COLLABORATION AND LICENSE AGREEMENT

 

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                                                                    EXHIBIT 10.1

 

Confidential materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.

 

 

 

                       COLLABORATION AND LICENSE AGREEMENT

 

         THIS COLLABORATION AND LICENSE AGREEMENT (this "Agreement") is dated as

of May 16, 2005 (the "Effective Date") and is made by and between LEXICON

GENETICS INCORPORATED, a corporation organized under the laws of the State of

Delaware, United States of America ("Lexicon"), N.V. ORGANON, a registered

company organized under the laws of the Netherlands ("Organon"), and (only with

respect to Section 9.4) INTERVET Inc., a corporation organized under the laws of

the State of Delaware, United States of America ("Intervet"). Lexicon and

Organon are sometimes referred to herein individually as a "party" and

collectively as the "parties."

 

                                 R E C I T A L S

 

         WHEREAS, Lexicon and Organon are each in the business of discovering,

developing and commercializing products for the prevention or treatment of human

diseases and conditions;

 

         WHEREAS, Lexicon has technology for and expertise in the identification

and validation of gene and protein targets for use in the discovery of such

products, including potential antibody and protein therapeutics, as well as

expertise in the research and development of such products;

 

         WHEREAS, Organon has expertise in the research, development and

manufacture of such products; and

 

         WHEREAS, Lexicon and Organon are interested in collaborating in the

discovery and development of antibody and protein therapeutics for selected gene

and protein targets;

 

         NOW, THEREFORE, in consideration of the premises and of the covenants

herein contained, the parties hereto mutually agree as follows:

 

                             ARTICLE 1. DEFINITIONS

 

         For purposes of this Agreement, the terms defined in this Article 1

shall have the respective meanings specified below:

 

         1.1 "Acquiring Party" has the meaning specified in Section 17.3 hereof.

 

         1.2 "Adverse Drug Reaction" means any untoward medical occurrence in a

patient or subject who is administered a Collaboration Product or Opt-out

Product, whether or not considered related to the Collaboration Product or

Opt-out Product, as applicable, including any undesirable sign (including

abnormal laboratory findings of clinical concern), symptom or disease temporally

associated with the use of such Collaboration Product or Opt-out Product.

 

         1.3 "Affiliate" means any corporation, company, partnership, joint

venture or firm that controls, is controlled by or is under common control with

a party to this Agreement. For purposes hereof, "control" means (a) in the case

of a corporate entity, direct or indirect ownership of more than fifty percent

(50%) of the stock or shares entitled to vote for the election of directors; and

(b) in the case of a non-corporate entity, direct or indirect ownership of more

than fifty percent (50%) of the equity interests with the power to direct the

management and policies of such non-corporate entity.

 

         1.4 "Affiliated Subcontractor" has the meaning specified in Section

2.2.4 hereof.

 

 

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          1.5 "Allowable Costs" means the sum of the following (without any item

being accounted for more than once): (a) Target Function Discovery Program

Costs; (b) Biotherapeutics Research Program Costs; (c) Development Costs; (d)

Product Supply Costs; and (e) reasonable out-of-pocket expenses associated with

Patent Prosecution of Program Patent Rights. For clarity, Allowable Costs shall

not include costs and expenses attributable to the research, development,

manufacture or supply of Opt-out Products from and after the effectiveness of

the relevant Opt Out.

 

         1.6 "Antibody" means a composition comprising a whole antibody, or any

fragment thereof.

 

         1.7 "Antisense Compound" means a composition comprising an

oligonucleotide or oligonucleotide analog, whether single or double-stranded,

that hybridizes to a selected mRNA or otherwise interferes with translation or

transcription of such mRNA.

 

         1.8 "Background Materials" means Lexicon Background Materials and

Organon Background Materials.

 

          1.9 "Background Technology" means Lexicon Background Technology and

Organon Background Technology.

 

         1.10 "Back-up Product" means a Collaboration Product selected for

Development by the Joint Management Committee as a possible [**] a

previously-designated Collaboration Product for the same Program Target;

provided, that a Collaboration Product may be deemed to have been selected as a

[**] a previously-designated Collaboration Product for the same Program Target

only if both Collaboration Products [**]. For clarity, a Collaboration Product

selected as a possible [**] a previously-designated Collaboration Product shall

be a Back-up Product if it [**].

 

         1.11 "BLA" means a Biologics Licensing Application (as defined in the

FDC Act) filed with the FDA and any other equivalent marketing authorization

application or other license, registration or other application seeking approval

from a Regulatory Authority to market a Collaboration Product in the

Collaboration Field in any country or region within the Territory.

 

         1.12 "Biotherapeutics Research" means the conduct of activities

relating to the generation of Antibodies, Antisense Compounds and Proteins

relating to Program Targets that have not become Opt-out Targets and the

identification, characterization, selection, optimization and research of

Program Antibodies, Program Antisense Compounds and Program Proteins prior to

their designation as Collaboration Products. Biotherapeutics Research may

include, without limitation, (a) the expression of Proteins comprising Program

Targets, (b) the generation of Program Antibodies that bind to Program Targets,

(c) the generation of Antisense Compounds that hybridize with mRNA encoded by

Program Targets or otherwise interfere with translation or transcription of such

mRNA, (d) the development of assays for Program Antibodies, Program Antisense

Compounds and Program Proteins to, inter alia, confirm the activity of such

Program Antibodies, Program Antisense Compounds or Program Proteins, and (e) the

optimization of such Program Antibodies, Program Antisense Compounds or Program

Proteins, as the case may be, in each case with the objective of identifying

Program Antibodies, Program Antisense Compounds and Program Proteins that are

suitable for Development and meet the criteria required for designation as

Collaboration Products.

 

         1.13 "Biotherapeutics Research Plan" means the plan to be developed by

the Joint Research Committee and approved by the Joint Management Committee for

each Contract Year in accordance with Section 5.2 hereof.

 

 

 

 

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         1.14 "Biotherapeutics Research Program" means the conduct of

Biotherapeutics Research activities in accordance with an applicable

Biotherapeutics Research Plan.

 

         1.15 "Biotherapeutics Research Program Costs" means costs and expenses

that are incurred after the Effective Date by either party and Affiliated

Subcontractors in performing Biotherapeutics Research activities in accordance

with an applicable Biotherapeutics Research Plan and associated budget approved

by the Joint Management Committee, including:

 

                  (a) the costs of internal scientific, medical, technical and

         managerial personnel engaged in Biotherapeutics Research activities

         (together with all associated laboratory supplies, facilities and

         occupancy costs), which costs shall be determined based on FTE Costs,

         unless another basis is otherwise agreed upon by the parties in

         writing;

 

                  (b) out-of-pocket expenditures directly related to such

         Biotherapeutics Research activities, including payments to contract

         research organizations, consultants and other subcontractors, subject

         to Section 2.2.4; and

 

                  (c) any other costs expressly provided for and actually

         incurred in accordance with such Biotherapeutics Research Plan.

 

         1.16 "Change in Control" means, with respect to either party, the

occurrence of either (a) a Third Party becoming the "beneficial owner" (as

defined in the rules and regulations promulgated under the Securities Exchange

Act of 1934), directly or indirectly, of securities of such party representing

fifty percent (50%) or more of the combined voting power of such party's

then-outstanding voting securities or (b) the sale by such party, in one or more

related transactions, of all or substantially all of such party's property and

assets to any Third Party.

 

         1.17 "cGMP Requirements" means the FDA's current good manufacturing

practice requirements as promulgated under the FDC Act at 21 C.F.R. (parts 210

and 211), and as further defined by FDA guidance documents, as amended from time

to time.

 

         1.18 "Collaboration" means the program described in this Agreement in

which Lexicon and Organon will collaborate to identify, characterize and carry

out the Biotherapeutics Research, Development and Manufacturing of Antibodies

(and, if appropriate, Antisense Compounds) that act through and Proteins that

are encoded by Program Targets for use in the Collaboration Field.

 

         1.19 "Collaboration Committee" means the Joint Management Committee,

Joint Research Committee or Joint Development Committee.

 

         1.20 "Collaboration Field" means the diagnosis, prevention, control and

treatment in humans of any disease or condition.

 

         1.21 "Collaboration Product" means a Program Antibody, Program

Antisense Compound or Program Protein that has been selected for Development by

the Joint Management Committee in accordance with Section 3.4 hereof and that

has not become an Opt-out Product.

 

         1.22 "Collaboration Term" has the meaning specified in Section 2.1.2

hereof.

 

         1.23 "Confidential Information" means any proprietary information and

data received by a party or its Affiliates (the "Receiving Party") from the

other party or its Affiliates (the "Disclosing Party") in connection with this

Agreement (including, without limitation, any research, testing, clinical,

 

 

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regulatory, marketing or other scientific or business information, plans, or

data pertaining to any Collaboration Product or Opt-out Product of the

Disclosing Party). Notwithstanding the foregoing, Confidential Information shall

not include any part of such information or data that:

 

                  (a) is or becomes part of the public domain other than by

         unauthorized acts of the Receiving Party or its Affiliates;

 

                  (b) can be shown by written documents to have been already in

         the possession of the Receiving Party or its Affiliates prior to

         disclosure under this Agreement, provided such Confidential Information

         was not obtained directly or indirectly from the Disclosing Party under

         an obligation of confidentiality;

 

                  (c) can be shown by written documents to have been disclosed

         to the Receiving Party or its Affiliates by a Third Party, provided

         such Confidential Information was not obtained directly or indirectly

         from the Disclosing Party under an obligation of confidentiality; or

 

                  (d) can be shown by written documents to have been

         independently developed by the Receiving Party or its Affiliates

          without use of, or access to, Confidential Information of the

         Disclosing Party.

 

Specific Confidential Information of a Disclosing Party shall not be deemed to

come under the foregoing exceptions merely because it is embraced by more

general information that is or becomes part of the public domain, or is known

by, disclosed to or independently developed by the Receiving Party.

 

         1.24 "Continuing Party" has the meaning specified in Section 10.1

hereof.

 

         1.25 "Contract Year" means (a) with respect to the first Contract Year,

the period beginning on the Effective Date and ending on December 31, 2005 (the

"First Contract Year"), and (b) with respect to each subsequent Contract Year,

the twelve (12) month period beginning on the day following the end of the First

Contract Year and each succeeding twelve (12) month period thereafter. Each

Contract Year (other than the First and last Contract Year, as applicable) shall

be divided into four (4) "Contract Quarters" comprised of successive three (3)

month periods. In the First Contract Year, the first Contract Quarter shall

begin on the Effective Date and end on June 30, 2005.

 

         1.26 "Control" or "Controlled" means, with respect to any (a) material,

document, item of information, method, data or other know-how or (b) Patent

Right or other intellectual property right, the possession (whether by ownership

or license, other than by a license granted pursuant to this Agreement) by a

party or its Affiliates of the ability to grant to the other party access,

ownership, a license or a sublicense as provided herein under such item or right

without violating the terms of any agreement or other arrangement with any Third

Party as of the time such party would first be required hereunder to grant the

other party such access, ownership, license or sublicense.

 

         1.27 "Cost Sharing Ratio" means (a) with respect to Lexicon, fifty

percent (50%), and (b) with respect to Organon, fifty percent (50%), subject, in

each case to adjustment in accordance with Section 11.4.

 

         1.28 "Cover," "Covered" or "Covering" means, with respect to a Patent

Right, that, but for rights granted to a person or entity under such Patent

Right, the practice by such person or entity of an invention claimed in such

Patent Right would infringe a Valid Claim included in such Patent Right, or in

the case of a Patent Right that is a patent application, would infringe a Valid

Claim in such patent application if it were to issue as a patent.

 

 

 

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         1.29 "Development" or "Develop" means the conduct of all tests,

clinical and other studies and other activities (including test method

development, toxicology studies, statistical analysis and report writing,

preclinical and other testing, packaging and regulatory affairs, product

approval and registration activities) set forth in, or required to obtain the

information set forth in, applicable Development Plan(s), including such tests,

studies (including Post-Approval Studies) and other activities as may be

required or recommended from time to time by any Regulatory Authority to obtain,

maintain or expand Regulatory Approval of a Collaboration Product in the

Collaboration Field, but excluding any (a) Post-Approval Studies that are not so

required or recommended by the applicable Regulatory Authority and (b) such

studies which are required for purposes of obtaining or maintaining a pricing or

reimbursement approval.

 

         1.30 "Development Costs" means the costs and expenses that are incurred

by either party or their Affiliated Subcontractors in the Development of a

Collaboration Product in accordance with an applicable Development Plan and

associated budget approved by the Joint Management Committee, including (without

duplication):

 

                  (a) the costs of internal scientific, medical, technical and

         managerial personnel engaged in Development activities with respect to

         such Collaboration Product (together with all associated laboratory

         supplies, facilities and occupancy costs), in each case to the extent

         not accounted for in other provisions of this definition (e.g., in

         Manufacturing Development Costs under clause (c) below or in Product

         Supply Costs under clause (e) below), which costs shall be determined

         based on FTE Costs, unless another basis is otherwise agreed upon by

         the parties in writing;

 

                  (b) out-of-pocket expenditures directly related to the

         Development of such Collaboration Product, including (i) payments to

         investigators, contract research organizations, consultants and other

         subcontractors for preclinical studies, pharmacodynamic and

         pharmacokinetic studies, toxicology studies, data management,

         statistical design, programming and analysis, clinical studies,

         clinical trial management, document preparation and review, subject

         recruitment and reimbursement, insurance, contract negotiation and

         travel relating to such activities; (ii) payments to investigators,

         contract research organizations, consultants and other subcontractors

         in connection with the preparation, filing and submission of INDs, BLAs

         and other regulatory filings with Regulatory Authorities (including

         pharmacoeconomic studies and any other clinical studies reasonably

         necessary for Regulatory Approval by relevant Regulatory Authorities to

         sell such Collaboration Product in a given country); and (iii) filing,

         submission and similar fees payable to Regulatory Authorities in

         connection with the preparation, filing and submission of such INDs,

         BLAs and other regulatory filings; in each case, subject to Section

          2.2.4;

 

                  (c) Manufacturing Development Costs relating to such

         Collaboration Product;

 

                  (d) out-of-pocket expenditures under any Third Party licenses

         related to the Development of such Collaboration Product entered into

         (i) prior to the Effective Date and disclosed to the other party prior

         to the Effective Date or (ii) in accordance with Section 2.8, in each

         case other than royalty and other amounts paid to Third Parties in

         connection with the commercialization of such Collaboration Product or

         otherwise payable with respect to activities attributable to a given

         country and occurring after Regulatory Approval of such Collaboration

         Product in such country;

 

                  (e) the costs and expenses of clinical supplies and related

         charges directly related to the Development of such Collaboration

         Product as set forth in the Development Plan, including: (i) the

         Product Supply Costs of clinical supplies of such Collaboration

         Product; (ii) costs and

 

 

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         expenses incurred to purchase or package comparator or combination

         drugs or devices; and (iii) costs and expenses of disposal of clinical

         samples; subject, as applicable, to Section 2.2.4; and

 

                  (f) any other costs expressly provided for and actually

         incurred in accordance with such Development Plan.

 

         1.31 "Development Plan" means the plan(s) to be developed by the Joint

Development Committee and approved by the Joint Management Committee for each

Contract Year [**] with respect to the Development of a Collaboration Product in

accordance with Section 6.3 hereof.

 

         1.32 "Development Program" means the conduct of Development activities

with respect to a Collaboration Product in accordance with an applicable

Development Plan.

 

         1.33 "Diligent Efforts" means the carrying out of obligations or tasks

by a party (or, as applicable, its Affiliates) in a sustained manner using good

faith commercially reasonable and diligent efforts, which efforts shall be

consistent with the exercise of prudent scientific and business judgment in

accordance with the efforts such party devotes to products or research,

development or marketing projects of similar scientific and commercial

potential. Diligent Efforts requires that the party or its applicable

Affiliates: (a) promptly assign responsibility for such obligations to specific

employees who are held accountable for progress and monitor such progress on an

on-going basis, (b) set and consistently seek to achieve specific and meaningful

objectives for carrying out such obligations, and (c) consistently make and

implement decisions and allocate resources designed to advance progress with

respect to such objectives.

 

         1.34 "Disclosing Party" has the meaning specified in Section 1.23

hereof.

 

         1.35 "Effective Date" means the date specified in the initial paragraph

of this Agreement.

 

         1.36 "EMEA" means the European Agency for the Evaluation of Medicinal

Products, or any successor thereto.

 

         1.37 "Event of Default" means an event described in Section 16.2

hereof.

 

         1.38 "FDA" means the United States Food and Drug Administration, or any

successor thereto.

 

         1.39 "FDC Act" means the United States Food, Drug and Cosmetic Act (or

any successor thereto), as amended, and the rules and regulations promulgated

thereunder.

 

          1.40 "First Commercial Sale" means the first sale for use or

consumption by the general public of a Collaboration Product or Opt-out Product

in a country after Regulatory Approval has been obtained in such country. For

clarity, First Commercial Sale shall not include the sale of any Collaboration

Product or Opt-out Product for use in clinical trials or for compassionate use

prior to the approval of a BLA.

 

         1.41 "FTE" means a full-time-equivalent person-year of scientific,

technical or managerial work on or directly related to Target Function Discovery

Program, Biotherapeutics Research or Development activities, as applicable.

 

         1.42 "FTE Costs" means the amounts (which amounts include salaries,

fringe benefits, overtime and all other costs of employing FTEs, including

overhead such as laboratory supplies, facilities

 

 

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and occupancy costs) determined by multiplying (a) the number of FTEs allocated

by a party or its Affiliated Subcontractor(s) during the relevant time period,

subject to any limitations set forth in the applicable Biotherapeutics Research

Plan or Development Plan or otherwise established by the Joint Management

Committee, by (b) the applicable FTE Rate(s).

 

         1.43 "FTE Rate" means the agreed-upon cost per FTE by functional area,

to be adjusted annually (beginning in January 2006) for inflation using the

latest available U.S. Producer Price Index for Total Manufacturing Industries,

unadjusted (PCUOMFG#) as a simple percentage. Such adjustments shall be the

responsibility of the Joint Management Committee. The initial FTE Rate is [**]

on a per annum basis for the following areas: Biotherapeutics Research,

preclinical Development, clinical Development, regulatory affairs, technical

development, process development, technical transfer, project management and

drug safety and quality assurance. The Joint Management Committee shall approve

common FTE Rates for any new functional areas that come within the scope of the

Collaboration. Notwithstanding the foregoing, if [**], then, [**].

 

         1.44 "GAAP" means United States or international generally accepted

accounting principles, as they exist from time to time, consistently applied.

 

         1.45 "IND" means an Investigational New Drug application filed with the

FDA or a similar application for the clinical testing of a Collaboration Product

in human subjects filed with a foreign Regulatory Authority.

 

         1.46 "Joint Development Committee" has the meaning specified in Section

3.1.3.

 

         1.47 "Joint Development Project Team" has the meaning specified in

Section 3.1.3.

 

         1.48 "Joint Management Committee" has the meaning specified in Section

3.1.1 hereof.

 

         1.49 "Joint Marketing/Development Collaborator" has the meaning

specified in Section 8.3 hereof.

 

         1.50 "Joint Marketing/Development Collaborator Revenue" means all

license fees, royalties, milestone payments and other income or items of value

(including, without limitation, any premium received on an equity investment in

Lexicon, Organon or their respective Affiliates, as the case may be, by such

Joint Marketing/Development Collaborator) received from a Joint

Marketing/Development Collaborator in respect of a Collaboration Product (or an

Opt-out Product for which the parties entered into a definitive agreement with

such Joint Marketing/Development Collaborator prior to the effectiveness of such

Opt Out, but only with respect to countries within the Territory covered by such

definitive agreement), less any amounts specifically incurred in connection with

acquiring such revenue (e.g., attorneys' fees to establish underlying agreements

with a Joint Marketing/Development Collaborator or any potential Joint

Marketing/Development Collaborator) and less any reasonable amounts of indemnity

actually paid by either party under any agreements with a Joint

Marketing/Development Collaborator.

 

         1.51 "Joint Research Committee" has the meaning specified in Section

3.1.2 hereof.

 

         1.52 "Joint Research Project Team" has the meaning specified in Section

3.1.2 hereof.

 

         1.53 "[**]" means [**].

 

 

 

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         1.54 "Laws" means all laws, statutes, rules, regulations, ordinances

and other pronouncements having the effect of law of any federal, national,

multinational, state, provincial, county, city or other political subdivision,

domestic or foreign.

 

         1.55 "Level 1 Phenotypic Analysis" means the analyses of the phenotypes

of Mutant Mice described in Exhibit 1.55.

 

         1.56 "Level 2 Phenotypic Analysis" means any one or more of the

analyses of the phenotypes of Mutant Mice described in Exhibit 1.56.

 

         1.57 "Lexicon Background Materials" means any Antibodies, Antisense

Compounds, Proteins, Mutant Mice, reagents, assays or other materials that are

(a) necessary or useful for the conduct of the Collaboration, (b) Controlled by

Lexicon, (c) utilized in the Collaboration (but only to the extent so utilized)

and (d) either in Lexicon's or any of its Affiliates' possession as of the

Effective Date or are discovered or acquired by Lexicon or any of its Affiliates

during the Collaboration Term but outside of the conduct of the Collaboration.

Lexicon Background Materials excludes Program Targets, Program Antibodies,

Program Antisense Compounds and Program Proteins.

 

         1.58 "Lexicon Background Technology" means any inventions, information,

methods, know-how, trade secrets or data that (a) are necessary or useful for

the performance of the Collaboration, (b) are Controlled by Lexicon, (c) are

utilized in the Collaboration (but only to the extent so utilized) and (d)

either are in Lexicon's or any of its Affiliates' possession as of the Effective

Date or are discovered or acquired by Lexicon or any of its Affiliates during

the Collaboration Term but outside of the conduct of the Collaboration. Lexicon

Background Technology includes any inventions, information, method, know-how,

trade secrets or data, other than Program Technology, that are first identified

or discovered in the conduct of the Target Function Discovery Program. Lexicon

Background Technology also includes any inventions, information, methods,

know-how, trade secrets or data (i) relating to research and development methods

and processes first identified or discovered by Lexicon or its Affiliated

Subcontractor(s) in the course of performing Biotherapeutics Research or

Development activities under the Collaboration or (ii) relating to manufacturing

and analytical methods and processes first identified or discovered by Lexicon

or its Affiliated Subcontractor(s) in the course of Manufacture of a

Collaboration Product, in each case that are not Program Technology.

 

         1.59 "Lexicon Product" means any Collaboration Product as to which

Organon has Opted Out in accordance with Section 10.1 and, if applicable [**],

any Program Antibodies, Program Antisense Compounds or Program Proteins that

have not been designated for Development relating to the same Opt-out Target.

 

         1.60 "Lexicon Opt-out Target" means any Program Target as to which

Organon has Opted Out in accordance with Section 10.1.

 

         1.61 "Major Market" means the United States, the European Union (under

the centralized process or any other process), Germany, the United Kingdom,

France, Italy, Spain or Japan.

 

         1.62 "Manufacturing" or "Manufacture" means all activities set forth in

the applicable Manufacturing Plan associated with the production, processing,

filling, finishing, packaging, labeling, shipping and storage of Collaboration

Products in the Collaboration Field, including stability testing, formulation,

manufacturing process development, process validation, manufacturing scale-up,

preclinical, clinical and commercial manufacture and analytical development and

quality assurance and quality control activities.

 

 

 

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         1.63 "Manufacturing Development Costs" means, with respect to the

Development of a Collaboration Product as set forth in the applicable

Manufacturing Plan and associated budget approved by the Joint Management

Committee, (a) the reasonable internal costs of the applicable party or its

Affiliated Subcontractor(s), which costs shall be determined based on FTE Costs,

unless another basis is otherwise agreed upon by the parties in writing, plus

reasonable out-of-pocket expenditures and (b) the actual costs billed to such

party or parties or to their Affiliated Subcontractors by Third Parties, subject

to Section 2.2.4, each in accordance with the budget set forth in the applicable

Manufacturing Plan, incurred in process development, process validation, process

improvement, formulation development, facility and plant validation (which are

product-specific), manufacturing scale-up and recovery costs, the development of

standard operating procedures, batch records, and quality assurance and quality

control methods and procedures, and the production of qualification lots, all

costs incurred in obtaining and maintaining approval specifically for the

manufacture of such Collaboration Product for commercial sale, and the costs for

preparing, submitting, reviewing or developing data or information for the

purpose of a drug master file or for submission to a Regulatory Authority to

obtain or retain such approvals.

 

         1.64 "Manufacturing Plan" has the meaning specified in Section 7.2

hereof.

 

         1.65 "Mutant Mouse" means mouse cell or mouse containing a selected

mutation in the murine ortholog of a Program Target that is made or produced by

Lexicon. A "line of Mutant Mice" means Mutant Mice having the same selected

mutation.

 

         1.66 "Net Sales" means, with respect to a Collaboration Product or

Opt-out Product, as the case may be, the gross amount invoiced for sales of such

Collaboration Product or Opt-out Product by Lexicon and its Affiliates, Organon

and its Affiliates, Joint Marketing/Development Collaborators and their

Affiliates, and (sub)licensees of the Continuing Party and their Affiliates, in

each case as applicable, to customers which are not Affiliates (or which are

Affiliates but are end users of such Collaboration Product or Opt-out Product),

less:

 

                  (a) trade, quantity and cash discounts actually allowed;

 

                  (b) discounts, refunds, rebates, chargebacks, retroactive

         price adjustments, billing errors and any other allowances (including,

         without limitation, government-mandated and managed health

         care-negotiated rebates) actually granted which effectively reduce the

         net selling price;

 

                  (c) product returns credits and allowances actually granted;

 

                  (d) any tax imposed on the production, sale, delivery or use

         of the product (excluding federal, state or local taxes based on

          income);

 

                  (e) freight, postage, shipping, customs duties, excises,

         tariffs, surcharges, other governmental charges (excluding federal,

         state or local taxes based on income) and insurance charges actually

         allowed or paid for delivery of the product;

 

                  (f) payments or rebates paid with respect to such

         Collaboration Product or Opt-out Product, as applicable, in connection

         with state or federal Medicare, Medicaid or similar programs in the

         United States or in connection with similar programs in other countries

         in which there are sales; and

 

                  (g) adjustments for bad debts actually incurred.

 

 

 

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Such amounts shall be determined from the books and records of the Lexicon and

its Affiliates, Organon and its Affiliates, Joint Marketing/Development

Collaborators and their Affiliates, and (sub)licensees of the Continuing Party

and their Affiliates, as the case may be, maintained in accordance with GAAP.

 

         In the event the Collaboration Product or Opt-out Product, as

applicable, is sold as part of a Combination Product (as defined below), the Net

Sales from the Combination Product, for the purposes of determining royalty

payments, will be determined by multiplying the Net Sales of the Combination

Product by the fraction, A/A+B where A is the average sale price of such

Collaboration Product or Opt-out Product when sold separately in finished form

and B is the average sale price of the other active compounds or ingredients in

the Combination Product sold separately in finished form.

 

         In the event that the average sale price of the Collaboration Product

or Opt-out Product, as applicable, can be determined but the average sale price

of the other active compounds or ingredients cannot be determined, Net Sales for

purposes of determining royalty payments will be calculated by multiplying the

Net Sales of the Combination Product by the fraction C/C+D where C is the

selling party's average sales price of the Collaboration Product or Opt-out

Product and D is the difference between the average selling price of the

Combination Product and the average selling price of the Collaboration Product

or Opt-out Product. If the average sale price of the other active compounds or

ingredients can be determined but the average price of the Collaboration Product

or Opt-out Product, as applicable, cannot be determined, Net Sales for purposes

of determining royalty payments will be calculated by multiplying the Net Sales

of the Combination Product by the following formula: one minus C/C+D where C is

the average selling price of the other product(s) and D is the difference

between the average selling price of the Combination Product and the average

selling price of the other active compounds or ingredients.

 

         In the event that the average sales price of both the Collaboration

Product or Opt-out Product, as applicable, and the other active compounds or

ingredients in the Combination Product cannot be determined, the Net Sales of

the Collaboration Product or Opt-out Product shall be negotiated in good faith

by the parties.

 

         The Net Sales price for a Combination Product in a given country will

be calculated once each Contract Year and such price will be used during all

applicable royalty reporting periods for the entire Contract Year for such

country, absent extraordinary conditions or events. When determining the average

sale price of a Collaboration Product or Opt-out Product, as applicable, or the

other active compounds or ingredients in the Combination Product, the average

sale price will be calculated using data arising from the twelve (12) months

preceding the calculation of the Net Sales price for the Combination Product. As

used above, the term "Combination Product" means any Collaboration Product or

Opt-out Product, as applicable, sold in conjunction with any other active

component(s) (whether packaged together or in the same therapeutic formulation).

 

          Free samples of Collaboration Product or Opt-out Product, as

applicable, and the disposition of Collaboration Product or Opt-out Product for,

or the use of Collaboration Product or Opt-out Product in, Phase 1 Clinical

Trials, Phase 2 Clinical Trials, Phase 3 Clinical Trials or Post-Approval

Studies in which such Collaboration Product or Opt-out Product is provided to

patients without any payment shall not result in any Net Sales.

 

         1.67 "Oncology/Immunology Field" means the diagnosis, prevention,

control and treatment in humans of (a) cancer and (b) diseases and conditions of

the immune system other than those associated with diabetes, obesity,

cardiovascular disease, diseases and conditions of the eye, and diseases and

conditions of the central and peripheral nervous system.

 

 

 

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         1.68 "Opt Out" has the meaning specified in Section 10.1 hereof.

 

         1.69 "Opt-out Party" has the meaning specified in Section 10.1 hereof.

 

         1.70 "Opt-out Product" means a Lexicon Product or an Organon Product.

 

         1.71 "Opt-out Target" means a Lexicon Opt-out Target or an Organon

Opt-out Target.

 

         1.72 "Organon Background Materials" means any Antibodies, Antisense

Compounds, Proteins, assays, reagents or other materials that are (a) necessary

or useful for the conduct of the Collaboration, (b) Controlled by Organon, (c)

utilized in the Collaboration (but only to the extent so utilized) and (d)

either in Organon's or any of its Affiliates' possession as of the Effective

Date or are discovered or acquired by Organon or any of its Affiliates during

the Collaboration Term but outside of the conduct of the Collaboration. Organon

Background Materials excludes Program Targets, Program Antibodies, Program

Antisense Compounds and Program Proteins.

 

         1.73 "Organon Background Technology" means any inventions, information,

methods, know-how, trade secrets or data that (a) are necessary or useful for

the performance of the Collaboration, (b) are Controlled by Organon, (c) are

utilized in the Collaboration (but only to the extent so utilized) and (d)

either are in Organon's or any of its Affiliates' possession as of the Effective

Date or are discovered or acquired by Organon or any of its Affiliates during

the Collaboration Term but outside of the conduct of the Collaboration. Organon

Background Technology also includes any inventions, information, methods,

know-how, trade secrets or data (i) relating to research and development methods

and processes first identified or discovered by Organon or its Affiliated

Subcontractor(s) in the course of performing Biotherapeutics Research or

Development activities under the Collaboration or (ii) relating to manufacturing

and analytical methods and processes first identified or discovered by Organon

or its Affiliated Subcontractor(s) in the course of Manufacture of a

Collaboration Product, in each case that are not Program Technology.

 

         1.74 "Organon Product" means any Collaboration Product as to which

Lexicon has Opted Out in accordance with Section 10.1 and, if applicable [**],

any Program Antibodies, Program Antisense Compounds or Program Proteins that

have not been designated for Development relating to the same Opt-out Target.

 

         1.75 "Organon Opt-out Target" means any Program Target as to which

Lexicon has Opted Out in accordance with Section 10.1.

 

         1.76 "Patent Prosecution" has the meaning specified in Section 12.2.1

hereof.

 

         1.77 "Patent Rights" means all existing patents and patent applications

and all patent applications hereafter filed and patents hereafter issued,

including, without limitation, any continuations, continuations-in-part,

divisions, provisionals or any substitute applications, any patent issued with

respect to any such patent applications, any reissue, reexamination, renewal or

extension (including any supplemental protection certificate) of any such

patent, and any confirmation patent or registration patent or patent of addition

based on any such patent, and all foreign counterparts of any of the foregoing.

 

         1.78 "Phase 1 Clinical Trial" means a human clinical trial in any

country that is intended to initially evaluate the safety or pharmacological

effect of a Collaboration Product in subjects or that would otherwise satisfy

requirements of 21 CFR 312.21(a), or its foreign equivalent. For purposes of

this Agreement, "commencement of a Phase 1 Clinical Trial" for a Collaboration

Product means the first introduction of such Collaboration Product into a human

patient in a Phase 1 Clinical Trial.

 

 

 

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         1.79 "Phase 2 Clinical Trial" means a human clinical trial in any

country that is intended to initially evaluate the effectiveness of a

Collaboration Product for a particular indication or indications in patients

with the disease or indication under study or that would otherwise satisfy

requirements of 21 CFR 312.21(b), or its foreign equivalent. For purposes of

this Agreement, "commencement of a Phase 2 Clinical Trial" for a Collaboration

Product means the first introduction of such Collaboration Product into a human

patient in a Phase 2 Clinical Trial.

 

         1.80 "Phase 2b Clinical Trial" means any Phase 2 Clinical Trial of a

Collaboration Product that follows the completion of an initial Phase 2 Clinical

Trial of such Collaboration Product, and that is a well-controlled clinical

trial with the purpose of evaluating safety and efficacy in subjects who have

the disease condition to be treated, diagnosed or prevented. For purposes of

this Agreement, "commencement of a Phase 2b Clinical Trial" for a Collaboration

Product means the first introduction of such Collaboration Product into a human

patient in a Phase 2b Clinical Trial.

 

         1.81 "Phase 3 Clinical Trial" means a pivotal human clinical trial in

any country the results of which could be used to establish safety and efficacy

of a Collaboration Product as a basis for a BLA or that would otherwise satisfy

the requirements of 21 CFR 312.21(c) or its foreign equivalent. For purposes of

this Agreement, "commencement of a Phase 3 Clinical Trial" for a Collaboration

Product means the first introduction of such Collaboration Product into a human

patient in a Phase 3 Clinical Trial.

 

         1.82 "Plan" means a Biotherapeutics Research Plan, Development Plan or

Manufacturing Plan, as the case may be.

 

         1.83 "Post-Approval Study" means a clinical trial conducted after

Regulatory Approval of the applicable Collaboration Product for the applicable

indication has been obtained in the relevant country.

 

         1.84 "Pre-existing Obligations" means the obligations of Lexicon or

Organon, as the case may be, existing under agreements in effect prior to the

Effective Date with respect to Background Materials and Background Technology,

in each case as disclosed to the other party as applicable during the

Collaboration Term.

 

         1.85 "Product Supply Costs" means (a) to the extent that a

Collaboration Product is sourced from a party or its Affiliated

Subcontractor(s), the cost of Manufacture of such Collaboration Product,

including (i) direct material and direct labor costs, (ii) manufacturing

overhead fairly allocated to such Collaboration Product and (iii) [**], all

calculated in accordance with GAAP and without regard to whether or not such

costs result in usable products or materials, and (b) to the extent that a

Collaboration Product is sourced from a Third Party, subject to Sections 2.2.4

and 7.1.2, the actual price paid to such Third Party for the manufacture, supply

and packaging of such Collaboration Product. For purposes of the foregoing, (i)

"direct material costs" means actual costs incurred in manufacturing or

purchasing materials, including freight-in costs, sales and excise taxes imposed

thereon and customs duty and charges levied by government authorities, and all

costs of packaging components; (ii) "direct labor costs" means actual cost of

employees engaged in direct manufacturing activities and quality control and

quality assurance activities who are directly employed in manufacturing and

packaging such Collaboration Product; and (iii) "manufacturing overhead"

attributable to such Collaboration Product will include a reasonable allocation

of indirect labor (not previously included in direct labor costs), a reasonable

allocation of administrative costs, and a reasonable allocation of facilities

costs, all in accordance with GAAP, but will not include corporate

administrative overhead or plant start-up costs or costs associated with excess

capacity. All allocations will be based on the assumption that such party's

plant and equipment are utilized to their reasonable full capacity (except with

respect to equipment that is specific to the Collaboration Product being

Manufactured), and all costs and allocations shall be consistent with

 

 

                                       12

<PAGE>

 

the methods used for such costs and allocations for such party's internal

purposes. More specifically, the components of Product Supply Costs shall

comprise: (A) direct labor (fermentation, purification personnel); (B) direct

materials; (C) facility costs (rent, property taxes, depreciation of leaseholds,

utilities, spare parts, maintenance contracts); (D) manufacturing equipment

depreciation; (E) allocations for information technology, document control,

quality engineering, purchasing, warehouse management, microbiology (with such

allocations to be based on estimated service levels, headcount or square footage

occupancy, depending on the category); (F) indirect labor (manufacturing

supervision); (G) manufacturing department overhead (uniforms, materials used in

plant maintenance); (H) quality assurance/quality control; and (I) such other

similar costs as may be reasonably included in such definition.

 

         1.86 "Program Director" has the meaning specified in Section 3.2

hereof.

 

         1.87 "Program Antibody" means an Antibody that: (a) (i) is selected by

the Joint Research Committee for research, optimization or preclinical

evaluation in the conduct of the Collaboration, (ii) is Controlled by a party,

(iii) either is in a party's or any of its Affiliates' possession as of the

Effective Date or is discovered or acquired by either or both parties or any of

their respective Affiliates during the Collaboration Term but outside the

conduct of the Collaboration, and (iv) binds to or otherwise modulates a Program

Target; (b) is first [**] in the conduct of the Collaboration; or (c) is

otherwise designated a Program Antibody by the Joint Management Committee;

provided, however, that in no event shall [**] become a Program Antibody unless

such designation is affirmatively agreed to by the Joint Management Committee

after disclosure of the nature of such Pre-existing Obligation by the applicable

party.

 

         1.88 "Program Antisense Compound" means an Antisense Compound that:

(a)(i) is selected by the Joint Research Committee for research, optimization or

preclinical evaluation in the conduct of the Collaboration, (ii) is Controlled

by a party, (iii) either is in a party's or any of its Affiliates' possession as

of the Effective Date or is discovered or acquired by either or both parties or

any of their respective Affiliates during the Collaboration Term but outside the

conduct of the Collaboration, and (iv) binds to or otherwise modulates a Program

Target; (b) is first [**] in the conduct of the Collaboration; or (c) is

otherwise designated a Program Antisense Compound by the Joint Management

Committee; provided, however, that in no event shall [**] become a Program

Antisense Compound unless such designation is affirmatively agreed to by the

Joint Management Committee after disclosure of the nature of such Pre-existing

Obligation by the applicable party.

 

         1.89 "Program Intellectual Property" means Program Patent Rights and

any other proprietary rights in Program Material and Program Technology.

 

         1.90 "Program Materials" means (a) any Program Antibodies, (b) any

Program Antisense Compounds, (c) any Program Proteins, and (d) any materials

other than Program Antibodies, Program Antisense Compounds or Program Proteins

first identified or discovered in the conduct of the Collaboration.

 

         1.91 "Program Patent Rights" means any Patent Rights that are

Controlled by one or both parties and that Cover any Program Technology or

Program Materials. For clarification, such Program Patent Rights include the

entire scope of all of the claims contained in such Patent Rights.

 

         1.92 "Program Protein" means a Protein that: (a) (i) is selected by the

Joint Research Committee for research, optimization or preclinical evaluation in

the conduct of the Collaboration, (ii) is Controlled by a party, (iii) either is

in a party's or any of its Affiliates' possession as of the Effective Date or is

discovered or acquired by either or both parties or any of their respective

Affiliates during the Collaboration Term but outside the conduct of the

Collaboration, and (iv) is encoded by a Program Target

 

 

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<PAGE>

 

or derived from (e.g., by means of amino acid substitutions, additions,

deletions, and C- and N-terminal fusions) a Protein encoded by a Program Target;

(b) is first [**] in the conduct of the Collaboration; or (c) is otherwise

designated a Program Protein by the Joint Management Committee; provided,

however, that in no event shall [**] become a Program Protein unless such

designation is affirmatively agreed to by the Joint Management Committee after

disclosure of the nature of such Pre-existing Obligation by the applicable

party.

 

         1.93 "Program Target" means one of the three hundred (300) human genes

selected in accordance with Section 2.3 (in each case, identified by the

full-length cDNA or amino acid sequence of the gene or, in the event the gene

has more than one splice variant form, by the full-length cDNA or amino acid

sequence of at least one splice variant form of such gene) and the products

encoded by such gene, including, without limitation, (a) any [**] from such gene

[**], (b) any [**] encoded by any such gene, and (c) any [**] encoded by any

such gene.

 

         1.94 "Program Technology" means any inventions, information, methods,

know-how, trade secrets or data that (a) are Controlled by a party or jointly by

the parties and (b)(i) relate to the use of Program Antibodies, Program

Antisense Compounds or Program Proteins, (ii) relate to the use of a Program

Target to identify Antibodies or Antisense Compounds acting through such Program

Targets, and the use of such Antibodies or Antisense Compounds in the

Collaboration Field or Veterinary Field, (iii) relate to the use of Protein(s)

encoded by such Program Target in the Collaboration Field or Veterinary Field,

or (iv) are first identified or discovered in the conduct of the Collaboration.

For clarity, Program Technology excludes Program Materials. Notwithstanding the

foregoing, Program Technology does not include any inventions, information,

methods, know-how, trade secrets or data (A) relating to [**] or (B) relating to

[**], in each case that do not [**].

 

          1.95 "Protein" means a composition comprising a high molecular weight

(i.e., weighing more than [**]), polymer compound composed of a variety of amino

acids joined by peptide linkages, or any fragment thereof.

 

         1.96 "Receiving Party" has the meaning specified in Section 1.23

hereof.

 

         1.97 "Regulatory Approval" means any and all approvals (including any

applicable governmental price and reimbursement approvals), licenses,

registrations, or authorizations of any federal, national, multinational, state,

provincial or local regulatory agency, department bureau or other governmental

entity that are necessary for the Manufacture, use, storage, import, transport,

promotion, marketing and sale of a Collaboration Product in the Collaboration

Field in a country or group of countries.

 

         1.98 "Regulatory Authority" means any governmental authority in a

country or region that regulates the manufacture or sale of pharmaceutical

products, including the FDA and the EMEA, and any successors thereto.

 

         1.99 "Small Molecule Compound" means a composition comprising a

chemical compound, whether synthetic or naturally-derived, having a molecular

weight of less than [**]. For clarity, Small Molecule Compounds specifically

exclude: (a) Antibodies, (b) Antisense Compounds and (c) Proteins.

 

         1.100 "Specifications" means, with respect to any Collaboration

Product, the applicable written specifications for Manufacturing, filling,

packaging and warehousing such Collaboration Product in effect at a particular

time and approved by the Joint Development Committee, including, but not limited

to, specifications provided in any Regulatory Approval for such Collaboration

Product.

 

 

 

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         1.101 "Target Function Discovery Program" has the meaning specified in

Section 2.1.1 hereof.

 

         1.102 "Target Function Discovery Program Costs" means the following

amounts:

 

                  (a) [**] for each Program Target for which Lexicon or its

          Affiliated Subcontractor(s) [**] in the conduct of the Target Function

         Discovery Program;

 

                  (b) the costs of internal scientific, medical, technical and

         managerial personnel engaged in [**] (together with all associated

         laboratory supplies, facilities and occupancy costs), which costs shall

         be determined based on FTE Costs, unless another basis is otherwise

         agreed upon by the parties in writing; and

 

                  (c) out-of-pocket expenditures, if any, expressly approved by

         the Joint Management Committee and actually incurred after the

         Effective Date by Lexicon or its Affiliated Subcontractor(s) in

         conducting the Target Function Discovery Program, subject to Section

         2.2.4.

 

         1.103 "Target Function Discovery Program Term" has the meaning

specified in Section 4.1.2 hereof.

 

         1.104 "Territory" means all of the countries of the world.

 

         1.105 "Therapeutic Area" means any one of the following areas with

respect to which the Joint Research Committee may approve Level 2 Phenotypic

Analysis of Mutant Mice relating to a Program Target: (a) metabolism and

endocrinology, (b) cardiology, (c) neurology, (d) oncology, (e) immunology, (f)

ophthalmology and (g) any other therapeutic area for which Lexicon subsequently

develops Level 2 Phenotypic Analysis capabilities and focuses its own internal

drug discovery efforts.

 

         1.106 "Third Party" means any person or entity other than Lexicon,

Organon and their respective Affiliates.

 

         1.107 "Valid Claim" means a claim of an issued and unexpired patent

which has not been held permanently revoked, unenforceable or invalid by a

decision of a court or other governmental agency of competent jurisdiction,

unappealable or unappealed within the time allowed for appeal and that is not

admitted to be invalid or unenforceable through reissue, disclaimer or

otherwise.

 

         1.108 "Veterinary Field" means the diagnosis, prevention, control and

treatment in animals other than humans of any disease or condition.

 

                        ARTICLE 2. COLLABORATION OVERVIEW

 

         2.1 General.

 

                  2.1.1 Objectives. The parties intend to carry out their

         obligations and responsibilities under the Collaboration, consistent

         with the objectives set forth in and the resources allocated to such

         activities in the applicable Plan(s). It is intended that the

         Collaboration will be conducted as a unified collaborative effort with

         activities by the parties carried out primarily at each party's

         respective facilities, and this intent shall be reflected in the

         applicable Plan(s). It is further intended that each party shall

         contribute to Target Function Discovery Program Costs, Biotherapeutics

         Research Program Costs and Development Costs in proportion to the

         applicable Cost Sharing Ratio, and the Plans will be consistent with

         and provide for such proportional contribution. In support of the

         Collaboration, Lexicon will conduct efforts, using its technology

 

 

                                       15

<PAGE>

 

         for the generation and analysis of the phenotypes of Mutant Mice, to

         identify and validate Program Targets with potential utility in the

         Collaboration Field (the "Target Function Discovery Program").

 

                  2.1.2 Collaboration Term. The Collaboration shall commence on

         the Effective Date and continue until the earlier of (a) the time that

         one or the other party has Opted Out of all Program Targets or (b) the

         expiration or earlier termination of this Agreement pursuant to Article

         16 hereof (the "Collaboration Term").

 

         2.2 Conduct of Collaboration.

 

                  2.2.1 Efforts. The Joint Management Committee shall adopt

         project progression guidelines, including criteria for the designation

         of Collaboration Products for Development, the filing of INDs, the

         commencement of Phase 1 Clinical Trials, Phase 2 Clinical Trials and

         Phase 3 Clinical Trials, and the filing of BLAs. The parties shall

         conduct the Collaboration in good scientific manner in accordance with

         such project progression guidelines and in compliance with applicable

         Laws. Each party shall use Diligent Efforts to conduct the activities

         of the Collaboration that are assigned to it in the then-applicable

         Plan(s), and each shall devote sufficient resources to carry out such

         respective activities. While the parties acknowledge and agree that

         neither party guarantees the success of the Collaboration or any

         individual task undertaken thereunder, each party agrees that it will

         perform the activities assigned to it under the Collaboration in a

         professional manner in accordance with the highest industry standards.

 

                  2.2.2 Resources. Over the course of the Collaboration, tasks

          will be allocated between the parties in accordance with the following

         principles and objectives: (a) Lexicon will be solely responsible for

         conducting the Target Function Discovery Program; (b) except to the

         extent otherwise provided in an applicable Biotherapeutics Research

         Plan, Lexicon will be principally, but not exclusively, responsible for

         conducting Biotherapeutics Research activities involving the generation

         of research Program Antibodies, Program Antisense Compounds and Program

         Proteins and the conduct of in vivo research and proof of concept

         studies (although Organon may also be involved in such activities),

         Organon will be responsible for conducting Biotherapeutics Research

         activities involving [**] and the process development of Program

         Antibodies, Program Antisense Compounds and Program Proteins in

         preparation for Development, and the parties shall be allocated

         responsibility substantially pursuant to the applicable Cost Sharing

         Ratio; (c) each party's participation in Development activities (based

         on FTE utilization and out-of-pocket expenditures) will be

         substantially pursuant to the applicable Cost Sharing Ratio; and (d)

         each party's share of Target Function Discovery Program Costs,

         Biotherapeutics Research Program Costs and Development Costs will be

         substantially pursuant to the applicable Cost Sharing Ratio. Subject to

          and in accordance with the foregoing, particular tasks and

         responsibilities shall be assigned in a manner consistent with each

         party's respective capabilities, capacity and expertise. For purposes

         of this Agreement, "out-of-pocket expenditures" includes, but is not

         limited to, the cost of subcontractors related to the Collaboration,

         subject to Section 2.2.4, but specifically excludes the cost of

         laboratory supplies and facilities and occupancy costs (such as, for

         example, costs for laboratory space, equipment and utilities).

 

                  2.2.3 FTE Levels. The parties agree to commit to the

         Collaboration the personnel necessary to meet their respective

         responsibilities set forth in each Plan. The Plans shall set forth

         specific FTE levels for each Contract Year to be assigned to specific

         activities.

 

                  2.2.4 Subcontractors. In accordance with Section 2.2.2, the

         parties will endeavor to optimize the allocation of their resources for

         the conduct of the Collaboration. As necessary and

 

 

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         in furtherance of the Collaboration, however, (a) Lexicon may enter

         into agreements or subcontracts for Target Function Discovery Program

         activities in accordance with this Section 2.2.4 and (b) either party

         may enter into agreements or subcontracts for Biotherapeutics Research,

         Development or Manufacturing activities in accordance with this Section

         2.2.4; provided that (i) none of the rights of the other party

         hereunder are diminished or otherwise adversely affected as a result of

         such subcontracting, (ii) such party obtains the written approval of

         the other party prior to engaging any subcontractor, which approval

         shall not be unreasonably withheld or delayed (for purposes of which it

         shall not be deemed unreasonable for a party to withhold consent when

         the withholding party is capable of conducting the activities proposed

         to be conducted by such subcontractor and is willing to do so on terms,

         including cost, time and quality, equivalent to those offered by such

          contractor), and (iii) the subcontractor undertakes in writing

         obligations of confidentiality and non-use regarding the other party's

         Confidential Information that are substantially the same as those

         undertaken by Organon and Lexicon pursuant to Article 13 hereof. In the

         event a party performs one or more of its obligations under the

         Collaboration through a subcontractor, then such party shall at all

         times be responsible for the performance of such subcontractor. The

         Joint Management Committee shall decide the allocation of the cost of

         any such agreement between the parties or if the cost is to be borne by

         one party and whether it can be allocated to offset other obligations

         set forth in the applicable Plan(s). Notwithstanding the foregoing

         provisions of this Section 2.2.4, either party may subcontract Target

         Function Discovery Program, Biotherapeutics Research, Development or

         Manufacturing activities to an Affiliate without the other party's

         prior consent (such party, an "Affiliated Subcontractor").

 

                  2.2.5 Reports. Lexicon shall submit [**] reports to the Joint

         Management Committee detailing its activities under the Target Function

         Discovery Program. Each party shall submit [**] reports to the Joint

         Management Committee, as may be required by the then-current Plan(s),

         detailing its activities under the Biotherapeutics Research Program and

         Development Program. The Joint Management Committee shall use such [**]

         reports to monitor the parties' respective contributions to the

         Collaboration. The Joint Management Committee may amend the Plan(s) as

         necessary to maintain substantial compliance over the course of the

         Collaboration in resources devoted and participation by the parties in

         accordance with the principles and objectives set forth in Section

         2.2.2.

 

                  2.2.6 Adjustments. If either party believes that the parties

         are not devoting resources and participation to the Collaboration

         substantially in accordance with the principles and objectives set

         forth in Section 2.2.2, such party may submit the matter to the Joint

         Management Committee in writing, providing a reasonably detailed

         description of its reasons for such belief. Taking into account

         historical and prospective participation and resource devotion of the

         Parties during the current [**] and the immediately following [**], the

         Joint Management Committee shall take such steps as may be reasonably

         necessary to ensure substantial compliance in resources devoted and

         participation by the parties in the Collaboration with the principles

         and objectives set forth in Section 2.2.2.

 

         2.3 Selection of Program Targets. Within [**] after the Effective Date,

the Joint Management Committee shall select, from the list of available genes

provided by Lexicon to Organon prior to the Effective Date, [**] Program Targets

in addition to the two Program Targets separately designated as of the Effective

Date. [**]. In the event that the Joint Management Committee is unable, within

the relevant time periods specified above, to reach agreement with respect to

the designation of the full number of Program Targets contemplated hereby,

Organon shall have the right, during the period of [**] thereafter, to designate

any remaining Program Targets from the relevant list of available genes.

 

 

 

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         2.4 Exclusivity. During the Collaboration Term, each party shall work

exclusively with the other party under the terms of this Agreement with respect

to Biotherapeutics Research, Development and commercialization of (a) Program

Antibodies, Program Antisense Compounds and other Antibodies and Antisense

Compounds acting through Program Targets and (b) Program Proteins and other

Protein(s) encoded by Program Targets. For clarity, a Continuing Party and,

subject to Section 10.2, an Opt-out Party shall have no further obligation under

this Section 2.4 with respect to Opt-out Products and Opt-out Targets.

 

         2.5 Collaboration Records.

 

                   2.5.1 All work conducted by each party in the course of the

         Collaboration shall be completely and accurately recorded, in

         reasonable detail and in good scientific manner, in separate laboratory

         notebooks. On reasonable notice, and at reasonable intervals, each

         party shall have the right to inspect and copy all such records of the

         other party reflecting Program Technology or work done under the

         Collaboration, to the extent reasonably required to carry out its

         respective obligations and to exercise its respective rights hereunder.

         Notwithstanding the definition of "Confidential Information," all such

         records shall constitute Confidential Information of the party owning

         such records.

 

                  2.5.2 In order to protect the parties' Patent Rights under

         U.S. law in any inventions conceived or reduced to practice during or

         as a result of the Collaboration, each party agrees to maintain a

         policy that requires its employees to record and maintain all data and

         information developed during the Collaboration in such a manner as to

         enable the parties to use such records to establish the earliest date

         of invention or diligence to reduction to practice. At a minimum, the

         policy shall require such individuals to record all inventions

         generated by them in standard laboratory notebooks or other suitable

         means that are dated and corroborated by non-inventors on a regular,

         contemporaneous basis.

 

         2.6 Disclosure of Collaboration Results. Subject to restrictions

imposed by a party's confidentiality obligations to any Third Party with respect

to Background Materials or Background Technology, each party will disclose to

the Joint Research Committee or Joint Development Committee, as applicable, all

Program Technology that is discovered, invented or made by such party during the

course of the Collaboration and that is useful in or relates to the

Collaboration, including, without limitation, information regarding Program

Targets, Program Antibodies, Program Antisense Compounds and Program Proteins

and uses thereof and the results of all Biotherapeutics Research and Development

studies and other activities. Such Program Technology will be promptly disclosed

to the Joint Research Committee or Joint Development Committee, as applicable,

with meaningful discoveries or advances being communicated as promptly as

practicable after such information is obtained or its significance is

appreciated. Upon written request by any member of the Joint Research Committee

or Joint Development Committee, as applicable, each party will provide the other

with copies of the raw data generated in the course of the Collaboration, if

reasonably necessary to the other party's work under the Collaboration. Any

information disclosed pursuant to this Section 2.6 may be used by the other

party solely for the purposes of the Collaboration or as otherwise expressly

permitted in this Agreement.

 

         2.7 Material Transfer. In order to facilitate the Collaboration, either

party may provide to the other party certain Program Materials and Background

Materials Controlled by the supplying party (other than under this Agreement)

for use by the other party in furtherance of the Collaboration. All such Program

Materials shall be considered the Confidential Information of both parties and

shall be subject to the restrictions in Article 13. All Background Materials

shall be considered the Confidential Information of the supplying party and

shall be subject to the restrictions in Article 13. Except as otherwise provided

under this Agreement, all such Program Materials and Background Materials

delivered to the other party

 

 

                                        18

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shall remain the sole property of the supplying party, shall be used only in

furtherance of the Collaboration and solely under the control of the other party

and its Affiliates, shall not be used or delivered to or for the benefit of any

Third Party without the prior written consent of the supplying party and shall

not be used in research or testing involving human subjects. The Program

Materials and Background Materials supplied under this Section 2.7 must be used

with prudence and appropriate caution in any experimental work, since not all of

their characteristics may be known. THE PROGRAM MATERIALS AND BACKGROUND

MATERIALS ARE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY,

EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF

MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT

THE USE OF THE MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER

PROPRIETARY RIGHTS OF ANY THIRD PARTY.

 

         2.8 Third Party Licenses. Either party may propose that the Joint

Management Committee determine whether a Third Party license is required or

beneficial for Biotherapeutics Research of a Program Target or the Development

or commercialization of a Collaboration Product in the Collaboration Field. In

the event the Joint Management Committee determines that such Third Party

license is required or beneficial, the Joint Management Committee shall

determine which party shall be responsible for obtaining such license, as

applicable. In making any such determination provided for in this Section 2.8 as

to the need for or benefit of any such Third Party license, due consideration

shall be given to the advisability of seeking an opinion of counsel and the

efforts required to design around the patents at issue.

 

                       ARTICLE 3. COLLABORATION MANAGEMENT

 

         3.1 Collaboration Committees.

 

                  3.1.1 Joint Management Committee. As soon as practicable after

         the Effective Date, Organon and Lexicon shall establish a Joint

         Management Committee (the "Joint Management Committee") comprised of

         [**] representatives designated by Organon and [**] representatives

         designated by Lexicon, each of whom shall have experience and seniority

         sufficient to enable him or her to make decisions on behalf of the

         party he or she represents; provided that Organon and Lexicon may, by

         mutual agreement, designate an appropriate number of additional

         representatives from time to time.

 

                  3.1.2 Joint Research Committee. As soon as practicable after

         the Effective Date, Organon and Lexicon shall establish a Joint

         Research Committee (the "Joint Research Committee") comprised of [**]

         representatives designated by Organon and [**] representatives

         designated by Lexicon, each of whom shall have experience and seniority

         sufficient to enable him or her to make decisions on behalf of the

         party he or she represents; provided that Organon and Lexicon may, by

         mutual agreement, designate an appropriate number of additional

         representatives from time to time. From time to time during the

         Collaboration Term, the Joint Research Committee may establish one or

         more Joint Research Project Teams (each, a "Joint Research Project

         Team") to implement various aspects of the applicable Biotherapeutics

         Research Plan. Such teams shall be governed in the same manner and

         subject to the relevant requirements as set forth herein for the Joint

         Research Committee.

 

                  3.1.3 Joint Development Committee. As soon as practicable

         after the designation of the first Collaboration Product, Organon and

         Lexicon shall establish a Joint Development Committee (the "Joint

         Development Committee") comprised of [**] representatives designated by

         Organon and [**] representatives designated by Lexicon, each of whom

          shall have experience and seniority sufficient to enable him or her to

         make decisions on behalf of the party he or she

 

 

                                       19

<PAGE>

 

         represents; provided that Organon and Lexicon may, by mutual agreement,

         designate an appropriate number of additional representatives from time

         to time. From time to time during the Collaboration Term, the Joint

         Development Committee may establish one or more Joint Development

         Project Teams (each, a "Joint Development Project Team") to implement

         various aspects of the applicable Development Plan(s). Such teams shall

         be governed in the same manner and subject to the relevant requirements

         as set forth herein for the Joint Development Committee.

 

         3.2 Program Directors. Each party shall appoint one of its designees on

the Joint Management Committee (and who may, but need not also be, a member of

the Joint Research Committee or Joint Development Committee) to serve as a

program director (each, a "Program Director") with responsibility for overseeing

the day-to-day activities of the parties with respect to the Collaboration and

for being the primary point of contact between the parties with respect to the

Collaboration.

 

         3.3 Replacement of Collaboration Committee Representatives and Program

Directors. Each party shall be free to replace its representative members of any

Collaboration Committee and its Program Director with new appointees who have

authority to act on behalf of such party, on notice to the other party.

 

         3.4 Responsibilities of Joint Management Committee. The Joint

Management Committee shall be responsible for overseeing and directing the

parties' interaction and performance of their respective obligations under this

Agreement. Without limiting the generality of the foregoing, its duties shall

include:

 

                  (a) preparing such procedures as may be necessary for the

         operation of the Joint Management Committee, Joint Research Committee,

         and Joint Development Committee, and other committees the Joint

         Management Committee decides to establish to assure the efficient

         operation of the Collaboration;

 

                  (b) approving strategy for the overall Biotherapeutics

         Research, Development and Manufacturing of Collaboration Products in

         the Collaboration Field and for all other activities conducted by the

         parties hereunder;

 

                  (c) reviewing and approving the annual Biotherapeutics

         Research Plans proposed by the Joint Research Committee and approving

         the budget therefor and any modifications thereto as recommended by the

         Joint Research Committee;

 

                  (d) reviewing and approving the annual [**] Development Plans

         proposed by the Joint Development Committee and approving the budgets

         therefor and any modifications thereto as recommended by the Joint

         Development Committee;

 

                   (e) reviewing and approving the Manufacturing Plans proposed

         by Organon or its Affiliated Subcontractor(s) and approving the budget

         therefor and any modifications thereto as recommended by Organon or

         such Affiliated Subcontractor(s);

 

                  (f) overseeing the implementation of the Plans and allocation

         of resources and other activities in support of the Collaboration,

         including the matters contemplated by Section 2.2 hereof;

 

                   (g) establishing criteria for designation of Collaboration

         Products;

 

                  (h) designating Collaboration Products;

 

 

 

                                       20

 

<PAGE>

 

         (i)       facilitating the transfer of technology between the parties

through the Joint Research Committee and the Joint Development Committee;

 

         (j)       overseeing Patent Prosecution and other matters contemplated

by Article 12 and, if appropriate, delegating responsibility for such matters,

subject to oversight by the Joint Management Committee, to a committee appointed

by the Joint Management Committee for such purpose;

 

         (k)       evaluating potential licenses from Third Parties, and

determining their utility in the Collaboration (if any);

 

         (l)       upon the recommendation of the Joint Development Committee,

decisions with respect to the preclinical and clinical Development of

Collaboration Products, including the pursuit of additional indications;

 

         (m)       developing and overseeing the implementation of a strategy for

the commercialization of Collaboration Products;

 

         (n)       deciding whether a Collaboration Product should be

commercialized by or through one or more of the parties or their respective

Affiliates as contemplated by Section 8.2;

 

         (o)       deciding whether a Collaboration Product should be

commercialized by or through a Joint Marketing/Development Collaborator as

contemplated by Section 8.3, monitoring the progress of any negotiations

conducted in accordance with Section 8.3 and approving the terms of any final

agreement arising therefrom;

 

         (p)       evaluating the progress of the Joint Research Committee and

Joint Development Committee, and on a quarterly basis at a minimum, evaluating

the progress of the Biotherapeutics Research Plan and applicable Development

Plan(s) against their respective timelines;

 

         (q)       overseeing the maintenance of an inventory of the assets

generated pursuant to the Collaboration;

 

         (r)        resolving matters within the responsibilities of the Joint

Research Committee and Joint Development Committee as to which the members of

such Collaboration Committee are unable to reach a consensus, and dissolving

each such Collaboration Committee when its duties under the Collaboration are

complete;

 

         (s)       resolving disagreements between the parties with respect to

the matters contemplated by Article 8 and 10 hereof; and

 

         (t)       addressing issues and resolving differences that may arise

between the parties.

 

         The Joint Management Committee shall not have the power to amend the

terms of or waive compliance with this Agreement.

 

         3.5       Responsibilities of Joint Research Committee. The Joint

Research Committee shall be responsible for preparing for approval by the Joint

Management Committee and implementing the applicable annual Biotherapeutics

Research Plan, with the objective of expeditiously identifying Program

Antibodies, Program Antisense Compounds and Program Proteins meeting the

criteria for designation as Collaboration Products. Without limiting the

generality of the foregoing, its duties shall include:

 

 

                                       21

<PAGE>

 

         (a)       overseeing the implementation of the Target Function Discovery

Program;

 

         (b)       establishing criteria for the selection of Program Antibodies,

Program Antisense Compounds and Program Proteins;

 

         (c)       selecting Program Antibodies, Program Antisense Compounds and

Program Proteins for characterization and optimization in the conduct of the

Collaboration;

 

         (d)       monitoring, reviewing and reporting on the progress of the

Biotherapeutics Research Program;

 

         (e)       recommending Program Antibodies, Program Antisense Compounds

and Program Proteins for designation by the Joint Management Committee as

Collaboration Products; and

 

         (f)       performing such other activities as are contemplated by the

terms of this Agreement.

 

         The Joint Research Committee shall report its activities and make

proposals to the Joint Management Committee at least [**], but more frequently

as appropriate. The Joint Research Committee shall not have the power to amend

or waive compliance with this Agreement.

 

         3.6       Responsibilities of Joint Development Committee. The Joint

Development Committee shall be responsible for preparing for approval by the

Joint Management Committee and implementing the applicable annual [**]

Development Plan(s). Without limiting the generality of the foregoing, its

duties shall include:

 

         (a)       proposing and overseeing the Development strategy of

Collaboration Products;

 

         (b)       overseeing the filing of INDs with the FDA or other Regulatory

Authority by the designated party pursuant to Section 6.4.1;

 

         (c)       establishing advisory committees comprised of scientific,

medical or other appropriate experts not affiliated with either party to advise

the Joint Development Committee on matters related to the preclinical and

clinical Development of Collaboration Products;

 

         (d)       approving the protocol of any clinical trials of Collaboration

Products;

 

         (e)       overseeing the clinical trials of Collaboration Products;

 

         (f)       providing all appropriate information regarding the progress

of the Development Plan(s) to the Joint Management Committee in advance of each

quarterly Joint Management Committee meeting;

 

         (g)       overseeing the filing of BLAs with the FDA or other Regulatory

Authority by the designated party pursuant to Section 6.4.1; and

 

         (h)       performing such other activities as are contemplated by the

terms of this Agreement.

 

 

                                       22

<PAGE>

 

         The Joint Development Committee shall report its activities and make

proposals to the Joint Management Committee at least [**], but more frequently

as appropriate. The Joint Development Committee shall not have the power to

amend or waive compliance with this Agreement.

 

          3.7       Meetings of Collaboration Committees. As applicable, each

Collaboration Committee shall meet at least [**], and more frequently as the

parties deem appropriate, on such dates and at such times as the parties shall

agree, on [**] written notice to the other party unless such notice is waived by

the parties. The first meeting of the Joint Management Committee shall take

place within [**] after the Effective Date, at Lexicon's facility in The

Woodlands, Texas, United States of America. Each Collaboration Committee may

convene or be polled or consulted from time to time by means of

telecommunications, videoconferences or correspondence, as deemed necessary or

appropriate by the parties. To the extent that meetings are held in person, they

shall alternate between the offices of the parties unless the parties otherwise

agree.

 

         3.8       Decisions.

 

                  3.8.1     Quorum; Voting. A quorum for a meeting of a

         Collaboration Committee shall require the presence of at least one

          Lexicon member (or designee) and at least one Organon member (or

         designee) in person or by telephone. All decisions made or actions

         taken by a Collaboration Committee shall be made unanimously by its

         members, with the Lexicon members cumulatively having one vote and the

         Organon members cumulatively having one vote; provided that, in the

         event the members of the Joint Research Committee are unable to reach

         unanimity as to a decision under [**] with respect to [**], then either

         party may, in its sole discretion, [**].

 

         3.8.2     Dispute Resolution.

 

                  3.8.2.1   In the event that unanimity cannot be reached by the

         Joint Research Committee, or Joint Development Committee, as the case

         may be, with respect to a matter that is a subject of its

         decision-making authority, respectively, then the matter shall be

         referred for further review and resolution to the Joint Management

         Committee. In the event that unanimity cannot be reached by the Joint

         Management Committee with respect to a matter that is a subject of its

         decision-making authority, then the matter shall be referred for

         further review and resolution to the Chief Executive Officer of

         Organon, or such other similar position designated by Organon from time

         to time, and the Chief Executive Officer of Lexicon, or such other

         similar position designated by Lexicon from time to time. The

         designated officers of each party shall use reasonable efforts to

         resolve the matter within [**] after the matter is referred to them.

 

                  3.8.2.2   If the designated officers cannot resolve any matter

         pursuant to Section 3.8.2.1 within such [**] period, the matter shall

         be referred to a Third Party arbitrator or arbitrators, in accordance

         with the following procedures, whose decision shall be [**]. The

         parties shall attempt to mutually agree upon a single independent Third

         Party arbitrator (who shall be a professional with appropriate

         experience in the subject matter at issue in such disagreement) within

         [**] after the initial referral of such matter to the designated

         officers. If the parties are unable to mutually agree upon one such

         person, then each party shall appoint one independent Third Party

         professional with appropriate experience in the subject matter at issue

         in such disagreement prior to the expiration of such [**] period, and

         within [**] after the initial referral of such matter to the designated

         officers, such person(s) shall select a single independent Third Party

         arbitrator, who shall be a professional with appropriate experience in

         the subject matter at issue in such disagreement. Each party shall

         present all information presented pursuant

 

 

                                       23

<PAGE>

 

         to Section 3.8.2.1 and all other information as such party reasonably

         desires regarding such disagreement. Within [**] after the initial

         referral of such matter to the designated officers, the arbitrator

         shall provide written notice to the parties regarding his or her

         determination regarding such disagreement.

 

         3.9       Administration. The chairperson of each Collaboration

Committee shall be designated annually on an alternating basis between the

parties. The initial chairperson shall be selected by Organon. The party not

designating the chairperson shall designate one of its representative members as

secretary to such Collaboration Committee for such year. The chairperson shall

be responsible for calling meetings of such Collaboration Committee, sending

notices of meetings to all members and for leading such meetings.

 

         3.10      Minutes. Within [**] after each Collaboration Committee

meeting, the secretary of such Collaboration Committee shall prepare and

distribute minutes of the meeting, which shall provide a description in

reasonable detail of the discussions had at the meeting and a list of any

actions, decisions or determinations approved by such Collaboration Committee.

The secretary shall be responsible for circulation of all draft and final

minutes. Draft minutes shall be first circulated to the chairperson, edited by

the chairperson and then circulated in final draft form to all members of such

Collaboration Committee sufficiently in advance of the next meeting to allow

adequate review and comment prior to the meeting. Minutes shall be approved or

disapproved, and revised as necessary, at the next meeting. Final minutes shall

be distributed to the members of such Collaboration Committee.

 

         3.11      Term. The Joint Management Committee shall exist until the

termination orexpiration of the Collaboration Term. Each other Collaboration

Committee shall exist until the termination or expiration of the Collaboration

Term unless earlier dissolved by the Joint Management Committee following the

completion of its duties under the Collaboration.

 

         3.12      Expenses. Each party shall be responsible for all travel and

related costs for its representatives to attend meetings of, and otherwise

participate on, a Collaboration Committee.

 

                  ARTICLE 4. TARGET FUNCTION DISCOVERY PROGRAM

 

         4.1       General.

 

                  4.1.1     Generation and Analysis of Mutant Mice. In the Target

         Function Discovery Program, Lexicon shall use Diligent Efforts to

         complete (a) the development and Level 1 Phenotypic Analysis of Mutant

         Mice for each Program Target and (b) Level 2 Phenotypic Analysis of

         such lines of Mutant Mice that displayed a phenotype suggestive, as

          determined by the Joint Research Committee, of the potential utility of

         the corresponding Program Target in the Collaboration Field.

 

                  4.1.2     Target Function Discovery Program Term. The Target

         Function Discovery Program shall continue until the end of the fourth

         year of the Collaboration Term on May 16, 2009 and all work under the

         Target Function Discovery Program shall be completed by that date (the

         "Target Function Discovery Program Term").

 

         4.2       Annual Budget. Lexicon shall prepare and the Joint Management

Committee shall approve the annual budget for the Target Function Discovery

Program for every Contract Year (other than the First Contract Year) during the

Target Function Discovery Program Term at least [**] prior to the commencement

of such Contract Year. The annual budget for the Target Function Discovery

Program for the First Contract Year shall be prepared by Lexicon and approved by

the Joint Management

 

 

                                        24

<PAGE>

 

Committee within [**] after the Effective Date. Each such annual budget shall be

in writing and shall set forth with reasonable specificity expected timelines

for the development of Mutant Mice and the conduct of Level 1 Phenotypic

Analysis and Level 2 Phenotypic Analysis, together with associated Target

Function Discovery Program Costs. The Joint Research Committee may agree on

modifications, and recommend that the Joint Management Committee approve such

modifications, to the provisions of any such annual budget at any time.

 

         4.3       Reporting and Oversight of Target Function Discovery Program

Progress. Lexicon shall keep the Joint Research Committee fully informed of the

progress of its activities under the Target Function Discovery Program. At a

minimum, within [**] following the last day of each [**] during the Target

Function Discovery Program Term, Lexicon shall prepare, and provide to the Joint

Research Committee, a reasonably detailed written summary report which shall

describe (a) the work performed by Lexicon during the preceding [**], including,

without limitation, the status of Lexicon's development of Mutant Mice and the

conduct of Level 1 Phenotypic Analysis and Level 2 Phenotypic Analysis (or only

Level 1 Phenotypic Analysis if Level 2 Phenotypic Analysis has not been

performed) of such Mutant Mice, and (b) identify phenotypes identified through

such Level 1 Phenotypic Analysis and Level 2 Phenotypic Analysis that are

suggestive, in Lexicon's good faith scientific judgment, of the potential

utility of the corresponding Program Targets in the Collaboration Field. In

addition, Lexicon shall provide the Joint Research Committee with access to all

data, information and conclusions from such Level 1 Phenotypic Analysis and/or

Level 2 Phenotypic Analysis of Mutant Mice, in each case promptly following the

generation thereof, so as to enable the Joint Research Committee to make its own

determinations as to which Mutant Mice exhibit a phenotype suggestive of the

potential utility of the corresponding Program Target in the Collaboration

Field.

 

         4.4       Third Party Licenses. Notwithstanding anything herein to the

contrary, but subject to the requirement of unanimously agreed budgets set forth

in Section 4.2, Lexicon shall be responsible for the licensing of technologies

or patents owned or controlled by Third Parties that are required or beneficial

for the conduct of the Target Function Discovery Program. For the avoidance of

doubt, no such technologies or patents shall be used by Lexicon in the Target

Function Discovery Program unless the Joint Management Committee has agreed and

consented to the financial implications of such use.

 

                  ARTICLE 5. BIOTHERAPEUTICS RESEARCH PROGRAM

 

         5.1       General. The parties shall jointly pursue Biotherapeutics

Research relating to Program Targets that have not become Opt-out Targets under

the direction of the Joint Research Committee in accordance with annual

Biotherapeutics Research Plans. Unless otherwise agreed by the Joint Management

Committee, (a) Lexicon will be principally, but not exclusively, responsible for

conducting Biotherapeutics Research activities involving the generation of

research Program Antibodies, Program Antisense Compounds and Program Proteins

and the conduct of in vivo research and proof of concept studies (although

Organon may also be involved in such activities) and (b) Organon will be

responsible for conducting Biotherapeutics Research activities involving the

generation of human or humanized Program Antibodies and the process development

of Program Antibodies, Program Antisense Compounds and Program Proteins in

preparation for Development.

 

         5.2       Biotherapeutics Research Plans.

 

                  5.2.1     The Joint Research Committee shall prepare and the

         Joint Management Committee shall approve the Biotherapeutics Research

         Plan for every Contract Year (other than the First Contract Year)

         during the Collaboration Term at least [**] prior to the commencement

         of such Contract Year. The Biotherapeutics Research Plan for the First

         Contract Year shall be prepared by the Joint Research Committee and

         approved by the Joint Management Committee

 

 

                                        25

<PAGE>

 

         within [**] after the Effective Date. The responsibility of the Joint

         Research Committee to prepare annual Biotherapeutics Research Plans

         shall terminate upon the agreement of the parties to cease further

         Biotherapeutics Research regarding Program Targets.

 

                  5.2.2     Each annual Biotherapeutics Research Plan shall be in

         writing and shall set forth with reasonable specificity the

         Biotherapeutics Research objectives, priorities, activities,

         milestones, budgets, personnel requirements, other resources and

         allocations of responsibilities between the parties for the period

         covered by such annual Biotherapeutics Research Plan in a manner

          consistent with the terms of this Agreement, including, without

         limitation, the objectives set forth in Section 2.1.1 and the terms and

         conditions set forth in Section 2.2. The Biotherapeutics Research Plans

         shall cover all aspects of Biotherapeutics Research relating to the

         generation of Antibodies, Antisense Compounds and Proteins relating to

         Program Targets that have not become Opt-out Targets and the

         identification, characterization, selection, optimization and research

         of Program Antibodies, Program Antisense Compounds and Program Proteins

         prior to their designation as Collaboration Products, and shall

         include, with reasonable specificity, the Biotherapeutics Research

         activities to be performed by each party and the Biotherapeutics

         Research activities, if any, to be performed by subcontractors.

 

                  5.2.3     The Joint Research Committee may agree on

         modifications, and recommend that the Joint Management Committee

         approve such modifications, to the provisions of any Biotherapeutics

         Research Plan at any time. Without limiting the foregoing, the Joint

         Research Committee shall conduct a [**] review of each Biotherapeutics

         Research Plan and shall recommend that the Joint Management Committee

         approve such modifications to the applicable Biotherapeutics Research

         Plan as the Joint Research Committee may deem to be appropriate as a

          result of such review.

 

                        ARTICLE 6. DEVELOPMENT PROGRAMS

 

         6.1       General. The parties shall jointly pursue the Development of

Collaboration Products in the Collaboration Field under the direction of the

Joint Development Committee in accordance with annual [**] Development Plans.

Notwithstanding the foregoing, the Joint Development Committee shall consider,

and make recommendations to the Joint Management Committee regarding all other

commercially reasonable arrangements for the Development of Collaboration

Products, including proposals from one or both of the parties and proposals from

one or more Third Parties. At its option, each party may designate an Affiliated

Subcontractor to carry out its responsibilities under the Development Plan(s)

relating to any Collaboration Product, on a Collaboration

Product-by-Collaboration Product basis.

 

         6.2       Designation of Collaboration Products. The Joint Management

Committee shall adopt criteria for the designation of Program Antibodies,

Program Antisense Compounds and Program Proteins as Collaboration Products,

which criteria shall include, without limitation, (a) identification and

characterization by the parties of a chimeric, humanized or human Program

Antibody, a Program Antisense Compound or a human Program Protein, as

applicable, that is suitable for the initiation of preclinical studies designed

to support the filing of an IND; and (b) achievement of appropriate results in

proof of concept studies conducted in the Biotherapeutics Research Program. The

Joint Management Committee shall be responsible for designating Collaboration

Products in accordance with Section 3.4.

 

         6.3       Development Plans.

 

                  6.3.1     Following the first Contract Year in which the

         parties designate a Collaboration Product, the Joint Development

         Committee shall prepare and the Joint Management Committee

 

 

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<PAGE>

 

         shall approve a Development Plan for each Collaboration Product for

         every Contract Year at least [**] prior to the commencement of such

         Contract Year. In the first Contract Year in which the parties

         designate a Collaboration Product, the Joint Development Committee

          shall prepare the first Development Plan for such Collaboration Product

         as soon as commercially reasonable after its designation. The

         responsibility of the Joint Development Committee to prepare a

         Development Plan for a Collaboration Product shall terminate upon the

         earlier of (a) a party Opting Out of further Development of such

         Collaboration Product or (b) the agreement of the parties to cease

         further Development of such Collaboration Product.

 

                  6.3.2     Each Development Plan shall be in writing and shall

         set forth with reasonable specificity the Development objectives,

         priorities, activities, milestones, budgets, personnel requirements,

         other resources and allocations of responsibilities between the parties

         for the period covered by such Development Plan in a manner consistent

         with the terms of this Agreement, including, without limitation, the

         objectives set forth in Section 2.1.1 and the terms and conditions set

         forth in Section 2.2. The Development Plans shall cover all aspects of

         Development relating to Collaboration Products, and shall include, with

         reasonable specificity, the Development activities to be performed by

         each party and the Development activities, if any, to be performed by

         subcontractors.

 

                  6.3.3     The Joint Development Committee may agree on

         modifications, and recommend that the Joint Management Committee

         approve such modifications, to the provisions of any Development Plan

         at any time.

 

         6.4       Regulatory Matters.

 

                  6.4.1     Regulatory Responsibility. The preparation, filing,

         prosecution and maintenance of INDs, BLAs and other regulatory filings

         required to be filed with any Regulatory Authority with regard to each

         Collaboration Product will be in the name of and the responsibility of

         the party so designated in the Development Plan covering such

         Collaboration Product. The party so designated in the Development Plan

         covering such Collaboration Product shall oversee, monitor and

         coordinate all regulatory actions, communications and filings with and

         submissions, including filings and submissions of supplements and

         amendments thereto, to Regulatory Authorities with respect to each

         Collaboration Product, shall give the other party a reasonable

         opportunity for prior review of and comment on all such substantive

         communications, filings and submissions and shall incorporate those of

         such comments as can reasonably be incorporated into such

         communications, filings and submissions.

 

                  6.4.2     Regulatory Meetings and Correspondence. The party so

         designated in the Development Plan covering a particular Collaboration

         Product shall be responsible for interfacing, corresponding and meeting

         with Regulatory Authorities with respect to such Collaboration Product,

         and the other party will promptly refer any contacts or questions from

         Regulatory Authorities to the party so designated. Both parties will be

         entitled to attend all meetings and, if reasonably practicable,

         telephone conferences with Regulatory Authorities.

 

                  6.4.3     Reporting Adverse Drug Reactions. The parties will

         develop and agree upon safety data exchange procedures governing the

         collection, investigation, reporting, and exchange of information

         concerning Adverse Drug Reactions, product quality and product

         complaints involving Adverse Drug Reactions, sufficient to permit each

         party to comply with its legal obligations, including to the extent

         applicable, those obligations contained in ICH guidelines E2A, E2B and

         E2C and the FDC Act. The safety data exchange procedures will be

         promptly updated if required by changes in the Law or by agreement

         between the parties. The party so

 

 

                                       27

<PAGE>

 

         designated in the applicable Development Plan will be responsible for

         reporting all Adverse Drug Reactions to the appropriate Regulatory

         Authorities in the applicable Region(s) in accordance with applicable

         Laws.

 

                      ARTICLE 7. MANUFACTURING AND SUPPLY

 

         7.1       Designation of Manufacturing Party.

 

                  7.1.1      Manufacture of Collaboration Products by Organon.

 

                           7.1.1.1   Manufacture of Collaboration Products for

                  Development. Unless otherwise agreed by the Joint Management

                  Committee, Organon or its Affiliated Subcontractor(s) shall

                  Manufacture and supply all quantities of a Collaboration

                  Product necessary for Development; provided that Organon may

                  decline to Manufacture and supply such quantities of a

                  Collaboration Product for any reason by giving Lexicon written

                  notice to such effect no later than [**] after the Joint

                  Management Committee's designation of such Collaboration

                  Product in accordance with Section 3.4.

 

                           7.1.1.2   Manufacture of Collaboration Products for

                  Commercialization. Unless otherwise agreed by the Joint

                  Management Committee within [**] after the commencement of the

                  first Phase 2 Clinical Trial with respect to any Collaboration

                  Product, the parties shall enter into a Manufacturing and

                  Supply Agreement substantially in the form attached to this

                   Agreement as Exhibit 7.1.1.2 under which Organon or its

                  Affiliated Subcontractor(s) shall be responsible for the

                  Manufacture and supply all quantities of such Collaboration

                  Product necessary for commercialization; provided that Organon

                  may decline to enter into such agreement for any reason by

                  giving Lexicon written notice to such effect no later than

                  [**] after the expiration of such [**] period.

 

                  7.1.2     Manufacture of Collaboration Products by Third

         Parties. In the event that the Joint Management Committee determines

         that it is in the best interests of the Collaboration for any one or

         more Manufacturing activities with respect to a Collaboration Product

         to be undertaken by an identified Third Party (whether as a result of a

         decision by Organon in accordance with Section 7.1.1 not to undertake

         such Manufacturing activities or otherwise), the negotiations with such

         Third Party relating to such Manufacturing activities shall be led by

         [**]; provided that [**] (a) shall keep [**] informed of the substance

         and status of such negotiations, and allow [**] to participate in such

         negotiations and (b) shall take into account in such negotiations the

         reasonable commercial interests of [**] and the best interests of the

         Collaboration. The parties each agree to grant such (sub)licenses under

         their respective Background Materials, Background Technology, Program

         Materials and Program Technology to any such Third Party as may be

         reasonably necessary for such Third Party to manufacture the

         Collaboration Product.

 

                  7.1.3     Manufacture of Lexicon Products.

 

                           7.1.3.1   Manufacture of Lexicon Products for

                  Development. If requested by Organon within [**] following

                  Organon's Opting Out with respect to a Collaboration Product

                  Manufactured by Organon or its Affiliated Subcontractor(s) for

                  Development pursuant to Section 7.1.1.1, Lexicon shall enter

                  into good faith negotiations with Organon, for a period of

                  [**] following such request, with respect to the continued

                  manufacture of such Lexicon Product by Organon or its

                  Affiliated Subcontractor(s) for Development. In the event

                   Lexicon and Organon or its Affiliated Subcontractor(s) do not

 

 

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                  enter into a definitive agreement with respect to such

                  manufacturing activities within such [**] period, Lexicon will

                  be free, at any time thereafter, to enter into negotiations

                  and agreements with one or more Third Parties for the

                  manufacture and supply of such Lexicon Product. Nothing in

                   this Section 7.1.3.1 shall be deemed to affect the rights and

                  obligations of the parties under Section 10.3.3.

 

                           7.1.3.2   Manufacture of Lexicon Products for

                  Commercialization. Within h [**] after the commencement of the

                  first Phase 2 Clinical Trial with respect to any Lexicon

                  Product which is manufactured for Development by Organon or

                  its Affiliated Subcontractor(s) pursuant to Section 7.1.3.1,

                  Lexicon shall offer to Organon the opportunity to manufacture

                  such Lexicon Product for commercialization. If requested by

                  Organon within [**] of such offer, Lexicon shall enter into

                   good faith negotiations with Organon, for a period of [**]

                  following such request, with respect to the continued

                  manufacture of such Lexicon Product by Organon or its

                  Affiliated Subcontractor(s) for commercialization. In the

                  event Lexicon and Organon or its Affiliated Subcontractor(s)

                  do not enter into a definitive agreement with respect to such

                  manufacturing activities within such [**] period, Lexicon will

                  be free, at any time thereafter, to enter into negotiations

                  and agreements with one or more Third Parties for the

                  manufacture and supply of such Lexicon Product [**]. Nothing

                   in this Section 7.1.3.2 shall be deemed to affect the rights

                  and obligations of the parties under Section 10.3.3.

 

         7.2       Manufacturing Plans. With respect to all Collaboration

Products that Organon or its Affiliated Subcontractor(s) Manufactures pursuant

to this Article 7, Organon shall be responsible for implementing all aspects of

Manufacturing necessary for Development under the direction and oversight of the

Joint Management Committee, as set forth in Section 3.4, and in accordance with

a manufacturing plan for the applicable Collaboration Product(s) in the

Collaboration Field proposed by Organon and subject to review and approval by

the Joint Management Committee, which manufacturing plan shall describe the

specific Manufacturing activities to be undertaken by Organon, shall include a

general description of the personnel and other resources to be used in the

implementation thereof and shall set forth a unanimously agreed budget for such

activities (each, as may be modified or amended and approved from time to time

in accordance with this Agreement, a "Manufacturing Plan").

 

         7.3       Orders; Forecasts for Clinical Requirements. If Organon or its

Affiliated Subcontractor(s) is the designated manufacturer for a particular

Collaboration Product as provided in Section 7.1.1, the party primarily

responsible for running a particular clinical trial hereunder will be

responsible for generating periodic [**] forecasts of the anticipated

requirements for such Collaboration Product that is the subject of such trial

and updates of such forecast not less than [**] thereafter, such forecasts and

updates to be promptly provided to Organon or its Affiliated Subcontractor. Not

less than [**] prior to the required delivery of a specified quantity of

Collaboration Product for such purposes, the Joint Development Committee shall

meet and agree on a demand order for the Collaboration Product so required;

provided, that if the total amount of any demand order for delivery in any [**]

period exceeds [**] of the most recent forecast for such period, Organon shall

use Diligent Efforts, but shall have no obligation, to deliver the quantities in

excess of [**] of the estimated amount for such period. Organon shall ship the

Collaboration Product to the facility or facilities designated by the party with

responsibility for distribution of clinical requirements of the Collaboration

Product at the times set forth in the relevant demand order. For clarity, this

paragraph shall not apply in the event that Organon or its Affiliated

Subcontractor is not the designated manufacturer for such Collaboration Product.

 

         7.4       Certain Covenants. Organon and its Affiliated Subcontractor(s)

agree and covenant that, in the event that it Manufactures a Collaboration

Product pursuant to Section 7.1.1, it will (a) use Diligent Efforts to avoid

shortfalls of supply based on the forecasts provided to it in accordance with

Section 7.3,

 

 

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shall promptly notify the parties in the event it becomes aware of any probable

shortfall and shall use Diligent Efforts to remedy any shortfall of supply as

soon as practicable; (b) be responsible for Manufacturing, filling, packaging

and warehousing of the Collaboration Product in conformity with applicable cGMP

Requirements [**], and in accordance, in all material respects, with all other

applicable Law; (c) maintain or cause to be maintained all records necessary and

appropriate to demonstrate compliance with applicable cGMP Requirements and the

applicable Specifications; and (d) grant Lexicon the right, on reasonable

advance notice and during normal business hours during the term of this

Agreement, to have its personnel or representatives with quality control or

quality assurance responsibilities inspect and audit the facilities and

operations directly related to the Manufacture and supply of the Collaboration

Product in order to confirm compliance with the covenants contained in this

Section 7.4; provided that the foregoing inspection and audit right shall be

limited to [**] and [**] per visit; and provided, further, that such personnel

or representatives shall be subject to Organon's prior approval, such approval

not to be unreasonably withheld.

 

         7.5       Third Party Licenses. Notwithstanding anything herein to the

contrary but subject to the requirement of unanimously agreed budgets set forth

in Section 7.2, in the event that Organon or its Affiliated Subcontractor(s)

Manufactures a Collaboration Product, Organon shall be responsible for the

licensing of technologies or patents owned or controlled by Third Parties that

are required or beneficial for the Manufacturing of such Collaboration Product.

For the avoidance of doubt, no such technologies or patents shall be used by

Organon in the Development or Manufacturing of any Product unless the Joint

Management Committee has agreed and consented to the financial implications of

such use.

 

                          ARTICLE 8. COMMERCIALIZATION

 

         8.1        General. Subject to the provisions of this Article 8, the

Joint Management Committee shall consider all commercially reasonable

arrangements for the commercialization of Collaboration Products, including

proposals from one or both of the parties and proposals from one or more Third

Parties.

 

         8.2       Commercialization by the Parties or Their Affiliates. In the

event the Joint Management Committee determines that a particular Collaboration

Product should be commercialized entirely by or through one or more of the

parties or their respective Affiliates throughout the Territory or in one or

more particular countries or regions, then subject to the parties' entry, in

their respective sole discretion, into a definitive agreement with respect

thereto with the applicable party, parties or Affiliate(s):

 

                  (a)       the parties shall grant to each such applicable

         party, parties or Affiliate(s) appropriate rights and licenses under

         their respective rights in (i) the Lexicon Background Materials, the

         Lexicon Background Technology, the Organon Background Materials and the

         Organon Background Technology, including, without limitation, any

         Patent Rights Controlled by either party Covering the foregoing, and

         (ii) the Program Intellectual Property, in each case to Develop, make,

         have made, import, use, have used, offer for sale, sell and have sold

         Collaboration Products in the Collaboration Field throughout the

         Territory or in such country, countries or region(s), as applicable;

         and

 

                  (b)       each party shall take, or cause to be taken, all

         actions reasonably necessary to consummate and make effective any such

         agreement with such party, parties or Affiliate(s).

 

         8.3       Commercialization by Joint Marketing/Development

Collaborators. In the event the Joint Management Committee determines that a

particular Collaboration Product should be commercialized entirely by or through

one or more Third Parties (each, a "Joint Marketing/Development Collaborator")

throughout the Territory or in one or more particular countries or regions, then

subject to the parties'

 

 

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entry, in their respective sole discretion, into a definitive agreement with

respect thereto with the applicable Joint Marketing/Development Collaborator(s):

 

                  (a)       the parties shall grant to each such Joint

         Marketing/Development Collaborator(s) appropriate rights and licenses

         under their respective rights in (i) the Lexicon Background Materials,

         the Lexicon Background Technology, the Organon Background Materials and

         the Organon Background Technology, including, without limitation, any

         Patent Rights Controlled by either party Covering the foregoing, and

         (ii) the Program Intellectual Property, in each case to Develop, make,

         have made, import, use, have used, offer for sale, sell and have sold

         Collaboration Products in the Collaboration Field throughout the

         Territory or in such country, countries or region(s), as applicable;

         and

 

                  (b)       each party shall take, or cause to be taken, all

         actions reasonably necessary to consummate and make effective any such

         agreement with such Joint Marketing/Development Collaborator.

 

         8.4       Option to Co-Commercialize Collaboration Products. In the

event that, within [**], there remain one or more countries with respect to

which the parties have not entered into a definitive agreement pursuant to

Section 8.2 or 8.3 for the commercialization of a Collaboration Product in the

Collaboration Field (or, if applicable, if the parties have not entered into a

definitive agreement pursuant to Section 8.2 or 8.3 with respect to the

commercialization of a Collaboration Product in the Collaboration Field in any

country within the Territory), either party may provide the other party with

written notice of its offer to enter into an agreement in the form attached

hereto as Exhibit 8.4 for the joint commercialization of such Collaboration

Product in the Collaboration Field in all countries within the Territory for

which the parties have not entered a definitive agreement pursuant to Section

8.2 or 8.3. The other party shall have the right, within the period of [**]

following such notice, to accept such offer and enter into such joint

commercialization agreement. In the event the other party fails to accept such

offer and enter into such joint commercialization agreement within such [**]

period, such other party shall be deemed to have Opted Out with respect to such

Collaboration Product pursuant to Section 10.1.1 or 10.1.2, as applicable.

 

         8.5       Notice of Adverse Reactions. Each party shall advise the other

as promptly as reasonably practical by facsimile or overnight delivery service

addressed to the attention of its Vice President, Regulatory Affairs (or

equivalent), of any Adverse Drug Reaction that has been brought to that party's

attention.

 

         8.6       Product Recall. In the event that either party determines that

an event, incident or circumstance has occurred that may result in the need for

a recall or other removal of any Collaboration Product, or any lot or lots

thereof, from a market in any Region, it shall advise and consult with the other

party with respect thereto. The owner of the relevant Regulatory Approval (or

proposed Regulatory Approval), determined in accordance with Section 6.4, shall

make the final determination to recall or otherwise remove the Collaboration

Product or any lot or lots thereof from the market.

 

                          ARTICLE 9. GRANTS OF RIGHTS

 

         9.1       Grants of Research Licenses.

 

                   9.1.1     By Lexicon. Subject to the terms of this Agreement

         and any applicable [**], during the Collaboration Term, Lexicon hereby

         grants to Organon and its Affiliates, within the Territory, (a) a

         non-exclusive right and license (without any right to sublicense,

         except as set forth below) under Lexicon's rights in the Lexicon

         Background Materials and the Lexicon

 

 

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         Background Technology, including, without limitation, any Patent Rights

         Controlled by Lexicon Covering the foregoing, and (b) a co-exclusive

         right and license (without any right to sublicense, except as set forth

         below) under Lexicon's rights in the Program Intellectual Property, in

         each case to (i) generate Antibodies, Antisense Compounds and Proteins

         relating to Program Targets that have not become Lexicon Opt-out

         Targets and (ii) identify, characterize, select, optimize and research

          Program Antibodies, Program Antisense Compounds and Program Proteins

         relating to such Program Targets prior to their designation as

         Collaboration Products, in each case in the conduct of the

         Collaboration. Such right and license shall include the right to grant

         sublicenses to Affiliates of Organon and to Third Parties that are

         approved by the Joint Management Committee.

 

                  9.1.2     By Organon. Subject to the terms of this Agreement

          and any applicable [**], during the Collaboration Term, Organon hereby

         grants to Lexicon and its Affiliates, within the Territory, (a) a

         non-exclusive right and license (without any right to sublicense,

         except as set forth below) under Organon's rights in the Organon

         Background Materials and the Organon Background Technology, including,

         without limitation, any Patent Rights Controlled by Organon Covering

         the foregoing, and (b) a co-exclusive right and license (without any

         right to sublicense, except as set forth below) under Organon's rights

         in the Program Intellectual Property, in each case to (i) generate

         Antibodies, Antisense Compounds and Proteins relating to Program

          Targets that have not become Organon Opt-out Targets and (ii) identify,

         characterize, select, optimize and research Program Antibodies, Program

         Antisense Compounds and Program Proteins relating to such Program

         Targets prior to their designation as Collaboration Products, in each

         case in the conduct of the Collaboration. Such right and license shall

         include the right to grant sublicenses to Affiliates of Lexicon and to

         Third Parties that are approved by the Joint Management Committee.

 

                  9.1.3     Restrictions on Clinical Development of Collaboration

         Products. Neither party nor their respective Affiliates shall

         administer to humans any Program Antibody, Program Antisense Compound,

         Program Protein or Collaboration Product or Opt-out Product that

         incorporates or is derived from any Program Antibody, Program Antisense

         Compound or Program Protein, unless and until (and then only to the

         extent that) such party has received a license under Section 9.2 for

         the clinical Development of such Collaboration Product, Opt-out

         Product, Program Antibody, Program Antisense Compound or Program

         Protein.

 

         9.2       Grants of Development and Commercialization Licenses.

 

                  9.2.1     By Lexicon.

 

                           9.2.1.1   Development of Collaboration Products in

                  Collaboration Field. Subject to the terms of this Agreement

                   and any applicable [**], Lexicon hereby grants to Organon and

                  its Affiliates, within the Territory, a co-exclusive right and

                  license, with the limited right to sublicense (as set forth

                  below), under Lexicon's rights in (a) the Lexicon Background

                  Materials and the Lexicon Background Technology, including,

                  without limitation, any Patent Rights Controlled by Lexicon

                  Covering the foregoing, and (b) the Program Intellectual

                  Property, in each case to Develop Collaboration Products in

                  the Collaboration Field, including rights to make, have made,

                  import, use, or have used any Collaboration Products in the

                  Collaboration Field solely for purposes of such Development.

                  Such right and license shall include the right to grant

                  sublicenses to Affiliates of Organon and to Third Parties that

                   are approved by the Joint Management Committee.

 

 

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                           9.2.1.2   Development and Commercialization of Organon

                  Products in Collaboration Field. Subject to the terms of this

                  Agreement and any applicable [**], Lexicon hereby grants to

                  Organon and its Affiliates, within the Territory, an exclusive

                  right and license, with the right to sublicense, under

                  Lexicon's rights in (a) the Lexicon Background Materials and

                  the Lexicon Background Technology, including, without

                  limitation, any Patent Rights Controlled by Lexicon Covering

                  the foregoing, and (b) the Program Intellectual Property to

                  Develop, make, have made, import, use, have used, offer for

                  sale, sell and have sold Organon Products (and, except for

                  Collaboration Products relating to the same Program Target as

                  to which Lexicon has not Opted Out, any Program Antibodies,

                  Program Antisense Compounds and Program Proteins relating to

                  the foregoing) in the Collaboration Field. Any such sublicense

                   shall be set forth in a written agreement containing

                  confidentiality, non-use, ownership of intellectual property

                  and audit provisions consistent with and no less restrictive

                  than those contained herein, shall be subject and subordinate

                  to the terms and conditions of this Agreement, and shall

                  obligate the (sub)licensee to make the royalty payments

                  required hereunder; provided that Organon shall remain

                  responsible for all payments due to Lexicon hereunder. Organon

                  shall provide Lexicon with a copy of each sublicense agreement

                  promptly after executing the same; provided, however, that

                   subject to the exceptions set forth in Section 1.23, each such

                  sublicense agreement shall be Confidential Information of

                  Organon.

 

                  9.2.2     By Organon.

 

                           9.2.2.1   Development of Collaboration Products in

                  Collaboration Field. Subject to the terms of this Agreement

                  and any applicable [**], Organon hereby grants to Lexicon and

                  its Affiliates, within the Territory, a co-exclusive right and

                  license, with the limited right to sublicense (as set forth

                  below), under Organon's rights in (a) the Organon Background

                  Materials and the Organon Background Technology, including,

                  without limitation, any Patent Rights Controlled by Organon

                  Covering the foregoing, and (b) the Program Intellectual

                  Property, in each case to Develop Collaboration Products in

                  the Collaboration Field, including rights to make, have made,

                  import, use, or have used any Collaboration Products in the

                  Collaboration Field solely for purposes of such Development.

                  Such right and license shall include the right to grant

                  sublicenses to Affiliates of Lexicon and to Third Parties that

                  are approved by the Joint Management Committee.

 

                           9.2.2.2   Development and Commercialization of Lexicon

                  Products in Collaboration Field. Subject to the terms of this

                  Agreement and any applicable [**], Organon hereby grants to

                  Lexicon and its Affiliates, within the Territory, an exclusive

                   right and license, with the right to sublicense, under

                  Organon's rights in (a) the Organon Background Materials and

                  the Organon Background Technology, including, without

                  limitation, any Patent Rights Controlled by Organon Covering

                  the foregoing, and (b) the Program Intellectual Property to

                  Develop, make, have made, import, use, have used, offer for

                  sale, sell and have sold Lexicon Products (and, except for

                  Collaboration Products relating to the same Program Target as

                  to which Organon has not Opted Out, any Program Antibodies,

                  Program Antisense Compounds and Program Proteins relating to

                   the foregoing) in the Collaboration Field. Any such sublicense

                  shall be set forth in a written agreement containing

                  confidentiality, non-use, ownership of intellectual property

                  and audit provisions consistent with and no less restrictive

                  than those contained herein, shall be subject and subordinate

                  to the terms and conditions of this Agreement, and shall

                  obligate the (sub)licensee to make the royalty payments

                  required hereunder; provided that Lexicon shall remain

                  responsible for all payments due to Organon hereunder. Lexicon

 

 

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                  shall provide Organon with a copy of each sublicense agreement

                  promptly after executing the same; provided, however, that

                  subject to the exceptions set forth in Section 1.23, each such

                  sublicense agreement shall be Confidential Information of

                  Lexicon.

 

                  9.2.3     Restrictions on Commercialization of Collaboration

         Products. Neither party nor their respective Affiliates (a) shall make,

         have made, import, use, or have used any Collaboration Products in the

         Collaboration Field for any purpose other than Development or (b) shall

         offer for sale, sell or have sold Collaboration Products in the

         Collaboration Field, unless and until (and then only to the extent

         that) such party has received a license in accordance with Section 8.2

         or 8.4 for the commercialization of such Collaboration Product.

 

         9.3       Small Molecule Research and Development.

 

                  9.3.1      Option to Collaborate in Oncology/Immunology Field.

         Subject to the terms of this Agreement and any applicable [**], in the

         event that either party believes that (a) [**] and (b) [**], such party

         may, at any time during the Target Function Discovery Program Term

         before Opting Out with respect to such Program Target, notify the other

         party of its desire to enter into a collaboration for the research,

         development and commercialization of Small Molecule Compounds

         modulating such Program Target in the Oncology/Immunology Field.

         Promptly following such notice, Organon and Lexicon shall enter into a

         definitive agreement for the research, development and

         commercialization of Small Molecule Compounds modulating such Program

         Target in the Oncology/Immunology Field on substantially the same terms

         applicable to the research, development and commercialization of

         Collaboration Products under this Agreement. In such case, any Small

         Molecule Compound selected for Development in accordance with the terms

         of such definitive agreement that is not a Back-up Product under the

         terms of such definitive agreement shall be deemed to be a

          Collaboration Product for purposes of Sections 11.3 and 11.4 if (y)

         [**] or (z) [**].

 

                  9.3.2     Option to Collaborate Outside the Oncology/Immunology

         Field. Subject to the terms of this Agreement, any applicable [**], in

         the event that either party believes that (a) [**] and (b) [**], such

         party may, at any time during the Target Function Discovery Program

         Term before Opting Out with respect to such Program Target, notify the

         other party of its desire to enter into a collaboration for the

         research, development and commercialization of Small Molecule Compounds

         modulating such Program Target in the Collaboration Field outside the

         Oncology/Immunology Field. Promptly following such notice, Organon and

         Lexicon shall enter into a definitive agreement for the research,

         development and commercialization of Small Molecule Compounds

         modulating such Program Target in the Collaboration Field outside the

         Oncology/Immunology Field on substantially the same terms applicable to

         the research, development and commercialization of Collaboration

         Products under this Agreement. In such case, any Small Molecule

         Compound selected for Development in accordance with the terms of such

         definitive agreement that is not a Back-up Product under the terms of

         such definitive agreement shall be deemed to be a Collaboration Product

         for purposes of Sections 11.3 and 11.4 if (y) [**] or (z) [**]. Nothing

         herein shall obligate Lexicon to provide any notice to or enter into

         any agreement with Organon under this Section 9.3.2 with respect to a

         collaboration for the research, development and commercialization of

         Small Molecule Compounds modulating a Program Target in the

         Collaboration Field outside the Oncology/Immunology Field in the event

         Lexicon has any obligations to a Third Party with respect thereto at

         the time it proposes to commence such activities.

 

                  9.3.3     Organon License to Lexicon Outside the

         Oncology/Immunology Field. In the event that any applicable [**] that

         either party believes that (a) [**] and (b) [**] would preclude

 

 

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         Lexicon from entering into a collaboration for the research,

         development and commercialization of Small Molecule Compounds

         modulating such Program Target in the Collaboration Field outside the

         Oncology/Immunology Field pursuant to Section 9.3.2, or if Organon

         elects not to enter into a definitive agreement with respect thereto,

         then Organon shall grant to Lexicon and its Affiliates, within the

         Territory, an exclusive right and license, with the right to

         sublicense, under Organon's rights in Program Intellectual Property, if

         any, Covering the research, development or commercialization of Small

         Molecule Compounds modulating such Program Target, to research,

         develop, make, have made, import, use, have used, offer for sale, sell

         and have sold Small Molecule Compounds that modulate such Program

         Target in all fields of use other than the Oncology/Immunology Field.

         Nothing in this Section 9.3.3 shall be deemed to grant Lexicon or its

         Affiliates any right or license under any Patent Rights or other

         intellectual property rights Controlled by Organon in or to (a) any

         inventions, information, methods, know-how, trade secrets or data

         relating to Small Molecule Compounds developed in collaboration with

         Lexicon in accordance with Section 9.3.1 or 9.3.2 or (b) any other

         inventions, information, methods, know-how, trade secrets or data other

         than Program Intellectual Property.

 

         9.4       Right of First Negotiation for Development and

Commercialization of Collaboration Products and Opt-out Products in the

Veterinary Field. Prior to commencing development or commercialization of any

Collaboration Product or Opt-out Product in the Veterinary Field or granting any

license or otherwise transferring any rights to any Third Party with respect

thereto, the Joint Management Committee (or the Continuing Party, in the case of

an Opt-out Product) shall first offer to Intervet (or its designated Affiliate)

the opportunity to develop and commercialize such Collaboration Product or

Opt-out Product in the Veterinary Field. If requested by Intervet within [**] of

such offer, the Joint Management Committee (or the Continuing Party, in the case

of an Opt-out Product) shall enter into good faith negotiations with Intervet,

for a period of [**] following such request, with respect to such an agreement

for the development and commercialization of such Collaboration Product or

Opt-out Product in the Veterinary Field. In the event Lexicon and Organon (or

the Continuing Party, in the case of an Opt-out Product) and Intervet do not

enter into a definitive agreement with respect to such an agreement within such

[**] period, the Joint Management Committee (or the Continuing Party, in the

case of an Opt-out Product) will be free, at any time thereafter, to enter into

negotiations and agreements with one or more Third Parties for the development

or commercialization of such Collaboration Product or Opt-out Product in the

Veterinary Field [**]. All license fees, royalties, milestone payments and other

income or items of value received from Intervet, its Affiliates or a Third Party

with respect to Collaboration Products shall be considered Joint

Marketing/Developer Collaboration Revenues under this Agreement.

 

         9.5       No Grant of Other Technology or Patent Rights. Except as

otherwise expressly provided in this Agreement, under no circumstances shall a

party hereto, as a result of this Agreement, obtain any ownership interest in or

other right to any technology, know-how, patents, patent applications, gene or

genomic sequence data or information, products, or biological materials of the

other party, including items owned, controlled or developed by, or licensed to,

the other party, or transferred by the other party to said party, at any time

pursuant to this Agreement.

 

                          ARTICLE 10. OPT-OUT PROVISIONS

 

         10.1      Opt Out of Program Targets and Collaboration Products.

 

                  10.1.1    Right to Opt Out. Either party (the "Opt-out Party")

         may decline to participate in ("Opt Out" of) any further (a)

         Biotherapeutics Research with respect to a Program Target, on a Program

         Target-by-Program Target basis, or (b) Development of a Collaboration

         Product, on a Collaboration Product-by-Collaboration Product basis, by

         providing [**] prior written notice to the other party (the "Continuing

         Party") specifying the relevant provision below under which

 

 

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         such Opt-out Party is making such Opt Out election and, as applicable,

         the Program Target(s) and Collaboration Product(s) as to which such Opt

         Out election relates.

 

                           10.1.1.1   Opt Out of All Biotherapeutics Research,

                  Development and Commercialization Relating to a Program

                  Target. The Opt-out Party may elect to Opt Out of all further

                  Biotherapeutics Research and Development associated with a

                  Program Target and related Collaboration Products, Program

                   Antibodies, Program Antisense Compounds and Program Proteins.

                  In such event, following the end of the [**] notice period

                  specified above, such Program Target and any related

                  Collaboration Products shall become an Opt-out Target and

                  Opt-out Product(s), respectively, and the Continuing Party

                  shall have exclusive (even as to the Opt-out Party) licenses

                  under Section 9.2 with respect to such Program Target and all

                  Opt-out Products, Program Antibodies, Program Antisense

                  Compounds and Program Proteins relating thereto.

 

                           10.1.1.2   Opt Out of Biotherapeutics Research and

                   Development of Follow-on Collaboration Products. The Opt-out

                  Party may elect to continue to participate in the Development

                  of Collaboration Product(s) that are at a more advanced stage

                  of Development or that have been commercialized, while Opting

                  Out of all further Biotherapeutics Research, Development

                  associated with a Program Target and related Collaboration

                  Products, Program Antibodies, Program Antisense Compounds and

                  Program Proteins at an earlier stage of Development. In such

                  event, following the end of the [**] notice period specified

                  above, the Continuing Party shall have exclusive (even as to

                  the Opt-out Party) licenses under Section 9.2 with respect to

                  such Program Target and all Collaboration Products, Program

                  Antibodies, Program Antisense Compounds and Program Proteins

                   relating thereto other than the Collaboration Product(s) for

                  which the Opt-out Party continues to participate.

 

                  10.1.2    Deemed Opt Out. In the event that a party desires to

         proceed with (a)(i) Biotherapeutics Research with respect to a Program

         Target or (ii) designation as a Collaboration Product and the

         commencement of Development of a Program Antibody, Program Antisense

         Compound or Program Protein with respect to a Program Target, in each

         case for which no material Biotherapeutics Research activity has been

         authorized by the Joint Management Committee (in a Biotherapeutics

         Research Plan or otherwise) for a period of [**] and for which no

         Collaboration Product is then in active Development, or (b) Development

         of a Collaboration Product (i) for which no material Development

         activity has been authorized by the Joint Management Committee (in a

         Development Plan or otherwise) for a perio