COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

Exhibit 10.21

Execution Copy

[********] 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

by and between

TARGACEPT, INC.

and

ASTRAZENECA AB

December 27, 2005

TABLE OF CONTENTS

 

 

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List of Exhibits and Schedules

 

 

 

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Execution Copy

[ ******** ] 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

This COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (this “ Agreement ”) is entered into as of December 27, 2005 (the “ Execution Date ”), by and between Targacept, Inc., a Delaware corporation having an address of 200 East First Street, Suite 300, Winston-Salem, NC 27101-4165 (“ Targacept ”), and AstraZeneca AB, a company limited by shares organized and existing under the laws of Sweden, having its principal place of business at V-Malarehamnen 9, S-151 85 Södertälje, Sweden (“ AstraZeneca ”), effective as of the Effective Date, except for those provisions that are expressly stated to be effective as of the Execution Date, which shall be effective as of the Execution Date. Each of AstraZeneca and Targacept is sometimes referred to individually herein as a “ Party ” and collectively as the “ Parties .”

WHEREAS, Targacept Controls certain Technology and Proprietary Materials related to the discovery and optimization of compounds that target NNRs; and

WHEREAS, AstraZeneca is engaged in the development and commercialization of human therapeutics; and

WHEREAS, the Parties desire to enter into a collaboration for purposes of identifying and developing Candidate Drugs and commercializing Products in the Field and in Schizophrenia.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the Parties hereto, intending to be legally bound, hereby agree as follows:

1. DEFINITIONS

Whenever used in this Agreement with an initial capital letter, the terms defined in this Section 1 shall have the meanings specified.

1.1 “ AAA ” means the American Arbitration Association.

1.2 “ AAMI ” means (a) age associated memory impairment, a condition in which persons at least 50 years old experience memory impairment (as compared with younger adults) that is not accompanied by substantial impairment in the normal activities of daily living or in thinking or reasoning skills and is not otherwise part of a pathological illness or other separately-defined medical condition (such as, by way of example only, Dementia, delirium, stroke, inflammatory brain disease, depression or a history of alcohol or psychotropic drug use), unless and until, (b) age associated memory impairment (or age related cognitive decline, age associated cognitive decline or any other substantially equivalent term that connotes memory impairment associated with age or aging) becomes included in DSM-IV, ICD-10 or any other Diagnostic Manual in any country in the Territory or becomes recognized as a distinct diagnosable condition by general consensus in the applicable medical community in any country in the Territory, or a product receives Product Regulatory Approval from the applicable Regulatory Authority in any country in the Territory for AAMI, in each case after the Execution Date, in which case, a condition with the diagnostic characteristics included in DSM-IV, ICD-10 or such other Diagnostic Manual or as recognized by such medical community in such country or such Regulatory Authority, as applicable, from time to time.

1.3 “ Acceptance ” means, with respect to an NDA, the date on which the FDA issues a notice of acceptance of such NDA for filing.

1.4 “ Achievement of Proof of Concept ” means, with respect to any Candidate Drug, the first to occur after the Effective Date of (a) achievement of the [********] (as set forth in the applicable Product Development Plan or clinical trial protocol) in a [********] Clinical Trial of such Candidate Drug in any Primary Indication or Schizophrenia (as the case may be) (but excluding, in the case of Ispronicline, the Ongoing Ispronicline Trial) at a dose range that is shown to be safe and tolerable in the patient group of interest and that is acceptable from each of a scientific, statistical, medical, regulatory and commercial perspective or (b) the [********] Clinical Trial of such Candidate Drug. For purposes of clarity, whether achievement of a

 

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[********] in a [********] Clinical Trial at a dose range that is shown to be safe and tolerable in the patient group of interest and that is acceptable from each of a scientific, statistical, medical, regulatory and commercial perspective has occurred shall be determined as soon as practicable after reliable information from such trial is available following database lock and shall not require the availability of the final report for such trial. “Achieve Proof of Concept” shall be interpreted accordingly.

1.5 “ Active+ Compound ” means each Collaboration Candidate that is not a Terminated Compound that is determined by the JRC or AstraZeneca during the Research Program Term or the Tail Period to satisfy the Active+ Criteria (unless and until (a) Targacept challenges such determination pursuant to Section 4.3.2 and (b) such Collaboration Candidate is finally determined by the ESC (in accordance with Section 2.1.5(c)(iii)) or, if applicable, an Expert (in accordance with Section 14.3) to not satisfy the Active+ Criteria), including any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof. For purposes of clarity, all Active+ Compounds are also Collaboration Candidates. Notwithstanding the foregoing, unless the Parties otherwise agree in writing, the Compounds known to Targacept as of the Execution Date as [********] and, [********] , including any salt form, polymorph, crystalline form, Prodrug, metabolite (other than any such metabolite that is an Excluded Zone Compound), hydrate, solvate or formulation thereof, shall not be Active+ Compounds.

1.6 “ Active+ Criteria ” means the assays and other tests, and the success criteria for those assays and tests, set forth in the Research Plan, as such assays, tests or success criteria may be amended from time to time in any Annual Research Plan in accordance with the terms hereof.

1.7 “ AD ” means Alzheimer’s disease (or Dementia of the Alzheimer’s type), a condition having the diagnostic criteria identified in DSM-IV, ICD-10 or any other Diagnostic Manual from time to time.

1.8 “ ADD ” means adult attention deficit disorder, a condition having the diagnostic criteria identified in DSM-IV, ICD-10 or any other Diagnostic Manual from time to time.

1.9 “ Additional Compound ” means, subject to Section 4.11, with respect to any Collaboration Compound, Candidate Drug or Product, any compound or product that has the

 

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same Framework as such Collaboration Compound, Candidate Drug or Product and, if such Collaboration Compound, Candidate Drug or Product is:

(a) an Alpha4Beta2 Agonist, (i) has an [********] at least equal to [********] , (ii) has [********] and (iii) has activity in [********] at a dose of less than or equal to [********] or activity in a Replacement Assay at the applicable dose if and as agreed pursuant to Section 4.11.3 or, if applicable, determined by an Expert pursuant to Section 14.3 (accelerated arbitration);

(b) a Selective Alpha7 Compound, (i) has [********] at least equal to [********] , (ii) has [********] and (iii) has activity in [********] or activity in a Replacement Assay at the applicable dose if and as agreed pursuant to Section 4.11.3 or, if applicable, determined by an Expert pursuant to Section 14.3 (accelerated arbitration);

(c) a Dual Pharmacology Compound, (i) has an [********] at least equal to [********] , (ii) has [********] and (iii) has activity in either (A)  [********] , or (B)  [********] or, in either case ((A) or (B)), activity in a Replacement Assay at the applicable dose if and as agreed pursuant to Section 4.11.3 or, if applicable, determined by an Expert pursuant to Section 14.3 (accelerated arbitration); or

(d) an Other NNR Compound, (i) has an [********] at least equal to [********] , (ii) has [********] based on a functional assay designated and approved by the Parties, subject to referral of any disputes to an Expert pursuant to Section 14.3, in accordance with Section 4.11.2 for the applicable NNR (or, if there is no such functional assay designated and approved by the Parties (or by an Expert pursuant to Section 14.3) for the applicable NNR, such Other NNR Compound has a [********] , [********] ; provided that this clause (ii) shall not apply to (A) a Collaboration Candidate that does not meet Minimum Binding Affinity or a Licensed Derivative of any Collaboration Compound, Candidate Drug (other than an Option Compound Candidate Drug) or Product (other than an Option Compound Product) that is not itself an Alpha4Beta2 Agonist or (B) an Option Compound Candidate Drug that is not a [********] but that is a Licensed Derivative of an Option Compound Candidate Drug that is a [********] ; and (iii) has activity in an [********] assay (such assay, and the criteria for activity in such assay, to be designated and approved by the Parties, subject to referral of any disputes to

 

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an Expert pursuant to Section 14.3 (accelerated arbitration), in accordance with Section 4.11.2) for the applicable NNR at a dose of less than or equal to [********] or has activity in a Replacement Assay at the applicable dose if and as agreed pursuant to Section 4.11.3 or, if applicable, determined by an Expert pursuant to Section 14.3 (accelerated arbitration). For purposes of this Section 1.9(d), the applicable NNR for: (A) a Collaboration Candidate that does not meet Minimum Binding Affinity or a Licensed Derivative of any Collaboration Compound, Candidate Drug (other than an Option Compound Candidate Drug) or Product (other than an Option Compound Product) that is not itself an Alpha4Beta2 Agonist shall be the Alpha4Beta2 NNR and the [********] assay shall be as provided in clause (iii) of Section 1.9(a); (B) an Option Compound Candidate Drug that is a Licensed Derivative of an Option Compound Candidate Drug that is a [********] shall be the [********] and the [********] assay shall be as provided in clause (iii) of Section 1.9(b); (C) an Option Compound Candidate Drug that is a Licensed Derivative of an Option Compound Candidate Drug that is a [********] shall be the [********] and the [********] assay shall be as provided in clause (iii) of Section 1.9(c); and (D) an Option Compound Candidate Drug that is an Other NNR Compound or a Licensed Derivative of an Other NNR Compound shall be the applicable NNR.

Any salt form, polymorph, crystalline form, Prodrug, metabolite, hydrate, solvate or formulation of an Additional Compound shall also be an Additional Compound. Additional Compounds shall also include:

(x) any compound or product [********] is Ispronicline, a Lead Collaboration Compound, a Related Collaboration Compound, an IND-Ready Option Candidate Drug or a POC Option Candidate Drug;

(y) any Terminated Compound (other than a Terminated AZ Compound) or an Unexercised Option Compound [********] (i) is an Additional Compound with respect to a Collaboration Compound or Candidate Drug, or (ii) is the same [********] (A) a Collaboration Compound, (B) Candidate Drug (other than a Licensed Derivative) or (C) to the extent AstraZeneca notifies Targacept thereof, a Licensed Derivative or an Additional Compound with respect to a Collaboration Compound or a Candidate Drug, in each case ((A), (B) and (C)), that satisfies Section 1.9(a)(iii), 1.9(b)(iii), 1.9(c)(iii) or 1.9(d)(iii), whichever is applicable to such compound; and

 

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(z) any compound or product [********] is (i) a Collaboration Compound or a Candidate Drug (other than Ispronicline, a Lead Collaboration Compound, a Related Collaboration Compound, an IND-Ready Option Candidate Drug or a POC Option Candidate Drug) or an Additional Compound with respect to a Collaboration Compound or Candidate Drug or (ii) the same [********] (A) a Collaboration Compound, (B) Candidate Drug or (C) an Additional Compound with respect to a Collaboration Compound or a Candidate Drug, in each case ((A), (B) and (C)), that satisfies Section 1.9(a)(iii), 1.9(b)(iii), 1.9(c)(iii) or 1.9(d)(iii), whichever is applicable to such compound or product, in each case ((i) and (ii)), solely for purposes of this clause (z), to the extent AstraZeneca notifies Targacept of such Collaboration Compound, Candidate Drug, Additional Compound [********] , in writing, prior to the date, if any, that Targacept or its Affiliates or licensees has commenced [********] for such compound or product, the commencement of which (or the fact that it has not done so) Targacept shall confirm with respect to each such Collaboration Compound, Candidate Drug, Additional Compound [********] (with such support as AstraZeneca may reasonably request) within [********] after receipt of AstraZeneca’s notice with respect thereto (and any failure by Targacept to provide any such notice within such [********] period shall mean, for purposes of this Section 1.9, that AstraZeneca retains rights hereunder with respect to any such compound or product).

With respect to each of the foregoing assays, Additional Compounds shall be determined within the margins of error for each such assay.

Notwithstanding the foregoing, unless the Parties otherwise agree in writing, the Compounds known to Targacept as of the Execution Date as [********] , [********] and, [********] , including any salt form, polymorph, crystalline form, Prodrug, metabolite (other than any such metabolite that is an Excluded Zone Compound), hydrate, solvate or formulation thereof, shall not be Additional Compounds. For purposes of clarity, the Compound known to Targacept as of the Execution Date as TC-1827 is an Additional Compound with respect to Ispronicline.

 

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1.10 “ Additional Primary Indication ” means any indication that is not a Primary Indication as of the Execution Date that the Parties agree in writing shall be a Primary Indication, other than a Newly-Defined Cognitive Disorder or an Associated Cognitive Impairment.

1.11 “ Additional Product ” means any product that contains an Additional Compound as an active ingredient.

1.12 “ Additional Research Plan ” has the meaning set forth in Section 4.8.2.

1.13 “ Additional Research Program ” has the meaning set forth in Section 4.8.1.

1.14 “ Additional Research Program Term ” means the period during which an Additional Research Program is conducted pursuant to an Additional Research Plan; provided that, if earlier, the last day of the Term shall be the last day of each Additional Research Program Term.

1.15 “ Additional Small Market Indication ” means any indication that is not a Small Market Indication as of the Execution Date that the Parties agree in writing shall be a Small Market Indication.

1.16 “ ADHD ” means attention deficit hyperactivity disorder, a condition having the diagnostic criteria identified in DSM-IV, ICD-10 or any other Diagnostic Manual from time to time. For purposes of this Agreement, ADHD shall include ADD.

1.17 “ Adverse Event ” means the development of an undesirable medical condition or the deterioration of a pre-existing medical condition in a patient or clinical investigation subject following or during exposure to a pharmaceutical product or investigational drug, whether or not considered causally related to such product or drug, the exacerbation of any pre-existing condition(s) occurring during the use of such product or drug, or any other adverse experience or adverse drug experience described in the FDA’s Investigational New Drug safety reporting and NDA post-marketing reporting regulations, 21 C.F.R. 312.32 and 314.80, respectively, and any applicable corresponding regulations outside of the United States, in each case as may be amended from time to time. For purposes of this Agreement, “undesirable medical condition” shall include symptoms (e.g., nausea, chest pain), signs (e.g., tachycardia, enlarged liver) or the

 

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abnormal results of an investigation (e.g., laboratory findings, electrocardiogram), including unfavorable side effects, toxicity, injury, overdose or sensitivity reactions. Failure of a product to exhibit its expected pharmacologic/biologic effect in a clinical study is not considered an Adverse Event.

1.18 “ Affiliate ” means, with respect to any Person, any other Person that, directly or through one or more Affiliates, controls, or is controlled by, or is under common control with, such first Person. For purposes of this definition, “control” means (a) ownership of more than fifty percent (50%) of the shares of stock entitled to vote for the election of directors in the case of a corporation, or more than fifty percent (50%) of the equity interests in the case of any other type of legal entity, (b) status as a general partner in any partnership, or (c) any other arrangement whereby a Person controls or has the right to control the board of directors of a corporation or equivalent governing body of an entity other than a corporation.

1.19 “ Agreement ” has the meaning set forth in the preamble.

1.20 “ Alpha4Beta2 Agonist ” means any compound with Minimum Binding Affinity.

1.21 “ Alpha4Beta2 NNR ” means any NNR that is comprised, in whole or in part, of one or more Alpha4 subunits and one or more Beta2 subunits.

1.22 “ Alpha7 NNR ” means any NNR comprised, in whole or in part, of Alpha7 subunits.

1.23 “ Annual Research Plan ” means, with respect to any Contract Year in the Research Program Term, the written plan for the Research Program for such Contract Year, as may be amended from time to time in accordance with the terms hereof.

1.24 “ Applicable Laws ” means federal, state, local, national and supra-national laws, statutes, rules and regulations, including any rules, regulations, guidance, guidelines or requirements of Regulatory Authorities, national securities exchanges or securities listing organizations, that may be in effect from time to time during the Term and applicable to a particular activity hereunder.

1.25 “ Arbitration Matter ” has the meaning set forth in Section 14.1.

 

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1.26 “ ARP Budget ” has the meaning set forth in Section 4.8.2.

1.27 “ ARP Selection Date ” has the meaning set forth in Section 4.8.1.

1.28 “ Associated Cognitive Impairment ” means any Cognitive Impairment that: (a) is not otherwise a Primary Indication and is not a Small Market Indication; (b) is specifically caused by or associated with a separately defined and widely recognized disease or condition; (c) is, as of the Execution Date, neither included in DSM-IV or ICD-10 nor recognized as a distinct diagnosable condition by general consensus in the medical community in the United States or Europe, and for which no product has received Product Regulatory Approval from the FDA in the United States or the EMEA in Europe prior to the Execution Date; (d) either becomes included in DSM-IV, ICD-10 or any other Diagnostic Manual in any Major Market Country during the Term, becomes recognized as a distinct diagnosable condition by general consensus in the applicable medical community in any Major Market Country during the Term or for which a product receives Product Regulatory Approval from the applicable Regulatory Authority in any Major Market Country during the Term; and (e)  [********] as an Associated Cognitive Impairment. For purposes of clarity, the separately defined and widely recognized disease or condition shall not itself be an Associated Cognitive Impairment. For purposes of further clarity, an Associated Cognitive Impairment [********] shall apply throughout the Territory, even if such Associated Cognitive Impairment is not included in DSM-IV, ICD-10 or any other Diagnostic Manual in all Major Market Countries, is not recognized as a distinct diagnosable condition by general consensus in the applicable medical community in all Major Market Countries or a product has not received Product Regulatory Approval for Associated Cognitive Impairment from the applicable Regulatory Authority in all Major Market Countries.

1.29 “ AstraZeneca ” has the meaning set forth in the preamble.

1.30 “ AstraZeneca Assigned Patent Rights ” means any Patent Rights Controlled by AstraZeneca containing only claim(s) that cover the AstraZeneca Assigned Technology. For purposes of clarity, AstraZeneca Assigned Patent Rights are Targacept Patent Rights.

1.31 “ AstraZeneca Assigned Technology ” means any: (x) Technology Controlled by AstraZeneca as of the applicable dates set forth in clauses (a) and (b) below that solely relates to

 

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(a) compounds that (i) are Derived by or on behalf of AstraZeneca from a Collaboration Candidate, Active+ Compound, Collaboration Compound or Candidate Drug (other than Ispronicline or a Licensed Derivative with respect thereto, or an Option Compound Candidate Drug) and (ii) then become Terminated Compounds during the Research Program or Tail Period or as of the end of the Tail Period (or, if later, the resolution of any dispute pursuant to Section 4.3.2 or as provided in Section 4.9), when and as such compounds become Terminated Compounds, or (b) Excluded Derivatives that are Derived by or on behalf of AstraZeneca during the applicable Restricted Derivative Period, on the date each such Excluded Derivative is determined to be an Excluded Derivative, provided in each case ((a) and (b)) that such compounds are Derived during the Term; and (y) Technology made, developed or conceived by or on behalf of AstraZeneca in the conduct of any Pre-IND Study conducted pursuant to Section 5.10.2(a) other than by or on behalf of Targacept. For purposes of further clarity, AstraZeneca Assigned Technology is Targacept Technology.

1.32 “ AstraZeneca Change of Control Notice ” has the meaning set forth in Section 15.2.1.

1.33 “ AstraZeneca Derivative Patent Rights ” means any Patent Rights Controlled by AstraZeneca containing one or more claims that claim as a composition of matter a Licensed Derivative Derived by AstraZeneca during the applicable Restricted Derivative Period. For purposes of clarity, AstraZeneca Derivative Patent Rights are AstraZeneca Patent Rights. For purposes of further clarity, AstraZeneca Derivative Patent Rights shall include any Patent Rights Controlled by AstraZeneca containing one or more claims that claim as a composition of matter a Licensed Derivative of Ispronicline Derived by AstraZeneca during the Restricted Derivative Period for Ispronicline.

1.34 “ AstraZeneca Development Program Patent Rights ” means any AstraZeneca Patent Rights containing one or more claims that cover AstraZeneca Development Program Technology. For purposes of clarity, AstraZeneca Development Program Patent Rights are AstraZeneca Patent Rights.

1.35 “ AstraZeneca Development Program Technology ” means any Technology made, developed or conceived by employees or consultants of AstraZeneca, alone or jointly with

 

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Third Parties, in the conduct of a Development Program or any additional research or Development activities conducted by AstraZeneca pursuant to Section 4.1 or Section 5.2.1 (excluding AstraZeneca Research Program Technology) with respect to Collaboration Compounds, Candidate Drugs and Products, but in each case only if not AstraZeneca Assigned Technology.

1.36 “ AstraZeneca Excluded Patent Rights ” means, collectively, all AstraZeneca Patent Rights that would not be infringed (and, with respect to any applications included in the Patent Rights, that, if issued, would not be infringed) by the Exploitation of a Collaboration Compound, Candidate Drug, Product, Terminated Compound or Product to the extent it contains a Terminated Compound in the Field or Schizophrenia (but, with respect to each such Terminated Compound or Product that contains a Terminated Compound, only as it exists on the date on which such Terminated Compound became a Terminated Compound), by a Third Party in the absence of a license.

1.37 “ AstraZeneca Indemnitees ” has the meaning set forth in Section 13.1.

1.38 “ AstraZeneca Other Patent Rights ” means any Patent Rights Controlled by AstraZeneca containing one or more claims that cover AstraZeneca Other Technology.

1.39 “ AstraZeneca Other Technology ” means any Technology Controlled by AstraZeneca that is necessary to Exploit Terminated AZ Compounds (or any Product that contains a Terminated AZ Compound) in the Field or Schizophrenia, as applicable (but, with respect to each such Terminated AZ Compound (or Product that contains such Terminated AZ Compound), only with respect to such Technology as (a) is incorporated into, used to manufacture, or used to manufacture the formulation (if any) of such Terminated AZ Compound (or Product that contains such Terminated AZ Compound), in each case as of the date on which such Terminated AZ Compound became a Terminated Compound, or (b) was generated in the Development or Commercialization of, and that relates to, such Terminated AZ Compound (or Product that contains such Terminated AZ Compound), if such Technology was generated on or prior to the date on which such Terminated AZ Compound became a Terminated Compound); provided that AstraZeneca Other Technology excludes AstraZeneca Pre-Phase IIb Program

 

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Technology, AstraZeneca Research Program Technology and AstraZeneca Development Program Technology.

1.40 “ AstraZeneca Patent Rights ” means any: (a) Patent Rights Controlled by AstraZeneca containing one or more claims that cover (i) AstraZeneca Technology, (ii) any Terminated AZ Compound (or any Product that contains a Terminated AZ Compound), or (iii) the Exploitation of any Terminated AZ Compound (or any Product that contains a Terminated AZ Compound) in the Field or Schizophrenia, as applicable (but, with respect to each such Terminated AZ Compound (or Product that contains such Terminated AZ Compound), only with respect to such Technology as (x) is incorporated into, used to manufacture, or used to manufacture the formulation (if any) of such Terminated AZ Compound (or Product that contains such Terminated AZ Compound), in each case as of the date on which such Terminated AZ Compound became a Terminated Compound, or (y) was generated in the Development or Commercialization of, and that relates to, such Terminated AZ Compound (or Product that contains such Terminated AZ Compound), and only if such Technology was generated on or prior to the date on which such Terminated AZ Compound became a Terminated Compound); or (b) AstraZeneca Derivative Patent Rights, to the extent not included in clause (a) above. For purposes of clarity, AstraZeneca Assigned Patent Rights are not AstraZeneca Patent Rights.

1.41 “ AstraZeneca Pre-Phase IIb Program Patent Rights ” means any AstraZeneca Patent Rights containing one or more claims that cover AstraZeneca Pre-Phase IIb Program Technology. For purposes of clarity, AstraZeneca Pre-Phase IIb Program Patent Rights are AstraZeneca Patent Rights.

1.42 “ AstraZeneca Pre-Phase IIb Program Technology ” means any Technology made, developed or conceived by employees or consultants of AstraZeneca, alone or jointly with Third Parties, in the conduct of the Pre-Phase IIb Program.

1.43 “ AstraZeneca Proprietary Materials ” means any Proprietary Materials Controlled by AstraZeneca and used by AstraZeneca, or provided by AstraZeneca for use, in the Pre-Phase IIb Program, the Research Program, any Additional Research Program or any Development Program.

 

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1.44 “ AstraZeneca Research Activities ” means, collectively: (a) all activities specified to be conducted by AstraZeneca pursuant to the Research Plan, any Annual Research Plan or Additional Research Plan (or amendment thereto); (b) all activities in the Research Program that, as contemplated by Section 4.1.1, are conducted by AstraZeneca or its Affiliates in lieu of Targacept appointing a Third Party to conduct such activities; and (c) such other activities as AstraZeneca, in its sole discretion (but subject to the notice, coordination and oversight set forth in Sections 4.1.1, 4.3, 4.6 and 4.11) and at its sole expense, elects to conduct with respect to Collaboration Candidates and Active+ Compounds (other than Terminated Compounds and Candidate Drugs) during the Research Program Term or the Tail Period to further the goals of the Collaboration; provided , however , in no event shall AstraZeneca Research Activities include Development activities. For purposes of clarity, (i) AstraZeneca Research Activities may, subject to the notice, coordination and oversight set forth in Sections 4.1.1, 4.3, 4.6 and 4.11 and subject to Section 1.309, include generating Derivatives from Collaboration Candidates (including Active+ Compounds, Collaboration Compounds and Candidate Drugs (other than Option Compound Candidate Drugs and Ispronicline)) during the Research Program Term and Tail Period, and otherwise Exploiting such Derivatives, in an effort to identify additional Collaboration Candidates to further the goals of the Collaboration and (ii) any activities that AstraZeneca conducts with respect to Ispronicline (or any Licensed Derivatives with respect thereto) or an Option Compound Candidate Drug (or any Additional Compounds with respect to Ispronicline (or any Licensed Derivatives with respect thereto) or any Option Compound Candidate Drug) shall not be AstraZeneca Research Activities.

1.45 “ AstraZeneca Research Program Patent Rights ” means any AstraZeneca Patent Rights containing one or more claims that cover AstraZeneca Research Program Technology. For purposes of clarity, AstraZeneca Research Program Patent Rights are AstraZeneca Patent Rights.

1.46 “ AstraZeneca Research Program Technology ” means any Technology made, developed or conceived by employees or consultants of AstraZeneca, alone or jointly with Third Parties, in the conduct of the AstraZeneca Research Activities, but in each case only if not AstraZeneca Assigned Technology. For purposes of clarity, Technology with respect to

 

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Ispronicline made, developed or conceived by employees or consultants of AstraZeneca, alone or jointly with Third Parties, shall not be AstraZeneca Research Program Technology.

1.47 “ AstraZeneca Technology ” means, collectively, AstraZeneca Pre-Phase IIb Program Technology, AstraZeneca Research Program Technology, AstraZeneca Development Program Technology and AstraZeneca Other Technology. For purposes of clarity, AstraZeneca Assigned Technology is not AstraZeneca Technology.

1.48 “ AZ Compounds ” has the meaning set forth in Section 8.9.1.

1.49 “ AZ Co-Promotion Opportunity ” has the meaning set forth in Section 5.11.1.

1.50 “ AZ Net Sales ” means Net Sales by AstraZeneca, its Affiliates or Sublicensees.

1.51 “ AZ Proposal ” has the meaning set forth in Section 5.10.2(e)(2).

1.52 “ Back-Up Option Compound ” means, with respect to any Option Compound for a particular Primary Indication or for Schizophrenia, another Option Compound for such indication that possesses (a) the same Framework when compared with such first Option Compound and (b) a more favorable Option Compound Profile when compared to such first Option Compound, but excluding any Excluded Zone Compounds.

1.53 “ Business Day ” means a day that is not a Saturday, Sunday or a day on which banking institutions in New York, New York, London, England or Stockholm, Sweden are authorized or required by law to close.

1.54 “ Calendar Quarter ” means the period beginning on the Effective Date and ending on the last day of the calendar quarter in which the Effective Date falls, and thereafter each successive period of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31.

1.55 “ Calendar Year ” means the period beginning on the Effective Date and ending on December 31, 2006 and thereafter each successive period of twelve (12) months commencing on January 1 and ending on December 31.

 

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1.56 “ Candidate Drug ” means each of (a) Ispronicline, (b) each Active+ Compound that is not a Terminated Compound, (c) each Collaboration Compound for which AstraZeneca commences GLP Toxicology Studies as provided in Section 5.1.2 or for which AstraZeneca does not commence GLP Toxicology Studies but Initiates a Clinical Trial, (d) each Option Compound for which AstraZeneca exercises an Option, (e) each Licensed Derivative with respect to (i) any such Option Compound made by or on behalf of AstraZeneca or its Affiliates or Sublicensees or (ii) Ispronicline or any such Active+ Compound or Collaboration Compound made by or on behalf of (A) AstraZeneca, Targacept or any of their respective Affiliates or Sublicensees during the Research Program Term or the Tail Period or (B) AstraZeneca or its Affiliates or Sublicensees after the Tail Period and (f) in each case ((a) through (e)), any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof.

1.57 “ CDS ” means cognitive deficiency in schizophrenia, an impairment in humans that (a) affects any or all of memory, attention, diligence, reasoning, problem solving, judgment and language and (b) is associated specifically with, but is a separate condition from the non-cognitive symptoms of, Schizophrenia.

1.58 “ Change of Control ” means, with respect to a Party, (a) a merger, consolidation, acquisition, share exchange or other similar transaction involving such Party and any Third Party which results in the holders of the outstanding voting securities of such Party immediately prior to such merger, consolidation, share exchange or other similar transaction ceasing to hold more than fifty percent (50%) of the combined voting power of the surviving, purchasing or continuing entity immediately after such merger, consolidation, share exchange or other similar transaction, (b) any transaction or series of related transactions in which any “person”, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), together with any of such person’s “affiliates” or “associates”, as such terms are used in the Exchange Act, becomes the beneficial owner of fifty percent (50%) or more of the combined voting power of the outstanding securities of such Party or (c) the sale or other transfer to a Third Party of all or substantially all of such Party’s assets which relate to this Agreement.

1.59 “ Claims ” has the meaning set forth in Section 13.1.

 

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1.60 “ Clinical Trials ” means, collectively, Phase I Clinical Trials, Phase II Clinical Trials, Phase III Clinical Trials, and such other tests and studies in human subjects that are required by any Regulatory Authority, from time to time, pursuant to Applicable Laws or otherwise, to obtain or maintain Product Regulatory Approval for a product.

1.61 “ Cognitive Impairment ” means a clinically significant deficit in cognition in humans that (a) affects the ability to learn new information or to recall previously learned information and (b) represents (i) a change from a previous level of cognitive functioning or (ii) an impairment relative to age-matched peers.

1.62 “ Collaboration ” means the alliance of Targacept and AstraZeneca established pursuant to this Agreement for purposes of identifying and Developing Candidate Drugs and Commercializing Products in the Territory in the Field and in Schizophrenia.

1.63 “ Collaboration Candidate ” means each (a) Compound that Targacept determines during the Research Program Term to have Minimum Binding Affinity or (b) compound Derived therefrom by or on behalf of AstraZeneca or Targacept (including, for clarification, any compounds Derived from an Active+ Compound, Collaboration Compound or Candidate Drug (excluding Ispronicline (or any Licensed Derivatives with respect thereto) and Option Compound Candidate Drugs)) during the Research Program Term or the Tail Period if such Derived compound (i) itself has Minimum Binding Affinity or (ii) is not the [********] where an objective of the [********] , in whole or in part, was to [********] ; including in each case ((a) and (b)) any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof. Notwithstanding the foregoing, unless the Parties otherwise agree in writing, the Compounds known to Targacept as of the Execution Date as [********] and [********] and, [********] , including any salt form, polymorph, crystalline form, Prodrug, metabolite (other than any such metabolite that is an Excluded Zone Compound), hydrate, solvate or formulation thereof, shall not be Collaboration Candidates.

1.64 “ Collaboration Compound ” means each Lead Collaboration Compound, each Related Collaboration Compound with respect thereto, each Licensed Derivative with respect to any of the foregoing first Derived by or on behalf of AstraZeneca or its Affiliates or Sublicensees after the Tail Period and, only under the circumstances provided in Section 3.3.2(b)(A), Ispronicline. For purposes of clarity, all Collaboration Compounds are also Collaboration Candidates.

 

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1.65 “ Collaboration Compound Designation ” has the meaning set forth in Section 4.7.1.

1.66 “ Collaboration Compound Pool ” means the pool consisting of (a) no more than [********] Lead Collaboration Compounds and (b) all Related Collaboration Compounds with respect to each such Lead Collaboration Compound.

1.67 “ Collaboration Compound Pool Satisfaction Date ” means the date, if any, on which the JRC or AstraZeneca designates the [********]Active+ Compound to be a Lead Collaboration Compound.

1.68 “ Collaboration Manager ” has the meaning set forth in Section 2.5.1.

1.69 “ Combination Product ” means a Product (or a Royalty-Bearing Product or Royalty-Bearing Terminated AZ Product) that contains a Candidate Drug (or a Royalty-Bearing Terminated Compound or a Terminated AZ Compound) as an active ingredient together with one or more other active ingredients, including Other Licensed Compounds or Other Licensed Products, that are sold either as a fixed dose or as separate doses in a single package.

1.70 “ Commencement Date ” has the meaning set forth in Section 3.3.1.

1.71 “ Commercial Coordination Committee ” or “ CCC ” means the committee of Targacept and AstraZeneca representatives to be established pursuant to Section 2.4 if Targacept exercises a Co-Promotion Option.

1.72 “ Commercialization ” or “ Commercialize ” means any and all lawful activities directed to the commercialization of a product (whether before or after Product Regulatory Approval has been obtained), including marketing, manufacturing for commercial sale, promoting, detailing, distributing, offering to sell and selling a product, importing a product for sale, conducting additional human clinical studies with respect to an indication for which Product Regulatory Approval has been obtained and interacting with Regulatory Authorities regarding !

 

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the foregoing. When used as a verb, “Commercializing” means to engage in Commercialization and “Commercialized” has a corresponding meaning.

1.73 “ Commercialization Regulatory Approval ” means, with respect to any product for an indication, the granting or approval by the applicable Regulatory Authority(ies) of (a) a Drug Approval Application and (b) all other Regulatory Approvals, if any, required by Applicable Laws, in each case ((a) and (b)) to market and sell such product for use in such indication in a country or region. For purposes of clarity, “Commercialization Regulatory Approval” for a product for an indication in a country or region shall include Product Regulatory Approval for such product for such indication in such country or region.

1.74 “ Commercially Reasonable Efforts ” means:

(a) with respect to the Development of a particular Candidate Drug or the Commercialization of a particular Product by AstraZeneca, the efforts and resources typically used by [********] in the development of product candidates or the commercialization of products of comparable market potential, taking into account all relevant factors (including, as applicable and without limitation, stage of development, mechanism of action, efficacy and safety relative to competitive products in development or in the marketplace, actual or anticipated Regulatory Authority approved labeling, the nature and extent of market exclusivity (including patent coverage and regulatory exclusivity), cost of development and likelihood of obtaining Regulatory Approvals, actual or projected profitability (which may take into account, if and as applicable, pricing or reimbursement approvals or authorizations) ( provided that in assessing such profitability the royalties, milestones or other payments due or potentially due to Targacept with respect to such Candidate Drug or Product pursuant to this Agreement shall not be taken into account), other products or product candidates (including any [********] ) that AstraZeneca is researching, developing or commercializing and availability of capacity to manufacture and supply for commercial sale); provided that [********] , the effect of diverting effort or resources to Developing [********] on any product or product candidate of AstraZeneca that is optimized to act through any Exclusivity Mechanism (other than other Candidate Drug(s) or Product(s)) shall not be taken into account; and

 

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(b) with respect to the performance by Targacept of the Research Program, any Additional Research Program, any Targacept Development Activities, an Option Compound Development Plan or its Manufacturing (as defined in Section 16.18(f)) obligations under Article 16 from time to time, the efforts and resources typically used by companies in the [********] industry, with resources and expertise comparable to those of Targacept (or any successor thereto) at such time, to perform such activities on their own behalf (and not as a contract research organization), provided that (i) in no event shall such efforts and resources be less than those typically used by companies in the [********] industry with resources and expertise comparable to those of Targacept [********] and (ii) with respect to Targacept’s obligation to use Commercially Reasonable Efforts to conduct its Manufacturing obligations under Article 16, Targacept’s other obligations under the Research Program shall be taken into account.

1.75 “ Competitive Entity ” means any Third Party in the [********] companies ranked by worldwide pharmaceutical sales in the most recently completed Calendar Year for which such ranking is readily available from IMS Health Incorporated or such other source as may be agreed by the Parties.

1.76 “ Competitive Program ” means any research, development or commercialization activity of a Third Party that involves a compound or product (other than a Secondary Pharmacology Compound) for which its prophylactic or therapeutic activity is known to be derived in any material respect through any Exclusivity Mechanism for use in the Field or, prior to the Schizophrenia Expiration Date, Schizophrenia that would (a) were such Third Party to undergo a Change of Control transaction with Targacept, cause Targacept to be in breach of any of its exclusivity obligations under Section 8.6.1, or (b) were such Third Party to undergo a Change of Control transaction with AstraZeneca, cause AstraZeneca to be in breach of any of its exclusivity obligations under Section 8.6.3 or terminate or limit any of Targacept’s exclusivity obligations under Section 8.6.1.

1.77 “ Compound ” means any compound Controlled by Targacept.

1.78 “ Compound Family ” means (a) with respect to each Lead Collaboration Compound, such Lead Collaboration Compound, all Related Collaboration Compounds with

 

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respect to such Lead Collaboration Compound, and all Licensed Derivatives with respect to either of the foregoing, (b) with respect to Ispronicline, Ispronicline and all Licensed Derivatives with respect thereto, (c) with respect to each IND-Ready Option Candidate Drug, such IND-Ready Option Candidate Drug and all Licensed Derivatives with respect thereto and (d) with respect to each POC Option Candidate Drug, such POC Option Candidate Drug and all Licensed Derivatives with respect thereto.

1.79 “ Confidential Information ” means (a) with respect to Targacept, all tangible embodiments of Targacept Technology, (b) with respect to AstraZeneca, all tangible embodiments of AstraZeneca Technology and the Excluded Data and (c) with respect to each Party, (i) all tangible embodiments of Joint Technology (other than the Excluded Data) and (ii) all information, Technology and Proprietary Materials (other than Targacept Technology, AstraZeneca Technology or Joint Technology) disclosed or provided by or on behalf of such Party (the “ disclosing Party ”) to the other Party (the “ receiving Party ”) or to any of the receiving Party’s employees, consultants, Affiliates or Sublicensees (including, by way of example only, information, Technology and, if applicable, Proprietary Materials regarding an actual or potential future Option Compound provided pursuant to Section 5.10.2 or regarding an ROFN Indication Opportunity provided pursuant to Section 5.10.3); provided that none of the foregoing shall be Confidential Information if: (A) as of the date of disclosure or delivery, it is known to, or in the possession of, the receiving Party or its Affiliates as demonstrated by credible written documentation, other than by virtue of a prior confidential disclosure to such receiving Party; (B) as of the date of disclosure or delivery, it is in the public domain or is otherwise publicly available, or it subsequently enters the public domain or becomes otherwise publicly available through no fault of the receiving Party; (C) it is obtained by the receiving Party from a Third Party having a lawful right to make such disclosure or delivery free from any obligation of confidentiality to the disclosing Party unless disclosed to the receiving Party by such Third Party at the direction, or with the consent of, the disclosing Party; (D) with respect to any Proprietary Materials, it is supplied by a Third Party without breach of any obligation to the disclosing Party, or (E) it is independently developed by or for the receiving Party without reference to or use of any Confidential Information of the disclosing Party as demonstrated by credible written documentation. Notwithstanding anything herein to the contrary, but subject to Section 7.5, (x) the terms of this Agreement shall constitute Confidential Information of each Party, (y) to the

 

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extent Joint Technology solely claims or covers one or more Collaboration Candidates, Active+ Compounds, Collaboration Compounds, Candidate Drugs or Products (other than Terminated Compounds or Products containing Terminated Compounds) or the Exploitation of one or more Collaboration Candidates, Active+ Compounds, Collaboration Compounds, Candidate Drugs or Products (other than Terminated Compounds or Products containing Terminated Compounds), such Joint Technology shall constitute Confidential Information of AstraZeneca and (z) to the extent Joint Technology solely claims or covers one or more Terminated AZ Compounds or the Exploitation thereof, such Joint Technology shall constitute Confidential Information of Targacept.

1.80 “ Contract Quarter ” means (a) the period beginning on the Effective Date and ending on the last day of the third full calendar month after the Effective Date and (b) each succeeding three (3)-month period thereafter.

1.81 “ Contract Year ” means (a) the period beginning on the Effective Date and ending on the first anniversary of the last day of the calendar month in which the Effective Date occurs and (b) each succeeding twelve (12)-month period thereafter.

1.82 “ Control ” or “ Controlled ” means (a) with respect to Technology (other than Proprietary Materials) or Patent Rights or other intellectual property rights, the possession by a Party of the right, whether by ownership, license or otherwise (other than pursuant to this Agreement), to assign, or to grant a license or sublicense or other right to or under, such Technology, Patent Rights or other intellectual property rights as provided herein without violating the terms of any agreement or arrangement with any Third Party and (b) with respect to Proprietary Materials, the possession by a Party of the right to supply such Proprietary Materials to the other Party as provided herein without violating the terms of any agreement or arrangement with any Third Party.

1.83 “ Co-Promote ” or “ Co-Promotion ” means, with respect to any Co-Promoted Product, the joint promotion and Detailing of such Co-Promoted Product to the Co-Promotion Target Audience in the Co-Promoted Territory using a coordinated sales force consisting of representatives of both Parties.

 

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1.84 “ Co-Promoted Product ” has the meaning set forth in Section 5.11.2(a).

1.85 “ Co-Promotion Activities ” means the activities to be undertaken by either Party pursuant to a Co-Promotion Agreement.

1.86 “ Co-Promotion Agreement ” has the meaning set forth in Section 5.11.2(b)(1).

1.87 “ Co-Promotion Option ” has the meaning set forth in Section 5.11.2(a).

1.88 “ Co-Promotion Option Notice ” has the meaning set forth in Section 5.11.2(a).

1.89 “ Co-Promotion Target Audience ” means, with respect to each Co-Promoted Product, any or all of those classes of specialist physicians and other specialist medical professionals that customarily prescribe or purchase, or that would reasonably be expected to prescribe or purchase, products to treat or prevent any Primary Indication, Schizophrenia or Small Market Indication for which the Co-Promoted Product receives Regulatory Approval in the Co-Promotion Territory. For purposes of clarity, Co-Promotion Target Audience shall include nursing homes or comparable facilities if they would reasonably be expected to purchase a particular Co-Promoted Product but shall not include primary care physicians or medical professionals, including family and general practitioners, internists (regardless of whether they have subspecialty in psychiatry or geriatrics) and pediatricians (except that pediatricians shall not be so excluded in the case of a Co-Promoted Product for which Regulatory Approval is obtained in the United States for ADHD).

1.90 “ Co-Promotion Territory ” means the United States of America (excluding its territories and possessions), including the District of Columbia.

1.91 “ CREATE Act ” has the meaning set forth in Section 10.1.6.

1.92 “ Cure Period ” has the meaning set forth in Section 11.2.4.

1.93 “ Data Exclusivity Period ” means the period of data exclusivity for a Product in a country that is granted when such Product first receives Product Regulatory Approval based on such Product’s status as a new chemical entity (and not based on a use or application of such Product, such as, for example, orphan drug exclusivity (unless a Product is only approved for

 

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orphan indications), new uses or pediatric exclusivity) that is, with respect to the United States, listed in the FDA’s Orange Book or outside the United States, under the national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83 or other international equivalents. If during the Data Exclusivity Period with respect to a Product in a country, a generic version of such Product (or, with respect to orphan exclusivity, a product for use in the same indication) is approved by the applicable Regulatory Authority(ies) for sale in such country, then, notwithstanding the preceding sentence, the Data Exclusivity Period shall be deemed to have expired with respect to such Product in such country.

1.94 “ Defaulting Party ” has the meaning set forth in Section 11.2.4.

1.95 “ Dementia ” means dementia, a condition having the diagnostic criteria identified in DSM-IV, ICD-10 or any other Diagnostic Manual in a country or recognized by general consensus in the applicable medical community in such country as a distinct diagnosable condition or for which a product has received Product Regulatory Approval from the applicable Regulatory Authority in such country, as applicable, from time to time.

1.96 “ Derived ” means, with respect to a compound, directly (but not necessarily by means of a single step) obtained, developed, created, synthesized, designed, derived or otherwise generated from (whether in whole or in substantial part) another compound, including with the use of any Technology of a Party with respect thereto. “Derivative” and “Derive” shall be interpreted accordingly.

1.97 “ Detail ” means that part of an in person, face-to-face sales call during which a sales representative, who is fully trained with respect to a Co-Promoted Product, including its labeling and any promotional materials, makes a full presentation of the Co-Promoted Product to a medical professional with prescribing authority or to a potential purchaser of the Co-Promoted Product (such as nursing homes or comparable facilities) such that the relevant characteristics of the Co-Promoted Product are described by the sales representative in a fair and balanced manner consistent with the requirements of the applicable Co-Promotion Agreement and Applicable Laws and in a manner that is customary in the industry for the purpose of promoting a prescription pharmaceutical product. Any activities performed by medical information scientists, market development specialists, managed care account directors and other personnel that are not

 

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conducting face-to-face sales calls as provided in the preceding sentence shall not constitute a “Detail” and E-details and presentations made at conventions or similar gatherings shall not constitute a “Detail.” When used as a verb, “Detail” means to engage in a Detail.

1.98 “ Development ” or “ Develop ” means, with respect to a Collaboration Compound, Candidate Drug or Product for a Primary Indication, Schizophrenia or a Small Market Indication, all non-clinical and clinical activities required to obtain Commercialization Regulatory Approval of such Product (including any Product that contains such Collaboration Compound or Candidate Drug) in accordance with this Agreement up to and including the obtaining of Commercialization Regulatory Approval of such Product for such Primary Indication, Schizophrenia or Small Market Indication. For purposes of clarity, these activities include test method development and stability testing, regulatory toxicology studies, formulation, process development, manufacturing, manufacturing scale-up, development-stage manufacturing, quality assurance/quality control development, statistical analysis and report writing, Clinical Trial design and operations, preparing and filing Drug Approval Applications, and all regulatory affairs related to the foregoing. When used as a verb, “Developing” means to engage in Development and “Developed” has a corresponding meaning.

1.99 “ Development Program ” means, with respect to each Candidate Drug, the Development program to be conducted by the Parties during the Term with respect to such Candidate Drug pursuant to the Product Development Plan for such Candidate Drug.

1.100 “ Development Program Technology ” means, collectively, Targacept Development Program Technology, AstraZeneca Development Program Technology and, if made, developed or conceived in the conduct of a Development Program, Joint Technology.

1.101 “ Development Project Team ” means a team established by AstraZeneca pursuant to Section 2.3.5.

1.102 “ Development Workaround ” has the meaning set forth in Section 5.5.2.

1.103 “ Diagnostic Manual ” means DSM-IV, ICD-10 or such other similar diagnostic manual or tool as may be a standard used by the medical community in a country to identify or diagnose medical conditions in such country.

 

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1.104 “ Diligence Cure Period ” has the meaning set forth in Section 11.2.5.

1.105 “ Disputed Matter ” has the meaning set forth in Section 2.1.5.

1.106 “ Distributor ” has the meaning set forth in Section 8.3.2.

1.107 “ Drug Approval Application ” means, with respect to a product in a particular country or region in the Territory, an application to the applicable Regulatory Authority(ies) to market and sell such product in such country or region, including: (a) an NDA or sNDA; (b) a counterpart of an NDA or sNDA in any country or region in the Territory; and (c) all supplements and amendments to any of the foregoing.

1.108 “ DSM-IV ” means the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition, published by the American Psychiatric Association, as amended and as supplemented or superseded by subsequent editions published from time to time during the Term (e.g., DSM-V).

1.109 “ Dual Pharmacology Compound ” means a compound that [********] , including any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof.

1.110 “ Effective Date ” means the first date on which the condition precedent set forth in Section 17.14 is satisfied.

1.111 “ Effectiveness of IND ” means, with respect to any IND, thirty (30) days after the date such IND is received by the FDA if no clinical hold is issued by the FDA with respect thereto or, if a clinical hold is issued, such later date on which such IND is no longer subject to that clinical hold.

1.112 “ Election Period ” has the meaning set forth in Section 15.1.2(a).

1.113 “ Europe ” means the countries comprising the European Union as it may be constituted from time to time.

1.114 “ European Union ” means the economic, scientific and political organization of member states, which, as of the Execution Date, consists of Austria, Belgium, Czech Republic,

 

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Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and the United Kingdom of Great Britain and Northern Ireland, and that certain portion of Cyprus included in such organization.

1.115 “ Excepted Decision ” has the meaning set forth in Section 2.1.5.

1.116 “ Excluded Data ” means, with respect to each of the Compounds known to Targacept as of the Execution Date as [********] , [********] and [********] or with respect to each Terminated Compound or Excluded Derivative or with respect to each Collaboration Compound, Candidate Drug, Product or Other Licensed Compound (or product containing any of the foregoing), any results, data or other information generated or otherwise resulting from any of the following activities with respect thereto: (a)  [********] , [********] , and the [********] known, as of the Execution Date, as [********] and any other [********] that after the Execution Date becomes generally accepted in the scientific community as validated for cognitive performance; (b) the [********] known, as of the Execution Date, as [********] ; (c) the [********] known, as of the Execution Date, as [********] and any other [********] that after the Execution Date becomes generally accepted in the scientific community as validated for the [********] ; (d)  [********] to measure the [********] and any other [********] study that after the Execution Date becomes generally accepted in the scientific community as validated for the [********] ; (e)  [********] testing for [********] ; (f)  [********] known, as of the Execution Date, as (i)  [********] or [********] or [********] or (ii) [********] or [********] and any other [********] that after the Execution Date becomes generally accepted in the scientific community as validated for the [********] ; and (g) any [********] or other [********] tests or [********] , provided that, for purposes of this clause (g), in no event shall [********] be Excluded Data.

1.117 “ Excluded Derivative ” means, with respect to a Collaboration Compound, Candidate Drug or Product, any compound Derived therefrom with the use of any AstraZeneca Research Program Technology or Targacept Technology during the applicable Restricted Derivative Period, other than a Licensed Derivative.

 

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1.118 “ Excluded Zone Compound ” means: (a) any Terminated Compound that is not a Terminated AZ Compound or any Unexercised Option Compound, in each case for which a Major Metabolite (i) is a Collaboration Compound or Candidate Drug, (ii) is an Additional Compound with respect to a Collaboration Compound or Candidate Drug or (iii) is the same as a Major Metabolite of (A) a Collaboration Compound, (B) a Candidate Drug (other than a Licensed Derivative) or (C) to the extent Known by Targacept, a Licensed Derivative or an Additional Compound with respect to a Collaboration Compound or a Candidate Drug, in each case ((A), (B) and (C)) that satisfies Section 1.9(a)(iii), 1.9(b)(iii), 1.9(c)(iii) or 1.9(d)(iii), whichever is applicable to the Terminated Compound or Unexercised Option Compound, as applicable; (b) any metabolite of any Terminated AZ Compound, any Partially-Terminated Product or [********] , [********] or [********] that (i) is a Collaboration Compound or Candidate Drug, (ii) is an Additional Compound with respect to a Collaboration Compound or Candidate Drug or (iii) is the same as a Major Metabolite of (A) a Collaboration Compound, (B) a Candidate Drug (other than a Licensed Derivative) or (C) to the extent Known by Targacept, a Licensed Derivative or an Additional Compound with respect to a Collaboration Compound or a Candidate Drug, in each case ((A), (B) and (C)) that satisfies Section 1.9(a)(iii), 1.9(b)(iii), 1.9(c)(iii) or 1.9(d)(iii), whichever is applicable to the Terminated AZ Compound, Partially-Terminated Product or [********] , [********] or [********] , as applicable; and (c) any Prodrug of an Unexercised Option Compound that is made, developed or conceived by or on behalf of Targacept prior to Initiation of a Phase II Clinical Trial of such Unexercised Option Compound. For purposes of clarity, the [********] , which is known by Targacept as of the Execution Date as [********] , shall not be an Excluded Zone Compound.

1.119 “ Exclusivity Mechanism ” means any mechanism of action involving the [********] an NNR [********] such NNR. For purposes of clarity, any mechanism of action involving the [********] an NNR [********] such NNR shall not be an Exclusivity Mechanism.

1.120 “ Execution Date ” has the meaning set forth in the preamble.

1.121 “ Executive Steering Committee ” or “ ESC ” means the committee comprised of Targacept and AstraZeneca representatives established pursuant to Section 2.1.

 

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1.122 “ Expanded Field Indication ” has the meaning set forth in Section 8.9.1.

1.123 “ Expert ” has the meaning set forth in Section 14.3.1.

1.124 “ Exploit ” means to make, have made, import, use, sell or offer for sale, including to discover, research, develop, modify, enhance, improve, manufacture, have manufactured, hold or keep (whether for disposal or otherwise) store, formulate, optimize, have used, export, transport, distribute, promote and market or have sold or otherwise dispose or offer to dispose of, a product or process. “ Exploitation ” means the act of Exploiting a product or process.

1.125 “ External Targacept R&D Costs ” means costs or expenditures incurred by Targacept (or for its account by an Affiliate) in connection with the engagement of any Third Party to conduct work in the Research Program or the Additional Research Program or in connection with the Targacept Development Activities [********] .

1.126 “ FDA ” means the United States Food and Drug Administration or any successor agency or authority thereto.

1.127 “ FDCA ” means the United States Federal Food, Drug, and Cosmetic Act, as amended.

1.128 “ Field ” means, subject to Section 8.9, the treatment, prevention or diagnosis of Primary Indications and Small Market Indications in humans or animals.

1.129 “ Final Option Compound Offer ” has the meaning set forth in Section 5.10.2(e)(1).

1.130 “ Final ROFN Offer ” has the meaning set forth in Section 5.10.3.

1.131 “ First Commercial Sale ” means, with respect to a Product, Other Licensed Product, Royalty-Bearing Terminated AZ Product or Royalty-Bearing Terminated Compound (or a Royalty-Bearing Product that contains such Royalty-Bearing Terminated Compound) in a country in the Territory, the first sale, transfer or disposition for value or for end use or consumption of such Product, Other Licensed Product, Royalty-Bearing Terminated AZ Product or Royalty-Bearing Terminated Compound (or a Royalty-Bearing Product that contains such

 

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Royalty-Bearing Terminated Compound) in such country after Commercialization Regulatory Approval has been obtained therefor in such country; provided that any sale to an Affiliate or Sublicensee will not constitute a First Commercial Sale (unless the purchasing Affiliate or Sublicensee is the last entity in the distribution chain for the Product, Other Licensed Product, Royalty-Bearing Terminated AZ Product or Royalty-Bearing Terminated Compound (or a Royalty-Bearing Product that contains such Royalty-Bearing Terminated Compound) and is purchasing it for its own commercial use).

1.132 “ Follow-On Option Compound ” means, with respect to any Option Compound for a particular Primary Indication or for Schizophrenia, another Option Compound for such indication that possesses (a) a different Framework when compared with such first Option Compound and (b) at least as favorable an Option Compound Profile as such first Option Compound, but excluding any Excluded Zone Compound.

1.133 “ Force Majeure ” means any occurrence beyond the reasonable control of a Party that prevents or substantially interferes with the performance by such Party of any of its obligations hereunder including any act of God, flood, fire, explosion, earthquake, strike, lockout, labor dispute, casualty or accident, or war, revolution, civil commotion, act of terrorism, blockage or embargo, or any injunction, law, order, proclamation, regulation, ordinance, demand or requirement of any government or of any subdivision, authority or representative of any such government.

1.134 “ Framework ” means the structural framework of an Option Compound determined in accordance with the guidelines set forth in Schedule 1.134.

1.135 “ FTE ” means [********] hours of work devoted to or in support of the Research Program, the Additional Research Program or the Targacept Development Activities that is carried out by employees, contract personnel or consultants of Targacept, measured in accordance with Targacept’s standard time allocation practices as disclosed by Targacept in writing as of the Execution Date, consistently applied, from time to time; provided that, upon advance written notice to AstraZeneca, Targacept’s standard time allocation practices may change from time to time during the Term.

 

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1.136 “ FTE Cost ” means, for any period, the FTE Rate multiplied by the applicable number of FTEs in such period.

1.137 “ FTE Rate ” means [********] Dollars (US $ [********] ); provided that on January 1 of each Calendar Year in the Term, commencing with January 1, 2007, the FTE Rate will be increased by multiplying the FTE Rate applicable on December 31 of the immediately preceding Calendar Year by 1 + [(CPIx - CPIy) / CPIy], where CPIx is the United States Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor for December in the immediately preceding Calendar Year and CPIy is the United States Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor for the month immediately preceding the Effective Date. Any such increase shall be rounded to the nearest one hundred US Dollars ($100).

1.138 “ Fully-Screened Collaboration Candidate ” means each Collaboration Candidate for which, as of a particular date, each of (a) the screening set forth in the Research Plan or an Additional Research Plan, as applicable, to enable the JRC or AstraZeneca to determine whether the Active+ Criteria are satisfied has been completed, (b) the data and analyses from such screening has been provided to the JRC and AstraZeneca, and (c) the JRC has met, having received such data and analyses at least thirty (30) days prior to such meeting, or has determined whether such Collaboration Candidate satisfies the Active+ Criteria.

1.139 “ GAAP ” means International Accounting Standards, except for purposes of any Co-Promotion Agreement, in which case it shall mean United States generally accepted accounting principles, consistently applied, in each case as amended from time to time.

1.140 “ GLP ” means the then-current standards for laboratory activities for pharmaceuticals, as are required by the Regulatory Authorities of Europe, the United States and Japan, including 21 C.F.R. part 58 and EC Directives 87/18/EEC, 88/320/EEC and 1999/11/EC, in each case, as amended from time to time.

 

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1.141 “ GLP Toxicology Studies ” means, with respect to a compound or product, animal studies conducted in accordance with GLP and intended to support an IND for such compound or product.

1.142 “ Good Clinical Practices ” means international ethical, scientific, and quality standards for designing, conducting, recording, and reporting trials that involve the participation of human subjects, as set forth by the International Conference on Harmonization ( “ICH” ) E6: Good Clinical Practices Consolidated Guideline, as amended from time to time, or as otherwise required by Applicable Laws.

1.143 “ Good Manufacturing Practices ” means current good manufacturing practices for biological and other pharmaceutical products (and components thereof) as described in regulations promulgated by the FDA, or an analogous Regulatory Authority outside of the United States, in each case as amended from time to time.

1.144 “ Hatch-Waxman Act ” means the Drug Price Competition and Patent Term Restoration Act of 1984, as amended.

1.145 “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

1.146 “ ICD-10 ” means the International Statistical Classification of Diseases and Related Health Problems, Tenth Edition, published by the World Health Organization, as amended and as supplemented or superseded by subsequent editions published from time to time during the Term ( e.g. , ICD-11).

1.147 “ IND ” means: (a) an Investigational New Drug Application as defined in the FDCA and regulations promulgated thereunder or any successor application or procedure required to initiate clinical testing of a Candidate Drug in humans in the United States; (b) a counterpart of an Investigational New Drug Application that is required in any other country or region in the Territory before beginning clinical testing of a Candidate Drug in humans in such country or region; and (c) all supplements and amendments to any of the foregoing.

 

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1.148 “ IND-Ready ” means, with respect to an Option Compound, the completion of such studies and assessments as set forth in Schedule 1.148 to support the filing of an IND covering such Option Compound.

1.149 “ IND-Ready Notice ” has the meaning set forth in Section 5.10.2(b).

1.150 “ IND-Ready Option ” has the meaning set forth in Section 5.10.2(b).

1.151 “ IND-Ready Option Candidate Drug ” means an Option Compound (a) for which AstraZeneca exercises an IND-Ready Option or (b) that Achieves Proof of Concept under an Option Compound Development Plan assumed and completed by AstraZeneca pursuant to Section 5.10.2(b)(5). For purposes of clarity, an IND-Ready Option Candidate Drug is also a Candidate Drug.

1.152 “ IND-Ready Option Period ” has the meaning set forth in Section 5.10.2(b).

1.153 “ IND-Ready Option Product ” means a Product that contains an IND-Ready Option Candidate Drug as an active ingredient. For purposes of clarity, an IND-Ready Option Product is also a Product.

1.154 “ Indemnification Claim Notice ” has the meaning set forth in Section 13.3.1.

1.155 “ Indemnified Party ” has the meaning set forth in Section 13.3.1.

1.156 “ Indemnifying Party ” has the meaning set forth in Section 13.3.1.

1.157 “ Indemnitees ” has the meaning set forth in Section 13.3.1.

1.158 “ Indirect Taxes ” means value added taxes, sales taxes, consumption taxes and other similar taxes.

1.159 “ Infringement ” has the meaning set forth in Section 10.2.1(a).

1.160 “ Infringement Notice ” has the meaning set forth in Section 10.2.1(a).

 

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1.161 “ Initiation ” means, with respect to a Clinical Trial, the first date that a properly enrolled subject is dosed in such Clinical Trial in accordance with the applicable protocol. “Initiate” shall be interpreted accordingly.

1.162 “ In-License Agreements ” has the meaning set forth in Section 12.2.1.

1.163 “ In-Licensed Patent Rights ” has the meaning set forth in Section 12.2.1.

1.164 “ Ispronicline ” means (2S)-(4E)-N-methyl-5-(5-isopropoxy-3-pyridyl)-4-pentene-2-amine, identified by the compound structure set forth in Schedule 1.164 and also identified as TC-1734 in [********] , including any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof.

1.165 “ Ispronicline Product ” means any Product that contains Ispronicline as an active ingredient. For purposes of clarity, an Ispronicline Product is also a Product.

1.166 “ Joint Development Committee ” or “ JDC ” means the committee comprised of Targacept and AstraZeneca representatives established pursuant to Section 2.3.

1.167 “ Joint Patent Rights ” has the meaning set forth in Section 9.1.3.

1.168 “ Joint Research Committee ” or “ JRC ” means the committee comprised of Targacept and AstraZeneca representatives established pursuant to Section 2.2.

1.169 “ Joint Technology ” has the meaning set forth in Section 9.1.3.

1.170 “ Joint Terminated Compound Patent Rights ” means any Joint Patent Rights that contain one or more claims Known by the Parties to solely cover one or more Terminated Compounds, or the Exploitation thereof.

1.171 “ Knowledge ” means, with respect to a Party, the good faith understanding of the facts and information in the possession of an officer of such Party or any of its Affiliates, or any in-house legal counsel of, or in-house Patent agents employed by, such Party or any of its Affiliates, without any duty to conduct any additional investigation with respect to such facts and information by reason of the execution of this Agreement. For purposes of this definition, an

 

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“officer” means any person in the position of vice president, senior vice president, president or chief executive officer, or any person having similar responsibilities, of a Party or any of its Affiliates. “Known” shall be interpreted accordingly.

1.172 “ Label Expansion ” means, with respect to each Product for which Regulatory Approval for a Primary Indication or Schizophrenia is obtained in a particular country or region in the Territory, Regulatory Approval for a change or supplement to such Product’s approved labeling in such country or region (a) to reflect [********] of, or [********] for, such Product or to reflect that such Product is [********] or for [********] and (b) that does not result in such approved labeling, as changed or supplemented, constituting (i) a separate Primary Indication or Small Market Indication or (ii) if the Regulatory Approval was for an indication other than Schizophrenia, Schizophrenia.

1.173 “ Lead Collaboration Compound ” means each Active+ Compound that is selected by the JRC or AstraZeneca as a Lead Collaboration Compound during the Research Program Term or the Tail Period, including any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof. Notwithstanding anything in this Agreement to the contrary, in no event shall a Licensed Derivative with respect to Ispronicline be a Lead Collaboration Compound unless AstraZeneca designates it as a Lead Collaboration Compound pursuant to Section 4.3.3. For purposes of clarity, Ispronicline is not a Lead Collaboration Compound and, except as provided in the preceding sentence, Licensed Derivatives with respect to Ispronicline, even if Derived during the Research Program Term or the Tail Period, are not Lead Collaboration Compounds.

1.174 “ Lead Collaboration Compound Designation ” has the meaning set forth in Section 4.7.1.

1.175 “ Licensed Derivative ” means (a) with respect to Ispronicline, a Lead Collaboration Compound, a Related Collaboration Compound, an IND-Ready Option Candidate Drug or a POC Option Candidate Drug or a Product or Option Compound Product that contains any of the foregoing, any compound Derived therefrom by or on behalf of AstraZeneca with the use of any AstraZeneca Research Program Technology or Targacept Technology that is either:

(1) an Additional Compound with respect to such Collaboration Compound, Candidate Drug or Product; or

 

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(2) a compound that would be an Additional Compound with respect to such Collaboration Compound, Candidate Drug or Product if it met the criteria set forth in Section 1.9(a)(ii), Section 1.9(b)(ii), Section 1.9(c)(ii), or Section 1.9(d)(ii), as applicable, unless: (x) the failure to meet such criteria is a result of [********] where an objective thereof, in whole or in part, was to [********] (A)  [********] , if such Collaboration Compound, Candidate Drug or Product is an Alpha4Beta2 Agonist, (B) the Alpha7 NNR, if such Collaboration Compound, Candidate Drug or Product is a Selective Alpha7 Compound, (C) the Alpha4Beta2 NNR or the Alpha7 NNR, if such Collaboration Compound, Candidate Drug or Product is a Dual Pharmacology Compound or (D) the NNR (other than the Alpha4Beta2 NNR and the Alpha7 NNR) that is principally responsible for the cholinergic activity of such Collaboration Compound, Candidate Drug or Product, if such Collaboration Compound, Candidate Drug or Product is an Other NNR Compound; or (y) Targacept exclusively Controls a Patent Right that specifically sets forth the [********] in a claim covering the [********] of such compound or a [********] comprising such compound (each, a “ Species Claim ”), with an earlier priority date than any Patent Right with a Species Claim with respect to such compound that is Controlled by AstraZeneca; provided that, for purposes of the foregoing, if in an interference proceeding in the United States between patents or patent applications of Targacept and AstraZeneca or their respective Affiliates, a Party or any of its Affiliates is determined to be the first to invent such compound individually (and not solely [********] ), then such Party shall be deemed to have the earlier priority date;

or (b) any enantiomer, metabolite or Prodrug of any Collaboration Compound, Candidate Drug or Product. For purposes of clarity, and notwithstanding anything to the contrary herein, with respect to each Collaboration Compound that becomes a Terminated Compound prior to the end of the Tail Period (or, if later, the resolution of any dispute pursuant to Section 4.3.2 or as provided in Section 4.9), all Licensed Derivatives thereof shall, as of the date on which such Collaboration Compound becomes a Terminated Compound, be Terminated Compounds (unless, with respect to any such Licensed Derivative, such Licensed Derivative is also a Lead

 

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Collaboration Compound or is a Related Collaboration Compound with respect to a Lead Collaboration Compound that has not been terminated).

1.176 “ Losses ” has the meaning set forth in Section 13.1.

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

1.178 “ Major Market European Country ” each of the United Kingdom, Germany, Spain, France and Italy.

1.179 “ Major Metabolite ” means, with respect to any compound, a metabolite of such compound that: (a) is identified using the metabolic profiling procedures set forth below in [********] ; and (b) accounts for [********] or more of such compound administered to either of the [********] using such metabolic profiling procedures on a [********] basis. For purposes of this definition, metabolic profiling procedures shall, unless otherwise agreed by the Parties, mean [********] performed in approximately [********] with the [********] by adding [********] . [********] shall be used as [********] for [********] to assess the [********] . Test compound will be tested at [********] final concentration and samples will be stored below approximately [********] until analyzed.

1.180 “ Material Unexpected Technical Development Problem ” has the meaning set forth in Section 5.5.2.

1.181 “ Material Unexpected Technical Research Problem ” has the meaning set forth in Section 4.4.1.

1.182 “ MCI ” means (a) mild cognitive impairment, a condition in which persons experience memory impairment as compared with persons of substantially the same age and education that is not accompanied by substantial impairment in normal activities of daily living or in thinking or reasoning skills and is not otherwise part of a pathological illness or other separately defined medical condition (such as, by way of example only, Dementia, delirium, stroke, inflammatory brain disease, depression or a history of alcohol or psychotropic drug use) unless and until (b) mild cognitive impairment becomes included in DSM-IV, ICD-10 or any

 

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other Diagnostic Manual in any country in the Territory or becomes recognized as a distinct diagnosable condition by general consensus in the applicable medical community in any country in the Territory, or a product receives Product Regulatory Approval from the applicable Regulatory Authority in any country for MCI, in each case after the Execution Date, in which case, a condition with the diagnostic characteristics included in DSM-IV, ICD-10 or any other Diagnostic Manual or as recognized by the medical community in such country or such Regulatory Authority, as applicable, from time to time. For purposes of clarity, in the event that, notwithstanding the foregoing, the condition known as mild cognitive impairment on the Execution Date becomes included in DSM-IV, ICD-10 or any other Diagnostic Manual in any country in the Territory or becomes recognized as a distinct diagnosable condition by general consensus in the applicable medical community in any country in the Territory, or a product receives Product Regulatory Approval from the applicable Regulatory Authority in any country for mild cognitive impairment after the Execution Date by another name (including mild or early AD), then, for purposes of this Agreement, MCI shall mean such named condition.

1.183 “ Milestone-Bearing Licensed Derivative ” has the meaning set forth in Section 6.5.1(a).

1.184 “ Minimum Binding Affinity ” means, with respect to any compound, (a) binding affinity (Ki) for (i) the Alpha4Beta2 NNR that is [********] and (ii) the [********] that is [********] , and (b)  [********] , in each case within the margins of error for the applicable assays, as such criteria may be amended from time to time in any Annual Research Plan.

1.185 “ NDA ” means a New Drug Application as defined in the FDCA and regulations promulgated thereunder or any successor application or procedure required to sell a Product in the United States.

1.186 “ Net Sales ” means the gross invoiced amount on sales of Products or Other Licensed Products by AstraZeneca or any of its Affiliates or Sublicensees (or sales of Royalty-Bearing Products or Royalty-Bearing Terminated AZ Products by Targacept or any of its Affiliates or Sublicensees) to Third Parties (including Distributors) after deduction of (a) normal and customary trade, quantity or prompt settlement discounts (including chargebacks and allowances) actually allowed; (b) amounts repaid or credited by reason of rejection, returns or

 

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recalls of goods, rebates or bona fide price reductions determined by AstraZeneca or its Affiliates (or, in the case of Royalty-Bearing Products or Royalty-Bearing Terminated AZ Products, by Targacept or its Affiliates) in good faith; (c) rebates and similar payments made with respect to sales paid for by any governmental or regulatory authority such as, by way of illustration and not in limitation of the Parties’ rights hereunder, federal or state Medicaid, Medicare or similar state program in the United States or equivalent governmental program in any other country; (d)  [********] ; (e)  [********] ; and (f)  [********] .

AstraZeneca Net Sales shall be calculated using AstraZeneca’s internal audited systems used to report such sales as adjusted for any of items (a) to (f) (inclusive) above not taken into account in such systems. Deductions pursuant to clause (d) in the preceding paragraph shall [********] .

In the case of pharmacy incentive programs, hospital performance incentive program chargebacks, disease management programs, similar programs or discounts on “bundles” of products, all discounts and the like shall be allocated among products on the basis on which such discounts and the like were actually granted or, if such basis cannot be determined, in proportion to the respective list prices of such products.

In the event that a Product (or, with respect to Targacept, a Royalty-Bearing Product or Royalty-Bearing Terminated AZ Product or, with respect to AstraZeneca, an Other Licensed Product) is sold in any country in the form of a Combination Product, Net Sales of such Combination Product shall be adjusted by multiplying actual Net Sales of such Combination Product in such country calculated pursuant to the first paragraph of this Section by the fraction A/(A+B), where A is the average invoice price in such country of the Product(s) that contains only the Candidate Drug(s) that is contained in the Combination Product (or, with respect to Targacept, the Royalty-Bearing Product(s) that contains only the Royalty-Bearing Terminated Compound(s) that is contained in the Combination Product or the Royalty-Bearing Terminated AZ Product(s) that contains only the Terminated AZ Compound(s) that is contained in the Combination Product or, with respect to AstraZeneca, the Other Licensed Product(s) that contains only the Other Licensed Compound(s) that is contained in the Combination Product), if sold separately in such country, and B is the average invoice price in such country of product(s) that contains solely each other active ingredient in the Combination Product. If any of such Product(s) (or Royalty-Bearing

 

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Product(s), Terminated AZ Product(s) or Other Licensed Product(s)) or product containing other active ingredients in the Combination Product are not sold separately in a particular country, the Parties shall negotiate in good faith a reasonable adjustment to Net Sales in such country that takes into account the medical contribution to the Combination Product of, and all other factors reasonably relevant to the relative value of, the Candidate Drug(s) (or the Royalty-Bearing Terminated Compound(s), Terminated AZ Compound(s) or Other Licensed Compound(s)), on the one hand, and all of the other active ingredients, collectively, on the other hand; provided that [********] .

For purposes of the preceding paragraph, the invoice price in a country for each Product (and Royalty-Bearing Product, Royalty-Bearing Terminated AZ Product or Other Licensed Product) and each product that contains solely active ingredients other than the Candidate Drug (or Royalty-Bearing Terminated Compound, Royalty-Bearing Terminated AZ Compound or Other Licensed Compound) included in the Combination Product shall be for a quantity comparable to that used in such Combination Product and of substantially the same class, purity and potency.

If a product (including a Product or an Other Licensed Product) sold by AstraZeneca or its Affiliates or Sublicensees contains more than one Candidate Drug or Other Licensed Compound (where such Candidate Drugs and Other Licensed Compounds are [********] ( e.g. , a product that contains more than one of Ispronicline, a Collaboration Compound, an Option Compound Candidate Drug, a Licensed Derivative with respect to any of the foregoing or an Other Licensed Compound)), then [********] .

For purposes of clarity, none of (i) use of any Product, Other Licensed Product or Royalty-Bearing Product or Royalty-Bearing Terminated AZ Product in Clinical Trials, pre-clinical studies or other research or development activities, or disposal or transfer of Products for purposes of sampling programs or for charitable, manufacturing, testing or qualification, regulatory or governmental purposes, (ii) sales of Product or Other Licensed Product (or Royalty-Bearing Product or Royalty-Bearing Terminated AZ Product) that is (A)  [********] and (B)  [********] , (iii) sales on a treatment IND, named patient or compassionate use or other similar basis or (iv) sales between or among a Party or its Affiliates or Sublicensees (unless the purchasing Affiliate or Sublicensee is the last entity in the distribution chain for the Product or

 

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Other Licensed Product and is purchasing it for its own commercial use), shall give rise to any Net Sales.

1.187 “ Newly-Defined Cognitive Disorder ” means any indication or condition: (a) that is not a Primary Indication, Schizophrenia or Small Market Indication on the Execution Date; (b) that is not an Associated Cognitive Impairment; (c) that is, as of the Execution Date, neither included in DSM-IV or ICD-10 nor recognized as a distinct diagnosable condition by general consensus in the medical community in the United States or Europe, and for which no product has received Product Regulatory Approval from the FDA in the United States or the EMEA in Europe prior to the Execution Date; (d) that either becomes included in DSM-IV, ICD-10 or any other Diagnostic Manual in a Major Market Country during the Term, becomes recognized as a distinct diagnosable condition by general consensus in the applicable medical community in a Major Market Country during the Term or for which a product receives Product Regulatory Approval from the applicable Regulatory Authority in a Major Market Country during the Term; (e) for which the diagnosis requires a finding of Cognitive Impairment; and (f) that [********] , as a Newly-Defined Cognitive Disorder. For purposes of clarity, a Newly-Defined Cognitive Disorder [********] shall apply throughout the Territory, even if such Newly-Defined Cognitive Disorder is not included in DSM-IV, ICD-10 or any other Diagnostic Manual in all Major Market Countries, is not recognized as a distinct diagnosable condition by general consensus in the applicable medical community in all Major Market Countries or a product has not received Product Regulatory Approval for Associated Cognitive Impairment from the applicable Regulatory Authority in all Major Market Countries.

1.188 “ Next Clinical Trial ” means the first Phase II Clinical Trial or Phase III Clinical Trial for a compound or product for an indication Initiated after the Achievement of Proof of Concept for such compound or product for such indication, except that, if Achievement of Proof of Concept for a compound or product for an indication is demonstrated by the [********] Clinical Trial (and not by achievement of [********] in a [********] Clinical Trial), “Next Clinical Trial” shall instead mean that Phase III Clinical Trial.

1.189 “ NNR ” means a neuronal nicotinic (acetylcholine) receptor subtype.

1.190 “ Non-Defaulting Party ” has the meaning set forth in Section 11.2.4.

 

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1.191 “ Notice Date ” has the meaning set forth in Section 3.3.2.

1.192 [********]

1.193 “ Obligation Expiration Date ” means the date, after the expiration of the last royalty obligation pursuant to Section 6.6.1 with respect to the first Product (other than an Option Compound Product that contains an Option Compound Candidate Drug, unless pursuant to Section 5.5.1(c) such Option Compound Candidate Drug is sufficient to satisfy AstraZeneca’s diligence obligation set forth in Section 5.5.1(b)) for which the First Commercial Sale occurs (or, if earlier, another Product for which the First Commercial Sale occurs), on which AstraZeneca is no longer using Commercially Reasonable Efforts to conduct research, development or commercialization activities with respect to at least one (1) Candidate Drug or Product for at least one (1) indication in the Field or in Schizophrenia.

1.194 “ Ongoing Ispronicline Trial ” means the Phase II Clinical Trial of Ispronicline in AAMI sponsored by Targacept that is ongoing as of the Execution Date (Protocol TC-1734-112-CRD-004).

1.195 “ Option ” means, with respect to each Option Compound, the IND-Ready Option or the POC Option.

1.196 “ Option Compound ” means during the Option Term (and, if an IND-Ready Option Period or POC Option Period begins during the Option Term and has not expired as of the last day of the Option Term, thereafter until the last day of such IND-Ready Option Period or POC Option Period), any Secondary Pharmacology Compound or Other NNR Compound on which Targacept conducts research or development activities specifically for use in the Territory in the Field or, prior to the Schizophrenia Expiration Date, Schizophrenia and elects, in its sole discretion, to designate as an Option Compound. For purposes of clarity, (a) an Alpha4Beta2 Agonist shall not be an Option Compound, (b) an Unexercised Option Compound shall, upon becoming an Unexercised Option Compound, cease to be an Option Compound, (c) a Terminated Compound that was previously an Option Compound shall, upon becoming a Terminated Compound, cease to be an Option Compound and (d) an Excluded Zone Compound shall not be an Option Compound.

 

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1.197 “ Option Compound Candidate Drug ” means each (a) IND-Ready Option Candidate Drug, (b) POC Option Candidate Drug and (c) each Licensed Derivative with respect to any such IND-Ready Option Candidate Drug or POC Option Candidate Drug made by or on behalf of AstraZeneca or any of its Affiliates or Sublicensees and (d) in each case ((a) through (c)), any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof.

1.198 “ Option Compound Development Plan ” means, with respect to each Option Compound for which AstraZeneca pays the Option Maintenance Fee set forth in Section 6.3, the written plan prepared jointly by Targacept and AstraZeneca pursuant to Section 5.10.2(b)(3) that describes in detail the development activities to be carried out by Targacept with respect to such Option Compound, as may be amended from time to time by mutual written agreement of the Parties in accordance with the terms hereof. For purposes of clarity, a Targacept Option Compound Development Plan is not an Option Compound Development Plan.

1.199 “ Option Compound Development Plan Period ” has the meaning set forth in Section 5.10.2(b)(3).

1.200 “ Option Compound Product ” means any Product that contains an Option Compound Candidate Drug as an active ingredient.

1.201 “ Option Compound Profile ” means, with respect to any Option Compound for a particular Primary Indication or for Schizophrenia, the characteristics of such Option Compound that, when considered in the aggregate, would reasonably be considered predictive of the likelihood of the potential success or failure of such Option Compound as a pharmaceutical product for such Primary Indication or for Schizophrenia. For the avoidance of doubt, such characteristics may include safety, efficacy, potency, bioavailability, ease or cost of manufacture, and intellectual property protection.

1.202 “ Option Compound Proof of Concept ” means, with respect to an Option Compound, (a) the achievement of the standards or criteria identified as such in the Option Compound Development Plan (or in the Targacept Option Compound Development Plan) for such Option Compound at a dose range that is shown to be safe and tolerable in the patient group of interest and that is acceptable from each of a scientific, statistical, medical, regulatory and

 

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commercial perspective for the Option Indication specified (i) with respect to each Targacept Option Compound Development Plan, in the applicable IND-Ready Option Notice and (ii) with respect to each Option Compound Development Plan, in such plan; or (b) if Section 5.10.2(b)(5) applies, Achievement of Proof of Concept for such Option Compound.

1.203 “ Option Compound ROFN Notice ” has the meaning set forth in Section 5.10.2(e).

1.204 “ Option Compound ROFN Period ” has the meaning set forth in Section 5.10.2(e).

1.205 “ Option Exercise Fee ” has the meaning set forth in Section 6.2.

1.206 “ Option Indication ” means any Primary Indication or, prior to the Schizophrenia Expiration Date, Schizophrenia; provided , however , that in no event shall AAMI or MCI be an Option Indication until such time as AAMI or MCI, respectively, is included in DSM-IV, becomes recognized as a distinct diagnosable condition by general consensus in the medical community in the United States, or a product receives Product Regulatory Approval from the FDA in the United States for AAMI or MCI (as applicable).

1.207 “ Option Maintenance Notice ” has the meaning set forth in Section 5.10.2(b)(3).

1.208 “ Option Term ” means the period commencing on the Effective Date and ending on the earliest of: (i) date on which AstraZeneca Initiates a Clinical Trial for (a) any Alpha4Beta2 Agonist other than a Collaboration Compound, Candidate Drug, Product or Licensed Derivative with respect to any of the foregoing, (b) any Other NNR Compound that is not (i) a Candidate Drug, Product or Licensed Derivative with respect to any of the foregoing or (ii) an Option Compound for which AstraZeneca elects to assume and complete an Option Compound Development Plan pursuant to Section 5.10.2(b)(5) or (c) if AstraZeneca does not terminate this Agreement pursuant to Section 11.2.3, a product or compound that is the subject of a Competitive Program that AstraZeneca does not cease, or cause its relevant Affiliate to cease or divest, or cause its relevant Affiliate to divest (whether by license or otherwise) in accordance with Section 15.2.2 subsequent to a merger, consolidation or acquisition (including through a Change of Control), in each case ((a) through (c)) in the Field or, prior to the Schizophrenia

 

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Expiration Date, in Schizophrenia; (ii) the expiration of the Term; (iii) the effective date of termination of this Agreement in its entirety pursuant to Article 11; or (iv) the effective date of termination by Targacept pursuant to Section 11.2.5(a)(2). For purposes of clarity, Initiation of a Clinical Trial for a Secondary Pharmacology Compound shall not trigger the termination of the Option Term.

1.209 “ Other Licensed Compound ” means each (a) Licensed Derivative with respect to a Collaboration Compound, Candidate Drug or Product made after the applicable Restricted Derivative Period and (b) Additional Compound with respect to a Collaboration Compound, Candidate Drug or Product that is not a Licensed Derivative.

1.210 “ Other Licensed Product ” has the meaning set forth in Section 6.6.1(a)(3).

1.211 “ Other Licensed Product Royalty-Bearing Claim ” has the meaning set forth in Section 6.6.1(b)(2).

1.212 “ Other NNR Compound ” means any compound that acts through any Exclusivity Mechanism other than (a) an Alpha4Beta2 Agonist or (b) a Secondary Pharmacology Compound. For purposes of clarity, an Other NNR Compound may be (i) a Collaboration Candidate that does not meet Minimum Binding Affinity or a Licensed Derivative of any Collaboration Compound, Candidate Drug (other than an Option Compound Candidate Drug) or Product (other than an Option Compound Product) that is not itself an Alpha4Beta2 Agonist or (ii) an Option Compound Candidate Drug (or Option Compound Product) that is not itself a Selective Alpha7 Compound or a Dual Pharmacology Compound but was Derived from an Option Compound Candidate Drug (or Option Compound Product) that was a Selective Alpha7 Compound or a Dual Pharmacology Compound or (iii) an Option Compound that acts through any Exclusivity Mechanism other than the Alpha4Beta2 NNR or the Alpha7 NNR, in each case ((i), (ii) and (iii)) to the extent such compound is not an Alpha4Beta2 Agonist or Secondary Pharmacology Compound.

1.213 “ Owned Patent Rights ” has the meaning set forth in Section 12.2.1.

1.214 “ Partially-Terminated Product ” means any Candidate Drug or Product (but for clarity, not an Other Licensed Compound or an Other Licensed Product) that is terminated by

 

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Targacept pursuant to Section 11.2.5(b) or Section 11.2.5(c) in one or more Major Market Countries in the Territory, but as to which AstraZeneca retains rights in other countries in the Territory.

1.215 “ Partially-Terminated Product Territory ” means, with respect to each Partially-Terminated Product, the Territory, but excluding all Major Market Countries in which such Partially-Terminated Product becomes terminated pursuant to Section 11.2.5(b) or Section 11.2.5(c).

1.216 “ Party ” or “ Parties ” has the meaning set forth in the preamble.

1.217 “ Patent Coordinator ” has the meaning set forth in Section 9.2.

1.218 “ Patent Rights ” means the rights and interests in and to issued patents and pending patent applications (which, for purposes of this Agreement, include certificates of invention, applications for certificates of invention and priority rights) in any country, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, all letters patent granted thereon, and all reissues, reexaminations and extensions thereof, and all foreign counterparts of any of the foregoing.

1.219 “ Payments ” has the meaning set forth in Section 6.6.4.

1.220 “ Pentad Technology ” means proprietary know-how of Targacept or any of its Affiliates concerning structure activity relationships of compounds and NNRs (generally and without regard to a specific Collaboration Candidate, Active+ Compound, Collaboration Compound, Candidate Drug, Product or Additional Compound (or any Additional Product) with respect to any of the foregoing), pharmacophore mapping of NNRs and computational and quantum mechanical methods for use in the design, synthesis and evaluation of compounds.

1.221 “ Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, incorporated association, joint venture or similar entity or organization, including a government or political subdivision, department or agency of a government.

 

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1.222 “ Phase I Clinical Trial ” means a human clinical trial conducted in accordance with Applicable Laws in any country or countries that is designed, either alone or together with one or more other human clinical trials conducted in any country or countries, to obtain sufficient data of safety, metabolism and pharmacokinetic properties and clinical pharmacology to permit Initiation of a Phase II Clinical Trial, as described in or contemplated by 21 C.F.R. § 312.21(a), as may be amended from time to time, or other Applicable Laws.

1.223 “ Phase II Clinical Trial ” means a human clinical trial conducted in accordance with Applicable Laws in any country or countries in subjects with a particular disease or condition for which a primary endpoint is a preliminary determination of efficacy or dose ranges in patients with the disease target being studied, as described in or contemplated by 21 C.F.R. §312.21(b), as may be amended from time to time, or other Applicable Laws.

1.224 “ Phase III Clinical Trial ” means a human clinical trial conducted in accordance with Applicable Laws in any country or countries in subjects with a particular disease or condition the principal purpose of which is to establish safety and efficacy in patients with the disease target being studied as described in or contemplated by 21 C.F.R. §312.21(c), as may be amended from time to time, or other Applicable Laws, that is designed to obtain sufficient data to support the filing of an approvable Drug Approval Application in a Major Market Country.

1.225 “ POC Notice ” has the meaning set forth in Section 5.10.2(d).

1.226 “ POC Option ” has the meaning set forth in Section 5.10.2(d).

1.227 “ POC Option Candidate Drug ” means an Option Compound for which AstraZeneca exercises a POC Option. For purposes of clarity, a POC Option Candidate Drug is also a Candidate Drug.

1.228 “ POC Option Period ” has the meaning set forth in Section 5.10.2(d).

1.229 “ POC Option Product ” means a Product that contains a POC Option Candidate Drug as an active ingredient. For purposes of clarity, a POC Option Product is also a Product.

1.230 “ Potential Option Compound ” has the meaning set forth in Section 5.10.2(a).

 

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1.231 “ Potential Option Indication ” has the meaning set forth in Section 5.10.2(a).

1.232 “ Pre-IND Studies ” has the meaning set forth in Section 5.10.2(a).

1.233 “ Preliminary IND Notice ” has the meaning set forth in Section 5.10.2(a).

1.234 “ Pre-Phase IIb Period ” means the period commencing on the Effective Date and ending on (a) the Commencement Date or (b) if there is no Commencement Date, the Sunset Date or if, subject to Section 3.3.2(b), neither Party terminates this Agreement in accordance with Section 11.2.1, the first date on which neither Party has the right to terminate this Agreement pursuant to Section 11.2.1, whichever is later.

1.235 “ Pre-Phase IIb Plan ” means the written plan agreed upon as such by the Parties as of the Execution Date.

1.236 “ Pre-Phase IIb Program ” means the non-clinical and clinical development program as set forth in the Pre-Phase IIb Plan.

1.237 “ Pre-Phase IIb Program Technology ” means, collectively, Targacept Pre-Phase IIb Program Technology (if any), AstraZeneca Pre-Phase IIb Program Technology and, if made, developed or conceived in the conduct of the Pre-Phase IIb Program, Joint Technology.

1.238 “ Primary Indication ” means each of AD, MCI, AAMI, CDS, ADHD, each Newly-Defined Cognitive Disorder that is not a Small Market Indication, each Associated Cognitive Impairment that is not a Small Market Indication, each Additional Primary Indication, and each of (a) Dementia due to general medical conditions (including Dementia with Lewy Bodies), (b) substance induced Dementia and (c) Dementia due to multiple etiologies, in each case ((a), (b) and (c)) if not a Small Market Indication. For purposes of clarity, Schizophrenia is not a Primary Indication.

1.239 “ Principal Indication ” means with respect to (a) any IND-Ready Option Candidate Drug or IND-Ready Option Product, the Option Indication specified by AstraZeneca in the Product Development Plan for such Option Compound, and (b) any POC Option Candidate Drug or POC Option Product, the Option Indication specified in the Option

 

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Compound Development Plan, or if no such plan is agreed to by the Parties, the Targacept Option Compound Development Plan.

1.240 “ Prodrug ” means, with respect to a compound, a composition of matter that is designed to have such compound as its only primary Major Metabolite.

1.241 “ Product ” means a product that consists of or contains a Candidate Drug as an active ingredient.

1.242 “ Product Commercialization Plan ” means, with respect to a Product, the written plan for the Commercialization of such Product in the Territory (including expected manufacturing scale-up, manufacture, formulation and filling requirements for such Product and the overall strategy for Commercializing such Product), as such plan may be amended or updated from time to time in accordance with the terms of this Agreement.

1.243 “ Product Development Plan ” means, with respect to a Candidate Drug, the written plan for such Candidate Drug that describes (a) the overall strategy for Development of such Candidate Drug including the expected Regulatory Filings and Drug Approval Applications to be required and prepared and the expected timetable for completing such Development activities and making such Regulatory Filings and Drug Approval Applications, and (b) in reasonable detail any Targacept Development Activities to be carried out with respect to such Candidate Drug as such plan may be amended from time to time in accordance with the terms of this Agreement.

1.244 “ Product Regulatory Approval ” means, with respect to any product for an indication, the granting or approval of a Drug Approval Application by the applicable Regulatory Authority to market and sell such product for use in such indication in a country or region. For purposes of clarity, a Product Regulatory Approval shall not include pricing or reimbursement authority or approval.

1.245 “ Product Trademark ” means any Trademark, whether or not registered, or any trademark application or renewal, extension or modification thereof, in the Territory, including any trade dress and packaging, in each case (a) that are applied to or used solely in connection with one or more Candidate Drugs or Products by AstraZeneca and (b) together with all goodwill

 

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associated therewith and promotional materials relating thereto. For purposes of clarity, Product Trademarks shall not include any name or logo used by AstraZeneca or its Affiliates that is not product specific.

1.246 “ Proprietary Materials ” means tangible chemical, biological or physical materials that are furnished by or on behalf of one Party to the other Party in connection with this Agreement that are not generally available or accessible from other sources, whether or not specifically designated as proprietary by the transferring Party.

1.247 “ Regulatory Action Plan ” means the written plan to explore the feasibility of obtaining Regulatory Approval of Products to treat MCI and AAMI in the United States developed by AstraZeneca in consultation with Targacept pursuant to Section 5.8, as such plan may be amended by AstraZeneca in consultation with Targacept from time to time.

1.248 “ Regulatory Approval ” means, with respect to any country or region in the Territory, (a) any approval, product and establishment license, registration or authorization of any Regulatory Authority required for the manufacture, use, storage, importation, exportation, transport or sale of a product and (b) any pricing or reimbursement approval or authorization that is necessary or reasonably useful to sell such product, in each case ((a) and (b)), for use in an indication in such country or region. For purposes of clarity, “Regulatory Approval” for a product for an indication in a country or region shall include Commercialization Regulatory Approval for such product for such indication in such country or region.

1.249 “ Regulatory Authority ” means the FDA or any counterpart of the FDA outside the United States, or other national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity with authority over the distribution, importation, exportation, manufacture, production, use, storage, transport, clinical testing or sale of a product.

1.250 “ Regulatory Filings ” means (a) all applications, registrations, licenses, authorizations and approvals, including all Drug Approval Applications and Regulatory Approvals, INDs, establishment license applications, drug master files, applications for designation as an “Orphan Product(s)” under the Orphan Drug Act, for “Fast Track” status under

 

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Section 506 of the FDCA (21 U.S.C. § 356) or for a Special Protocol Assessment under Section 505(b)(4)(B) and (C) of the FDCA (21 U.S.C. § 355(b)(4)(B)) and all other similar filings (including counterparts of any of the foregoing in any country or region in the Territory); and (b) all supplements and amendments to any of the foregoing.

1.251 “ Related Collaboration Compound ” means, with respect to each Lead Collaboration Compound, any Collaboration Candidate that is an Additional Compound with respect to such Lead Collaboration Compound, including any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof.

1.252 “ Replacement Assay ” has the meaning set forth in Section 4.11.3.

1.253 “ Replacement Compound Designation ” has the meaning set forth in Section 4.7.1.

1.254 “ Replacement Expiration Date ” has the meaning set forth in Section 4.7.1.

1.255 “ Research Plan ” means the written plan agreed upon as such by the Parties as of the Execution Date that describes the research activities to be carried out in, and the objectives for, the research program to be conducted by the Parties during the Research Program Term, as may be amended from time to time in accordance with the terms of this Agreement.

1.256 “ Research Program ” means the research program to be conducted by the Parties during the Research Program Term pursuant to the Research Plan and the Annual Research Plans.

1.257 “ Research Program Tail Period ” means the eighteen (18)-month period beginning on the day after the last day of the Research Program Term; provided that, if and only if the entire Agreement is terminated by either Party pursuant to Section 11.2.1, by AstraZeneca pursuant to Section 11.2.3 or by Targacept pursuant to Section 11.2.4, or if the Research Program is terminated by AstraZeneca pursuant to Section 11.2.2(a) (and not Section 11.2.2(b)), the effective date of such termination shall be the last day of the Research Program Tail Period. For purposes of clarity, if the Research Program or this Agreement is terminated for any other reason, the Research Program Tail Period shall survive.

 

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1.258 “ Research Program Technology ” means, collectively, Targacept Research Program Technology, AstraZeneca Research Program Technology and, if made, developed or conceived in the conduct of the Research Program, Joint Technology.

1.259 “ Research Program Term ” has the meaning set forth in Section 4.1.2.

1.260 “ Research Project Team ” means a team established by the JRC pursuant to Section 2.2.5.

1.261 “ Research Workaround ” has the meaning set forth in Section 4.4.1.

1.262 “ Restricted Derivative Period ” means the period beginning as of the Effective Date and ending on (a) with respect to Ispronicline, the [********] of the [********] , (b) with respect to each Collaboration Compound, the [********] of the last day of [********] , (c) with respect each IND-Ready Option Candidate Drug, the [********] of the [********] for such Option Compound Candidate Drug and (d) with respect to each POC Option Candidate Drug, the [********] of the date [********] for such Option Compound Candidate Drug.

1.263 “ ROFN Collaboration ” means any transaction between Targacept or any of its Affiliates and a Third Party for the purpose of collaborating, or licensing such Third Party, to research, develop, commercialize or otherwise Exploit compounds or products for one or more ROFN Indications in the Territory, but excluding any transaction with (a) a Third Party involving (i) an agreement or arrangement (A) with a contract manufacturer solely to manufacture or (B) with a contract sales organization solely to promote products, (ii) any fee-for-service or sponsored research agreement or arrangement where Targacept retains rights to any resulting Technology or Patent Rights, or (iii) any other agreement or arrangement involving the payment to Targacept or any of its Affiliates of governmental research or grant funding or research or grant funding from a non-profit organization or (b)The Stanley Medical Research Institute.

1.264 “ ROFN Indication Opportunity ” has the meaning set forth in Section 5.10.3.

1.265 “ ROFN Indication Opportunity Notice ” has the meaning set forth in Section 5.10.3.

 

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1.266 “ ROFN Indications ” means the prevention or treatment in humans of: (a) any major depressive disorder or dysthymic disorder; (b) any of (i) generalized anxiety disorder, (ii) obsessive-compulsive disorder, (iii) panic disorder, (iv) post-traumatic stress disorder or (v) social phobia; or (c) any bipolar disorder, in each case based on diagnostic criteria included in DSM-IV, ICD-10 or any other Diagnostic Manual in a Major Market Country.

1.267 “ ROFN Notice ” has the meaning set forth in Section 5.10.3.

1.268 “ ROFN Notice Period ” has the meaning set forth in Section 5.10.3.

1.269 “ Royalty-Bearing Claim ” has the meaning set forth in Section 6.6.1(b)(1).

1.270 “ Royalty-Bearing Product ” has the meaning set forth in Section 11.4.1(a).

1.271 “ Royalty-Bearing Terminated Compound ” has the meaning set forth in Section 11.4.1(a).

1.272 “ Royalty-Bearing Terminated AZ Product ” has the meaning set forth in Section 11.4.1(b).

1.273 “ Sales -Based Milestones ” has the meaning set forth in Section 6.6.1(c).

1.274 “ Schizophrenia ” means a condition having the diagnostic criteria for schizophrenia identified in DSM-IV, ICD-10 or any other Diagnostic Manual, but excluding CDS. When used as reference to a field (as distinguished from an indication), Schizophrenia means the treatment, prevention or diagnosis of such a condition.

1.275 “ Schizophrenia Expiration Date ” means the date, if any, from and after which Schizophrenia is no longer eligible to be an Option Indication or Principal Indication as determined in accordance with Sections 5.10.2(b)(2) or 5.10.2(d)(2).

1.276 “ Secondary Pharmacology Compound ” means any Selective Alpha7 Compound or Dual Pharmacology Compound. For purposes of clarity, any compound or product Derived from a Secondary Pharmacology Compound is also a Secondary Pharmacology Compound.

 

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1.277 “ Selective Alpha7 Compound ” means a compound that [********] for the Alpha7 NNR that is at least [********] , including any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof.

1.278 “ Small Market Indication ” means each of the following: (a) Vascular Dementia; (b) Dementia due to HIV; (c) Dementia due to head trauma; (d) Dementia due to Parkinson’s disease; (e) Dementia due to Huntington’s disease; (f) Dementia due to Pick’s disease; and (g) Dementia due to Creutzfeldt-Jakob disease; (h) Dementia due to other general medical conditions (including Dementia with Lewy Bodies); (i) substance induced Dementia; (j) Dementia due to multiple etiologies; in each case ((a) through (j)) based on diagnostic criteria included in DSM-IV, ICD-10 or any other Diagnostic Manual; (k) any Newly-Defined Cognitive Disorder or Associated Cognitive Impairment; provided that, in the case of (h) through (k), only if such Dementia, Newly-Defined Cognitive Disorder or Associated Cognitive Impairment has a patient population in the United States of [********] based on the findings of such pharmaceutical market research organization(s) as AstraZeneca may designate from time to time with Targacept’s consent, not to be unreasonably withheld, conditioned or delayed; and (l) any Additional Small Market Indication. For purposes of clarity, Schizophrenia is not a Small Market Indication.

1.279 “ SMRI Agreement ” has the meaning set forth in Section 5.10.4.

1.280 “ sNDA ” means a Supplemental New Drug Application, as defined in the FDCA and applicable regulations promulgated thereunder.

1.281 “ Specified Personnel ” has the meaning set forth in Section 4.4.2.

1.282 [********]

1.283 “ Sublicensee ” means (a) with respect to AstraZeneca, any Third Party (other than an Affiliate or a Distributor) to which AstraZeneca grants a sublicense under the licenses granted under Section 8.1 in accordance with Section 8.3 or as otherwise permitted hereunder and (b) with respect to Targacept, any Third Party (other than an Affiliate) to which Targacept grants a sublicense under the licenses granted under Section 8.2.3 or as otherwise permitted hereunder.

 

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1.284 “ Sunset Date ” means the later of (a) fifteen (15) months after the Effective Date and (b) if any meeting(s) are requested by Targacept pursuant to Section 3.3.2, the Notice Date (as such term in defined in Section 3.3.2), or such later date as the Parties may agree in writing.

1.285 “ Tail Period ” means the period beginning on the last day of the Research Program Term and ending on (a) the last day of the Research Program Tail Period, (b) with respect to a Collaboration Candidate that is not a Fully Screened Collaboration Candidate as of the last day of the Research Program Tail Period because it fails to meet clause (b) or clause (c) of Section 1.138, the date on which such Collaboration Candidate becomes a Fully Screened Collaboration Candidate (if clause (c) of this Section 1.285 does not apply) or (c) with respect to any Collaboration Candidate or Active+ Compound that is (i) the subject of an Additional Research Program that continues after the Research Program Tail Period during the remainder of the Tail Period, or (ii) selected by AstraZeneca prior to the end of the Research Program Tail Period (or, in the case of a Collaboration Candidate that becomes a Fully Screened Collaboration Candidate or that is generated or identified in an Additional Research Program after the end of the Research Program Tail Period, prior to the end of the Tail Period) for additional research activities pursuant to Section 4.8 during the remainder of the Tail Period, in each case ((i) and (ii)) the ARP Selection Date, whichever is later; provided that if and only if the entire Agreement is terminated by either Party pursuant to Section 11.2.1, by AstraZeneca pursuant to Section 11.2.3 or by Targacept pursuant to Section 11.2.4, or if the Research Program is terminated by AstraZeneca pursuant to Section 11.2.2(a) (and not Section 11.2.2(b)), the effective date of such termination shall be the last day of the Tail Period. For purposes of clarity, if the Research Program or this Agreement is terminated for any other reason, the Tail Period shall survive.

1.286 “ Targacept ” has the meaning set forth in the preamble.

1.287 “ Targacept Change of Control Notice ” has the meaning set forth in Section 15.1.1.

1.288 “ Targacept Cure Period ” has the meaning set forth in Section 5.10.2(b)(4).

1.289 “ Targacept Development Activities ” means, collectively, (a) during the Research Program Term and any Additional Research Program Term only, [********] if, with

 

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respect to any of the foregoing, such activity is set forth in the Research Plan or an Annual Research Plan or Additional Research Plan and (b) such Development activities as may be specified to be conducted by Targacept in any Product Development Plan (or amendment thereto) approved by Targacept’s representatives and AstraZeneca’s representatives on the JDC or ESC (without resort to the dispute resolution procedures set forth in Section 2.1.5). For purposes of clarity, in no event shall any activity be a Targacept Development Activity unless Targacept’s representatives on the applicable Committee have approved the Targacept Development Budget for such activity.

1.290 “ Targacept Development Budget ” has the meaning set forth in Section 5.3.

1.291 “ Targacept Development Program Technology ” means any Technology made, developed or conceived by employees or consultants of Targacept, alone or jointly with Third Parties, in the conduct of any Development Program.

1.292 “ Targacept Excluded Patent Rights ” means, collectively, all Targacept Patent Rights that would not be infringed (and, with respect to any applications included in the Patent Rights, that if issued would not be infringed) by the Exploitation of any Collaboration Candidate, Active+ Compound, Collaboration Compound, Candidate Drug or Product or any Additional Compound (or Additional Product) with respect to any of the foregoing in the Field or in Schizophrenia by a Third Party in the absence of a license.

1.293 “ Targacept Indemnitees ” has the meaning set forth in Section 13.2.

1.294 “ Targacept Net Sales ” means Net Sales by Targacept and its Affiliates and Sublicensees.

1.295 “ Targacept Option Compound Development Plan ” means a written plan prepared by Targacept in accordance with Section 5.10.2(b)(6) that describes in detail the development activities that Targacept may, in its sole election, carry out in an effort to establish Option Compound Proof of Concept for an Option Compound for which the Parties did not agree to an Option Compound Development Plan.

 

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1.296 “ Targacept Other Technology ” means any Technology Controlled by Targacept that is necessary or reasonably useful for (a) the conduct of the Research Program or any Additional Research Program by the Parties and (b) AstraZeneca to Exploit any Collaboration Compound, Candidate Drug or Product, or any Additional Compound or Additional Product with respect to any of the foregoing, including Ispronicline or any Ispronicline Product; provided that Targacept Other Technology excludes Targacept Pre-Phase IIb Program Technology, Targacept Research Program Technology, Targacept Development Program Technology and AstraZeneca Assigned Technology.

1.297 “ Targacept Patent Rights ” means any Patent Rights Controlled by Targacept or its Affiliates that contain one or more claims that cover (a) Targacept Technology, (b) any (i) Collaboration Candidate, Active+ Compound, Collaboration Compound, Candidate Drug or Product, (ii) Additional Compound or Derivative with respect to any of the foregoing, or (iii) product that contains any of the foregoing (including any Additional Product) or (c) the Exploitation of any of the foregoing ((a) and (b)) in the Field or in Schizophrenia.

1.298 “ Targacept Plan POC Notice ” has the meaning set forth in Section 5.10.2(f).

1.299 “ Targacept Pre-Phase IIb Program Technology ” means any Technology made, developed or conceived by employees or consultants of Targacept, alone or jointly with Third Parties, in the conduct of the Pre-Phase IIb Program.

1.300 “ Targacept Product Patent Rights ” means any Targacept Patent Rights that (a) contain one or more claims that cover one or more Collaboration Compounds, Candidate Drugs or Products (including Option Compound Candidate Drugs and Option Compound Products) or Additional Compounds or Additional Products with respect to any of the foregoing, or the Exploitation of one or more Collaboration Compounds, Candidate Drugs or Products (including Option Compound Candidate Drugs and Option Compound Products) or Additional Compounds or Additional Products with respect to any of the foregoing, and (b) do not contain any claims that cover any Compound, or the Exploitation of any Compound, that is Known by Targacept not to be a Collaboration Compound, Candidate Drug or Product (including any Option Compound Candidate Drug and Option Compound Product) or an Additional Compound or Additional Product with respect to any of the foregoing.

 

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1.301 “ Targacept Proposal ” has the meaning set forth in Section 5.10.2(e)(3).

1.302 “ Targacept Proprietary Materials ” means any Proprietary Materials Controlled by Targacept and used by Targacept, or provided by Targacept for use, in the Pre-Phase IIb Program, the Research Program, any Additional Research Program or any Development Program.

1.303 “ Targacept Research Budget ” has the meaning set forth in Section 4.2.

1.304 “ Targacept Research Program Technology ” means any Technology made, developed or conceived by employees or consultants of Targacept, alone or jointly with Third Parties, in the conduct of the Research Program or any Additional Research Program.

1.305 “ Targacept Technology ” means, collectively, Targacept Pre-Phase IIb Program Technology, Targacept Research Program Technology, Targacept Development Program Technology, Targacept Other Technology and AstraZeneca Assigned Technology.

1.306 “ Technology ” means, collectively, inventions, discoveries, improvements, trade secrets and proprietary methods, whether or not patentable (including: (a) methods of production or use of, and structural and functional information pertaining to, compounds and (b) data, formulations, processes, techniques, know-how and results (including any negative results)) that are not generally known; provided that Pentad Technology shall not be Technology.

1.307 “ Term ” has the meaning set forth in Section 11.1.

1.308 “ Terminated AZ Compound ” means each of (a) Ispronicline, if Ispronicline becomes a Terminated Compound other than pursuant to Section 3.3.2(b)(2) or Section 11.2.1 ( provided that, if Ispronicline becomes a Terminated Compound pursuant to Section 3.3.2(b)(2) or Section 11.2.1, it shall, notwithstanding the foregoing, be treated as a Terminated AZ Compound for purposes of Section 11.3.6(c)(i)), (b) any Option Compound Candidate Drug or Option Compound Product (other than an Other Licensed Compound or a product that contains an Other Licensed Compound) that becomes a Terminated Compound at any time (other than pursuant to Section 5.10.2(b)(4), 5.10.2(b)(5), 5.10.2(b)(6), 5.10.2(e)(2) or 5.10.2(f)), and (c) any other Candidate Drug or Product (other than an Other Licensed Compound or a product that

 

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contains an Other Licensed Compound) that becomes a Terminated Compound (i) after the end of the Research Program and the Tail Period or (ii) earlier pursuant to Section 11.2.4 (solely if Targacept terminates this Agreement pursuant thereto), 11.2.5(a) and 11.2.6 (solely if Targacept terminates this Agreement pursuant thereto). For purposes of clarity, each Terminated AZ Compound is also a Terminated Compound, and any Candidate Drug (other than Ispronicline or an Option Compound Candidate Drug), or Product that contains any such Candidate Drug (other than an Ispronicline Product or an Option Compound Product), that becomes a Terminated Compound during the Research Program Term or the Tail Period (other than pursuant to Section 11.2.4 (solely if Targacept terminates this Agreement pursuant thereto), 11.2.5(a) and 11.2.6 (solely if Targacept terminates this Agreement pursuant thereto) shall be a Terminated Compound but not a Terminated AZ Compound. For purposes of clarity, a Partially-Terminated Product shall not be a Terminated AZ Compound.

1.309 “ Terminated Compounds ” means, subject to Section 4.9, collectively:

(a) (i) all Collaboration Candidates that during the Research Program Term are classified as Terminated Compounds by the JRC, (ii) all Fully Screened Collaboration Candidates that as of the end of the Research Program Term are not determined by the JRC or AstraZeneca to be Active+ Compounds, and (iii) each Unscreened Collaboration Candidate that, as of the later of the end of the Research Program Term and the [********] after the date that AstraZeneca has received all screening data and analyses generated in the Research Program for such Unscreened Collaboration Candidate, is not selected by AstraZeneca for additional research activities pursuant to Section 4.8;

(b) all (i) Collaboration Candidates that, during the Research Program Tail Period, are classified as Terminated Compounds by the JRC, and (ii) Fully Screened Collaboration Candidates that within [********] after the applicable meeting of the JRC (A) are not determined by the JRC or AstraZeneca to be Active+ Compounds and (B) are not selected by AstraZeneca for additional research activities pursuant to Section 4.8 during the remainder of the Tail Period;

(c) all Active+ Compounds and other Collaboration Candidates that, as of the end of the Research Program Tail Period, are not (i) designated as Lead Collaboration

 

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Compounds (and are not Related Collaboration Compounds with respect to a Lead Collaboration Compound), (ii) the subject of an Additional Research Program that continues after the Research Program Tail Period during the remainder of the Tail Period, or (iii) selected by AstraZeneca prior to the end of the Research Program Tail Period (or, in the case of a Collaboration Candidate that becomes a Fully Screened Collaboration Candidate or that is generated or identified in an Additional Research Program after the end of the Research Program Tail Period, prior to the end of the Tail Period) for additional research activities pursuant to Section 4.8 during the remainder of the Tail Period;

(d) all Active+ Compounds and other Collaboration Candidates that are not designated as Lead Collaboration Compounds (and are not Related Collaboration Compounds with respect to a Lead Collaboration Compound) as of the end of the Tail Period (or, if later, the resolution of any dispute pursuant to Section 4.3.2 or as provided in Section 4.9);

(e) all Lead Collaboration Compounds that are replaced in the Collaboration Compound Pool pursuant to Section 4.7.1 after the end of the Research Program Tail Period, unless any such replaced Lead Collaboration Compound (or any Related Collaboration Compound with respect thereto) is a Related Collaboration Compound with respect to another Lead Collaboration Compound, in which case such compound shall be or remain a Related Collaboration Compound;

(f) all Option Compounds that become Terminated Compounds pursuant to Section 5.10.2;

(g) each Excluded Derivative as of the date it is determined to be an Excluded Derivative; and

(h) all other compounds or products expressly identified as a Terminated Compound pursuant to Section 2.2.4(l), 2.2.4(n), 3.3.2(b)(2), 4.3.2, 11.2.2(a), 11.3.1(a), 11.3.1(g), 11.3.2(a) and 11.3.3(a) of this Agreement;

including in each case ((a) through (h)), any salt form, polymorph, crystalline form, hydrate, solvate or formulation thereof.

 

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Notwithstanding anything in this Agreement to the contrary, in no event shall (i) a Collaboration Candidate, Active+ Compound, Collaboration Compound, Candidate Drug or Product that would not be a Terminated AZ Compound (or a product that contains a Terminated AZ Compound) be or remain a Terminated Compound if it is or becomes (as a result of a subsequent designation of a Collaboration Compound or Candidate Drug) an Additional Compound with respect to a Collaboration Compound, Candidate Drug or Product that is not a Terminated Compound, (ii) an Excluded Zone Compound be or remain a Terminated Compound, unless such Excluded Zone Compound is or would be a Terminated AZ Compound or (iii) a Licensed Derivative with respect to Ispronicline become a Terminated Compound pursuant to clauses (a) through (e) of this Section 1.309.

For purposes of clarity, a Partially-Terminated Product is not a Terminated Compound.

1.310 “ Terminated Efforts Test ” has the meaning set forth in Section 11.2.7(a).

1.311 “ Territory ” means all countries of the world, but excluding, solely with respect to each Partially-Terminated Product, those Major Market Countries in which such Partially-Terminated Product becomes terminated, if any, pursuant to Section 11.2.5(b) or 11.2.5(c).

1.312 “ Third Party ” means a Person other than AstraZeneca and Targacept and their respective Affiliates.

1.313 “ Third Party Claim ” has the meaning set forth in Section 13.3.2.

1.314 “ Total Research Budget ” has the meaning set forth in Section 2.1.5(a).

1.315 “ Trademark ” means any trademark, trade dress, brand mark, trade name, brand name, logo or business symbol.

1.316 “ Triggering Event ” has the meaning set forth in Section 10.2.6.

1.317 “ Unexercised Option Compound ” means any Option Compound that is not a Terminated Compound and that Targacept has the right to Exploit outside the Collaboration pursuant to Section 5.10.2(b)(2) or 5.10.2(d)(2), including any salt form, polymorph, crystalline form, Prodrug (other than any such Prodrug that is an Excluded Zone Compound), metabolite

 

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(other than any such metabolite that is an Excluded Zone Compound), hydrate, solvate or formulation thereof; provided that each Unexercised Option Compound, upon becoming an Unexercised Option Compound, shall cease to be an Option Compound.

1.318 “ Unscreened Collaboration Candidate ” means each Collaboration Candidate for which the screening set forth in the Research Plan to enable the JRC or AstraZeneca, as applicable, to determine whether the Active+ Criteria are satisfied has not been completed or for which such screening has been completed but the results have not been delivered to the JRC and AstraZeneca, in each case, as of the last day of the Research Program Term.

1.319 “ Valid Claim ” means any claim of (a) an issued unexpired patent that (i) has not been finally canceled, withdrawn, abandoned or rejected by any administrative agency or other body of competent jurisdiction, (ii) has not been permanently revoked, held invalid, or declared unpatentable or unenforceable in a decision of a court or other body of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, (iii) has not been rendered unenforceable through disclaimer or otherwise, and (iv) is not lost through an interference proceeding, or (b) a pending patent application, provided that (i) the application was filed and is being prosecuted in good faith and has not been abandoned or finally disallowed without the possibility of appeal or re-filing of the application and (ii)  [********] .

1.320 “ Working Licensed Derivatives ” means, with respect to any particular Collaboration Compound, Candidate Drug (including Ispronicline and Option Compound Candidate Drugs) or Product (including Ispronicline Products and Option Compound Products) as of a particular date, (a) all Licensed Derivatives with respect thereto as of such date, other than Other Licensed Compounds, (i) on which, as of such date, AstraZeneca is using Commercially Reasonable Efforts to research, develop or commercialize anywhere in the Territory or (ii) that are Additional Compounds with respect to any such Licensed Derivative in clause (i) and (b) all Other Licensed Compounds with respect thereto as of such date.

 

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2. ADMINISTRATION OF THE COLLABORATION

2.1 Executive Steering Committee .

2.1.1 Establishment . Targacept and AstraZeneca hereby establish the Executive Steering Committee. The ESC shall have and perform the responsibilities set forth in Section 2.1.4.

2.1.2 Membership . Each Party shall designate, in its sole discretion, [********] members to the ESC, who shall be members of its senior management. Unless otherwise agreed by the Parties, [********] . Each Party shall have the right at any time to substitute individuals, on a permanent or temporary basis, for any of its previously designated representatives to the ESC, by giving written notice to the other Party. Initial designees of the Parties to the ESC shall be as follows:

For Targacept: [********]

For AstraZeneca: [********]

2.1.3 Meetings .

(a) Schedule of Meetings; Agenda . The ESC shall establish a schedule of times for regular meetings, taking into account the planning needs of the Collaboration and its responsibilities. In addition, special meetings of the ESC may be convened by any member upon thirty (30) days (or, if such meeting is proposed to be conducted by teleconference, upon ten (10) days) written notice to the other members; provided that (i) notice of any such special meeting may be waived in writing at any time, either before, during or after such meeting, and such waiver shall be the equivalent to the giving of a valid notice hereunder, and (ii) attendance of any member at a special meeting shall constitute a valid waiver of notice from such member, unless such member attends the meeting for the express purpose of objecting to its conduct for failure to provide valid notice. In no event shall the ESC meet less frequently than [********] in each Calendar Year during the Term. Regular and special meetings of the ESC may be held in person or by teleconference or videoconference; provided that meetings held in person shall alternate between the respective offices of the Parties. Without expanding the foregoing, and where practicable, the ESC shall schedule its meetings so that they fall within three (3) weeks after meetings of the JRC and the JDC to enable efficient resolution of any matter for ESC consideration arising from such JRC and JDC meetings. The Chairman shall prepare and circulate to each ESC member an agenda for each ESC meeting not later than one (1) week prior to such meeting.

 

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(b) Quorum; Voting; Decisions . At each ESC meeting (i) the participation of at least [********] members designated by each Party shall constitute a quorum and (ii) all members designated by each Party who are participating shall [********] vote on all matters before the ESC at such meeting. All decisions of the ESC shall be made by [********] vote. Alternatively, the ESC may act by written consent signed by at least [********] members designated by each Party. Whenever any action by the ESC is called for hereunder during a time period in which the ESC is not scheduled to meet, the Chairman shall cause the ESC to take the action in the requested time period by calling a special meeting to be conducted in person or by teleconference on not less than five (5) Business Days notice or by circulating a written consent. Representatives of each Party or of its Affiliates who are not members of the ESC may attend ESC meetings as non-voting observers with the consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed.

(c) Minutes . The ESC shall keep minutes of its meetings that record in reasonable detail all decisions and all actions recommended or taken. Drafts of the minutes shall be prepared and circulated to the members of the ESC during the meeting, and the Parties shall alternate responsibility for the preparation and circulation of draft minutes. Each member of the ESC shall have the opportunity to provide comments on the draft minutes. The minutes shall be approved, disapproved and revised as necessary prior to the end of the applicable ESC meeting, provided that any member of the ESC shall have the right to withhold his or her consent with respect to any issue discussed during the meeting ( e.g. , in the event the proper expertise or level of information for a decision was not available), and the minutes for such meeting may reflect a lack of consensus on an issue-by-issue basis, the person(s) responsible for resolving such matter and by what date such matter shall be resolved. Upon approval, final minutes of each meeting shall be circulated to the members of the ESC by the Chairman.

(d) Expenses . Targacept and AstraZeneca shall each bear all expenses of their respective ESC members related to their participation on the ESC and attendance at ESC meetings.

 

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2.1.4 Responsibilities . The ESC shall be responsible for overseeing the conduct and progress of the Research Program and the Development of Candidate Drugs. Without limiting the generality of the foregoing, the ESC shall have the following responsibilities:

(a) overseeing the JRC’s performance of its responsibilities and the JDC’s performance of its responsibilities;

(b) resolving any disputes regarding (i) any amendment to the Research Plan, (ii) the formulation or amendment of any Annual Research Plan or, if applicable, Additional Research Plan, or the formulation, amendment of or update to any Product Development Plan, including in each case with respect to any budget contained in any such plan (or amendment or update), or (iii) whether a particular Collaboration Candidate satisfies the Active+ Criteria;

(c) reviewing data, reports or other information submitted to it by the JRC or JDC from time to time;

(d) resolving all JRC or JDC matters that are in dispute;

(e) resolving any dispute as to whether a milestone event under Section 6.5 has occurred;

(f) resolving any dispute as to whether, for a particular Option Compound, Option Compound Proof of Concept has been achieved;

(g) approving any Newly-Defined Cognitive Impairment or Associated Cognitive Impairment;

(h) providing a forum for coordinating the Parties’ activities with respect to Partially-Terminated Products; and

(i) making such other decisions as may be delegated to the ESC pursuant to this Agreement or by mutual written agreement of the Parties after the Effective Date.

 

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2.1.5 Dispute Resolution . The ESC members shall use reasonable efforts to reach agreement on any and all matters. In the event that, despite such reasonable efforts, agreement on a particular matter cannot be reached by the ESC within [********] ( [********] in the case of Section 2.1.5(e)) after the ESC first meets to consider such matter (each such matter, a “ Disputed Matter ”), then [********] shall have the right to make the final decision with regard to such Disputed Matter except that [********] with regard to the following Disputed Matters (each an “ Excepted Decision ”) which shall be resolved as set out below:

(a) a proposal, or a series of proposals, the cumulative effect of which would be, to (i) amend the Research Plan to reduce the aggregate FTE Costs and External Targacept R&D Costs as detailed in the Research Plan (the “ Total Research Budget ”) by more than ten percent (10%); or (ii) adopt an Annual Research Plan that, or amend an Annual Research Plan so that it (A) provides for [********] the FTE Costs and External Targacept R&D Costs budgeted for that Contract Year in the Research Plan or (B) amends [********] . Any such Disputed Matter shall be referred to [********] , who shall promptly initiate discussions in good faith to resolve such Disputed Matter. If such Disputed Matter is not resolved by such individuals within [********] of the date that the ESC first met to consider such Disputed Matter, the proposal will be rejected and, in the case of any Disputed Matter with respect to the proposal(s) referenced in clause (ii)(A) above, the proposed Annual Research Plan or amendment thereto shall promptly be modified to provide for [********] the FTE Costs and External Targacept R&D Costs budgeted for that Contract Year in the Research Plan. For purposes of clarity, no such proposal shall be implemented without the prior written approval of both Parties. Notwithstanding anything in this Agreement to the contrary, in no event shall the Total Research Budget, or the sum of the aggregate Targacept Research Budgets, exceed Twenty-Six Million, Four Hundred Thousand Dollars (US $26,400,000) without AstraZeneca’s prior written consent, or be less than Twenty-Three Million, Seven Hundred Sixty Thousand Dollars (US $23,760,000) without Targacept’s prior written consent.

(b) any decision that would constitute a deviation from any of the terms of, or would require an amendment to, this Agreement (including any schedule hereto but excluding the Exhibit hereto). For purposes of clarity, the Agreement may be amended only in accordance with Section 17.6.

 

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(c) a disagreement as to whether (i) a particular [********] ; (ii) for a particular [********] ; or (iii) a particular Collaboration Candidate [********] . Any such Disputed Matter shall be resolved in accordance with Section 14.3 (accelerated arbitration).

(d) a disagreement as to whether a particular condition meets the requirements set forth in any of clauses (a) through (e) of Section 1.187 or clauses (a) through (d) of Section 1.28, as applicable, to be approved by [********] as a Newly-Defined Cognitive Impairment or an Associated Cognitive Impairment (but for clarity, not to otherwise challenge any such approval or designation). Any such Disputed Matter shall be resolved in accordance with Section 14.3 (accelerated arbitration).

(e) a disagreement as to whether the activities proposed for any Product Development Plan, or any update or amendment thereto, [********] hereunder. If the ESC is unable to resolve any such Disputed Matter, such matter shall be resolved in accordance with Section 14.3 (accelerated arbitration); provided that, if Targacept maintains that the activities allocated to AstraZeneca under a Product Development Plan (or under such plan as updated or amended) [********] Targacept shall submit such Disputed Matter to accelerated arbitration in accordance with Section 14.3 within fifty-five (55) days after the date that the ESC first met to consider such Disputed Matter. In the event that Targacept (i) approves a Product Development Plan (or, as applicable, an update or amendment thereto) in the JDC or the ESC, or (ii) does not approve a Product Development Plan (or, as applicable, an update or amendment thereto or, upon the occurrence of a tollgate, disputes any failure by AstraZeneca to update or amend the applicable Product Development Plan) but fails to submit such Disputed Matter to accelerated arbitration in accordance with Section 14.3 within such fifty-five (55)-day period, [********] with respect thereto (but, for purposes of clarity, [********] any such Product Development Plan (or such plan as updated or amended) and shall not [********] ; provided that, with respect to any such Product Development Plan (or any such update or amendment thereto), [********] such Product Development Plan (or, if earlier, any update or amendment to such Product Development Plan), whereupon the procedures set forth in this Section shall be repeated. References in this Agreement to AstraZeneca development tollgates mean development tollgates that apply across its internal development programs and not solely to Development Programs hereunder. In the event this Section applies, AstraZeneca shall be entitled to either (A)  [********] under a Product Development Plan or any amendment thereto

 

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approved by the ESC whether or not such plan or such amendment [********] or (B) if [********] applicable fifty-five (55)-day period [********], except where such Disputed Matter relates to the Product Development Plan for [********] or any amendment thereto, in which case [********]. For purposes of clarity, during any such suspension with respect to a Collaboration Compound, Candidate Drug (including Ispronicline) or Product (including an Ispronicline Product), AstraZeneca shall [********] such Collaboration Compound, Candidate Drug or Product for purposes of Section 5.5.1 and such period of [********] shall not count against the twelve (12)-month period set forth in Section 11.2.7.

(f) a disagreement as to whether a particular [********]. Any such Disputed Matter shall be resolved in accordance with Section 14.3 (accelerated arbitration).

2.2 Joint Research Committee .

2.2.1 Establishment . Targacept and AstraZeneca hereby establish the Joint Research Committee. The JRC shall have and perform the responsibilities set forth in Section 2.2.4.

2.2.2 Membership . Each Party shall designate, in its sole discretion, [********] members to the JRC (which members shall be employees of such Party). Unless otherwise agreed by the Parties, [********] . Each Party shall have the right at any time to substitute individuals, on a permanent or temporary basis, for any of its previously designated representatives to the JRC, by giving written notice to the other Party; provided that, with respect to each representative designated by Targacept, Targacept shall not, during the Research Program Term or the Tail Period, substitute for such representative, an individual who does not hold a substantially similar position within Targacept or, for so long as such representative is employed by Targacept, who does not have substantially similar or greater experience with respect to NNRs as such representative. Initial designees of the Parties to the JRC shall be as follows:

For Targacept: [********]

For AstraZeneca: [********]

 

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2.2.3 Meetings .

(a) Schedule of Meetings; Agenda . The JRC shall establish a schedule of times for regular meetings, taking into account the planning needs of the Research Program and its responsibilities. In addition, special meetings may be convened by any member upon thirty (30) days (or, if such meeting is proposed to be conducted by teleconference, upon ten (10) days) written notice to the other members; provided that (i) notice of any such special meeting may be waived at any time, either before or after such meeting, and such waiver shall be the equivalent to the giving of a valid notice hereunder, and (ii) attendance of any member at a special meeting shall constitute a valid waiver of notice from such member, unless such member attends the meeting for the express purpose of objecting to its conduct for failure to provide valid notice. In no event shall the JRC meet less frequently than [********] times in each Calendar Year during the Research Program Term and any Additional Research Program Term. Regular and special meetings of the JRC may be held in person or by teleconference or videoconference; provided that, unless otherwise agreed by the JRC, meetings held in person shall alternate between the respective offices of the Parties. The Chairman shall prepare and circulate to each JRC member an agenda for each JRC meeting not later than one (1) week prior to such meeting.

(b) Quorum; Voting; Decisions . At each JRC meeting, (i) the participation of at least [********] members designated by each Party shall constitute a quorum and (ii) all members designated by each Party who participate shall [********] vote on all matters before the JRC at such meeting. All decisions of the JRC shall be made by [********] vote. Alternatively, the JRC may act by written consent signed by at least [********] members designated by each Party. Whenever any action by the JRC is called for hereunder during a time period in which the JRC is not scheduled to meet, the Chairman shall cause the JRC to take the action in the requested time period by calling a special meeting or by circulating a written consent. Representatives of each Party or of its Affiliates who are not members of the JRC (including the Patent Coordinators) may attend JRC meetings as non-voting observers with the consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed. The Parties shall use reasonable efforts to reach consensus on matters properly before the JRC but, to the extent that that the JRC is unable to resolve any such matter, unless otherwise provided in this Agreement, such matter shall be referred to the ESC to be resolved in accordance with Section 2.1.5.

 

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(c) Minutes . The JRC shall keep minutes of its meetings that record all decisions and all actions recommended or taken in reasonable detail. Drafts of the minutes shall be prepared and circulated to the members of the JRC during the meeting, and the Parties shall alternate responsibility for the preparation and circulation of draft minutes. Each member of the JRC shall have the opportunity to provide comments on the draft minutes. The minutes shall be approved, disapproved and revised as necessary prior to the end of the applicable JRC meeting, provided that any member of the JRC shall have the right to withhold his or her consent with respect to any issue discussed during the meeting ( e.g. , in the event the proper expertise or level of information for a decision was not available), and the minutes for such meeting may reflect a lack of consensus on an issue-by-issue basis, the person(s) responsible for resolving such matter and by what date such matter shall be resolved. Upon approval, final minutes of each meeting shall be circulated to the members of the JRC by the Chairman.

(d) Expenses . Targacept and AstraZeneca shall each bear all expenses of their respective JRC members related to their participation on the JRC and attendance at JRC meetings.

2.2.4 Responsibilities . The JRC shall be responsible for overseeing the conduct and progress of the Research Program. Without limiting the generality of the foregoing, the JRC shall have the following responsibilities:

(a) preparing or directing the preparation of and approving all Annual Research Plans, including the Targacept Research Budget;

(b) subject to Section 4.2, preparing, or directing the preparation of, and approving amendments to the Research Plan or any Annual Research Plans as it deems appropriate in furtherance of the objectives of the Research Program as set forth in Section 4.1.1 and the Research Plan;

(c) subject to Section 4.8.2, preparing, or directing the preparation of, and approving any Additional Research Plan or amendment thereto, including the applicable ARP Budget;

 

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(d) determining the steps to be taken in accordance with Section 4.4.1 upon the occurrence of a Material Unexpected Technical Research Problem;

(e) monitoring the progress of each Annual Research Plan and of each Party’s activities thereunder, including performance against the relevant Targacept Research Budget, identifying potential overruns and, subject to Section 4.2, where appropriate approving changes to such Targacept Research Budget;

(f) monitoring the progress of each Additional Research Plan and of each Party’s activities thereunder, including performance against the relevant ARP Budget, identifying potential overruns and, subject to Section 4.8.2, where appropriate approving changes to such ARP Budget;

(g) providing a forum for consensual decision making with respect to the Research Program;

(h) appointing a Research Project Team (or, if it deems appropriate, multiple Research Project Teams), and overseeing the activities of, advising and considering recommendations from each such Research Project Team;

(i) reviewing data, reports or other information submitted by either Party with respect to work conducted in the Research Program;

(j) preparing for the ESC on at least a quarterly basis a progress report for the Research Program in reasonable detail and providing to the ESC such additional information as it may request;

(k) subject to Section 2.1.5(a), approving amendments to the Active+ Criteria as it deems appropriate in furtherance of the objectives of the Research Program;

(l) without limiting AstraZeneca’s rights under Article 4, determining whether any Collaboration Candidate satisfies the Active+ Criteria; provided that the JRC shall, promptly (and in any event not later than its next regularly scheduled meeting) following any failure by a Collaboration Candidate to meet any of the Active+ Criteria required to be met for such compound to be an Active+ Compound, classify such Collaboration Candidate as a

 

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Terminated Compound unless the JRC specifically elects to conduct further research on such Collaboration Candidate on a priority basis in furtherance of the objectives of the Research Program;

(m) without limiting AstraZeneca’s rights under Article 4, determining the order in which Collaboration Candidates and Active+ Compounds shall progress through additional screens under the Research Program or any Additional Research Program;

(n) evaluating the continued screening or advancement of Collaboration Candidates in the Collaboration and classifying as a Terminated Compound each Collaboration Candidate (including each Unscreened Collaboration Candidate) for which it considers continued screening or advancement in the Collaboration impractical or inadvisable because of failure of such Collaboration Candidate to meet standards or criteria (other than Minimum Binding Affinity or Active+ Criteria) set forth in the Research Plan or any Annual Research Plan or Additional Research Plan (including, by way of example only, DMPK, preliminary drug safety, chemical stability) or for any other reason; provided , however , that, notwithstanding anything in this Agreement to the contrary, AstraZeneca shall have the right, in its sole discretion, to resolve any dispute with respect to any such evaluation or classification in the JRC without escalation to the ESC pursuant to Section 2.2.3(b) or resort to the dispute resolution procedures set forth in Section 2.1.5 or Article 14;

(o) reviewing publications and presentations with respect to any Research Program, Additional Research Program, Development Program or any Collaboration Compound, Candidate Drug or Product;

(p) without limiting AstraZeneca’s rights under Article 4 or 5, nominating Collaboration Compounds for further Development by AstraZeneca as Candidate Drugs;

(q) maintaining an updated list of Terminated Compounds during the Research Program Term and Tail Period, based on information provided by the Parties; and

 

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(r) making any other decisions as may be delegated to the JRC pursuant to this Agreement or by mutual written agreement of the Parties after the Effective Date.

2.2.5 Research Project Teams . The JRC shall establish a Research Project Team (and may, from time to time during the Research Program Term as it deems appropriate, establish multiple Research Project Teams) to conduct various aspects of the Annual Research Plans and the Additional Research Plans. Each Party shall have such representation on each such Research Project Team as is appropriate to the responsibilities of such Research Project Team as assigned by the JRC and consistent with the terms of this Agreement; provided that [********] . Each Party shall make its initial designation of its representatives not later than thirty (30) days after such JRC determination; provided that any such designation by Targacept shall include the Specified Personnel, consistent with their experience and expertise as well as the job descriptions set out in Schedule 4.4.2 hereto. Either Party may change its designees on any Research Project Team at any time on written notice to the other Party; provided that, if any of the Specified Personnel is a Targacept representative on a Research Project Team, Targacept shall not, during the Research Program Term, substitute or reduce his or her participation in a Research Project Team, or in the conduct of the Research Program, except as provided in Section 4.4.2. Each Research Project Team shall have such responsibilities as may be assigned to it by the JRC and shall report to the JRC.

2.3 Joint Development Committee .

2.3.1 Establishment . Targacept and AstraZeneca hereby establish the Joint Development Committee. The JDC shall have and perform the responsibilities set forth in Section 2.3.4.

2.3.2 Membership . Each Party shall designate, in its sole discretion, [********] members to the JDC (which members shall be employees of such Party). Unless otherwise agreed by the Parties, [********] . Each Party shall have the right at any time to substitute individuals, on a permanent or temporary basis, for any of its previously designated representatives to the JDC by giving written notice to the other Party. Initial designees of the Parties to the JDC shall be as follows:

For Targacept: [********]

For AstraZeneca: [********]

 

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2.3.3 Meetings .

(a) Schedule of Meetings . The JDC shall establish a schedule of times for regular meetings, taking into account the planning needs of each Development Program and its responsibilities. In addition, special meetings may be convened by any member in good faith and for good cause or by the Chairman for any reason upon thirty (30) days (or, if such meeting is proposed to be conducted by teleconference, upon ten (10) days) written notice to the other members; provided that (i) notice of any such special meeting may be waived at any time, either before or after such meeting, and such waiver shall be the equivalent to the giving of a valid notice hereunder, and (ii) attendance of any member at a special meeting shall constitute a valid waiver of notice from such member, unless such member attends the meeting for the express purpose of objecting to its conduct for failure to provide valid notice. In no event shall the JDC meet less frequently than [********] times in each Calendar Year during the Term. Regular and special meetings of the JDC may be held in person or by teleconference or videoconference; provided that meetings held in person shall alternate between the respective offices of the Parties. The Chairman shall prepare and circulate to each JDC member an agenda for each JDC meeting at least one (1) week prior to such meeting.

(b) Quorum; Voting; Decisions . At each JDC meeting, (i) the participation of at least two (2) members designated by each Party shall constitute a quorum and (ii) all members designated by each Party who are participating shall [********] vote on all matters before the JDC at such meeting. All decisions of the JDC shall be made by [********] vote. Alternatively, the JDC may act by written consent signed by at least [********] members designated by each Party. Whenever any action by the JDC is called for hereunder during a time period in which the JDC is not scheduled to meet, the Chairman shall cause the JDC to take the action in the requested time period by calling a special meeting or by circulating a written consent. Representatives of each Party or of its Affiliates who are not members of the JDC (including the Patent Coordinators) may attend JDC meetings as non-voting observers with the consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed. The Parties shall use reasonable efforts to reach consensus on matters properly before the JDC

 

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but to the extent that the JDC is unable to resolve any matter before it, such matter shall be referred to the ESC to be resolved in accordance with Section 2.1.5.

(c) Minutes . The JDC shall keep minutes of its meetings that record all decisions and all actions recommended or taken in reasonable detail. Drafts of the minutes shall be prepared and circulated to the members of the JDC during the meeting, and the Parties shall alternate responsibility for the preparation and circulation of draft minutes. Each member of the JDC shall have the opportunity to provide comments on the draft minutes. The minutes shall be approved, disapproved and revised as necessary prior to the end of the applicable JDC meeting, provided that any member of the JDC shall have the right to withhold its consent with respect to any issue discussed during the meeting ( e.g. , in the event the proper expertise or level of information for a decision was not available), and the minutes for such meeting may reflect a lack of consensus on an issue-by-issue basis, the person(s) responsible for resolving such matter and by what date such matter shall be resolved. Upon approval, final minutes of each meeting shall be circulated to the members of the JDC by the Chairman.

(d) Expenses . Targacept and AstraZeneca shall each bear all expenses of their respective JDC members related to their participation on the JDC and attendance at JDC meetings.

2.3.4 Responsibilities . The JDC shall be responsible for overseeing the Development of Candidate Drugs and the conduct and progress of each Development Program (but not, for purposes of clarity, the Pre-Phase IIb Program). Without limiting the generality of the foregoing, the JDC shall have the following responsibilities:

(a) preparing, or directing the preparation of, and approving all Product Development Plans, including any Targacept Development Budgets;

(b) preparing, or directing the preparation of, and approving updates or amendments to any Product Development Plan (including any Targacept Development Budget) as it deems appropriate in furtherance of the Development of Candidate Drugs and the Commercialization of Products;

 

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(c) monitoring the progress of the Development of each Candidate Drug in accordance with, and of each Party’s activities under, such Candidate Drug’s Product Development Plan;

(d) determining the steps to be taken in accordance with Section 5.5.2 upon the occurrence of a Material Unexpected Technical Development Problem;

(e) overseeing the activities of, advising and considering recommendations from, any Development Project Team;

(f) reviewing data, reports or other information submitted by either Party with respect to work conducted in any Development Program;

(g) when requested by the ESC, preparing for the ESC a progress report for a Development Program in reasonable detail and providing to the ESC such additional information with respect thereto as it may request;

(h) without limiting AstraZeneca’s rights under Article 4 or 5, determining whether and when to (A) commence further Development of a Collaboration Compound as a Candidate Drug, (B) commence or continue Development of an Option Compound Candidate Drug or (C) discontinue any such Development, in each case ((A) through (C), subject to Section 5.5.1;

(i) reviewing publications and presentations with respect to any Research Program, Additional Research Program, Development Program or any Collaboration Compound, Candidate Drug or Product; and

(j) making such other decisions as may be delegated to the JDC pursuant to this Agreement or by mutual written agreement of the Parties after the Effective Date.

2.3.5 Development Project Teams . For each Development Program, AstraZeneca may, from time to time during the Term as it deems appropriate, establish one or more Development Project Teams to coordinate Targacept Development Activities, if any, pursuant to the applicable Product Development Plan. Each Party shall have representation on each such Development Project Team as is appropriate to the responsibilities of such

 

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Development Project Team as assigned by AstraZeneca and consistent with the terms of this Agreement; provided that [********] . Each Party shall make its initial designation of its representatives not later than thirty (30) days after such determination. Either Party may change its designees to any Development Project Team at any time upon written notice to the other Party. Each Development Project Team shall have such responsibilities as may be assigned to it by AstraZeneca and shall report to the JDC.

2.4 Establishment and Function of CCC .

2.4.1 Establishment . If Targacept exercises a Co-Promotion Option, Targacept and AstraZeneca shall establish the Commercial Coordination Committee as soon as practicable, and in any event within [********] , following the exercise by Targacept of such Co-Promotion Option. The CCC shall have and perform the responsibilities set forth in Section 2.4.4.

2.4.2 Membership . Each Party shall designate, in its sole discretion, [********] members to the CCC (which members shall be employees of such Party). Unless otherwise agreed by the Parties, [********] . Each Party shall have the right at any time to substitute individuals, on a permanent or temporary basis, for any of its previously designated representatives to the CCC by giving written notice to the other Party.

2.4.3 Meetings .

(a) Schedule of Meetings; Agenda . The CCC shall establish a schedule of times for regular meetings, taking into account the planning needs for the Co-Promotion of Co-Promoted Products and its responsibilities. In addition, special meetings may be convened by any member of the CCC in good faith and for good cause or by the Chairman for any reason upon thirty (30) days (or, if such meeting is proposed to be conducted by teleconference, upon ten (10) days) written notice to the other members; provided that (i) notice of any such special meeting may be waived at any time, either before or after such meeting, and such waiver shall be the equivalent to the giving of a valid notice hereunder, and (ii) attendance of any member at a special meeting shall constitute a valid waiver of notice from such member, unless such member attends the meeting for the express purpose of objecting to its conduct for failure to provide valid notice. If formed, in no event shall the CCC meet less frequently than [********] times per Calendar Year. Regular and special meetings of the CCC may be held in

 

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person or by teleconference or videoconference. The Chairman shall prepare and circulate to each CCC member an agenda for each CCC meeting not later than one (1) week prior to such meeting.

(b) Quorum; Voting; Decisions . At each CCC meeting, (i) the participation of at least [********] members designated by each Party shall constitute a quorum and (ii) all members designated by each Party who are participating shall [********] vote on all matters before the CCC at such meeting. Alternatively, the CCC may act by written consent signed by at least [********] members designated by each Party. The Parties shall use reasonable efforts to ensure that consensus is reached on matters before the CCC but, to the extent that the CCC is unable to resolve any matter before it, such matter shall be resolved by AstraZeneca’s members on the CCC; provided that [********] , such unresolved matter shall be referred to the Vice President, Business and Commercial Development of Targacept (or such other officer with comparable seniority and responsibility with respect to Targacept’s promotional activities as Targacept may designate in writing to AstraZeneca from time to time), and the U.S. Vice President, Commercial Operations of AstraZeneca Pharmaceuticals, LP (or such other officer with comparable seniority and responsibility with respect to AstraZeneca’s promotional activities as AstraZeneca may designate in writing to Targacept from time to time), who shall promptly initiate discussions in good faith to resolve such unresolved matter. If such unresolved matter is not resolved by such individuals within [********] of the date that the CCC first met to consider such unresolved matter, [********] ; and provided further that neither the CCC nor AstraZeneca shall have the authority to determine the resolution of a dispute arising in connection with a Party’s breach under a Co-Promotion Agreement, which shall be governed by the dispute resolution process set forth therein. Whenever any action by the CCC is called for hereunder during a time period in which the CCC is not scheduled to meet and is not able to meet in a timely manner, the Chairman shall, in consultation with the Vice President, Business and Commercial Development of Targacept (or such other officer with comparable seniority and responsibility with respect to Targacept’s promotional activities as Targacept may designate in writing to AstraZeneca from time to time), take the action in the requested time period. Representatives of each Party or of its Affiliates who are not members of the CCC may attend CCC meetings as non-voting observers with the consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed.

 

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(c) Minutes . The CCC shall keep minutes of its meetings that record all decisions and all actions recommended or taken in reasonable detail. Drafts of the minutes shall be prepared and circulated to the members of the CCC during the meeting, and the Parties shall alternate responsibility for the preparation and circulation of draft minutes. Each member of the CCC shall have the opportunity to provide comments on the draft minutes. The minutes shall be approved, disapproved and revised as necessary prior to the end of the applicable CCC meeting, provided that any member of the CCC shall have the right to withhold its consent with respect to any issue discussed during the meeting ( e.g. , in the event the proper expertise or level of information for a decision was not available), and the minutes for such meeting may reflect a lack of consensus on an issue-by-issue basis, the person(s) responsible for resolving such matter and by what date such matter shall be resolved. Upon approval, final minutes of each meeting shall be circulated to the members of the CCC by the Chairman.

(d) Expenses . Targacept and AstraZeneca shall each bear all expenses of their respective CCC members related to their participation on the CCC and attendance at CCC meetings.

2.4.4 Responsibilities . The CCC shall be responsible for overseeing Co-Promotion Activities. Without limiting the generality of the foregoing and except as otherwise specified in a Co-Promotion Agreement, the CCC shall have the following responsibilities:

(a) the development and discussion of strategies for the promotion and marketing of each Co-Promoted Product to the Co-Promotion Target Audience in the Co-Promotion Territory, including allocation of responsibilities for Co-Promotion Activities;

(b) implementing the Product Commercialization Plan with respect to the Co-Promotion Activities for the Co-Promoted Product in the Co-Promotion Territory;

(c) the preparation of short-term and long-term sales forecasts for Co-Promoted Products in the Co-Promotion Territory;

(d) presenting sales forecasts and the results of all Commercialization efforts for Co-Promoted Products in the Co-Promotion Territory to the Parties as needed, but no less often than four (4) times per Calendar Year;

 

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(e) coordinating the Detailing efforts of both Parties with respect to the Co-Promotion Target Audience in the Co-Promotion Territory with respect to Co-Promoted Products;

(f) providing a forum for discussing all recalls, market withdrawals and any other corrective actions related to Co-Promoted Products in the Co-Promotion Territory;

(g) receiving and providing to the Parties sales reports with respect to the Co-Promotion Target Audience pertaining to Co-Promoted Products in the Co-Promotion Territory; and

(h) performing such activities as may be delegated to the CCC pursuant to this Agreement, in any Co-Promotion Agreement or by mutual written agreement of the Parties after the Effective Date.

2.5 Alliance Management .

2.5.1 Collaboration Managers . Each Party shall appoint a person(s) who shall oversee contact between the Parties for all matters related to the Collaboration between meetings of the ESC, JRC, JDC or CCC and shall have such other responsibilities as the Parties may agree in writing after the Effective Date (each, a “ Collaboration Manager ”). Each Party may replace its Collaboration Manager at any time by notice in writing to the other Party. The initial Collaboration Managers shall be:

For Targacept:      [********]

For AstraZeneca: [********]

2.5.2 Executive Review . The Chief Executive Officer of Targacept and the Vice President of the Neuroscience Therapeutic Area and the Vice President of the CNS and Pain Control Research Area of AstraZeneca shall meet at least [********] to review and discuss generally the status of the Research Program, any Additional Research Programs and each Development Program.

2.5.3 Interactions Between Committees and Internal Teams . The Parties recognize that AstraZeneca possesses an internal structure (including various committees, teams

 

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and review boards) that will be involved in administering AstraZeneca’s activities under this Agreement. Nothing contained in this Article 2 shall prevent a Party from making routine day-to-day decisions relating to the conduct of those activities for which it has a performance or other obligations hereunder, in each case in a manner consistent with the then-current applicable plans and budgets and the terms and conditions of this Agreement. Each committee shall establish procedures to facilitate communications between such committee and the relevant internal committee, team or board of AstraZeneca in order to maximize the efficiency of the committees and the performance AstraZeneca of its obligations and the exercise of its rights under this Agreement, including by requiring appropriate members of such committee to be available at mutually convenient times and places and upon reasonable prior notice for making appropriate oral reports to, and responding to reasonable inquiries from, the relevant internal committee, team or board.

3. PRE-PHASE IIb PROGRAM

3.1 Implementation of the Pre-Phase IIb Program . AstraZeneca shall use Commercially Reasonable Efforts to perform the non-clinical and clinical studies and other activities with respect to Ispronicline set forth in the Pre-Phase IIb Plan prior to the Sunset Date. Except for activities expressly assigned to Targacept in the Pre-Phase IIb Plan (if any) and such other activities as Targacept may agree to undertake, in its sole discretion, at AstraZeneca’s reasonable request in support of the Pre-Phase IIb Program, AstraZeneca shall have the sole right and responsibility to conduct the Pre-Phase IIb Program at its sole expense.

3.2 Cooperation and Reporting . Scientists at Targacept shall reasonably cooperate in the performance of the Pre-Phase IIb Program and, subject to the terms of this Agreement and any confidentiality obligations to Third Parties, shall, if reasonably requested by AstraZeneca, and at Targacept’s cost, furnish AstraZeneca with such data, information and materials (including Proprietary Materials) in Targacept’s possession or control as are reasonably necessary for AstraZeneca to perform its obligations under the Pre-Phase IIb Plan. During the Pre-Phase IIb Period, AstraZeneca shall (a) keep Targacept reasonably informed regarding the progress of the Pre-Phase IIb Program (including by providing updates (which may be by telephone) to Targacept at least quarterly and, with respect to any particular activity conducted in

 

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the Pre-Phase IIb Program, promptly after AstraZeneca determines the results achieved for such activity), (b) respond (which response may be by telephone) in a reasonable manner to all reasonable queries raised by Targacept in connection with the Pre-Phase IIb Program and (c) upon completion of each of the studies to be conducted in the Pre-Phase IIb Program, prepare and deliver to Targacept a final written report of the results of each such study.

3.3 Conclusion of Pre-Phase IIb Program .

3.3.1 Election to Commence Development of Ispronicline . If AstraZeneca determines, in its sole discretion, to proceed with further Development of Ispronicline (including any Ispronicline Product) pursuant to the Product Development Plan for Ispronicline (as the same may have been amended prior to such notification in accordance with Section 2.3.4), AstraZeneca shall, on or prior to the Sunset Date, provide Targacept with written notice of such determination and AstraZeneca shall (a) within twenty (20) days of such notice, pay Targacept the milestone in Section 6.5.1(a)(3) in the amount of Twenty Million Dollars (US $20,000,000), (b) from the date of such notice (the “ Commencement Date ”), use Commercially Reasonable Efforts to Develop and Commercialize Ispronicline in accordance with Section 5.5.1(a), (c) as provided in Section 6.4.1, pay (to the extent not already paid), all of the aggregate FTE Costs for all FTEs and External Targacept R&D Costs relating to the Research Program incurred in accordance with the Targacept Research Budget during the Pre-Phase IIb Period, such amount to be paid in accordance with Section 6.4.3.

3.3.2 Election to Not Commence Development of Ispronicline . If AstraZeneca determines, in its sole discretion based on the results of the Pre-Phase IIb Program and all other available information with respect to Ispronicline, to not proceed with the further Development of Ispronicline, AstraZeneca shall, on or prior to the Sunset Date, and in any event promptly following its determination, provide Targacept with written notice of such determination and, if so requested by Targacept, shall participate in a meeting, to include senior executives from both Targacept and AstraZeneca, to discuss such termination and the reasons therefor. AstraZeneca shall have the right, on written notice to Targacept within [********] following the end of such meeting, or such longer period as the Parties may agree in writing (the last day of such period, or, if earlier, the date of such notice, the “ Notice Date ”), to elect, (x)

 

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notwithstanding its earlier notice, to proceed with further Development of Ispronicline pursuant to the Product Development Plan for Ispronicline (as the same may have been amended prior to such notification in accordance with Section 2.3.4), in which event Section 3.3.1 shall apply, with the date of such notice being the Commencement Date, or (y) to not proceed with the further Development of Ispronicline, in which event, (i) AstraZeneca may elect to terminate this Agreement in accordance with Section 11.2.1(a) or (ii) subject to Targacept’s right to terminate this Agreement in accordance with Section 11.2.1(b), AstraZeneca may indicate to Targacept its desire to proceed with the conduct of the Research Program and continue this Agreement, in which event Section 3.3.2(b) applies.

(a) Termination of this Agreement . If (i) AstraZeneca elects to terminate this Agreement in accordance with Section 11.2.1(a) or (ii) Targacept elects to terminate this Agreement in accordance with Section 11.2.1(b), then, notwithstanding anything in this Agreement to the contrary, (A) AstraZeneca shall not be required to pay (1) the milestone in Section 6.5.1(a)(3) in the amount of Twenty Million Dollars (US $20,000,000) or any other milestone payments under Section 6.5, or (2) any of the aggregate FTE Costs for all FTEs and External Targacept R&D Costs relating to the Research Program incurred by or on behalf of Targacept in connection with the Research Program, (B) to the extent any such milestone payments or FTE Costs have been paid, such amounts shall be refunded to AstraZeneca in accordance with Section 11.3.1, (C) as consideration for the assignment of rights in and to the AstraZeneca Pre-Phase IIb Program Technology and AstraZeneca Pre-Phase IIb Program Patent Rights under Section 11.3.1(c), Targacept shall pay to AstraZeneca Five Million Dollars (US $5,000,000) in accordance with 11.3.1 and (D) the other consequences of such termination set forth in Sections 11.3.1 and 11.3.6 shall apply.

(b) Continuation of Research Program . If (x) AstraZeneca elects to not proceed with the Development of Ispronicline but to continue this Agreement as set forth in Section 3.3.2(y)(ii) and (y) Targacept does not elect to terminate this Agreement in accordance with Section 11.2.1(b), Targacept shall have the right, at its sole election, to either: (A) terminate all specific diligence obligations with respect to Ispronicline under this Agreement (including Section 5.5.1(a)) such that Ispronicline becomes a Collaboration Compound hereunder, or (B) terminate this Agreement with respect to Ispronicline such that Ispronicline becomes a

 

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Terminated Compound (but, for purposes of clarity, not a Terminated AZ Compound), provided that upon either election ((A) or (B)), AstraZeneca shall have the right to terminate this Agreement within ten (10) Business Days of delivery of notice of such election by Targacept in accordance with Section 11.2.1(a). If AstraZeneca does not elect to terminate this Agreement pursuant to Section 11.2.1(a), the conduct of the Research Program and all other activities under this Agreement shall continue except with respect to Ispronicline as set forth in this Section 3.3.2(b).

(1) If Targacept elects, pursuant to Section 3.3.2(b)(y)(A), to terminate all specific diligence obligations with respect to Ispronicline under this Agreement, (A) Ispronicline shall become a Collaboration Compound (and, if subsequently Exploited by or on behalf of AstraZeneca, subject to payment of royalties and milestones as Ispronicline, but otherwise to be treated in all respects under this Agreement as a Collaboration Compound), (B) AstraZeneca shall not be required to pay the milestone in Section 6.5.1(a)(3) in the amount of Twenty Million Dollars (US $20,000,000) or any other milestone payments under Section 6.5 with respect to Ispronicline or any Ispronicline Products, and (C) AstraZeneca shall pay (to the extent not already paid), all of the aggregate FTE Costs for all FTEs and External Targacept R&D Costs relating to the Research Program incurred in accordance with the Targacept Research Budget during the Pre-Phase IIb Period, such amount to be paid in accordance with Section 6.4.3.

(2) If Targacept elects, pursuant to Section 3.3.2(b)(y)(B), to terminate this Agreement with respect to Ispronicline, and AstraZeneca does not elect to terminate this Agreement pursuant to Section 11.2.1(a), (A) Ispronicline shall become a Terminated Compound (but not a Terminated AZ Compound), Targacept shall have the right to Exploit Ispronicline outside the Field and Sections 11.3.1(c), 11.3.1(d), and 11.3.6(c)(1) shall apply with respect to Ispronicline, (B) AstraZeneca shall not be required to pay the milestone in Section 6.5.1(a)(3) in the amount of Twenty Million Dollars (US $20,000,000) or any other milestone payments under Section 6.5 with respect to Ispronicline or any Ispronicline Products, (C) as consideration for the assignment of rights in and to the AstraZeneca Pre-Phase IIb Program Technology and

 

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AstraZeneca Pre-Phase IIb Program Patent Rights granted under this Agreement, Targacept shall pay to AstraZeneca Five Million Dollars (US $5,000,000), and (D) AstraZeneca shall pay (to the extent not already paid), all of the aggregate FTE Costs for all FTEs and External Targacept R&D Costs relating to the Research Program incurred in accordance with the Targacept Research Budget during the Pre-Phase IIb Period, such amount to be paid in accordance with Section 6.4.3, provided that AstraZeneca shall have the right to offset the Targacept payment set forth in clause (C), if not already paid to AstraZeneca, against AstraZeneca’s payment under this clause (D).

4. RESEARCH PROGRAM

4.1 Implementation of the Research Program .

4.1.1 Objectives of the Research Program . The objectives of the Research Program shall be the discovery and development of Active+ Compounds for consideration by AstraZeneca so as to permit AstraZeneca to select [********] Collaboration Compounds suitable for further scientific evaluation as provided in the Research Plan. Except for the AstraZeneca Research Activities, which activities AstraZeneca shall (x) have the sole right and responsibility to conduct at its sole expense and (y) coordinate through the JRC with Targacept’s activities in the Research Program, Targacept shall have the sole right and responsibility to conduct the Research Program. Targacept shall have the right to contract with Third Parties for the conduct of any activities under the Research Plan, an Annual Research Plan or an Additional Research Plan, subject to the prior approval of AstraZeneca, not to be unreasonably withheld, conditioned or delayed; provided that Targacept shall (a) before engaging any contractor to perform such activities, [********] in good faith [********] perform such activities, (b) not unreasonably select a Third Party to conduct such activities [********] , and (c) remain responsible for the performance of its obligations hereunder with respect to such activities (unless conducted by AstraZeneca). For purposes of clarity, it would not be reasonable for AstraZeneca to withhold its consent to Targacept’s contracting certain activities to a particular contractor solely because AstraZeneca wishes to perform such activities. In the event that Targacept selects AstraZeneca to conduct any activity that was originally assigned to Targacept (or a Third Party engaged by Targacept) in the Research Plan, an Annual Research Plan or an Additional Research Plan, and

 

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for which the corresponding expense was included in the applicable Targacept Research Budget, such Targacept Research Budget shall be reduced by the amount budgeted for such activity in the applicable plan. For purposes of clarity, in addition to AstraZeneca Research Activities, AstraZeneca shall have the right, in its sole discretion, to conduct research and development activities other than AstraZeneca Research Activities with respect to Collaboration Compounds, Candidate Drugs and Products during the Term, including by generating Derivatives with respect thereto. Any Derivatization of Ispronicline during the Research Program Term shall be subject to the notice to, coordination by and oversight of the JRC.

4.1.2 Research Program Term . The Research Program shall commence on the Effective Date and, unless terminated earlier in accordance with Section 11.2.2, shall continue until the earlier of (a) the fourth anniversary of the Effective Date, or such later date as the Parties may agree in writing, and (b) the end of the Term (the “ Research Program Term ”); provided that, for purposes of clarity, if the Research Program is terminated pursuant to Section 11.2.2, the effective date of such termination shall be the last day of the Research Program Term.

4.2 Research Plan; Annual Research Plans . The Research Plan and the Annual Research Plan for the first Contract Year shall be agreed upon by the Parties as of the Execution Date. For each Contract Year during the Research Program Term commencing with the second Contract Year, an Annual Research Plan shall be prepared by or at the direction of, and shall be approved by, the JRC, with any disputes with respect to it being submitted to the ESC for resolution in accordance with Section 2.1.5. The Parties shall manage the preparation of each Annual Research Plan in a manner designed to obtain approval no later than thirty (30) days prior to the end of the then-current Contract Year. Each Annual Research Plan shall: (a) set forth (i) the research objectives and activities to be performed for the Contract Year covered by the Annual Research Plan with reasonable specificity, (ii) the Party that shall be responsible for performing such activities, (iii) a timeline for such activities, and (iv) with respect to those activities for which Targacept is responsible, the number of FTEs estimated to be required to perform such activities, the corresponding FTE Cost for such activities, and the estimated External Targacept R&D Costs for such activities (if any), broken down on a Contract Quarter basis (collectively, a “ Targacept Research Budget ”); and (b) be consistent with the Research Plan and the terms of this Agreement. Without limiting the generality of the foregoing, the

 

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objectives of each Annual Research Plan shall include, as appropriate from time to time during the Research Program Term and consistent with the Research Plan, conducting the necessary research activities to identify or generate Collaboration Candidates that show promise to be Active+ Compounds, to identify or generate Active+ Compounds, and select Collaboration Compounds, that show promise for Development as Candidate Drugs and Commercialization as Products, and to recommend Collaboration Compounds for Development as Candidate Drugs. The Research Plan and any Annual Research Plan may be amended from time to time by the JRC pursuant to Section 2.2.4; provided , however , that in the event that such an amendment would change or otherwise increase Targacept’s activities under the applicable plan (as distinguished from an amendment that modifies the objectives of a plan but not Targacept’s activities), resulting in an expense to Targacept not contemplated in the then-current Total Research Budget or applicable then-current Targacept Research Budget, which additional expense is [********] , Targacept shall advise AstraZeneca in good faith of the aggregate additional cost of such activities and the Parties through the JRC shall agree on a corresponding amendment to the Total Research Budget or applicable Targacept Research Budget to reflect the commercially reasonable costs of such activities [********] , such matter shall promptly be referred to an Expert in accordance with Section 14.4 (expedited arbitration).

4.3 Screening and Designation of Compounds .

4.3.1 Screening and Prioritization of Compounds . During the Research Program Term, Targacept shall use good faith and Commercially Reasonable Efforts to identify and screen for Minimum Binding Affinity all Compounds that show promise to be potential Collaboration Candidates. For the avoidance of doubt, any compounds that both (a) are Derived from a Collaboration Candidate, Active+ Compound, Collaboration Compound or Candidate Drug (other than Ispronicline (or any Licensed Derivatives with respect thereto) after the end of the Research Program Term or the Restricted Derivative Period for Ispronicline, whichever occurs first (for purposes of clarity, any Licensed Derivatives with respect to Ispronicline (or any Licensed Derivatives with respect thereto) shall be included in this Section 4.3.1 solely for screening purposes and not for purposes of expanding the definition of Collaboration Candidate), and other than any Option Compound Candidate Drug) by or on behalf of a Party during the Research Program Term or the Tail Period and (b) either have Minimum Binding Affinity or are

 

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not the [********] where an objective of the [********] , in whole or in part, was [********] shall be Collaboration Candidates, subject to screening under the Research Program or an Additional Research Program. The JRC shall prioritize for each Contract Quarter the order in which Collaboration Candidates and Active+ Compounds shall progress through additional screens and activities under the Research Program or any Additional Research Program, provided that the JRC shall prioritize the screening of any Derivatives of a Collaboration Candidate that do not satisfy clause (b) of the definition of Minimum Binding Affinity in Section 1.184 so as to enable the JRC to determine whether each such Derivative is an Active+ Compound promptly following the determination that such Derivative does not satisfy clause (b) of such definition. For the avoidance of doubt, with respect to any Compounds in the Research Program or any Additional Research Program, Targacept shall have the right, in any Contract Quarter, to screen and conduct research activities under the Research Program or any Additional Research Program with respect to Collaboration Candidates and Active+ Compounds that are not scheduled for screening in such Contract Quarter under the applicable Annual Research Plan or Additional Research Plan at its own cost and expense; provided that Targacept shall provide AstraZeneca with advance written notice of any such activities, which notice shall specify those Collaboration Candidates and Active+ Compounds with respect to which Targacept plans to screen and conduct research activities, and the specific screening and research activities to be performed, during such Calendar Quarter; and provided further that such activities shall not derogate from or otherwise adversely affect Targacept’s conduct of activities under the Research Program during such Contract Quarter with respect to such Collaboration Candidates or Active+ Compounds, or screening or other activities that are scheduled for such Contract Quarter. For purposes of clarity, all Technology resulting from such additional research activities shall be Targacept Research Technology or Joint Technology, as applicable, and all Compounds that are subject to, or generated or identified under, such additional research activities, shall remain subject to this Article 4 and the other terms and conditions of this Agreement. Notwithstanding the foregoing, neither Party shall, in connection with the Research Program, make any Derivatives (including by conducting further optimization) of a Collaboration Candidate that that does not satisfy clause (b) of the definition of Minimum Binding Affinity in Section 1.184 unless such Collaboration Candidate is an Active+ Compound.

 

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4.3.2 Designation of Active+ Compounds . The JRC or, on written notice to Targacept, AstraZeneca, shall have the right at any time during the Research Program Term or the Tail Period to determine that a Collaboration Candidate that is not a Terminated Compound satisfies the Active+ Criteria, whereupon such Collaboration Candidate shall become an Active+ Compound; provided , however , that Targacept shall have the right, for a period of [********] after such determination, to challenge such determination by referring its dispute with respect to such determination to the ESC pursuant to Section 2.1.5(c), and then, if applicable, to an Expert for resolution in accordance with Section 14.3 (accelerated arbitration); provided further that, for clarity, such Collaboration Candidate shall continue to be an Active+ Compound unless and until Targacept challenges such determination within such [********] period and such Collaboration Candidate is finally determined by the ESC (in accordance with Section 2.1.5(c)) or an Expert (in accordance with Section 14.3) to not satisfy the Active+ Criteria, in which event, if such putative Active+ Compound had been designated a Lead Collaboration Compound, (i) it and all Related Collaboration Compounds with respect to it shall be Terminated Compounds (unless, with respect to any such Related Collaboration Compound, such Related Collaboration Compound is a Related Collaboration Compound to another Lead Collaboration Compound that has not been terminated) and (ii) AstraZeneca shall have the right to designate a replacement Lead Collaboration Compound pursuant to Section 4.7.1.

4.3.3 Designation of Lead and Related Collaboration Compounds . Subject to Section 4.7.1, the JRC or AstraZeneca may at any time during the Research Program Term or the Tail Period designate any Active+ Compound that is not a Terminated Compound as a Lead Collaboration Compound. With respect to each such designated Lead Collaboration Compound, any Related Collaboration Compounds with respect thereto shall be automatically deemed to be designated as a Collaboration Compound. Upon each designation of a Lead Collaboration Compound by AstraZeneca, the Parties shall cooperate to prepare a list of all Related Collaboration Compounds with respect thereto. For purposes of clarity, all Licensed Derivatives with respect to Ispronicline shall be Candidate Drugs and not Collaboration Compounds, unless AstraZeneca, in its sole discretion, elects to designate such a Licensed Derivative as a Lead Collaboration Compound.

 

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4.4 Conduct of Research Program .

4.4.1 Targacept Diligence . Targacept shall use Commercially Reasonable Efforts to conduct the Research Program in accordance with the Research Plan and to achieve the objectives set forth therein and in Section 4.1.1 and to do so in accordance with the Total Research Budget and each Targacept Research Budget, including by committing such resources, including FTEs, as are specified in each Annual Research Plan to conduct its activities set forth therein; provided that Targacept shall have the right to notify the JRC promptly upon becoming aware of a scientific or technical problem outside of its reasonable control (which, for purposes of clarity, shall not include issues arising from [********]) that is likely, notwithstanding Targacept’s exercise of Commercially Reasonable Efforts, to preclude Targacept from completing any activity or meeting any objective set forth in an Annual Research Plan with the estimated FTEs (or 110% of the FTEs) (a “ Material Unexpected Technical Research Problem ”). As part of such notification, Targacept shall provide the JRC with a reasonably detailed description of such Material Unexpected Technical Research Problem, together with its good faith belief as to the steps necessary to complete such activity or meet such objective, if practicable at all, in light of such Material Unexpected Technical Research Problem. Upon receipt of such notification, the JRC shall then meet [********] to determine whether to modify the Annual Research Plan as it applies to such activity or objective to: [********] take such other action as may be mutually acceptable to the Parties (each a “ Research Workaround ”); provided that, following notification of a Material Unexpected Technical Research Problem with respect to an activity or objective, Targacept shall not be required to perform such activity or seek to achieve any such objective unless and until the JRC acts to address such Material Unexpected Technical Research Problem. Except as otherwise provided in a Research Workaround or in Section 6.4.3, Targacept shall be solely responsible for any FTE Costs or External Targacept R&D Costs for an activity that exceed the amount set forth in the Targacept Research Budget for such activity or the Total Research Budget in the aggregate. For purposes of clarity, subject to Targacept’s rights to conduct additional activities under the Research Program as provided in Section 4.3.1, no modification to the Annual Research Plan (or Targacept Research Budget with respect thereto) will be implemented unless agreed by the JRC pursuant to Section 2.2.4, in accordance with the proviso set forth in Section 4.2.

4.4.2 Specified Personnel . The scientific and technical personnel of Targacept considered by AstraZeneca to be important for the conduct of the Research Program (the

 

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“ Specified Personnel ”) are listed on Schedule 4.4.2, [********] . Without limiting the foregoing, Targacept shall, consistent with [********] Schedule 4.4.2 and their experience and expertise, assign each Specified Personnel (or, in the event any Specified Personnel is no longer employed by Targacept, an individual who holds a substantially similar position within Targacept and who has substantially similar or greater expertise with respect to NNRs generally) to conduct those activities under the Research Program (including service on a Research Project Team) that are relevant to his or her area(s) of expertise without regard to other projects that Targacept may be conducting itself or with or for a Third Party. For so long as each of the Specified Personnel is employed by Targacept, as and to the extent the Research Plan requires, [********] , and Targacept shall not materially reduce the responsibilities or activities of any Specified Personnel with respect to the Research Program without the prior written approval of AstraZeneca, which approval shall not be unreasonably withheld, conditioned or delayed. In the event that any Specified Personnel is no longer employed by Targacept or is otherwise incapable of helping Targacept perform its obligations under this Agreement (e.g., becomes disabled), the Parties shall meet and discuss in good faith how best to proceed, provided in no event shall this discontinuation of employment or incapacity of any Specified Personnel with Targacept in and of itself be deemed a breach by Targacept of this Agreement or a basis for termination by AstraZeneca pursuant to Section 11.2.4. In any event, Targacept shall continue to be responsible for performing the Research Program in accordance with this Agreement, and any consent or agreement by AstraZeneca pursuant to this Section 4.4.2 shall not be deemed to be a waiver of any failure of Targacept to conduct the Research Program under this Agreement.

4.4.3 AstraZeneca Diligence . AstraZeneca shall use Commercially Reasonable Efforts to conduct the AstraZeneca Research Activities set forth in each Annual Research Plan, if any.

4.4.4 Compliance and Funding . Each Party shall perform its obligations under each Annual Research Plan in good scientific manner and in compliance with all Applicable Laws. For purposes of clarity, with respect to each activity performed under an Annual Research Plan that will or would reasonably be expected to be submitted to a Regulatory Authority in support of a Regulatory Filing or Drug Approval Application, the Party performing such activity shall comply in all material respects with the regulations and guidance of the FDA that constitute

 

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Good Laboratory Practice or Good Manufacturing Practices (or, if and as appropriate under the circumstances, International Conference on Harmonization (ICH) guidance or other comparable regulation and guidance of any Regulatory Authority in any country or region in the Territory). Subject to Targacept’s right to receive the funding described in Section 6.4, each Party shall be solely responsible for paying the salaries, benefits and all other costs and expenses of its employees and the fees and all other costs and expenses payable to any consultants or Third Party contractors, in each case conducting its activities under Annual Research Plans or Additional Research Plans.

4.4.5 Cooperation . Scientists at Targacept and AstraZeneca shall cooperate in the performance of the Research Program and, subject to the terms of this Agreement and any confidentiality obligations to Third Parties, shall, if requested by the other Party and at its own cost, exchange such data, information and materials as are reasonably necessary for the other Party to perform its obligations under any Annual Research Plan.

4.5 Records .

4.5.1 Record Keeping .

(a) Research Program Records . Each Party shall mainta