EXHIBIT 10.7
AGREEMENT REGARDING CERTAIN
PRODUCTS AND ACTIVITIES AND
AMENDMENT NO. 1 TO DEVELOPMENT AGREEMENT
DATED AS OF MARCH 10, 1993
This Agreement Regarding Certain Products and Activities and Amendment No.
1 to Development Agreement dated as of March 10, 1993 (the "Agreement") is made
effective as of October 25, 1994 by and between ALZA Corporation, a Delaware
corporation ("ALZA"), and Therapeutic Discovery Corporation, a Delaware
corporation ("TDC").
RECITALS
WHEREAS, ALZA and TDC have entered into that certain Development Agreement
dated as of March 10, 1993 (the "Development Contract") pursuant to which ALZA
performs research and development activities on behalf of TDC directed toward
the development of pharmaceutical products; and
WHEREAS, ALZA is marketing, on its own behalf, a Testoderm-Registered
Trademark- Testosterone Transdermal System, consisting of a multilayered
patch for the delivery of testosterone ("Testoderm-Registered Trademark-");
and
WHEREAS, Testoderm-Registered Trademark- has been approved in the United
States by the United States Food and Drug Administration (the "FDA") for
marketing only as a treatment for testosterone deficiency in hypogonadal
males; and
WHEREAS, TDC and ALZA desire that TDC fund a program, including further
clinical testing, to be conducted by ALZA with respect to Testoderm-Registered
Trademark-, with the goal of receiving clearance to market
Testoderm-Registered Trademark- for the treatment of AIDS wasting syndrome
(the "Testoderm-Registered Trademark- Development Program"); and
WHEREAS, such an arrangement is not currently contemplated within the terms
of the Development Contract; and
WHEREAS, under the terms of the Development Contract, ALZA is currently
performing research and development activities on behalf of TDC directed
toward the development of an additional product or products for the delivery
of testosterone (any such product is hereby referred to as a "Second
Generation Testoderm-Registered Trademark- Product"); and
WHEREAS, ALZA desires to expand the use of its drug delivery technologies
to biotechnology, gene therapy and other areas and, to this end, would like to
evaluate proprietary compounds without extensive business negotiations with the
third party who owns the rights to such compounds before determining whether
ALZA's drug delivery technologies will be useful with such compounds; and
WHEREAS, TDC and ALZA desire that TDC fund such material evaluation
activities, on a project-by-project basis; and
WHEREAS, such an arrangement is not currently contemplated within the terms
of the Development Contract:
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, ALZA and TDC hereby agree as follows:
1. FUNDING OF TESTODERM-REGISTERED TRADEMARK- DEVELOPMENT PROGRAM.
In consideration of the royalty payments set forth in Section 4 of this
Agreement, TDC hereby agrees to fund the Testoderm-Registered Trademark-
Development Program in amounts as approved by TDC from time to time (the
"Development Payments"). The Testoderm-Registered Trademark- Development
Program shall be set forth in a work plan prepared by ALZA which is subject
to the approval of TDC, and the parties agree to revise such work plan from
time to time so that it remains a faithful best estimate of the work to be
done under the Testoderm-Registered Trademark- Development Program as agreed
upon by ALZA and TDC. TDC shall not be obligated to make Development
Payments in excess of those expressly approved by TDC and ALZA shall not be
obligated to perform work on the Testoderm-Registered Trademark- Development
Program which would result in Development Payments exceeding amounts
expressly approved by TDC. ALZA and TDC agree that the Development Payments
shall be made on the same basis as "Development Cost" (as defined in the
Development Contract) and shall constitute "Development Costs" within the
meaning of Sections 4.2, 5.1 and 5.3 of the Development Contract and that the
funding of the Testoderm-Registered Trademark- Development Program constitutes
an activity undertaken pursuant to the Development Contract within the
meaning of Section 10.1 thereof; as such, Development Payments are intended
to be included as part of the "total amount paid by this corporation under
the Development Contract" for purposes of Article FIFTH, Section (A)(10)(c)
of the Restated Certificate of Incorporation of TDC, as part of
"expenditure[s] pursuant to the Development Contract" for purposes of Article
FIFTH, Section (A)(2) of the Restated Certificate of Incorporation of TDC, as
part of "the total amounts paid by this corporation pursuant to the
Development Contract" for purposes of Article FIFTH, Section (A)(14) of the
Restated Certificate of Incorporation of TDC, and as part of "any additional
amounts paid by this corporation pursuant to the Development Contract" for
purposes of Article FIFTH, Section (A)(5) of the Restated Certificate of
Incorporation of TDC. Notwithstanding the foregoing, TDC and ALZA confirm
and agree that Testoderm-Registered Trademark- shall not be considered a
"Product" within the meaning of the Development Contract, the Technology
License Agreement between ALZA and TDC dated as of March 10, 1993 (the
"Technology License Agreement") and the License Option Agreement between ALZA
and TDC dated as of March 10, 1993 (the "License Option Agreement").
2
2. DEVELOPMENT OF SECOND GENERATION TESTODERM-REGISTERED TRADEMARK-
PRODUCT. Except with respect to the royalty payments set forth in Section 4
of this Agreement, TDC and ALZA hereby confirm that the Second Generation
Testoderm-Registered Trademark- Product is being developed by ALZA for TDC
under, and the relationship of the parties with respect to the Second
Generation Testoderm-Registered Trademark- Product is governed by the terms
of, the Development Contract, the Technology License Agreement and the
License Option Agreement.
3. MATERIAL EVALUATION PROJECTS.
(a) ACCEPTANCE OF MATERIAL EVALUATION PROJECTS. From time to time,
ALZA will provide TDC with work plans and cost estimates for evaluations of
identified proprietary compounds ("Material Evaluation Candidates"). Such
evaluations will include the preparation of preliminary, abbreviated commercial
assessments and an examination of technical feasibility. Within 45 days after
ALZA provides TDC with such a recommendation for a Material Evaluation
Candidate, TDC shall notify ALZA in writing of its acceptance or rejection of
such Material Evaluation Candidate. Upon written acceptance of a Material
Evaluation Candidate by TDC, such Material Evaluation Candidate shall be deemed
to be a "Material Evaluation Project."
(b) FUNDING OF MATERIAL EVALUATION PROJECTS. In consideration of the
royalty payments set forth in Section 4 of this Agreement, TDC hereby hires ALZA
to perform the Material Evaluation Projects and agrees to fund the Material
Evaluation Projects in amounts to be approved by TDC from time to time (the
"Project Payments"). The Material Evaluation Projects shall be set forth in
work plans prepared by ALZA which are subject to the approval of TDC, and the
parties agree to revise approved work plans from time to time so that they
remain faithful best estimates of the work to be done under the Material
Evaluation Projects as agreed upon by ALZA and TDC. TDC shall not be obligated
to make Project Payments in excess of those expressly approved by TDC, and ALZA
shall not be obligated to perform work on the Material Evaluation Projects which
would result in Project Payments exceeding amounts expressly approved by TDC.
ALZA and TDC agree that the Project Payments shall be made on the same basis as
"Development Costs" (as defined in the Development Contract) and shall
constitute "Development Costs" within the meaning of Sections 4.2, 5.1 and 5.3
of the Development Contract and that the funding of the Material Evaluation
Projects constitutes an activity undertaken pursuant to the Development Contract
within the meaning of Section 10.1 thereof; as such, Project Payments are
intended to be included as part of the "total amount paid by this corporation
under the Development Contract" for purposes of Article FIFTH, Section
(A)(10)(c) of the Restated Certificate of Incorporation of TDC, as part of
"expenditure[s] pursuant to the Development Contract" for purposes of Article
FIFTH, Section (A)(2) of the Restated Certificate of Incorporation of TDC, as
part of "the total amounts paid by this corporation pursuant to the Development
Contract" for purposes
3
of Article FIFTH, Section (A)(14) of the Restated Certificate of
Incorporation of TDC, and as part of "any additional amounts paid by this
corporation pursuant to the Development Contract" for purposes of Article
FIFTH, Section (A)(5) of the Restated Certificate of Incorporation of TDC.
Notwithstanding the foregoing, TDC and ALZA confirm and agree that such
Material Evaluation Projects are not "Products" within the meaning of the
Development Contract, the Technology License Agreement and the License Option
Agreement, unless and until accepted for development as a "Product" under the
terms set forth in the Development Contract.
4. NEW SECTION 7.4A OF THE DEVELOPMENT CONTRACT. In consideration of the
foregoing, a new Section 7.4A is hereby added to the Development Contract as
follows:
"7.4A ROYALTIES ON CERTAIN PRODUCTS AND ACTIVITIES. For purposes of this
Section 7.4A only, capitalized terms not otherwise defined in this Agreement
shall have the meanings ascribed to them in that certain Agreement Regarding
Certain Products and Activities and Amendment No. 1 to Development Agreement
(the "Amendment"), which Amendment is effective as of October 25, 1994.
(a) TESTODERM-REGISTERED TRADEMARK-. In consideration of
TDC's making Development Payments with respect to Testoderm-Registered
Trademark- pursuant to the Amendment, upon receiving clearance from
the FDA to market Testoderm-Registered Trademark- as a treatment for
AIDS wasting syndrome, ALZA shall pay TDC royalties with respect to
Testoderm-Registered Trademark- as follows: (i) up to a maximum of 5%
of worldwide Net Sales of Testoderm-Registered Trademark- determined
as follows: 1% of such Net Sales, plus an additional 0.1% of such Net
Sales for each full one million dollars of Development Payments with
respect to Testoderm-Registered Trademark- paid by TDC; plus (ii) up
to a maximum of 50% of worldwide Sublicensing Revenues in respect of
sales of Testoderm-Registered Trademark- determined as follows: 10%
of such Sublicensing Revenues, plus an additional 1% of such
Sublicensing Revenues for each full one million dollars of
Development Payments with respect to Testoderm-Registered Trademark-
paid by TDC. In determining payments due under this Section 7.4A(a),
Net Sales and Sublicensing Revenues shall be reduced by the dollar
amount of any license or similar payments made to third parties by
ALZA or its Affiliates with respect to the sales of
Testoderm-Registered Trademark-. In determining payments under this
Section 7.4A(a) for any year, the amount of applicable Development
Payments shall be determined as of December 31 of the preceding
calendar year.
(b) SECOND GENERATION TESTODERM-REGISTERED TRADEMARK- PRODUCT. If
ALZA exercises its License Option with respect to the Second Generation
4
Testoderm-Registered Trademark- Product, ALZA shall pay TDC royalties as
follows: (i) in any calendar quarter in which worldwide Net Sales of
Testoderm-Registered Trademark- are greater than worldwide Net Sales of
the Second Generation Testoderm-Registered Trademark- Product, then ALZA
shall pay TDC royalties under the terms set forth in the License
Agreement in the form attached as Exhibit A to the License Option
Agreement and (ii) in any calendar quarter in which worldwide Net Sales
of Testoderm-Registered Trademark- are less than worldwide Net Sales of
the Second Generation Testoderm-Registered Trademark- Product, then ALZA
shall pay TDC the royalties set forth in Section 7.4A(b)(i) PLUS the
royalties set forth in Section 7.4A(a). Notwithstanding the terms of the
License Option Agreement and the License Agreement in the form attached
as Exhibit A thereto, ALZA and TDC hereby agree that any License
Agreement entered into with respect to the Second Generation
Testoderm-Registered Trademark- Product will reflect the foregoing
revised royalty structure.
(c) ROYALTIES IN CONNECTION WITH MATERIAL EVALUATION PROJECTS. In
consideration of TDC making Project Payments with respect to Material
Evaluation Projects pursuant to the Amendment, if any Material Evaluation
Project results in an arrangement whereby the third party who holds the
rights to the proprietary compound being studied funds the ongoing costs of
a development program conducted by ALZA for a product incorporating such
compound (a "Project Product"), ALZA shall pay TDC royalties with respect
to each such Project Product as follows: (i) up to a maximum of 5% of
worldwide Net Sales of such Project Product determined as follows: 2% of
such Net Sales, plus an additional 0.1% of such Net Sales for each full
one million dollars of Project Payments paid by TDC with respect to such
Project Product; plus (ii) up to a maximum of 50% of worldwide Sublicensing
Revenues with respect of sales of such Project Product determined as
follows: 20% of such Sublicensing Revenues, plus an additional 1% of such
Sublicensing Revenues for each full one million dollars of Project Payments
paid by TDC with respect to such Project Product. If any Material
Evaluation Project results in an arrangement whereby TDC funds the ongoing
costs of a development program conducted by ALZA and TDC for a Project
Product accepted for development as a "Product" under the terms set forth
in the Development Contract, such Project Product shall in all respects be
a "Product" within the meaning of the Development Contract, the Technology
License Agreement and the License Option Agreement and, if ALZA exercises
its License Option for such Project Product, ALZA shall pay TDC royalties
for such Project Product under the terms set forth in the License Agreement
in the form attached as Exhibit A to the License Option Agreement (and
Project Payments with respect to such Project Product shall be included in
Development Cost for purposes of
5
calculating the royalties due to TDC thereunder.) If any Material
Evaluation Project results in a product development and commercialization
arrangement other than an arrangement whereby either (i) the third party
who owns the rights to the proprietary compound being studied, or (ii)
TDC, funds the ongoing costs of a development program conducted by ALZA
for a Project Product, ALZA and TDC agree to negotiate in good faith an
alternative payment structure or other economic arrangement to compensate
TDC for making Project Payments with respect to the Material Evaluation
Project. In determining payments due under this Section 7.4A(c), Net
Sales and Sublicensing Revenues shall be reduced by the dollar amount of
any license or similar payments made to third parties by ALZA or its
Affiliates with respect to sales of the relevant Project Product. In
determining payments under this Section 7.4A(c) for any year, the amount
of applicable Project Payments shall be determined as of December 31 of
the preceding calendar year."
ALZA and TDC hereby confirm and agree that the royalties or other payments
to TDC described in Section 7.4A of the Development Contract, as amended by this
Agreement, are intended to be included within the definition of "Royalties" as
such term is defined in the Restated Certificate of Incorporation of TDC.
5. AMENDMENTS TO SECTIONS 7.6 OF THE DEVELOPMENT CONTRACT. Section
7.6 of the Development Contract is hereby amended so that each reference to
"Section 7.4" is deleted and replaced with a reference to "Sections 7.4,
7.4A(a) and 7.4A(c)" and to add the words "Testoderm-Registered Trademark-
and Project Product" after the term "Other Royalty-Bearing Product."
6. APPROVAL OF BOARDS OF DIRECTORS. ALZA and TDC represent and
warrant, each to the other, that the foregoing amendments to the Development
Contract have been approved by their respective Boards of Directors prior to
execution of this Agreement.
7. INDEMNIFICATION. ALZA shall indemnify, defend and hold TDC
harmless from and against any and all liabilities, claims, demands, damages,
costs, expenses or money judgments rendered against TDC and its Affiliates
(as defined in the Development Contract), which arise out of the use, design,
labeling or manufacture, processing, packaging, sale or commercialization of
Testoderm-Registered Trademark- by ALZA, its Affiliates (as defined in the
Development Contract), subcontractors and sublicensees. TDC shall permit
ALZA's attorneys, at ALZA's discretion and cost, to handle and control the
defense of any claims or suits as to which TDC may be entitled to indemnity
hereunder, and TDC agrees not to settle any such claims or suits without the
prior written consent of ALZA. TDC shall give ALZA prompt notice in writing,
in the manner set forth in Section 13.7 of the Development Contract, of any
claim or
6
demand made against TDC for which TDC may be entitled to indemnity hereunder.
TDC shall have the right to participate, at its own expense, in the defense of
any such claim or demand to the extent it so desires.
8. MISCELLANEOUS. This Agreement shall terminate upon termination of
the Development Contract. Except as otherwise expressly provided herein, the
terms of the Development Contract, the Technology License Agreement and the
License Option Agreement shall remain in full force and effect. This
Agreement may not be amended except in a writing signed by both parties. If
any provision of this Agreement is held by a court of competent jurisdiction
to be invalid or unenforceable, it shall be modified, if possible, to the
minimum extent necessary to make it valid and enforceable or, if such
modification is not possible, it shall be stricken and the remaining
provisions remain in full force and effect; provided, however, that if a
provision is stricken so as to significantly alter the economic arrangements
of this Agreement, the Development Contract or the "Purchase Option" as
defined in the Restated Certificate of Incorporation of TDC, the party
adversely affected may terminate this Agreement upon 60 days' prior written
notice to the other party. Neither party may assign its rights or
obligations hereunder without the prior written consent of the other party,
which consent may not be unreasonably withheld; provided, however, that ALZA
may assign such rights and obligations hereunder to any person or entity with
which ALZA is merged or consolidated or which purchases all or substantially
all of the assets of ALZA. This Agreement shall be governed by the laws of
the State of California as applied to residents of that state entering into
contracts to be performed in that state. The headings set forth at the
beginning of the various sections of this Agreement are for reference and
convenience and shall not affect the meanings of the provisions of this
Agreement.
IN WITNESS WHEREOF, ALZA and TDC have caused this Agreement to be executed
as of the date first set forth above by their duly authorized representatives.
ALZA CORPORATION THERAPEUTIC DISCOVERY
CORPORATION
By: /s/ Xxxxx X. Staple By: /s/ Xxxx X. Xxxx
----------------------------------- ---------------------------------
Title: Vice President and General Counsel Title: President and Chief Executive
Officer
Date: March 27, 1996 Date: 27 March 1996
----------------------------------- -------------------------------
7
