the Company’s or the applicable Subsidiary’s tax withholding obligation.

* * * * *

 

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Exhibit 10.6

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

COLLABORATION AGREEMENT

This COLLABORATION AGREEMENT (the “Agreement”), effective as of November 3, 2006 (the “Effective Date”), is made by and between Ambit Biosciences Corporation a Delaware corporation, having a principal place of business at 4215 Sorrento Valley Boulevard, San Diego, CA 92121 (“Ambit”), and Cephalon, Inc., a Delaware corporation, having a principal place of business at 41 Moores Road, Frazer, PA 19355 (“Cephalon”).

RECITALS

WHEREAS, Ambit has expertise in the profiling of pharmaceutical compounds against human protein kinases and expertise in the research and development of pharmaceutical compounds;

WHEREAS, Cephalon has expertise in the research, development and commercialization of pharmaceutical compounds;

WHEREAS, the Parties have entered into a Profiling Services Agreement, dated as of the date hereof (the “Profiling Services Agreement”), the terms of which are incorporated as set forth in Attachment A herein;

WHEREAS, Cephalon and Ambit wish to enter into a collaboration employing the Parties’ medicinal chemistry and biology capabilities, in order to discover, develop and commercialize pharmaceutical compounds subject to and in accordance with the terms and conditions of this Agreement (the “Collaboration”); and

WHEREAS, in addition, Ambit wishes to analyze and assess the activity of certain of Cephalon’s compounds against Ambit kinase targets, and to develop and commercialize those compounds subject to the terms and conditions of this Agreement.

NOW THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth in this Agreement, the Parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

As used herein, the following terms shall have the meanings set forth below:

1.1 “Affiliate” shall mean, with respect to a particular Party, any Person controlled by, controlling, or under common control with such Party. For the purpose of this Section 1.1 only, “control” of a Person shall mean (a) the possession, directly or indirectly, of the power to

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direct the management or policies of such Person; whether through the ownership of voting securities, by contract or otherwise; or (b) the ownership; directly or indirectly, of more than fifty percent (50%) of the voting securities or other ownership interest of such Person.

1.2 “Ambit Compound” shall mean any compound that (a) is brought to the Collaboration by Ambit, (b) is Controlled by Ambit, and (c) is proprietary to Ambit by virtue of being claimed or covered by an Ambit Patent or being part of the Ambit Know-How.

1.3 “Ambit IP” shall mean Ambit Patents and Ambit Know-how.

1.4 “Ambit Know-how” shall mean all proprietary ideas, inventions, data, know-how, instructions, processes, formulas, materials, expert opinion, technology or other information (including, biological, chemical, physical and analytical data and information, and any structure-function data), that (a) is either (i) Controlled by Ambit as of the Effective Date, or (ii) discovered, developed, conceived, reduced to practice or acquired during the Collaboration Term outside the course of both of the Collaboration and Ambit’s research and development under Article IV by employees or agents of Ambit or any of its respective Affiliates, either alone or jointly, and is Controlled by Ambit and (b) is necessary for the discovery, development, manufacture or use of Licensed Compounds, Collaboration Compounds and Derivative Compounds and/or the development, manufacture, use, sale or commercialization of corresponding Licensed Products and Collaboration Products; provided, however, that Ambit Know-How shall not include Ambit Patents, Licensed Compound IP, Collaboration IP or Cephalon IP.

1.5 “Ambit Patents” shall mean , all Patents Controlled by Ambit or its Affiliates as of the Effective Date, or any other Patent Controlled by Ambit or its Affiliates during the Collaboration Term and, with respect to Collaboration Clinical Candidates and Licensed Compounds, all Patents Controlled by Ambit or its Affiliates during the Term; in each case, necessary for the discovery (in the case of Collaboration Compounds), development, manufacture, importation or use of one or more Licensed Compounds, Collaboration Compounds, Derivative Compounds and/or the development, manufacture, use, sale, importation or commercialization of corresponding Licensed Products or Collaboration Products.

1.6 “Ambit Target” shall mean (a) the [***] Targets specified in Schedule A, and (b) such Targets that may be mutually agreed upon by the Parties pursuant to Section 4.2 to replace one (1) or more of such Targets specified in Schedule A, provided that in no event shall any such Targets include the Cephalon Exclusive Targets.

1.7 “Cephalon Compound” shall mean any Cephalon Library Compound and any additional compound brought to the Collaboration by Cephalon.

1.8 “Cephalon Exclusive Targets” shall mean the Targets, for which Cephalon has or expects to have active programs or Third Party obligations during the Collaboration Term, as specified in Schedule B and as may be reasonably updated from time to time by Cephalon.

 

 

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1.9 “Cephalon IP” shall mean Cephalon Patents and Cephalon Know-how.

1.10 “Cephalon Know-how” shall mean all proprietary ideas, inventions, data, know-how, instructions, processes,’ formulas, materials, expert opinion, technology or other information (including biological, chemical, physical and analytical data and information, and any structure-function data), that (a) is either (i) Controlled by Cephalon as of the Effective Date, or (ii) discovered, developed, conceived, reduced to practice or acquired during the Collaboration Term outside the course of both of the Collaboration and Ambit’s research and development under Article IV by employees or agents of Cephalon or any of its respective Affiliates, either alone or jointly, and is Controlled by Cephalon and (b) is necessary for the discovery, development, manufacture or use of Licensed Compounds and Collaboration Compounds and/or the development, manufacture, use, sale or commercialization of corresponding Licensed Products and Collaboration Products; provided, however, that Cephalon Know-How shall not include Cephalon Patents, Licensed Compound IP, Ambit IP or Collaboration IP.

1.11 “Cephalon Library Compounds” shall mean Cephalon’s small molecule screening deck of approximately [***], without chemical structures. Cephalon Analogue Compounds provided by Cephalon to Ambit pursuant to Section 4.3.2 shall be deemed Cephalon Library Compounds for the purposes of Article IV.

1.12 “Cephalon Patents” shall mean all Patents Controlled by Cephalon or its Affiliates as of the Effective Date, or any other Patent Controlled by Cephalon or its Affiliates during the Collaboration Term and, with respect to Collaboration Clinical Candidates and Licensed Compounds, all Patents Controlled by Cephalon or its Affiliates during the Term; in each case, necessary for the discovery, development, manufacture, importation or use of one or more Licensed Compounds or Collaboration Compounds and/or the development, manufacture, use, sale, importation or commercialization of corresponding Licensed Products and Collaboration Products.

1.13 “Cephalon Target” shall mean all Targets other than the Ambit Targets.

1.14 “Change of Control” shall mean with respect to Ambit: (a) the stockholders of Ambit approve a sale of all or substantially all of Ambit’s assets or business to which this Agreement relates to a Third Party or a plan of complete liquidation of Ambit; (b) the stockholders of Ambit approve a merger, reorganization or consolidation involving Ambit and a Third Party in which the stockholders of Ambit immediately prior to such transaction cease to own collectively fifty percent (50%) or more of the combined voting equity securities of a successor entity; or (c) the stockholders approve an acquisition of fifty percent (50%) or more of the voting equity securities of Ambit by a Third Party.

1.15 “Collaboration” shall have the meaning set forth in the Recitals, and mean any research and development activities undertaken by both Ambit and Cephalon under the direction

 

 

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and oversight of the JRC that relates to the development of Collaboration Compounds and Collaboration Clinical Candidates having activity against the Collaboration Target(s).

1.16 “Collaboration Clinical Candidate” shall mean a Collaboration Compound selected by Cephalon as a candidate for IND-enabling studies pursuant to Section 8.1.

1.17 “Collaboration Compound” shall mean, (a) with respect to the First Collaboration Target, (i) the Ambit Compounds that currently are the subject of Ambit’s research and development efforts, and (ii) any other compounds agreed by the JRC to be designated as “Collaboration Compounds”; and (b) with respect to the Second Collaboration Target, the compounds agreed by the JRC to be designated as “Collaboration Compounds,” which compounds may include Ambit Compounds, Cephalon Compounds and/or Non-Exclusive Compounds; in each case, including any compound that is derived, directly or indirectly, from such compounds that either (x) inhibits the activity of the First Collaboration Target according to the criteria set forth in the Research Plan or (y) appropriately inhibits or modulates the activity of the Second Collaboration Target at a level of potency to be established by the JRC, as applicable. For purposes of clarity, any compound synthesized in the course of the Collaboration and based on a Cephalon Compound or Ambit Compound that is active against a Collaboration Target at the level of potency and selectivity established by the JRC shall be deemed a Collaboration Compound.

1.18 “Collaboration IP” shall mean Collaboration Patents and Collaboration Know-how. Collaboration IP shall not include Ambit IP, Cephalon IP or Licensed Compound IP.

1.19 “Collaboration Know-how” shall mean all proprietary ideas, inventions, data, know-how, instructions, processes, formulas, materials, expert opinion, technology or other information (including, without limitation, (a) biological, chemical, physical and analytical data and information relating to Collaboration Compounds, and (b) any structure-function data related to Collaboration Compounds), in each case which is discovered, developed, conceived or reduced to practice during the Collaboration Term and in the course of the Collaboration, by employees or agents of Cephalon, Ambit or any of their respective Affiliates, either alone or jointly, and which is necessary for the discovery, development, manufacture or use of Collaboration Compounds and/or the development, manufacture, use, sale or commercialization of corresponding Collaboration Products; provided, however, that Collaboration Know-How shall not include Collaboration Patents, Licensed Compound IP, Ambit IP or Cephalon IP.

1.20 “Collaboration Patents” shall mean (a) all patents and patent applications claiming any invention or discovery which was conceived or reduced to practice during the Collaboration Term and in the course of the Collaboration, by employees or agents of Ambit, Cephalon or any of their respective Affiliates, either alone or jointly (including, without limitation, the synthesis and composition of matter of any Collaboration Compound or any Collaboration Product, or method of use thereof); and (b) any divisions, continuations, continuations-in-part, reissues, reexaminations, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in (a) above, and any substitutions, confirmations, registrations, revalidations, or additions of any of the foregoing; provided, however, that Collaboration Patents shall not include any Ambit Patents, Cephalon Patents or Licensed Compound Patents.

 

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1.21 “Collaboration Product” shall mean any pharmaceutical product in any form or formulation that contains a Collaboration Compound that is sold by Cephalon or its Sublicensees or Affiliates.

1.22 “Collaboration Targets” shall mean the First Collaboration Target and the Second Collaboration Target.

1.23 “Collaboration Term” shall mean the Initial Term plus any extension pursuant to Section 16.2.

1.24 “Combination Product” shall mean a Collaboration Product or Licensed Product, as applicable, that comprises two (2) or more active ingredients, at least one (1) of which is a Collaboration Compound or Licensed Compound.

1.25 “Commercially Reasonable Efforts” shall mean, in respect to each Party, efforts and resources expected to be used by biotechnology companies of a similar size and resource to that Party for a product at a similar stage in its research, development or commercialization and of similar market potential taking into account its safety and efficacy, its cost to develop, the competitiveness of alternative products, its patent and other proprietary position, the likelihood of regulatory approval and product reimbursement, its profitability and all other relevant commercial factors. For clarity, in respect of Ambit, Commercially Reasonable Efforts shall include the proper and reasonable management of its finances to ensure the adequate performance of the Collaboration and its obligations under Article IV in accordance with the terms of this Agreement.

1.26 “Confidential Information” as to each Party, shall mean such Party’s confidential information, trade secrets, Patents and Know-how, all the data and materials of that Party relating to the Collaboration, the Ambit Targets, Cephalon Targets, Collaboration Targets, Ambit Compounds, Cephalon Compounds, Collaboration Compounds, Licensed Compounds, Cephalon Library Compounds, Collaboration Products and Licensed Products, and including, without limitation, all research, technical, clinical development, manufacturing, marketing, financial, personnel, and other business information and plans of such Party, in each case that (a) if disclosed in written form, is marked by such Party as “confidential” or “proprietary,” (b) if disclosed in non-written form, is indicated as confidential or proprietary at the time of disclosure and reduced in writing in reasonable detail, marked as “confidential” or “proprietary” and delivered to the receiving Party within thirty (30) days after disclosure or (c) notwithstanding clauses (a) and (b) above, is known or reasonably should be known by the receiving Party to be the confidential information of the disclosing Party.

1.27 “Controls” or “Controlled” shall mean possession of the ability to grant licenses or sublicenses pursuant to this Agreement without violating the terms of any agreement or other arrangement with, or the rights of, any Third Party and without the requirement of additional or increased payments to the Third Party.

1.28 “Derivative Compound” shall mean, with respect to a Cephalon Library Compound, a compound that was derived by or on behalf of Ambit from such Cephalon Library Compound (whether from the Cephalon Library Compound or from a predecessor compound

 

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that is derived from a Cephalon Library Compound), or derived or synthesized by or on behalf of Ambit from Cephalon’s Confidential Information covering the structure or identity of the Cephalon Library Compound.

1.29 “Executive Officers” shall mean the Chief Executive Officer of Ambit, the Executive Vice President of Research and Development of Cephalon, and/or such other executive officer of a Party as may be substituted from time to time upon the giving of written notice to the other Party.

1.30 “Fair Market Value” shall mean the cash consideration, which a willing seller would realize from an unrelated willing buyer in an arm’s length sale of an identical item sold in the same quantity and at the same time and place of the transaction.

1.31 “FDA” shall mean the U.S. Food and Drug Administration, any successor thereto, or any corresponding foreign registration or regulatory authority.

1.32 “Field” shall mean research and development relating to, and the treatment of, any and all oncological diseases.

1.33 “First Collaboration Target” shall mean the BRaF kinase and all mutations thereof.

1.34 “First Commercial Sale” shall mean, with respect -to a Collaboration Product or Licensed Product, as applicable, in any country, the first sale for use or consumption by the general public of such Collaboration Product or Licensed Product, as applicable, in such country after all Regulatory Approvals have been obtained in such country.

1.35 “IND” shall mean an Investigational New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder for initiating clinical trials in the United States, or any corresponding foreign application, registration or certification.

1.36 “Initial Term” shall mean the period commencing on the Effective Date and ending three (3) years thereafter.

1.37 “Joint Research Committee” or “JRC” shall mean the entity organized to manage the scientific implementation of the Collaboration and acting pursuant to Article III.

1.38 “KinomeScan Panel” means the panel containing all kinase binding assays made commercially available by Ambit at the time of performance that uses Ambit’s proprietary high-throughput assay system known as KinomeScan for determining the kinase binding activity of compounds against a panel of human phage-displayed protein kinases and their variants.

1.39 “Licensed Compound” shall mean an Option Compound (as defined in Section 4.4.1 herein) as to which Ambit exercises its Option, and up to [***] associated

 

 

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Derivative Compounds that fulfill the same development candidate criteria established by Ambit for the Option Compound (even if such Derivative Compounds are not selected by Ambit for commercialization) (such [***] associated Derivative Compounds, the “Backup Compounds”), provided that a Backup Compound shall be deemed a Licensed Compound only if (a) Ambit has provided written notice to Cephalon designating such Backup Compound as a Licensed Compound and (b) the Backup Compound otherwise meets all of the applicable requirements set forth in Article IV.

1.40 “Licensed Compound IP” shall mean the Licensed Compound Know-how and Licensed Compound Patents.

1.41 “Licensed Compound Know-how” shall mean all proprietary ideas, inventions, data, know-how, instructions, processes, formulas, materials, expert opinion, technology or other information (including, without limitation, (a) biological, chemical, physical and analytical data and information, and (b) any structure-function data), in each case which is discovered, developed, conceived or reduced to practice during the Term in connection with the research and development activities conducted in connection with Article IV, including with respect to Licensed Compounds and Derivative Compounds, by employees or agents of Ambit or any of its Affiliates, either alone or jointly; provided, however, that Licensed Compound Know-how shall not include Licensed Compound Patents, Collaboration IP, Ambit IP or Cephalon IP.

1.42 “Licensed Compound Patents” shall mean (a) all Patents conceived or reduced to practice during the Term by employees or agents of Ambit or any of its respective Affiliates, either alone or jointly, that are related to any Licensed Compound or Derivative Compound (including, without limitation, the synthesis and composition of matter of any such compound or Licensed Products, or method of use thereof) or otherwise result from Ambit’s research and development activities conducted in connection with Article IV, including with respect to Licensed Compounds and Derivative Compounds; and (b) any divisions, continuations, continuations-in-part, reissues, reexaminations, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in (a) above, and any substitutions, confirmations, registrations, revalidations, or additions of any of the foregoing. For the avoidance of doubt, Licensed Compound Patents shall not include Collaboration Patents.

1.43 “Licensed Products” shall mean any pharmaceutical product in any form or formulation that contains a Licensed Compound that is developed by Ambit, or its permitted Sublicensees or Affiliates, pursuant to Article IV.

1.44 “Mutant Form Candidate” shall mean a Collaboration Clinical Candidate that is directed against a mutated form of the BRaF kinase, other than the V600E form of the BRaF kinase.

1.45 “NDA” shall mean a New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or any corresponding foreign application, registration or certification.

 

 

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1.46 “Net Revenue” shall mean the gross amount of all consideration (whether as an up-front payment, royalties or otherwise) received by Ambit or its Affiliates, directly or indirectly, from a Third Party for or on account of any sublicenses or other rights granted by Ambit to such Third Party with respect to a Licensed Product, including any investments made by such Third Party in Ambit or an Affiliate, without deduction of any kind, but excluding the following:

(a) payments made by distributors appointed by Ambit to distribute the Licensed Product in respect of amounts invoiced by Ambit to such distributors for the sale by Ambit of such Licensed Product to such distributors to the extent that Ambit pays royalties to Cephalon for Net Sales of such Licensed Product pursuant to Section 4.11(a);

(b) payments received by Ambit or an Affiliate for performance of research and development by either Ambit or such Affiliate to the extent that such payments cover the actual cost of the research and, development work;

(c) payments made to either Ambit or an Affiliate to the extent they cover the actual costs of conducting clinical testing and other activities, in connection with obtaining regulatory approval for a product; and

(d) reimbursed expenses of either Ambit or an Affiliate.

The monetary value of any investment made by a Third Party in Ambit or an Affiliate shall be equal to the current market value of the investment, which shall be determined as of the earlier of the date when the investment is made or the day prior to the date when the investment is first publicly disclosed on the Dow Jones New Wire (the “Determination Date”). If there is no public market for the securities of Ambit or an Affiliate, then the current market value shall be determined by Ambit’s or the Affiliate’s board of directors in good faith, and if Cephalon disputes such determination, the current market value shall be determined by an independent banker designated by the Parties whose fees shall be shared by the Parties. If there is a public market for Ambit’s or an Affiliate’s securities_, then the current market value shall be determined using the average of the closing bid and asked prices of the securities in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the securities are listed as published in The Wall Street Journal for the ten (10) trading days prior to; the Determination Date. Notwithstanding the foregoing, if the Third Party is acquiring Ambit’s or an Affiliate’s securities in connection with an initial public offering of Ambit or the Affiliate, the current market value shall be determined using the offering price of such securities to the public in the initial public offering.

With respect to any other non-monetary consideration received by Ambit or an Affiliate, a commercially reasonable valuation method shall be applied to determine the monetary value of such consideration.

1.47 “Net Sales” shall mean the gross amount invoiced and any other amounts or rebates received by a Party, its Affiliates or Sublicensees for the worldwide sale of Collaboration Products or Licensed Products, as applicable, to bona fide independent Third Parties less, to the extent paid, allowed or given:

 

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(a) outer packing, freight, postage, shipment or transportation charges and insurance costs relating thereto,

(b) sales, value added and excise taxes or customs duties, tariffs or surcharges paid by the selling Party, and any other governmental charges (excluding income taxes) incurred in connection with the sale or exportation of the Collaboration Products or Licensed Products, as applicable,

(c) reasonable distributors’ fees, amounts repaid or credited, rebates (including, without limitation, government-mandated rebates such as Medicaid charge backs or rebates) or allowances (including, without limitation, cash, credit or free goods allowances), actually granted, allowed or incurred,

(d) trade and prompt payment discounts, quantity discounts, cash discounts or reasonable charge-backs actually granted, allowed or incurred in the ordinary course of business in connection with the sale of the Collaboration Products or Licensed Products, as applicable, and

(e) reasonable allowances, refunds or credits to customers, not in excess of the selling price of the Collaboration Products or Licensed Products, as applicable, on account of rejection, damage, spoilage, outdating, recalls or return of, or price adjustments or billing errors regarding the Collaboration Products or Licensed Products, as applicable.

A “sale” shall include any transfer or other disposition for consideration of a Collaboration Product or Licensed Product, as applicable, and Net Sales shall include the Fair Market Value of all other consideration received by a Party, its Affiliates or its Sublicensees from the sale or distribution of a Collaboration Product or Licensed Product, as applicable, whether such consideration is in cash, payment in kind, exchange or another form. In the event that a Collaboration Product or Licensed Product, as applicable, is packaged with other products of a Party, any discount applied to such Collaboration Product or Licensed Product, as applicable, to determine Net Sales shall be no greater than the average discount of the entire package.

The disposal or sale of a Collaboration Product or Licensed Product, as applicable, by a Party, its Affiliates or Sublicensees (i) solely for the research or clinical testing of such Collaboration Product or Licensed Product, as applicable, or (ii) for indigent, charitable or similar public support or compassionate use programs or (iii) as free samples shall not be deemed to give rise to a sale under this Agreement and shall be excluded from the computation of Net Sales. All sales of Collaboration Products or Licensed Products, as applicable between a Party and its Affiliates or its Sublicensees shall be disregarded for purposes of computing Net Sales, unless such a purchaser is the end-user of such Collaboration Product or Licensed Product, as applicable.

To calculate the value of Net Sales of Combination Products, the gross sales of such Combination Products will be multiplied by the fraction A/(A + B) where A is the Fair Market Value of the Collaboration Compound or Licensed Compound, as applicable, when sold separately, and B is the Fair Market Value of the other active ingredient when sold separately.

 

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Allowed deductions may then be subtracted, prorated based on the proportion of gross sales attributable to the Collaboration Compound or Licensed Compound, as applicable, to compute Net Sales.

1.48 “Non-Exclusive Compound” shall mean any compound brought to the Collaboration by either Party which is non-proprietary to both Parties at or after the Effective Date.

1.49 “Party” shall mean Ambit or Cephalon. Ambit and Cephalon shall be collectively referred to as the Parties.

1.50 “Patent” shall mean: (i) issued and unexpired letters patent, including any extension, registration, confirmation, reissue, continuation, supplementary protection certificate, divisional, continuation-in-part, re-examination or renewal thereof, (ii) pending applications for letters patent, including provisional applications, and (iii) foreign counterparts of any of the foregoing; in each case to the extent the same has not been held, by a court, administrative body or governmental agency of competent jurisdiction, to be invalid or unenforceable in a decision from which no appeal can be taken or from which no appeal was taken within the time permitted for appeal.

1.51 “Patent Committee” shall mean the committee that may be formed pursuant to Section 3.5.

1.52 “Person” shall mean any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof.

1.53 “Phase I,” “Phase II” and “Phase III” shall mean Phase I (or ‘Phase I/II), Phase II (or Phase II/III) and Phase III clinical trials, respectively, in each case as prescribed by applicable FDA IND Regulations, or any corresponding foreign statutes, rules or regulations.

1.54 “Regulatory Agency” shall mean the FDA or the applicable department, bureau or other governmental regulatory authority in each country in the Territory involved in the granting of Regulatory Approvals:

1.55 “Regulatory Approval” shall mean any and all approvals (including price reimbursement approvals), licenses, registrations, or authorizations of any Regulatory Agency, necessary for the manufacture, use, storage, import, export, transport or sale of a Collaboration Product.

1.56 “Relevant Third Party Patent Right” shall mean a Patent owned or controlled by a Third Party which claims the composition of matter of a Collaboration Compound, the process of manufacture of that Collaboration Compound, use of the Collaboration Product for the treatment of a therapeutic indication or the use of a Collaboration Product against a Collaboration Target where such Collaboration Compound (in each case) is being used as an active ingredient in a Collaboration Product.

 

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1.57 “Research Plan” shall mean, on a Collaboration Target-by-Collaboration Target basis, a description of the Parties’ respective activities and objectives with respect to a Collaboration Target. Minutes of JRC meetings, if signed by a JRC representative of each Party, shall be deemed included within the Research Plan.

1.58 “Second Collaboration Target” shall mean the Target selected by the JRC pursuant to Section 2.4.

1.59 “Significant Activity” shall mean any of the following in relation to a Collaboration Compound, Collaboration Product, Licensed Compound or Licensed Product:

(a) [***];

(b) [***];

(c) [***];

(d) [***];

(e) [***];

(f) [***];

(g) [***]; and

(h) [***].

Notwithstanding the foregoing, any activities set forth in (a) though (h) above, that normally would be related to an earlier phase of development and/or commercialization, shall not be considered Significant Activity once development of the applicable Collaboration Compound, Collaboration Product, Licensed Compound or Licensed Product has progressed beyond such earlier phase for a particular indication, as evidenced by the performance of any activity that normally would be considered to be related to any later phase for such indication, provided always that to the extent that a Party can reasonably demonstrate that activities relating to an earlier phase of development are reasonably necessary, then such activities shall be considered Significant Activity.

1.60 “Sublicensee” shall mean, as to each Party, a Person other than an Affiliate of the Party, to whom has been granted sublicense rights under the license granted to such Party hereunder, which rights include at least the right to sell a Collaboration Product or Licensed Product. As used in this Agreement, “Sublicensee” shall also include a Third Party to whom a Party has granted a sublicense under this Agreement to distribute a Collaboration Product or Licensed. Product, provided that such Third Party has the primary responsibility for marketing and promotion, at its expense, of such Collaboration Product or Licensed Product within countries in the Territory for which such distribution rights are granted, which marketing and

 

 

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promotional activities are not subsidized directly or indirectly by that Party, such as, without limitation, through a specific allowance or a guaranteed selling margin for such Third Party meant to cover its expenses. Third Parties that are permitted to manufacture or finish Collaboration Products or Licensed Products for supply to a Party, its Affiliates or Sublicensees are not “Sublicensees.” For avoidance of doubt, a “Sublicensee” shall not include any subcontractor permitted under Section 18.15.

1.61 “Substantial Generic Competition” shall have the meaning set forth in Section 9.4(c).

1.62 “Target” shall mean a human protein kinase (including its nucleic acid sequence, molecular structure, and its enzymatic properties and binding properties).

1.63 “Territory” shall mean all the countries of the world.

1.64 “Third Party” shall mean any Person other than Ambit, Cephalon, or their respective Affiliates.

1.65 “Valid Claim” shall mean a claim of an issued patent which has not lapsed or become abandoned, been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction; unappealable or un-appealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

The following defined terms have the meanings specified in referenced Section:

 

Term		Section
“Adverse Financial Event”		17.2.1(b)
“AFE Determination Date”		17.2.1(b)
“Agreement”		Preamble
“Ambit”		Preamble
“Ambit Hit”		4.3.1
“Ambit Indemnitees”		15.3
“Ambit Losses”		15.3
“Ambit Stock”		17.2.1
“Backup Compounds”		1.38
“Cephalon”		Preamble
“Cephalon Analogue Compounds”		4.3.2
“Cephalon Indemnitees”		15.2
“Cephalon License Notices’		4.7.2
“Cephalon Losses”		15.2
“Claims”		15.4
“Collaboration”		Recitals
“Commercializing Party”		11.4
“Decision Notice”		4.2

 

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“Determination Date”		1.46
“Disclosing Party”		12.1.1
“Discontinuance Notice”		11.2.6
“Effective Date”		Preamble
“Exclusivity Period”		5.1
“Negotiation Period”		4.7.2
“Nominated Targets”		4.2
“Nomination Notice”		42
“Notice”		4.7.3
“Option”		4.4.1
“Option Compound”		4.4.1
“Option License”		4.4.1
“Patent Owner”		11.3.2
“Profiling Services Agreement”		Recitals
“Receiving Party”		12.1.1
“RFN Negotiation Period”		4.7.3(a)
“Right of First Negotiation”		4.7.3
“Share Price”		17.2.2
“Sole Discretion Rejection”		4.2
“Term”		16.1
“Third Nomination Period”		4.2
“Third Party Agreement”		4.7.5

(a) Rules of Construction. (a) Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel. Accordingly, in the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the Authorship of any provisions of this Agreement.

(b) The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine arid neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” The ‘word “any” shall mean “any and all” unless otherwise clearly indicated by context. “$” as used in this Agreement means the lawful currency of the United States. Where either Party’s consent is required hereunder, except as otherwise specified herein, such Party’s consent may be granted or withheld in such Party’s sole discretion.

(c) Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or

 

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modifications set forth herein or therein), (ii) any reference to any laws herein shall be construed as referring to such laws as from time to time enacted, repealed or amended, (iii) any reference herein to any person shall be construed to include the person’s successors and assigns, (iv) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (v) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections and Appendices of this Agreement.

(d) References to sections of the Code of Federal Regulations and to the United States Code shall mean the cited sections, as these may be amended from time to time.

ARTICLE II.

PERFORMANCE OF THE COLLABORATION AGREEMENT

2.1 Goals of the Collaboration.

2.1.1 General. Each Party shall:

(i) undertake an interactive, cooperative role in the Collaboration with the other Party as set forth in the applicable Research Plan, and such Other activities which, from time to time, the JRC decides are necessary for the continuing success of the Collaboration, with the objective of identifying Collaboration Clinical Candidates with respect to the Collaboration Targets;

(ii) use Commercially Reasonable Efforts to properly and diligently perform its activities pursuant to the applicable Research Plan, including, without limitation, by allocating personnel consistent with each applicable Research Plan project with sufficient skills and experience together with sufficient equipment and facilities, to carry out such Party’s obligations under this Agreement and to accomplish the objectives of the Collaboration; and

(iii) conduct the Collaboration in good scientific manner, and in compliance in all material respects with all requirements of applicable laws, rules and regulations, and all other requirements of any good laboratory practices to attempt to achieve its objectives efficiently and expeditiously.

2.2 Activities of Ambit. During the Collaboration Term:

2.2.1 Ambit will dedicate to the Collaboration such reasonable resources as specified by the JRC in the Research Plan to perform screening and counterscreening against the KinomeScan panel and follow-up Kd determination against individual kinases, cell-based assays, DMPK, cell pharmacology and medicinal chemistry with respect to Collaboration Targets and Collaboration Compounds.

2.2.2 Ambit further shall provide to the Collaboration Ambit Compounds having demonstrated activity against the Collaboration Targets as defined in the applicable Research Plan in order to support the Collaboration with respect to such Collaboration Targets.

 

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2.2.3 Ambit shall provide Cephalon with all feedback in a timely manner on the progress of its efforts under the Collaboration necessary to enable Cephalon to provide Ambit the support that it requires to conduct its activities hereunder.

2.2.4 Within thirty (30) days of the Effective Date, Ambit shall disclose and make available to Cephalon all compounds (including profiling information and chemical structure) currently under research and development by Ambit with respect to the First Collaboration Target.

2.2.5 Ambit promptly shall disclose and make available to Cephalon all Collaboration IP conceived, generated or developed by or on behalf of Ambit under the Collaboration and all Ambit IP to enable Cephalon to conduct its development and commercialization activities under this Agreement.

2.2.6 Significant Activity of Ambit under Article IV. If at any time during the course of the development of a Licensed Compound, as discussed in Article IV, there has been no Significant Activity by Ambit in relation to such Licensed Compound for a period of [***], then:

(a) Cephalon shall have the right to give written notice to Ambit requesting written justification for such lack of Significant Activity, in the form of detailed reasons why there has been no Significant Activity, and Ambit shall provide such written justification to Cephalon within [***] of the date of Cephalon’s request and shall recommence such Significant Activity within [***] of the date of Cephalon’s request; or

(b) if Ambit fails to provide such justification to Cephalon or if there has still been no Significant Activity taken by Ambit within [***] of the date of Cephalon’s request, then, on notice by Cephalon to Ambit (to be given in Cephalon’s sole discretion), Ambit shall be deemed to have been given notice to terminate the development and commercialization of the Licensed Compound (including all associated Backup Compounds) and any license rights to such Licensed Compound granted by Cephalon to Ambit shall revert back to Cephalon.

For purposes of Article IV, Ambit shall be deemed to be engaging in Significant Activity with respect to a Licensed Compound if it is engaging Significant Activity with respect to any one (1) of the Option Compound or its Backup Compounds.

2.3 Activities of Cephalon.

2.3.1 During the Collaboration Term, as determined by the JRC in the Research Plan, Cephalon shall provide reasonable resources to perform necessary in vivo biology (xenograft and other models) and drug development qualifying activities prior to designation of the Collaboration Clinical Candidate (during lead optimization).

2.3.2 With respect to the Second Collaboration Target, upon agreement of the JRC, Cephalon shall provide to the Collaboration Cephalon Compounds having demonstrated

 

 

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activity against the Second Collaboration _with as defined in the applicable Research Plan in order to support the Collaboration with respect to the Second Collaboration Target.

2.3.3 Cephalon promptly shall disclose and make available to Ambit all Collaboration IP conceived, generated or developed by or on behalf of Cephalon under the Collaboration that may be necessary or useful for Ambit to conduct its obligations under the Collaboration pursuant to the applicable Research Plan.

2.3.4 Significant Activity of Cephalon under Article III and Article VIII. If at any time during the course of the clinical development and commercialization of a Collaboration Clinical Candidate there has been no Significant Activity by Cephalon in relation to such Collaboration Clinical Candidate for a period of [***], then:

(a) Ambit shall have the right to give written notice to Cephalon requesting written justification for such lack of Significant Activity, in the form of detailed reasons why there has been no Significant Activity, and Cephalon shall provide such written justification to Ambit within [***] of the date of Ambit’s request and shall recommence such Significant Activity within [***] of the date of Ambit’s request; or

(b) if Cephalon fails to provide such justification to Ambit or if there has still been no Significant Activity taken by Cephalon within [***] of the date of Ambit’s request, then, on notice by Ambit to Cephalon (to be given in Ambit’s sole discretion), Cephalon shall be deemed to have been given notice to terminate the development and commercialization of the Collaboration Compound or Collaboration Clinical Candidate in relation to which such Significant Activity has not occurred and any license rights to such Collaboration Compound or Collaboration Clinical Candidate granted by Ambit to Cephalon shall revert back to Ambit.

2.4 Selection of Collaboration Targets. At the first JRC meeting the JRC will approve a Research Plan for the First Collaboration Target, including the particular assays and the associated reagents that will be used to test for the specified modes of modulating the First Collaboration Target. No later than nine (9) months from the Effective Date or as otherwise agreed to in writing by the Parties, each Party shall submit a proposal for a Target to be designated as the Second Collaboration Target, along with a draft Research Plan applicable to such proposed Second Collaboration Target, as the basis of a research program within the Collaboration via the JRC. The JRC shall discuss. each of the proposals and shall determine whether any of the proposed Targets shall be designated as the Second Collaboration Target, provided that either Party may, via the JRC, decline to accept any such proposed Target as the Second Collaboration Target if, at the time the other Party proposes the Target, (i) the declining Party has existing contractual commitments to a Third Party related to the proposed Target that would prevent it from collaborating with the other Party on such Target, or (ii) the declining Party can document the existence of an active internal research program related to such Target that existed prior to the other Party’s proposal of the Target. If a proposed Target is declined pursuant to the foregoing, it shall not be subject to the provisions of Section 3.4.

 

 

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2.5 Records and Reports. Each Party shall maintain records in sufficient detail and in good scientific manner appropriate for patent and FDA purposes and so as to properly reflect all work done and results achieved in the performance of this Agreement (including all data in the form required under any applicable governmental regulations and as directed by the JRC). In addition, each Party shall keep or cause to be kept written laboratory -notebooks, marketing and commercialization records, pre-clinical records (including CMC, toxicology, ADME, pharmacology, and other), regulatory filings and other records and reports of the progress of its activities in the Collaboration and, with respect to Ambit, also under Article IV, in sufficient detail and in good scientific manner for all other purposes, reflecting all work done on a program and the results achieved thereunder by such Party. Such records shall be maintained throughout the Collaboration Term and for as long as required by applicable laws, rules and regulations. Such records shall include applicable books, records, reports, research notes, charts, graphs, comments, computations, analyses, recordings, photographs, computer programs and documentation thereof, samples of materials and other graphic or written data generated in connection with the Collaboration and Ambit’s activities under Article IV, including any data required to be maintained pursuant to applicable governmental regulations. During the Term, each Party shall respond to reasonable requests from the other for information based on such records.

ARTICLE III.

GOVERNANCE OF THE COLLABORATION

3.1 Joint Research Committee. Within thirty (30) days after the Effective Date, Cephalon and Ambit shall establish a Joint Research Committee, comprised of Ambit and Cephalon scientists, to manage the scientific implementation of the Collaboration. The responsibilities of the JRC shall include: (a) monitoring and reporting the progress of the Collaboration and ensuring open and frequent exchange between the Parties; (b) establishing criteria for the selection of Collaboration Compounds for each Collaboration Target; (c) identifying and resolving any scientific or technical; conflicts between the Parties; (d) approving, modifying and Overseeing the implementation of a Research Plan for each Collaboration Target and its associated program undertaken in the Collaboration; (e) coordinating with the Patent Committee all patent activities as they relate to the results of the Collaboration, and in keeping with the overall patent strategy delineated by the Patent Committee; and (f) taking such action that is contemplated for the JRC to take pursuant to Article IV.

3.2 Membership. The JRC shall include three (3) named representatives of each of the Parties, and each Party’s representatives shall be selected by that Party and identified by written notice to, the other Party. Each Party may replace its representatives at any time, upon written notice to the other Party. From time to time, the JRC may establish subcommittees, to oversee particular projects or activities, and to manage the more frequent interactions between the Parties’ scientists with respect to individual research projects. Such subcommittees will be constituted as the JRC determines, in its sole discretion.

3.3 Meetings and Minutes. During the Collaboration Term, unless, otherwise :agreed to by the Parties, the JRC shall meet at least quarterly, or, more frequently as agreed by the Parties, at such locations or by such teleconferencing means as the Parties may determine from

 

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time to time. In addition to regularly scheduled meetings, the JRC representatives will communicate regularly by telephone, electronic mail, facsimile and/or videoconference. Other representatives of Ambit or Cephalon may attend JRC meetings as nonvoting observers. Each Party shall be responsible for all of its expenses associated with attending the JRC meetings. The Parties shall alternate preparing agendas for each JRC meeting and written minutes of each JRC meeting and shall prepare a written record of all JRC voting and decisions, whether made at a JRC meeting or otherwise. A copy of the Research Plan for each Collaboration Target shall be signed and appended to the minutes of the JRC meeting at which such Research Plan is approved. The written minutes of each JRC meeting and the written record of all JRC voting and decisions shall be written and disseminated to the JRC members for review within ten (10) business days of the JRC meeting, and upon signature by Ambit and Cephalon, shall become final.

3.4 Decision-Making. Decisions of the JRC shall be made by unanimous vote, and each Party shall have a single vote. In the event that, with respect to any decision for which the JRC is empowered to make a decision, a unanimous vote is not obtained, the decision shall be referred to the Executive Officers, who shall promptly meet and endeavor to reach consensus in a timely manner. On and after the time a Collaboration Clinical Candidate is designated, if such individuals cannot resolve such dispute with respect to such Collaboration Clinical Candidate, then such dispute shall be decided by Cephalon at its sole discretion.

3.5 Patent Committee. Upon recommendation of the JRC, the Parties shall form a patent committee (the “Patent Committee”) to be in existence as long as Patents within the Collaboration IP are being filed and/or prosecuted. Each Party shall designate at least one (1) chemist and one (1) patent attorney or equally qualified legally trained personnel, as its representatives on the Patent Committee. The Patent Committee shall be responsible for recommending patent filings and coordinating patent-related matters and such other matters as are delegated to it by the JRC. Such meetings shall be held at mutually agreed times and locations. It is recognized and understood that the Patent Committee will communicate, as necessary, whether in writing, by telephone, in person or otherwise, to ensure compliance with relevant patent filing and prosecution timetables and deadlines. Each Party shall bear its own expenses associated with such meetings and the activities of the Patent Committee; provided, however, that each Party shall bear the expense of providing the other Party with copies of all Patents filed pursuant to this Agreement including all substantive correspondence with U.S. and foreign patent offices. If the JRC does not form a Patent Committee, all references herein to a “Patent Committee” shall refer instead to the JRC, and the JRC shall decide all patent-related matters in consultation with a patent attorney.

3.6 Clinical Development Updates. Cephalon shall deliver to Ambit written quarterly clinical updates with respect to the status of the clinical development of the Collaboration Clinical Candidate.

ARTICLE IV.

AMBIT SELECTED COMPOUNDS

4.1 Cephalon Library. Within sixty (60) days of the Effective Date, Cephalon will commence the delivery of its Cephalon Compound Library on a schedule to be mutually agreed

 

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to by the Parties. Cephalon shall use its reasonable efforts to complete such delivery within ninety (90) days of the Effective Date.

4.2 Ambit Nominated Targets. Within ninety (90) days of each of the nine (9) month, twenty-one (21) month and thirty (30) month anniversaries of the Effective Date (each as “Nomination Period”), Ambit shall have the right to nominate up to two (2) Targets (the “Nominated Targets”) to be designated as replacements for up to two: (2) of the then-current Ambit Targets. Ambit shall specify such Nominated Targets in a written notice (the “Nomination Notice”) delivered to Cephalon within the applicable Nomination Period, which Nomination Notice also shall specify the then-current Ambit Targets that Ambit proposes to replace with the Nominated Targets. Cephalon shall consider such Nominated Targets and within fifteen (15) days of the receipt of the Nomination Notice shall deliver to Ambit a written decision (the “Decision Notice”) indicating whether or not Cephalon agrees to designate the Nominated Targets as Ambit Targets. Cephalon may reject any Nominated Target if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligations related to such Nominated Target. In any Nomination Period, Cephalon may also reject up to two (2) Nominated Targets in its sole discretion (each, a “Sole Discretion Rejection”); provided, that if Cephalon has previously rejected two (2) Nominated Targets in a Nomination Period; Cephalon may only reject any subsequent Nominated Targets in such Nomination Period if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligation related to such Nominated Target; and provided further, that with respect to the Nomination Period following the thirty (30) month anniversary of the Effective Date (the “Third Nomination Period”), if Cephalon has used four (4) Sole Discretion Rejections prior to the Third Nomination Period, then Cephalon may reject a Nominated Target in the Third Nomination Period only if Cephalon can document the existence of any active or scheduled internal research program or Third Party obligation related to the applicable Nominated Target. Upon agreement by the Parties on a Nominated Target, such Nominated Target shall be deemed an Ambit Target as of the date of such agreement, and the corresponding Ambit Target designated in the Nomination Notice to be replaced shall no longer be deemed an Ambit Target as of the date of such agreement. Schedule A shall be updated consistent with the foregoing. For clarification, no more than six (6) Targets shall be concurrently classified as Ambit Targets during the Initial Term. If Cephalon shall not have given a Decision Notice within the allotted time period specified above, it shall be deemed that Cephalon does not agree to include the Nominated Target as an Ambit Target.

4.3 Ambit Profiling.

4.3.1 Ambit shall profile the Cephalon Library Compounds against the KinomeScan Panel consistent with the Profiling Services Agreement as further described in Attachment A. Such screening shall be performed solely on Ambit’s own behalf and in furtherance of the provisions of this Article IV. Within three (3) to six (6) months of receipt of all of the Cephalon Library Compounds, Ambit shall provide Cephalon with all profiling data from the primary screening related to each Cephalon Library Compound. Ambit may request that Cephalon provide it with information relating to the chemical structure of any Cephalon Library Compound that demonstrates binding affinity of less than two hundred and fifty (250) nM against one (1) or more Ambit Targets (an “Ambit Hit”), which request Cephalon may deny in its sole discretion. Notwithstanding the above, if fewer than three (3) Ambit Hits against an

 

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Ambit Target have a binding affinity of less than two hundred and fifty (250) nM, then Ambit may request that Cephalon provide it with information relating to the chemical structure of any Cephalon Library Compounds having binding affinities of less than five hundred (500) nM against such Ambit Target (such Cephalon Library Compounds also shall be considered “Ambit Hits”), which request Cephalon may deny in its sole discretion. If, after expanding the binding affinity standard as set forth in the prior sentence, (i) there are fewer than three (3) Ambit Hits for any particular Ambit Target or (ii) Cephalon rejects Ambit’s request for chemical structures for Ambit Hits such that there are fewer than three (3) Ambit Hits for any particular Ambit Target for which Cephalon has provided the chemical structures, then Ambit may request to replace such Ambit Target by providing Cephalon with written notice thereof, provided that Cephalon may reject such request for a replacement Ambit Target only if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligation related to such replacement Ambit Target. Cephalon shall consider such replacement Ambit Target and within fifteen (15) days of the receipt of the written notice from Ambit with respect to such replacement Ambit Target shall deliver to Ambit a written decision indicating whether or not Cephalon agrees to designate the replacement Ambit Target as an Ambit Target.

4.3.2 In addition, for each Ambit Hit, Ambit may request to receive for profiling additional Cephalon Compounds that have the chemical structures most similar with the Ambit Hit, as determined in good faith by Cephalon (a “Cephalon Analogue Compound”), which request Cephalon may deny if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligations related to such Cephalon Library Compound and/or any related Cephalon Analogue Compound. If Cephalon cannot provide sufficient Cephalon Analogue Compounds to Ambit as determined by the JRC, then Ambit may request to replace the applicable Ambit Target in the manner set forth in the last two sentences of Section 4.3.1. Ambit shall utilize such information and Cephalon Analogue Compounds solely for the purpose of performing more comprehensive analysis to define a subset of Cephalon Library Compounds and Cephalon Analogue Compounds that show the most promising activity against the Ambit Targets.

4.3.3 In connection with its activities under this Section 4.3, Ambit is granted a limited, non-exclusive, non-transferable, non-sublicenseable (except as permitted by Section 18.15) license under the Cephalon IP and Cephalon’s share of the Licensed Compound IP during the Collaboration Term to optimize solely for its own research and development purposes Cephalon Library Compounds having the requisite level of binding affinity set forth in Section 4.3.1 and, for purposes of Section 4.4, to create associated Derivative Compounds having the ability to appropriately inhibit, stimulate or otherwise modulate the production or activity of the same Ambit Target as the Cephalon Library Compound.

4.3.4 Cephalon shall own all right and title to any profiling data generated by Ambit in connection with the screening of the Cephalon Library Compounds, and Cephalon hereby grants to Ambit a limited, non-exclusive, nontransferable, non-sublicenseable research license during the Collaboration Term to use such data for the purposes contemplated by this Article IV. Ambit hereby grants to Cephalon a non-exclusive, worldwide, perpetual, irrevocable fully-paid up, royalty-free, sublicenseable and transferable license to any Ambit IP that is necessary for and only for the purposes of Cephalon copying, distributing, making derivative works of, using and otherwise exploiting such data.

 

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4.4 Ambit Option.

4.4.1 If profiling by Ambit of a Cephalon Library Compound or Derivative Compound demonstrates that a significant mechanism, of action of the Cephalon Library Compound or Derivative Compound is modulation of an Ambit Target, as determined by the JRC, then Ambit shall be entitled to. and at Ambit’s sole election upon written notice to Cephalon Ambit will receive an exclusive option (the “Option”) from Cephalon for such Cephalon Library Compound or Derivative Compound (the “Option Compound”), as the case may be. Such written notice from Ambit shall specify the Option Compound to be covered by the Option along with reasonable supporting research and analysis demonstrating the requisite level of action of the Option Compound against the Ambit Target. Ambit shall be entitled to receive an Option for an Option Compound if it provides the written notice described above no later than the latter of (i) six (6) months after completion of the initial screening of the applicable Option Compound against the applicable Ambit Target(s) as demonstrated by Ambit’s records or (ii) six (6) months after the date on which the applicable Ambit Target was designated an Ambit Target pursuant to the terms hereof. Subject to Sections 4.4.2 and 4.4.3, each Option, which shall be exercisable during the Initial Term, is for an exclusive, worldwide, non-sublicenseable (except as permitted by Sections 4.7 and 18.15), nontransferable (except as permitted by Section 4.7), royalty-free (except as set forth in Section 4.11), perpetual (except as expressly set forth herein) license (the “Option License”) under the Cephalon IP and Cephalon’s share of the Licensed Compound IP to develop, make, have made, use, sell, offer to sell and import Licensed Compounds, solely in connection with products that modulate the Ambit Target. Within thirty (30) days of Ambit’s receiving an Option, Cephalon shall notify Ambit whether the corresponding Option Compound(s) are subject to any Third Party payment or other obligations or are covered by Cephalon IP. Within thirty (30) days of receipt of such notice from Cephalon, Ambit may elect to terminate its Option if the Option Compound is subject to such Third Party obligations, and such termination shall not be counted for purposes of Section 4.4.4. If Ambit does not cancel the Option within such thirty (30) day period, Ambit agrees that it shall be solely responsible for satisfying such Third Party obligations.

4.4.2 The Option shall be exclusive as to Ambit, unless, at the time Ambit elects to obtain the Option pursuant to Section 4.4.1, Cephalon has entered into a binding commitment with a Third Party that prevents Cephalon from granting the Option or the license that Cephalon would be required to grant to Ambit upon Ambit’s exercise of the Option (i.e., the Option License) in which case Cephalon will grant to Ambit an Option of the maximum permissible scope, if any, that would not conflict with the Third Party commitment. If, upon Cephalon’s notice to Ambit of the information relating to such Third Party commitment in the prior sentence, Ambit determines in its reasonable discretion that Ambit will not pursue such Option, then the JRC shall, determine in good faith the appropriate manner to proceed, including, without limitation, the options set forth in Section 4.3.1 or the provision by Cephalon of additional Cephalon Compounds for Ambit to profile pursuant to 4.3.1. Ambit shall exercise the Option by providing written notice to Cephalon specifying the Option Compound for which it is exercising the Option. Upon Cephalon’s receipt of such notice, Cephalon agrees to grant, and hereby does grant to Ambit the Option License as set forth above.

4.4.3 Notwithstanding the foregoing, in the event that a Cephalon Library Compound, or a Derivative Compound made pursuant to Section 4.3.3, is equipotent (as

 

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determined by the JRC) against one or more Ambit Targets and one or more Cephalon Exclusive Targets, or if such a Derivative Compound is significantly active against a Cephalon Exclusive Target, Ambit’s right to obtain an Option to such Cephalon Library Compound or Derivative Compound shall be subject to this Section 4.4.3.

(a) Ambit desires an Option to an equipotent Cephalon Library Compound or Derivative Compound, it shall provide Cephalon with a written request specifying the Cephalon Library Compound or Derivative Compound that Ambit requests to be covered by the Option along with reasonable supporting research and analysis demonstrating the requisite level of action of the Cephalon Library Compound or Derivative Compound against the Ambit Targets and Cephalon Exclusive Targets. Cephalon shall have at least thirty (30) clays from the receipt of such notice to consider such request, and the Parties shall discuss in good faith Ambit’s request at the next JRC meeting, including proposed licensing structures applicable to such equipotent Cephalon Library Compound or Derivative Compound (e.g., co-exclusive license instead of an exclusive license) that may be required by Cephalon. In the event that the JRC is unable to agree upon Ambit’s request, then Cephalon may reject Ambit’s request for such Option if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligation related to such Cephalon Exclusive Target. In the event the JRC or Cephalon reject Ambit’s request, and Ambit determines in its reasonable discretion that Ambit will not pursue such Option, then the JRC shall determine in good faith the appropriate manner to proceed, including, without limitation, the options set forth in Section 4.3.1 or the provision by Cephalon of additional Cephalon Compounds for Ambit to profile pursuant to 4.3.1.

(b) If such Cephalon Library Compound or Derivative Compound is significantly active against a Cephalon Target as determined by the JRC, Ambit shall not have the right to obtain an Option thereon without Cephalon’s prior written consent, and if. such Derivative Compound is covered by Ambit IP or Licensed Compound IP, Ambit agrees to grant, and hereby does grant, to Cephalon an exclusive, irrevocable, perpetual, worldwide_; royalty-free, transferable and sublicenseable license under the. Ambit IP and Ambit’s rights in the Licensed Compound IP limited to developing; making, having made, using, selling, offering to sell and importing such Derivative Compound.

4.4.4 During the Initial Term, Ambit shall have the right to receive and hold an Option to no more than two (2) Option Compounds at any time, provided, however, that if Ambit can demonstrate to Cephalon’s reasonable satisfaction that it possesses the requisite capabilities required to adequately resource additional drug discovery programs, using Commercially Reasonable Efforts, the number can be increased to a maximum of six (6). Not more than once per year, Ambit may elect to terminate one (1) or more of its Options by providing written notice of such termination to Cephalon six (6) months prior to the next anniversary of the Effective Date, in which case such Options shall terminate and Ambit shall have the right to receive a corresponding number of additional Options pursuant to Section 4.4.1, in each case commencing on such next anniversary date.

4.4.5 Ambit shall have the right to be licensed to no more than two (2) Licensed Compounds (and the associated Backup Compounds) at any time, provided, however, that if Ambit can demonstrate to Cephalon that it possesses the requisite capabilities required to adequately resource additional drug discovery programs using Commercially Reasonable Efforts,

 

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upon Cephalon’s written consent, the number can be increased to a maximum of six (6). Not more, than once per year, Ambit may elect to terminate work on one (1) or both of its Licensed Compounds (including the associated Backup Compounds) by providing written notice of such termination to Cephalon six (6) months prior to the next anniversary of the Effective Date, in which case Ambit’s license to such Licensed Compounds (including the associated Backup Compounds) shall terminate and Ambit shall have the right thereafter to exercise a corresponding number of additional Options and obtain a license to other Option Compounds pursuant to Section 4.4, in each case commencing on such next anniversary date.

4.4.6 Ambit at any time may replace a Backup Compound with a Derivative Compound developed by it pursuant to the applicable Option License on prior written notice to Cephalon and with Cephalon’s written approval, not to be unreasonably withheld, provided that such Derivative Compound meets all of the applicable requirements set forth in this Article IV. Upon receipt of such approval from Cephalon, such Derivative Compound shall be deemed a Backup Compound, and the replaced Backup Compound shall no longer be a Licensed Compound.

4.5 Ambit Development.

4.5.1 Except as set forth in Sections 4.3.3 and 6.4, and except as permitted under an Option License, Ambit shall have no right hereunder to optimize or otherwise develop any Cephalon Library Compounds or any other Cephalon Compounds. Ambit represents and warrants that it will optimize Cephalon Library Compounds and Licensed Compounds solely against the Ambit Targets, unless otherwise approved in writing by Cephalon.

4.5.2 Ambit shall be solely responsible for the optimization, study and commercialization of Licensed Compounds. Ambit shall use its Commercially Reasonable Efforts to develop the Licensed Compounds, including developing at least one (1) Licensed Compound per Option License granted by Cephalon to Ambit to the point where such Licensed Compounds are suitable for IND submission. If at any time Ambit determines that it will not be able to exercise such Commercially Reasonable Efforts, it promptly shall notify Cephalon, and, without limiting Section 2.2.6, the Parties shall discuss in good faith an appropriate course of action.

4.5.3 If, at any time during the course of Ambit’s research and development activities under this Article IV, the significant activity of any Licensed Compound or any Derivative Compound is found to be significantly active against a Cephalon Target (instead of an Ambit Target), then Ambit may not continue to work on such Licensed Compound. In such case, Ambit promptly shall disclose such Licensed Compound to Cephalon, along with the results of its work. If such Licensed Compound is covered by Ambit IP or Licensed Compound IP, Ambit agrees to grant, and hereby does grant, to Cephalon an exclusive, irrevocable, perpetual, worldwide, royalty-free, transferable and sublicenseable license under the Ambit IP and Ambit’s rights in the Licensed Compound IP for the limited purpose of developing, making, having made, using, selling, offering to sell and importing such Licensed Compound or Derivative Compound.

 

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4.5.4 If, at any time during the course of such optimization, the activity of any Licensed Compound or Derivative Compound is found to be equipotent against a Cephalon Exclusive Target and an Ambit Target, then the Parties shall negotiate in good faith as to the proper manner for each Party to proceed with respect to such License Compound or Derivative Compound. If, at any time during the course of such optimization, the activity of any Licensed Compound or Derivative Compound is found to be equipotent against a Cephalon Target (which is not a Cephalon Exclusive Target) and an Ambit Target, then Ambit may continue to work on such Licensed Compound or Derivative Compound, provided that: (a) the focus of the work is to develop compounds whose activity is against the Ambit Target, and, (b) Cephalon shall have, and is hereby granted, a non-exclusive, irrevocable, perpetual, worldwide, royalty-free, non-transferable right without right to grant sublicenses under the Ambit IP and Ambit’s rights in the Licensed Compound IP for the limited purpose of developing, making, having made, and using, such Licensed Compound, for its own research and development purposes only.

4.6 Discontinuation of Option or Option License.

4.6.1 Upon termination of an Option, all rights granted hereunder by Cephalon to Ambit and relating to the applicable Option Compound shall revert to, and are hereby assigned by Ambit to, Cephalon, at no cost.

4.6.2 Upon termination of an Option License (without limitation of Section 4.4) and/or this Agreement, all rights granted hereunder by Cephalon to Ambit under the Option License shall terminate.

4.7 Cephalon Buy Back Rights and Right of First Negotiation.

4.7.1 Upon the completion of IND enabling activities for each Licensed Compound, Ambit shall provide to Cephalon, in confidence, a complete detailed summary of its Licensed Compound program, including relevant data and results that would be submitted as part of an IND filing. Cephalon shall have the exclusive option for sixty (60) days after the delivery of such summary to reacquire all rights to the Licensed Compound on mutually agreed upon terms, negotiated in good faith and consistent With pharmaceutical industry standards for small molecule programs at such stage of development, taking into account Ambit’s investment and sunk cost, risk, market potential, NPV, and other commonly accepted licensing metrics. Should Cephalon decline this option or if the Parties are not able to agree upon the terms for the reacquisition by Cephalon of all rights to the Licensed Compound, Cephalon shall continue to have the Right of First Negotiation.

4.7.2 (a) Upon completion by Ambit of the first human proof-of-concept study for each Licensed Compound, Ambit shall provide to Cephalon, in confidence, a complete detailed summary of its Licensed Compound program, including relevant data and results generated from such study (including but not limited to information from or relating to clinical studies, correspondence with FDA, information regarding Third Party patents, and information regarding the manufacture, sourcing and cost of goods for the Licensed Compound) (the “Cephalon License Notice”). Cephalon shall have the exclusive option for sixty (60) days following receipt of the Cephalon License Notice to determine whether it wishes to pursue reacquiring the Licensed Compound. If Cephalon notifies Ambit in writing of its election to

 

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pursue the reacquisition of such Licensed Compound within sixty (60) days after Cephalon’s receipt of such Cephalon License Notice, Ambit, shall enter into good faith, exclusive negotiations with Cephalon with respect to such reacquisition for a period of ninety (90) days following receipt, of such election from Cephalon (the “Negotiation Period”). Such reacquisition shall be upon terms, consistent with pharmaceutical industry standards for small molecule programs ‘at such stage of development, taking into account Ambit’s investment and sunk cost; risk, market potential, NPV, and other commonly accepted licensing metrics.

(b) During the Negotiation Period, Cephalon shall have .the opportunity to make a written proposal of terms and conditions with respect to such a license and Ambit will either accept the proposal or provide a counter offer to Cephalon. If Cephalon has not provided Ambit with such a written proposal regarding all principal financial terms of such a license within the first forty five (45) days of the Negotiation Period, the Negotiation Period shall terminate. If Ambit and Cephalon are able to conclude an agreement in principle within the Negotiation Period as set forth in a mutually satisfactory term sheet with respect to such license, the Negotiation Period shall be extended for an additional sixty (60) days and the Parties shall negotiate in good faith a definitive agreement within such sixty (60) day period. During the Negotiation Period, Ambit shall not negotiate or otherwise discuss with any Third Party any licensing or other arrangement with respect to the Licensed Compound.

(c) Should Cephalon decline this option or if the Parties are not able to agree upon the terms for the reacquisition by Cephalon of all rights to the Licensed Compound, Cephalon shall continue have the Right of First Negotiation.

4.7.3 Cephalon Right of First Negotiation. Cephalon shall have a right of first negotiation with respect to Licensed Compounds (the “Right of First Negotiation”), which is a right independent of Cephalon’s buyback rights set forth in 4.7.1 and 4.7.2. The Right of First Negotiation shall be defined as follows.

(a) In the event that Ambit desires to enter into a license or other arrangement with respect to any Licensed Compound, before entering into negotiations with any Third Party with respect to such license, Ambit will notify Cephalon of its desire and provide Cephalon with information in Ambit’s possession and control that is reasonably necessary for Cephalon to perform its due diligence with respect to such Licensed Compound (including but not limited to information from or relating to preclinical studies, clinical studies, correspondence with FDA, information regarding Third Party Patents, and information regarding the manufacture, sourcing and cost of goods for the Licensed Compound) (the “Notice”). If Cephalon notifies Ambit in writing of its election to pursue a license for such Licensed Compound within thirty (30) days after Cephalon’s receipt of such Notice, Ambit shall enter into good faith, exclusive negotiations with Cephalon with respect to such license for a period of one hundred and twenty (120) days (the “RFN Negotiation Period”) following receipt of such election from Cephalon. Cephalon shall have the right to determine the scope of Licensed Compounds with respect to the license (i.e., whether such license will cover, for example, a single Licensed Compound or a list of several Licensed Compounds or the entire genus of Licensed Compounds) and the proposals and term sheets that Ambit delivers to Cephalon during that RFN Negotiation Period shall include the terms for the scope of Licensed Compounds requested by Cephalon. For one Licensed Compound mutually agreed to by the Parties, negotiations with Third Parties and other rights

 

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under this Section 4.7.3 shall only be available to Ambit after the IND enabling activities have been completed, or best efforts have been made to complete such activities, as determined by the JRC.

(b) During the RFN Negotiation Period, Ambit will provide Cephalon with an opportunity to make a written proposal of terms and conditions: with respect to such a license and Ambit will either accept the proposal or provide a counter offer to Cephalon. If Cephalon has not provided Ambit with such a written proposal regarding all principal financial terms of such a license within the first forty-five (45) days of the RFN Negotiation Period, the RFN Negotiation Period will terminate. If Ambit and Cephalon are able to conclude an agreement in principle within the RFN Negotiation Period as set forth in a mutually satisfactory term sheet with respect to such license; the Parties shall negotiate a definitive agreement in good faith with the goal of executing such agreement within sixty (60) days thereafter.

(c) If Cephalon does not elect to pursue a license within the thirty (30) day period set forth above, or if Cephalon does so elect but Ambit and Cephalon do not conclude an agreement in principle with respect to such license within the RFN Negotiation Period, or if Cephalon does not provide Ambit with a written proposal regarding the material terms of such a license within the first forty-five (45) days of the RFN Negotiation Period, Ambit will then be free to enter into negotiations with any Third Party regarding a license for such Licensed Compound; provided that (i) with respect to Licensed Compounds subject to Ambit IP, the material terms of such license shall not be more favorable to the Third Party than the best material terms offered by Cephalon to Ambit during the RFN Negotiation Period and (ii) with respect to Licensed Compounds subject to Cephalon IP, the material terms of such license shall not be more favorable to the Third Party than the best material terms offered by Ambit to Cephalon during the RFN Negotiation Period.

4.8 Reservation of Rights. Except as expressly set forth above, Cephalon shall have the sole and exclusive right to commercialize Cephalon Compounds and Cephalon Library Compounds.

4.9 License to Licensed Compound IP. Without limitation of any other rights or licenses granted to Cephalon herein, Ambit hereby grants to Cephalon, and Cephalon hereby accepts, a fully paid-up, royalty-free, worldwide, perpetual, non-exclusive, sublicenseable and transferable right under the Licensed Compound IP and Ambit IP for the limited purpose of developing, making, having made, offering to sell, selling, importing and using any compound resulting from Ambit’s research and development activities under this Article IV, including all Derivative Compounds, other than any Licensed Compounds subject to an existing Option License and as to which Ambit is exercising Significant Activity or any Licensed Compound subject to a Third Party licensing agreement or other arrangement pursuant to Section 4.7.3(c) that is in compliance with the terms of this Agreement. For the avoidance of doubt, Ambit retains exclusive rights under Ambit IP relating to the Licensed Compound IP to develop, make, have made, offer to sell, sell, import, use, and Commercialize any Licensed Compound subject to a Third Party licensing agreement or other arrangement pursuant to Section 4.7.3(c), and, assuming the existence of such agreement or arrangement pursuant to Section 4.7.3(c), Cephalon is granted no rights to commercialize any such Licensed Compound. From time to time, Ambit

 

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shall deliver to Cephalon upon its request such information (including chemical structures) as may be reasonably required by Cephalon.

4.10 Compound Co-Exclusivity. The development, manufacture, sale, import and use of any Licensed Compounds or any Derivative Compounds made by or on behalf of Ambit, and rights under the Licensed Compound IP and with respect to any chemistry produced by Ambit relating to or derived from the Cephalon Library Compounds, shall be co-exclusive as between the Parties until the earlier of (a) with respect to a Licensed Compound, Cephalon’s having elected to not exercise its rights under Section 4.7 with respect to a Licensed Compound and (b) with respect to all Licensed Compounds and Derivative Compounds, two (2) years after the expiration or termination of the Collaboration Term. The terms of this Section 4.10 shall not be applicable to those Licensed Compounds or any Derivative Compounds that are both (i) derived from Non-Exclusive Compounds and (ii) not subject to Cephalon IP.

4.11 Royalty Payments to Cephalon.

(a) Net Sales. Ambit shall pay to Cephalon royalties equal to three percent (3%) of Net Sales by Ambit or its Affiliates of each Licensed Product that at any time is subject to a Valid Claim that (i) covers a composition of matter and (ii) either is (x) included in any Cephalon Patent in existence as of the Effective Date or (y) included in any Cephalon Patent that is issued after the Effective Date and based on invention disclosures in existence as of the Effective Date, as evidenced by Cephalon’s written records. Ambit shall pay Cephalon royalties on Net Sales of each Licensed Product pursuant to the terms of this Agreement, on a Licensed-Product-by-Licensed Product and country-by-country basis, for a period from the date of the First Commercial Sale of such Licensed Product in such country until the date of expiration of the last-to-expire Cephalon Patent containing a Valid Claim covering a composition of matter which would be infringed by the making, using, or selling of the applicable Licensed Product in the applicable country.

(b) Net Revenues. Ambit shall pay to Cephalon six percent (6%) of Net Revenues of each Licensed Product (i) that at any time is subject to a Valid Claim that (x) covers a composition of matter and (y) either is (A) included in any Cephalon Patent in existence as of the Effective Date or (B) included in any Cephalon Patent that, is issued after the Effective Date and based on invention disclosures in existence as of the Effective Date, as evidenced by Cephalon’s written records, and (ii) as to which Ambit has granted any sublicense or other rights to any Third Party. Ambit shall pay Cephalon such amount for each such Licensed Product pursuant to the terms of this Agreement, on a Licensed Product-by-Licensed Product basis, for a period from the date on which Ambit first receives Net Revenues from a Third Party with respect to such Licensed Product until the date of expiration of the last-to-expire Cephalon Patent containing a Valid Claim covering a composition of matter which would be infringed by the making, using, or selling of the applicable Licensed Product in the applicable country.

(c) Payment Report. After the date on which payments are due to Cephalon with respect to a Licensed Product under this Section 4.11, Ambit shall provide Cephalon with a payment report on a quarterly calendar basis within ninety (90) days after the end of the calendar quarter to which such report applies. Each such report shall state, separately for Ambit, and each Affiliate and Sublicensee, the number, description, and aggregate Net Sales or Net Revenues, as

 

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applicable, on a country-by-country basis and product-by-product basis, if applicable, generated or received during the calendar quarter that is the subject of the report. Contemporaneously with the submission of the reports Ambit shall pay to Cephalon all payments due for the subject calendar quarter.

(d) Records Retention. Ambit shall keep, and require its Affiliates and Sublicensees to keep, for a period of not less than two (2) years, complete and accurate records of all Net Sales and Net Revenues. Cephalon shall have the right, at its sole expense, through a certified public accountant reasonably acceptable to Ambit, and following reasonable notice, to inspect such records during regular business hours, during the life of Ambit’s obligation to make payments under this Section 4.11; provided, however, that such inspection shall not (i) take place more often than once a year and (ii) cover any records which date prior to the date of the last examination, and further provided that, such accountants shall report only as to the accuracy of the royalty statements and payments and the amount of any underpayment. Copies of such reports shall be supplied to Ambit. In the event that the report is in disagreement with the Net Sales or Net Revenues as calculated by Ambit, Ambit shall notify Cephalon within ten (10) days of receipt by Ambit whether or not it agrees with the report. If Ambit notifies its agreement with the report within the ten (10) day period or fails to give any notification within that period, the Net Sales or Net Revenues calculated by the report shall be used for purposes of calculating any monies owed and any monies owed by Ambit to Cephalon shall be paid by Ambit in accordance with the provisions of this Section 4.11. If within ten (10) days starting on the day after receipt of the notification referred to in this Section 4.11, the Parties have not agreed to the terms in dispute in relation to the report, either Party may refer the items in dispute to a partner of at least ten (10) years qualified experience at an independent, internationally recognized, public accounting firm agreed by the Parties in writing for final and binding resolution, or failing agreement on the identity of the public accounting firm within fifteen (15) days starting on the day after receipt of the notification, referred to in this Section 4.11, an independent, internationally recognized, public accounting firm appointed on the application of either Party by the President for the time being of the Institute of Chartered Accountants in the United States. Such person appointed shall act on the following basis:

(i) such person shall act as an expert and not as an arbitrator;

(ii) such person’s terms of reference shall be to determine the matters in dispute within twenty (20) days of his appointment;

(iii) the Parties shall each provide such person with all information relating to the items in dispute which such person reasonably requires and such person shall be entitled (to the extent he considers appropriate) to base his determination on such information;

(iv) the decision of such person is, in the absence of fraud or manifest error, final and binding on the Parties; and

(v) such person’s costs shall be paid by the Parties as such person may determine.

 

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Where Ambit agrees that it has or is found to have underpaid any amounts due under this Section 4.11, Ambit promptly shall pay such royalties together with interest at the prime rate as stated in the Wall Street Journal Europe under “Money Rates” plus two percent (2%) applied to the amount unpaid from the date due to the date paid. If Ambit has overpaid such amounts, Ambit may credit such overpayments against future amounts owed to Cephalon; provided that to the extent that no further amounts are due to Cephalon under this Section 4.11, Ambit shall invoice Cephalon for the outstanding overpayment amount and Cephalon shall repay same within forty-five (45) days of the invoice. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available to each Party.

(e) Form of Payment. All payments required according to this Section 4.11 shall be made in U.S. dollars, for Cephalon’s account, by wire transfer to a bank in the United States designated in writing by Cephalon; provided, however, that where payments in respect of Net Sales are based on Net Sales in non-U.S. currencies, the amount of Net Sales and any deductions used to calculate Net Sales, if any, shall be converted by Ambit, based. on the average of the “bid” and “asked” exchange rate provided by the Wall Street Journal Europe, for the last business day, of each calendar quarter, into U.S. dollars. Any undisputed payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due; plus an additional two percent (2%) calculated on the number of days such payment is delinquent. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available:

(f) Blocked Payments. In the event that, by reason of applicable laws or regulations in any country, it becomes impossible or illegal for Ambit to transfer, or have transferred on its behalf, royalties or other payments to Cephalon, such royalties or other payments shall be deposited in local currency in the relevant country to the credit of Cephalon in a recognized banking institution designated by Cephalon or, if none is designated by Cephalon’ within a period of thirty (30) days, in a recognized banking institution selected by Ambit and identified in a notice in writing given to Cephalon.

ARTICLE V.

COLLABORATION EXCLUSIVITY

5.1 Collaboration Targets. Neither Party may engage in any research and development activities with respect to a Collaboration Target with any Third Party or independently outside of the Collaboration during the applicable Exclusivity Period, provided that the foregoing shall not prohibit a Party from engaging a subcontractor pursuant to Section 18.15 to perform certain of its obligations hereunder. The “Exclusivity Period” shall mean the period starting when a particular Collaboration Target is accepted into the Collaboration and shall continue for the longer of: (a) [***], (b) [***], or (c) [***]. For the avoidance of doubt, Ambit shall be free to continue to provide its screening services (similar to those provided under the Profiling Services Agreement) to Third Parties.

 

 

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5.2 Non-Compete. During the Collaboration Term and for a period of [***] thereafter, Ambit shall not, and shall cause each of its Affiliates to not, (a) conduct or fund any research, development and/or commercialization activity, either on its own, or with, for the benefit of, or sponsored by, any Third Party, in connection with or related to any product that (i) would compete with or is directed to any Cephalon Exclusive Target or Collaboration Target and (ii) is based on or related to any Licensed Compound, any Derivative Compound or any Collaboration Compound or covered by any Licensed Compound IP or Collaboration IP; or (b) grant any license or other rights to any Third Party to enable it to perform any of the activities described in clause (a) above.

ARTICLE VI.

INTELLECTUAL PROPERTY; LICENSES

6.1 Ownership of Intellectual Property.

6.1.1 Cephalon shall own all Licensed Compound IP related to any Derivative Compound that is covered by Cephalon IP (whether in whole or in part). Ambit shall own all Licensed Compound IP related to any Derivative Compound that is covered solely by Ambit IP. All other Licensed Compound IP shall be the sole or joint property, as the case may be, of the Party or Parties inventing or generating the same.

6.1.2 All Cephalon Compounds and Cephalon IP shall be the sole property of Cephalon. All Ambit Compounds and Ambit IP shall be the sole property of Ambit. All Collaboration IP shall be the sole or joint property, as the case may be, of the Party or Parties inventing or generating the same, provided that Cephalon shall exclusively own any Collaboration IP that is derived from any Cephalon IP (whether in whole or in part), other than for Collaboration IP solely related to a Collaboration Clinical Candidate.

6.1.3 Upon the request and at the expense of the requesting Party, the other Party shall execute and deliver any and all instruments and documents and take such other actions as may be necessary or reasonably requested by the requesting Party to effect the licenses and assignments granted to it hereunder.

6.2 Licenses to Cephalon.

6.2.1 Exclusive Option. Ambit hereby grants to Cephalon an exclusive option to obtain the licenses described in Section 6.2.2 to all Collaboration Compounds, which option shall be exercised by Cephalon’s designation of a Collaboration Clinical Candidate pursuant to Section 8.1.

6.2.2 License to Commercialize Collaboration Compounds.

(a) Upon designation of a Collaboration Compound as a Collaboration Clinical Candidate against the First Collaboration Target pursuant to Section 8.1, Ambit agrees to grant, and hereby does grant, to Cephalon a worldwide, perpetual, irrevocable, exclusive,

 

 

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royalty-bearing and transferable license, with the right to sublicense, under the Ambit IP and Ambit’s interest in the Collaboration IP and Licensed Compound IP (if applicable), to make, have made, use, sell, offer to sell and import the Collaboration Clinical Candidate and/or Collaboration Products based on such Collaboration Clinical Candidate, for any and all uses and indications in the Field. If Cephalon determines at any time that the Collaboration Clinical Candidate against the First Collaboration Target demonstrates potential utility outside the Field, then Ambit shall extend, and hereby does extend, the license described in this Section 6.2.2(a) to cover such uses and indications outside the Field.

(b) Upon designation of a Collaboration Compound as a Collaboration Clinical Candidate against the Second Collaboration Target pursuant to Section 8.1, Ambit agrees to grant, and hereby does grant, to Cephalon a worldwide, perpetual, irrevocable, exclusive, royalty-bearing and transferable license, with the right to sublicense, under the Ambit IP and Ambit’s interest in the Collaboration IP and Licensed Compound IP (if applicable), to make, have made, use, sell, offer to sell and import the Collaboration Clinical Candidate and/or Collaboration Products based on such Collaboration Clinical Candidate, for any and all uses and indications.

(c) If Cephalon desires to develop a Collaboration Compound that is directed against the First Collaboration Target, and which Collaboration Compound is not at the time a Collaboration Clinical Candidate, for uses and indications outside the Field, then Cephalon shall request the consent of Ambit for such development for uses and indications outside the Field, which consent shall not be unreasonably withheld. Upon Ambit’s consent to such development and upon designation of a Collaboration Compound as a Collaboration Clinical Candidate against the, First Collaboration Target pursuant to Section 8.1, Ambit agrees to grant, and hereby does grant, to Cephalon a worldwide, perpetual, irrevocable, exclusive, royalty-bearing and transferable license, with the right to sublicense, under the Ambit IP and Ambit’s interest in the Collaboration IP and Licensed Compound IP (if applicable), to make, have made, use, sell, offer to sell and import the Collaboration Clinical Candidate and/or Collaboration Products based on such Collaboration Clinical Candidate for such uses and indications outside the Field.

6.2.3 License to Compounds Derived from Cephalon Compounds. Ambit grants to Cephalon a worldwide, perpetual, irrevocable, exclusive, royalty-free and transferable license, with the right to sublicense, under the Ambit IP and Ambit’s interest in the Collaboration IP, to exploit for any and all purposes all compounds derived from Cephalon Compounds (whether in whole or in part) in connection with the Collaboration, except for the Collaboration Compounds that are licensed to Cephalon pursuant to Section 6.2.2.

6.2.4 Other Cephalon Licenses. Cephalon shall have the licenses to the Ambit IP and the Licensed Compound IP as set forth in Sections 4.3.4, 4.4.3(b), 4.5.3, 4.5.4, and 4.9.

6.3 Ambit Licenses. Ambit shall have the licenses to the Cephalon IP and the Licensed Compound IP as set forth in Sections 4.3.3, 4.3.4 and 4.4.2.

6.4 Research Licenses. Notwithstanding any other license granted herein, Ambit and Cephalon hereby grant each other non-exclusive, worldwide, royalty-free research licenses, without the right to sublicense, under their respective interests in the Ambit IP, Cephalon IP and

 

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Collaboration IP, in order for each Party to perform its research obligations pursuant to Research Plans during the Collaboration Term.

6.5 Restrictions on Sublicenses. Subject to the terms and Conditions of this Agreement, each Party shall have the right to sublicense its rights hereunder solely to the extent expressly set forth herein, provided that the sublicensing Party shall provide the other Party with at least the following information with respect to each Sublicensee: (a) the identity of the Sublicensee; (b) a description of the rights granted to the Sublicensee; and (c) the territory in which the products covered by the sublicense will be sold. Each such sublicense shall be consistent with, and subject to, all the terms and conditions of this Agreement (including all diligence obligations set forth herein), provided that the Party granting the sublicense shall be fully responsible to the other Party with respect to any breach or violation of such sublicense. Each Party shall be an intended third party beneficiary of any sublicense agreement entered into by the other Party.

6.6 No Implied Licenses. Only the licenses expressly granted pursuant to the terms of this Agreement shall be of any legal force or effect. No other license rights shall be created by implication, estoppel or otherwise.

6.7 Notification of Transfer of License Rights. A Party transferring or granting to a Third Party any rights granted to it by the other Party pursuant to this Agreement, other than under Section 18.15, shall notify the other Party of such transfer in writing thirty (30) days prior to such transfer or grant.

ARTICLE VII.

FUNDING

7.1 License and Collaboration Fees. In consideration for the licenses granted hereunder, and Ambit’s performance of its obligations under the Collaboration, Cephalon agrees to pay Ambit within thirty (30) days of the Effective Date the following:

(a) Technology Access Fee: In consideration of access to Ambit’s proprietary KinomeScan Panel, the sum of [***]; and

(b) Collaboration Targets: In consideration of the options and licenses granted by Ambit hereunder to Collaboration IP and Ambit IP, the sum of [***].

Other than the milestone and royalty payments set forth in Article VIII, no further payments shall be due to Ambit from Cephalon, unless the Parties mutually agree to change the Collaboration or to extend the Collaboration Term pursuant to Section 16.2.

 

 

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ARTICLE VIII.

COLLABORATION CLINICAL CANDIDATES; MILESTONE PAYMENTS

8.1 Designation of Collaboration Clinical Candidate. Upon designation of a Collaboration Clinical Candidate by the JRC and ratification of such Collaboration Clinical Candidate by the Cephalon R&D committee, Cephalon, will be subject to the payment obligations set forth in Section 8.3, and shall use its Commercially Reasonable Efforts to conduct scale-up manufacturing, initiate GLP toxicology studies and conduct IND-enabling studies with respect to such Collaboration Clinical Candidate and related Collaboration Products as are necessary to permit the filing of an IND for a Collaboration Product.

8.2 Diligence. Cephalon will be solely responsible for the worldwide clinical development and commercialization of Collaboration Clinical Candidates, subject to the diligence and payment obligations set forth in this Article VIII. Cephalon will use Commercially Reasonable Efforts to develop and commercialize at least one Collaboration Clinical Candidate directed against the First Collaboration Target and one Collaboration Clinical Candidate directed against the Second Collaboration Target in the United States, Europe and Japan, either directly, through one or more Affiliates and/or Sublicensees, or some combination of the foregoing.

8.3 Milestone Payments by Cephalon.

8.3.1 (a) Cephalon shall pay to Ambit the following milestone payments within thirty (30) days of the achievement thereof, each of which shall be payable (i) one time in respect of a Collaboration Clinical Candidate designated as such pursuant to Section 8.1 after [***] from the Effective Date and directed against the First Collaboration Target within the Field, provided that no milestone payments shall be payable in respect of such Collaboration Clinical Candidate if Cephalon has made or is required to make the milestone payments set forth in Section 8.3.1(b), (ii) one time in respect of a Collaboration Clinical Candidate directed against the Second Collaboration Target, (iii) one time in respect of the first Mutant Form Candidate directed against the First Collaboration Target within the Field, (iv) one time in respect of the second Mutant Form Candidate directed against the First Collaboration Target within the Field, and (v) one time in respect of a Collaboration Clinical Candidate directed against the First Collaboration Target outside the Field:

 

Milestone		Amount (US$)
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

 

 

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[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

(b) Cephalon shall pay to Ambit the following milestone payments within thirty (30) days of the achievement thereof, each of which shall be payable one time in respect to the first Collaboration Clinical Candidate (whether or not a Mutant Form Candidate) designated as such pursuant to Section 8.1 within [***] of the Effective Date and directed against the First Collaboration Target (specifically, the V600E form of BRaF) within the Field:

 

Milestone		Amount (US$)
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

8.3.2 No Duplicate Payments. Milestone payments shall be payable only once in respect of the Second Collaboration Target, regardless of how many Collaboration Compounds directed at such Collaboration Target ultimately are designated as Collaboration Clinical Candidates. Milestone payments shall be payable only once in respect of the First Collaboration Target within the Field, once in respect of the First Collaboration Target outside the Field (provided that if milestones have previously been paid with respect to the same Collaboration Clinical Candidate directed at the First Collaboration Target within the Field, Cephalon shall only pay for those milestones not previously paid), once for the first Mutant Form Candidate and once for the second Mutant Form Candidate (each Mutant Form Candidate shall be directed at a different mutation of the BRaF kinase), regardless of how many Collaboration Compounds,

 

 

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whether within or outside the Field, ultimately are designated as Collaboration Clinical Candidates with respect to the First Collaboration Target. Further, if milestones have previously been paid for a Collaboration Clinical Candidate and such Collaboration Clinical Candidate’s use is then expanded such that it could qualify for a new set of milestones, or if development of a Collaboration Clinical Candidate is terminated and replaced with a different Collaboration Clinical Candidate subject to the same set of milestones, Cephalon shall pay only once with respect, to milestones not yet achieved by the Collaboration Clinical Candidate, whether such milestones subsequently are achieved with respect to the original use and/or the expanded use(s) or by the different Clinical Collaboration Candidate.

8.3.3 Invoices. Unless otherwise specified in writing, all payments required according to this Article VIII shall be made by transfer to the bank account nominated by Ambit upon timely receipt of an invoice.

 

If invoice to Cephalon:		Cephalon, Inc.
		41 Moores Road
		Frazer, PA 19355
		Attention: Accounts Payable
		Telephone: (610) 344-0200
		Telecopy: (610) 344-0065

ARTICLE IX.

ROYALTY PAYMENTS

9.1 Royalty Term.

9.1.1 Cephalon shall pay Ambit royalties on Net Sales of each Collaboration Product pursuant to the terms of this Agreement, on a Collaboration Product-by-Collaboration Product and country-by-country basis, for a period from the date of First Commercial Sale of such Collaboration Product in such country until, the date which is the later of (i) [***], or (ii) [***].

9.1.2 If the licenses granted to Cephalon pursuant to Section 6.2.2 are still in force with respect to a particular Collaboration Clinical Candidate at the end of the period for which royalties on the corresponding Collaboration Product are due pursuant to this Agreement, such license shall be converted to a fully paid-up, nonexclusive, royalty-free, perpetual, irrevocable and worldwide license, with the right to sublicense, under any Collaboration IP and Ambit IP necessary to make, have made, use, sell, offer to sell, and import the applicable Collaboration Product on a country-by-country and Collaboration Product-by-Collaboration Product basis.

 

 

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9.2 Royalties on Collaboration Products. Cephalon shall pay to Ambit royalties on Net Sales of each Collaboration Product that is subject to Section _.8.3.1(a) and sold by Cephalon or its Affiliates or Sublicensees in the Territory, according to the following schedule:

(a) for that portion of total annual Net Sales of a Collaboration Product which is less than or equal to [***].

(b) for that portion of total annual Net Sales of a Collaboration Product which is greater than [***].

(c) for that portion of total annual Net Sales of a Collaboration Product which is greater than [***].

(d) for that portion of total annual Net Sales of a Collaboration Product which is greater than [***].

9.2A Royalties on Collaboration Products Not Subject to Section 9.2. Cephalon shall pay to Ambit royalties on Net Sales of the Collaboration Product that is subject to Section 8.3.1(b) sold by Cephalon or its Affiliates or Sublicensees in the Territory, according to the following schedule:

(a) if total annual Net Sales are less than or equal to [***] on all such total annual Net Sales.

(b) if total annual Net Sales are greater than [***] on all such total annual Net Sales.

(c) if total annual Net Sales are greater than [***] on all such total annual Net Sales.

(d) if total annual Net Sales are greater than [***] on all such total annual Net Sales.

9.3 Payment of Royalties.

9.3.1 Royalty Report. After the First Commercial Sale of a Collaboration Product for which royalties are due and payable by Cephalon, its Affiliates or Sublicensees hereunder, Cephalon shall provide Ambit with a royalty report on a quarterly calendar basis within ninety (90) days after the end of the calendar quarter to which such royalty report applies. Each such report shall state, separately for Cephalon, and each Affiliate and Sublicensee, the number, description, and aggregate Net Sales, on, a country-by-country basis, and product-by-product basis during the calendar quarter during which a royalty is payable. Contemporaneously with the submission of the royalty reports Cephalon shall pay to Ambit all royalties due for such calendar quarter.

 

 

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9.3.2 Records Retention. Cephalon shall keep, and require its Affiliates and Sublicensees to keep, for a period of not less than two (2) years, complete and accurate records of all Net Sales. Ambit shall have the right, at its sole expense, through a certified public accountant reasonably acceptable to Cephalon, and following reasonable notice; to inspect such records during regular business hours, during the life of Cephalon’s obligation to pay royalties on Collaboration Products; provided, however, that such inspection shall not (i) take place more often than once a year and (ii) cover any records which date prior to the date of the last examination, and further provided that, such accountants shall report only as to the accuracy of the royalty statements and payments and the amount of any underpayment. Copies of such reports shall be supplied to Cephalon. In the event that the report is in disagreement with the Net Sales as calculated by Cephalon, Cephalon shall notify Ambit within ten (10) days of receipt by Cephalon whether or not it agrees with the report. If Cephalon notifies its agreement with the report within the ten (10) day period or fails to give any notification within that period, the Net Sales calculated by the report shall be used for purposes of calculating any monies owed and any monies owed by Cephalon to Ambit shall be paid by that Party in accordance with the provisions of this Section 9.3.2. If within ten (10) days starting on the day after receipt of the notification referred to in this Section 9.3.2, the Parties have not agreed to the terms in dispute in relation to the report, either Party may refer the items in dispute to a partner of at least ten (10) years qualified experience at an independent, internationally recognized, public accounting firm agreed by the Parties in writing for final and binding resolution, or failing agreement on the identity of the public accounting firm within fifteen (15) days starting on the day after receipt of the notification referred to in this Section 9.3.2, an independent, internationally recognized, public accounting firm appointed on the application of either Party by the President for the time being of the Institute of Chartered Accountants in the United States. Such person appointed shall act on the following basis:

(i) such person shall act as an expert and not as an arbitrator;

(ii) such person’s terms of reference shall be to determine the matters in dispute within twenty (20) days of his appointment;

(iii) the Parties shall each provide such person with all information relating to the items in dispute which such person reasonably requires and such person shall be entitled (to the extent he considers appropriate) to base his determination on such information;

(iv) the decision of such person is, in the absence of fraud or manifest error, final and binding on the Parties; and

(v) such person’s costs shall be paid by the Parties as such person may determine.

Where Cephalon agrees that it has or is found to have underpaid royalties, Cephalon promptly shall pay such royalties together with interest at the rate as stated in the Wall Street

 

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Journal Europe under “Money Rates” plus [***] applied to the amount unpaid from the date due to the date paid. If Cephalon has overpaid royalties, Cephalon may credit such overpayments against future royalties owed to Ambit. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available to each Party.

9.3.3 Form of Payment. All payments required according to this Article IX shall be made in U.S. dollars, for Ambit’s account, by wire transfer to a bank in the United States designated in writing by Ambit; provided, however, that where payments in respect of Net Sales are based on Net Sales in non-U.S. currencies, the amount of Net Sales and any deductions used to calculate Net Sales, if any, shall be converted by Cephalon, based on the average of the “bid” and “asked” exchange rate provided by the Wall Street Journal Europe, for the last business day of each calendar quarter, into U.S. dollars. Any undisputed payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional two percent (2%) calculated on the number of days such payment is delinquent The interest available to each Party pursuant to this Section shall in no way limit any other remedies available.

9.4 Third Party Royalties and Royalty Reductions.

(a) Cephalon shall be responsible for procuring such licenses as it deems, in its sole discretion, appropriate for the manufacture, use, marketing, sale or distribution of a Collaboration Product by it or its Affiliates or Sublicensees. In the event that Cephalon is required (as provided in Section 9.4(b) below) to pay royalties to a Third Party in respect of Relevant Third Party Patent Rights, then Cephalon will be entitled to deduct from the future royalties payable to Ambit in respect only of that country the amount due to such Third Party, provided, however, that the total amount of such deductions in any accounting period in respect of all claims in respect of Relevant Third Party Patent Rights shall not exceed [***] of the royalties payable for the country in question.

(b) For purposes of Section 9.4(a), whether Cephalon is “required” to enter a license shall be determined as follows:

(i) Cephalon shall be required to enter a license if so ordered by a court of competent jurisdiction, or if a court of competent jurisdiction has found Cephalon liable for, infringing Relevant Third Party Patent Rights, or

(ii) Cephalon shall bring to the attention of Ambit, in writing, any Relevant Third Party Patent Rights. The Parties agree to meet, within thirty (30) days after such written notification, along with their patent counsel under the appropriate confidentiality obligations, including if necessary the execution of a joint defense agreement to discuss in good faith the basis of the determination that such a license is required. During such meeting the Parties agree to discuss such facts, findings, conclusions, opinions and other information as the Parties deem

 

 

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relevant. If at the end of such discussions Cephalon and Ambit are unable to reach agreement, then the matter shall be referred to the Executive Officers, who shall promptly meet and endeavor to reach consensus in a timely manner. If such individuals cannot resolve such dispute, then such dispute shall be referred to an independent patent attorney acceptable to both Parties, who shall determine whether such license is reasonably necessary. The determination, of such independent patent attorney will be binding upon the Parties. The costs of the independent patent attorney shall be borne equally by the Parties.

(c) In respect of any country in the Territory where a Collaboration Product is not covered by a licensed Patent and there are no statutory data exclusivity or marketing exclusivity rights that can be enforced to prevent the entry of generic competition to that Collaboration Product, in the event of entry of “Substantial Generic Competition” into the marketplace in such country, Cephalon shall be entitled to reduce the royalties payable to Ambit by [***]. For purposes of this Section 9.4(c), “Substantial Generic Competition” in a country is defined as a Third Party’s (or Third Parties’) sales of a generic product containing the same Collaboration Clinical Candidate as found in the Collaboration Product in question (whether alone or in combination with other therapeutically active compounds) reaching a market share in such country greater than or equal to [***] of Cephalon’s unit sales of the Collaboration Product in such country, without obtaining a license from Cephalon. It is understood that Cephalon shall continue to pay the Ambit royalties on Net Sales of a Collaboration Product within any given country at the full rates otherwise applicable under this Agreement, until such time as Cephalon has determined and confirmed in writing to Ambit, subject to reasonable verification, that there is Substantial Generic Competition with respect to a particular Collaboration Product in such country. At such time, subject to Section 11.3.8, Cephalon may reduce the payment of royalties to Ambit in such country with respect to such Collaboration Product pursuant to this Section.

9.5 Blocked Payments. In the event that, by reason of applicable laws or regulations in any country, it becomes impossible or illegal for Cephalon to transfer, or have transferred on its behalf, royalties or other payments to Ambit, such royalties or other payments shall be deposited in local currency in the relevant country to the credit of Ambit in a recognized banking institution designated by Ambit or, if none is designated by Ambit within a period of thirty (30) days, in a recognized banking institution selected by Cephalon and identified in a notice in writing given to Ambit.

ARTICLE IX-A

CO-DEVELOPMENT/CO-PROMOTION OF COLLABORATION PRODUCT

9A.1 Co-Development/Co-Promotion of a Collaboration Clinical Candidate. At the conclusion by Cephalon of the first proof-of-concept study in humans involving a Collaboration Clinical Candidate directed against the First Collaboration Target, Cephalon shall notify Ambit in writing of the results of such study, and Ambit shall have [***] following receipt of such notice to request in writing of Cephalon participation in the co-development and co-promotion of

 

 

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such Collaboration Clinical Candidate. Cephalon, within [***] after such Ambit request, shall notify Ambit whether Cephalon will consider, in its sole discretion, such co-development and co-promotion. If Cephalon notifies Ambit that it will consider such request, both Parties will negotiate in good faith the terms of the co-development/co-promotion agreement, which will be capped at [***] participation by Ambit. Ambit shall participate in the costs of further development of the Collaboration Clinical Candidate at the rate equal to its co-development/co-promotion participation. Should Cephalon determine a co-development/co-promotion arrangement not to be beneficial, Cephalon will notify Ambit of such determination and shall continue to develop and commercialize the applicable Collaboration Clinical Candidate under terms of this Agreement.

ARTICLE X.

REPORTS, BOOKS AND TAX MATTERS

10.1 Examination of Books. Each of the Parties shall keep and maintain complete and accurate books in respect of its activities during the Term, and with respect to books and records for which payment may be required, in accordance with applicable accounting principles consistently applied and in accordance with local law. Each Party shall have the right, at its sole expense, during the Term and thereafter, through a certified public accountant reasonably acceptable to the other Party, and following reasonable notice, to inspect such records during regular business hours; provided, however, that such inspection shall not (i) take place more often than once a year and (ii) cover any records which date prior to the date of the last examination. The Parties shall retain such records for the longer of the Term or as required by applicable law, unless otherwise expressly set forth herein or unless the Parties shall otherwise mutually agree.

10.2 Inspection. Ambit shall permit Cephalon, at Cephalon’s expense and upon reasonable prior notice, to visit and inspect Ambit’s facilities, to meet with scientific personnel and review the progress of the Collaboration no more than once a year.

10.3 Tax Matters. Each Party agrees that the other Party is entitled to all tax benefits, including in particular, tax credits and/or tax deductions attributable to amounts the other Party has paid hereunder. Each Party shall file its federal, state, and local tax returns on a basis consistent with this Agreement, and shall not take any action inconsistent with the other Party’s entitlement to such tax benefits. In the event that a Party, in its judgment, determines that it must obtain information and verification regarding the use or application of such expenditures in order to prepare its tax returns or to respond to an inquiry during a tax audit or any other inquiry relating to such treatment of its tax return, or to defend its tax position in any proceeding including litigation, the Parties shall reasonably cooperate with each other and provide such information as the other Party may reasonably require at the request and expense of the requesting Party.

 

 

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ARTICLE XI.

PATENTS

11.1 Disclosure by Employees, Agents or Independent Contractors. Cephalon and Ambit agree that as to any employees, agents, or independent contractors of Cephalon and Ambit presently in their employ or who are hired or retained by Cephalon or Ambit to perform, manage performance of, or participate in the activities done pursuant to this Agreement, Cephalon and Ambit will ensure that such employees, agents, or independent contractors will promptly disclose and assign to the Party engaging them any and all rights to inventions, developments, or improvements (whether patentable or not), conceived and/or reduced to practice during the course of their duties. Each Party will notify the other Party promptly of any sole or joint inventions within the Collaboration IP.

11.2 Patent Prosecution and Related Activities.

11.2.1 Ambit IP. Ambit shall be responsible, at its sole discretion and expense, for preparing, filing, prosecuting and maintaining in such countries it deems appropriate, by itself or with Third Parties, Ambit Patents, including conducting any interferences, re-examinations, reissues and oppositions relating to such Patents.

11.2.2 Cephalon IP. Cephalon shall be responsible, at its sole discretion and expense, for preparing, filing, prosecuting and maintaining in such countries it deems appropriate, by itself or with Third Parties, Cephalon Patents including conducting any interferences, re-examinations, reissues and oppositions relating to such Patents.

11.2.3 Licensed Compound IP.

(a) Prosecution by Cephalon. Cephalon shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Ambit and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Licensed Compound IP that are owned (solely or jointly) by Cephalon pursuant to this Agreement or that cover compounds to which Cephalon has an exclusive license in force pursuant to this Agreement, including conducting any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents, and Ambit shall give reasonable cooperation in connection therewith, at Cephalon’s request.

(b) Prosecution by Ambit. Ambit shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Cephalon and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Licensed Compound IP that are not covered by Section 11.2.3(a), in each case including conducting any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents, and Cephalon shall give reasonable cooperation in connection therewith, at Ambit’s request.

 

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11.2.4 Collaboration IP.

(a) Prosecution by Cephalon. Cephalon shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Ambit and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Collaboration IP owned (solely or jointly) by Cephalon, and/or Patents directed to any compounds to which Cephalon has an option or license in force pursuant to Sections 6.2.1, 6.2.2 or 6.2.3, in each case including conducting any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents within the Collaboration IP, and Ambit shall give reasonable cooperation in connection therewith, at Cephalon’s request.

(b) Prosecution by Ambit. Ambit shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Cephalon and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Collaboration IP not included in Section 11.2.4(a), including conducting any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents within the Collaboration IP, and Cephalon shall give reasonable cooperation in connection therewith, at Ambit’s request.

(c) Cooperation; Request to Responsible Party. Each of Cephalon and Ambit shall keep the other fully informed as to the status of patent matters described in Sections 11.2.3 and 11.2.4, including, without limitation, by providing the Patent Committee the opportunity to fully review and comment on any invention disclosures. With respect to each Patent governed by Sections 11.2.3 or 11.2.4, the Patent Committee shall decide whether such Patent falls within Section: 11.2.3(a) or 11.2.3(b) or within Section 11.2.4(a) or 11.2.4(b), as applicable. In the event of any overlap or conflict between subject matter that is claimed (or could be claimed) in a Patent for which Cephalon is responsible pursuant to Section 11.2.3(a) or 11.2.4(a) and subject matter that is claimed (or could be claimed) in a Patent for which Ambit is responsible pursuant to Section 11.2.3(b) or 11.2.4(b), the Patent Committee shall determine which Patent should claim such subject matter pursuant to the terms of this Agreement. Where practicable and where appropriate under the terms of this Agreement, the Patent Committee shall endeavor to adjust the scope of the claims of either such Patent or both such Patents, or to propose the filing of appropriate divisional applications, in order to avoid or minimize such overlap or conflict. Cephalon and Ambit shall each reasonably cooperate with and assist the other at its own expense in connection with such activities, at the other Party’s request. Reasonable cooperation shall include, without limitation, providing the requesting Party with necessary or useful data and information relating to the Patents and reasonable access to the inventors of said inventions, as well as causing the execution of required patent assignments and/or other documents. Either Party may request the other Party, at the other Party’s discretion, to file a patent application claiming any invention within the Collaboration IP or Licensed Compound IP, as applicable, for which the other Party has responsibility as set forth in Sections 11.2.3 or 11.2.4. It is understood and agreed that a Party shall not have any liability to the other Party with respect to such Party’s preparation or prosecution of any Patent pursuant to this Section 11.2.4(c), as long as (i) such Party has complied with this Section 11.2.4(c) with respect to such Patent and (ii) such Party has not been negligent in conducting any such activities with respect to such Patent.

 

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(d) Procedure on Uncertainty to Prosecute. In cases where the prosecution of Collaboration IP is not clearly addressed by the provisions of Sections 11.2.3(a), 11.2.3(b), 11.2.4(a) and 11.2.4(b), the Patent Committee shall promptly hold discussions to determine how best to proceed and how costs should be apportioned between the Parties and shall make a recommendation to the JRC, which shall make a decision on the matter.

11.2.5 Inventorship. Inventorship of all Patents shall be determined based upon U.S. Patent Laws.

11.2.6 Election Not to Prosecute. Upon ninety (90) days written notice to the other Party (the “Discontinuance Notice”), the responsible Party, on a country-by-country basis, may elect to discontinue the prosecution of any patent applications filed pursuant to Sections 11.2.3 or 11.2.4 and/or not to file or conduct any further activities with respect to the Patents described in such Sections. In the event the responsible Party declines or elects not to file or, having filed, elects not to further prosecute or maintain any Patents filed pursuant to this Agreement which relate to the Collaboration IP or Licensed Compound IP, or if Ambit declines or elects not to file or, having filed, elects not to further prosecute or maintain any Ambit Patents licensed to Cephalon under Section 6.2.2, or to conduct any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents with respect thereto, the other Party shall have the right, at its discretion, and at its sole expense, to prepare, file, prosecute and maintain such Patents in such countries as it deems appropriate, and conduct any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents with respect thereto at its sole expense. The responsible Party agrees to cooperate in any manner reasonably requested in connection with any such actions by the other Party, at the expense of the other Party, and shall assign, provided the Patents are freely assignable and not subject to a terminal disclaimer or other encumbrance, all right, title and interest in and to such Patents to the Party continuing such activities. If the responsible Party does not receive written notice within ninety (90) days of the date of the Discontinuance Notice, then the responsible Party shall be free to abandon such Patents at its sole discretion without any legal recourse by the other Party.

11.2.7 Permitted Disclosures. Following a written notice from the other Party hereto, the Parties shall in good faith discuss granting each other permission in writing, not to be unreasonably withheld; to disclose in the specification of a patent application filed by the other Party pursuant to this Agreement, any Ambit IP, Cephalon IP, Collaboration IP or Licensed Compound IP necessary to support and enable claims in such patent applications.

11.3 Third Party Infringement.

11.3.1 Rights to Enforce. Cephalon and Ambit shall have the right to initiate legal action to enforce the Patents within the Collaboration IP or Licensed Compound IP against infringement or misappropriation by Third Parties or to defend any declaratory judgment action relating thereto. Each Party, at its sole expense, shall have the initial right but not the obligation to initiate and conduct legal proceedings including, without limitation, to enforce, against any infringement of, or defend any declaratory judgment action involving, any Patent rights, the prosecution and maintenance for which that Party is responsible, pursuant to Section 11.2.3 or 11.2.4. Each Party shall notify the other Party of its decision to bring proceedings or not within

 

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sixty (60) days of the date that the infringement has come to its knowledge. If the actual or threatened infringement relates to the manufacture, use or sale of a product or material which is a competing product to a Collaboration: Product or Licensed Product and Ambit is the Party conducting the suit with regard to the applicable Collaboration Product or Licensed Product, then Cephalon shall have the right at its option, to join with Ambit in the suit and participate in all meetings, negotiations, discussions and proceedings in respect of issues which relate to the infringement of the Patent(s) by such competing product. Where the conduct of the action relates to matters relevant only to issues of infringement by the competing product and not the scope or validity of Ambit’s Patents, Ambit shall follow Cephalon’s reasonable directions in the conduct of that part of the proceedings. In respect of other parts of the proceedings, Ambit agrees to take into account Cephalon’s reasonable views and comments. Subject to Section 11.3.8, in the circumstances outlined in this Section, where Cephalon exercises its right to participate in the suit, Cephalon shall bear [***] of the costs of such proceedings.

11.3.2 Failure to Enforce Collaboration Patent or Licensed Compound Patent. If, within sixty (60) days of the date that the infringement or misappropriation of Collaboration IP or Licensed Compound IP comes to its knowledge (or written notice of a declaratory judgment action alleging invalidity or unenforceability of such Collaboration IP or Licensed Compound IP), the Party with the initial right to bring proceedings (“Patent Owner”) under Section 11.3.1 above fails to take action to halt such alleged infringement or misappropriation or defend such a declaratory judgment action, the other Party may, at its expense, take such legal action as it deems appropriate, in its own name (or to the extent necessary the Patent Owner’s name), to halt such an alleged infringement or misappropriation or defend such a declaratory judgment action. The other Party shall notify the Patent Owner of its decision to do so. Where, in accordance with the procedure set out in this Section, the other Party commences the proceedings, the Patent Owner may, at its option, join with the other Party in the suit and the Patent Owner shall have the right to participate in all meetings, discussions and proceedings in respect of issues regarding the validity and/or revocation of the relevant Patent(s). In those circumstances, the other Party (i.e., the Pursuing Party) agrees to take into account the Patent Owner’s reasonable views and comments in the conduct of the proceedings and, subject to Section 11.3.8, the Patent Owner shall bear [***] of the costs of such proceedings. The Patent Owner agrees to render such reasonable assistance as the Pursuing Party may request, including joining as a party to the proceedings.

11.3.3 Rights to Enforce Ambit Patent or Cephalon Patent. In the event that either Party becomes aware that any Patent within the Ambit IP or Cephalon IP is being infringed or misappropriated by a Third Party, or is subject to a declaratory judgment action arising from such infringement or misappropriation; such Party promptly shall notify the other Party. It is understood and agreed that Ambit shall have the initial right, but not the obligation, to initiate and conduct legal proceedings to enforce the Ambit IP against any infringement or misappropriation or defend any declaratory judgment action relating thereto, at its sole expense, and that Cephalon shall have the initial right, but not the obligation, to initiate and conduct legal proceedings to enforce the Cephalon IP against any infringement or misappropriation or defend any declaratory judgment action relating thereto, at its sole expense. Cephalon or Ambit (as the

 

 

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case may be) shall notify the other Party Of its decision to bring proceeding or not within sixty (60) days of the date that the infringement has come to its knowledge. If the actual or threatened infringement of the Ambit IP relates to the manufacture, use or sale of a product or material which is a competing product to a Collaboration Product or Licensed Compound, then Cephalon shall have the right at its option, to join with Ambit in the suit and participate in all meetings, negotiations, discussions and proceedings in respect of issues which relate to the infringement of the Patent(s) by such competing product. Where the conduct of the action relates to matters relevant only to issues of infringement by the competing product and not the scope or validity of Ambit’s Patents, Ambit shall follow Cephalon’s reasonable directions in the conduct of that part of the proceedings. In respect of other parts of the proceedings, Ambit agrees to take into account Cephalon’s reasonable views and comments. Subject to Section 11.3.8, in the circumstances outlined in this Section 11.4.3 where the Commercializing Party exercises its right to participate in the suit, the Commercializing Party shall be [***] of the costs of such proceedings.

11.3.4 Failure to Enforce Ambit or Cephalon Patent. If, within sixty (60) days of the date that the infringement or misappropriation comes to its knowledge (or written notice of a declaratory judgment action alleging invalidity or unenforceability of such Ambit or Cephalon Patent, as the case may be), the Patent Owner fails to take action to halt such alleged infringement or misappropriation or defend such a declaratory judgment action under Section 11.3.3 .above, the other Party may, if it has been granted an exclusive license under such Ambit or Cephalon Patent (as the case may be), at its expense, take such legal action as it deems appropriate, in its own name (or to the extent necessary the Patent Owner’s name), to halt such an alleged infringement or misappropriation or defend such a declaratory judgment action. The other Party shall notify the Patent Owner of its decision to do so. Where, in accordance with the procedure set out in this Section, the other Party commences the proceedings, the Patent Owner may, at its option, join with the other Party in the suit and the Patent Owner shall have the right to participate in all meetings, discussions and proceedings in respect of issues regarding the validity and/or revocation of the relevant Patent(s). In those circumstances, the other Party (i.e., the Pursuing Party) agrees to take into account the Patent Owner’s reasonable views and comments in the conduct of the proceedings and, subject to Section 11.3.8, the Patent Owner shall bear [***] of the costs of such proceedings. The Patent Owner agrees to render such reasonable assistance as the Pursuing Party may request.

11.3.5 Limitation on Timing to Bring Suit. The Parties acknowledge that there may exist in certain countries statutory limitations on the period during which suit may be filed or other enforcement actions initiated against a Third Party’s infringement of the Patents (for example, the forty-five (45) day period for responding to a Third Party certification in the United States under 21 USC Sections 355(b)(2)(A)(iv) and 355(j)(2)(a)(vii), or any amendment or successor statute thereto, claiming that Patents covering a Collaboration Compound Collaboration Product, Licensed Compound or Licensed Product are invalid or that infringement will not arise from the manufacture, use or sale of a product equivalent to the Collaboration Compound, Collaboration Product, Licensed Compound or Licensed Product, as the case may be, by such Third Party). In such event:

 

 

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(a) Ambit and Cephalon each shall immediately give written notice to the other of any potential infringement action against such Third Party infringer of which they become aware; and

(b) the relevant Party shall have the right but not the obligation to bring suit, and the provisions of this Section 11.3.5 shall apply save that such Party shall be required to obtain a discontinuance or elect to bring suit at least fourteen (14) business days prior to the expiry of the relevant statutory period. If such Party elects to bring suit within such period, the provisions of this Section 11.3.5 shall apply; or

(c) if the relevant Party elects not to, or has failed to, bring an infringement action against such Third Party infringer in such country(ies) within the time period provided in this Section 11.3.5, then the other Party shall have the right but not the obligation, to bring suit against such infringer under this Section 11.3.5 prior to the expiration of the statutory period. In the event that such other Party elects to bring suit, the provisions of this Section 11.3 shall apply.

11.3.6 No Settlement Without Consent. Neither Party shall enter into any settlement of any claim, suit or proceeding under this Section 11.3 which admits or concedes that any Collaboration Patent or any Patent licensed from the other Party is invalid or unenforceable without the prior written consent of such other Party.

11.3.7 Cooperation. Each Party shall keep the other reasonably informed of the progress of any claim, suit or proceeding subject to this Section 11.3 and cooperate reasonably in connection with such activities at the request and expense of the Party involved in such claim, suit or proceeding.

11.3.8 Division of Recoveries. Any recovery received in connection with a suit brought by a Party pursuant to this Section 11.3 shall be retained by the Party initiating such suit. If Cephalon was a party to the suit, then any recovery received in connection with a suit brought pursuant to this Section 11.3 shall be used first to reimburse each Party pro rata for expenses (including attorneys’, professional and expert fees) incurred in such suit, and any balance shall be retained by the Cephalon subject to a payment to the other Party of such other Party’s lost royalties.

11.4 Infringement Claims by Third Parties. If the manufacture, sale or use of any product commercialized by a Party (the “Commercializing Party”) pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against a Commercializing Party (or its Sublicensees), such Commercializing Party shall promptly notify the other Party in writing setting forth the facts of such claim in reasonable detail. The Commercializing Party shall have the exclusive right to defend and control the defense of any such claim; suit or proceeding, at its own expense, using counsel of its own choice; provided, however, it shall not enter into any agreement or settlement which admits or concedes that any Patent licensed from the other Party is invalid, unenforceable or not infringed, without the prior written consent of the other Party. The Commercializing Party shall keep the other Party reasonably informed of all material developments in connection with any such claim, suit or proceeding, and the other Party shall have the right (but not the obligation) to be separately represented, at its expense, by

 

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counsel of its own choice and to advise the Commercializing Party on the defense of such claim, suit or proceeding.

11.5 Patent Term Restoration. The Parties hereto shall give reasonable cooperation to each other in obtaining patent term restoration or supplemental protection certificates or their equivalents in any country in the Territory where applicable to the Collaboration IP.

11.6 Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by Ambit are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code (i.e., Title 11 of the U.S. Code) or analogous provisions of applicable law outside the United States, licenses of rights to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Coded or analogous provisions of applicable law outside the United States. Each Party agrees that the other Party, as licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code or any other provisions of applicable law outside the United States that provide similar protection for “intellectual property”.

11.7 CREATE Act. Neither Party shall invoke the Cooperative Research and Technology Enhancement (CREATE) Act of 2004 (Pub L. 108-453) in connection with the prosecution of any patents related to this Agreement without the prior written consent of the other Party.

ARTICLE XII.

CONFIDENTIALITY

12.1 Confidentiality.

12.1.1 Term of Confidentiality. Except as otherwise provided in this Section 12.1, a Party receiving Confidential Information (the “Receiving Party”) shall keep all Confidential Information disclosed to it by the disclosing Party (the “Disclosing Party”) confidential for the Collaboration Term and [***] thereafter. Without the prior written consent of the Disclosing Party, the Receiving Party shall not disclose any Confidential Information to any Third Party, except to the officers, employees, agents, or representatives of the Receiving Party or the Receiving Party’s Affiliates (collectively the “Representatives”), who, in each case, have a need to know any such Confidential Information for purposes of the implementation and performance by the Receiving Party of its obligations pursuant to this Agreement, and will use the Confidential Information provided by the Disclosing Party only for such limited purposes.

12.1.2 Warranty of Obligation. Each Party warrants that each of its Representatives to whom any Confidential Information is disclosed shall previously have been informed of the confidential nature of the Confidential Information and shall have agreed to be bound by terms and conditions equivalent to those set forth in this Agreement. The Receiving Party shall ensure that the Confidential Information provided by the Disclosing Party shall not be used or disclosed by such Representatives except as permitted by this Agreement. The Receiving

 

 

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Party shall stand responsible for any breach by its Representatives of the confidentiality provisions set forth in this Agreement.

12.1.3 Ownership of Confidential Information. Except as provided herein with respect to the ownership of any intellectual property, all Confidential Information disclosed by the Disclosing Party shall remain the property of the Disclosing Party. Upon the written request of the Disclosing Party (i) all tangible Confidential Information provided by the Disclosing Party (including, but not limited to all copies thereof and all unused samples of materials provided by the Disclosing Party) except for Confidential Information consisting of analyses, studies and other documents and materials prepared by or for the benefit of the Receiving Party, shall be promptly returned to the Disclosing Party, and (ii) all portions of such analyses, studies and others documents prepared by or for the benefit of the Receiving Party (including all copies thereof) which are within the definition of Confidential Information shall be destroyed, and the Receiving Party shall certify such destruction in writing to the Disclosing Party.

12.1.4 Permitted Disclosures. The obligations of confidentiality and non-use set forth in this Agreement shall not apply to any portion of the Confidential Information which:

(a) is or becomes public or available to the general public otherwise than through the wrongful act or default of the Receiving Party or its representatives; or

(b) is obtained by the Receiving Party from a Third Party who is lawfully in possession of such Confidential Information and is not subject to an obligation of confidentiality or non-use owed to the Disclosing Party; or

(c) is previously known to the Receiving Party prior to disclosure by the Disclosing Party, as shown by written evidence, and is not obtained or derived directly or indirectly from the Disclosing Party; or

(d) is independently developed by the Receiving Party without the use of or reliance on any Confidential Information provided by the Disclosing Party hereunder, as shown by contemporaneous written evidence.

12.1.5 Legal Disclosure. The Receiving Party may disclose the Confidential Information of the Disclosing Party to the extent reasonably necessary in prosecuting or defending litigation, complying with applicable laws, go^vernmental regulations or court order, or otherwise submitting required information to tax or other governmental authorities. If the Receiving Party intends to so disclose any such Confidential Information, the Receiving Party shall provide the Disclosing Party prompt prior notice of such fact so that the Disclosing Party may seek to obtain a protective order or other appropriate remedy concerning any disclosure of such Confidential Information. The Receiving Party will reasonably cooperate with the Disclosing Party in connection with the Disclosing Party’s efforts to obtain any such order or other remedy. If any such order or other remedy does not fully preclude the disclosure of such Confidential Information, the Receiving Party will make such disclosure only to the extent that such disclosure is legally required and will use its reasonable efforts to have confidential treatment accorded to the disclosed Confidential Information.

 

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12.1.6 No Warranty As To Reliability. Each of the Parties acknowledges that neither Party makes any representation or warranty as to the reliability, accuracy or completeness of any of the Confidential Information disclosed hereunder, except for any specific representation or warranty made in other sections of this Agreement. The Receiving Party agrees that neither the Disclosing Party nor any of the Disclosing Party’s Representatives shall have any liability to the Receiving Party arising from the disclosure of Confidential Information by the Disclosing Party except as otherwise provided herein.

12.1.7 No Implied License. Except as otherwise expressly set forth in this Agreement, nothing herein shall be construed as giving the Receiving Party any light, title and interest in and to the Confidential Information of the Disclosing Party.

12.1.8 Public Domain. For the purpose of this Agreement, specific information disclosed as part of the Confidential Information shall not be deemed to be in the public domain or in the prior possession of the Receiving Party merely because it is embraced by more general information in the public domain or by more general information in the prior possession of the Receiving Party.

12.2 Publications. A Party desiring to submit a publication or presentation related to any matters that are the subject of this Agreement shall not do so without the prior written consent of the other Party, which consent shall, not be unreasonably withheld. Each Party shall submit for the other Party’s review any proposed publication or presentation containing any information generated by either Party (or by both Parties) hereunder during the Collaboration Term, or containing any Confidential Information of the other Party, at least forty-five (45) days in advance of such proposed publication or presentation. The reviewing Party shall promptly review such proposed publication and respond in any event within forty-five (45) days after receipt, and shall make any objections that it may have to the publication of any such information, or of any Confidential Information of the reviewing Party contained therein. Should the reviewing Party make an objection to the publication of any such information or Confidential Information, then the Parties shall discuss the advantages and disadvantages of publishing such information and/or Confidential Information provided always that a Party shall not be compelled to agree to the disclosure of its Confidential Information and if following such discussions the Party still objects to the inclusion of such Confidential Information it shall be removed. If the Parties are unable to agree on whether particular subject matter may be published or presented, then the Executive Officers shall attempt to resolve the matter, but if it is unable to do so, such matter shall not be subject to the dispute resolution provisions of Sections 2.4 and 18.18. Notwithstanding the foregoing, upon the reviewing Party’s request, the other Party shall not submit any such publication or presentation until the reviewing Party is given a reasonable period of time (not less than forty-five (45) days) to secure patent protection for any material in such publication or presentation that it believes to be patentable.

12.3 Terms of Agreement. The existence and the terms and conditions of the Agreement that the Parties have not specifically agreed to disclose pursuant to Section 12.1 shall be considered Confidential Information of both Parties. Either Party may disclose, upon the other Party’s prior written consent, such terms to a bona fide potential investor, investment banker, acquiror, merger partner or other potential financial partner, and their attorneys and agents, provided that each such Person to whom such information is to be disclosed is informed of the

 

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confidential nature of such information and has agreed to maintain the confidentiality of such information.

12.4 Injunctive Relief. The Parties hereto understand and agree that remedies at law may be inadequate to protect against any breach of any of the provisions of this Article XII by either Party or their employees, agents, officers or directors or any other person acting in concert with it or on its behalf. Accordingly, each Party shall be entitled to, without the posting of bond, the granting of injunctive relief by a court of competent jurisdiction against any action that constitutes any such breach of this Article XII.

12.5 Registration and Filing of the Agreement. To the extent, if any, that a Party concludes in good faith that it is required to file or register this Agreement, a summary of the terms of this Agreement, or a notification thereof with any governmental authority, including without limitation the U.S. Securities and Exchange Commission and the Competition Directorate of the Commission of the European Communities, in accordance with applicable laws and regulations, such Party may do so, and the other Party shall cooperate in such filing or notification and shall execute all documents reasonably required in connection therewith at the, expense of the requesting Party. The Parties shall promptly inform each other as to the activities or inquiries of any such governmental authority relating to this Agreement, and shall cooperate, to respond to any request for further information therefrom at the expense of the requesting Party.

ARTICLE XIII.

REPRESENTATIONS AND WARRANTIES OF AMBIT

13.1 Representations and Warranties. Ambit represents and warrants to Cephalon as follows:

13.1.1 Organization. It is a corporation validly existing and in good standing under the laws of the State of Delaware.

13.1.2 Authority. It has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to authorize such execution, delivery, and consummation have been duly and properly taken and obtained.

13.1.3 Enforceability. This Agreement has been duly executed and delivered by Ambit and constitutes legal, valid, and binding obligations of Ambit enforceable against Ambit in accordance with its terms.

13.1.4 Approvals and Consents. No approval, authorization, consent, or other order or action of or filing with any court, administrative agency or other governmental authority is required for the execution and delivery by Ambit of this Agreement or the consummation by Ambit of the transaction contemplated hereby (other than contemplated Collaboration Product Regulatory Approvals).

13.1.5 No Conflicts. None of the execution, delivery, or performance of this Agreement by Ambit (i) conflicts with or results in a breach under the charter documents or any

 

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material contractual undertaking of Ambit, or its Affiliates or (ii) conflicts with or results in a violation of any of the laws of the jurisdiction of incorporation of Ambit. Ambit has not, to the best of its knowledge entered into, nor will Ambit, after the Effective Date, knowingly enter into any written or oral agreement that is or would be inconsistent with its obligations under this Agreement or deprives or would deprive Cephalon of the benefits of this Agreement.

13.1.6 Title. As of the Effective Date, Ambit has good title to or valid leases or licenses for all its properties, rights, and assets necessary for the fulfillment of its obligations and responsibilities under this Agreement.

13.1.7 Sufficient Rights. As of the Effective Date, to the best of Ambit’s knowledge after due inquiry, Ambit represents and warrants that Ambit owns or Controls its Patents necessary to conduct the Collaboration and to grant the rights and licenses to Cephalon, and to fulfill its duties and obligations pursuant to this Agreement. As of the Effective Date, to the best of Ambit’s knowledge after due inquiry, Ambit represents and warrants that the Collaboration Compounds described in Section 1.17(i), and Ambit’s activities with respect to the First Collaboration Target as currently conducted and as proposed to be conducted, including the practice of the Ambit IP in connection therewith, do not violate the valid patent rights or other intellectual property rights of any Third Party, and to the best knowledge of Ambit after due inquiry, as of the Effective Date, all other practice of the Ambit IP does not violate the valid patent rights or other intellectual property rights of any Third Party.

13.1.8 No Prior Grant or Patents. As of the Effective Date, Ambit has not (i) knowingly granted any licenses to Third Parties, or (ii) knowingly filed any patent application, in either case inconsistent with the licenses granted or to be granted to Cephalon hereunder.

13.1.9 Resources. As of the- Effective Date and during the Collaboration Term, Ambit has and shall have sufficient financial and other resources to timely perform its obligations under the Profiling Services Agreement and this Agreement, including with respect to research and development of the Licensed Compounds and the Collaboration.

13.1.10 Disclaimer. Except as provided herein, Ambit specifically disclaims any guarantee that the Collaboration will be successful, in whole or in part. The failure of Ambit to successfully identify Collaboration Compounds that are suitable as Clinical Compounds will not, of itself, constitute a breach of any representation or warranty or other obligation under this Agreement. Ambit does not make any representation or warranty or guaranty that the Collaboration will be sufficient for the successful completion of the research contemplated thereby. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, AMBIT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE AMBIT IP, COLLABORATION IP, COLLABORATION COMPOUNDS OR AMBIT COMPOUNDS INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF AMBIT IP OR COLLABORATION IP, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

 

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ARTICLE XIV.

REPRESENTATIONS AND WARRANTIES OF CEPHALON

14.1 Representations and Warranties. Cephalon represents and warrants to Ambit as follows:

14.1.1 Organization. It is a corporation validly existing and in good standing under the laws of Delaware.

14.1.2 Authority. It has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to authorize such execution, delivery, and consummation have been duly and properly taken and obtained.

14.1.3 Enforceability. This Agreement has been duly executed and delivered by Cephalon and constitutes the legal; valid, and binding obligations of Cephalon enforceable against Cephalon in accordance with its terms.

14.1.4 Approvals and Consents. No approval, authorization, consent, or other order or action of or filing with any court, administrative agency or other governmental authority is required for the execution and delivery by Cephalon of this Agreement or the consummation by Cephalon of the transaction contemplated hereby (other than contemplated Collaboration Product Regulatory Approvals).

14.1.5 No Conflicts. None of the execution, delivery, or performance of this Agreement by Cephalon (i) conflicts with or results in a breach under the charter documents or any material contractual undertaking of Cephalon, or its Affiliates or (ii) conflicts with or results in a violation of any of the laws of the jurisdiction of incorporation of Cephalon. Cephalon has not, to the best of its knowledge entered into, nor will Cephalon, after the Effective Date, knowingly enter into any written or oral agreement that is or would be inconsistent with its obligations under this Agreement or deprives or would deprive Ambit of the benefits of this Agreement.

14.1.6 Sufficient Rights. As of the Effective Date, it owns or Controls its Patents necessary to conduct the Collaboration and to grant the rights and licenses to Ambit, and to fulfill its duties and obligations pursuant to this Agreement. To the knowledge of Cephalon, as of the Effective Date, the practice of the Cephalon IP does not violate the valid patent rights of any Third Party.

14.1.7 No Prior Grant or Patents. As of the Effective Date, Cephalon has not (i) knowingly granted any licenses to Third Parties, or (ii) knowingly filed any patent application; in either case inconsistent with the licenses granted or to be granted to Ambit hereunder.

14.1.8 Title. As of the Effective Date, it has good title to or valid leases or licenses for all its properties, rights; and assets necessary for the fulfillment of its obligations and responsibilities under this Agreement.

 

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14.1.9 Disclaimer. Except as provided herein, Cephalon specifically disclaims any guarantee that the Collaboration will be successful, in whole or in part. The failure of Cephalon to successfully identify Clinical Candidates will not, of itself, constitute a breach of any representation or warranty or other obligation under this Agreement. Cephalon does not make any representation or warranty or guaranty that the Collaboration will be sufficient for the successful completion of the research contemplated thereby. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, CEPHALON MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE CEPHALON IP, COLLABORATION IP, COLLABORATION COMPOUNDS, CEPHALON COMPOUNDS OR CEPHALON LIBRARY COMPOUNDS INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF CEPHALON IP OR COLLABORATION IP, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

ARTICLE XV.

SURVIVAL AND INDEMNIFICATION

15.1 Survival of Representations, Warranties, Covenants, and Agreement. The representations, warranties, covenants, and agreements contained in this Agreement shall survive as set forth in Section 16.6. Except as expressly provided herein, the Parties confirm that they have not relied upon any other representations, warranties, covenants, and agreements as an inducement to enter into this Agreement or the other agreements and instruments to be executed and delivered by the Parties pursuant to this Agreement:

15.2 Indemnification by Ambit. Ambit hereby agrees to indemnify and hold Cephalon, its Affiliates_, and their respective officers, directors, stockholders, employees, agents, and representatives (collectively, the “Cephalon Indemnitees”) harmless from and against any and all claims, liabilities, losses, damages, costs and expenses in respect of claims against the Cephalon Indemnitees by Third Parties other than the Cephalon Indemnitees, including reasonable fees and disbursements of counsel and expenses of reasonable investigation (collectively, “Cephalon Losses”), arising out of, based upon or caused by: (a) the inaccuracy of any representation or the breach of any warranty, covenant or agreement of Ambit contained in this Agreement or in any other agreement or instrument delivered by Ambit pursuant to this Agreement; (b) any failure by Ambit, its Affiliates or their respective designees to conduct the research pursuant to the Research Plans in a diligent and professional manner and in accordance with applicable laws and regulations; (c) any gross negligence or intentional wrongdoing by Ambit, its Affiliates or designees in the performance of the research hereunder; (d) any injury, illness or disease suffered by any Ambit employees in connection with the performance of the Collaboration; (e) any breach of Ambit’s contractual obligations to Third Parties; or (f) the development, preclinical and clinical testing, manufacture, distribution, sale and/or use (including but not limited to product liability claims) of any Licensed Compound, Collaboration Compound or Licensed Product for which Ambit is responsible for development and commercialization pursuant to the terms of this Agreement (except, in each case (a) to (f), to the extent that any Cephalon Loss is due to the gross negligence or willful misconduct of Cephalon Indemnitees). Except with respect to a breach arising under Sections 13.1.6, 13.1.7 or 13.1.8, in no event shall Ambit’s aggregate

 

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liability to the Cephalon Indemnitees with respect to Cephalon Losses arising out of, based on or caused by the matters set forth in Section 15.2(a), (b), (c), (d) or (e) exceed [***].

15.3 Indemnification by Cephalon. Subject to Section 15.2, Cephalon hereby agrees to indemnify and hold Ambit, its Affiliates, subcontractors and their respective officers, directors, stockholders, employees, agents, and representatives (collectively, the “Ambit Indemnitees”) harmless from and against any and all claims, liabilities, losses, damages, costs and expenses in respect of claims against the Ambit Indemnitees by Third Parties other than the Ambit Indemnitees, including reasonable fees and disbursements of counsel and expenses of reasonable investigation (collectively, “Ambit Losses”), arising out of, based upon or caused by: (a) the inaccuracy of any representation or the breach of any warranty, covenant or agreement of Cephalon contained in this Agreement or in any other agreement or instrument delivered by Cephalon pursuant to this Agreement; (b) any failure by Cephalon, its Affiliates or their respective designees to conduct the research pursuant to the Research Plans in a diligent and professional manner and in accordance with applicable laws and regulations; (c) any gross negligence or intentional wrongdoing by Cephalon, its Affiliates or designees in the performance of the research hereunder; (d) any injury, illness or disease suffered by any Cephalon employees in connection with the performance of the Collaboration; (e) any breach of Cephalon’s contractual obligations to Third Parties; or (f) the development, preclinical and clinical testing, manufacture, distribution, sale and/or use (including but not limited to product liability claims) of any Collaboration Clinical Candidate, Collaboration Compound or Collaboration Product for which. Cephalon is responsible for development and commercialization pursuant to the terms of this Agreement (except, in each case (a) to (f), to the extent that any Ambit Loss is due to the gross negligence or willful misconduct of Ambit Indemnitees). Except with respect to a breach arising under Sections 14.1.6, 14.1.7 or 14.1.8, in .no event shall Cephalon’s aggregate liability to the Ambit Indemnitees with respect to Ambit Losses arising out of, based upon or caused by the matters set forth in Section 15.3(a), (b), (c), (d) or (e) exceed [***].

15.4 Notices. Each indemnified Party agrees to give the indemnifying Party prompt written notice of any action, claim, demand, discovery of fact, proceeding or suit (collectively, “Claims”) for which such indemnified Party intends to assert a right to indemnification under this Agreement; provided, however, that failure to give such notification, shall not affect the indemnified Party’s entitlement to indemnification hereunder except to the extent that the indemnifying Party shall have been prejudiced as a result of such failure. The indemnifying Party shall have the initial right (but not the obligation) to defend, settle or otherwise dispose of any Claim for which the indemnified Party intends to assert a right to indemnification under this Agreement as contemplated in the preceding sentence if and so long as the indemnifying Party has recognized in a written notice to the indemnified Party provided within thirty (30) days of such written notice its obligation to indemnify the indemnified Party for any Ambit Losses or Cephalon Losses (as the case may be) relating to such Claim; provided however that if the indemnifying Party assumes control of the defense, settlement, or disposition of a Claim, the indemnifying Party shall obtain the written consent of the indemnified Party prior to ceasing to defend, settling or otherwise disposing of the Claim in the event that such cessation, settlement or disposition would materially adversely affect the indemnified Party. If the indemnifying Party

 

 

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fails to state in a written notice during such thirty (30) day period its willingness to assume the defense of such a Claim, the Ambit or Cephalon Indemnitee, as the case may be, shall have the right to defend, settle or otherwise dispose of such claim at the indemnifying Party’s sole expense, subject to the applicable provisions of Sections 15.2 and 15.3 above. The indemnified Party shall not settle or compromise an Indemnification Claim without the prior written consent of the indemnifying Party, and the indemnifying Party shall not settle or compromise an Indemnification Claim in any manner which would have an adverse effect on the indemnified Party’s interests, without the prior written consent of the indemnified Party, which consent, in each case, shall not be unreasonably withheld or delayed. The indemnified Party shall reasonably cooperate with the indemnifying Party at the indemnifying Party’s expense and shall make available to the indemnifying Party all pertinent information under the control of the indemnified Party, which information shall be subject to Article XII.

ARTICLE XVI.

TERM, TERMINATION, AND EXPIRATION.

16.1 Term of Agreement. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue in full force and effect on a country-by-country and Collaboration Product-by-Collaboration Product basis until both Parties and their respective Sublicensees have no remaining royalty obligations in a country, unless terminated earlier as provided in this Article XVI.

16.2 Collaboration Term. The Collaboration shall commence on the Effective Date and terminate on the last day of the Initial Term, unless extended by mutual agreement of the Parties. In the event that Cephalon desires to extend the Collaborations Term, it shall so inform Ambit of such desire not less than six (6) months before the last day of the Initial Term or then-current Collaboration Term, in which case the Parties shall negotiate additional consideration to Ambit for any such proposed extension. If the Initial Term or the extended Collaboration Term, as the case may be, is not extended in the manner set forth in the preceding sentence, the Collaboration shall terminate on the last day of the Initial Term or extended Collaboration Term, as the case may be.

16.3 Termination.

16.3.1 Breach. If either Party breaches, or defaults in the performance of, or fails to be in compliance with, any material warranty, representation, agreement or covenant of this Agreement, and such default or noncompliance shall not have been substantially remedied within sixty (60) days after receipt by the defaulting Party of a written notice thereof and demand to cure such default from the other Party, the Party not in default or breach shall have the right to terminate this Agreement upon written notice effective immediately.

16.3.2 Bankruptcy. Either Party may, subject to the provisions herein, terminate the Collaboration and this Agreement if, at any time, the other Party shall file in any court pursuant to any statute, a petition in bankruptcy or insolvency or for reorganization in bankruptcy or for an arrangement or for the appointment of a receiver or trustee of such Party or of its assets, or if such Party proposes a written agreement of composition or extension of its debts, or if such Party shall be served with an involuntary Petition against it, filed in any

 

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insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or if such Party shall propose or be a party to any dissolution, or if such Party shall make an assignment for the benefit of creditors.

16.3.3 Additional Termination by Cephalon.

(a) Cephalon shall have the right to terminate this Agreement upon written notice effective immediately in the event of an Adverse Financial Event.

(b) No earlier than [***] after final delivery of the Cephalon Library Compounds pursuant to Section 4.1, Cephalon shall have the right to terminate this Agreement, at its sole discretion, upon ninety (90) days prior written notice to Ambit. As of the effective date of any such termination, neither Party shall have any further obligation to perform any activities with respect to any Research Plan pursuant to this Agreement.

16.3.4 Rights in Law or Equity. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TERMINATION BY EITHER PARTY PURSUANT TO THIS SECTION 16.3 SHALL NOT PREJUDICE ANY OTHER REMEDY THAT A PARTY MIGHT HAVE IN LAW OR EQUITY, EXCEPT THAT NEITHER PARTY MAY CLAIM COMPENSATION FOR LOST OPPORTUNITY OR LIKE CONSEQUENTIAL DAMAGES OR SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES ARISING OUT OF THE FACTS OF SUCH TERMINATION, EXCEPT IN CONNECTION WITH A BREACH OF ARTICLE XII, A PARTY’S INFRINGEMENT OR MISAPPROPRIATION OF THE OTHER PARTY’S INTELLECTUAL PROPERTY RIGHTS OR A PARTY’S INDEMNIFICATION OBLIGATIONS HEREUNDER.

16.4 Change of Control.

16.4.1 Ambit immediately shall notify Cephalon of the occurrence of a Change of Control prior to the completion of the Collaboration. Upon a Change of Control of Ambit occurring prior to completion of the Collaboration, Cephalon may, in its absolute discretion exercisable by giving Ambit notice in writing within thirty (30) days of Cephalon being notified of the Change of Control, elect to (a) continue working with Ambit or the successor Third Party under the terms of this Agreement, (b) assume responsibility for completing the Collaboration, and/or (c) terminate this Agreement.

16.4.2 Upon a Change of Control of Ambit, Ambit or the Third Party successor immediately shall halt their activities under the Collaboration and shall cease all access to and use of any Cephalon Confidential Information, Cephalon IP and any other rights owned hereunder by Cephalon, except as may otherwise be specified by Cephalon in writing. The rights to any compound covered by Cephalon Confidential Information, Cephalon IP and/or any other rights owned hereunder by Cephalon shall revert to Cephalon, except as may otherwise be specified by Cephalon in writing. The foregoing notwithstanding, any rights transferred to any

 

 

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Third Party under Section 4.7.3(c) prior to Change of Control shall not be affected by this Section 16.4.

16.4.3 Upon Cephalon’s election pursuant to Section 16.4.1(a), Cephalon and Ambit or the Third Party successor shall negotiate in good faith such amendments to this Agreement that shall be required by Cephalon to continue with the Collaboration. Such negotiations shall not occur for more than thirty (30) days, unless otherwise extended by Cephalon.

16.4.4 Upon Cephalon’s election pursuant to Section 16.4.1(b), the following provisions shall apply:

(a) the Parties shall agree to times convenient to both Ambit and Cephalon when scientist(s) from Ambit may visit Cephalon to facilitate the transfer to Cephalon of that Ambit IP necessary for and limited to Cephalon’s completion of the Collaboration, which transfer shall be completed at Cephalon’s own cost and expense;

(b) Ambit shall use its reasonable efforts to assign to Cephalon the benefit and burden of any agreement made between Ambit and any subcontractor pursuant to Section 18.15;

(c) the milestone payments due to Ambit pursuant to Article VIII shall be reduced pro-rata to the number of months elapsed since the Effective Date (as a ratio to [***]) at the date of the cessation of Ambit involvement in the Collaboration (e.g., such that if this occurs after the third anniversary of the Effective Date there shall be no reduction in this milestones); provided however, if as of the date of Cephalon’s notice of election pursuant to 16.4.1(b), (i) a Collaboration Clinical Candidate has been designated; (ii) Ambit has completed the screening of the Cephalon Library Compounds; and (iii) Ambit has delivered all profiling data from the screening of the Cephalon Compound Library to Cephalon, then there shall be no such reduction in the milestone payments relating to any such Collaboration Clinical Candidate; and

(d) the JRC shall be dissolved, the obligations on Ambit under Section 2.2 shall transfer to Cephalon and those provisions concerning the JRC shall not apply. Furthermore, Sections 2.1, 2.3, 2.4, 3.1, 3.2, 3.3, 3.4, 3.5 and 8.2 shall not apply. All other provisions of the Agreement shall continue to apply save as expressly modified by this Section 16.4.4.

16.4.5 Upon Cephalon electing to terminate this Agreement pursuant to Section 16.4.1(c), this Agreement shall be terminated upon Cephalon’s written notice effective immediately, whereupon Ambit shall pay to Cephalon as liquidated damages the sum of [***], reduced, pro rata, over the remainder of the Initial Term of the Agreement; provided however, if as of the date of Cephalon’s notice of termination pursuant to 16.4.1(c) (i) a Collaboration Clinical Candidate has been designated; (ii) Ambit has completed the screening of the Cephalon Library Compounds; and (iii) Ambit has delivered all profiling data from the screening of the Cephalon Library Compounds to Cephalon, then there shall be no payment of liquidated damages per the terms of this 16.4.5.

 

 

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16.5 Effect of Breach or Termination.

16.5.1 Accrued Obligations. Termination of this Agreement for any reason shall not release any Party hereto from any liability which_; at the time of such termination, has already accrued to: the other Party or which is attributable to a period prior to such termination.

16.5.2 Return of Materials. Upon any termination of this Agreement, Cephalon and Ambit shall promptly (a) return to the other Party all Confidential Information received from the other Party (except one copy of which may be retained for archival purposes) and (b) destroy any analyses, studies or other documents, prepared by or for the benefit of Cephalon or Ambit as the case may be, relating to such other Party’s Confidential Information, in each case except to the extent necessary for a Party to exercise any of its rights under any licenses granted to it that survive termination.

16.5.3 Effect of Termination. In the event of any termination of the Collaboration, Ambit and Cephalon shall have no future obligation to conduct research activities pursuant to any Research Plan after the effective date of such termination.

16.5.4 Licenses.

(a) Termination by Ambit Pursuant to Section 16.3.1 or 16.3.2. In the event of termination by Ambit of this Agreement pursuant to Section 16.3.1 or Section 16.3.2, Cephalon’s licenses under Section 6.2 shall terminate, and all exclusivity periods, rights and licenses granted to Ambit hereunder as of the effective termination date shall remain in effect, subject to the terms and conditions of this Agreement applicable thereto. Furthermore, (i) Ambit shall have the right to exercise any existing Options upon written notice to Cephalon delivered within ten (10) days of the effective termination date, and (ii) Ambit shall have a fully paid-up, worldwide, perpetual, irrevocable, transferable, royalty-free and exclusive license, with the right to sublicense, under any Collaboration IP, Licensed Compound IP or Cephalon IP, as the case may be, necessary to make, have made, use, sell, offer to sell, and import any Collaboration Clinical Candidate (that had been designated pursuant to Section 8.1 prior to the effective termination date) or Licensed Compound (that had been designated pursuant to Section 4.4.2 prior to the effective termination date) Ambit shall have, at its sole expense, the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion, all Patents subject to the license conveyed in this section 16.5.4(a)(i) and (ii).

(b) Termination by Cephalon Pursuant to Section 16.3.1, 16.3.2 or 16.3.3(a). In the event of termination by Cephalon pursuant to Section 16.3.1, Section 16.3.2 or 16.3.3(a), all exclusivity periods, rights and licenses granted to, Ambit hereunder shall terminate; and all exclusivity periods, rights and licenses granted to Cephalon hereunder shall remain in effect, subject to the terms and conditions of this Agreement applicable thereto. Furthermore, (i) upon written notice given within ten (10) days of the effective termination date, Cephalon shall have the right to designate any Collaboration Compounds as Collaboration Clinical Candidates, in which case Cephalon shall be licensed to such Collaboration Clinical Candidates as set forth in Section 6.2.1, provided that such license shall be fully paid-up and royalty-free, and (ii) Cephalon shall have an exclusive, royalty-free, fully-paid up, worldwide, transferable license, with the right to sublicense, under any Licensed Compound IP and Ambit IP necessary to make,

 

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have made, use, sell, offer to sell, and import Licensed compounds and Derivative Compounds in existence as of the effective termination date. Cephalon shall have the right, at its sole expense, to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion, all Patents subject to the license conveyed in this Section 16.5.4(b)(i) and (ii). The foregoing in this Section 16.5.4(b) notwithstanding, any license agreement or other arrangement negotiated with a Third Party pursuant to Section 4.7.3(c) prior to termination under Section 16.3.2 or 16.3.3(a) shall not be subject to this Section 16.5.4(b).

(c) Termination by Cephalon of the Agreement Pursuant to Section 16.3.3(b). In the event of termination of the Agreement by Cephalon pursuant to Section 16.3.3(b), all licenses granted pursuant to this Agreement as of the effective termination date shall remain in effect, subject to the terms and conditions of this Agreement applicable thereto, including the applicable provisions of Articles V, VII, VIII and IX, which shall survive and be applicable to such licenses in addition to the provisions which survive pursuant to Section 16.6.

16.6 Survival. Without limiting Section 16.5, the provisions of Sections 2.5, 4.3.4 (last sentence), 4.4.3(b), 4.5.3, 4.5.4, 4.7, .4.8, 4.9, 4.10, 4.11, 10.1, 10.3, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 13.1.10, 14.1.9, 16.3.4, 16.4.5, 16.5 and 16.6, and Articles V, VI (other than Section 6.4), XII, XV, XVIII shall survive the expiration or termination of this Agreement, provided that:

16.6.1 The provisions of Article V shall not survive as to Ambit if Ambit has terminated this Agreement pursuant to Section 16.3.1 or 16.3.2; and

16.6.2 The provisions of Article V shall not survive as to Cephalon if Cephalon has terminated this Agreement pursuant to Section 16.3.1, 16.3.2 or 16.3(a).

ARTICLE XVII.

FINANCIAL MATTERS

17.1 Financial Reports. During the Collaboration Term, Ambit shall provide to Cephalon:

17.1.1 as soon as practicable, but in any event within one hundred and twenty (120) days after the end of each fiscal year of Ambit, an income statement for such fiscal year and a balance sheet of Ambit as of the end of such fiscal year, such year-end financial reports to be in reasonable detail, prepared in accordance with GAAP, and audited and certified by independent public accountants of nationally recognized standing reasonably acceptable to Cephalon;

17.1.2 as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) fiscal quarters of each fiscal year of Ambit, an unaudited profit or loss statement for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; and

17.1.3 such other information relating to the financial condition, business, prospects and corporate affairs of Ambit as Cephalon may from time to time reasonably request and at Cephalon’s expense.

 

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Cephalon shall have the right, at its sole expense, to engage an auditor reasonably acceptable to Ambit to review and audit the financial statements provided to it by Ambit pursuant to this Section 17.1.

17.2 Right to Purchase Ambit Stock. Upon the occurrence of an Adverse Financial Event at any time during the Collaboration Term, Cephalon shall have either of the rights specified in Sections 17.2.1 and 17.2.2 below:

17.2.1 Cephalon shall have the right to purchase upon written notice to Ambit, and Ambit shall issue and sell to Cephalon, convertible debt instruments or shares of capital stock of Ambit having an aggregate purchase price reasonably determined by Cephalon to cure the existence of the Adverse Financial Event. Such capital stock shall be shares of Ambit’s capital stock (the “Ambit Stock”) and have terms as mutually agreed by the Parties. The purchase price to be paid by Cephalon for each share of Ambit Stock shall be the then-current fair market value thereof (the “Share Price”), determined as follows:

(a) the fair market value per share of Ambit Stock shall be determined by the Board of Directors of Ambit; provided, however, that in the event that Cephalon disputes the fair market value as so determined, Cephalon and Ambit shall, within ten (10) days after Cephalon notifies Ambit in writing of such disagreement, appoint a mutually acceptable independent valuation expert who shall determine such fair market value. If the Parties hereto cannot agree on a valuation expert within such ten (10) day period, a valuation expert with substantial experience in valuing pharmaceutical companies comparable to Ambit shall be selected by the New York, New York office of the American Arbitration Association. The valuation expert so designated shall not be an employee, consultant, officer, director or stockholder of any Party hereto or of any Affiliate of any Party hereto. The valuation expert shall use such expert’s best efforts to establish the fair market value of the Ambit Stock within thirty (30) days after such expert’s appointment. The determination of the valuation expert as to the value of the Ambit Stock shall be binding and conclusive upon all Parties hereto, and the fees and expenses of such valuation expert shall be borne equally by Ambit and Cephalon. In determining such fair market value, the valuation expert shall not take into account the exercise price of stock options, financings which constituted less than five hundred thousand dollars ($500,000) in gross proceeds to Ambit, equity issued as a so-called “equity feature” (such as a warrant) of a transaction primarily involving a collaboration relationship, the provision of services or the incurrence of indebtedness for borrowed money, and issuances of stock to Affiliates of Ambit.

(b) An “Adverse Financial Event” shall mean that Ambit shall have failed to have the greater of (i) sufficient freely available cash on hand to timely perform all of its obligations hereunder for the period of time between (i) the AFE Determination Date (as defined below) or (ii) the date six (6) months from the AFE Determination Date and (ii) two million ($2 million) in freely available cash. “AFE Determination Date” shall mean any date(s) designated by Cephalon to perform an analysis of Ambit’s financial condition. Ambit shall provide reasonable assistance to Cephalon to determine the existence of an Adverse Financial Event.

17.2.2 Right to Require Financing. Cephalon shall have the right to cause Ambit, at Ambit’s expense to use its best efforts to initiate and complete a round of Third Party equity

 

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financing within six (6) months of Cephalon’s request thereof in such aggregate amount as is reasonably determined by Cephalon to cure the existence of the Adverse Financial Event. Cephalon shall have the right to participate in such round of financing on terms no less favorable than those negotiated by Ambit with its other investors.

ARTICLE XVIII.

MISCELLANEOUS

18.1 Notices. Any notice or other communication required or permitted to be given by either Party under this Agreement shall be effective when delivered, if delivered by hand or by electronic facsimile or five (5) days after mailing if mailed by registered or certified mail, postage prepaid and return receipt requested, and shall be addressed to each Party at the following addresses or such other address an may be designated by notice pursuant to this Section:

 

If to Ambit:		If to Cephalon:
Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Stephen Keane Fax: (858) 334-2198		Cephalon, Inc. 41 Moores Road Frazer, PA 19355 Attn: Executive Vice President, Research & Development Fax: (610) 344-0065
With a copy to:		With a copy to:
Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Kerry A. Kelly, General Counsel Fax: (858) 334-2198		Cephalon, Inc. 41 Moores Road Frazer, PA 19355 Attn: General Counsel Fax: (610) 344-0065

18.2 Amendments. No amendment, modification or addition hereto shall be effective or binding on either Party unless set forth in writing and executed by duly authorized representatives of both Parties.

18.3 Waiver. No waiver of any rights under this Agreement shall be deemed effective unless contained in writing signed by the Party charged with such waiver, and no waiver of any breach or failure to perform shall be deemed a waiver of any future breach or failure to perform or any other right arising under this Agreement.

18.4 Headings. The section headings contained in this Agreement are included for convenience only and form no part of the agreement between the Parties.

18.5 Applicable Law. This Agreement shall be governed by, subject to and construed in accordance with the laws of the State of Delaware, without regard to its conflict of law provisions.

 

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18.6 Jurisdiction. Without limitation of Section 18.18, each Party hereby irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of the State of Delaware, New Castle County, and (ii) the United States District Court for the District of Delaware, for the purposes of any suit, action or other proceeding arising out of this Agreement or out of any transaction contemplated hereby. Each Party agrees to commence any such action, suit or proceeding either in the United States District Court for the District of Delaware or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Superior Court of the State of Delaware, New Castle County. Each Party further agrees that service of any process, summons, notice or document by personal delivery, by registered mail, or by a recognized international express delivery service to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in Delaware with respect to any matters to which it has submitted to jurisdiction in this Section. Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Superior Court of the State of Delaware, New Castle County, and (ii) the United States District Court for the District of Delaware, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

18.7 Severability. If any provision of this Agreement is held to be invalid, void or unenforceable for any reason, it shall be adjusted, if possible, rather than voided in order to achieve the intent of the Parties to the maximal extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the fullest extent possible.

18.8 Assignment: Binding Effect. Neither this Agreement, nor any obligations or rights hereunder, shall be assignable or transferable (whether by contract, operation of law or otherwise) by any Party hereto without the prior written consent of the other Party; provided however, that Cephalon may assign this Agreement without the consent of the Ambit to its Affiliates or in connection with the sale or transfer of all or substantially all of its assets relating to this Agreement, whether by merger, sale of stock, operation of law or otherwise. Any purported assignment in contravention of this Section shall, at the option of the non-assigning Party, be null and void and of no effect. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties to the extent necessary to carry out the intent of this Agreement. Ambit acknowledges that Ambit’s being a party to this Agreement is essential to Cephalon. Accordingly, without limitation of any other provision herein, Ambit agrees that Cephalon shall have the right under 11 U.S.C. 365(c)(1) or successor provisions to refuse to accept performance from or render performance to any entity, including Ambit as the debtor or debtor in possession, in a case involving Ambit under the U.S. Bankruptcy Code, and Ambit shall not assert any arguments or defenses to the contrary.

18.9 Further Assurances. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

18.10 Force Majeure. No Party shall be liable for any failure or delay in performance under this Agreement to the extent such failure or delay arises from Force Majeure. A Force Majeure is fire, explosion, earthquake, storm, flood, strike, labor difficulties, war, insurrection,

 

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riot, act of God or the public enemy, or any law, act, order, export or import control regulations, proclamation, decree, regulation, ordinance, or instructions of local, state, federal or foreign governmental or other public authorities, or judgment or decree of a court of competent jurisdiction (but excluding a court injunction against a Party’s performance) and not otherwise arising out of breach by such Party of this Agreement. In the event of the occurrence of such an event, the Party so affected shall give prompt written notice to the other Party, stating the period of time the occurrence is expected to continue and shall use best efforts to end the failure or delay and ensure that the effects of such Force Majeure are minimized.

18.11 Negation of Agency. Nothing herein contained shall be deemed to create an agency, joint venture, amalgamation, partnership, or similar relationship between Cephalon and Ambit. The relationship between the Parties established by this Agreement is that of independent contractors.

18.12 Publicity. Promptly after the Effective Date, Ambit and Cephalon shall have the right to issue a press release regarding this Agreement, in a form agreed to by the Parties prior to the Effective Date. No other public announcement concerning the existence or the terms of this Agreement shall be made, either directly or indirectly, by Ambit or Cephalon, except as may be legally required by applicable laws, regulations, or judicial order, without first obtaining the approval of the other Party and agreement upon the nature, text, and timing of such announcement, which approval and agreement shall not be unreasonably withheld. The Party desiring to make any such public announcement shall provide the other Party with a written copy of the proposed announcement in sufficient time prior to public release to allow such other Party to comment upon such announcement, prior to public release. Neither Party shall issue any press release or make any public announcement, which includes or otherwise uses the name of the other Party in any public statement or document except with the prior written consent of such Party. Notwithstanding the preceding sentence, Ambit and Cephalon shall issue joint press releases in a timely manner announcing the achievement of significant events related to or arising from the Collaboration. Such events include, by way of example, the achievement of milestone events and the payment of milestone payments, IND or NDA filings, and the commencement of specific clinical trials.

18.13 Entire Agreement. This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof. Any prior agreement, arrangement or undertaking, whether oral or in writing is hereby superseded.

18.14 Beneficiaries. No person, other than Cephalon or Ambit and their permitted assignees hereunder, shall be deemed an intended beneficiary hereunder or have any right to enforce any obligation of this Agreement.

18.15 Affiliates and Subcontractors. Either Party may engage, at its sole expense, its Affiliates or Third Party subcontractors (including contract research organizations) to perform certain of its obligations under this Agreement. Any Affiliate or Third Party subcontractor to be engaged by a Party to perform such Party’s obligations set forth in this Agreement shall meet the qualifications typically required by such Party for the performance of work similar in scope and complexity to the subcontracted activity. The activities of any such Affiliates or Third Party subcontractors shall be considered activities of such Party under this Agreement. Such Party

 

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shall be responsible for ensuring compliance by any such Affiliates or Third Party subcontractors with the terms of this Agreement. In any case in which a Party engages an Affiliate or a Third Party subcontractor, such Party shall obtain sole ownership of, or exclusive license to, all inventions, data, information and related intellectual property rights made or developed by such Affiliate, or Third Party subcontractor so that the Party is able to make the assignments and grant the licenses set forth herein.

18.16 Compliance with Laws. In exercising their rights under this Agreement, the Parties shall fully comply with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the exercise of rights under this Agreement.

18.17 Patent Marking. Each Party agrees to mark and have its Affiliates and Sublicensees mark all Collaboration Products and Licensed Products sold pursuant to this Agreement in accordance with the applicable statute or regulations relating to patent marking in the country or countries of manufacture and sale thereof.

18.18 Dispute Resolution.

(a) Attempt to Settle. The Parties agree to take all reasonable efforts to resolve any and all disputes between them concerning diligence obligations and/or questions of material breach and default in connection with this Agreement in an amicable manner Any such disputes shall promptly be presented to the Chief Executive Officer of Ambit and the Executive Vice President of Research and Development of Cephalon, or their respective designees, for resolution. If a dispute between the Parties arising out of or relating to the validity or interpretation of, compliance with, breach or alleged breach of or termination of this Agreement cannot be resolved within fifteen (15) business days of presentation to the Chief Executive Officer of Ambit and the Executive Vice President of Research and Development of Cephalon, or their respective designees, either Party may refer such dispute to binding arbitration or the courts to be conducted as set forth in this Section 18.18 and Section 18.6, respectively.

(b) Binding Arbitration. Except in the event of alleged breach or default by a Party or lack of diligence by a bankrupt or insolvent Party, and except as set forth in Section 18.18(k), the Parties agree that any such dispute that arises in connection with this Agreement and which cannot be amicably resolved by the Parties in accordance with Section 18.18(a) shall be resolved by binding arbitration as set forth in this Section, conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA) by three (3) arbitrators.

(c) Written Notice. If a Party intends to begin an arbitration to resolve a dispute, such Party shall provide written notice to the other Party informing the other Party of such intention and the issues to be resolved. Within twenty (20) business days after its receipt of such notice, the other Party may, by written notice to the Party initiating arbitration, add additional issues to be resolved.

(d) Selection of Arbitrators. Within forty-five (45) days following the receipt of the notice of arbitration, the Parties shall agree on the arbitrators, or if the Parties are unable to

 

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agree the arbitrators shall be selected as provided in the AAA Commercial Arbitration Rules. The arbitrators shall not be employees, directors or shareholders of either Party or of an Affiliate and shall be selected in accordance with AAA rules. Where applicable, the arbitrators shall be independent experts in pharmaceutical product development (including clinical development and regulatory affairs) in the U.S., Japan and Europe.

(e) Hearings. The arbitrators shall conduct one or more hearings to allow the Parties to present their positions regarding the dispute.

(i) Discovery. The arbitrators shall determine what discovery will be permitted, consistent with the goal of limiting the cost and time that the Parties must expend for discovery; provided the arbitrators shall permit such discovery as they deem necessary to permit an equitable resolution of the dispute. Any written evidence originally in a language other than English shall be submitted in English translation accompanied by the original or a true copy thereof. The arbitrators shall have sole discretion with regard to the admissibility of any evidence.

(ii) Proposed Ruling. At least ten (10) business days prior to a hearing, each Party must submit to the arbitrators and serve on the other Party a proposed ruling on each issue to be resolved. Such writings shall be limited to not more than fifty (50) pages.

(iii) Time; Testimony. Each Party shall be entitled to no more than five (5) days of hearing to present testimony or documentary evidence. Such time limitation shall include any direct, cross or rebuttal testimony, but such time limitation shall only be charged against the Party conducting such direct, cross or rebuttal testimony. It shall be the responsibility of the arbitrators to determine whether the Parties have had the five (5) days to which each is entitled.

(iv) Representation by an Attorney. Each Party shall have the right to be represented by counsel.

(v) Location. The arbitration shall take place in Philadelphia, Pennsylvania.

(f) Costs. The costs of the arbitration, including administrative and arbitrator fees, shall be shared equally by the Parties. Each Party shall bear its own costs and attorney and witness fees.

(g) Written Decision. The arbitrators shall render a written decision with their resolution of the dispute. The decision of the arbitrators shall be final and not subject to appeal and binding on the Parties hereto.

(h) Remedy. A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty (30) days following the final decision of the arbitrators or such other reasonable period as the arbitrators determine in a written opinion.

 

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(i) Final Decision Within Six Months. Each arbitrator selected in accordance with Section 18.18(d) shall be required to acknowledge his or her intention to meet the Parties’ desire that a final decision be issued with respect to a dispute within six (6) months from the filing of notice of a request for such arbitration.

(j) Equitable Relief. Notwithstanding anything in this Section 18.18, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration.

(k) Intellectual Property. Disputes regarding the validity, scope or enforceability of intellectual property rights shall not be subject to arbitration pursuant to this Section 18.18 but instead shall be submitted to a court of competent jurisdiction.

18.19 No Trademark Rights. Except as provided herein, no right, express or implied, is granted by this Agreement to use in any manner the name “Ambit,” “Cephalon” or any other trade name or trademark of the other Party or its Affiliates in connection with performance of this Agreement.

18.20 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and may be executed through the use of facsimiles.

18.21 Taxes. Any tax paid or required to be withheld by a party (the payor) for the benefit of the other party (the payee) on account of payment payable under this Agreement shall be deducted from the amount of such payment otherwise due. The payor shall secure and send to the payee proof of any such taxes withheld and paid for its benefit of and shall, at the request of payee, provide reasonable assistance to payee in recovering said taxes.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.

 

CEPHALON, INC.						AMBIT BIOSCIENCES CORPORATION
By:		/s/ Jeffrey L. Vaught, Ph.D.				By:		/s/ Scott Salka
Name:		Jeffry L. Vaught, Ph.D.				Name:		Scott Salka
Title:		Executive Vice President Research & Development				Title:		CEO
Date:		November 3, 2006				Date:		November 7, 2006

 

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SCHEDULE A

AMBIT [***] TARGETS

[***]

[***]

[***]

[***]

[***]

[***]

For clarification, it is understood that Ambit will be allowed to optimize inhibitors against [***] which may also be active inhibitors of [***], and [***].

For clarification, it is understood that Ambit will be allowed to optimize inhibitors of [***] which may also be active inhibitors of [***], [***], and [***].

 

 

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SCHEDULE B

CEPHALON EXCLUSIVE TARGETS

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

 

 

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ATTACHMENT A

APPLICABLE PROFILING SERVICES AGREEMENT PROVISIONS

The Parties agree that the following provisions of the Profiling Services Agreement shall apply with respect to Ambit’s profiling of any compounds under this Agreement, as if such terms were set forth in this Agreement:

Sections 2.2.1, 2.3 (excluding any reference to Table 1), 2.5 (last two sentences, to be consistent with the terms of this Agreement), 2.7, 2.8, 2.9 (as applicable), 2.10, 6.2, 6.3, 6.5, 6.6, 6.7 and 6.9, and paragraphs D of Exhibit A.

For the avoidance of doubt, the foregoing provisions shall not apply to any activities under this Agreement other than the profiling activities to be performed by Ambit hereunder.

 

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AMENDMENT NO. 1 TO COLLABORATION AGREEMENT

This Amendment No. 1 to Collaboration Agreement (the “Amendment”) is made as of April 14, 2009 (the “Amendment Effective Date”) to amend that certain Collaboration Agreement dated as of November 3, 2006 (the “Agreement”) by and between Cephalon, Inc., a Delaware corporation with its principal place of business located at 41 Moores Road, Frazer, Pennsylvania 19355 (“Cephalon”), and Ambit Biosciences Corporation, a Delaware corporation, having a principal place of business at 4215 Sorrento Valley Road, San Diego, California 92121 (“Ambit,” together with Cephalon, the “Parties”).

WITNESSETH:

WHEREAS, pursuant to the Agreement, the Parties are collaborating on two drug discovery programs directed at the First Collaboration Target and the Second Collaboration Target (“b-raf Program” and “Axl Program,” respectively);

WHEREAS, the research activity with respect to the Axl Program may not be completed by the end of the Initial Term;

WHEREAS, the Parties wish to clarify their respective activities and obligations with respect to the Axl Program and other matters related to the Collaboration during and after the expiration of the Initial Term.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby affirmed, the Parties hereby agree to the following terms and conditions:

 

1.	Definitions.

 

(a)

“Program Obligations” means (i) Ambit’s continued use of Commercially Reasonable Efforts to execute activity under the Research Plan from the Amendment Effective Date through the expiration of the Initial Term; and, (ii) full achievement of the criteria as defined by the JRC and described in Paragraphs 1, 2 and 3 in Schedule B (attached hereto) for a Lead Axl Inhibitor prior to the expiration of the Initial Term.

 

(b)

“Research Plan” means the activities necessary to achieve the desired target profile for an optimized Axl kinase inhibitor, suitable for nomination as a Collaboration Clinical Candidate, attached hereto as Schedule A.

 

(c)

All other capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Agreement.

 

2.	Continuation of the Axl Program; Payments to Ambit.

 

(a)

Upon expiration of the Initial Term, in the event that a Collaboration Clinical Candidate has not been identified in the Axl Program and an extension to the Agreement has not been agreed upon in writing by the Parties,

 

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(i)

if Ambit has fulfilled the Program Obligations Cephalon shall continue research activity under the Research Plan and Ambit shall be entitled to receive milestone payments in accordance with Section 8.3 of the Agreement (the “Milestone Payments”) and royalties in accordance with Article IX of the Agreement (the “Royalties”), each of which such provisions shall be deemed to have survived the expiration of the Agreement, solely with respect to a Collaboration Compound, the primary mode of action of which is inhibition of the Axl kinase; or

 

(ii)

if Ambit has not fulfilled the Program Obligations, Cephalon shall be entitled to, and at Cephalon’s sole election Cephalon shall have, the exclusive right to continue research activity under the Research Plan, and Ambit shall not be entitled to receive any Milestone Payments or Royalties from Cephalon.

 

(b)

Upon Cephalon’s assumption of control of the Axl Program,

 

(i)

in addition to any other action required of Ambit under Article VI of the Agreement, Ambit shall cooperate with Cephalon to complete a transfer of any and all technology and know-how necessary, in Cephalon’s sole discretion, to enable Cephalon to continue research activity under the Research Plan and develop a Collaboration Clinical Candidate;

 

(ii)

Cephalon shall undertake Commercially Reasonable Efforts to continue research activity under the Research Plan and attempt to achieve a Collaboration Clinical Candidate;

 

(iii)

Cephalon shall provide to Ambit, no less frequently than quarterly, in-person or telephonic updates on the progress of Cephalon’s research activity under the Research Plan; and

 

(iv)

the prosecution rights provided in Section 11.2.4(a) of the Agreement shall apply to Collaboration IP relating to the Axl Program.

 

3.

Additional Rights and Obligations With Respect to the Axl Program. Notwithstanding the foregoing, Cephalon may, in its sole discretion, cease its research activity with respect to the Axl Program for any or no reason and at any time. In such event, or in the event Cephalon does not exercise its right under Section 2(a)(ii) above, Cephalon shall notify Ambit in writing that Cephalon is not pursuing the Axl Program (the “Cephalon Notice”). Ambit may thereafter elect to assume control of the Axl Program by providing written notice thereof to Cephalon within fifteen (15) days of Ambit’s receipt of the Cephalon Notice. Upon receipt of notice from Ambit, Cephalon shall cooperate with Ambit to complete a transfer of any and all technology and know-how necessary, in Cephalon’s sole discretion, to enable Ambit to undertake the activities required under the Research Plan and develop a Collaboration Clinical Candidate. If Ambit assumes control of the Axl Program in accordance herewith, (a) Ambit shall undertake Commercially Reasonable Efforts to continue research activity under the Research Plan and attempt to achieve a

 

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Collaboration Clinical Candidate, and Ambit shall be responsible for any and all development and commercialization activities associated therewith, and (b) Cephalon shall be entitled to receive from Ambit the Milestone Payments and Royalties described in Section 8.3 and Article IX of the Agreement, respectively, each of which such provisions shall be deemed to have survived the expiration of the Agreement.

 

4.

Designation of Collaboration Clinical Candidate. After expiration of the Initial Term, (a) the designation of a Collaboration Clinical Candidate for the Axl Program shall be the sole responsibility of Cephalon, and (b) all references to the “JRC” in the Agreement shall be deemed to refer to Cephalon. Cephalon shall notify Ambit in writing within fifteen (15) days of the designation of a Collaboration Clinical Candidate hereunder.

 

5.

Miscellaneous. Except as modified herein, all applicable terms and conditions of the Agreement shall remain in full force and effect. In the event of any conflict between the terms of the Agreement and the terms of this Amendment, the terms of this Amendment shall control. In addition to the provisions listed in Section 16.6 of the Agreement, Article I and Section 6.4 (solely with respect to Cephalon upon its assumption of control of the Axl Program) of the Agreement and the terms of this Amendment shall survive the expiration or termination of the Agreement.

 

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IN WITNESS THEREOF, the Parties have executed this Amendment by their duly authorized representatives as of the day and year first written above.

 

AMBIT BIOSCIENCES						CEPHALON, INC.
By:		/s/ Christopher J. Morl				By:		/s/ Jeffrey L. Vaught, Ph.D.
Name:		Christopher J. Morl				Name:		Jeffry L. Vaught, Ph.D.
Title:		Chief Business Officer				Title:		CSO & Executive VP, R&D

 

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Schedule A

Clinical Candidate Profile

Objectives of AXL-Optimized Kinase Inhibitor

 

[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]
[***]		[***]
[***]

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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[***]		[***]
[***]		[***]
[***]		[***]

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Schedule B

Lead Axl Kinase Inhibitor Criteria

[***]

[***]

[***]

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

75

Exhibit 10.7

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

DATED                                                                                                                                                                JANUARY 20, 2014

(1) CANCER RESEARCH TECHNOLOGY LIMITED

AND

(2) TEVA BRANDED PHARMACEUTICAL PRODUCTS R&D, INC.

 

 

Licence

 

 

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TABLE OF CONTENTS

 

1.		INTERPRETATION			1
2.		LICENCES AND NON-COMPETE			11
3.		PERFORMANCE			13
4.		CONSIDERATION			15
5.		PAYMENT AND STATEMENT			16
6.		ACCOUNTS			19
7.		INTELLECTUAL PROPERTY PROTECTION, PROCEEDINGS AND COSTS			20
8.		WARRANTY			23
9.		INDEMNITY			24
10.		INSURANCE			25
11.		LIMITATION OF LIABILITY			25
12.		CONFIDENTIALITY			25
13.		TERM AND TERMINATION			28
14.		EFFECTS OF TERMINATION			29
15.		FORCE MAJEURE			32
16.		ASSIGNMENT AND SUB-CONTRACTING			32
17.		NOTICES			33
18.		VARIATION			34
19.		ENTIRE AGREEMENT			34
20.		FURTHER ASSURANCE			34
21.		WAIVER			35
22.		SEVERABILITY			35
23.		EXECUTION			35
24.		ANNOUNCEMENTS AND USE OF NAMES			35
25.		DISPUTE RESOLUTION AND GOVERNING LAW			36
26.		CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999			37
27.		RELATIONSHIP OF THE PARTIES			37
28.		TAX AND COMPLIANCE WITH LAWS			37

 

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THIS AGREEMENT is made the Twentieth day of January, 2014

BETWEEN:

 

(1)	CANCER RESEARCH TECHNOLOGY LIMITED, a company registered in England and Wales under number 1626049 with registered office at Angel Building, 407 St John Street, London, EC1V 4AD, England (“CRT”); and

 

(2)	TEVA BRANDED PHARMACEUTICAL PRODUCTS R&D, INC., a Delaware corporation with its principal place of business at 41 Moores Road, Frazer, PA 19355, U.S.A. (“Teva”).

WHEREAS:

 

(A)	CRT is an oncology focused technology transfer and development company, which is wholly owned by the Charity (as defined below).

 

(B)	Teva is an international biopharmaceutical company.

 

(C)

CRT and Cephalon, Inc., an Affiliate (as defined below) of Teva (“Cephalon”), signed a Research Collaboration and Option Agreement on February 16, 2010 (the “RCOA”) pursuant to which they have been conducting a programme of drug discovery research in relation to the atypical Protein Kinase C (aPKC) family of kinases.

 

(D)	Pursuant to the exercise by Cephalon of the Option (as defined in the RCOA), Teva and CRT have agreed to enter into a licence on the following terms and conditions.

NOW IT IS HEREBY AGREED as follows:

 

1.	INTERPRETATION

 

1.1	In this Agreement except where the context requires otherwise, the following words and expressions shall have the following meanings:

“Affiliate” means any corporation or business entity Controlling, Controlled by or under common Control with a Party to this Agreement;

“Affordable” means in relation to a Licensed Product: (i) a determination by NICE that such Licensed Product should be used within the NHS; and/or (ii) approval by NICE of the price proposed by Teva or its Sub-Licensee in relation to sales of that Licensed Product in England;

“Agreement” means this agreement and each of the Schedules as amended from time to time in accordance with Clause 18;

“Annual Fee” means the non-refundable sum of [***];

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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“Arising Intellectual Property” means any Materials and Know How (other than that comprised in Licensed Intellectual Property) conceived or generated after the Effective Date by or on behalf of Teva or its Sub-Licensees in the course of the activities performed under the licence granted under Clause 2.1; and any Patent Rights which claim any such Materials or inventions comprised in such Know How;

“Biomarker” means an endogenous characteristic that is objectively measured and evaluated as an indicator of normal biological or pathogenic processes or pharmacological responses to a therapeutic intervention. For the avoidance of doubt, a Biomarker is not a synthetic chemical;

“Business Day” means a day other than a (i) Friday, Saturday or Sunday for Teva, (ii) a Saturday or Sunday for CRT, or (iii) any public holiday in England, New York, NY and/or Tel Aviv, Israel or any other day when the general operations of a Party are closed;

“Charity” means Cancer Research UK, a company limited by guarantee (registered in England under number 4325234) and a charity (registered in England under number 1089464) of Angel Building, 407 St John Street, London, EC1V 4AD, England;

“Commencement” means, in relation to a clinical trial, the administration of a Licensed Product to the first human subject has occurred, whether such subject is a healthy volunteer or a patient;

“Commercially Reasonable Efforts” means, (i) in the case of Teva, the efforts and resources commonly used by a global pharmaceutical company of a similar size and resources to Teva (or, where applicable, its Sub-Licensee) for a product at a similar stage of development and commercial potential, with the objective of developing such product in a diligent and timely manner, taking into consideration its safety, efficacy and the patent or other proprietary position, and (ii) in the case of CRT, the efforts and resources commonly used by an entity of similar size and resource to CRT for a project at a similar stage in its development taking into account all relevant commercial factors;

“Competent Authority” means any local or national agency, court, authority, department, inspectorate, minister, ministry official or public or statutory person (whether autonomous or not) of, or of any government of, any country having jurisdiction over the Agreement or either of the Parties or over the development or marketing of medicinal products including, the European Commission and the European Court of Justice;

“Confidential Information” means any information, in tangible or non-tangible form (including oral disclosure) including Know How, research and development plans, the terms of this Agreement, and any other technical or business information (whether or not marked as confidential), which is obtained by either Party from the other (or its representatives) pursuant to this Agreement. Licensed Know How shall be deemed the Confidential Information of each Party;

 

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“Control” means, in respect to either Party, the possession (directly or indirectly) of fifty per cent (50%) or more of the voting stock or other equity interest of a subject entity with the power to vote, or the power in fact to control the management decisions of such entity through the ownership of securities or by contract or otherwise and “Controlling” and “Controlled by” shall be construed accordingly;

“CRT Existing Intellectual Property” has the meaning given in the RCOA;

“CRT Exclusivity Period” has the meaning given in Clause 2;

“CRT-DL” means CRT’s in-house drug discovery research laboratories, currently known as the ‘Discovery Laboratories’ and operating across sites in London and Cambridge. The CRT-DL shall not include any research facilities of a person other than CRT;

“Development Plan” means a detailed plan which describes: (i) the Significant Activities; (ii) the relevant timescales within which such Significant Activities will be taken; and (iii) the estimated costs associated with each Significant Activity. Such plan will reflect best industry practice and describe the development of Licensed Products across a range of Oncology Indications (as agreed with CRT taking into consideration any safety/efficacy constraints). The Development Plan at the Effective Date is annexed at Schedule 5 and shall be updated by Teva in accordance with Clause 3.6.4;

“Effective Date” means the date this Agreement is made;

“Executive Officers” means the Chief Scientific Officer of Teva, and the Chief Executive Officer of CRT or such other authorised officer of a Party as may be substituted from time to time upon the giving of written notice to the other Party;

“Exclusive Arising Intellectual Property” has the meaning given in Clause 14.1.6(c);

“Exclusive Licensed Intellectual Property” means all Licensed Intellectual Property comprising or specifically relating to Pre-Clinical Candidates (including any Licensed Patents claiming such Pre-Clinical Candidates, but excluding any claims to Biomarkers);

“Expenses” means all reasonable and customary costs and expenses incurred from time to time by or on behalf of CRT in protecting and commercialising any Teva Existing Compounds and Programme Intellectual Property, including without limitation:

 

i.

all Patent Costs; and

 

ii.

any non-recoverable taxes or charges including Value Added Tax which may be imposed;

“Expert” means (a) in relation to disputes pursuant to Clauses 3.7 and 14.2.6, a suitably qualified independent expert having expertise with the subject matter of the dispute and at least fifteen years of experience in the pharmaceutical and/or biotech industries, and appointed by agreement between the Parties, or if the Parties are unable to reach agreement within twenty one (21) days of either Party seeking in writing to the other to appoint an expert, each Party shall submit two (2) names having the aforementioned expert qualifications

 

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to the President for the time being of the Association of the British Pharmaceutical Industry who shall be asked to select an individual from the four (4) names submitted; and (b) in relation to a dispute concerning Sub-Licence Revenue, or pursuant to Clause 6.3, a suitable qualified accountant having at least fifteen years of experience in the pharmaceutical and/or biotech industries, and appointed by agreement between the Parties, or if the Parties are unable to reach agreement within twenty one (21) days of either Party seeking in writing to the other to appoint an expert, each Party shall submit two (2) names having the aforementioned expert qualifications to the President for the time being of Institute of Chartered Accountants in England & Wales who shall be asked to select an individual from the four (4) names submitted;

“Field” means the treatment of human diseases;

“First Commercial Sale” means, with respect to a Licensed Product, the first transfer or disposition to a third party of such Licensed Product for which the corresponding consideration has been invoiced by Teva, any of its Affiliates or a Sub-Licensee, after all relevant Regulatory Authorisations for the transfer or disposition of such Licensed Product have been obtained in respect of the relevant region or country;

“Force Majeure” means in relation to either Party any event or circumstance which is beyond the reasonable control of that Party, which event or circumstance that Party could not reasonably be expected to have taken into account at the Effective Date and which results in or causes the failure of that Party to perform any or all of its obligations under this Agreement including act of God, lightning, fire, storm, flood, earthquake, strike, lockout or other industrial disturbance, war, terrorist act, blockade, revolution, riot, insurrection, civil commotion, public demonstration, sabotage, act of vandalism, explosion, provided that lack of funds shall not be interpreted as a cause beyond the reasonable control of that Party;

“IND” means an investigational new drug application filed with the United States Food and Drug Administration or any successor to it, or the equivalent application or filing filed with any equivalent Competent Authority outside the United States of America (including any supranational agency such as the European Medicines Agency) necessary to commence human clinical trials in such jurisdiction;

“Indication” means a disease classification as defined within the ‘International Statistical Classification of Diseases and Related Health Problems’ as published from time to time by the World Health Organization (e.g. “C50 Malignant neoplasm of Breast”, “C92 Myeloid leukaemia”, “B20 Human immunodeficiency virus [HIV] disease resulting in infectious and parasitic diseases” and “M34 Systemic sclerosis”);

“Intellectual Property” means Materials, Patents and Know How;

“Know How” means technical and other information which is not in the public domain including, ideas, concepts, inventions, discoveries, data, formulae, algorithms, specifications,

 

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information relating to Materials (including biological and chemical structures and functions as well as methods for synthesising chemical compounds), procedures for experiments and tests, results of experimentation and testing, results of research and development including laboratory records and data analyses. Information in a compilation or a compilation of information may be Know How notwithstanding some or all of its individual elements are in the public domain;

“Licensed Intellectual Property” means the Licensed Know How, Licensed Patents and Licensed Materials;

“Licensed Know How” means all Know How comprised in CRT Existing Intellectual Property and Programme Intellectual Property, including the Know How described in Schedule 2;

“Licensed Materials” means all Materials comprised in CRT Existing Intellectual Property and Programme Intellectual Property, including the Materials described in Schedule 3;

“Licensed Patents” means: (i) the Patents detailed in Schedule 1; (ii) any Patents filed on or after the Effective Date claiming any part of the Licensed Materials and/or any inventions described or comprised within the Licensed Know How; and (iii) any Patents claiming priority from the Patents described in (i) and (ii);

“Licensed Products” means any product: (i) which falls within the scope of one or more Valid Claims of any of the Licensed Patents in the relevant country or territory; and/or (ii) developed using or incorporating any part of the Licensed Intellectual Property, including any metabolites, prodrugs, salts, polymorphs, isomers, analogues and derivatives of any Pre-Clinical Candidates which are developed by or on behalf of Teva or its Sub-Licensees;

“Major Markets” means [***];

“Materials” means any chemical or biological materials including any: organic or inorganic element or compound; nucleotide or nucleotide sequence including DNA and RNA sequences; gene; vector or construct including plasmids, phages, bacterial vectors, bacteriophages and viruses; host organism including bacteria, fungi, algae, protozoa and hybridomas; eukaryotic or prokaryotic cell line or expression system or any development strain or product of that cell line or expression systems; protein including any peptide or amino acid sequence, enzyme, antibody or protein conferring targeting properties and any fragment of a protein or a peptide enzyme or antibody; drug or pro-drug; assay or reagent; any other genetic or biological material or micro-organism or any transgenic animal; and any physical property rights relating to any of the foregoing;

“Milestone Events” has the meaning given in Clause 4.3;

“Milestone Payments” has the meaning given in Clause 4.3;

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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“NDA” means an application for approval to market commercially such as (or any successor process to) the New Drug Application filed pursuant to the requirements of the United States Food and Drug Administration (or any successor body), as more fully defined in 21 CFR.§ 314.3 et seq, or a Biologics License Application filed pursuant to the requirements of the United States Food and Drug Administration (or any successor body), as more fully defined in 21 CFR § 601, or any equivalent or similar application filed with any other Competent Authority in any country or region in the Territory, together, in each case, with all additions, deletions or supplements thereto;

“Net Revenue” means the aggregate sums received by CRT in respect of any commercial exploitation of a Licensed Product, after the deduction of all Expenses;

“Net Sales” for any given period means the gross aggregate amount invoiced on account of sales of Licensed Product by Teva or any of its Affiliates or Sub-Licensees in the Territory (but not including sales between Teva, its Affiliates or Sub-Licensees where the Licensed Product is intended for resale) less the following deductions directly relating to such sales of Licensed Product, each to the extent actually incurred based on such sale, all determined in accordance with the standard practices of Teva and its Affiliates for their other pharmaceutical products, consistently applied. At CRT’s request, Teva shall explain to CRT such standard practices and shall respond promptly to any questions CRT poses in connection therewith:

 

a)

cash discounts given off the invoiced price and, with respect to sales in the U.S., a standard [***] discount solely to the extent that the standard U.S. discount forms part of the standard practices of Teva and its Affiliates for their other pharmaceutical products and is actually and consistently applied;

 

b)

reasonable estimates for rebates, price reductions, coupons, vouchers, and co-pay assistance reimbursements given in the ordinary course of business which are not already reflected in the amount invoiced;

 

c)

reasonable estimates for any adjustments, credits or allowances on account of price adjustments, billing errors, shelf stock adjustments and discounts to price, such as promotional payments, howsoever referred to by the relevant customer;

 

d)

reasonable estimates for rejected goods, damaged goods and returns, withdrawal, recall or relabeling of the Licensed Product;

 

e)

reasonable estimates for credits, volume rebates, charge-back and prime vendor rebates, fees, reimbursements or similar payments granted or given to wholesalers and other distributors, buying groups, health care insurance carriers, pharmacy benefit

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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management companies, health maintenance organisations or other institutions or health care organisations, which are not already reflected in the amount invoiced;

 

f)

any tax associated with the manufacture, transport or sale of goods such as VAT, sales tax, tariff, customs duty, excise, goods and services tax (GST), or other duty or other governmental charge (other than a tax on income) levied on the manufacture, transport or sale of Licensed Products, including without limitation any arising out of the Patient Protection and Affordable Care Act as applicable only to the Licensed Product;

 

g)

transportation or delivery of the Licensed Product and borne by the seller thereof, itemised on the applicable invoice and remitted to the applicable taxing authority;

 

h)

reasonable estimates for payments or rebates paid in connection with sales of the Licensed Product to any Competent Authority in respect of any state or federal Medicare, Medicaid or similar programs, or other managed care programs, which are not already reflected in the amount invoiced; and

 

i)

any invoiced charge for freight, insurance or other transportation costs charged to the customer, in each case only when separately shown on the invoice.

Reconciliation of estimated amounts and actual amounts will occur in accordance with Clause 5.3. Without limiting the generality of the foregoing, sales, transfers, or dispositions of Licensed Product for charitable, promotional (including samples), pre-clinical, clinical, or regulatory purposes will be excluded from Net Sales;

“NHS” the National Health Service in England and Wales (or any successor organisation thereto);

“NICE” means the National Institute for Health and Clinical Excellence in England and Wales (or any successor organisation thereto). In the event that the National Institute for Health and Clinical Excellence ceases to exist without a successor, then NICE shall be construed as any supra-national, national or regional government department, authority, agency or entity (including a non-departmental public body or similar entity) with responsibility for evaluating the cost effectiveness of medicinal products in England or otherwise determining whether the NHS should purchase medicinal products;

“Non-Exclusive Licensed Intellectual Property” means all Licensed Intellectual Property other than Exclusive Licensed Intellectual Property. Non-Exclusive Licensed Intellectual Property includes all Research Tools and Biomarkers;

“Oncology Indication” means an Indication in the range [***];

“Parties” means CRT and Teva and “Party” shall mean any of them;

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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“Patent Costs” means any reasonable costs and expenses incurred in filing, prosecuting, maintaining, defending and enforcing the Licensed Patents, including official filing, prosecution, maintenance and renewal fees, patent attorney, legal and other professional fees and expenses and costs and expenses associated with an opposition or interference action;

“Patent Lead” means an individual employed or otherwise appointed by each Party to review and consider all matters relating to the filing and prosecution of Programme Patents;

“Patents” means any patent applications, patents, author certificates, inventor certificates, utility models, and all foreign counterparts of them and includes all divisionals, renewals, continuations, continuations-in-part, extensions, reissues, substitutions, confirmations, registrations, revalidations and additions of or to them, as well as any Supplementary Protection Certificate, or any like form of protection (including any pediatric, orphan drug or other exclusivity granted by a Competent Authority beyond the expiry of the original patent expiration date);

“Phase I Trial” means a clinical trial in which a Licensed Product is administered to human subjects at multiple dose levels with the primary purpose of determining safety, metabolism, and pharmacokinetic and pharmacodynamic properties of the Licensed Product, and consistent with 21 CFR § 312.21(a);

“Phase II Trial” means a clinical trial of a Licensed Product in human patients, the principal purposes of which are to make a preliminary determination that the Licensed Product is safe for its intended use, to determine its optimal dose, and to obtain sufficient information about the Licensed Product’s efficacy to permit the design of Phase III Trials, and consistent with 21 CFR 312.21(b);

“Phase III Trial” means a human clinical trial of a Licensed Product, which trial is designed: (a) to establish that the Licensed Product is safe and efficacious for its intended use; (b) to define warnings, precautions and adverse reactions that are associated with the Licensed Product in the dosage range to be prescribed; and (c) consistent with 21 CFR § 312.21(c). Any Phase II Trial that is adapted to be a larger scale trial and intended as a pivotal trial for the purpose of obtaining Regulatory Authorisation of a Licensed Product, shall be deemed a Phase III Trial;

“Pre-Clinical Candidate” has the meaning given in the RCOA. For clarity, certain Pre-Clinical Candidates identified prior to the Effective Date have been listed in Schedule 3 Part A which may be updated from time to time in accordance with Clause 7.13;

“Price Approvals” means, in those countries in the Territory where a Competent Authority may approve or determine pricing and/or pricing reimbursement for pharmaceutical products, such approval or determination;

“Programme Intellectual Property” has the meaning given in the RCOA;

 

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“Progress Report” means a detailed written report produced by Teva in respect of: (i) the progress of development of Licensed Products against the current Development Plan; (ii) the progress of any applications for Regulatory Authorisation and (where relevant) Price Approvals; and (iii) the progress of and plans for marketing and sale of Licensed Products;

“Quarter” means any of the three-monthly periods commencing on the first day of any of the months of January, April, July, and October in any year and “Quarterly” has a corresponding meaning;

“Regulatory Authorisations” means all authorisations, approvals, clearances, and licences of a Competent Authority (including an NDA) that may be required in any country of the Territory prior to commercial sale of the relevant Licensed Product in the Field, including any necessary variations thereto, but excluding any Price Approvals;

“Research Tool” has the meaning given in the RCOA. For clarity, certain Research Tools identified prior to the Effective Date have been listed in Schedule 3 Part B;

“Signature Fee” means the non-refundable sum of [***];

“Significant Activity” means any of the following in relation to a Pre-Clinical Candidate or Licensed Product:

 

(a)

[***];

 

(b)

[***];

 

(c)

[***];

 

(d)

[***];

 

(e)

[***];

 

(f)

[***];

 

(g)

[***]; and

 

(h)

[***].

Notwithstanding the foregoing, any activities set forth in (a) through (h) above, that normally would be related to an earlier phase of development and/or commercialisation, shall not be considered “Significant Activity” once development of the applicable Pre-Clinical Candidate or Licensed Product has progressed beyond such earlier phase for a particular Indication, as evidenced by the performance of any activity that normally would be considered to be related to any later phase for such Indication, provided always that to the extent that a Party can reasonably demonstrate that activities relating to an earlier phase of development are reasonably necessary, then such activities shall be considered “Significant Activity”;

“Sub-Licensee” means a person to whom a sub-licence is granted in accordance with Clause 2.5 in respect of the whole or any part of the rights granted under this Agreement;

 

 

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“Sub-Licence Revenue” means any monies or non-monetary consideration (including securities) receivable from time to time by Teva in respect of any sub-licence granted by Teva under this Agreement or in consideration of the grant of the right to acquire such a sub-licence, including option fees, licence issue fees or other up-front payments, annual licence fees, milestone or other lump sum payments which are attributable to the grant of the rights in question or any other sums that Teva may realise from the launch of a Licensed Product (including any prize or other award made by a Competent Authority), but excluding royalties as referred to in Clause 4.5. In the case of non-monetary Sub-Licence Revenue, the value shall be assessed at the date of receipt of the same by Teva, and in the absence of agreement by the Parties, the value shall be determined by the Expert;

“Supplementary Protection Certificate” means a right based on a patent pursuant to which the holder of the right is entitled to exclude third parties from using, making, having made, selling or otherwise disposing or offering to dispose of, importing or keeping the product to which the right relates, such as supplementary protection certificates in Europe, and any similar right anywhere in the world;

“Term” means the term of this Agreement determined in accordance with Clause 13.1;

“Territory” means worldwide;

“Teva Existing Compound” has the meaning given in the RCOA;

“Teva Existing Intellectual Property” has the meaning given in the RCOA;

“Third Party Service Provider” means an entity other than an Affiliate of Teva which provides research and development services to Teva, including contract research organisations, universities and hospitals;

“Tobacco Party” means: (i) any person who develops, sells or manufactures tobacco products; and/ or (ii) any person which makes the majority of its profits from the importation, marketing, sale or disposal of tobacco products. Furthermore, Tobacco Party shall include any person that is Controlled by or under common Control with any of the persons referred to in (i) and/or (ii);

“Valid Claim” means a claim of any Licensed Patent which has not expired, been withdrawn, abandoned or surrendered or been refused, revoked or held invalid in an unappealed or unappealable final decision rendered by a court or other governmental agency of competent jurisdiction in the relevant country or territory; and

“Year” means a calendar year.

 

1.2	In this Agreement:

 

1.2.1

unless the context requires otherwise, all references to a particular Clause, paragraph or Schedule shall be references to that clause, paragraph or schedule, in or to this Agreement;

 

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1.2.2

the table of contents and headings are inserted for convenience only and shall be ignored in construing this Agreement;

 

1.2.3

unless the contrary intention appears, words importing the masculine gender shall include the feminine and vice versa and words in the singular include the plural and vice versa;

 

1.2.4

unless the contrary intention appears, words denoting persons shall include any individual, partnership, company, corporation, joint venture, trust association, organisation or other entity, in each case whether or not having separate legal personality; and

 

1.2.5

references to the words “include” or “including” shall be construed without limitation to the generality of the preceding words.

 

2.	LICENCES AND NON-COMPETE

 

2.1

Subject to the provisions of this Agreement, CRT hereby grants Teva (and, to the extent it is a co-owner, Teva consents to such grant), a licence under the Licensed Intellectual Property to research, develop, use, keep, make, have made, import, sell and otherwise dispose of Licensed Products in the Field in the Territory for the Term. Such licence shall be exclusive in respect of Exclusive Licensed Intellectual Property and non-exclusive in respect of Non-Exclusive Licensed Intellectual Property.

 

2.2

CRT agrees not to grant any rights in respect of Biomarkers comprised with the Non-Exclusive Licensed Intellectual Property (“Licensed Biomarkers”) to any third party for use in a country in connection with a product which falls within the scope of one or more Valid Claims of any of the Licensed Patents in that country. For the avoidance of doubt, CRT shall be entitled to grant rights in respect of Licensed Biomarkers to a third party for use in connection with products which do not fall within the scope of one or more Valid Claims of any of the Licensed Patents.

 

2.3	No licence to use any Patents, Know How or Materials is granted or implied except the rights expressly granted in this Agreement.

 

2.4	Subject to Clause 2.8, Teva hereby grants CRT (and CRT consents to such grant) a non-exclusive, fully paid up, sub-licensable, perpetual, irrevocable, worldwide, licence to use:

 

2.4.1

subject to Clause 2.2, the Non-Exclusive Licensed Intellectual Property for all purposes; and

 

2.4.2

the Exclusive Licensed Intellectual Property (other than Pre-Clinical Candidates) for its internal research purposes.

 

2.5	Teva shall be entitled to grant sub-licences in respect of the rights granted under this Agreement, provided that, with respect to any sub-licence granted to an entity other than a Third Party Service Provider:

 

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2.5.1

prior to grant it informs CRT in writing of the key terms of any sub-licence proposed to be entered into and the identity of the proposed Sub-Licensee. For the avoidance of doubt, Teva need not obtain CRT’s prior consent to grant any sub-licence hereunder;

 

2.5.2

any sub-licence granted by Teva shall not permit further sub-licensing;

 

2.5.3

upon termination of this Agreement for any reason, any sub-licence, at the option of the respective Sub-licensee, shall survive for a period of up to one hundred eighty (180) days, during which time CRT shall negotiate in good faith the terms and conditions of a direct license with Sub-licensee upon financial terms no less favourable to the Sub-licensee, provided that (a) such Sub-licensee is not in breach of its obligations under the sub-license duly granted in conformance with this Clause 2.5 and/or (b) the Sub-licensee is not maintaining any claim against Teva which it may wish to assert against CRT and/or (c) the Sub-licensee is not an Affiliate of Teva;

 

2.5.4

Teva shall ensure that there are included in the terms of any sub-licence like obligations and undertakings on the part of the Sub-Licensee as are contained in this Agreement (except this Clause 2.5) including Clause 3 (performance), Clause 12 (confidentiality) and Clause 9.1 (indemnity);

 

2.5.5

within twenty (20) Business Days of the grant of any sub-licence, Teva shall provide CRT with a true copy of such sub-licence at Teva’s expense;

 

2.5.6

where a sub-licence is granted to an entity other than an Affiliate, it shall be entered into on an arms-length basis; and

 

2.5.7

no sub-licence shall be granted to a Tobacco Party.

 

2.6	Any breach of Clauses 2.5.2, 2.5.6 and/or 2.5.7 shall be deemed to be a material breach.

 

2.7

The grant of any sub-licence shall be without prejudice to Teva’s obligations under this Agreement. Any act or omission of any such Sub-Licensee which, if it were the act or omission of Teva would be a breach of any of the provisions of this Agreement, will be deemed to be a breach of this Agreement by Teva who will be liable to CRT accordingly.

 

2.8	During the period commencing on the Effective Date and expiring [***] thereafter (the “CRT Exclusivity Period”), CRT shall not through the CRT-DL, whether the CRT-DL acting alone or the CRT-DL acting in conjunction with any third party:

 

2.8.1

conduct any research with the primary aim of discovering and/or developing inhibitors of aPKC; and/or

 

2.8.2

develop any compound whose mechanism of action is primarily through the inhibition of aPKC,

 

 

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without the express prior written consent of Teva, which may be withheld or conditioned at Teva’s sole discretion. For the avoidance of doubt, the foregoing prohibition shall not restrict CRT-DL from conducting research (such as kinase or cerep profiling) to assess the activity of compounds against aPKC, but is intended to prevent CRT-DL from optimising or otherwise developing such compounds as inhibitors of aPKC.

 

2.9

From the expiry of the CRT Exclusivity Period until the expiry or earlier termination of this Agreement, CRT may conduct research within the scope of Clauses 2.8.1 and/or 2.8.2, provided that, to the extent CRT is able, CRT shall: (i) keep Teva reasonably notified of all such research; and (ii) in each instance offer Teva a right of first negotiation with respect to the use and commercial exploitation of any Intellectual Property generated by or on behalf of CRT-DL in connection with such research, provided that any such negotiations shall not exceed a period of [***]. Teva acknowledges that CRT may not be able to notify Teva or offer it a right of first negotiation in relation to programmes of research conducted by CRT-DL in collaboration with or funded by third parties.

 

3.	PERFORMANCE

 

3.1	Subject to Clause 3.2, Teva will use Commercially Reasonable Efforts to:

 

3.1.1

develop one or more Licensed Products suitable for use in human clinical trials;

 

3.1.2

pursue Regulatory Authorisation and (where applicable) Price Approvals in each of the Major Markets for those Licensed Products in clinical development;

 

3.1.3

introduce and commercialise each Licensed Product throughout each of the Major Markets;

 

3.1.4

pursue market penetration throughout each Major Market in which a Licensed Product is commercialised to maximise availability to patients; and

 

3.1.5

without prejudice to the generality of the foregoing, develop and commercialise in each of the Major Markets at least one Licensed Product with an application in an Oncology Indication.

 

3.2

The obligations described in Clause 3.1 shall not require Teva to pursue Regulatory Authorisation for or to commercialise a Licensed Product in a particular Major Market where, in Teva’s reasonable judgment, the development or commercialisation of such Licensed Product in respect of that Major Market is commercially unfeasible for Teva due to factors beyond the reasonable control of Teva, including without limitation, where a Competent Authority imposes requirements relating to the manufacture of a Licensed Product which render the development or commercialisation of such Licensed Product commercially

 

 

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unfeasible within the relevant Major Market. Teva shall notify CRT promptly of any such factors.

 

3.3

Teva will make each Licensed Product available in the United Kingdom within [***] of launching such Licensed Product in any other country in the Territory, provided that such period shall be extended to the extent of delays beyond the reasonable control of Teva, including, without limitation, delays caused by Competent Authorities.

 

3.4	In the event that a Licensed Product is launched or is ready to be launched in the United Kingdom which has received a Regulatory Authorisation in respect of an Oncology Indication, Teva will ensure that such Licensed Product is made available at an Affordable price.

 

3.5	Teva will comply with the current Development Plan.

 

3.6	Teva shall:

 

3.6.1

provide CRT with a Progress Report at least once every six (6) months;

 

3.6.2

promptly respond to any queries that CRT may have following receipt of a Progress Report;

 

3.6.3

at CRT’s request, meet with CRT (by teleconference if a face-to-face meeting is not practical) to discuss the content of a particular Progress Report; and

 

3.6.4

update the Development Plan and provide a copy of the same to CRT at least once every six (6) months. The format of such updated Development Plan shall be consistent with the format of the version annexed at Schedule 5 at the Effective Date, unless agreed otherwise by the Parties.

 

3.7

If at any time during the course of the development or commercialisation of a Licensed Product, Teva fails to meet one or more of its obligations under Clauses 3.1, 3.3, 3.4 and 3.5 in relation to such Licensed Product for a period of [***] or more, then CRT shall have the right to give written notice to Teva requesting detailed written justification for such failure and Teva shall provide such detailed written justification to CRT within thirty (30) days of the date of CRT’s request and shall take substantive steps to remedy such failure within sixty (60) days of the date of CRT’s request. If Teva fails to provide such justification to CRT within thirty (30) days of the date of CRT’s request and/or take substantive steps to remedy such failure within sixty (60) days of the date of CRT’s request, then, on notice by CRT to Teva (to be given in CRT’s sole discretion), this Agreement will terminate in respect of the relevant Licensed Product. Notwithstanding the foregoing, any dispute between the Parties as to whether a diligence failure has arisen or whether substantive steps have been taken to remedy a diligence failure shall be resolved by the Expert before CRT shall have the right to terminate this Agreement under this Clause 3.7.

 

 

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4.	CONSIDERATION

 

4.1	Teva shall pay the Signature Fee to CRT within thirty (30) days of the Effective Date.

 

4.2

Teva shall pay the Annual Fee to CRT within forty-five (45) days of receipt from CRT of an invoice for such Annual Fee, provided that CRT will send the invoice for each annual fee no sooner than the date of each anniversary of the Effective Date. Without prejudice to CRT’s right to receive payment of Annual Fees for which its right to invoice Teva has already accrued, Teva’s obligation to pay the Annual Fee will terminate immediately upon the First Commercial Sale of a Licensed Product in the Territory. The Annual Fee shall not be creditable against any other payment due under this Agreement.

 

4.3	Teva shall pay the following payments (“Milestone Payments”) to CRT upon the first occurrence of each of the following events (“Milestone Events”) in relation to each Licensed Product:

 

4.3.1

[***];

 

4.3.2

[***]:

 

(a)

[***];

 

(b)

[***];

 

(c)

[***];

 

(d)

[***];

 

(e)

[***];

 

(f)

[***];

 

(g)

[***]; and

 

(h)

[***];

 

4.3.3

[***]:

 

(a)

[***];

 

(b)

[***];

 

(c)

[***];

 

(d)

[***];

 

(e)

[***];

 

(f)

[***];

 

(g)

[***]; and

 

(h)

[***].

A Milestone Event may be triggered by the actions of Teva, its Sub-Licensees or any third party acting on behalf of Teva or its Sub-Licensees (including an Affiliate of either of them). Milestone Events may be triggered by the second and any subsequent Licensed Products in

 

 

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respect of an Indication, unless such Milestone Event has already been triggered by a preceding Licensed Product in that Indication. Upon the occurrence of each Milestone Event in respect of an Indication, any Milestone Event listed before it in this Clause 4 which has not occurred shall be deemed to have occurred in relation to that Indication. An NDA may be submitted in respect of the entire European Union (through a Competent Authority such as the European Medicines Agency) or in respect of one or more individual countries within the European Union (through the Competent Authorities of each such country).

 

4.4	Subject to Clause 4.6, Teva shall pay to CRT:

 

4.4.1

[***] of Sub-Licence Revenue, where the relevant sub-licence is granted by Teva prior to the [***]; and

 

4.4.2

[***] of Sub-Licence Revenue, where the relevant Sub-Licence is granted by Teva on or after the [***].

 

4.5	Teva shall pay royalties to CRT on a Licensed Product by Licensed Product, and country by country basis until the later of:

 

4.5.1

[***]; or

 

4.5.2

[***];

at the following royalty rates, which shall apply to the respective tiers of aggregate Net Sales of all Licensed Products achieved across all Indications in a given Year:

 

(a)

[***]; and

 

(b)

[***]; and

 

(c)

[***].

 

4.6	In the event that any Milestone Event is triggered by a Sub-Licensee, Teva shall pay to CRT the greater of the Milestone Payment due under Clause 4.3 or the payment due in respect of such Milestone Event under Clause 4.4 (if any) but not both.

 

5.	PAYMENT AND STATEMENT

 

5.1	All payments due to CRT under this Agreement shall be made in United States Dollars (USD) in cleared funds to the following bank account:

[***],

or such other account as CRT may notify Teva from time to time.

 

5.2	Teva shall pay to CRT:

 

5.2.1

the Signature Fee on the date specified in Clause 4.1;

 

5.2.2

the Annual Fee on the dates specified in Clause 4.2;

 

5.2.3

the Milestone Payments within forty-five (45) days of the Milestone Event occurring;

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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5.2.4

CRT’s share of Sub-Licence Revenue due under Clause 4.4 Quarterly within forty-five (45) days of the end of the Quarter in which the consideration upon which Sub-Licence Revenue is based is invoiced by Teva;

 

5.2.5

the royalties due pursuant to Clause 4.5 Quarterly within forty-five (45) days of the end of each Quarter in which the relevant Net Sales is invoiced by Teva or received from an Affiliate or Sub-Licensee; and

 

5.2.6

Patent Costs as specified in Clause 7.1.

 

5.3	Royalty True-Up:

 

5.3.1

Within one hundred eighty (180) days after the end of each calendar year during the term in which Licensed Products are sold, Teva shall perform a “true-up” reconciliation (and shall provide CRT with a written report of such reconciliation) of the deductions outlined in subsections a) (to the extent that the standard US discount is not applied for any reason), b), c), d), e), and h) in the definition of “Net Sales.” The reconciliation shall be based on actual cash paid or credits issued, plus an estimate for any remaining liabilities incurred related to the Licensed Product, but not yet paid. If the foregoing reconciliation report shows an underpayment by Teva, Teva shall pay the amount of the underpayment to CRT within thirty (30) days after the date of delivery of such report. If the foregoing reconciliation report shows an overpayment by Teva, Teva shall be entitled to deduct such overpayment from the next Quarter’s payment due to CRT pursuant to Clause 5.2.; and

 

5.3.2

Upon termination or expiration of this Agreement, CRT shall ensure availability of funds equal to the amounts of the last two Quarterly Royalty Payments for purposes of serving as a reserve for the true-up of final Royalty Payment accounts with Teva for the purpose of this Clause 5.3.2. Within:

 

(a)

thirteen (13) months after the termination or expiration of this Agreement, Teva shall perform an interim “true-up” reconciliation of (and shall provide CRT with a written report of such reconciliation) of the deductions outlined in subsections a) (to the extent that the standard US discount is not applied for any reason), b), c), d), e), and h) in the definition of “Net Sales.” The reconciliation shall be based on actual cash paid or credits issued, plus an estimate for any remaining liabilities incurred related to the Licensed Product, but not yet paid. If the foregoing reconciliation report shows an underpayment by Teva, Teva shall pay the amount of the underpayment to CRT within thirty (30) days after the date of delivery of such report. If the foregoing reconciliation report shows an overpayment by Teva, CRT shall pay back to Teva the amount of the overpayment, not to exceed the aggregate amount of

 

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the last two Quarterly Royalty payments received by CRT. CRT’s obligation to retain the reserve shall be adjusted accordingly.

 

(b)

twenty-five months after the termination or expiration of this Agreement, Teva shall perform a “final true-up” reconciliation (and shall provide CRT with a written report of such reconciliation) of the items comprising deductions from Net Sales for returns as outlined in subsection d) in the definition of Net Sales. The reconciliation shall be based on actual cash paid or credits issued for returns through the twenty-four (24) month period following the termination or expiration of this Agreement. If the foregoing reconciliation report shows an underpayment by Teva, Teva shall pay the amount of the underpayment to CRT within ninety (90) days after the date of delivery of such report. If the foregoing reconciliation report shows an overpayment by Teva, CRT shall pay back to Teva the amount of the overpayment within ninety (90) days after the date of delivery of such report provided always that CRT shall not, whether under this Clause 5.3.2(b) alone or through the combined effect of Clauses 5.3.2(a) and 5.3.2(b), be expected to repay more than the aggregate amount of the last two Quarterly Royalty payments received by CRT. For the avoidance of doubt Clause 5.3.1 shall still apply.

 

5.4

Where Licensed Products are sold or Sub-Licence Revenue is received by Teva in a currency other than United States Dollars (USD), the rate of exchange to be used for converting such other currency into United States Dollars (USD) shall be the relevant mid-spot rate quoted by Oanda.com on the last Business Day of the Quarter to which they relate.

 

5.5	All costs of transmission or currency conversion shall be borne by Teva.

 

5.6

All payments to CRT under this Agreement are expressed to be exclusive of value added tax howsoever arising, and Teva shall pay to CRT in addition to those payments or, if earlier, on receipt of a tax invoice or invoices from CRT, all value added tax for which CRT is liable to account in relation to any supply made or deemed to be made for value added tax purposes pursuant to this Agreement.

 

5.7

All sums payable under this Agreement shall be paid without deduction or deferment in respect of any taxes except any tax which Teva is required by law to deduct or withhold. If Teva is required by law to make any such tax deduction or withholding, Teva shall give reasonable assistance to CRT to claim exemption from or (if that is not possible) a credit for the deduction or withholding under any applicable double taxation or similar agreement from time to time in force, and shall promptly give CRT proper evidence as to the deduction or withholding and payment over of the tax deducted or withheld.

 

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5.8

Where CRT does not receive payment of any sums due to it by the due date, interest shall accrue both before and after any judgement on the sum due and owing to CRT at the rate equivalent to an annual rate of [***] over the then current base rate of Natwest Bank Plc, calculated on a daily basis, until the full amount is paid to CRT, without prejudice to CRT’s right to receive payment on the due date.

 

5.9	Within forty-five (45) days after the end of each Quarter following the First Commercial Sale, Teva shall send to CRT a written statement detailing in respect of that Quarter (including a nil report if appropriate):

 

5.9.1

any Milestone Payments which became due to CRT;

 

5.9.2

for each sub-licence, details of each item of Sub-Licence Revenue received by Teva during that Quarter and the Sub-Licence Revenue payable to CRT thereon;

 

5.9.3

the quantity of each type of Licensed Product sold or otherwise disposed of by Teva or any Sub-Licensees in each country in the Territory;

 

5.9.4

the Net Sales in respect of each such type of Licensed Product in each country of the Territory;

 

5.9.5

the aggregate Net Sales in respect of that Quarter for Licensed Product;

 

5.9.6

the type and value of deductions made in the calculation of Net Sales by type of Licensed Product and country;

 

5.9.7

any currency conversions, showing the rates used;

 

5.9.8

any further information necessary for the calculation of Sub-Licence Revenue and Net Sales of Licensed Products and/or the royalties due to CRT; and

 

5.9.9

the amount of the royalties due to CRT in respect of that Quarter.

 

5.10	At CRT’s request, and within forty-five (45) days after CRT’s receipt of a written statement pursuant to Clause 5.9, Teva shall make itself available to meet via teleconference with CRT to discuss the content of such written statement.

 

5.11	Teva shall notify CRT of the occurrence of any Milestone Event within thirty (30) days of the same, save where it is triggered by a Sub-Licensee, in which case such thirty (30) day period shall commence upon Teva becoming aware of the occurrence of the relevant Milestone Event.

 

6.

ACCOUNTS

 

6.1	Teva shall

keep and notwithstanding termination of this Agreement, maintain and shall procure that each Sub-Licensee keeps and maintains, for at least three (3) years, true and accurate accounts and records

 

 

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(including any underlying documents supporting such accounts and records) in sufficient detail to enable the amount of all sums payable under this Agreement to be determined;

 

6.2

CRT shall have the right from time to time (but not more often than once in each Year) and, subject to Clause 6.3, at its own expense to have a reputable firm of independent accountants (provided that such accounting firm shall not be retained or compensated on a contingency basis) review Teva’s records and accounts that are maintained pursuant to Clause 6.1, upon reasonable notice and during regular business hours and under obligations of strict confidence, for the sole purpose of verifying the basis and accuracy of payments made under this Agreement, provided that the audit may extend to records for only the three (3) most recently completed Years and audits may be conducted no more than once during a Year. Such accountants shall sign a confidentiality agreement in form and substance reasonably satisfactory to Teva, and shall not disclose to CRT or any Third Party any information reasonably labelled by Teva as being confidential customer information regarding pricing or other competitively sensitive proprietary information except (in the case of disclosures to CRT) as reasonably necessary to present the results of the audit. CRT shall provide Teva with a copy of the report or other summary of findings prepared by such accountants promptly following its receipt of same.

 

6.3

If the review of such records reveals that additional payments were owed by Teva during such period then Teva shall promptly pay to CRT any resulting amounts due under this Clause 6.3, together with interest calculated in the manner provided in Clause 5.8. In the event the review of such records reveals that Teva overpaid the actual payments required by this Agreement during such period, Teva shall be permitted to deduct such overpayment from future payments required by this Agreement. If any amounts due under this Clause 6.3 as a result of such audit are greater than seven percent (5%) of the amounts actually due for a Year, Teva shall pay the reasonable costs of such audit. If Teva, in good faith, disputes any conclusion of the accounting firm under this Clause 6, including that Teva owes additional amounts, then Teva shall inform CRT by written notice within thirty (30) days of receipt of a copy of the audit in question, specifying in detail such dispute. The Parties shall promptly thereafter meet and negotiate in good faith a resolution to such dispute. In the event that the Parties are unable to resolve such dispute within thirty (30) days after notice by Teva, either Party may refer the matter to be resolved by the Expert.

 

7.	INTELLECTUAL PROPERTY PROTECTION, PROCEEDINGS AND COSTS

 

7.1	Teva shall reimburse CRT in respect of any Patent Costs incurred up to and including the Effective Date within sixty (60) days of Teva’s receipt from CRT of all documentary

 

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evidence of such Patent Costs. All Patent Costs incurred after the Effective Date shall be met solely by Teva.

 

7.2	The ownership of the Licensed Patents shall (as between the Parties) at all times remain vested jointly in CRT and Teva.

 

7.3	Subject to Clauses 7.4, 7.5 and 7.6, Teva shall be responsible for filing, prosecuting and maintaining the Licensed Patents in CRT’s and Teva’s joint names with the aim of maximising the duration and scope thereof.

 

7.4

Teva’s Patent Lead shall discuss the filing strategy for the Licensed Patents with CRT’s Patent Lead and shall take into consideration all comments received from CRT’s Patent Lead in respect thereof. If Teva elects not to file a patent application claiming a Pre-Clinical Candidate, Teva’s Patent Lead shall promptly notify CRT’s Patent Lead of such decision and CRT shall have the right (but not the obligation) to file such an application. If CRT elects to exercise such right by notice in writing to Teva, Teva’s shall promptly assign its interest in the relevant Pre-Clinical Candidate to CRT’s sole ownership and CRT shall thereafter be solely responsible for the expense of filing, prosecuting and maintaining the corresponding Patent, which, shall be excluded from the definition of Licensed Patents and the licence granted under Clause 2.1.

 

7.5

Teva shall keep CRT reasonably informed in writing as to the prosecution status of the Licensed Patents and shall promptly provide CRT with a copy of all submissions made to or responses received from the relevant patent offices and all correspondence to and responses received from the relevant patent agent in relation to the Licensed Patents in each applicable country of the Territory. Teva shall notify CRT at least one (1) month prior to any restriction of scope of any of the Licensed Patents.

 

7.6

If Teva elects not to prosecute and/or maintain any part of the Licensed Patents, Teva shall notify CRT in writing at least three (3) months prior to the expiration of any applicable time bars. During the aforementioned three (3) months’ notice period, Teva shall retain the responsibility for the prosecution and maintenance of the Licensed Patents in question. On the expiry of such notice period:

 

7.6.1

the licence granted pursuant to Clause 2.1 shall terminate in respect of the Licensed Patents identified in such notice; and

 

7.6.2

Teva shall, at CRT’s request, promptly assign its right, title and interest in such Licensed Patents to CRT’s sole ownership;

 

7.6.3

Teva shall, at CRT’s request, promptly transfer to CRT (or any person nominated by CRT) any and all documents and information in Teva’s control relating to such Licensed Patents; and

 

7.6.4

CRT shall be free to prosecute or abandon such Licensed Patents at its sole discretion and to grant rights thereunder to any third party without further reference to Teva.

 

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Following Teva’s consultation with CRT, CRT shall consider Teva’s proposal to allow a Licensed Patent to lapse and/or to abandon prosecution of a Patent application in good faith where Teva believes it to be strategically justified in order to successfully commercialize Licensed Products but the final decision on whether to allow a Licensed Patent to lapse or to abandon prosecution of a Patent application will rest solely with CRT. Where CRT agrees to allow a Licensed Patent to lapse and/or to abandon prosecution of a Patent application, such Licensed Patents or Patent applications are excluded from the provisions of this Clause 7.6.

 

7.7

Teva will notify CRT in writing as soon as it becomes aware that any claim is made or threatened against Teva, a Sub-Licensee or an Affiliate of either of them by any third party that the exercise by Teva, a Sub-Licensee or an Affiliate of either of them, of the rights granted pursuant to this Agreement infringe any patent or other rights of any third party.

 

7.8

In the event of the circumstances described in Clause 7.7 arising, Teva shall take such steps as may be necessary in order to terminate such infringement or otherwise to remedy the position, including by obtaining a license from such Third Party or prosecuting a case or defense of invalidity and/or non-infringement of, or priority over, such Third Party patent or other rights.

 

7.9	Each Party will notify the other Party in writing as soon as it becomes aware of any infringement or suspected infringement by a third party of any of the Licensed Patents or any unauthorised use of the Licensed Know How or the Licensed Materials.

 

7.10	Provided Teva has a licence under this Agreement in relation to the relevant Licensed Patent and country in the Territory (and where local law permits), within such country Teva may:

 

7.10.1

at its own cost bring proceedings in its own name or, if required by law, jointly with CRT, for infringement of the Licensed Patents in the Field; and

 

7.10.2

in any such proceedings settle any claim for infringement of the Licensed Patents in the Field, provided that any proposed settlement which may materially adversely affect the Licensed Patents shall be subject to the consent of CRT (which shall not be unreasonably withheld or delayed).

Any damages, profits, and awards of whatever nature recovered by Teva for such infringement shall be treated as Net Sales subject to a deduction for Teva’s reasonable legal expenses insofar as these are not recovered from a third party. In any such proceedings, CRT shall, at Teva’s cost, promptly provide Teva with all documents and assistance as Teva may reasonably require. Teva shall promptly provide CRT with notice of such proceedings and keep CRT informed of progress and promptly provide CRT with such information as CRT may require including copies of all documents filed at court in the proceedings. If CRT is joined to proceedings pursuant to Clause 7.10.1 or otherwise, Teva shall indemnify and hold harmless CRT from and against any and all claims, demands, losses, causes of action, damages and expenses (including without limitation, legal fees) arising from or in connection with such proceedings.

 

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7.11

If Teva does not exercise its right to bring proceedings pursuant to Clause 7.10 within sixty (60) days of the written notification pursuant to Clause 7.9 then CRT shall be entitled, but not obliged to bring such proceedings at its own cost. If necessary, (including to recover damages), Teva shall join in such proceedings. CRT shall be entitled to all monies recovered in such proceedings. In any such proceedings Teva shall promptly provide CRT with all documents and assistance as CRT may reasonably require and CRT shall promptly provide Teva with notice of such proceedings. CRT shall keep Teva informed of progress and promptly provide Teva with notice of such proceedings and keep Teva informed of progress and promptly provide Teva with such information as Teva may reasonably require including copies of all documents filed at court in the proceedings.

 

7.12

The Parties shall, at the request of either of them and at the expense of the requesting Party but for no further consideration, enter into such confirmatory patent licences relating to the Licensed Patents, substantially in the form set out in Schedule 4, as may be necessary or desirable in accordance with the relevant law and practice in each country in the Territory for registration at the relevant patent offices so that this Agreement need not be registered or recorded unless the Parties are required to do so by law. If there shall be any inconsistencies between the terms of any such confirmatory patent licence and the provisions of this Agreement, this Agreement shall prevail.

 

7.13	The Parties shall promptly update Schedule 3 Part A to include any Pre-Clinical Candidates identified on or after the Effective Date.

 

8.

WARRANTY

 

8.1	CRT warrants to Teva that:

 

8.1.1

it has the legal capacity to enter into this Agreement; and

 

8.1.2

at the Effective Date, it owns the Licensed Intellectual Property (whether solely or jointly with Teva) and that it has not granted any conflicting rights to third parties.

 

8.2	Teva warrants to CRT that:

 

8.2.1

it has the legal capacity to enter into this Agreement; and

 

8.2.2

at the Effective Date, it owns the Programme Intellectual Property jointly with CRT and that it has not granted any rights in respect thereof to third parties.

 

8.3

Each Party acknowledges that, in entering into this Agreement, it does not do so in reliance on any warranty or other provision except as expressly provided in this Agreement, and all conditions, warranties, terms and undertakings implied by statute, common law or otherwise are excluded from this Agreement to the fullest extent permissible by law.

 

8.4	Without limiting the scope of Clause 8.3, save as expressly set out at Clause 8.1, CRT does not give any warranty, representation or undertaking in relation to the Licensed Intellectual Property, including any warranty, representation or undertaking:

 

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8.4.1

as to the efficacy, usefulness, completeness or accuracy of the Licensed Intellectual Property; or

 

8.4.2

that any of the Licensed Patents is or will be valid or subsisting or that any of the applications within the Licensed Patents will proceed to grant; or

 

8.4.3

that the use of any invention claimed in a Licensed Patent or the exercise of any rights granted under this Agreement will not infringe the intellectual property or other rights of any other person.

 

9.

INDEMNITY

 

9.1

Teva shall indemnify, defend and hold harmless CRT and the Charity and their respective officers, employees and agents (the “Indemnified Parties”) from and against any and all third party claims, demands, losses, damages, costs and expenses (collectively “Losses”) (including, without limitation, reasonable legal fees) arising from or in connection with the exercise by Teva or a Sub-Licensee of the rights granted in Clause 2.1 or the negligence or willful misconduct of Teva, a Sub-Licensee or an Affiliate of either of them in relation to a Licensed Product; except, in each case, to the extent the Losses are caused by the breach of this Agreement by, or the negligence or willful misconduct of, CRT, an Indemnified Party or any other party acting on behalf of CRT.

 

9.2

Promptly after receipt by CRT of any claim or alleged claim or notice of the commencement of any action, administrative or legal proceeding, or investigation to which the indemnity provided for in this Clause 9 may apply, CRT shall give written notice to Teva of such fact and Teva shall have the option to assume the defence thereof by election in writing within thirty (30) days of receipt of CRT’s notice. If Teva fails to make such election, the Indemnified Party may assume such defence and Teva will be liable for the legal and other expenses consequently incurred in connection with such defence. The Parties will co-operate in good faith in the conduct of any defence, will provide such reasonable assistance as may be required to enable any claim to be defended properly and the Party with conduct of the action shall promptly provide to the other Party copies of all correspondence and documents and notice in writing of the substance of all oral communications relating to such action.

 

9.3	Should Teva assume conduct of the defence:

 

9.3.1

the Indemnified Party may retain separate legal advisers, at its sole cost and expense; and

 

9.3.2

Teva will not, except with the written consent of the Indemnified Party, consent to the entry of any judgment or enter into any settlement that adversely affects the Indemnified Party; and

 

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9.3.3

CRT shall not admit liability in respect of, or compromise or settle any such action without the prior written consent of Teva, such consent not to be unreasonably withheld, conditioned or delayed; and

 

9.3.4

Teva shall not be responsible for or bound by any settlement made by CRT in breach of Clause 9.3.3.

 

10.

INSURANCE

Teva shall maintain, at its own cost, comprehensive product liability insurance and general commercial liability insurance either through a reputable insurance company or, at Teva’s sole discretion, through self-insurance. At CRT’s request, Teva shall provide CRT with a certificate evidencing such coverage. Such insurance shall be maintained for not less than six (6) years following the expiration or termination of this Agreement for any reason or if such coverage is of the “claims made” type, for ten (10) years following the expiration or termination of this Agreement for any reason.

 

11.	LIMITATION OF LIABILITY

 

11.1

Subject to Clause 11.2, neither Party nor the Charity, nor their respective directors, officers, employees and agents shall have any liability under or in connection with this Agreement whether under statute or in tort (including but not limited to negligence), contract or otherwise in respect of: (i) any consequential or indirect loss; and/or (ii) any loss of goodwill, opportunity, profit or contract, in either case even if advised in advance of the possibility of such losses.

 

11.2	Nothing in this Agreement shall be construed as excluding or limiting the liability of either Party or the Charity or any of their respective officers, employees and agents for any liability which cannot be limited or excluded by law.

 

12.	CONFIDENTIALITY

 

12.1

Each Party (the “Receiving Party”) undertakes with the other Party (the “Disclosing Party”) that it shall keep, and it shall procure that its and its Affiliates’ respective directors, officers, employees and agents (collectively, “Representatives”) shall keep, secret and confidential all Confidential Information of the Disclosing Party and shall not publish or disclose the same or any part of the same to any person whatsoever other than:

 

12.1.1

in the case of Teva to Sub-Licensees subject to compliance with Clause 2.5.4 and as necessary in communications with regulatory authorities in the Territory relating to the Licensed Products;

 

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12.1.2

in the case of each Party, to its Representatives directly or indirectly concerned in the exercise of the rights granted under this Agreement; and

 

12.1.3

in the case of CRT, to independent reviewers nominated by CRT or the Charity for the purpose of monitoring and reviewing work funded by the Charity and/or providing scientific advice (including any members of CRT’s Scientific Advisory Board from time to time) (collectively “CRT Reviewers”).

 

12.2

Each Party warrants that each of its Representatives to whom any Confidential Information is disclosed shall previously have been informed of the confidential nature of the Confidential Information and shall have agreed to be bound by a legal obligation no less restrictive than that set forth in this Agreement. The Receiving Party shall ensure that the Confidential Information provided by the Disclosing Party shall not be used or disclosed by such Representatives except as permitted by this Agreement. The Receiving Party shall stand responsible for any breach by its Representatives of the confidentiality provisions set forth in this Agreement.

 

12.3

CRT shall provide Teva, upon reasonable notice, the opportunity to review and comment on any Confidential Information proposed to be disclosed to CRT Reviewers and shall give due consideration to any comments received from Teva. CRT recognises the need to protect the chemical structures of Programme Compounds (other than Research Tools). Prior to disclosing the chemical structure of any lead series of Programme Compounds, CRT shall, where practicable, limit the content of materials disclosed to CRT Reviewers to (in the following order of priority): (i) the chemical structures of a deprioritised series; (ii) the profiles of the lead series; (iii) generic chemical structures of the lead series, that in each case demonstrate the desired mechanism of action and chemical scope. Notwithstanding the foregoing, CRT shall be permitted to disclose to any CRT Reviewers such Confidential Information as it may determine in its reasonable discretion to disclose after providing prior written notice thereof to Teva. CRT shall ensure that any such disclosure to CRT Reviewers is made in confidence (whether under the terms of an appropriate confidential disclosure agreement with the CRT, the Charity or otherwise). CRT shall stand responsible for any breach by the CRT Reviewers of the confidentiality provisions set forth in this Agreement.

 

12.4	The provisions of Clauses 12.1, 12.2 and 12.3 shall not apply to Confidential Information which:

 

12.4.1

the Receiving Party can demonstrate by reference to written records to have been in its possession (other than under an obligation of confidence to the Disclosing Party or to a third party) at the date of receipt;

 

12.4.2

enters the public domain otherwise than through a breach of any obligation of confidentiality owed to the Disclosing Party; or

 

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12.4.3

the Receiving Party can prove it has independently developed without direct or indirect access to any of the Disclosing Party’s Confidential Information.

 

12.5	The Receiving Party may disclose Confidential Information to the extent that such disclosure is:

 

12.5.1

necessarily required of the Receiving Party by order of a Competent Authority or otherwise by applicable law; provided, that the Receiving Party shall, to the extent practicable, first have given notice to the Disclosing Party and given the Disclosing Party a reasonable opportunity to quash any such order or obtain a protective order requiring that the Confidential Information subject of such order be held in confidence by such Competent Authority or, if disclosed, be used only for the purpose for which the order was issued; and provided further that if such order is not quashed or a protective order is not obtained, the Confidential Information disclosed in response to such order shall be limited to that information that is legally required to be disclosed in response to such order;

 

12.5.2

made by the Receiving Party to a patent authority as may be necessary or useful for purposes of obtaining or enforcing a Licensed Patent (consistent with the terms and conditions of Clause 7), provided, however, that reasonable measures shall be taken to assure confidential treatment of such information, to the extent such protection is available; or

 

12.5.3

required with regard to the disclosure requirements of the U.S. Securities and Exchange Commission or the national securities exchange or other stock market or of a related regulatory body on which the Receiving Party’s securities are or are proposed to be traded, provided it has used reasonable endeavours in the time available to provide notice to the Disclosing Party of the terms of any such disclosure beforehand.

 

12.6	Insofar as the Receiving Party believes that any of the provisions of Clause 12.4.1, 12.4.2 or 12.4.3 apply to Confidential Information, it shall notify the Disclosing Party at the earliest opportunity.

 

12.7	Without prejudice and subject to clause 4 of the RCOA, all Confidential Information disclosed by the Disclosing Party shall remain the property of the Disclosing Party.

 

12.8

The Receiving Party agrees that the disclosure of the Disclosing Party’s Confidential Information without the express written consent of the Disclosing Party may cause irreparable harm to the Disclosing Party, and that any breach or threatened breach of this Agreement by the Receiving Party may entitle the Disclosing Party to injunctive relief, in addition to any other legal remedies available to it, in any court of competent jurisdiction.

 

12.9	The provisions of this Clause 12 shall remain in force for a period of ten (10) years from the expiry or termination of this Agreement.

 

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13.	TERM AND TERMINATION

 

13.1

This Agreement will become effective on the Effective Date. Subject to the provisions of this Clause 13 it will remain effective in each country of the Territory until expiry of the obligation upon Teva to pay royalties in relation to that country pursuant to this Agreement, at which time Teva shall have an irrevocable, perpetual, fully paid-up license under the Licensed Intellectual Property with respect to that country.

 

13.2	Without prejudice to any other rights of the Parties, but subject to the requirements of Clause 3.7 with respect to a failure by Teva to meet its obligations under Clauses 3, this Agreement may be terminated by notice in writing:

 

13.2.1

by either Party forthwith if the other Party shall be in material breach of any of its obligations under this Agreement and in the case of a remediable breach fails to remedy the breach within sixty (60) days of written notice containing full particulars of the breach and requiring it to be remedied in the absence of an extension of such period agreed to by the non-breaching Party; or

 

13.2.2

by CRT forthwith if a voluntary arrangement is proposed or approved or an administration order is made, or a receiver or administrative receiver is appointed of any of Teva’s assets or undertakings or a winding-up resolution or petition is passed (otherwise than for the purpose of solvent reconstruction or amalgamation) or if any circumstances arise which entitle a court or a creditor to appoint a receiver, administrative receiver or administrator or make a winding-up order or similar or equivalent action is taken against or by Teva by reason of its insolvency or in consequence of debt or if it appears in the reasonable opinion of CRT that Teva has ceased, or is likely to cease, trading; or

 

13.2.3

by CRT forthwith in the event of a change of Control of Teva where the new Controlling party is a Tobacco Party; or

 

13.2.4

in accordance with Clause 3.7.

 

13.2.5

All rights and licenses granted under or pursuant to this Agreement by the Parties are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction, licenses of right to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against any Party under the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction, the Party hereto that is

 

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not a Party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, which, if not already in the non-subject Party’s possession, shall be promptly delivered to it (i) upon any such commencement of a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under clause (i) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.

 

14.	EFFECTS OF TERMINATION

 

14.1	Upon the termination of this Agreement by CRT pursuant to Clause 13:

 

14.1.1

payment of royalties and all other sums due to CRT as of the date of termination shall become payable to CRT immediately upon notice of termination of this Agreement;

 

14.1.2

Teva shall, within forty-five (45) days of end of the Quarter in which notice of termination of this Agreement provide CRT with a written statement detailing, in respect of the time elapsed since the last report under Clause 5.8, the matters set out in Clause 5.8;

 

14.1.3

Teva shall consent to the revocation of any confirmatory patent licence relating to the Licensed Patents granted pursuant to Clause 7.12 and the cancellation of the registration of any such licence in any register;

 

14.1.4

the licences granted to Teva pursuant to Clause 2 shall terminate forthwith and Teva shall (and shall procure that its Sub-Licensees and Affiliates shall) immediately cease to exploit the Licensed Intellectual Property in any way, either directly or indirectly;

 

14.1.5

Teva shall, at the request and option of CRT, return or destroy the Licensed Know How and the Licensed Materials; and

 

14.1.6

in the event that CRT desires to proceed with the development and/or exploitation of any Licensed Product:

 

(a)

Teva hereby assigns its right, title and interest in Programme Intellectual Property to CRT’s sole ownership;

 

(b)

Teva hereby grants CRT an exclusive, worldwide, perpetual, irrevocable, sub-licensable, licence under its right, title and interest in Teva Existing Intellectual Property for the purposes of: (i) developing and exploiting the Licensed Intellectual Property; and (ii) developing and exploiting the Teva Existing Compounds solely as aPKC inhibitors. For the avoidance of doubt, Teva shall retain the right to develop compounds based upon the Teva

 

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Existing Compounds provided that the mechanism of action of such compounds is not primarily through the inhibition of aPKC;

 

(c)

Teva hereby grants to CRT an exclusive, perpetual, irrevocable, sub-licensable, worldwide licence to any Arising Intellectual Property that specifically relates to Licensed Products and is necessary for CRT or its licensee to be able to research, develop, make, have made, market, use and sell such Licensed Products (“Exclusive Arising Intellectual Property”). For the avoidance of doubt, Teva shall retain the right to use, sub-license the rights to, and otherwise exploit for commercial purposes, any Arising Intellectual Property not specifically related to the Licensed Products;

 

(d)

Teva hereby grants to CRT a non-exclusive, perpetual, irrevocable, sub-licensable, worldwide licence to any Arising Intellectual Property other than Exclusive Arising Intellectual Property that is necessary for CRT or its licensees to be able to research, develop, make, have made, market, use and sell Licensed Products;

 

(e)

CRT shall be solely responsible for the prosecution and maintenance of all Patents comprised within the Licensed Intellectual Property and Exclusive Arising Intellectual Property (at CRT’s sole expense and CRT shall be entitled to treat all such expenses as Expenses);

 

(f)

Teva shall, at CRT’s request, transfer to CRT (or its nominee) as soon as practicable, and in any event within three (3) months of the date of termination of this Agreement, any Regulatory Authorisations, Price Approvals and other permits and applications relating to Licensed Products;

 

(g)

Teva shall as soon as practicable transfer to CRT (or CRT’s nominee) any documents and information within Teva’s control relating to the filing and prosecution of any Licensed Patents and Patents comprised in Arising Intellectual Property;

 

(h)

Teva shall be entitled to receive a share of any Net Revenue. Such share shall be determined having regard to the development stage which Teva (or its Sub-Licensee) has reached at the date of termination in respect of the Licensed Product, as follows:

 

(i)

[***];

 

(ii)

[***]; and

 

(iii)

[***]; and

 

 

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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(i)

With respect to the rights and obligations of the Parties under Clause 14.1.6 (h), the payment terms and record-keeping requirements of Clause 5 and Clause 6 shall apply, except that the references therein to “Teva” shall refer instead to “CRT,” and the references therein to “CRT” shall refer instead to “Teva”.

 

14.2	Upon the termination of this Agreement by Teva pursuant to Clause 13.2.1:

 

14.2.1

CRT shall consent to the revocation of any confirmatory patent licence relating to the Licensed Patents granted pursuant to Clause 7.12 and the cancellation of the registration of any such licence in any register;

 

14.2.2

CRT shall promptly transfer to Teva (or any person nominated by Teva) any and all documents and information in CRT’s control or possession relating to the Licensed Patents (save for any Licensed Patents abandoned by Teva pursuant to Clause 7.6) and Teva may assume or continue sole responsibility for the prosecution and maintenance of the same;

 

14.2.3

the licences granted to CRT pursuant to Clause 2.4 shall terminate forthwith and CRT shall immediately cease to exploit the Licensed Intellectual Property (other than Research Tools) in any way, either directly or indirectly, save that any licences or sub-licences granted by CRT prior to the date of termination of this Agreement shall remain in full force and effect in accordance with their respective terms.

 

14.2.4

Teva shall, upon request, make the Non-Exclusive Intellectual Property available on a non-exclusive basis to third parties on reasonable terms, which it shall negotiate in good faith;

 

14.2.5

CRT shall, at the request and option of Teva and subject to Clause 14.2.3, return or destroy the Licensed Know How and the Licensed Materials; and

 

14.2.6

unless and until otherwise agreed by the Parties in accordance with this Clause 14.2.6, the licences granted to Teva pursuant to Clause 2 shall be immediately deemed to be sub-licensable, perpetual and irrevocable, and, after the date of the termination of this Agreement, all payments due or owing to CRT hereunder (whether as a result of sales of a Licensed Product by Teva or a Sub-Licensee or Affiliate thereof or otherwise) shall be suspended until such time as revised payments are agreed in accordance with the remainder of this Clause. Promptly following the date of termination of this Agreement the Parties shall negotiate in good faith the amount of royalty and other payments that are to be paid to CRT by Teva with effect from the date of termination of this Agreement, taking into consideration the payments agreed under Clause 4 and the circumstances which gave rise to termination; and provided further, that in the event such negotiation does not result in a mutually acceptable agreement within one hundred twenty (120) days from the date of termination, either Party may demand that

 

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any unresolved issues be determined by the Expert in accordance with Clause 25. The provisions of Clauses 5 and 6 shall survive termination (varied solely to the extent explicitly agreed by the Parties or as determined by the Expert pursuant to this Clause 14.2.6).

 

14.3	Upon the termination of this Agreement solely in respect of particular Licensed Product, the provisions of Clauses 14.1 and 14.2 shall apply, but only in respect of the relevant Licensed Product.

 

14.4	The termination of this Agreement howsoever arising will be without prejudice to the rights and duties of either Party accrued prior to termination. The following Clauses will continue to be enforceable notwithstanding termination: Clauses 1, 2.3, 2.4.1, 6, 9, 10, 11, 12, 14 and 17 to 28 inclusive.

 

15.	FORCE MAJEURE

 

15.1

If a Party is unable to carry out any of its obligations under this Agreement due to Force Majeure (the “Non-Performing Party”) this Agreement shall remain in effect but the Non-Performing Party’s relevant obligations under this agreement and the relevant obligations of the other Party (“the Innocent Party”) under this Agreement shall be suspended for the duration of the circumstance of Force Majeure provided that:

 

15.1.1

the suspension of performance is of no greater scope than is required by the Force Majeure;

 

15.1.2

the Non-Performing Party gives the Innocent Party prompt notice describing the circumstance of Force Majeure, including the nature of the occurrence and its expected duration, and continues to furnish regular reports during the period of Force Majeure;

 

15.1.3

the Non-Performing Party uses all reasonable efforts to remedy its inability to perform and to mitigate the effects of the circumstance of Force Majeure; and

 

15.1.4

as soon as practicable after the event which constitutes Force Majeure the Parties shall discuss how best to continue their operations as far as possible in accordance with this Agreement.

 

15.2

If Force Majeure continues for three (3) months or more, the Innocent Party may give twenty (20) Business Days written notice to terminate this Agreement to the Non-Performing Party and termination shall occur if the Force Majeure is continuing at the end of that twenty (20) Business Day notice period.

 

16.	ASSIGNMENT AND SUB-CONTRACTING

 

16.1	This Agreement shall be binding upon and inure to the benefit of the Parties, their successors and assigns. This Agreement shall be assignable:

 

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16.1.1

by either Party with the written consent of the other; or

 

16.1.2

by either Party without the consent of the other Party, to any successor to all or substantially all the assets of its business to which this Agreement relates provided that it is not a Tobacco Party; or

 

16.1.3

by Teva to any Affiliate (provided the same is not a Tobacco Party) without the prior written consent of CRT provided that Teva shall remain liable to CRT for performance of its obligations hereunder unless and until the Parties choose to enter into a novation agreement that provides otherwise,

and any attempted assignment that is not in accordance with this Clause 16.1 will be null and void and of no effect.

 

16.2

The benefit of this Agreement (but, for the avoidance of doubt, not the burden) shall be assignable by CRT in connection with a transaction with an assignee concerning CRT’s income arising under this Agreement; provided, that in no event shall Teva be requested or required to remit payment to any party other than CRT.

 

16.3

Teva may not sub-contract its obligations under this Agreement to any third party other than an Affiliate of Teva or a Third Party Service Provider. Teva shall ensure that an appropriate written agreement is put in place with each Third Party Service Provider. Any act or omission of an Affiliate or Third Party Service Provider of Teva which, if it were the act or omission of Teva would be a breach of any of the provisions of this Agreement, will be deemed to be a breach of this Agreement by Teva who will be liable to CRT accordingly.

 

17.

NOTICES

All notices shall be in writing and sent by hand, facsimile, or airmail and shall be deemed to be properly served (i) if sent by hand, when delivered at the relevant address; (ii) if sent by airmail, ten (10) Business Days after posting; (iii) if sent by facsimile, when transmitted, provided a confirmatory copy is sent by post within twenty four (24) hours of transmission, and shall be sent to the following addresses or facsimile numbers as may be amended by the relevant Party in writing:

 

Teva:		Teva Branded Pharmaceutical Products R&D, Inc.
		41 Moores Road
		Frazer, PA 19355
		U.S.A.
For the attention of:		Chief Scientific Officer
With a copy to:		Teva Pharmaceuticals
		425 Privet Road
		Horsham, PA 19044

 

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		U.S.A.
Facsimile		+1 610 293 6404
For the attention of:		General Counsel
CRT:		Cancer Research Technology Limited
		Angel Building
		407 St John Street
		LONDON EC1V 4AD
		United Kingdom
Facsimile		+44 20 3469 6301
For the attention of:		Chief Executive Officer

 

18.

VARIATION

No variation, modification, amendment, extension or release from any provision hereof shall be effective unless it is in writing, signed by both Parties.

 

19.	ENTIRE AGREEMENT

 

19.1	Each Party confirms that this Agreement, including any and all Schedules, represents the entire understanding, and constitutes the whole agreement, in relation to its subject matter and supersedes any previous agreement between the Parties with respect thereto.

 

19.2	Each Party confirms that:

 

19.2.1

in entering into this Agreement it has not relied on any representation or warranty or undertaking which is not contained in this Agreement; and

 

19.2.2

in any event, without prejudice to any liability for fraudulent misrepresentation or fraudulent misstatement, neither Party shall be under any liability or shall have any remedy in respect of misrepresentation or untrue statement unless and to the extent that a claim lies under this Agreement.

 

20.	FURTHER ASSURANCE

Each Party hereby undertakes to do all such other acts and things, and execute and provide all such documents at the other Party’s request and cost as may be necessary or desirable to give effect to the purposes of this Agreement.

 

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21.

WAIVER

No relaxation, forbearance, waiver or indulgence by either Party in enforcing any of the terms or conditions of this Agreement or the granting of time by either Party to the other shall prejudice, affect or restrict the rights and powers of such Party, unless contained in a writing signed by the Party charged with such waiver. The waiver of any breach of any term or any condition of this Agreement shall not be construed as a waiver of any subsequent breach of a term or condition of the same or of a different nature.

 

22.	SEVERABILITY

 

22.1	If the whole or any part of this Agreement is or becomes or is declared illegal, invalid or unenforceable in any jurisdiction for any reason (including by reason of the provisions of any legislation and/or by reason of any court or Competent Authority:

 

22.1.1

in the case of the illegality, invalidity or unenforceability of the whole of this Agreement it shall terminate only in relation to the jurisdiction in question; or

 

22.1.2

in the case of the illegality, invalidity or unenforceability of a part of this Agreement that part shall be severed from this Agreement in the jurisdiction in question and that illegality, invalidity or unenforceability shall not in any way whatsoever prejudice or affect the remaining parts of this Agreement which shall continue in full force and effect.

 

22.2	If in the reasonable opinion of either Party any severance under this Clause 22 materially affects the commercial basis of this Agreement, the Parties shall discuss, in good faith, ways to eliminate the material effect.

 

23.

EXECUTION

This Agreement may be executed in any one or more number of counterpart agreements each of which, when executed, shall be deemed to form part of and together constitute this Agreement.

 

24.	ANNOUNCEMENTS AND USE OF NAMES

 

24.1

Save as provided in Clause 24.2 neither Party shall make, or procure or permit the making of, any press release or other public announcement in relation to this Agreement without first obtaining the written approval of the other Party to any such release or announcement, which shall not unreasonably be withheld, conditioned or delayed.

 

24.2

Each Party agrees that it may make any announcement with respect to this Agreement or any ancillary matter as shall be required by law or the regulations of any stock exchange to which it is subject, without the other Party’s consent provided it has used reasonable endeavours in the time available to consult with the other Party on the terms of any such announcement beforehand.

 

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24.3	Neither Party shall use the name of the other (including in the case where the other is CRT, that of the Charity (or its successor)) other than as provided in Clause 24.1 and 24.2 without the prior written consent of that Party which shall be at that Party’s sole discretion.

 

25.	DISPUTE RESOLUTION AND GOVERNING LAW

 

25.1	In the event that a determination of the Expert is sought under this Agreement:

 

25.1.1

any person being considered to serve as an Expert must certify that he or she is unaware of any conflict of interest or fully disclose to each Party the details of any conflict or interest or potential conflict of interest;

 

25.1.2

the Expert will fix a reasonable time and place for receiving (i) written submissions which in no event shall provide a Party fewer than twenty (20) days to prepare. The Parties will exchange written submissions at the same time as they are provided to the Expert and will each have a further ten (10) days to provide the other Party and the Expert with a written response. Thereafter any relevant evidence requested by the Expert that may reasonably be considered necessary for determining the matter at issue will be provided by the Parties within such time frames as the Expert may set;

 

25.1.3

each Party may appoint any counsel, consultants and advisors as it feels appropriate to assist the Expert in his or her determination; and

 

25.1.4

the Expert will render his or her decision, with sufficiently detailed reasons, within thirty (30) days (or another date as the Parties and the Expert may agree) after receipt of all information requested under Clause 25.1.2 above.

 

25.1.5

the determination of the Expert will, except for fraud or manifest error in the interpretation of the Agreement terms, be final and binding on the Parties. In the event that the Expert’s interpretation of the Agreement terms is materially consistent with the interpretation submitted by a Party to the Expert and the other Party under Clause 25.1.2, it will be deemed not to be a manifest error for the purposes of this Clause.

 

25.1.6

Each Party will bear its own costs for any matter referred to an Expert hereunder and, in the absence of express provision in the Agreement to the contrary, the costs and expenses of the Expert will be shared equally by the Parties.

 

25.2

It shall be a condition precedent to the commencement of any action in court or other tribunal (save an action for an interim injunction) in respect of any dispute relating to this Agreement that the Parties have sought to resolve the dispute by either Party notifying the other Party in writing for resolution to the Executive Officers who shall meet (whether in person or via teleconference) within twenty-one (21) days of such notice to seek resolution in good faith. If the Executive Officers are unable to resolve the dispute at such meeting, either Party may

 

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pursue any remedy available to such Party at law or in equity, subject to the terms and conditions of this Agreement.

 

25.3

This Agreement shall be governed by and construed in accordance with the laws of England and Wales and the Parties agree, subject to Clauses 25.1 and 25.2, to submit to the exclusive jurisdiction of the English courts in respect of any dispute arising out of or in connection with this Agreement (except in respect of disputes under Clause 12 where jurisdiction is non-exclusive).

 

26.	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

Save that the Charity may enforce Clauses 9.1, 11.1 and 24.3, and the Charity and CRT’s respective officers, employees and agents may enforce Clauses 9.1 and 11.1, no term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement. Notwithstanding the provisions of this Clause 26, the Parties shall be entitled to amend, suspend, cancel or terminate this Agreement or any part of it in accordance with Clause 18, without the consent of any third party including those referred to in this Clause 26.

 

27.	RELATIONSHIP OF THE PARTIES

 

27.1

Nothing in this Agreement is intended to, or shall be deemed to, constitute a partnership or joint venture of any kind between any of the Parties, nor constitute either Party the agent of the other Party for any purpose. Neither Party shall have authority to act as agent for, or to bind, the other Party in any way. The relationship of the Parties established by this Agreement is that of independent contractors.

 

27.2	Unless expressly provided otherwise in this agreement, the liability of the Parties for their respective obligations and liabilities under this agreement shall be several and shall extend only to any loss or damage arising out of their own breaches.

 

28.	TAX AND COMPLIANCE WITH LAWS

 

28.1

Each Party agrees that the other Party is entitled to all tax benefits, including in particular, tax credits and/or tax deductions attributable to amounts the other Party has paid hereunder. Each Party shall file its tax returns on a basis consistent with this Agreement, and shall not take any action inconsistent with the other Party’s entitlement to such tax benefits. In the event that a Party, in its judgment, determines that it must obtain information and verification regarding the use or application of such expenditures in order to prepare its tax returns or to respond to an inquiry during a tax audit or any other inquiry relating to such treatment of its tax return, or to defend its tax position in any proceeding including litigation, the Parties shall reasonably

 

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cooperate with each other and provide such information as the other Party may reasonably require at the request and expense of the requesting Party.

 

28.2	In exercising its rights under this Agreement, each Party shall fully comply with the requirements of any and all applicable laws, regulations, rules and orders of any Competent Authority having jurisdiction over the exercise of rights under this Agreement.

 

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The Parties hereby execute this Agreement by their duly authorised representatives:

 

For CANCER RESEARCH TECHNOLOGY LIMITED
Director:		/s/ P.J. L’Hullier
Print name:		P.J. L’Hullier, Director, Business Management
Date:		January 17, 2014
For TEVA BRANDED PHARMACEUTICAL PRODUCTS R&D, INC.
Signature:		/s/ Rivka Kreitman
Print name:		Rivka Kreitman
Date:		January 6, 2014
Signature:		/s/ Bruce D. Dorsey
Print name:		Bruce D. Dorsey
Date:		January 20, 2014

 

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SCHEDULE 1

LICENSED PATENTS

 

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SCHEDULE 2

LICENSED KNOW HOW

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SCHEDULE 3

LICENSED MATERIALS

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PART C - Other Materials

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SCHEDULE 4

CONFIRMATORY PATENT LICENCE

THIS AGREEMENT is made the              day of              20[    ]

 

1)	CANCER RESEARCH TECHNOLOGY LIMITED, a company registered in England and Wales under number 1626049 whose registered office is at [407 St John Street, London, EC1V 4AD], England (“CRT”); and

 

2)	TEVA BRANDED PHARMACEUTICAL PRODUCTS R&D, INC., a Delaware corporation with its principal place of business at 41 Moores Road, Frazer, PA 19355, U.S.A. (“Teva”).

RECITALS:

By an agreement (the “Main Agreement”) dated                      and made between CRT and Teva, CRT agreed for the consideration therein contained, among other things, to grant to Teva a licence under [Country/region Patent No.                     ] (the “Patent”) of which this Agreement is a confirmatory licence.

OPERATIVE PROVISIONS:

 

1.

In pursuance of the Main Agreement and for the consideration referred to in the Main Agreement CRT hereby grants to Teva the [exclusive] licence from the          day of                  20     to research, develop, use, keep, make, have made, import, sell and otherwise dispose of Licensed Products (as defined in the Main Agreement) in the Field (as defined in the Main Agreement) in the Territory (as defined in the Main Agreement) for the life of the Patent and subject to the provisions of the Main Agreement.

 

2.

Subject to the provisions of the Main Agreement this Agreement shall determine without notice in the event of the determination for any reason of the Main Agreement.

 

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IN WITNESS of which this Agreement has been executed as a deed and delivered the day and year first above written.

 

EXECUTED as a deed				)		Name (PRINT):
For and on behalf of				)		Title (PRINT):
CANCER RESEARCH				)		Signature:
TECHNOLOGY LIMITED				)		Date:
				)		Name (PRINT):
				)		Title (PRINT):
				)		Signature:
				)		Date:
acting by a Director and its Secretary / two Directors
EXECUTED as a deed				)		Name (PRINT):
For and on behalf of				)		Title (PRINT):
TEVA BRANDED PHARMACEUTICAL PRODUCTS R&D, INC.                    )
		Signature:
				)		Date:
				)		Name (PRINT):
				)		Title (PRINT):
				)		Signature:
				)		Date:

acting by a Director and its Secretary / two Directors

 

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SCHEDULE 5

DEVELOPMENT PLAN

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jonathan E. Lim, M.D., certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Ignyta, 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(s) 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)) 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, including its consolidated subsidiaries, 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 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(s) 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: May 11, 2015		/s/ Jonathan E. Lim, M.D.
		Jonathan E. Lim, M.D.
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jacob M. Chacko, M.D., certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Ignyta, 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(s) 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)) 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, including its consolidated subsidiaries, 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 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(s) 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: May 11, 2015		/s/ Jacob M. Chacko, M.D.
		Jacob M. Chacko, M.D.
		Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Ignyta, Inc. (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 11, 2015

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Ignyta, Inc. (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 11, 2015