COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

 

Exhibit 10.13(a)

 

[********] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

 

between

 

TARGACEPT, INC.

 

and

 

AVENTIS PHARMA SA

TABLE OF CONTENTS

 

 

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COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

 

This Collaborative Research and License Agreement (this “Agreement”) is made and entered into as of January 21, 2002 (the “Effective Date”), by and between Targacept, Inc. , a Delaware corporation having its principal place of business at 950 Reynolds Boulevard, Winston-Salem, North Carolina 27105 (“Targacept”), and Aventis Pharma SA , a corporation organized and existing under the laws of France having its principal place of business at 20, avenue Raymond Aron, 92160 Antony, France (“Aventis”). Each of Targacept and Aventis may be referred to individually herein as a “Party” and together as the “Parties.”

 

Recitals :

 

WHEREAS, Aventis has know-how and experience in the discovery, development and marketing of pharmaceutical drugs, including drugs for the treatment of neurological diseases, and has specific know-how in the field of nicotinic compounds and their biological properties;

 

WHEREAS, Targacept has specific know-how and experience in the discovery, characterization and optimization of nicotinic compounds; and

 

WHEREAS, Targacept and Aventis have previously entered into the Original Agreement (as defined herein) under which Targacept and Aventis collaborate in the discovery, development and commercialization of certain nicotinic compounds for specified indications; and

 

WHEREAS, Targacept and Aventis now wish to collaborate further in the discovery, development and commercialization of nicotinic compounds included in, or derived from, the Aventis Compound Library (as defined herein) for specified indications;

 

Now, therefore, in consideration of the various promises and undertakings set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

ARTICLE 1

 

Definitions

 

Unless otherwise specifically provided herein, the following terms shall have the following meanings:

 

1.1 “Affiliate” means any Person which Controls, is Controlled by or is under common Control with a Party hereto.

 

1.2 “Agreement” shall have the meaning ascribed to it in the preamble.

1.3 “Alliance Back-Up Compound” means any Alliance Compound that has been selected as such hereunder, or any salt, solvate, prodrug form, inclusion complex or metabolite thereof.

 

1.4 “Alliance Compound” means any Aventis Compound that, following High Throughput Screening, Secondary Screening and/or Chemical Optimization, is identified as a Nicotinic Compound, meets the standard set forth in the Research and Development Plan, and is nominated by the SRC or otherwise by Aventis as a “Lead” or otherwise to be further pursued as an Alliance Compound under the terms and conditions of this Agreement. For the avoidance of doubt, (i) all compounds within the same compound series as an Alliance Compound shall also be Alliance Compounds, (ii) all Alliance Development Compounds and Alliance Back-Up Compounds shall also be Alliance Compounds and (iii) an Alliance Terminated Compound shall no longer be an Alliance Compound.

 

1.5 “Alliance Development Compound” means any Alliance Compound that has been nominated by the SRC or otherwise by Aventis as an “Early Development Candidate,” or otherwise to be further pursued as an Alliance Development Compound, or any salt, solvate, prodrug form, inclusion complex or metabolite thereof.

 

1.6 “Alliance Product” means any product, including any formulation thereof, containing or comprised of an Alliance Development Compound. For the avoidance of doubt, no Targacept Licensed Product shall be an Alliance Product.

 

1.7 “Alliance Terminated Compound” means (i) any Alliance Compound that is not nominated by the SRC or otherwise by Aventis as an Alliance Development Compound or (ii) any Alliance Development Compound or Alliance Back-Up Compound the development of which is terminated by Aventis pursuant to the terms of this Agreement. For the avoidance of doubt, any Aventis Compound that was not nominated as an Alliance Compound shall not be an Alliance Terminated Compound.

 

1.8 “ARC” means that alliance research committee to be formed pursuant to Section 6.1.

 

1.9 “Aventis” shall have the meaning ascribed to it in the preamble.

 

1.10 “Aventis Compound” means any chemical compound from the Aventis Compound Library and any derivative or improvement of such compound.

 

1.11 “Aventis Compound Library ” means all chemical compounds (i) discovered, identified or synthesized by or on behalf of Aventis or its Affiliates, or acquired by Aventis or its Affiliates (including under license) from a Third Party, and (ii) contained in Aventis’ compound library located in Frankfurt am Main, Germany on the Effective Date.

 

1.12 “Aventis Indemnitees” shall have the meaning ascribed to it in Section 10.2.

 

1.13 “Aventis Know-How” means all know-how, trade secrets, techniques, methods, developments, materials, compositions, inventions or data of any kind necessary or useful for the identification, pharmacological development, synthesis, characterization, optimization, assaying, formulation and/or use of Alliance Compounds, Alliance Terminated Compounds, Alliance

 

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Products or Targacept Licensed Products that is Controlled by Aventis or an Affiliate of Aventis at any time during the Research Term or the Follow-Up Period (but excluding the Aventis Patents, Joint Patents, the Research Technology and any information that Aventis is restricted from disclosing due to confidentiality obligations to a Third Party).

 

1.14 “Aventis Patents” means all Patent Rights Controlled by Aventis or its Affiliates that claim: (a) Alliance Compounds, Alliance Terminated Compounds, Alliance Products or Targacept Licensed Products (or pharmaceutical preparations containing the same); (b) the manufacture or use of any Alliance Compounds, Alliance Terminated Compounds, Alliance Products or Targacept Licensed Products; (c) methods or materials used for discovering, identifying, assaying, characterizing or optimizing any Alliance Compounds or Alliance Terminated Compounds; or (d) Aventis Compounds within the Research Technology, to the extent that such Patent Rights claim inventions made prior to or during the Research Term or during the Follow-Up Period.

 

1.14A “Aventis Research Technology” means (i) the Research Technology made, developed or discovered solely by employees or agents of Aventis and/or its Affiliates and (ii) the Aventis Technology.

 

1.14B “Aventis Technology” means (i) all regulatory and clinical documentation and data produced under the Research and Development Plan and (ii) any Aventis Compounds, Nicotinic Compounds, Alliance Compounds, Alliance Terminated Compounds (including, without limitation, Targacept Development Compounds and Targacept Licensed Products) and Alliance Products within the Research Technology made by employees or agents of (a) Targacept and/or its Affiliates, (b) Aventis and/or its Affiliates or (c) Targacept and/or its Affiliates and Aventis and/or its Affiliates, jointly.

 

1.15 “Chemical Optimization” means the synthesis of compounds which are chemical analogs to Alliance Compounds or Nicotinic Compounds with improved pharmacological, pharmacokinetic or safety properties.

 

1.16 “Confidential Information” means all information and data (including (without limitation) all Know-How and Research Technology) supplied by a Party to the other Party under this Agreement.

 

1.17 “Control” means: (a) with respect to an item of information or an intellectual property right, possession of the ability, whether by ownership or license, to grant a license or sublicense as provided for herein with respect to such item or right without violating the terms of any agreement or other arrangements with any Third Party; and (b) with respect to a Person, (i) the possession, directly or indirectly, of the power to direct the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise, or (ii) the ownership, directly or indirectly, of more than 50% of the voting securities or other ownership interests of such Person.

 

1.18 “Development Plan” shall have the meaning ascribed to it in Section 3.1.

 

1.19 “Effective Date” means the date set forth in the first paragraph.

 

1.20 “Estimated Amount” shall have the meaning ascribed to it in Section 2.6(b)(1).

 

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1.21 “FDA” means the United States Food and Drug Administration, or the successor federal agency thereto.

 

1.22 “Field” means the treatment or prevention in humans of one or more Indications.

 

1.23 “First Commercial Sale” means, with respect to any Alliance Product or Targacept Licensed Product in any country, the first sale for use or consumption by the general public of such Alliance Product or Targacept Licensed Product, as the case may be, in such country after all Regulatory Approvals have been obtained in such country.

 

1.24 “Follow-Up Period” means the period commencing immediately after the Research Term and ending six (6) months after the Research Term, as extended by mutual agreement of the Parties.

 

1.25 “FTE” means a full-time Targacept scientist or laboratory technician or any other employee of Targacept or its Affiliates specifically approved as an FTE by Aventis, who is dedicated to the Research or support thereof, or in the case of a less than full-time dedicated person, a full-time, equivalent person year, based upon a total of forty-seven (47) weeks ( i.e. , one thousand eight hundred eighty (1,880) hours) per year of scientific work on or directly related to the Research. Work on or directly related to the Research to be performed by such employees may include, without limitation, experimental laboratory work, recording and writing up results, reviewing literature and references, holding scientific discussions, and any other activities assigned to Targacept under the Research Plan.

 

1.26 “FTE Rate” means the annual rate per FTE of [********] , unless otherwise agreed to by the Parties.

 

1.27 “High Throughput Screening” means all initial screening of Aventis Compounds, primarily [********] .

 

1.28 “IND” means an Investigational New Drug Application filed pursuant to the requirements of the FDA for approval to commence human clinical trials, and any equivalent application filed with any analogous regulatory authority in other countries or regulatory jurisdictions.

 

1.29 “Indication” means any of the following indications:

 

(a) Alzheimer’s Disease (based upon ante mortem diagnostic evaluations in use as of the Effective Date);

 

(b) Parkinson’s Disease; or

 

(c) any other disorder of the central nervous system. For the avoidance of doubt, each disorder of the central nervous system shall be a separate Indication for all purposes, including without limitation milestone payments pursuant to Section 7.1.

 

1.30 [Intentionally Omitted]

 

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1.31 “Joint Patents” means all Patent Rights that claim or cover inventions within the Joint Research Technology.

 

1.32 “Joint Research Technology” means all Research Technology that is made, developed or discovered jointly by employees or agents of Targacept and/or its Affiliates and employees or agents of Aventis and/or its Affiliates at any time during the Research Term or during the Follow-Up Period, but excluding Aventis Technology.

 

1.33 “Know-How” means Targacept Know-How or Aventis Know-How, as the case may be.

 

1.34 “Losses” shall have the meaning ascribed to it in Section 10.1.

 

1.35 “Major Country” means each of France, Germany, Italy, Japan, Spain, the United Kingdom and the United States.

 

1.36 “Major Pharmaceutical Market” means each of the United States, the European Union (as it may be constituted from time to time) and Japan.

 

1.37 “Material Unexpected Technical Problem” means an unanticipated scientific or technical problem that is likely to preclude Targacept from fulfilling any obligation set forth in a Semi-Annual Research Plan with the FTEs budgeted to the performance of such obligation.

 

1.38 “Materials” shall have the meaning ascribed to it in Section 2.9.

 

1.39 “Milestone Event” shall have the meaning ascribed to it in Section 7.1.

 

1.40 “NDA” means a New Drug Application filed pursuant to the requirements of the FDA, as more fully defined in 21 C.F.R. § 314.50 et seq , and any equivalent application filed with any analogous regulatory authority in a Major Country (or, in the case of the centralized application process in the European Union, the European Medicines Evaluation Agency).

 

1.41 “Net Sales” means [********].

 

1.42 “New Nicotinic Compound” means a chemical compound [********] receptors [********] that is discovered, identified or synthesized by or on behalf of Aventis or its Affiliates, or acquired by Aventis or its Affiliates (including under license) from a Third Party, after the Effective Date.

 

1.43 “Nicotinic Compound” means (i) any Aventis Compound, (ii) any compound discovered, identified or synthesized by or on behalf of Aventis or its Affiliates, or acquired by Aventis or its Affiliates (including under license) from a Third Party, after the Effective Date and made by Aventis, at its sole discretion, subject to this Agreement, or (iii) any new compound which results from the Chemical Optimization performed under this Agreement of Nicotinic Compounds or Alliance Compounds, in each case only if such compound [********] receptors [********] .

 

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1.44 “Original Agreement” means the Collaborative Research and License Agreement dated as of December 30, 1998 between Targacept and Aventis Pharmaceutical Products Inc., Collegeville, Pennsylvania, USA (formerly known as Rhône-Poulenc Rorer Pharmaceuticals Inc.), as amended from time to time.

 

1.45 “Party” and “Parties” shall have the meaning ascribed to its in the preamble.

 

1.46 “Patent Right” means rights under (a) any then issued and existing letters patent, including any extensions, supplemental protection certificates, registration, confirmation, reissue, reexamination or renewal thereof, (b) pending applications, including any continuation, divisional, continuation-in-part application thereof, for any of the foregoing, and (c) all counterparts to any of the foregoing issued by or filed in any country or other jurisdiction.

 

1.47 “PCT” means the Patent Cooperation Treaty.

 

1.48 “Pentad Patents” means all Patent Rights Controlled by Targacept or an Affiliate of Targacept that claim the Pentad Technology.

 

1.49 “Pentad Technology” means proprietary know-how of Targacept and its Affiliates concerning structure activity relationships of nicotinic compounds (i.e., compounds with a primary mechanism of action, activation or inhibition of the neuronal nicotinic receptor system) and nicotinic receptors, pharmacophore mapping of nicotinic receptors and proprietary computational algorithms for use in the design, synthesis and evaluation of pharmacologically active agents.

 

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

 

1.51 “Phase I” means that portion of the clinical development program which generally provides for the first introduction into humans of a product with the primary purpose of determining safety, metabolism and pharmacokinetic properties and clinical pharmacology of the product.

 

1.52 “Phase II” means that portion of the clinical development program which provides for small-scale clinical trials primarily to determine efficacy of a product and certain other factors, such as dosing range.

 

1.53 “Phase III” means that portion of the clinical development program which provides for the pivotal trials of a product in sufficient numbers of patients to establish the safety and efficacy of a product for the desired label claims and indications.

 

1.54 “Primary Indication” means either:

 

(a) Alzheimer’s Disease (based upon ante mortem diagnostic evaluations in use as of the Effective Date); or

 

(b) Parkinson’s Disease.

 

1.55 “Project Leaders” shall have the meaning ascribed to it in Section 6.7.

 

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1.56 “Regulatory Approval” means any and all approvals (including price and reimbursement approvals), licenses, registrations, or authorizations of any federal, national, state, provincial or local regulatory agency, department, bureau or other government entity, necessary for the manufacture, use, storage, import, transport and sale of an Alliance Product in a country.

 

1.57 “Research” means the collaborative research program set forth in the Research and Development Plan undertaken by the Parties pursuant to this Agreement to characterize, optimize and conduct research activities regarding Alliance Compounds for use in the Field. For the avoidance of doubt and without limitation, research and development activities performed by Aventis or Targacept with respect to (i) any Aventis Compound (or other compound described in clauses (ii) or (iii) of the definition of Nicotinic Compound) prior to its identification as a Nicotinic Compound (including, without limitation, High Throughput Screening and Secondary Screening) or (ii) any Nicotinic Compound prior to its nomination as an Alliance Compound (including, without limitation, Chemical Optimization of Nicotinic Compounds and Alliance Compounds as provided for herein) shall constitute Research.

 

1.58 “Research and Development Plan” shall mean the research and development plan attached hereto as Exhibit A , as may be modified from time to time in accordance with the terms of this Agreement, which shall expressly provide for High Throughput Screening of the Aventis Compound Library.

 

1.59 “Research Technology” means all tangible and intangible know-how, trade secrets, inventions (whether or not patentable), discoveries, developments, data, clinical and preclinical results, information, and physical, chemical or biological material, compounds, and any replication of or any part of any of the foregoing, made by employees or agents of Targacept and/or its Affiliates, or of Aventis and/or its Affiliates, either alone or jointly, in the conduct of Research during the Research Term or the Follow-Up Period.

 

1.60 “Research Term” means the period during which the Parties shall conduct the Research, commencing on the Effective Date and terminating on the second anniversary of the Effective Date or such other date as may be mutually agreed by the Parties.

 

1.61 “Royalty Term” shall have the meaning ascribed to it in Section 7.3.

 

1.62 “Secondary Screening” means conducting any assay, screen or other test run after the High Throughput Screening on Aventis Compounds or Nicotinic Compounds or Chemical Optimization of Aventis Compounds or Nicotinic Compounds.

 

1.63 “Selection Period” shall have the meaning ascribed to it in Section 2.2(f).

 

1.64 “Semi-Annual Research Plan” means a detailed research plan and budget prepared by the Parties on a semi-annual basis, as may be modified from time to time in accordance with the terms of this Agreement.

 

1.65 “SRC” means the Scientific Review Committee of Aventis or any successor committee thereof.

 

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1.66 “Sublicensee” means any Third Party to which Aventis or Targacept (as applicable) has granted sublicense rights under the licenses granted by Targacept to Aventis or by Aventis to Targacept hereunder, which rights include at least the rights to make and sell Alliance Products or Targacept Licensed Products, as the case may be; provided, that Third Parties that are permitted to distribute and resell finished Alliance Products or Targacept Licensed Products, as the case may be, or that manufacture or finish Alliance Products or Targacept Licensed Products, as the case may be, for supply, only to Aventis or its Affiliates or Targacept or its Affiliates are not “Sublicensees.”

 

1.67 “Targacept” shall have the meaning ascribed to it in the preamble.

 

1.68 “Targacept Development Compound” means an Alliance Terminated Compound that Targacept elects to develop further for use in the Targacept Licensed Field pursuant to the terms and conditions of this Agreement.

 

1.69 “Targacept Indemnitees” shall have the meaning ascribed to it in Section 10.1.

 

1.70 “Targacept Know-How” means all know-how, trade secrets, techniques, methods, developments, materials, compositions, inventions or data of any kind necessary or useful for the identification, pharmacological development, synthesis, characterization, optimization, assaying, formulation, manufacture and/or use of Alliance Compounds or Alliance Products that is Controlled by Targacept or an Affiliate of Targacept at any time during the Research Term or the Follow-Up Period, but excluding the Pentad Technology, the Pentad Patents, the Targacept Patents, the Joint Patents, the Research Technology and any information that Targacept is restricted from disclosing due to confidentiality obligations to a Third Party.

 

1.71 “Targacept Licensed Field” means the treatment or prevention in humans of (i) one or more indications that are not Indications and (ii) with respect to each Alliance Terminated Compound, all Indications set forth on Exhibit B for which Aventis does not notify Targacept in writing within two (2) years after such compound has become an Alliance Terminated Compound that it intends to develop and commercialize one or more products.

 

1.72 “Targacept Licensed Product” means any product, including any formulation thereof, containing or comprised of a Targacept Development Compound.

 

1.73 “Targacept Patents” means all Patent Rights that are Controlled by Targacept or its Affiliates that claim methods or materials used for discovering, identifying, assaying, characterizing or optimizing any Alliance Compounds, to the extent that such Patent Rights claim inventions made prior to or during the Research Term or during the Follow-Up Period. For the avoidance of doubt, neither Pentad Patents nor Pentad Technology shall be Targacept Patents.

 

1.73A “Targacept Research Technology” means the Research Technology made, developed or discovered solely by employees or agents of Targacept and/or its Affiliates, but excluding the Aventis Technology.

 

1.74 “Term” means the period beginning on the Effective Date and ending on the earlier to occur of the date on which (i) this Agreement is terminated in its entirety in accordance with the provisions hereof or (ii) all royalty and other payment obligations hereunder have expired.

 

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1.75 “Third Party” means a Person other than Targacept, Aventis and Affiliates of either.

 

1.76 “Third Party License” shall have the meaning ascribed to it in Section 7.7.

 

1.77 “Threshold EU Market” means at any time any set of countries within the European Union which constituted during the prior calendar year at least 50% in dollar amount of all central nervous system-related pharmaceutical sales in the European Union.

 

1.78 “Valid Claim” means a claim of an issued and unexpired patent which has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken or, after mutual consultation and agreement between the Parties, an appeal is not taken within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

 

ARTICLE 2

 

Research

 

2.1 Collaborative Research. Commencing on the Effective Date, the Parties shall conduct the Research pursuant to the Research and Development Plan, with the goals of: (a) identifying those Aventis Compounds that may constitute Nicotinic Compounds; (b) identifying those Nicotinic Compounds that should be recommended for nomination as Alliance Compounds; (c) identifying those Alliance Compounds that do not warrant further scientific evaluation and should instead be classified as Alliance Terminated Compounds; and (d) identifying those Alliance Compounds that should be recommended for nomination as Alliance Development Compounds. The Parties shall conduct the Research in accordance with this Agreement, the Research and Development Plan and the Semi-Annual Research Plans established pursuant to the provisions of this Article 2.

 

2.2 Screening and Selection of Alliance Compounds and Alliance Development Compounds.

 

(a) High Throughput Screening of Aventis Compounds and Secondary Screening of Aventis Compounds and Nicotinic Compounds.

 

During the Research Term, Targacept and Aventis shall conduct High Throughput Screening of Aventis Compounds and Secondary Screening of Aventis Compounds and Nicotinic Compounds, as set forth in the Research and Development Plan and the Semi-Annual Research Plans, and shall inform the ARC of the progress and results thereof.

 

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(b) Secondary Screening of Aventis Compounds and Nicotinic Compounds and Chemical Optimization.

 

(1) The ARC shall review the results of the High Throughput Screening and Secondary Screening performed pursuant to Section 2.2(a) and shall select the Aventis Compounds and Nicotinic Compounds which shall be subject to further Secondary Screening and/or Chemical Optimization.

 

(2) For the avoidance of doubt, any Aventis Compounds that are not identified as Nicotinic Compounds and that the ARC decides not to further pursue under this Agreement shall be neither Alliance Compounds nor Alliance Terminated Compounds.

 

(c) Selection or Rejection of Nicotinic Compounds as Alliance Compounds.

 

(1) The ARC shall review the results of any further Secondary Screening and Chemical Optimization performed pursuant to Section 2.2(b). Based upon the standards set forth in the Research and Development Plan and such other criteria as the Parties may mutually agree, the ARC shall determine which of these Nicotinic Compounds shall be recommended to the SRC for nomination as an Alliance Compound, if any.

 

(2) The SRC (or otherwise Aventis) shall be entitled to nominate, in its sole discretion, such Nicotinic Compounds that shall be Alliance Compounds.

 

(3) For the avoidance of doubt, any Nicotinic Compounds that are not nominated by the SRC, or otherwise by Aventis, as Alliance Compounds shall not be Alliance Terminated Compounds.

 

(d) Chemical Optimization of Alliance Compounds.

 

To the extent deemed necessary by the ARC, Aventis shall conduct Chemical Optimization of Alliance Compounds. Targacept shall cooperate in all reasonable respects in the conduct by Aventis of Chemical Optimization of Alliance Compounds.

 

(e) Selection or Rejection of Alliance Compounds as Alliance Development Compounds.

 

(1) From time to time, the ARC shall review data relating to the Alliance Compounds that are generated by the Research. Based upon standards set forth in the Research and Development Plan and such other criteria as the ARC deems appropriate, the ARC shall identify and recommend to the SRC certain Alliance Compounds for nomination as Alliance Development Compounds or Alliance Back Up Compounds for development (or potential development) in accordance with the Research and Development Plan.

 

(2) The SRC (or otherwise Aventis) shall be entitled to designate, in its sole discretion, Alliance Compounds that shall be Alliance Development Compounds or Alliance Back-Up Compounds.

 

(3) If an Alliance Compound (i) is rejected as an Alliance Development Compound or an Alliance Back Up Compound or (ii) is not selected by the SRC as an Alliance Development Compound within six (6) months after the end of the

 

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Research Term, then such compound shall be considered as an Alliance Terminated Compound and shall automatically cease to be an Alliance Compound.

 

(f) Selection by Targacept of Alliance Terminated Compounds as Targacept Development Compounds.

 

Targacept shall be entitled to select, at its discretion, those Alliance Terminated Compounds that it desires to further develop as Targacept Development Compounds for use in the Targacept Licensed Field, subject to the terms and conditions contained herein. Targacept shall make such election, on an Alliance Terminated Compound by Alliance Terminated Compound basis, by written notice to Aventis within two (2) years from the earlier of (i) the date on which Aventis gives written notice to Targacept that the applicable Alliance Compound has been expressly rejected as an Alliance Development Compound and an Alliance Back Up Compound, thereby becoming an Alliance Terminated Compound, or (ii) six (6) months after the end of the Research Term (such period, the “Selection Period”). As soon as reasonably practicable following receipt of notice from Targacept under this Section 2.2(f), Aventis shall notify Targacept in writing that Aventis (A) owns right, title and interest in and to the Alliance Terminated Compound in question or (B) licenses right, title and interest in and to the Alliance Terminated Compound in question from a Third Party and, in the case of (B), that such license is in full force and effect and that it has the right to sublicense its rights to Targacept. In the case of (B), Aventis shall provide Targacept with a copy of all of the documents governing such license. Upon receipt of such notice from Aventis, Targacept may, in its sole discretion, then withdraw its election to license such Alliance Terminated Compound. After the Selection Period, any Alliance Terminated Compound that Targacept has not selected for further development as provided above may not be developed further by Targacept without Aventis’ prior written approval.

 

2.3 Research and Development Plan. The Research and Development Plan sets forth the plan for the Research activities expected to be performed by each Party pursuant to this Agreement. The Research and Development Plan may be amended by the ARC from time to time in accordance with the provisions of Article 6.

 

2.4 Semi-Annual Research Plans. On the first day of each January and July during the Research Term, the Parties shall establish a Semi-Annual Research Plan for the activities to be performed by Aventis and Targacept as part of the Research during the next six (6) month period (or such longer period as may be set forth for certain tasks in the Semi-Annual Research Plan). Each Semi-Annual Research Plan may be amended by the ARC from time to time in accordance with the provisions of Article 6, shall be consistent with the Research and Development Plan and shall specify in reasonable detail:

 

(a) the objectives of the Research for the ensuing period;

 

(b) the specific research and other activities to be performed by Aventis and Targacept during such period;

 

(c) the specific deliverables expected to be provided by Aventis and Targacept, and the projected dates by which such deliverables will be provided;

 

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(d) the FTEs to be devoted by Targacept to its tasks under the Semi-Annual Research Plan; and

 

(e) the total funding expected to be provided to Targacept for the ensuing six-month period to support Targacept’s Research activities (which funding will be subject to adjustment as provided in Section 2.6).

 

2.5 Preparation and Approval of Semi-Annual Research Plans. The Parties undertake to complete and mutually approve the Semi-Annual Research Plan for the initial period of the Research Term within sixty (60) days of the Effective Date, which Semi-Annual Research Plan shall, upon such mutual agreement, be attached to this Agreement as Exhibit C . The ARC shall meet at the earliest reasonably practicable time to establish, by mutual agreement of the Parties, the priority for performing the High Throughput Screening and Secondary Screening of the Aventis Compounds and Secondary Screening of the Nicotinic Compounds and to amend the initial Semi-Annual Research Plan as required to reflect such agreement. It is intended that the Semi-Annual Research Plan for each subsequent period during the Research Term shall be approved by the ARC by the first day of each January and July during the Research Term.

 

2.6 Targacept Research Efforts.

 

(a) Targacept agrees to commit such of its resources as are specified in the Semi-Annual Research Plans to perform its obligations set forth therein; provided, however, that (x) in no event shall Targacept be required, directly or indirectly, to utilize the Pentad Technology and (y) Targacept shall have the right to notify the ARC promptly upon becoming aware of a Material Unexpected Technical Problem. As part of such notification, Targacept shall provide the ARC with a reasonably detailed description of such Material Unexpected Technical Problem, together with its good faith estimate of the number of additional FTEs and the time that will be required to perform such obligation in light of such Material Unexpected Technical Problem. Upon receipt of such notification, the ARC shall then determine whether to modify the Semi-Annual Research Plan as it applies to such obligation to: (i) refocus the remaining unused FTE resources allocated to such obligation to other obligations under the Semi-Annual Research Plan; (ii) increase the funding to be provided by Aventis to Targacept for such obligation, subject to the agreement of both Parties on the amount of such increased funding; (iii) terminate any further Targacept activities relating to such obligation; (iv) provide additional non-financial resources from Aventis to support Targacept’s activities, or (v) take such other action as may be mutually acceptable to the Parties; provided, however, that, following notification of a Material Unexpected Technical Problem with respect to any obligation, Targacept shall not be required to perform activities related to such obligation unless and until the ARC acts to provide additional funding. In connection with the performance by Targacept of its obligations hereunder, Targacept shall maintain (or cause its Affiliates to maintain) and utilize such scientific staff, laboratories, offices and other facilities as are reasonably designed for such purposes. Targacept shall use personnel with such skills and experience as are reasonably designed to accomplish efficiently and expeditiously the objectives of the Research as set forth in the Research and Development Plan and each Semi-Annual Research Plan in good scientific manner and in compliance in all material respects with all applicable laws, rules, regulations, and all other requirements of applicable good laboratory practices; provided, however, that except as otherwise required by law, Targacept shall be required to comply only with general good laboratory practices as practiced by like companies in the

 

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biotechnology industry in performing similar research and not with the requirements for “Good Laboratory Practices” prescribed by the FDA.

 

(b) Aventis shall reimburse Targacept for all fully documented expenses set forth in the Semi-Annual Research Plan and incurred by Targacept in performing its obligations under the Semi-Annual Research Plans in accordance with the following procedures:

 

(1) Promptly following the commencement of the first calendar quarter covered by each Semi-Annual Research Plan, Targacept shall furnish Aventis with an invoice in the amount of [********] of the product of (i) the FTE Rate and (ii) the total number of FTEs specified in such Semi-Annual Research Plan pursuant to Section 2.4(d). Aventis shall advance Targacept such amount (the “Estimated Amount”) within forty-five (45) days after receipt of such invoice.

 

(2) No later than the last day of the first month that begins immediately following the end of the six-month period covered by such Semi-Annual Research Plan, Targacept shall furnish Aventis with a statement detailing the number of FTEs actually dedicated to the performance of each Research obligation set forth in such Semi-Annual Research Plan. However, such statement shall not state a number of FTEs greater than [********] of the budgeted FTEs allocated to the obligation of Targacept as set forth in such Semi-Annual Research Plan even if the number of FTEs actually dedicated to such performance was greater than [********] of such budgeted amount.

 

(3) Within forty-five (45) days after the receipt of such statement from Targacept, Aventis shall pay Targacept an amount equal to the positive difference, if any, between (i) the product of (A) the FTE Rate and (B) the total number of FTEs properly set forth in the statement furnished pursuant to Section 2.6(b)(2), and (ii) the Estimated Amount for such Semi-Annual Research Plan paid to Targacept pursuant to Section 2.6(b)(1).

 

(4) Targacept shall keep complete and accurate books and financial records pertaining to its costs and expenses of performing the Research (in accordance with United States generally accepted accounting principles, consistently applied) and shall retain such books and financial records for three (3) years after the end of the period to which such books and financial records pertain. Aventis shall have the right, at its expense, to have certified public accountants, who shall be reasonably acceptable to Targacept, audit the books and financial records of Targacept relating to its costs and expenses during one or more six-month periods; provided, however, that Aventis shall not have the right to (i) audit any six-month period more than two (2) years after the end of the fiscal year in which such period falls, (ii) conduct more than one such audit in any twelve-month period or (iii) audit any six-month period more than once.

 

2.7 Aventis Research Efforts.

 

(a) Aventis agrees to commit such resources as are specified in the Semi-Annual Research Plans to perform its obligations set forth therein. Aventis agrees to commit

 

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such further resources as are reasonably necessary to perform its obligations set forth in each Semi-Annual Research Plan; provided that Aventis shall have the right to notify the ARC promptly upon becoming aware of an unanticipated scientific or technical problem that would be likely to preclude Aventis from completing an obligation set forth in a Semi-Annual Research Plan for a manpower expenditure within [********] of original expectations and shall be permitted to discontinue work on such obligation if the ARC does not modify the Semi-Annual Research Plan with respect to such obligation in a manner reasonably acceptable to Aventis. In the performance of its obligations, Aventis shall maintain and utilize such scientific staff, laboratories, offices and other facilities as are reasonably designed for such purposes. Aventis shall use personnel with such skills and experience as are reasonably designed to accomplish efficiently and expeditiously the objectives of the Research as set forth in the Research and Development Plan and each Semi-Annual Research Plan in good scientific manner and in compliance in all material respects with all applicable laws, rules, regulations, and all other requirements of applicable good laboratory practices; provided, however, that except as otherwise required by law, Aventis shall be required to comply only with general good laboratory practices as practiced by like companies in the pharmaceutical industry in performing similar research and not with the requirements for “Good Laboratory Practices” prescribed by the FDA.

 

(b) Aventis shall be solely responsible for bearing the costs of any and all activities performed by Aventis in connection with the Research.

 

2.8 Termination of Agreement During Research Term.

 

(a) Termination for Material Breach of Research Obligations by Targacept. In the event that Targacept materially fails to perform its obligations with respect to the Research, Aventis may give notice to Targacept specifying the nature of the default, requiring it to cure such default and stating Aventis’ intention to terminate Targacept’s participation in the Research if such default is not cured within the period set forth below. If the default is neither (i) cured within sixty (60) days after the receipt of such notice nor (ii) curable within such sixty-day period and, in the case of clause (ii), Targacept has not commenced reasonable actions to cure such default or does not diligently continue to perform such actions, Aventis may elect to terminate this Agreement. Upon the election of Aventis described above, Targacept shall promptly refund to Aventis any amounts paid to Targacept under Section 2.6(b)(1) relating to unused FTEs, transfer to Aventis copies of all data, reports, records and other materials under Targacept’s Control that relate to the Research and furnish to Aventis all Materials developed or Controlled by Targacept that are used or useful in connection with the Research for use by Aventis after termination of this Agreement as provided for herein, and the consequences of termination set forth in Section 11.4, Section 11.5(a) and Section 11.5(b) shall apply.

 

(b) Termination for Material Breach of Research Obligations by Aventis. In the event that Aventis materially fails to perform its obligations with respect to the Research, Targacept may give notice to Aventis specifying the nature of the default, requiring it to cure such default and stating Targacept’s intention to terminate this Agreement during the Research Term if such default is not cured within the period set forth below. If the default is neither (i) cured within sixty (60) days after the receipt of such notice nor (ii) curable within such sixty-day period and, in the case of clause (ii), Aventis has not commenced reasonable actions to cure such default or does not diligently continue to perform

 

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such actions, Targacept shall have the right to terminate this Agreement, and the consequences of termination set forth in Section 11.4, Section 11.5(a) and Section 11.5(b) shall apply.

 

2.9 Material Transfer. In order to facilitate the Research, either Party may provide to the other Party certain biological materials or chemical compounds including, but not limited to Aventis Compounds and Alliance Compounds, receptors, reagents and screens (collectively, “Materials”) owned by or licensed to the supplying Party (other than under this Agreement) for use by the other Party in furtherance of the Research, subject, if desired by the supplying Party, to a separate global Material Transfer Agreement in a form to be mutually agreed by the Parties. Except as otherwise provided under this Agreement, all such Materials delivered to the other Party shall remain the sole property of the supplying Party, shall be used only in furtherance of the Research and solely under the control of the other Party, 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 Materials supplied under this Section 2.9 shall be used with prudence and appropriate caution in any experimental work, since not all of their characteristics may be known. SUBJECT TO SECTION 12.1 OR AS OTHERWISE PROVIDED IN ANY MATERIAL TRANSFER AGREEMENT BETWEEN THE PARTIES, THE 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.

 

2.10 Liability. Except as otherwise expressly set forth in Sections 10.1 and 10.2, in connection with the conduct of the Research, each Party shall be responsible for, and hereby assumes, any and all risks of personal injury or property damage attributable to the negligent acts or omissions of that Party or its Affiliates and their respective directors, officers, employees and agents.

 

2.11 Exclusivity of Research. During the Research Term, each Party agrees not to, and agrees to cause its Affiliates not to: (a) conduct any activity, either on its own, or for the benefit of, sponsored by, or pursuant to any type of corporate partnership with, any Third Party, that has as its goal or intent discovering, identifying, researching, developing or marketing chemical compounds [********] receptors [********] (including, without limitation, any Alliance Compounds) for use in the Field; or (b) grant any license, either express or implied, or any option to license, to any Third Party to utilize any intellectual property Controlled by such Party or its Affiliates for the purpose of discovering, identifying, researching, developing or marketing chemical compounds [********] receptors [********] for use in the Field, in each case except pursuant to this Agreement or the Original Agreement; provided, that: (i) the restrictions set forth in this Section 2.11 shall be limited to the Primary Indications; (ii) the restrictions set forth in this Section 2.11 shall apply to Targacept only for so long as both (A) Aventis shall be using commercially reasonable efforts (as further described in Section 3.5), which efforts shall be not less than those used by Aventis with respect to the development of other compounds of comparable commercial significance, to develop and commercialize a “Collaboration Compound” for the corresponding “Indication” in each “Major Pharmaceutical Market” (all such terms as defined in the Original Agreement); and (B) the Original Agreement is in full force and effect with respect to such Indication; and (iii) a Party may terminate the foregoing covenant as it applies to such Party, as one of its remedies and not to the exclusion of any other remedy such Party may have, if the other Party materially violates its obligations under the foregoing covenant.

 

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2.12 Subcontractors. Either Party may subcontract to Affiliates or Third Parties portions of the Research to be performed by it, subject to the provisions of this Section 2.12. Any subcontractor shall enter into a confidentiality agreement with the contracting party and shall be in compliance in all material respects with all requirements of applicable laws and regulations and all applicable good laboratory practices and good manufacturing practices. The contracting Party shall at all times be responsible for the performance of such subcontractor. Upon the reasonable request of the other Party, a Party shall provide a written list of all subcontractors other than Affiliates with which such Party has subcontracted under this Section 2.12.

 

2.13 No Warranty of Success. Nothing contained in this Agreement shall be construed as a warranty on the part of either Party that such Party will achieve any particular result or that any particular Patent Rights or Know-How developed in the conduct of the Research will be commercially exploitable.

 

2.14 No Solicitation of Employees. During the Research Term and for a period of two (2) years thereafter, each Party agrees not to, and agrees to cause its Affiliates not to, without the consent of the other Party, solicit the employment of any person who during the course of employment with such other Party or any of such other Party’s Affiliates was involved with activities related to or conducted in furtherance of the Research. For purposes of this Section 2.14, “solicit” shall not be deemed to cover general solicitations of employment not specifically targeted at employees of the other party or any of its Affiliates. This provision shall not preclude either Party from soliciting the employment of any person whose employment with the other Party has terminated or any person who has announced his or her impending resignation or retirement from the other Party.

 

ARTICLE 3

 

Development and Commercialization

 

3.1 Development Plans. Within sixty (60) days after an Alliance Development Compound is selected for development in accordance with Section 2.2(e), Aventis shall prepare a reasonably detailed plan for the initial development of such Alliance Development Compound in each Major Pharmaceutical Market for review and comment by the ARC (each, a “Development Plan”), which comments Aventis shall consider reasonably. On a semi-annual basis, Aventis shall apprise the ARC of progress under each Development Plan and shall submit revisions to existing Development Plans t