·                   Enhance the potential of Alnylam to develop Double Stranded RNA drugs.

·                   Enhance the patent positions of each Party with respect to Double Stranded RNA drugs and Single Stranded RNAi Products.

·                   Provide Isis with a means for participating in the success of RNAi therapeutics.

·                   Provide each party with exclusive rights to research, develop and commercialize Single Stranded RNAi Products for a limited pool of gene targets, and provide each other co-exclusivity in the field of Single Stranded RNAi Compounds.

 

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ARTICLE 1

 

DEFINITIONS; AMENDMENT AND RESTATEMENT

 

1.1                                Capitalized terms used herein and not defined elsewhere herein have the meanings set forth in Exhibit 1.1.

 

1.2                                Effective as of the Restatement Date, this Agreement restates and supersedes the Original Agreement as amended through the Restatement Date.  The terms and conditions of the Original Agreement shall apply for the period from the Effective Date until the Restatement Date unless otherwise provided by this Agreement.

 

ARTICLE 2

 

EQUITY INVESTMENT

 

2.1                                In connection with the Original Agreement, Isis purchased from Alnylam 1,666,667 shares of Series D Preferred Stock, at $6.00 per share (i.e., at an aggregate purchase price of $10,000,002).

 

ARTICLE 3

 

MANUFACTURING SERVICES RELATIONSHIP

 

3.1                                [Intentionally Deleted]

 

ARTICLE 4

 

COLLABORATIVE RESEARCH EFFORTS; PROTECTED TARGETS

 

4.1                                Research Management Committee .

 

(a)           To promote the success of the collaboration objectives and RNAi technology, the Parties will establish a Research Management Committee (“RMC”), which will be comprised of equal numbers of representatives of each of the Parties and will meet at least twice per calendar year, alternating venues between the vicinities of Cambridge, Massachusetts and Carlsbad, California, to share scientific direction and data, to coordinate basic research experiments, and to facilitate the guiding principles of the collaboration.

 

(b)           Intellectual property representatives of each Party will be invited to participate in RMC meetings and such meetings will provide a forum to discuss patent prosecution and enforcement issues and to allocate responsibility for the filing and prosecution of any Joint Patents.

 

(c)           Through the RMC, the Parties will update one another regarding the progress of the Research Program (as defined below), including a summary of the work

 

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each Party has performed thereunder; and regarding their respective Future Chemistry and Motif and Mechanism Patents.

 

(d)           The RMC will establish a written clearance policy that will govern any publication or presentation by a Party in which such Party proposes to include any previously undisclosed information or intellectual property Controlled by the other Party.

 

(e)           The RMC and any subcommittees and working groups established by the RMC will dissolve at the end of the Research Term.  Upon termination of the RMC, the Parties will agree upon a strategy to make decisions about the items in Sections 4.1 (b), (c), and (d).

 

4.2        Single Stranded RNAi Collaboration .  Subject to Alnylam’s early termination right set forth in Section 14.4, during the 3 year period following the Restatement Date (the “Research Term”), the Parties will collaborate in carrying out a research program focused on Single Stranded RNAi Compounds (the “Research Program”).  The Parties may extend the Research Term by mutual written agreement.

 

(a)           Research Plan .  The Research Program will be carried out in accordance with a written research plan, including without limitation the Budget (as defined below), which research plan shall be mutually agreed upon by the Parties (the “Research Plan”).  The initial outline of the Research Plan agreed to by the Parties as of the Restatement Date is hereby incorporated into this Agreement by reference and is made a part of this Agreement; provided , within [***] days of the Restatement Date, the Parties will complete and agree in writing on an initial Research Plan, including without limitation an initial Budget, which is hereby incorporated into this Agreement by reference and is made a part of this Agreement.  The purpose of the Research Plan is to detail the responsibilities and activities of Isis and Alnylam with respect to carrying out the Research Program.  The Research Plan will include a description of the specific activities to be performed by the Parties in support of the Research Program, the allocation of Isis FTEs and Alnylam FTEs to perform such activities, projected timelines for completion of such activities, and an applicable budget (the “Budget”).  The Budget for the Research Program must be mutually agreed by the Parties and will be at least $3,000,000 per year during the Research Term, including without limitation budgeted costs of Isis FTEs and Alnylam FTEs, and external costs.   Beginning in 2010, at least once during September of each year of the Research Term, the RMC will review the Research Plan and will amend the Research Plan, as may be necessary, from time to time.  In addition, each Calendar Quarter the RMC will review the progress of the work under the Research Plan, including spending against the Budget, and recommend adjustments to the Budget as necessary to support the Research Plan.  The Research Plan, including without limitation any Budget, may only be amended with the written approval of the RMC.  If the activities contemplated by the Research Plan at any time do not justify the number of Isis FTEs allocated to the Research Program, the Parties will work in good faith to mutually agree to modify the scope of the Research Plan or adjust the number of Alnylam funded FTEs and related Budget; provided that the minimum Budget for the Research Plan shall be as set forth in this Section 4.2(a).  For clarity, Alnylam shall not be required to agree to any Budget which exceeds $3,000,000 per year.

 

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(b)           Research Staffing .  Subject to Alnylam’s obligations under Section 4.2(c), the Research Plan will provide for (and Isis will supply) a minimum of [***] Isis FTEs per year during the initial two-year period of the Research Term to perform activities in support of the Research Program and a minimum of [***] Isis FTEs during the third year of the Research Program.  Each Party will supply the number of FTEs the Research Plan specifies that such Party will supply, and will conduct the Research Program diligently and in good scientific manner, and in compliance with all applicable good laboratory practices, and applicable legal requirements, to attempt to achieve efficiently and expeditiously the objectives of the Research Program.  Each Party will comply with all Applicable Laws, in the performance of work under this Agreement.

 

(c)           Research Funding .  Alnylam will fund 100% of the costs of conducting the Research Program in accordance with the Research Plan (collectively, the “Research Costs”) to the extent that such Research Costs are incurred under the Budget, including without limitation FTEs (whether employed by Isis or Alnylam) plus any out-of-pocket expenses specified in the Research Plan.  By [***], 2009 with respect to the second Calendar Quarter of 2009 and thereafter within [***] Days following [***] each Calendar Quarter, Alnylam will pay Isis [***] for the Alnylam-funded Isis FTEs assigned to the Research Program for such Calendar Quarter (a prorated amount shall be payable for any portion of a Calendar Quarter).  With respect to any work to be performed in support of the Research Program during the [***] days following the Restatement Date, if the Parties have not agreed on an initial Research Plan, then Alnylam will make [***] payments for such work based on [***] Isis FTEs. No later than [***] days following the end of each Calendar Quarter, Isis will provide Alnylam with a report of the number of FTEs actually assigned to the Research Program with a summary of the FTEs who performed under the Research Program (“Actual FTE Costs”) and a reasonably detailed accounting of all other Research Costs actually incurred by Isis during such Calendar Quarter (“Actual External Costs”).  Alnylam shall not be responsible for any Research Costs incurred by Isis that exceed the [***] amount in the Budget for the work specified in the Research Plan to be conducted by Isis (“Excess Amount”), unless the RMC approves an amendment to the Budget to include such Excess Amount.  Similarly, (i) Alnylam will promptly provide Isis a summary of the Alnylam FTEs who performed under the Research Program for a given Calendar Quarter and a reasonably detailed accounting of all other Research Costs actually incurred by Alnylam during such Calendar Quarter, and (ii) Research Costs incurred by Alnylam that exceed the total amount in the Budget for the work specified in the Research Plan to be conducted by Alnylam will not reduce the amounts committed in the Budget to fund Isis’ Research Costs.  In addition, upon reasonable request, each Party shall provide the other Party with reasonable documentation of Research Costs incurred by such Party during the Research Term and shall grant the other Party reasonable audit rights consistent with the terms set forth in Section 9.3 in connection with such Research Costs.

 

(d)           Materials Transfer .  In order to facilitate the Research Program, either Party may provide to the other Party certain materials for use by the other Party in furtherance of the Research Program.  All such materials shall be used by the receiving Party in accordance with the terms and conditions of this Agreement solely for purposes of performing its rights and obligations under this Agreement and the Research Plan, and the receiving Party shall not transfer such materials to any Third Party unless expressly

 

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contemplated by this Agreement or the Research Plan, or upon the written consent of the supplying Party.

 

4.3                                Enabled Targets for Single Stranded RNAi.

 

(a)           Enabled Targets .  Each Party will have a pool (with respect to either Party, an “Enabled Target Pool”; with respect to Isis, the “Isis Enabled Target Pool”; and, with respect to Alnylam, the “Alnylam Enabled Target Pool”) each containing [***] [***] slots for which such Party can designate certain Gene Targets against which such Party intends to research, develop and commercialize a Single-Stranded RNAi Product (each such slot, an “Enabled Target Slot” and any Gene Target occupying such a slot, an “Enabled Target”); provided, however , that, each time a Party (the “Advancing Party”) designates as a Development Candidate a Single Stranded RNAi Product Designed for one of such Advancing Party’s Enabled Targets, then (i) such Enabled Target will be considered to have graduated from the Advancing Party’s Enabled Target Pool (a “Graduated Enabled Target”), (ii) the Advancing Party will be permitted to designate a new Enabled Target to fill the open Enabled Target Slot in the Advancing Party’s Enabled Target Pool, and (iii) so long as the Advancing Party continues to maintain an Active Program for the applicable Single Stranded RNAi Product Designed for the Graduated Enabled Target, such Graduated Enabled Target will remain an Enabled Target of such Advancing Party hereunder.  For purposes of clarity, except as set forth in Sections 5.1(g)(i), 5.1(h)(i), 5.5, 6.6, 6.1(h)(i) and 6.1(i)(i), as applicable, neither Party may research, develop or commercialize a Single Stranded RNAi Product other than a Single Stranded RNAi Product Designed for one of such Party’s Enabled Targets.

 

(b)           Designating Enabled Targets .  Within thirty (30) days following completion of [***] , the Parties will begin the process set forth below for selecting Enabled Targets for inclusion in each Party’s Enabled Target Pool.  For clarity, at no time may either Party designate a Gene Target which is in the other Party’s Enabled Target Pool.  Except as set forth in Section 4.3(e) below, the Parties will designate Enabled Targets by taking alternating turns (each Party’s designation of a new Gene Target (a “Pick”) or affirmative election not to designate an Enabled Target (a “Pass”) shall be considered a “Turn”; and each round in which Isis and Alnylam have each Picked or Passed once shall be considered a “Round”) in one or more Rounds, as necessary.  For each Turn, a Party shall either Pick or Pass within five (5) Business Days (it being understood that if a Party does not provide affirmative notice of a Pick or Pass within such five (5) Business Day-period, then such Party shall be deemed to have “Passed” in such Turn).  The Parties will complete Rounds until the Parties have either (i) both filled all of their respective Enabled Target Slots, or (ii) both elected to Pass in the same Round, thereby completing a Round (such point being the end of a “Selection Session”, which Selection Session includes all of the Rounds completed since the end of the last Selection Session (or, in the case of the first Selection Session, all prior Rounds)).  For purposes of clarity, either Party may, prior to Picking or Passing in such Party’s Turn in any ongoing Round, remove any existing Gene Target(s) on its Enabled Target List in accordance with Section 4.3(d) and use its Pick in such Turn to Pick a different Gene Target as an Enabled Target on its Enabled Target List, subject to the [***] Enabled Target Slot limitation.  Either Party may initiate a new Selection Session at any time by providing written notice to the other Party (such new Selection Session to begin on the

 

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first Business Day following the 30 th  day following such notice).  For each new Selection Session, the Party who gets to take the first Turn in the First Round will be determined in accordance with Section 4.3(c) below.

 

(c)           Determining First Turn .  Alnylam will take the first Turn in the first Round of the first Selection Session. Thereafter:

 

(i)                                     If, immediately prior to the start of a Selection Session, one Party (the “Lopsided Party”) has fewer Enabled Targets in its Enabled Target Pool than the number of Enabled Targets the other Party has in such other Party’s Enabled Target Pool, then the Lopsided Party will take the first Turn in the First Round.  In such event (1) in each Turn the Lopsided Party makes a [***] that is not a [***] the other Party [***] until both Parties have an [***] in their respective Enabled Target Pools (and then subsequent Rounds in the Selection Session will continue in accordance with Section 4.3(c)(iii) below with the other Party getting the first Pick in the first such subsequent Round); and (2) if the Lopsided Party [***] or [***] in a Turn, the other Party may Pick or Pass (and then any subsequent Rounds in the Selection Session will continue in accordance with Section 4.3(c)(iii) below).

 

(ii)                                 If there is no Lopsided Party immediately prior to the start of a Selection Session, then the Party who was not the last Party to Pass in the prior Selection Session shall be the first Party to take the first Turn in the first Round of such new Selection Session (and then any subsequent Rounds in the Selection Session will continue in accordance with Section 4.3(c)(iii) below).

 

(iii)                             For any subsequent Rounds in a Selection Session, the Party who was not the first Party to take a Turn in the most previous Round will have the first Turn in the next Round.

 

(iv)                                The Parties have attached as Exhibit 4.3(c)(iv) examples of how the Parties intend this Section 4.3(c) to operate.

 

(d)           Removing Enabled Targets .  From time to time after the Restatement Date (except during the 30-day period immediately preceding a Selection Session or when a Lopsided Party is taking Turns under Section 4.3(c)(i)), each Party may remove a Gene Target from its Enabled Target Pool upon written notice to the other Party (which removal will create an open Enabled Target Slot).  In addition, on an Enabled Target-by-Enabled Target basis, if the applicable Party has not designated a Development Candidate comprising a Single Stranded RNAi Product Designed for the applicable Enabled Target before the [***]year anniversary of the date such Party added the applicable Enabled Target to such Party’s Enabled Target Pool, then such Gene Target will be automatically removed from such Party’s Enabled Target Pool.  Once a Party removes a Gene Target from its Enabled Target Pool (whether voluntarily or by operation of this Section 4.3(d)), such Gene Target shall no longer be deemed an Enabled Target hereunder and the removing Party will be prevented from later adding such Gene Target to its Enabled Target Pool until [***] months have passed from the date such Gene Target was removed.

 

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(e)           Isis Protected Targets .  Notwithstanding the foregoing, Alnylam may not designate as one of Alnylam’s Enabled Targets any of the Gene Targets identified as an Isis Protected Target in the letter Isis issued to Alnylam on the Restatement Date (collectively, the “Isis Protected Targets”).

 

(i)                                     With respect to any Isis Protected Target Isis identified as an Isis Protected Target on the Restatement Date due to a contractual restriction that prevents or otherwise restricts Isis’ ability to grant a license to Alnylam under Sections 5.1(g) and 5.1(h) (each an “Isis Partnered Excluded Target”), (1) Isis shall list in the above-reference letter such Isis Partnered Excluded Targets separately such that they are clearly distinguished from other Isis Protected Targets, (2) Isis shall diligently enforce the relevant terms governing Isis’ rights to clear any contractual restrictions on such Isis Partnered Excluded Target, (3) once a particular contractual restriction clears or expires on such Isis Partnered Excluded Target, such Gene Target will no longer be considered an Isis Protected Target, such that Alnylam may then designate such Gene Target as one of its Enabled Targets in accordance with the terms of this Agreement, and (4) when practical (but at least every [***] months), Isis shall update the list of Isis Protected Targets to remove Gene Targets that are no longer Isis Partnered Excluded Targets.

 

(ii)                                 For purposes of clarity, except as permitted under Sections 6.1(h)(i) and 6.1(i)(i), Isis may not research, develop or commercialize a Single-Stranded RNAi Product Designed for any Isis Protected Target unless such Isis Protected Target is designated as an Enabled Target by Isis pursuant to Section 4.3(b) above or the remainder of this Section 4.3(e)(ii).   Notwithstanding anything in this Section 4.3 to the contrary, with respect to any Isis Partnered Excluded Target for which the applicable contractual restriction has cleared or expired (each, a “Cleared Target”) (A) Isis shall not have the right to designate such a Cleared Target as one of its Enabled Targets until Isis has provided written notice to Alnylam of such clearance (as part of the regular updates contemplated in Section 4.3(e)(i) above or otherwise) (such notice, a “Clearance Notice”), and (B) in the first Selection Session following Alnylam’s Receipt of the applicable Clearance Notice with respect to a particular Cleared Target, Isis may not Pick such Cleared Target as one of its Enabled Targets until and unless Alnylam has had a full Turn  in such Selection Session in which it could Pick such Cleared Target as one of its Enabled Targets and does not elect to Pick such Cleared Target.  For example, if two Gene Targets become Cleared Targets (and Alnylam receives a Clearance Notice related thereto) immediately prior to the start of a Selection Session and Isis has the first Turn, (1) Isis may not Pick either such Cleared Target in its first Turn, (2) in Alnylam’s next Turn, Alnylam could Pick either such Cleared Target, and (3) once Alnylam opts to Pick a Gene Target (whether or not such Pick was for one of the two Cleared Targets) or Pass, Isis may then pick either of the remaining two such Cleared Targets that it was prohibited from Picking in its previous Turn.

 

(f)             Confidentiality .  The fact that a Party has designated or removed a particular Gene Target within its Enabled Target Pool is Confidential Information of such Party, subject to the provisions of Article 12.  Neither Party shall disclose such Confidential Information of the other Party to any Third Party, including its Third Party collaborators, or use such Confidential Information of the other Party to guide its own (or its Third Party collaborators’) decisions to pursue particular Gene Targets, but either

 

8

 

Party can use such Confidential Information to decline a Third Party’s request for a license to such Gene Target.  The Isis Protected Targets are Isis’ Confidential Information.

 

(g)          Review Designating Process .  The Parties agree that on or about the three year anniversary of the Restatement Date, if either Party deems appropriate, the Parties will, in good faith, review the process for designating Enabled Targets for the purposes of improving the process for the mutual benefit of both Parties, and if necessary, amend this Section 4.3, to effect such improvements; provided, however, that either Party shall have the right to refuse any such changes in its sole discretion.

 

ARTICLE 5

 

LICENSES GRANTED BY ISIS TO ALNYLAM; AND
CO-EXCLUSIVITY COVENANT

 

5.1                                License Grants .  Subject to the terms and conditions of this Agreement, including, but not limited to, the restrictions set forth in Section 5.3, Isis grants Alnylam the following licenses:

 

(a)           Under Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents, a license to research, develop, make, have made, use, import, offer to sell and sell Double Stranded RNA and Double Stranded RNA Products.

 

(b)           Subject to the terms of Section 11.8, under Isis Future Motif and Mechanism Patents, Isis Future Chemistry Patents and Isis’ rights in Joint Patents, a license to research, develop, make, have made, use, import, offer to sell and sell Double Stranded RNA and Double Stranded RNA Products.

 

(c)           Under the Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents, a license to research, develop, make, have made, use, import, offer to sell and sell MicroRNA Products.

 

(d)           Subject to the terms of Section 11.8, under the Isis Future Motif and Mechanism Patents and Isis Future Chemistry Patents, a license to research, develop, make, have made, use, import, offer to sell and sell MicroRNA Products.

 

(e)           A royalty-free, fully paid, license to practice any Know-How disclosed to Alnylam during the performance of this Agreement, subject to the non-disclosure but not the non-use provisions contained in Article 12.

 

(f)             A fully paid, royalty-free license under Isis Manufacturing Patents to research, develop, make, have made, use and import Alnylam Products for Research Use.

 

(g)          Under the Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents, a license to (i) research, develop, make, have made, use and import Single Stranded RNAi Compounds and Single Stranded RNAi Products for Research

 

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Use, and (ii) research, develop, make, have made, use, import, offer to sell and sell Alnylam Single Stranded RNAi Products.

 

(h)          Subject to the terms of Section 11.8, under Isis Future Motif and Mechanism Patents, Isis Future Chemistry Patents and Isis’ rights in Joint Patents, a license to (i) research, develop, make, have made, use and import Single Stranded RNAi Compounds and Single Stranded RNAi Products for Research Use, and (ii) research, develop, make, have made, use, import, offer to sell and sell Alnylam Single Stranded RNAi Products.

 

(i)             Under Isis’ rights in Research Program Patents, a royalty-free license for any and all purposes, except to research, develop, make, have made, use, import, offer to sell or sell any (1) oligonucleotides (or chemically modified oligonucleotide analogs) designed to work via the RNase H 1 or 2 mechanism (including any oligonucleotide which has [***]), (2) Double Stranded RNA Products, (3) MicroRNA Products, (4) Single Stranded RNAi Products, or (5) Isis Single Stranded Products.

 

5.2                                License Exclusivity, Territory and Sublicenses .

 

(a)           Subject to the terms and conditions of this Agreement, including the restrictions set forth in Section 5.3, the licenses from Isis to Alnylam granted in Sections 5.1(a) and (b) are worldwide and co-exclusive (with Isis), with the exclusive right to grant Naked Sublicenses; the licenses from Isis to Alnylam granted in Sections 5.1 (c), (d), (e), (f), (g)(i), (h)(i) and (i) are worldwide and nonexclusive; and the licenses from Isis to Alnylam granted in Sections 5.1 (g)(ii) and (h)(ii) are worldwide and exclusive.  Alnylam is not permitted to grant sublicenses under the licenses granted in Sections 5.1(a) through 5.1(e), except that Alnylam is permitted to grant (i) sublicenses in connection with a Bona Fide Drug Discovery Collaboration, (ii) sublicenses in connection with a Development Collaboration, (iii) Naked Sublicenses and (iv) sublicenses under the license granted in Section 5.1(e) in connection with the discovery, development or commercialization of any product.  Furthermore, Alnylam is not permitted to grant sublicenses under the licenses granted in Section 5.1(f).  Alnylam may grant sublicenses under Section 5.1(i), subject to Section 7.7.

 

(b)           Alnylam may grant sublicenses under the licenses granted in Sections 5.1(g) and 5.1(h) only to further the research, development or commercialization of an Alnylam Single Stranded RNAi Product that Alnylam has performed on its own (or with Isis under the Research Plan) and [***] at least [***]% of the work to discover and develop the Alnylam Single Stranded RNAi Product through the [***] [***] (or a date that is earlier than the [***] if requested by Alnylam and approved in writing by Isis, such approval not to be unreasonably withheld).

 

(c)           Alnylam cannot sublicense its right to grant Naked Sublicenses under this Agreement except that Alnylam may permit its sublicensees to grant further sublicenses in connection with a sublicense to further the research, development or commercialization of an Alnylam Product.

 

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(d)           Notwithstanding the foregoing, (i) Alnylam acknowledged and permits the license Isis granted [***], as amended through the Restatement Date, that granted [***] a nonexclusive license under Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents for the manufacture and sale of chemically modified oligonucleotides for [***] only and (ii) Isis may continue to grant licenses to Third Parties for the purpose of manufacturing and selling oligonucleotides; provided that , to the extent such licenses cover Double Stranded RNA or Single Stranded RNAi Compounds, Isis will restrict such licenses to [***].

 

5.3                                Limitations on Licenses .

 

(a)           The licenses granted under Section 5.1 above are not intended to grant any rights to Alnylam to practice the Isis Excluded Technology.  If Alnylam wishes to license any Isis Excluded Technology for which Isis has the right to grant a license or sublicense, Isis will negotiate in good faith an appropriate license.

 

(b)           Notwithstanding the licenses granted to Alnylam under Section 5.1, Isis retains its rights in the Isis Patent Rights and in the Joint Patents (i) exclusively for the Isis Reserved DS-Targets, and (ii) exclusively for the Isis Encumbered Targets.  Once a particular contractual restriction expires on an Isis Encumbered Target, Alnylam’s licenses under Section 5.1 will no longer be limited under this Section 5.3(b) for such target and such target shall no longer be an Isis Encumbered Target.  Isis will update the [***] (as defined in the letter agreement dated March 9, 2004 between Alnylam and Isis) provided to Alnylam prior to the Effective Date and subsequent [***] provided to Alnylam from time to time to remove targets that are no longer Isis Encumbered Targets promptly upon receipt of a written request from Alnylam to update such [***], but will not be required to update such [***] more frequently than [***] a calendar quarter.  In addition, the licenses granted by Isis to Alnylam under each of Sections 5.1(g)(i) and 5.1(h)(i) do not include the right to research, develop, make, have made, use, or import Single Stranded Compounds or Single Stranded RNAi Products, in each case that are Designed for Isis’ Enabled Targets or the Isis Protected Targets.

 

(c)           Licenses to Isis Patent Rights that are joint patents with Third Parties (i.e., invented by one or more Isis inventors and one or more non-Isis inventors) are licensed subject to the retained rights of any non-Isis inventors and their assignees and licensees.  Any such retained rights of non-Isis inventors and their assignees and licensees existing as of the Restatement Date are set forth in Exhibit 5.3(c) attached hereto.

 

(d)           Licenses to Isis Patent Rights that are subject to contractual obligations between Isis and Third Parties in effect as of the Restatement Date are licensed subject to the restrictions and other terms described in Exhibit 5.3(d) attached hereto.  Alnylam hereby agrees to comply, and to cause its sublicensees to comply, with such restrictions and other terms.

 

5.4                                Alnylam Covenant Regarding Sublicensing of Isis Patent Rights .  Alnylam shall use good faith efforts to include sublicenses under the licenses under the Isis Patent Rights granted to Alnylam in Sections 5.1(a) and 5.1(b) in any Third Party collaboration

 

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or license agreement in which Alnylam grants rights to develop and commercialize Double Stranded RNA Products, unless the technology covered by such licensed Isis Patent Rights would not reasonably be expected to advance the goals of such Third Party collaboration or license relationship.

 

5.5                                Isis Covenant to Alnylam Regarding Co-Exclusivity for Single Stranded RNAi Products .  Isis hereby covenants to Alnylam, that, after the Restatement Date, Isis will not itself, and will not grant to a Third Party a license under the Isis Current Motif and Mechanism Patents, Isis Current Chemistry Patents, Isis Future Motif and Mechanism Patents, Isis Future Chemistry Patents, the Co-Exclusive ssRNAi Patents, and/or Isis’ rights in any Joint Patents or Research Program Patents to, research, develop, make, have made, use, import, offer to sell and sell Single Stranded RNAi Compounds or Single Stranded RNAi Products, except Isis may (i) research, develop, make, have made, use and import Single Stranded RNAi Compounds or Single Stranded RNAi Products for [***], (ii) grant a license to Controlled Contractors to support work under the Research Plan, (iii) grant a license to further the research, development or commercialization of an Isis Single Stranded Product, (iv) grant a license to further the research, development or commercialization of an Isis Single Stranded RNAi Product solely in conjunction with a permitted sublicense by Isis under Section 6.3; and (v) continue to grant licenses to Third Parties for the purpose of manufacturing and selling oligonucleotides; provided that , to the extent such licenses cover Single Stranded RNAi Compounds, Isis will restrict such licenses to [***].  For purposes of clarity, this Section 5.5 will not preclude Isis from (A) itself using the [***], or (B) granting any Third Party a license under the [***].

 

ARTICLE 6

 

LICENSES GRANTED BY ALNYLAM TO ISIS; AND
CO-EXCLUSIVITY COVENANT

 

6.1                                License Grants .  Subject to the terms and conditions of this Agreement, including, but not limited to, the restrictions set forth in Section 6.5, Alnylam grants Isis the following licenses:

 

(a)           A fully-paid, royalty-free, nonexclusive license under Alnylam Current Motif and Mechanism Patents and Alnylam Current Chemistry Patents to research, develop, make, have made, use and import Isis Products other than Isis Single Stranded RNAi Products for Research Use.

 

(b)           Subject to the terms of Section 11.8, a fully paid, royalty-free nonexclusive license under Alnylam Future Motif and Mechanism Patents and Alnylam Future Chemistry Patents to research, develop, make, have made, use and import Isis Products other than Isis Single Stranded RNAi Products for Research Use.

 

(c)           A nonexclusive license under Alnylam Current Motif and Mechanism Patents and Alnylam Current Chemistry Patents to research, develop, make, have made, use, import, offer to sell and sell Isis Single Stranded Products.

 

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(d)           Subject to the terms of Section 11.8, a nonexclusive license under Alnylam Future Motif and Mechanism Patents and Alnylam Future Chemistry Patents to research, develop, make, have made, use, import, offer to sell and sell Isis Single Stranded Products.

 

(e)           Under the Alnylam Current Motif and Mechanism Patents and Alnylam Current Chemistry Patents, a nonexclusive license to research, develop, make, have made, use, import, offer to sell and sell MicroRNA Products.

 

(f)             Subject to the terms of Section 11.8, under the Alnylam Future Motif and Mechanism Patents and Alnylam Future Chemistry Patents, a nonexclusive license to research, develop, make, have made, use, import, offer to sell and sell MicroRNA Products.

 

(g)          A worldwide, royalty-free, fully paid, nonexclusive license to practice any Know-How disclosed to Isis during the performance of this Agreement, subject to the non-disclosure but not the non-use provisions contained in Article 12.

 

(h)          A worldwide license under the Alnylam Current Motif and Mechanism Patents and Alnylam Current Chemistry Patents to (i) research, develop, make, have made, use and import Single Stranded RNAi Compounds and Single Stranded RNAi Products for Research Use, and (ii) research, develop, make, have made, use, import, offer to sell and sell Isis Single Stranded RNAi Products.  The license granted to Isis under the foregoing clause (i) shall be non-exclusive, and the license granted to Isis under the foregoing clause (ii) shall be exclusive.

 

(i)             Subject to the terms of Section 11.8, a worldwide license under Alnylam Future Motif and Mechanism Patents and Alnylam Future Chemistry Patents to (i) research, develop, make, have made, use and import Single Stranded RNAi Compounds and Single Stranded RNAi Products for Research Use, and (ii) research, develop, make, have made, use, import, offer to sell and sell Isis Single Stranded RNAi Products.  The license granted to Isis under the foregoing clause (i) shall be non-exclusive, and the license granted to Isis under the foregoing clause (ii) shall be exclusive.

 

(j)             Under Alnylam’s rights in Research Program Patents, a royalty-free license for any and all purposes, except to research, develop, make, have made, use, import, offer to sell or sell any (1) oligonucleotides (or chemically modified oligonucleotide analogs) designed to work via the RNase H 1 or 2 mechanism (including any oligonucleotide which has [***]), (2) Double Stranded RNA Products, (3) MicroRNA Products, (4) Single Stranded RNAi Products, or (5) Isis Single Stranded Product.

 

6.2                                License Option .  For each Gene Target in the Isis DS-Target Pool (as further described below) Alnylam grants Isis an option to obtain (on a Reserved DS-Target-by-Reserved DS-Target basis), subject to the terms and conditions of this Agreement, including, but not limited to, the restrictions set forth in Section 6.5, a non-exclusive license under (i) Alnylam Current Motif and Mechanism Patents and Alnylam

 

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Current Chemistry Patents and (ii) subject to the terms of Section 11.8, Alnylam Future Motif and Mechanism Patents, Alnylam Future Chemistry Patents and Alnylam’s rights in Joint Patents, to research, develop, make, have made, use, import, offer for sale and sell Double Stranded RNA Products that are Isis Products.

 

(a)           This option will expire on a Reserved DS-Target-by-Reserved DS-Target basis if Isis has not paid Alnylam the option fee set forth in Section 8.1 below before the earlier of (i) the [***] with respect to such Reserved DS-Target, (ii) the [***] anniversary of the date such Reserved DS-Target [***] or the [***] anniversary of the date such Reserved DS-Target [***] with a Third Party and Isis is contractually able to revoke such Third Party’s rights or (iii) the date [***] with respect to such Reserved DS-Target.

 

(b)           For any Reserved DS-Target for which Isis obtains a license from Alnylam under this Section 6.2, Isis will use Commercially Reasonable Efforts (either on its own or in an Antisense Drug Discovery Program or Development Collaboration) to develop and commercialize Double Stranded RNA Products that modulate such Reserved DS-Target.

 

6.3                                Sublicenses .

 

(a)           With respect to any license granted by Alnylam pursuant to Section 6.1(a), 6.1(b), or 6.2, Isis may only grant a sublicense to a Third Party solely for (i) the purpose of enabling such Third Party to collaborate with Isis in an Antisense Drug Discovery Program, or (ii) to develop and commercialize an Isis Product in a Development Collaboration.   With respect to any license granted by Alnylam pursuant to Section 6.1(c), 6.1(d), 6.1(e), 6.1(f), 6.1(g), Isis may grant a sublicense to a Third Party in connection with the discovery, development or commercialization of any product.  Isis may grant sublicenses under Section 6.1(j), subject to Section 8.5.  With respect to the licenses granted by Alnylam pursuant to Section 6.1(h) and 6.1(i), Isis may only grant a sublicense to a Third Party to further the research, development or commercialization of an Isis Single Stranded RNAi Product that Isis has performed on its own (or with Alnylam under the Research Plan) and [***] at least [***]% of the work to discover and develop the Isis Single Stranded RNAi Product through the [***] (or a date that is earlier than the [***] if requested by Isis and approved in writing by Alnylam, such approval not to be unreasonably withheld).

 

(b)           Notwithstanding anything in this Agreement to the contrary, Isis may not enter into any drug discovery collaboration the primary purpose of which is to discover Double Stranded RNA Products and/or to develop Double Stranded RNA Products to any point up to the [***].

 

6.4                                DS-Target Pool .

 

(a)           Reserved DS-Target Slots .  On the Effective Date, Isis will have a pool (the “Isis DS-Target Pool”) containing up to [***] slots for which Isis can designate certain Gene Targets solely for Antisense Drug Discovery Programs (each such slot, a “DS-Target Slot” and any Gene Target occupying such a slot, a “Reserved DS-Target”);

 

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provided, however , that on January 1 of each year starting with January 1, 2007, Isis will gain the right to purchase one additional DS-Target Slot by paying Alnylam $[***] per each additional DS-Target Slot.  These rights are cumulative and, subject to Section 17.2(c) do not expire during the License Term.  Furthermore, in the event that Isis pays the $[***] license option fee for a Reserved DS-Target pursuant to Section 8.1, such Reserved DS-Target will be considered to have graduated from the Isis DS-Target Pool, and, subject to Section 6.4(e), Isis will be permitted to designate a new Reserved DS-Target to fill the open DS-Target Slot in the Isis DS-Target Pool.  For purposes of clarity, except as permitted under Sections 6.1(h)(i) and 6.1(i)(i), Isis may not research, develop or commercialize Single Stranded RNAi Products for a Reserved DS-Target unless such Reserved DS-Target is designated as an Enabled Target by Isis pursuant to Section 4.3(a) above.

 

(b)           Initial Designations .  The letter delivered by Isis to Alnylam on the Restatement Date sets forth the Reserved DS-Targets as of the Restatement Date.

 

(c)           Removing/Adding DS-Targets .  After the Restatement Date and no more than once in any [***] period (a “Target Reallocation Period”), Isis may do any of the following:

 

(i)                                      Remove a Gene Target from the Isis DS-Target Pool (which, following such removal will create an open DS-Target Slot); or

 

(ii)                                   Add a new Gene Target to any open DS-Target Slot (subject to the procedures and provisions of Section 6.4(e).

 

Notwithstanding the foregoing provisions of this Section 6.4(c), in any Target Reallocation Period, Isis cannot remove a number of Reserved DS-Targets that exceeds the number calculated by dividing the then current number of DS-Target Slots by [***] and rounding down to the nearest whole number.  For the purpose of the limitation described in the immediately preceding sentence, removing a Gene Target from the Isis DS-Target Pool and then filling the open DS-Target Slot created by such removal shall count as a single removal.  Once Isis removes a Gene Target from the Isis DS-Target Pool, Isis will be prevented from later adding such Gene Target to the Isis DS-Target Pool until [***] have passed from the date Isis removed such Gene Target.

 

(d)           New Target Request .  When Isis wishes to add a new Gene Target to occupy a vacant DS-Target Slot, it will provide Alnylam with written notice (the “Request Notice”) of the Gene Target it wishes to add (the “Proposed Reserved DS-Target”).  The Request Notice will include the gene name, and the NCBI accession number or nucleic acid sequence for the Proposed Reserved DS-Target.

 

(e)           New Target Rejection/Approval .  Within [***] of receipt of the Request Notice, Alnylam will give Isis written notice if any of the criteria set forth below applied to such Proposed Reserved DS-Target at the time of Alnylam’s receipt of the Request Notice.  If, at such time, the Proposed Reserved DS-Target is (i) subject to Alnylam’s own Active Program [***], (ii) encumbered by a contractual obligation

 

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between Alnylam and a Third Party that would preclude Alnylam from granting a license under Section 6.2 with respect to the Proposed Reserved DS-Target or (iii) the subject of Alnylam’s good faith negotiations to enter into a contractual obligation within the [***] following receipt of the Request Notice with a Third Party (as supported by a written request from such Third Party) that would preclude Alnylam from granting a license under Section 6.2 with respect to the Proposed Reserved DS-Target, then the Proposed Reserved DS-Target will be rejected and will not become a Reserved DS-Target.  If the Proposed Reserved DS-Target is not rejected under this subsection (e), the Proposed Reserved DS-Target will become an Isis Reserved DS-Target.  Alnylam will promptly notify Isis in writing if a rejected Proposed Reserved DS-Target later becomes available to be designated as a Reserved DS-Target.

 

(f)             [Intentionally Deleted] .

 

(g)          Diligence on Rejected Targets .  If (i) Alnylam rejects a Proposed Reserved DS-Target under Section 6.4(e) above and (ii) Alnylam has [***] with respect to such rejected Proposed Reserved DS-Target by the [***] anniversary of the date Alnylam rejected such Proposed Reserved DS-Target if Alnylam is working on such target alone, or the [***] anniversary of the date Alnylam rejected such Proposed Reserved DS-Target if such rejected Proposed Reserved DS-Target is subject to a contractual obligation between Alnylam and a Third Party that would preclude Alnylam from granting a license under Section 6.2 with respect to the rejected Proposed Reserved DS-Target but Alnylam [***], then [***] such rejected Proposed Reserved DS-Target [***].

 

(h)          Diligence Obligations in Third Party Contractual Obligations .  With the goal of minimizing contractual encumbrances on Alnylam Patent Rights with respect to Gene Targets in the absence of a reasonable intent to discover and develop products that modulate such Gene Targets by Third Parties with which Alnylam enters into such contractual obligations, Alnylam intends to seek reasonable diligence obligations from Third Parties in negotiating contracts between Alnylam and such Third Parties that would constitute contractual obligations of Alnylam that would preclude Alnylam from granting licenses to Isis under Section 6.2 with respect to Proposed Reserved DS-Targets; or that would prevent Alnylam from granting Isis licenses with respect to Proposed Reserved DS-Targets; provided that Isis hereby acknowledges that such diligence obligations are often heavily negotiated in biotechnology license and collaboration agreements and that this Section 6.4(h) shall not prevent Alnylam from entering into contracts between Alnylam and Third Parties in accordance with Alnylam’s reasonable business judgment.

 

(i)             Confidentiality .  The fact that Isis has designated or removed a particular Gene Target within the Isis DS-Target Pool is Confidential Information of Isis, or that Alnylam has rejected a particular Gene Target proposed for a DS-Target Slot or disallowed the redesignation of a particular Gene Target is Confidential Information of Alnylam, subject to the provisions of Article 12.  Neither Party shall disclose such Confidential Information of the other Party to any Third Party, including its Third Party collaborators, or use such Confidential Information of the other Party to guide its own (or its Third Party collaborators’) decisions to pursue particular Gene Targets, but Alnylam

 

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can use such Confidential Information of Isis to decline a Third Party’s request for a license to such Gene Target.

 

6.5                                Limitations on Licenses .

 

(a)           The licenses granted under Sections 6.1 and 6.2 above are not intended to grant any rights to Isis to practice the Alnylam Excluded Technology.  If Isis wishes to license any Alnylam Excluded Technology for which Alnylam has the right to grant a sublicense, Alnylam will negotiate in good faith an appropriate license.

 

(b)           Licenses to Alnylam Patent Rights that are joint patents with Third Parties (i.e., invented by one or more Alnylam inventors and one or more non-Alnylam inventors) are licensed subject to the retained rights of any non-Alnylam inventors and their assignees and licensees.  There are no Alnylam Current Chemistry Patents or Alnylam Current Motif and Mechanism Patents subject to such retained rights.

 

(c)           Licenses to Alnylam Patent Rights that are subject to contractual obligations between Alnylam and Third Parties in effect as of the Effective Date are licensed subject to the restrictions and other terms described in Exhibit 6.5(c) attached hereto.  Isis hereby agrees to comply, and to cause its sublicensees to comply, with such restrictions and other terms.

 

(d)           Notwithstanding anything to the contrary herein, the licenses to Alnylam Patent Rights hereunder initially shall not include licenses to Patents licensed by Alnylam from Stanford University under any agreement between Alnylam and Stanford University in effect as of the Restatement Date; provided that if any such licensed Patents become issued Patents, Isis shall have the option of expanding its licenses to Alnylam Patent Rights hereunder to include such issued Patents by notifying Alnylam of such election and agreeing to pay to Alnylam, in addition to all amounts otherwise payable to Alnylam hereunder (and without any right under Section 8.2 to reduce such otherwise payable amounts as a consequence of such additional payment amounts), all amounts that (i) become payable by Alnylam to Stanford University as a result of such expansion of Isis’ licenses and Isis’ (and its Affiliates’ and sublicensees’) exercise of its rights thereunder and (ii) are described on Exhibit 6.5(d) attached hereto.

 

(e)           In addition, the licenses granted by Alnylam to Isis under each of Sections 6.1(h)(i), 6.1(i)(i) and 6.1(j) do not include the right to research, develop, make, have made, use, or import Single Stranded RNAi Compounds or Single Stranded RNAi Products, in each case that are Designed for Alnylam’s Enabled Targets.

 

6.6                                Alnylam Covenant to Isis Regarding Co-Exclusivity for Single Stranded RNAi Products .  Alnylam hereby covenants to Isis, that, after the Restatement Date, Alnylam will not itself, and will not grant to a Third Party a license under the Alnylam Current Motif and Mechanism Patents, Alnylam Current Chemistry Patents, Alnylam Future Motif and Mechanism Patents, Alnylam Future Chemistry Patents, the Co-Exclusive ssRNAi Patents, and/or Alnylam’s rights in any Joint Patents or Research Program Patents to, research, develop, make, have made, use, import, offer to sell and sell Single Stranded RNAi Compounds or Single Stranded RNAi Products, except

 

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Alnylam may (i) research, develop, make, have made, use or import Single Stranded RNAi Compounds or Single Stranded RNAi Products for [***], (ii) grant a license to Controlled Contractors to support work under the Research Plan, (iii) grant a license to further the research, development or commercialization of an Alnylam Single Stranded RNAi Product solely in conjunction with a permitted sublicense by Alnylam under Section 5.2; and (iv) continue to grant licenses to Third Parties for the purpose of manufacturing and selling oligonucleotides; provided that , to the extent such licenses cover Single Stranded RNAi Compounds, Alnylam will restrict such licenses to [***].  For purposes of clarity, this Section 6.6 will not preclude Alnylam from (A) itself using the [***], or (B) granting any Third Party a license under the [***].

 

ARTICLE 7

 

LICENSE FEES AND ROYALTIES PAYABLE TO ISIS

 

7.1                                License Fees .

 

(a)           In connection with the Original Agreement, Alnylam paid Isis an initial, irrevocable, noncreditable and non-refundable license fee of $5,000,000.

 

(b)           Alnylam will pay Isis an additional, irrevocable, noncreditable and non-refundable license fee of $11,000,000 within 5 Business Days following the Restatement Date.

 

7.2                                Royalties .

 

(a)           Subject to the terms and conditions of, and during the term of, this Agreement, Alnylam will pay to Isis royalties on sales of Alnylam Double Stranded RNA Products by Alnylam, its Affiliates or sublicensees (except Naked Sublicensees) equal to [***]% of Net Sales.  Alnylam may reduce the royalty due under this section by [***]% of any additional royalties that Alnylam owes to Third Parties on such Alnylam Double Stranded RNA Product that arise from Alnylam acquiring access to new technologies after the Effective Date; provided, however that (a) the royalty due under this section can never be less than a floor of [***]% and (b) additional royalties arising as the result of the addition, pursuant to Section 11.8, of Isis Future Chemistry Patents or Isis Future Motif and Mechanism Patents to the Isis Patent Rights licensed to Alnylam cannot be used to reduce the royalty.

 

(b)           Subject to the terms and conditions of, and during the term of, this Agreement, Alnylam will pay to Isis royalties on sales of Alnylam Single Stranded RNAi Products by Alnylam, its Affiliates or sublicensees equal to [***]% of Net Sales; provided, however , that if Alnylam is the subject of an Acquisition, the royalty payable under this Section 7.2(b) on the Net Sales of Alnylam Single Stranded RNAi Products after the date of such Acquisition will be [***]%.

 

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7.3                                Research and Development Milestones .

 

(a)           Single Stranded Research Milestones.   Alnylam, its Affiliates or sublicensees will pay to Isis the following milestone payments within [***] after the first achievement of each of the following events:

 

Milestone Event		Milestone Payment
The earlier of (i) first In Vivo Efficacy in Rodents and (ii) the 18-month anniversary of the Restatement Date		US$10,000,000
First In Vivo Efficacy in NHP		US$5,000,000
First Initiation of Phase I Trial		US$5,000,000

 

Alnylam shall have the right to prepay Isis any or all of the milestone payments set forth in this Section 7.3(a) prior to achievement of the corresponding milestone event(s), in which event such milestone event(s) shall be deemed to have been achieved as of the date of such early payment(s) by Alnylam, and such early payments will be irrevocable, noncreditable and non-refundable.  If Alnylam decides to terminate this Agreement pursuant to Section 14.4, the terms of Section 14.4(d) shall apply.  For purposes of clarity, Alnylam does not have the right to prepay any of the milestones set forth in Section 7.3(b) through 7.3(d) below.

 

(b)           Single Stranded Development Milestones .  Alnylam, its Affiliates or sublicensees will pay to Isis the following milestone payments for each Alnylam Single Stranded RNAi Product within [***] after the first achievement of each of the following events:

 

Milestone Event		Milestone Payment*
Initiation of Phase I Trial		US$[***]
Initiation of Phase III Trial		US$[***]
Filing NDA in U.S., EU or Japan		US$[***]
Marketing Approval in U.S., EU or Japan		US$[***]

 

* If Alnylam is the subject of an Acquisition, any milestone payments under this Section 7.3(b) that were not due before the date of such Acquisition will [***] in amount.

 

Each milestone payment under this Section 7.3(b) will only be due on the [***] Alnylam Single Stranded RNAi Product that modulates a particular Gene Target to trigger such milestone payment, whether such milestone is achieved by Alnylam or an Affiliate or sublicensee of Alnylam.

 

(c)           Double Stranded Development Milestones.   Alnylam, its Affiliates or sublicensees (except Naked Sublicensees) will pay to Isis the following milestone payments for each Alnylam Double Stranded RNA Product within [***] [***] after the first achievement of each of the following events:

 

Milestone Event		Milestone Payment
Initiation of Phase I Trial		US$[***]
Initiation of Phase III Trial		US$[***]
Filing NDA		US$[***]
Marketing Approval		US$[***]

 

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Each milestone payment under this Section 7.3(c) will only be due on the [***] Alnylam Double Stranded RNA Product that modulates a particular Gene Target to trigger such milestone payment, whether such milestone is achieved by Alnylam or an Affiliate or sublicensee of Alnylam.

 

(d)           MicroRNA Milestone.   Alnylam, its Affiliates or sublicensees will pay to Isis a milestone payment of US$[***] for the [***] MicroRNA Product that is an Alnylam Product that modulates a particular Gene Target within [***] after such MicroRNA Product reaches the initiation of [***], and not for any other MicroRNA Product that is an Alnylam Product that modulates the particular Gene Target.

 

7.4                                Sublicensing Revenue on Naked Sublicenses and Single Stranded Sublicenses .

 

(a)           With respect to Sublicense Revenue from each Naked Sublicense granted by Alnylam and its Affiliates under this Agreement, Alnylam will pay Isis within [***] following receipt by Alnylam of such Sublicense Revenue (i) fifty percent (50%) of all such Sublicense Revenue that does not constitute royalty payments, and (ii) [***] percent ([***]%) of the amount that remains of the total royalties received under such Naked Sublicense after Alnylam has paid the royalties that are due from Alnylam to any Third Parties in connection with such Naked Sublicense.

 

(b)           Alnylam will pay Isis a percentage of Sublicense Revenue received by Alnylam and its Affiliates pursuant to sublicenses (or right to obtain a sublicense) granted by Alnylam to a Third Party as permitted by Section 5.2(b).  Alnylam shall make such payment within [***] [***] following receipt by Alnylam of such Sublicense Revenue.  Such percentage will be calculated based on the year in which Alnylam executes such sublicense agreement, and whether or not Alnylam executes such sublicense before or after the Product(s) that are the subject of such sublicense have met the [***] under Section 7.3(b), using the following table:

 

For Single Stranded RNAi Products Alnylam Sublicenses Before [***]

 

Year		2009- 2011		2012- 2013		2014- 2015		2016- 2017		2017+
Applicable Percentage		[***]	%	[***]	%	[***]	%	[***]	%	[***]	%

 

For Single Stranded RNAi Products Alnylam Sublicenses [***] Such Products

 

Year		2009- 2012		2013		2014		2015+
Applicable Percentage		[***]	%	[***]	%	[***]	%	[***]	%

 

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(c)           If Alnylam grants a sublicense (or right to obtain a sublicense) pursuant to which Alnylam will be required to pay Isis Sublicense Revenue under  Section 7.4(b), then, so long as Alnylam pays Isis the applicable Sublicense Revenue when due, Alnylam [***] have to pay Isis [***] of the milestones that become due under Section 7.3(b) after the execution of such sublicense solely with respect to the Alnylam Single Stranded RNAi Product(s) that are being developed and commercialized under each such sublicense.

 

(d)           Notwithstanding any of the foregoing, each of the applicable percentages set forth in the tables above in Section 7.3(b) for any and all periods following the [***] anniversary of the Restatement Date shall be recalculated by multiplying each such percentage by the fraction of X/Y, where X is [***] and Y is the total number of Isis Partnered Excluded Targets for which contractual restrictions have not expired or been cleared as of the [***] anniversary of the Restatement Date.  Such recalculation shall be made on the thirtieth (30 th ) day following the [***] anniversary of the Restatement Date, provided, however , that (i) no recalculation shall be made if the total number of Isis Partnered Excluded Targets for which contractual restrictions have not expired or been cleared as of the [***] anniversary of the Restatement Date is less than or equal to [***]; (ii) the applicable percentages, as so recalculated, shall apply only to all sublicenses entered into between Alnylam and a Third Party following the [***] anniversary of the Restatement Date; and (iii) this Section 7.4(d) shall not adjust the applicable percentages set forth in the tables above in Section 7.3(b) as they apply to any sublicenses entered into between Alnylam and a Third Party on or before the [***] anniversary of the Restatement Date.

 

7.5                                Technology Access Fees from Bona Fide Collaborations .

 

(a)           Alnylam will pay Isis a percentage of Technology Access Fees received by Alnylam and its Affiliates pursuant to Bona Fide Drug Discovery Collaborations and Development Collaborations entered into between Alnylam and a Third Party.  Alnylam shall make such payment to Isis within [***][***] following receipt by Alnylam of such Technology Access Fees.  Such percentage will be calculated based on the year in which Alnylam executes such Bona Fide Drug Discovery Collaboration or Development Collaboration agreement using the following table:

 

Year		2004/2005		2006		2007		2008+
Applicable Percentage		[***]	%	[***]	%	[***]	%	[***]	%

 

However , Alnylam may credit any milestone payments made by Alnylam under Section 7.3(c) above with respect to an Alnylam Double Stranded RNA Product against any Technology Access Fees that are later due under a Bona Fide Drug Discovery Collaboration or Development Collaboration that involves the same Alnylam Double Stranded RNA Product that triggered such milestone payment.

 

(b)           Notwithstanding the foregoing, for any Bona Fide Drug Discovery Collaboration or Development Collaboration agreement, Alnylam will pay Isis a minimum fee, payable upon the first Alnylam Product other than a Single Stranded RNAi

 

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Product developed pursuant to such Bona Fide Drug Discovery Collaboration agreement reaching [***] (in which event Alnylam shall pay Isis such minimum fee within [***] following such initiation of [***]) or within [***] after the execution of such Development Collaboration agreement, equal to the lesser of (i) $[***] or (ii) [***]% of the Technology Access Fees from such collaboration; provided, however that Alnylam may credit any amounts paid Isis pursuant to Section 7.5(a) above as the result of the same Bona Fide Drug Discovery Collaboration or Development Collaboration agreement against this minimum fee with such amounts credited only once, and provided further that if following such payment, additional Technology Access Fees are owed to Isis for such Bona Fide Drug Discovery Collaboration or Development Collaboration, the amounts paid under this Section 7.5(b) (after crediting of any previous Technology Access Fees paid under Section 7.5(a) in accordance with the immediately preceding proviso) will be creditable against such future Technology Access Fees.

 

7.6        Allocation of Sublicense Income and Technology Access Fees .  Each time Alnylam enters a collaboration or license agreement (an “Isis IP Sublicense”) pursuant to which Alnylam grants a sublicense under the Isis Patent Rights to a Third Party, the CEO of Isis and the CEO of Alnylam will in mutually discuss and agree in writing upon: (a) if the Isis IP Sublicense only relates Double Stranded RNA, a good faith determination as to whether such Isis IP Sublicense is a Naked Sublicense or a Bona Fide Drug Discovery Collaboration or Development Collaboration; and (b) if the Isis IP Sublicense relates to Double Stranded RNA and Alnylam Single Stranded RNAi Product(s), a good faith allocation of the consideration received by Alnylam under such Isis IP Sublicense between the consideration attributable to the components of such Isis IP Sublicense that relate to (i) Double Stranded RNA and (ii) Alnylam Single Stranded RNAi Product(s). Within [***] days following the execution of each Isis IP Sublicense, Alnylam, through its CEO, will provide Isis’ CEO a reasonably detailed and accurate description of such Isis IP Sublicense for the purpose of enabling the CEOs to perform the determination and allocation described in this Section 7.6.

 

7.7          Revenue Sharing for Research Program Patents .  Alnylam will pay Isis 50% of any payments received by Alnylam and its Affiliates pursuant to licenses granted by Alnylam to a Third Party under the Research Program Patents for any and all purposes, except to research, develop, make, have made, use, import, offer to sell or sell any (1) oligonucleotides (or chemically modified oligonucleotide analogs) designed to work via the RNase H 1 or 2 mechanism (including any oligonucleotide which has [***]), (2) Double Stranded RNA Products, (3) MicroRNA Products, (4) Single Stranded RNAi Products, or (5) Isis Single Stranded Product.  Alnylam shall make such payment to Isis within [***] following receipt by Alnylam of such payments.

 

ARTICLE 8

 

LICENSE FEES, SUBLICENSE REVENUE AND

ROYALTIES PAYABLE TO ALNYLAM

 

8.1                                Option Fee .  For each Isis Reserved DS-Target for which Isis exercises its option granted pursuant to Section 6.2, Isis will pay Alnylam an irrevocable,

 

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noncreditable and non-refundable option fee of $[***] due upon the date of exercise.  Isis may credit any $[***] payment made under Section 6.4(a) for the DS-Target Slot occupied by such Reserved DS-Target against this option fee.  The option fee is only payable once per Gene Target.

 

8.2                                Royalties .

 

(a)           Subject to the terms and conditions of, and during the term of, this Agreement, Isis will pay to Alnylam royalties on sales of Double Stranded RNA Products that are Isis Products by Isis, its Affiliates or sublicensees equal to [***]% of Net Sales.  Isis may reduce the royalty due under this section by [***]% of any additional royalties that Isis owes to Third Parties on such Double Stranded RNA Products that are Isis Products that arise from Isis acquiring access to new technologies after the Restatement Date; provided, however that (i) the royalty due under this section can never be less than a floor of [***]%, (ii) additional royalties arising as the result of the addition, pursuant Section 11.8, of Alnylam Future Chemistry Patents or Alnylam Future Motif and Mechanism Patents to the Alnylam Patent Rights licensed to Isis, or as the result of an expansion of Isis’ licenses pursuant to Section 6.5(d), cannot be used to reduce the royalty and (iii) Isis shall not be entitled to reduce, pursuant to this sentence, its royalty obligation to Alnylam below a royalty obligation equal to the lesser of (y) Alnylam’s aggregate royalty obligations [***] existing as of the Effective Date [***] [***] and (z) Alnylam’s aggregate royalty obligations [***] [***] as such obligations may be reduced from time to time after the Effective Date.

 

(b)           Subject to the terms and conditions of, and during the term of, this Agreement, Isis will pay to Alnylam royalties on Net Sales of Isis Single Stranded RNAi Products by Isis, its Affiliates or sublicensees equal to [***]% of Net Sales; provided ,  however , that if Isis is the subject of an Acquisition, the royalty payable under this Section 8.2(b) on the Net Sales of Isis Single Stranded RNAi Products following such Acquisition will be [***]%.

 

8.3                                Development Milestones .

 

(a)  Subject to Section 8.4, Isis, its Affiliates or sublicensees will pay to Alnylam the following milestone payments for each Double Stranded RNA Product that is an Isis Product within [***] after the first achievement of each of the following events:

 

Milestone Event		Milestone Payment
Initiation of Phase I Trial		US$[***]
Initiation of Phase III Trial		US$[***]
Filing NDA		US$[***]
Marketing Approval		US$[***]

 

Each milestone payment under this Section 8.3(a) will only be due on [***] Double Stranded RNA Product that is an Isis Product that modulates a particular Gene Target to trigger such milestone payment, whether such milestone is achieved by Isis or an Affiliate or sublicensee of Isis.

 

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(b)  Isis, its Affiliates or sublicensees will pay to Alnylam a milestone payment of US$[***] for the [***] Isis Single Stranded Product that is an Isis Product that modulates a particular Gene Target within [***] after such Isis Single Stranded Product reaches the initiation of IND-Enabling Studies, and not for any other Isis Single Stranded Product that modulates that particular Gene Target.

 

(c)  Isis, its Affiliates or sublicensees will pay to Alnylam a milestone payment of US$[***] for the [***] MicroRNA Product that is an Isis Product that modulates a particular Gene Target within [***] after such MicroRNA Product reaches the initiation of [***], and not for any other MicroRNA Product that is an Isis Product that modulates the particular Gene Target.

 

8.4                                Sublicense Income on Single Stranded RNAi Sublicenses .

 

(a)           With respect to Sublicense Revenue from each sublicense (or right to obtain a sublicense) related to an Isis Single Stranded RNAi Product granted by Isis and its Affiliates under this Agreement after the Restatement Date, Isis will pay Alnylam, within [***] following receipt by Isis of such Sublicense Revenue, a percentage of all such Sublicense Revenue that does not constitute royalty payments. Such percentage will be calculated based on the year in which Isis executes such sublicense agreement, and whether or not Alnylam has paid Isis the research funding and applicable milestones under Section 4.2(c) and 7.3(a), using the following table:

 

Milestone Event			Applicable Percentage
1	Sublicense executed after the Restatement Date but before Alnylam pays Isis the $[***] milestone under Section 7.3(a)		[***]	%
2	Sublicense executed after Alnylam pays Isis the $[***] milestone under Section 7.3(a)  but before the 3 rd  milestone event described below		[***]	%
3	Sublicense executed after Alnylam pays the first 3 years of research funding under Section 4.2(c) and the $[***] milestone for First In Vivo Efficacy in NHP under Section 7.3(a)		[***]	%

 

(b)           In the event that Isis enters an Antisense Drug Discovery Program pursuant to which Isis (i) grants a sublicense under the Alnylam Patent Rights to further develop and/or commercialize an Isis Single Stranded RNAi Product, (ii) commits to discover and/or develop Double Stranded RNA Products or single stranded oligonucleotides that are not Single Stranded RNAi Compounds, or (iii) grants a license or sublicense to intellectual property which would not otherwise result in any amounts becoming payable to Alnylam hereunder (an “Other Isis Sublicense”), then in determining the applicable payment due from Isis to Alnylam in connection with such Antisense Drug Discovery Program, the CEO of Isis and the CEO of Alnylam will mutually agree in writing upon a good faith allocation of the consideration received by Isis under such Antisense Drug Discovery Program between and among the consideration attributable to the components of such Antisense Drug Discovery Program that qualify as

 

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(x) a sublicense to further develop and/or commercialize an Isis Single Stranded Product, (y) a collaboration to discover and/or develop Double Stranded RNA Products or single stranded oligonucleotides that are not Single Stranded RNAi Compounds, and (z) an Other Isis Sublicense; and Isis will pay Alnylam Sublicense Income Fees under Section 8.4(a) in accordance with such allocation.  Within 30 days following the execution of each such transaction, Isis, through its CEO, will provide Alnylam’s CEO a reasonably detailed and accurate description of such transaction for the purpose of enabling Alnylam’s CEO to perform the allocation described in this Section 8.4(b).

 

8.5        Revenue Sharing for Research Program Patents .  Isis will pay Alnylam 50% of any payments received by Isis and its Affiliates pursuant to licenses granted by Isis to a Third Party under the Research Program Patents for any and all purposes, except to research, develop, make, have made, use, import, offer to sell or sell any (1) oligonucleotides (or chemically modified oligonucleotide analogs) designed to work via the RNase H 1 or 2 mechanism (including any oligonucleotide which has [***]), (2) Double Stranded RNA Products, (3) MicroRNA Products, (4) Single Stranded RNAi Products, or (5) Isis Single Stranded Product.  Isis shall make such payment to Alnylam within [***] following receipt by Isis of such payments.

 

ARTICLE 9

 

OTHER PAYMENT TERMS

 

9.1                                Payments .  All payments by a Party under this Agreement will be made in United States dollars by bank wire transfer in next day available funds to such bank account in the United States designated in writing by Alnylam or Isis, from time to time.  Royalties payable under Sections 7.2 and 8.2 shall be payable on a quarterly basis within 45 days after the end of each calendar quarter.  The Party with such royalty obligation (the “Royalty-Paying Party”) shall provide the other Party with a report setting forth (i) gross sales of Alnylam Products or Isis Products, as applicable, by the Royalty-Paying Party, its Affiliates and sublicensees, (ii) all deductions from such gross sales taken in calculating Net Sales, (iii) Net Sales of Alnylam Products or Isis Products, as applicable, by the Royalty-Paying Party, its Affiliates and sublicensees, (iv) royalties payable based on such Net Sales and (v) all other information relevant to the calculation of such royalties, on a product-by-product and country-by-country basis, for each calendar quarter within [***] after the end of such calendar quarter.

 

9.2                                Late Payments; Collections .  In the event that any payment, including royalty, milestone, Sublicense Revenue or Technology Access Fee payments, due hereunder is not made when due, the payment will bear interest from the date due at the lesser of (i) 1.5% per month, compounded monthly, or (ii) the highest rate permitted by law; provided, however , that in no event will such rate exceed the maximum legal annual interest rate.  If a Party disputes in writing the amount of an invoice presented by the other Party within [***] of receipt of such invoice, interest will only be due on the correct amount as later determined or agreed. The payment of such interest will not limit a Party from exercising any other rights it may have as a consequence of the lateness of any payment.  In addition, each Party agrees to pay all external costs of collection, including

 

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reasonable attorneys’ fees, incurred by the other Party in enforcing the payment obligations after a due date has passed under this Agreement.

 

9.3                                Audit Rights .

 

(a)           Upon the written request of Isis or Alnylam, as the case may be, and not more than once in each calendar year, Isis or Alnylam will permit the other Party’s independent certified public accountant to have access upon reasonable advance notice and during normal business hours to its records as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for the current year and the preceding 2 years prior to the date of such request.  The accounting firm will disclose to the auditing Party only whether the royalty reports are correct or incorrect, the specific details concerning any discrepancies, and the corrected amount of Net Sales and royalty payments.  No other information will be provided to the auditing Party.  Once a Party has audited a particular calendar year under this section, the Party will be precluded from subsequently auditing such calendar year.  In any sublicense granted by a Party under this Agreement, such Party will endeavor to secure a similar audit right and if reasonably requested by the other Party will enforce such audit right.

 

(b)           If such accounting firm concludes that additional royalties were owed during such period, the delinquent Party will pay the additional royalties within 90 days of the date such Party receives the accounting firm’s written report.  The fees charged by such accounting firm will be paid by the auditing Party unless the additional royalties, milestones or other payments owed by the audited Party exceed 5% of the royalties, milestones or other payments paid for the time period subject to the audit, in which case the audited Party will pay the reasonable fees and expenses charged by the accounting firm.

 

(c)           Each Party will treat all financial information subject to review under this Section 9.3 or under any sublicense agreement in accordance with the confidentiality provisions of Article 12, and will cause its accounting firm to enter into an acceptable confidentiality agreement obligating such firm to retain all such financial information in confidence pursuant to such confidentiality agreement.

 

9.4                                Taxes .  If laws, rules or regulations require withholding of income taxes or other taxes imposed upon payments set forth in Section 4.2(c) or Article 7 or 8, each Party will make such withholding payments as required and subtract such withholding payments from the payments set forth in Section 4.2(c) or Article 7 or 8.  Each Party will submit appropriate proof of payment of the withholding taxes to the other Party within a reasonable period of time.  The Parties will cooperate to obtain the appropriate tax clearance and/or recover any such withholdings if possible.

 

ARTICLE 10

 

ALNYLAM RIGHTS OF FIRST NEGOTIATION; PREFERRED LICENSEE

 

10.1                         Right of First Negotiation .  Isis will notify Alnylam in writing once (i) Isis, on its own with no subsequent rights to Third Parties, intends to initiate [***] for an

 

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Isis Product that is a Double Stranded RNA Product or (ii) if a Third Party with which Isis has a Development Collaboration or a collaboration on an [***] an Isis Double Stranded RNA Product before or during clinical development or commercialization with no subsequent rights to Third Parties.  Alnylam will have [***] from the receipt of such notice to notify Isis in writing whether or not Alnylam wishes to negotiate with Isis regarding the development and/or commercialization of such Isis Product.  If Alnylam fails to respond to Isis’ notice within the [***] or if Alnylam declines in writing to exercise its right of first negotiation, then Isis will be free to develop and commercialize (either on its own or with a Third Party) the Isis Product.  If Alnylam wishes to negotiate a license or development or commercialization rights in such Isis Product, the Parties will negotiate in good faith the terms of the license or collaboration agreement.  If, despite good faith negotiations, Alnylam and Isis do not reach agreement within [***] from Alnylam’s exercise of its right of first negotiation, then Isis will be free to develop and commercialize (either on its own or with a Third Party) the Isis Product; provided that during the period prior to the latest of (x) the initiation of [***] the Isis Product, (y) the [***] anniversary of the commencement of [***] for the Isis Product or (z) in the case of an Isis Product [***] after the commencement of [***], the [***] anniversary of Isis’ notice to Alnylam [***], Isis shall not enter into a license or collaboration agreement with a Third Party for such Isis Product on terms (the “More Favorable Terms”) that are in the aggregate materially more favorable to the Third Party than the terms on which Isis most recently offered in writing to grant such rights to Alnylam without first offering the More Favorable Terms to Alnylam.

 

10.2                         Preferred Licensee .  If, after the Effective Date, Alnylam grants to any Third Party that is not a Major Pharmaceutical Company a license under the Alnylam Patent Rights to develop and commercialize Double Stranded RNA Products, then if (a) either (i) the [***] terms of such license are more favorable to the Third Party than the [***] terms hereunder with respect to Isis Products are to Isis or (ii) the [***] covered by such license exceeds the [***] potentially licensed to Isis hereunder for development and commercialization of Double Stranded RNA Products, and (b) the roles to be played by Alnylam and such Third Party in the development and commercialization of Double-Stranded RNA Products under such Third Party license, the nature of the Gene Targets covered by such Third Party license and any other relevant terms of such Third Party license do not collectively justify the conditions described in the preceding clauses (a)(i) and/or (a)(ii), then Alnylam shall modify the terms of its licenses to Isis hereunder with respect to such conditions so that they are reasonably equivalent to those granted to the Third Party.

 

ARTICLE 11

 

INTELLECTUAL PROPERTY

 

11.1                         Ownership of Inventions .

 

(a)           Each Party will solely own all inventions, technology, discoveries, or other proprietary property (collectively, “Inventions”) that are made (as determined by U.S. rules of inventorship) solely by employees of or consultants to that Party under this Agreement.

 

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(b)           Isis and Alnylam will jointly hold title to all Inventions, whether or not patentable, that are made (as determined by the U.S. rules of inventorship) jointly by employees of or consultants to Isis and Alnylam, as well as to Patents filed thereon.  Such Inventions will be “Joint Inventions,” and Patents claiming such Joint Inventions will be “Joint Patents.”  Isis and Alnylam will promptly provide each other with notice whenever a Joint Invention is made.  The Parties agree and acknowledge that, except insofar as this Agreement provides otherwise, the default rights conferred on joint owners under US patent law, including the right of each Party to independently practice, license and use a Joint Patent, will apply in relation to the Joint Patents throughout the world as though US patent law applied worldwide.

 

(c)           The Parties agree, upon reasonable request, to execute any documents reasonably necessary to effect and perfect each other’s ownership of any Invention.

 

11.2                         Filing and Prosecution of Isis and Alnylam Patent Rights .

 

(a)           Isis and Alnylam will work closely, through their interactions on the RMC to ensure that, to the greatest degree permitted by United States and foreign patent laws, Patents for Inventions relating to all aspects of Double Stranded RNA and/or Single Stranded RNAi Compounds or Single Stranded RNAi Products are obtained and shared.

 

(b)           Except as set forth in Sections 11.2(f) and 11.2(g) below, Isis will be responsible for preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably necessary or appropriate with respect to the Isis Patent Rights.

 

(c)           Except as set forth in Section 11.2(f) and 11.2(g) below, Alnylam will be responsible for preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably necessary or appropriate with respect to the Alnylam Patent Rights.

 

(d)           Each Party will endeavor in good faith to coordinate its efforts with those of the other Party to minimize or avoid interference with the prosecution of the other Party’s Patents.  Neither Party will initiate or participate in any opposition, reexamination, interference, litigation or other proceeding for the purpose of narrowing or invalidating any claim in a Patent of the other Party.

 

(e)           At either Party’s request, the other Party will keep the requesting Party continuously informed of and provide documentation of all significant matters relating to the preparation, filing, prosecution and maintenance of any designated Patent.

 

(f)             Alnylam will be responsible for preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably necessary or appropriate with respect to the Isis Special Patents.  If Alnylam elects not to file for or continue the prosecution (including any interferences, oppositions, reissue proceedings and re-examinations) or maintenance of an Isis Special Patent in any country, then, Alnylam will notify Isis promptly in writing of its intention in sufficient time to enable Isis to meet any deadlines by which an action must be taken to establish or preserve any such rights in such Patent in such country and Isis will have the right, but not the obligation, to file for

 

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or continue the prosecution or maintenance of such Patent in such country, and Alnylam will cooperate with Isis in regard thereto.

 

(g)          Solely with respect to (i) Research Program Patents, or (ii) Patents licensed under this Agreement that claim Inventions that primarily relate to Single Stranded RNAi Compounds, but, in each case, excluding Joint Patents, the Party who Controls such Patent (the “Responsible Party”) will be responsible for preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably necessary or appropriate with respect to such Patent.  If the Responsible Party decides to discontinue the preparation, filing, prosecution or maintenance of such a Patent, the Responsible Party will notify the other Party at least [***] prior to any deadline that, if missed, would materially prejudice the Patent, and the other Party will have the right, at such Party’s own expense, to prepare, file, prosecute and maintain such Patent.

 

11.3                         Filing and Prosecution of Jointly Owned Patents .

 

(a)           The Research Management Committee will designate one of the Parties as being the responsible Party for preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably necessary or appropriate with respect to any Joint Patent.

 

(b)           Each Party will keep the other Party continuously informed of all significant matters relating to the preparation, filing, prosecution and maintenance of Joint Patents, and shall provide the other Party with copies of any substantial prosecution papers within thirty days of receipt.

 

11.4                         Costs and Expenses.

 

(a)           Except as set forth in Section 11.4(c) below, each Party will bear its own costs and expenses in filing, prosecuting, maintaining and extending the Alnylam Patent Rights and Isis Patent Rights, respectively.

 

(b)           Except as set forth in Section 11.4(c) below, the Parties will pay equal shares of all costs and expenses in filing, prosecuting, maintaining and extending the Joint Patents.

 

(c)           Alnylam will bear [***]% of its own costs and expenses in filing, prosecuting, maintaining and extending the Isis Special Patents.  If Alnylam elects not to file for or continue the prosecution (including any interferences, oppositions, reissue proceedings and re-examinations) or maintenance of an Isis Special Patent in any country, and Isis assumes the continued prosecution of such Isis Special Patent (as permitted by Section 11.2(f)) in such country, then the Parties will [***] all of Isis’ costs and expenses in filing, prosecuting, maintaining and extending the Isis Special Patent for which Isis assumed prosecution.

 

11.5                         Enforcement .

 

(a)           Each Party will promptly advise the other of any suspected or actual infringement of the Isis Patent Rights, Alnylam Patent Rights, or Joint Patents by any

 

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person that reasonably affects the other Party’s business.  The notice shall set forth the facts of such infringement or misappropriation in reasonable detail.

 

(b)           Subject to subsections (c) and (h) below, Alnylam will have the sole and exclusive right, in its sole discretion and at its expense, to assert and enforce any Isis Patent Rights, Alnylam Patent Rights or Joint Patents against any party engaging in an unlicensed or unauthorized making, having made, using, selling, offering for sale or importing of any allegedly infringing Double Stranded RNA.

 

(c)           For any enforcement by Alnylam under subsection (b) above that includes Isis Patent Rights covering a [***] chemical modification, Isis will actively participate in the planning and conduct of such enforcement and will take the lead of such enforcement to the extent that the scope or validity of any such Isis Patent Rights covering a [***] chemical modification is at risk.

 

(d)           Except as set forth in Sections 11.5(b) and (h),

 

(i)                                     Isis will have the sole and exclusive right, in its sole discretion and at its expense, to assert and enforce any Isis Patent Rights;

 

(ii)                                 Alnylam will have the sole and exclusive right, in its sole discretion and at its expense, to assert and enforce any Alnylam Patent Rights and the Isis Special Patent Rights; and

 

(iii)                             The RMC will agree in advance on the enforcement of any Joint Patent and will apportion enforcement responsibilities and recoveries amongst the parties.

 

(e)           The rights granted hereunder to Alnylam to enforce certain licensed in or jointly owned Isis Patent Rights are further limited as described in Exhibit 5.3(d) attached hereto.  The rights granted hereunder to Isis to enforce certain licensed in or jointly owned Alnylam Patent Rights are further limited as described in Exhibit 6.5(c) attached hereto.

 

(f)             The nonenforcing Party will have the right, at its own expense, to participate in the conduct of the enforcement action and to be represented in such action by its own counsel.

 

(g)          The enforcing Party will not enter into any settlement that impacts the validity, scope or interpretation of any claim of any Joint Patent or of any Patent of the nonenforcing Party without prior written authorization of the nonenforcing Party.

 

(h)          If the Party with enforcement rights under section (b) or (d) above (the “Primary Party”) fails to initiate proceedings against any actual or suspected infringement within [***] of receipt of written request for enforcement from the other Party (the “Step-in Party”) and if the infringer is directly competing with a Product (the “Affected Product”) of such Step-in Party, then (i) if the license granted in this Agreement under which the Step-in Party is selling the Affected Product is exclusive or co-exclusive, the  Step-in Party will have the right to assert and enforce the patents that are allegedly being

 

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infringed, or (ii)  if the license granted in this Agreement under which the Step-in Party is selling the Affected Product is non-exclusive, the Step-in Party will have no obligation to pay royalties during the period for which the Primary Party fails to initiate proceedings or take other action (including without limitation entering into a licensing arrangement) to eliminate such infringement; provided that the provisions of the immediately preceding clause (ii) shall not apply if the Primary Party elects to grant the Step-in Party enforcement rights with respect to such infringement. The Primary Party will not grant a license to any such infringing Third Party with respect to any directly competitive infringing product on terms materially more favorable (milestones and royalties) than the terms of the license granted hereunder to the Step-in Party or, solely with respect to the Affected Product, will adjust the terms of such license so that they are not materially less favorable than the terms of the license granted to the infringing Third Party.  In addition, as a condition to the Step-in Party’s right (under clause (i) of this Section 11.5(h)) to assert and enforce a Patent Controlled by the Primary Party that is allegedly being infringed, the Step-in Party must also assert and enforce any relevant Patents Controlled by such Step-in Party against the alleged infringer who is competing with the Affected Product.

 

(i)             Except as otherwise agreed to by the Parties as part of a cost-sharing arrangement, any recovery realized as a result of such litigation, after reimbursement of any reasonable litigation expenses of Isis and Alnylam, shall be retained by the Party or Parties that brought and controlled such litigation for purposes of this Agreement, except that any recovery realized as a result of such litigation shall be treated as Net Sales of Isis Products or Net Sales of Alnylam Products and distributed as such Net Sales would have been distributed.

 

11.6                         [Intentionally Deleted]

 

11.7                         Third Party Patents .  The Parties will consult about the need to license any patents Controlled by Third Parties that would be useful or necessary for either Party to research, develop, make, have made, use, sell, offer for sale or import Double Stranded RNA Products or Single Stranded RNAi Products.  If it is agreed that there is a desire to obtain a license or to acquire any such patent, the Parties will negotiate in good faith regarding (i) the share of the financial obligations relating to the license or acquisition that each Party will bear; (ii) the compensation of any acquisition costs incurred in connection with obtaining the Patent rights; and (iii) an agreement by the Parties to abide by all terms of the agreement under which the patent rights are granted.

 

11.8                         Future Licenses .  If after the Effective Da