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COLLABORATION AND LICENSE AGREEMENT

Collaboration Agreement
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Title: COLLABORATION AND LICENSE AGREEMENT
Governing Law: Delaware     Date: 5/10/2007
Law Firm: Dechert LLP    

COLLABORATION AND LICENSE AGREEMENT, Parties: pharmacopeia drug discovery inc , pharmacopeia inc
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Exhibit 10.1

Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 406 under the Securities Act of 1933. Such omissions are designated as ***.

COLLABORATION AND LICENSE AGREEMENT

This COLLABORATION AND LICENSE AGREEMENT (the “Agreement”), effective as of the 25th day of February 2002 (the “Effective Date”), as modified by the Addendum effective December 22, 2003 and the Second Addendum effective December 1, 2004, and as further amended and restated effective as of February 8th, 2007 (the “Amendment Date”), is made by and between Pharmacopeia Drug Discovery, Inc. (as successor in interest to Pharmacopeia, Inc.), a Delaware corporation, having a principal place of business at 3000 Eastpark Boulevard, Cranbury, New Jersey 08512 (“Pharmacopeia”), and N.V. Organon, a Dutch Company limited by Shares, having a principal place of business at Kloosterstraat 6, 5342 AB Oss, The Netherlands (“Organon”).

BACKGROUND

WHEREAS , Pharmacopeia has internal expertise in the screening and optimization of compounds;

WHEREAS , Organon is interested in utilizing the expertise of Pharmacopeia in the identification of Lead Compounds and Optionable Development Candidates against certain Targets; and

WHEREAS, Organon and Pharmacopeia wish to enter into a Research Collaboration the objective of which will be for Pharmacopeia to deliver Lead Series (as defined herein); for Pharmacopeia and Organon to collaboratively optimize certain of these Lead Series into Optionable Development Candidates; for Organon to develop market and sell Collaboration Products; and for Pharmacopeia to have certain co-development and co-commercialization rights.

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

ARTICLE 1

DEFINITIONS

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

1.1                                  “ Affiliate ” means any Person controlled by, controlling, or under common control with a Party. For the purpose of this Section 1.1 only, “control” shall refer to (a) the possession, directly or indirectly, of the power to direct the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, or (b) the ownership,

 

directly or indirectly, of at least fifty percent (50%) (or, if less, the maximum ownership interest permitted by law) of the voting securities or other ownership interest of a Person.

1.2                                  “ Acquired Program ” has the meaning set forth in Section 2.9(c1).

1.3                                  “ Assay ” collectively refers to the Primary Assay and the Secondary Assay.

1.4                                  “ Assay Improvements ” have the meaning set forth in Section 2.3.

1.5                                  “ Back-up Program ” has the meaning set forth in Section 2.2(b)(iii).

1.6                                  “ Buy-up ” has the meaning set forth in Section 2.9.

1.7                                  “ Collaboration Product ” means any therapeutic or prophylactic product that contains a Second Research Term Lead Compound or Derivative Compound thereof or an Optionable Development Candidate.

1.8                                  “ Columbia License ” means that certain license agreement effective as of July 16, 1993, as amended and restated as of October 6, 1995, and as further amended and restated effective as of July 1, 2003, entered by and between Pharmacopeia and the Trustees of Columbia University in the City of New York and the Cold Spring Harbor Laboratory.

1.9                                  “ Combination Product ” means any therapeutic or prophylactic product that comprises two (2) or more active ingredients, at least one of which is a Second Research Term Lead Compound or a Derivative Compound thereof or an Optionable Development Candidate.

1.10                            “ Confidential Information ” as to each Party, means such Party’s confidential information, Patent Rights and Know-how, all the data and materials of that Party relating to the Research Collaboration, the Target Information, Lead Compounds, Organon Compounds, Derivative Compounds thereof and Collaboration Products, and including without limitation, all research, technical, clinical development, manufacturing, marketing, financial, personnel, and other business information and plans of such Party.

1.11                            “ Controls ” or “ Controlled ” means possession of the ability to grant licenses or sublicenses without violating the terms of any agreement or other arrangement with, or the rights of, any Third Party.

1.12                            “ Derivative Compound ” means a compound which is a chemical modification of a Lead Compound or other active structure disclosed by one Party to the other with respect to a particular Target, having potency at a level to be determined by the JRC with respect to such Target, which (i) results from a chemical synthesis program based on a Lead Compound or other active structure disclosed by one Party to the other, or (ii) is based on structure-function data relating thereto, or (iii) is based on Developed Technology. For clarification purposes, subject to ***. These compounds will ***. Further, it is understood that Derivative Compounds ***.

1.13                            “ Developed Technology ” means any and all data or information whether tangible or intangible, including without limitation the Parties’ Know-how and Patent Rights, which (i) is necessary to make or use Lead Compounds or Development Candidates, or to develop, make, use or sell Collaboration Products based thereon, and (ii) which was conceived or reduced to

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practice during and in the course of the Research Collaboration, by employees or agents of Organon, Pharmacopeia and any of their respective Affiliates, either alone or jointly. Developed Technology shall not include Pharmacopeia Base Technology, Organon Base Technology or Excluded Technology.

1.14                            “ Development Candidate ” means any Lead Compound or Derivative Compound with respect to which Organon has elected to pursue a GLP toxicity study.

1.15                            “ Development Program ” has the meaning set forth in Section 2.9(b).

1.16                            “Economic Interest” means the ***.

1.17                            “ EMEA ” means the European Medicines Evaluation Agency and any successor entity thereto.

1.18                            “ Excluded Technology ” means any and all technical data or information, whether tangible or intangible, including without limitation Know-how and Patent Rights owned or Controlled by Pharmacopeia or its Affiliates relating to the Columbia License, the creation or use of encoded combinatorial chemical compound libraries, tag or marker compound engineering and decoding, computer software, or high throughput screening assays.

1.19                            “ Exclusivity Period ” has the meaning set forth in Section 4.1.

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

1.21                            “ FDA ” means the U.S. Food and Drug Administration, or any successor thereto.

1.22                            “ First Commercial Sale” means, with respect to a Collaboration Product in any country, the first sale for use or consumption by the general public of such Collaboration Product in such country after all Regulatory Approvals have been obtained in such country.

1.23                            “FTE” means a ***.

1.24                            “ Inactive Compound ” means a Pharmacopeia Compound that was screened in the Research Collaboration against a Target and was not found to show activity against such Target. This activity can be agonistic or antagonistic or modulatory in nature.

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

1.26                            “ Initial Research Term ” means the period commencing on the Effective Date and ending on the earlier of (i) the designation of the eighth (8 th ) Lead Compound pursuant to Section 2.4, 2.2(c)(i)(4) or 2.2(c)(i)(5), or (ii) February 25, 2007.

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1.27                            “ Initial Research Term Lead Compound ” or “ Initial Research Term Lead Series ” means any Lead Compounds designated during the Initial Research Term pursuant to Section 2.4, 2.2(c)(i)(4) or 2.2(c)(i)(5). Such Lead Compounds shall be considered Transferred Programs as defined in this Agreement. Notwithstanding the preceding sentences, “Initial Research Term Lead Compounds” shall exclude any Lead Compound selected for Lead Optimization pursuant to Section 2.2(b) hereof. Promptly following the conclusion of the Initial Research Term, the JRC’s meeting minutes shall be updated to reflect all Lead Series identified during the Initial Research Term.

1.28                            “ Joint Research Committee ” or “ JRC ” means the entity organized to supervise the Research Collaboration and acting pursuant to Article 3.

1.29                            “ Know-how ” means all inventions, technology, or other information discovered or developed by or for a Party as of the Effective Date, or in connection with and during the Research Collaboration, whether or not patentable, constituting materials, methods, processes, techniques or data, necessary for the development, manufacture or use of Lead Compounds or Derivative Compounds, or for the manufacture, use or sale of a Collaboration Product.

1.30                           “ Lead Compound ” means a Pharmacopeia Compound, other than a Non-Designated Lead Compound or Non-Designated Development Series, which meets the criteria set forth in Section 2.4 and is available for license to Organon pursuant to the terms and conditions of this Agreement. For clarification purposes, subject to Section 4.5.3, it is understood that Organon can independently find compounds against the Target from its own discovery activities. These compounds will not be designated as Lead Compounds if Organon, as shown by contemporaneous documentation, has developed these compounds independently of the intellectual property described in Section 1.12(i) - (iii). Further, it is understood that Lead Compounds with respect to a Target shall not include a compound if information about such compound’s activity against the Target already was in the public domain.

1.31                            “ Lead Optimization ” means the work carried out by the Parties to produce Optionable Development Candidates from Lead Compounds as per Section 2.2(b).

1.32                            “ Lead Series ” has the meaning set forth in Section 2.4.

1.33                            “ Library ” means any chemical compound library prepared by or on behalf of Pharmacopeia and screened pursuant to the Research Collaboration.

1.34                            “ Library Compound ” means any compound that was, prior to the Effective Date, or is, at any time during the Research Term, contained in a Library.

1.35                            “ Major Market Country ” means the U.S., U.K., Germany, France, Spain, Italy, The Netherlands, or Japan.

1.36                            “ Manhour ” shall mean the ***. Manhours shall include ***.

1.37                            “ Manhour Tariff ” shall mean the ***. The ***. It is understood and agreed that the ***.

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1.38                            “ NDA ” means a New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or any corresponding foreign equivalent with a Regulatory Agency.

1.39                            “ Net Sales ” means the ***.

A “sale” ***. In the event that a ***. A “sale” ***. In the event that a ***

The sale of a ***. All sales of ***. The sale of a ***. All sales of ***.

To calculate the ***.

1.40                            “ Non-Active Compound ” means any compound jointly conceived by the Parties during the Second Research Term, which is not a Second Research Term Lead Compound, Derivative Compound or Development Candidate, and with respect to which the JRC has explicitly decided not to pursue research and development against the Target. It is understood and agreed that if ***.

1.41                            “ Non-Designated Development Series ” has the meaning set forth in Section 2.2(b)(viii)(A).

1.42                            “ Non-Designated Lead Compound ” has the meaning set forth in Section 2.4(c).

1.43                            “ Option Fee ” has the meaning set forth in Section 2.9.

1.44                            “ Opt-out ” has the meaning set forth in Section 2.9(d).

1.45                            “ Optionable Development Candidate ” means a compound that was the subject of Lead Optimization work under this Agreement as per Section 2.2(b) that meets the Development Candidate criteria defined by the JRC for the specific Target.

1.46                            “ Organon Base Technology ” means any and all technical data or information, whether tangible or intangible, including without limitation Organon’s Know-how and Patent Rights (i) ***, and (ii) ***.

1.47                            “ Organon Compound ” has the meaning set forth in Section 2.5.

1.48                            “ Party ” means Pharmacopeia or Organon. Pharmacopeia and Organon shall be collectively referred to as the Parties.

1.49                            “ Patent Committee ” means that committee to be formed pursuant to Section 3.5.

1.50                            “ Patent Rights ” means any and all patents and patent applications (which shall be deemed to include certificates of invention and applications for certificates of invention) which as of the Effective Date or during the term of this Agreement are ***.

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

1.52                            “ Pharmacopeia Compound ” means a Library Compound or a compound identified by Pharmacopeia in the Research Collaboration.

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

1.54                            “ Pharmacopeia Base Technology ” means any and all technical data or information, whether tangible or intangible, including without limitation Pharmacopeia’s Know-how and Patent Rights (i) ***, and (ii) ***.

1.55                            “ Pivotal Trial ” means a clinical trial designed to establish efficacy sufficient to allow Regulatory Approval for marketing authorization.

1.56                            “ Potential Lead Compound ” has the meaning set forth in Section 2.4(b).

1.57                            “ Primary Assay ” means on a Target-by-Target basis, the primary assay provided by either Party for screening in the Research Collaboration.

1.58                            “ Program Development Costs ” means, with respect to any ***.

1.59                            “ Project Team ” has the meaning set forth in Section 3.1.

1.60                            “ Proposed Target ” has the meaning set forth in Section 2.2(a).

1.61                            “ Regulatory Agency ” means the FDA or the applicable department, bureau or other governmental regulatory authority in each country in the Territory involved in the granting of Regulatory Approvals.

1.62                            “ Regulatory Approval ” means any and all approvals (including price reimbursement approvals), licenses, registrations, or authorizations of any Regulatory Agency, necessary for the commercial marketing of a Collaboration Product.

1.63                            “ Research Collaboration ” means the research activities undertaken by the Parties pursuant to Article 2.

1.64                            “ Research Plan ” on a Target-by-Target basis, means all information relating to the Parties’ respective activities with respect to a Target, including but not limited to the Target Information. Minutes of JRC meetings, if signed by a JRC representative of each Party, shall be deemed included within the Research Plan.

1.65                            “ Research Term ” is defined in Section 15.2.

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1.66                            “ Research Year One ” means the period commencing at the end of the Start-Up Phase and ending twelve (12) months thereafter.

1.67                            “ Research Year Two ” means the period commencing at the end of Research Year One and ending twelve (12) months thereafter.

1.68                            “ Research Year Three ” means the period commencing at the end of Research Year Two and ending twelve (12) months thereafter.

1.69                            “ Research Year Four ” means the period commencing at the end of Research Year Three and ending twelve (12) months thereafter.

1.70                            “ Reverted Lead Compound ” has the meaning set forth in Section 7.2.

1.71                            “ Second Research Term ” means the period commencing on the day after the end of the Initial Research Term, and ending five (5) years thereafter, unless earlier terminated pursuant to Section 15.3.3(c).

1.72                            “ Second Research Term Lead Compound ” or “ Second Research Term Lead Series ” means any Lead Compound other than an Initial Research Term Lead Compound.

1.73                            “ Secondary Assay ” means on a Target-by-Target basis, one or more assays provided by either Party, such as, for example, an assay for the characterization of selectivity or in vitro efficacy of a Pharmacopeia Compound against a Target.

1.74                            “ Start-Up Phase ” means the period commencing on the Effective Date and ending six (6) months thereafter.

1.75                            “ Sublicensee ” as to each Party means a Person other than an Affiliate of a Party to whom has been granted sublicense rights under the license granted each Party hereunder, which rights include at least the right to sell a Collaboration Product. As used in this Agreement, “Sublicensee” shall also include a Third Party to whom a Party has granted a sublicense under this Agreement to distribute such Collaboration Product, provided that such Third Party has the primary responsibility for marketing and promotion, at its expense, of such Collaboration Product within countries in the Territory for which such distribution rights are granted, which marketing and promotional activities are not subsidized directly or indirectly by that Party, such as, without limitation, through a specific allowance or a guaranteed selling margin for such Third Party meant to cover its expenses. Third Parties that are permitted to manufacture or finish Collaboration Products for supply to a Party, its Affiliates or Sublicensees are not “Sublicensees.”

1.76                            “ Sublicense Income ” means, as it relates to Pharmacopeia, any consideration paid to Pharmacopeia by each Sublicensee gaining rights pursuant to the provisions of Section 5.6.2, such consideration including, without limitation, any income or compensation received from Third Parties either as upfront payments, signing fees, milestone payments, as well as the Fair Market Value of any quid product or other non-cash consideration paid by each Sublicensee to Pharmacopeia.

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1.77                            “ Target ” has the meaning set forth in Section 2.2.

1.78                            “ Target Information ” means on a Target-by-Target basis, all information relating to the identity of the Target, any modifications that Organon proposes to the standard criteria for a Lead Compound set forth in Table 1, the chemistry and protocol of the Primary Assay, any reference standards and Secondary Assay to be run at Organon or transferred to Pharmacopeia as the case may be, and any other enabling information relevant to the conduct of the activities of the Parties hereunder. “ Target Information ” shall also include on a Target-by-Target basis, any relevant Organon or Third Party patent application or patent of which Organon is aware, as well as the status of Organon’s efforts in connection with its development of compounds against a Target. For the avoidance of doubt, compound structure information shall not be part of Target Information.

1.79                            “ Territory ” means all the countries of the world.

1.80                            “ Third Party ” means any Person other than Organon, its Affiliates or Sublicensees and Pharmacopeia or its Affiliates.

1.81                            “ Transferred Programs ” means those compounds referred to in Section 2.2(c)(i) for which Pharmacopeia has agreed, pursuant to this Agreement, to forgo milestone and royalty payments from Organon as set forth in Section 2.2(d). A list of the targets applicable to such Transferred Programs as of the Amendment Date is attached hereto as Exhibit B.

ARTICLE 2

RESEARCH COLLABORATION

2.1                                  Goals of Research Collaboration .

2.1.1                         General . Each Party shall (i) undertake an interactive, cooperative role in the Research Collaboration with the other Party as set forth in the Research Plan, and such other activities which from time to time, the JRC decides are necessary for the continuing success of the Research Collaboration; (ii) use commercially reasonable efforts to diligently perform its activities pursuant to the Research Plan, including, without limitation, by using personnel with sufficient skills and experience together with sufficient equipment and facilities, to carry out such Party’s obligations under the Research Collaboration and to accomplish the objectives of the Research Collaboration; and (iii) conduct the Research Collaboration in good scientific manner, and in compliance in all material respects with all requirements of applicable laws, rules and regulations, and all other requirements of any good laboratory practices to attempt to achieve its objectives efficiently and expeditiously.

2.1.2                         Activities of Pharmacopeia . In consideration for the funding provided by Organon, Pharmacopeia shall:

(a) utilize the appropriate screening and optimization resources to screen ***, with the ***,

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(b) utilize the appropriate screening and optimization resources to screen ***. (The delivery of ***). It is expected that the foregoing can be accomplished through the screening of Pharmacopeia Compounds against *** as provided herein.

(c) during the Second Research Term, at any one time, pursue an ***, selected by the Parties as set forth in Section 2.2(b) below, ***, these to be referred to as “Optionable Development Candidates”.

(d) provide Organon with the necessary feedback on the progress of its screening and optimization efforts to enable Organon to provide Pharmacopeia the support it requires to conduct its activities hereunder.

(e) subject to Section 15.3.3(c), continue to perform diligently under the Agreement during the Second Research Term even after achievement of the goals specified in Section 2.1.2(b) and (c).

(f) at its sole discretion, suggest and contribute Targets for consideration by the JRC under the terms of this Agreement.

2.1.3                         Activities of Organon . Organon Shall:

(a) during the Initial Research Term, identify and make available to Pharmacopeia ***

(b) during the Second Research Term, identify and make available to Pharmacopeia ***, to enable Pharmacopeia to select a subset of such targets that shall become the focus of the screening activities of Pharmacopeia hereunder. Organon shall make available to Pharmacopeia ***. With each such target, Organon shall also provide to Pharmacopeia all pertinent Target Information and key reagents essential to run the Assay. In addition, with respect to each Target, Organon shall make available to Pharmacopeia any Secondary Assay that (i) is required to confirm that a Pharmacopeia Compound potentially meets the criteria for a Lead Compound and (ii) is not already in Pharmacopeia’s possession. In addition to the foregoing, Organon shall support the Research Collaboration, by making available to Pharmacopeia any other information, except for the structure information regarding Organon Compounds (as defined in Section 2.5) that is essential for Pharmacopeia to continue its activities hereunder, and if requested by Pharmacopeia, Organon shall ***.

(c) with respect to each Lead Compound or Lead Series selected by the Parties for Lead Optimization as set forth in Section 2.2(b) below, ***.

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2.1.4                         Subcontracting . A Party (hereinafter the “Subcontracting Party”) may engage Third Party subcontractors (including contract research organizations) to perform certain of its obligations under this Agreement. Any Third Party subcontractor to be so engaged to perform a Party’s obligations set forth in this Agreement shall have sufficient expertise to meet the qualifications typically required by such Subcontracting Party for the performance of work similar in scope and complexity to the subcontracted activity. The activities of any such Third Party subcontractors shall be considered activities of the Subcontracting Party under this Agreement. A Subcontracting Party shall be responsible for ensuring compliance by its Third Party subcontractors, if any, with the terms of this Agreement, including obligations of confidentiality. Further, the Subcontracting Party shall ensure in any subcontracting arrangement that it obtains sole ownership of all inventions, data and related intellectual property rights made or developed by such Third Party subcontractor involving the manufacture or use of any Target, Lead Compound, Derivative Compound, Optionable Development Candidate, or Collaboration Product.

2.2                                  Selection of Targets .

(a)                                   Selection of Targets for Screening . As provided in Section 2.1.3, during the Initial Research Term and the Second Research Term, Organon shall make available to Pharmacopeia respective sets of ***, from which Pharmacopeia shall select a subset that will become the focus of the Parties’ activities in the Research Collaboration. At any one time, Organon shall make available ***. Each target made available to Pharmacopeia shall be referred to as a “Proposed Target.” Pharmacopeia shall inform Organon if it has previously screened against a Proposed Target, or is prevented from screening a Proposed Target pursuant to Third Party obligations. For each Proposed Target, Organon shall make available to Pharmacopeia the Target Information, and such other information as Pharmacopeia may reasonably request. For each Proposed Target, Pharmacopeia shall review and, if need be, discuss with Organon the Target Information. For each Proposed Target, Pharmacopeia shall assess whether the criteria for Lead Compound designation set forth in Section 2.4(a) is applicable to such Proposed Target and shall determine whether such criteria need to be modified to enable Pharmacopeia to accomplish the goals of the Research Collaboration with respect to such Proposed Target. If the Target Information for any given Proposed Target requires a modification of the criteria in Table 1, the JRC shall discuss such modification and shall redefine such criteria. Following such modification, if any, Pharmacopeia shall notify Organon whether it accepts the Proposed Target, and following such acceptance, the Proposed Target shall be deemed a “Target” for purposes of this Agreement. Any target which is not selected by Pharmacopeia as it is made available by Organon may be selected at a later date by Pharmacopeia subject to approval by Organon, which approval shall not be unreasonably withheld, and subject to the procedure set forth in this Section.

(b)                                  Selection of Lead Compounds for Lead Optimization . During the Second Research Term, Organon shall propose to Pharmacopeia Lead Optimization programs based on Lead Series designated pursuant to Section 2.4, with the goal of optimizing such Lead Series so as to be suitable for designation as Optionable Development Candidates, provided that ***. Organon shall endeavor to enable Pharmacopeia to ***. If ***. If Organon is unable to enable Pharmacopeia to conduct any Lead Optimization as set forth above, this shall not result in any change in the payments due from Organon to Pharmacopeia under this Agreement.

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(i)  Development Candidate Criteria. For any program which is selected for Lead Optimization activities under this Agreement, specific Development Candidate criteria shall be discussed and approved by the JRC. The Development Candidate Criteria will, in general, include the items shown in Exhibit D. The JRC may, at any time, review the progress of the specific Lead Optimization program. In such an event, the JRC may determine that the Research Collaboration with respect to a particular compound has, notwithstanding the express criteria set forth and approved by the JRC, on balance achieved a stage of development consistent with such criteria, and therefore, such compound shall be designated as an Optionable Development Candidate.

(ii)  Pharmacopeia Co-development / Co-promotion Option. With respect only to the Optionable Development Candidates, Section 2.9 will apply.

(iii)  Back-up Development Candidates. After Pharmacopeia has exercised the Buy-up with respect to an Optionable Development Candidate pursuant to Section 2.9, the Parties may further agree to initiate a program, independently of any Lead Optimization program, to produce a back-up development candidate with respect to the same Target as such Optionable Development Candidate (a “Back-up Program”). Prior to reaching such agreement, the Parties shall have a good faith discussion concerning the strategy for such proposed Back-up Program, including a review of all potential starting compounds. The Parties will agree where and how the work with respect to such Back-up Program will be carried out. Any such Back-up Program (a) shall be ***; (b) shall be ***; but (c) shall not be *** under this Agreement.

(iv)  Pharmacopeia Co-development / Co-promotion of Back-up Development Candidates. In the event that a Back-up Program results in the designation of a back-up Development Candidate pursuant to Section 2.2(b)(iii), further development and commercialization of such back-up Development Candidate shall be handled in accordance with Section 2.9 (i.e., *** pursuant to Section 2.9), except that such back-up Development Candidate shall ***.

(v)  Pharmacopeia’s Decision not to Pursue Back-up Program. If Pharmacopeia decides not to participate in a Back-Up Program pursuant to Section 2.2(b)(iii) with respect to a particular Target, then Organon may either, at Organon’s sole option:

(A)  ***.  In the event such ***. ***; or

(B) ***. It is understood and agreed that any decision by Pharmacopeia not to exercise the Buy-up with respect to such a back-up Development Candidate pursuant to Section 2.2(b)(v) shall not affect Pharmacopeia’s continued joint development and promotion, with Organon, of the previous Optionable Development Candidate active against the same Target pursuant to Section 2.9.

(vi)  INTENTIONALLY OMITTED.

(vii)  INTENTIONALLY OMITTED.

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(viii)  Discontinuation of a Lead Optimization Program.

(A)  The JRC may, at any time, agree to terminate a Lead Optimization program. For a ***. During the ***. If ***. In the event that ***. In the event that ***.

(B)  In the event the JRC fails to reach agreement to terminate a particular Lead Optimization program, ***. In such case, the Lead Series associated with such program shall be considered and treated as “Non-Designated Lead Compounds” pursuant to Section 2.4(c), except that any such *** shall be subject to the following special conditions: (1) ***; and (2) ***. Notwithstanding the foregoing, at any time beginning ***.  If ***. The Parties may also discuss including the program under Section 2.2(b).

(C)  Research Uses After Termination of a Lead Optimization Program. Each Party may retain in its internal compound collection samples of any compound that was (1) jointly conceived by the Parties and (2) synthesized in the course of a Lead Optimization program with respect to any Target. After the termination of such Lead Optimization program, either Party may *** pursuant to the Research Collaboration. For example, such *** . Notwithstanding the foregoing, neither Party shall be obligated to supply samples of any such compound to the other Party. Further, neither Party grants to the other Party any rights under any intellectual property Controlled by such Party with respect to the research and development contemplated by this Section 2.2(b)(viii)(C). For the avoidance of doubt, reference to the *** .

(c)                                   Ongoing Status of Targets Screened by Pharmacopeia during the Initial Research Term . Effective as of the Amendment Date,

(i)  The following will be considered Transferred Programs:

(1) All Lead Series transferred under programs for the Targets specifically identified in Exhibit B, for which the ***;

(2) Those compounds disclosed or physically transferred under programs for the targets specifically identified on Exhibit B as ***;

(3) The *** compounds identified by Pharmacopeia during the Initial Research Term;

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(4)  Subject to the terms of this Agreement, in the event that (i) Pharmacopeia has *** and (ii) the ***. Organon shall have the right to *** under this Section.

(5)  Subject to the terms of this Agreement, in the event that (i) Pharmacopeia has *** and (ii) the ***

(x) ***; or

(y) ***.

(z) ***.

(6) Any programs transferred under Section 15.3.3(c).

(ii) Should any current Research Collaboration program be subject to issue resolution pursuant to Sections 3.4 or 16.19, any decision under Section 2.2(c)(i)(4) or 2.2(c)(i)(5) will be delayed until resolution of the issue with respect to such program.

(iii)  On a Target-by-Target basis, and subject to the terms of this Agreement, including 2.2(c)(ii), all Targets screened by Pharmacopeia during the Initial Research Term, with respect to which no Lead Compound “delivery payment” has been paid pursuant to Section 7.1.2, and which Pharmacopeia is continuing to investigate as of the end of the Initial Research Term, may continue to be the subject of Pharmacopeia’s activities under the Agreement during the Second Research Term, unless Organon provides Pharmacopeia with written notice to the contrary within five (5) business days following the end of the Initial Research Term.

(d)  Transferred Programs .  Effective as of the Amendment Date, Pharmacopeia hereby waives its right to receive further compensation with respect to Transferred Programs or any compounds derived therefrom made by Organon based on a Transferred Program, subject to the following terms:

(i)  Pharmacopeia shall have no further obligation to make any further expenditures with respect to the Transferred Programs.

(ii) Pharmacopeia agrees that it shall have no further rights to use the Transferred Programs or to file any patent applications with respect thereto.

(iii) All such programs are hereby transferred to Organon, and Organon shall be relieved of any obligation with respect to Transferred Programs under this or any other previous agreement.

(iv)  Pharmacopeia shall provide Organon with any information, materials or data reasonably available and reasonably necessary for Organon to continue the development or commercialization of the Transferred Programs.

(v) Organon’s licenses to the Transferred Programs under the agreements listed in Exhibit B are hereby replaced by the following:  Subject to Section 2.2(d)(vii), Pharmacopeia hereby grants to Organon a ***.

(vi)  Pharmacopeia further agrees ***.

13

 

(vii) The only license granted to Organon with respect to the Transferred Programs is that set forth in Section 2.2(d)(v), above. The only *** is that set forth in Section 2.2(d)(vi), above. Nothing in this Section 2.2(d) shall be construed to grant ***.

2.3                                  Assay Development .  It is anticipated that the Assay has been developed and validated by Organon, Pharmacopeia or a Third Party prior to validation by Pharmacopeia. An Assay shall be considered validated if it meets the criteria set forth in Exhibit A. On a Target-by-Target basis, Pharmacopeia shall provide ***. Insofar as the Assay requires additional development by Pharmacopeia or the use of any key reagents that have not been supplied by Organon, the Parties shall ***. The Parties agree that all improvements and modifications directly relating to the Assay (collectively the “Assay Improvements”) made solely by Pharmacopeia shall be owned by Pharmacopeia. All Assay Improvements that are made jointly by the Parties shall be jointly owned by the Parties. Each Party agrees to grant to the other Party license rights in its interest in Assay Improvements as provided herein.

2.4                                  Lead Compounds .

(a)                                   For each Target, Pharmacopeia will endeavor to identify those Pharmacopeia Compounds that meet the criteria set forth in Table 1. The Lead Compound criteria in Table 1 shall apply uniformly on a Target-by-Target basis. If the characteristics of the Proposed Target warrant it, the criteria in Table 1 may be amended by the JRC to accommodate such characteristics, provided , however , that on balance the set of criteria for any Lead Compound for a Proposed Target shall not be made more stringent than the criteria set forth in Table 1. In addition, the JRC will determine which criteria are considered to be essential and which criteria need to be substantially met. For those criteria that need to be substantially met, the JRC will define the boundaries within which certain material characteristics of a Lead Compound at least should fall. It is understood by both Parties that the boundaries of one of the criteria might depend on the other criteria. The Parties agree that if a Pharmacopeia Compound meets all the criteria set forth in Table 1 (as it may have been amended by the JRC), such Pharmacopeia Compound shall be automatically designated as a “Lead Compound.”  Without limitation of the foregoing, the JRC may, at any time, review the progress of the Research Collaboration. In such an event, the JRC may determine that, with respect to any Pharmacopeia Compound, the Research Collaboration with respect to such Pharmacopeia Compound has, notwithstanding the express criteria set forth in Table 1, on balance achieved a stage of development consistent with such criteria, and therefore, such Pharmacopeia Compound shall be designated as a Lead Compound.

Table 1

Criteria

 

 

***

 

***

***

 

***

***

 

***

***

 

***

***

 

***

***

 

***

***

 

***

***

 

***

***

 

***

***

 

***

 

14

 

(b)                                  On an on-going basis, throughout the Research Term,  Pharmacopeia shall conduct screening of its Libraries and optimization efforts to identify Pharmacopeia Compounds that have the potential to meet the criteria for a Lead Compound (each such Pharmacopeia Compound a “Potential Lead Compound”). On an on-going basis, Organon shall ***. To enable Organon to *** . The *** and for no other purpose. Following the receipt of a *** for any purpose except as set forth herein. Organon shall ***. The Parties agree that if Organon is unable to provide *** . If no *** . On an as needed basis, the Parties may agree on a commercially reasonable set of additional activities to be carried by either or both Parties to enable the designation of one or more such Potential Lead Compounds as a Lead Compound. If a Potential Lead Compound is designated as a Lead Compound, following such designation, Pharmacopeia shall deliver to Organon the structure and enabling synthetic information with respect to such Lead Compound. In addition, Pharmacopeia will provide all data it has developed in the course of developing such Lead Compound which is reasonably required to enable Organon to further optimize such Lead Compound. On a Target-by Target basis, the series of Potential Lead Compounds having activity with respect to a particular Target and that have been designated as a Lead Compound shall form a “Lead Series.”

(c)                                   At any time during the Research Term, Pharmacopeia may elect to discontinue its activities with respect to a particular Target, and may elect to proceed with its activities with respect to the remainder of the Targets. If Pharmacopeia elects to discontinue its activities with respect to a particular Target, it will notify Organon of its decision not to continue, the reason for discontinuing and the stage of the project at the moment of discontinuation. In the event that prior to discontinuing its activities, Pharmacopeia has identified one or more Potential Lead Compounds with respect to a particular Target and such Potential Lead Compounds failed to meet the criteria for a “Lead Compound,” Organon shall ***

15

 

Such Potential Lead Compounds shall be referred to as “Non-Designated Lead Compounds” and ***. In addition, the provisions of ***.

2.5                                  Organon Compounds . Subject to Section 4.5.3, it is understood that Organon may be conducting its own internal screening and optimization activities with respect to one or more targets which have been selected as a Target as provided hereunder. Organon shall keep Pharmacopeia informed on a consistent basis of the foregoing activities. If Organon elects to *** shall be designated as an “Organon Compound”. On a Target-by-Target basis, the Parties agree that the designation of an Organon Compound shall not be a factor in the designation of a Lead Compound. Further, such designation shall not, by itself, cause, nor be a factor in the decision for, Pharmacopeia to cease activities with respect to a Target pursuant to Section 2.4(c).

2.6                                  Designation of Development Candidates other than Optionable Development Candidates . During the period that Organon has a license under Section 5.4 to a Lead Compound, Organon may designate any Second Research Term Lead Compound or Derivative Compound, that is not the subject of a Lead Optimization program, as a Development Candidate and may commence GLP toxicity studies. Organon shall provide written notice to Pharmacopeia to such effect and such initiation of GLP toxicity studies shall trigger the milestone payment for initiation of GLP toxicity studies set forth in Section 7.1.

2.7                                  Third Party Licenses . Pharmacopeia may request that Organon acquire rights from Third Parties to technology necessary for the conduct of the activities of the Parties with respect to a particular Target. The JRC shall endeavor to minimize the need for such licenses; provided , however , if the JRC is unable to agree whether a particular license is necessary to conduct the activities of the Parties with respect to a particular Target, Pharmacopeia may decline to screen against such Target. If Pharmacopeia declines to screen against such Target, this shall not be considered a breach of this Agreement by Pharmacopeia or a ground for termination of the Research Collaboration by Organon.

2.8                                  Records and Reports . Each Party shall maintain records in sufficient detail and in good scientific manner appropriate for patent and FDA purposes and so as to properly reflect all work done and results achieved in the performance of this Agreement (including all data in the form required under any applicable governmental regulations and as directed by the JRC). Such records shall include applicable books, records, reports, research notes, charts, graphs, comments, computations, analyses, recordings, photographs, computer programs and documentation thereof, samples of materials and other graphic or written data generated in connection with the Research Collaboration, including any data required to be maintained pursuant to applicable governmental regulations. During the Research Term, each Party shall respond to reasonable requests from the other for information based on such records.

2.9                                  Pharmacopeia Co-development / Co-promotion Option .     With respect to ***. The ***. With respect to each Optionable Development Candidate for which Pharmacopeia *** hereunder, the following provisions shall apply:

(a)  Pharmacopeia shall ***;

16

 

Milestone and Royalties:  Subject to Section 2.9(d), once Pharmacopeia has ***, Pharmacopeia will ***.

(b)  Activities . During the period after Pharmacopeia *** pursuant to this Section 2.9, Organon will ***.

(c)  Financial Support . The Parties shall ***, as follows. Organon shall ***. Pharmacopeia shall ***.

The Parties shall ***.

(c1) At any time after ***.

(c2)  Pharmacopeia’s Prior Decision not to ***. If Pharmacopeia did not ***.

(d)  *** by Pharmacopeia . At any time after ***. For the avoidance of doubt, Pharmacopeia shall ***. Notwithstanding the foregoing, the provisions specified in Section ***.

(e)  *** by Pharmacopeia . At any time after ***.

(f)  Cessation of Development *** . In the event ***. This Provision shall not apply to an Optionable Development Candidate against a Target in which the parties are ***.

(g)  Co-Promotion . In the event that Pharmacopeia has not ***. Any additional terms of such ***. Further, all ***. The Parties agree that the Development Program should continue even in case a ***, but the Parties shall use ***. In the event that such ***.

(h)  Governance and Diligence . *** relating to development and commercialization of the applicable Optionable Development Candidate (or corresponding Collaboration Product) shall be made ***, which shall ***, and shall ensure that its Affiliates, Sublicensees and subcontractors ***. *** shall provide *** with ***. At all times during such joint development and commercialization, each Party shall have the right to ***. Such right to *** shall be subject to ***.

ARTICLE 3

JOINT RESEARCH COMMITTEE; JOINT PATENT COMMITTEE

3.1                                  Joint Research Committee . Organon and Pharmacopeia agree to establish a Joint Research Committee (“JRC”) to oversee, review, manage and direct the Research Collaboration, and, in coordination with the Patent Committee, provide advice in connection with intellectual property issues relating to the Developed Technology. The responsibilities of the JRC shall

17

 

include: (i) monitoring and reporting the progress of the Research Collaboration and ensuring open and frequent exchange between the Parties; (ii) establishing criteria for the selection of Lead Compounds and/or Optionable Development Candidates for each Target pursuant to Section 2.4, (iii) resolving any conflicts between the Parties, (iv) approving and administering the Research Plan, (v) coordinating with the Patent Committee all patent activities as they relate to the results of the Research Collaboration, and in keeping with the overall patent strategy delineated by the Patent Committee, (vi) selecting Lead Compounds for Lead Optimization during the Second Research Term, (vii) appointing a project team to coordinate the day-to-day conduct of each Lead Optimization program (in each case, the “Project Team”), with oversight by the JRC and subject to JRC approval of all key Project Team decisions, (viii) designating Optionable Development Candidates, and recording each such designation in the JRC’s meeting minutes, (ix) deciding whether/when to terminate a Lead Optimization program without designating an Optionable Development Candidate, and planning in advance for a successor Lead Optimization program, and (x) setting a *** with respect to each Target.

3.2                                  Membership . The JRC shall include *** of each of the Parties, and each Party’s representatives shall be selected by that Party. Each Party may replace its representatives at any time, upon written notice to the other Party. From time to time, the JRC may establish subcommittees, to oversee particular projects or activities, and such subcommittees will be constituted as the JRC determines, in its sole discretion.

3.3                                  Meetings and Minutes . During the Research Term, unless otherwise agreed to by the Parties, the JRC shall meet ***, or more frequently as agreed by the Parties, at such locations or by such teleconferencing means as the Parties may determine from time to time. In addition to regularly scheduled meetings, the JRC representatives will communicate regularly by telephone, electronic mail, facsimile and/or videoconference. Other representatives of Pharmacopeia or Organon may attend JRC meetings as nonvoting observers. Each Party shall be responsible for all of its expenses associated with attending the JRC meetings. Pharmacopeia shall prepare written minutes of each JRC meeting and shall prepare a written record of all JRC voting and decisions, whether made at a JRC meeting or otherwise. The written minutes of each JRC meeting and the written record of all JRC voting and decisions shall be submitted to Organon for review, and upon signature by Organon, shall become final.

3.4                                  Decision-Making . Decisions of the JRC shall be made ***, and ***. In the event that *** within the JRC, the matter shall be referred to ***. In the event ***. In the event that ***. If such individuals cannot resolve such dispute, then such dispute shall be subject to the dispute resolution provisions set forth in Section 16.19.

3.5                                  Patent Committee . Upon recommendation of the JRC, the Parties shall form a patent committee (“Patent Committee”) to be in existence as long as Patent Rights within the Developed Technology are being filed and/or prosecuted. Each Party shall designate ***, as its representatives on the Patent Committee. The Patent Committee shall be responsible for recommending patent filings and coordinating patent-related matters, including, but not limited to, the determination of inventorship according to U.S. Patent Law, and the preparation, filing and prosecution of patent applications. Any disputes of the Patent Committee during the Research Term shall be handled pursuant to Section 3.4. Any disputes of the Patent Committee after the end of the Research Term shall be handled pursuant to Section 16.19. Unless otherwise

18

 

agreed by the Parties, the Patent Committee shall meet ***. Such meetings shall be held at mutually agreed times and locations. Each Party shall bear its own expenses associated with such meetings and the activities of the Patent Committee; provided , however , that each Party shall ***.

ARTICLE 4

EXCLUSIVITY

4.1                                  Target . Subject to Section 4.5.2, during the ***. On a Target-by-Target basis, the ***. Further, Pharmacopeia ***.

4.2                                  Use of Libraries . Except as provided herein, Organon shall have no exclusivity with respect to any Library or any Pharmacopeia Compound. It is understood that the Libraries are and will be regularly used by Pharmacopeia and may have been or may be provided to Third Parties for screening. Pharmacopeia shall have the right to screen the Libraries during the Research Term or thereafter on its own behalf or on behalf of Third Parties, subject to the exclusivity provisions in Section 4.1 above.

4.3                                  Physical Ownership . Pharmacopeia shall retain physical ownership of the tangible property embodied in all Libraries. Organon shall retain physical ownership of all tangible material provided by Organon to Pharmacopeia hereunder. Any tangible material provided by Organon to Pharmacopeia shall only be used for the purposes of the Research Collaboration.

4.4                                  Development .

4.4.1  For as long as Organon is ***, Pharmacopeia agrees ***.

4.4.2  For as long as Organon or the Parties are ***.

4.4.3  For purposes of clarity, it is understood that the restrictions set forth in Sections 4.4.1 and 4.4.2 shall not apply to any ***, and further shall not apply to any activities permitted under Section *** above.

4.5                                  Other Restrictions on Targets .

4.5.1   General Restrictions . Pharmacopeia shall not use Organon Base Technology relating to any Target for any purpose other than fulfillment of Pharmacopeia’s responsibilities with respect to Lead Compounds and Collaboration Products under this Agreement. Organon shall not use Pharmacopeia Base Technology relating to any Target for any purpose other than fulfillment of Organon’s responsibilities with respect to Lead Compounds and Collaboration Products under this Agreement.

4.5.2   General Research Use of Targets. Subject to Section 4.5.1, both Organon and Pharmacopeia shall be free to use any Target for general research purposes (e.g., basic biological research, performance of counterscreens and the like) outside the scope of this

19

 

Agreement, provided that such use does not materially impair the commercial value of any program conducted pursuant to the Research Collaboration.

4.5.3  Further Obligations During Lead Optimization . Subject to Section 4.5.2, during such time as any Lead Optimization activities are being conducted in the Research Collaboration pursuant to a Research Plan with respect to any Target, neither Pharmacopeia nor Organon shall, ***. If, at the time of initiation of Lead Optimization activities with respect to a particular Target, either Party is ***. Notwithstanding the preceding sentences, if, in the course of a Party’s work outside the Research Collaboration on a target not included in the Research Collaboration, a ***. If, at any time during the course of such optimization with respect to the combination of the Target and the non-Research Collaboration target, the primary activity of any of the compounds is found to be ***. If the Party wishes to continue to *** pursuant to this Agreement.

ARTICLE 5

LICENSES

5.1                                  Organon Base Technology; Regulatory Filings . Organon shall own all rights, title and interest in and to Organon Base Technology and in all Regulatory Filings.

5.2.                               Developed Technology . Subject to the licenses expressly granted hereunder, ***. Pharmacopeia shall own ***.

5.3                                  Pharmacopeia Base Technology . Pharmacopeia shall own all rights, title and interest in and to Pharmacopeia Base Technology.

5.4.                               Licenses . Subject to the terms and conditions of this Agreement, upon the designation of a Lead Compound, on a Lead Compound-by-Lead Compound basis, and Target-by-Target basis, ***. The foregoing license provides Organon ***. Unless earlier terminated pursuant to this Agreement, this license grant shall remain in effect for the time period set forth in and subject to the provisions set forth herein, and so long as *** hereunder.

5.5                                  Research License . Subject to the terms and conditions of this Agreement, *** provided herein.

Subject to the terms and conditions of this Agreement, *** provided herein.

5.6                                  Other Licenses .

5.6.1                         License to Non-Designated Lead Compounds, Non-Designated Development Series and corresponding Products . Subject to the terms and conditions of this Agreement, ***. The provisions of this Section shall survive termination or expiration of this Agreement. The license granted pursuant to this Section under the Organon Base Technology shall not include *** pursuant to the terms of this Agreement. In exchange for the licenses granted by Organon in this Section, in the event that Pharmacopeia ***. Organon shall inform Pharmacopeia in writing of ***. If Organon ***.

20

 

5.6.2                         License to Reverted Lead Compounds and Corresponding Products .

(a)                                   Upon the request of Pharmacopeia and subject to the terms and conditions of this Agreement, ***. Such a license shall be subject to the payment obligations provided in Section 8.2.2.

(b)                                  If Organon is ***. To the extent that there will be an ***. To the extent that there will be an ***. Upon Pharmacopeia’s written request, not to be unreasonably denied by Organon, Organon shall allow Pharmacopeia access to all data and information (including but not limited to its regulatory filings) reasonably required by Pharmacopeia in connection with its development efforts relating to such Reverted Lead Compound.

5.7                                  Sublicenses .

5.7.1                         Subject to the terms and conditions of this Agreement and except as set forth herein, Organon shall have the right to sublicense the rights granted to it in Section 5.4, provided that Organon shall provide Pharmacopeia with at least the following information with respect to each Sublicensee: (i) the identity of the Sublicensee; (ii) a description of the Collaboration Product, and the rights granted to the Sublicensee; and (iii) the territory in which the Collaboration Product will be sold. Each such sublicense shall be consistent with all the terms and conditions of this Agreement, and shall be subject to the prior consent of Pharmacopeia, which consent shall not be unreasonably withheld. Organon shall remain primarily liable to Pharmacopeia for all of each such Sublicensee’s applicable financial and other obligations under the sublicense. No sublicense granted by Organon may be assigned, transferred or further sublicensed to any Third Party without the prior written consent of Pharmacopeia, which consent shall not unreasonably be withheld.

5.7.2                         Subject to the terms and conditions of this Agreement and except as set forth herein, Pharmacopeia shall have the right to sublicense the rights granted to it in Section 5.6, provided that Pharmacopeia shall provide Organon with at least the following information with respect to each Sublicensee: (i) the identity of the Sublicensee; (ii) a description of the Collaboration Product, and the rights granted to the Sublicensee; and (iii) the territory in which the Collaboration Product will be sold. Each such sublicense shall be consistent with all the terms and conditions of this Agreement, and shall be subject to the prior consent of Organon, which consent shall not be unreasonably withheld. Pharmacopeia shall remain primarily liable to Organon for all of each such Sublicensee’s applicable financial and other obligations under the sublicense. No sublicense granted by Pharmacopeia may be assigned, transferred or further sublicensed to any Third Party without the prior written consent of Organon, which consent shall not unreasonably be withheld.

5.7.3                         The following procedure shall apply to a sublicense being granted by either Party hereunder:  Following the granting of the sublicense, the sublicensee shall covenant that it will fully perform the applicable obligations of the sublicensor under this Agreement. In addition, the sublicensee shall represent and warrant that it will comply with all applicable laws and regulations in carrying out its obligations under this Agreement, including all relevant antitrust and competition laws. Evidence of such covenant and representation shall be provided to the non-sublicensing party within ten (10) days following the effective date of the sublicense grant.

21

 

5.8                                  Third Party Rights .

5.8.1                         Pharmacopeia Third Party Activities . It is understood that Pharmacopeia is in the business of providing libraries to Third Parties, and that Pharmacopeia will grant such Third Parties ***. Notwithstanding the licenses granted to Organon hereunder, ***. Accordingly, Pharmacopeia’s grant of rights under Section 5.4 shall be ***.

5.8.2                         No Liability . It is understood and agreed that, even if Pharmacopeia complies with its obligations under this Agreement, *** hereunder. Pharmacopeia shall ***. Notwithstanding the foregoing, it is understood that, unless ***.

5.9                                  Third Party Royalties . Organon shall be responsible for procuring such licenses as it deems, in its sole discretion, appropriate for the manufacture, use, marketing, sale or distribution of Collaboration Products by Organon, its Affiliates or Sublicensees and the payment, subject to Section 2.9, of any amount due Third Parties under such licenses.

5.10                            Third Party Royalties with respect to Reverted Lead Compounds, Non-Designated Lead Compounds, or Non-designated Development Series being developed by Pharmacopeia . Pharmacopeia shall be responsible for procuring such licenses as it deems, in its sole discretion, appropriate for the manufacture, use, marketing, sale or distribution of Collaboration Products by Pharmacopeia, its Affiliates or Sublicensees and the payment of any amount due Third Parties under such licenses.

5.11                            Commercialization Status . During the period from the end of the Research Term to the First Commercial Sale of a Collaboration Product, Organon or Pharmacopeia, as the case may be, shall keep the other Party informed of its development activities with respect to such Collaboration Product, including without limitation, the achievement of the milestones set forth in Section 7.1 and the commercialization of such Collaboration Product, by *** providing the other Party with a written report stating the status of development of each such Collaboration Product.

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

5.13                            Non-Active Compounds. Subject to Section 4.5, Non-Active Compounds may be used for research, development and commercialization, independently by each Party at its own option and expense, against targets other than a Target, with the proviso that such use does not (i) materially impair the value of any Lead Optimization program or Collaboration Product or (ii) infringe any intellectual property Controlled by the other Party.

ARTICLE 6

FUNDING

6.1                                  Funding .  In partial consideration for Pharmacopeia’s activities set forth herein, Organon agrees to pay Pharmacopeia at the rate of one million dollars (USD1,000,000) on or

22

 

before the first day of the Second Research Term and then every three months thereafter throughout the duration of the Second Research Term.

6.2                                  Assay Development . In the event that that Pharmacopeia shall conduct any additional assay validation as provided in Section 2.3, Organon shall pay to Pharmacopeia an amount equal to the number of FTE’s to be utilized for such assay development multiplied by Pharmacopeia’s FTE Rate for the agreed period of such assay development program. Solely for purposes of this Section 6.2, Pharmacopeia’s “FTE Rate” shall be ***. In addition, in the event Organon agrees to the modification of an Assay, Organon shall reimburse Pharmacopeia for the cost of any reagents that Pharmacopeia needs to obtain to conduct its activities pursuant to this Section. Payments under this Section shall be made within thirty (30) days of receipt of an invoice.

6.3                                  Amendment Payment to Pharmacopeia . Organon agrees to pay Pharmacopeia the nonrefundable sum of fifteen million dollars (USD15,000,000), due within thirty (30) days after the Amendment Date.

6.4                                  No Withholding . All amounts paid to Pharmacopeia pursuant to Sections 6.1 through 6.3 shall be made without withholding for taxes or other charges.

6.5                                  Equity Investment .                                            Pharmacopeia shall have a one-time option to sell to Organon ***. Such sale of shares shall be at the ***, and in accordance with other terms substantially as set forth in the Stock Purchase Agreement attached hereto as Exhibit C.

ARTICLE 7

MILESTONE PAYMENTS

7.1                                  Milestone Payments .

7.1.1                         Milestone Payments for Second Research Term Lead Compounds .

(a)                                   Milestone payments based on Pharmacopeia’s delivery to Organon of each Second Research Term Lead Compound . Organon shall pay to Pharmacopeia the following nonrefundable amounts within thirty (30) days following the first achievement by Organon, its Affiliates, Sublicensees or other designees, as the case may be, of each of the following milestones with respect to any Second Research Term Lead Compound or corresponding Derivative Compound (and each corresponding Collaboration Product) with respect to each Target with respect to which Pharmacopeia has not conducted Lead Optimization pursuant to this Agreement:

23

 

 

Milestones for a Lead Compound

 

Amount

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

 

(b)                                  Milestone payments based on Pharmacopeia’s delivery to Organon of each Optionable Development Candidate . Organon shall pay to Pharmacopeia the following nonrefundable amounts within thirty (30) days following the first achievement by Organon, its Affiliates, Sublicensees or other designees, as the case may be, of each of the following milestones with respect to any Lead Compound or corresponding Derivative Compound (and each corresponding Collaboration Product) with respect to each Target with respect to which (i) Pharmacopeia has conducted Lead Optimization pursuant to this Agreement and (ii) Organon has initiated GLP toxicity studies with respect to any compound identified by Pharmacopeia pursuant to the Research Collaboration (or any Derivative Compound thereof):

Milestones for a Development Candidate

 

Amount

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

***

 

 

(c)                                   It is understood and agreed that ***. Notwithstanding the preceding sentence, in the event that ***.

7.1.2                         Delivery Payments under the Initial Research Term . Organon shall pay to Pharmacopeia the following delivery payments in addition to all the payments accrued hereunder as follows: At the time that Pharmacopeia delivers to Organon the *** due within thirty (30) days following such delivery. At the time that Pharmacopeia delivers to Organon each of *** due within thirty (30) days following each such delivery.

7.1.3                         No Withholding . All amounts paid to Pharmacopeia pursuant to this Section 7.1 shall be made without withholding for taxes or other charges.

24

 

7.2 Due Diligence .  For each Lead Compound, corresponding Derivative Compound, and Development Candidate, Organon will use *** to develop and commercialize such Lead Compound and corresponding Collaboration Product.  Without limiting any of the foregoing, for each Lead Compound, Organon’s efforts shall include without limitation the ***.  In the event that Organon decides to out-license the applicable Lead Compound, corresponding Derivative Compound, or Development Candidate, Organon shall ***.  Notwithstanding the foregoing, in the event that ***.

7.3  Invoices . Unless otherwise specified in writing, all payments required according to the sections 6 and 7 of this Agreement shall be made by transfer to the bank account nominated by the receiving Party upon timely receipt of an invoice.

If invoice to Organon: N.V. Organon

Purchase Accounting (KA1041)

P.O. Box 20

5340 BH Oss

The Netherlands

Attn: ***

ARTICLE 8

ROYALTY PAYMENTS

8.1                                  Royalty Term .

8.1.1                         Royalty Term Organon . Organon shall pay Pharmacopeia royalties on Net Sales of Collaboration Products, ***, for a period from the date of First Commercial Sale of such Collaboration Product in such country until the date which is the later of ***.

8.1.2                         Royalty Term Pharmacopeia . Pharmacopeia shall pay Organon royalties on Net Sales or Sublicense Income, as the case may be, of Collaboration Products, ***, for a period from the date of First Commercial Sale of such Collaboration Product in such country until the date which is the later of ***.

8.1.3                         *** . If the licenses granted to either Party pursuant to Section 5.4 or Section 5.6, as the case may be, are still in force with respect to a particular Lead Compound, at the end of the period for which royalties on the corresponding Collaboration Product are due pursuant to this Agreement, ***.

8.2                                  Royalty Rate .

8.2.1                         Royalties on Collaboration Product based on Pharmacopeia’s delivery to Organon of a Second Research Term Lead Compound .  Organon shall pay to Pharmacopeia royalties on Net Sales of each Collaboration Product based on any Second Research Term Lead Compound or corresponding Derivative Compound with respect to each Target with respect to

25

 

which Pharmacopeia has not conducted Lead Optimization pursuant to this Agreement, according to the following schedule:

(a)                                   ***.

(b)                                  ***.

(c)                                   ***.

(d)                                  ***.

8.2.2                         Royalties on Collaboration Product based on a Reverted Lead Compound not Arising from a Lead Optimization Program .

(a)                                   In the event Pharmacopeia sells any Collaboration Product based on a Reverted Lead Compound with primary activity against a Target with respect to which Pharmacopeia has not conducted Lead Optimization pursuant to this Agreement, then Pharmacopeia shall pay to Organon royalties on Net Sales of each such Collaboration Product, according to the following schedule:

(i)                                      ***.

(ii)                                   ***.

(iii)                                ***.

(iv)                               ***.

(v)                                  ***.

It is understood by both Parties that the royalty rates pursuant to this Section 8.2.2(a) reflect the fact that ***. If, in the future, the ***.

(b)                                  In the event Pharmacopeia sublicenses its rights pursuant to the provisions of Section 5.6.2, then Pharmacopeia shall pay to Organon, in lieu of the royalties due under 8.2.2(a) for any Collaboration Product, compensation based on Sublicense Income for each Collaboration Product based on a Reverted Lead Compound with primary activity against a Target with respect to which Pharmacopeia has not conducted Lead Optimization pursuant to this Agreement, according to the following schedule:

(i)                                      ***;

(ii)                                   ***;

(iii)                                ***; and

(iv)                               ***.

26

 

(v)                                  ***.

8.2.3                         Royalties on Collaboration Product based on Pharmacopeia’s delivery to Organon of an Optionable Development Candidate .  Organon shall pay to Pharmacopeia royalties on Net Sales of each Collaboration Product based on any Second Research Term Lead Compound or corresponding Derivative Compound with respect to each Target with respect to which (i) Pharmacopeia has conducted Lead Optimization pursuant to this Agreement and (ii) Organon has initiated GLP toxicity studies with respect to any compound identified by Pharmacopeia pursuant to the Research Collaboration (or any Derivative Compound thereof):

(a)                                   ***.

(b)                                  ***.

(c)                                   ***.

(d)                                  ***.

(e)                                   ***.

8.2.4                         Royalties on Collaboration Products based on a Non-Designated Lead Compounds .  In the event Pharmacopeia sells any Collaboration Product based on a Non-Designated Lead Compound, then Pharmacopeia shall pay to Organon a royalty on Net Sales equal to ***.

8.2.5                         Royalties on Collaboration Products based on a Non-Designated Development Series .  In the event Pharmacopeia sells any Collaboration Product based on a Non-Designated Development Series, then Pharmacopeia shall pay to Organon a royalty on Net Sales equal to ***.  In addition, ***.

8.2.6                         Royalties on Collaboration Product based on a Reverted Lead Compound Arising from a Lead Optimization Program .

(a)                                   In the event Pharmacopeia sells any Collaboration Product based on a Reverted Lead Compound with primary activity against a Target with respect to which Pharmacopeia (x) has conducted Lead Optimization pursuant to this Agreement and (y) has received milestone payments pursuant to Section 7.1.1(b), then Pharmacopeia shall pay to Organon royalties on Net Sales of each such Collaboration Product, according to the following schedule:

(i)                                      ***.

(ii)                                   ***.

(iii)                                ***.

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(iv)                               ***.

It is understood by both Parties that the royalty rates pursuant to this Section 8.2.6(a) reflect the fact that ***. If, in the future, the ***.

(b)                                  In the event Pharmacopeia sublicenses its rights pursuant to the provisions of Section 5.6.2, then Pharmacopeia shall pay to Organon, ***, according to the following schedule:

(i)                                      ***;

(ii)                                   ***;

(iii)                                ***; and

(iv)                               ***.

8.3                                  Payment of Royalties .

8.3.1                         Royalty Report .  After the First Commercial Sale of a Collaboration Product for which royalties are due and payable by either Party, its Affiliates or Sublicensees hereunder, the paying Party shall provide the other Party a royalty report on a ***. Each such report shall state, separately for the paying Party, and each Affiliate and Sublicensee, ***. Contemporaneously with the submission of the royalty reports, the paying Party shall ***.

8.3.2                         Records Retention .  Each Party shall keep, and require its Affiliates and Sublicensees to keep, for a period of not less than ***, complete and accurate records of all Net Sales. Each Party shall have the right, at its sole expense, through a certified public accountant reasonably acceptable to the other Party, and following reasonable notice, to inspect such records during regular business hours, during the life of the paying Party’s obligation to pay royalties on Collaboration Products; provided , however , that such inspection shall not (i) take place ***; and (ii) shall not ***, and further provided that, ***.  Copies of such reports shall be supplied to the paying Party. In the event that the report demonstrates that ***.  If the paying Party has ***. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available to each Party.

8.3.3                         Tax on Royalties .  Any tax paid or required to be withheld by a Party for the benefit of the other Party on account of royalties payable under this Agreement shall be deducted from the amount of royalties otherwise due. Each Party shall secure and send to the other Party proof of any such taxes withheld and paid for its benefit of and shall, at the request of the other Party, provide reasonable assistance to other Party in recovering said taxes.

8.3.4                         Form of Payment .  All payments required according to this Section 8 of the Agreement due Pharmacopeia hereunder shall be made in United States dollars, for Pharmacopeia’s account, by wire transfer to a bank in the United States designated in writing by Pharmacopeia; provided , however , that where payments in respect of Net Sales are based on Net

28

 

Sales in non-U.S. currencies, the amount of Net Sales and any deductions used to calculate Net Sales, if any, shall be converted by Organon, based on the average of the “bid” and “asked” exchange rates provided by the Wall Street Journal Europe or other recognized reference source agreed to by the Parties, for all the business days of each calendar quarter, into United States Dollars, and otherwise in accordance with the standard exchange rate conversion practices used by Organon for financial accounting purposes.  All payments required according to this Section 8 due Organon hereunder shall be made in Euros, for Organon’s account, by wire transfer to a bank in the Netherlands designated in writing by Organon. Any payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional two percent (2%) calculated on the number of days such payment is delinquent. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available.

ARTICLE 9

REPORTS, BOOKS AND TAX MATTERS

9.1.                               Examination of Books .  Each of the Parties shall keep and maintain complete and accurate books in respect of its activities during the Research Term and the six month period following termination pursuant Section 15.3.3, and with respect to books and records for which payment may be required, in accordance with applicable accounting principles consistently applied and in accordance with local law.  Each Party shall provide the other the right to inspect such financial records, and shall provide copies of all requested records, to the extent reasonably related to the performance of the other Party’s obligations under this Agreement.  The Parties shall retain such records for so long as the Parties shall mutually determine.

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

ARTICLE 10

PATENTS

10.1                            Disclosure by Employees, Agents or Independent Contractors .  Organon and Pharmacopeia agree that as to any employees, agents, or independent contractors of Organon and Pharmacopeia presently in their employ or who are hired or retained by Organon or Pharmacopeia to perform, manage performance of, or participate in the research done pursuant to this Agreement, Organon and Pharmacopeia will ensure that such employees, agents, or independent contractors will promptly disclose and assign to the Party engaging them any and all

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rights to inventions, developments, or improvements, (whether patentable or not) conceived and/or reduced to practice during the course of their duties.  Each Party will notify the other Party promptly of any sole or joint inventions within the Developed Technology.

10.2                            Patent Prosecution and Related Activities .

10.2.1                   Pharmacopeia Base Technology .  Pharmacopeia shall be responsible, at its sole discretion and expense, for preparing, filing, prosecuting and maintaining in such countries it deems appropriate, by itself or w


 
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