EX-10.29 DRUG DISCOVERY COLLABORATION AGREEMENT

 

entity, or if not meeting the preceding, the maximum voting right that may be held by the particular Party under the laws of the country where such entity exists.

 

1.2                                 “Agreement Term” shall mean the term of this Agreement, as determined in accordance with Article 12.

 

1.3                                 “Collaboration Technology” shall mean all Collaboration Patents and Collaboration Know-How.

 

1.4                                 “Collaboration Patents” shall mean all patents and patent applications anywhere in the world claiming an invention first conceived and/or reduced to practice solely or jointly by Array and/or InterMune personnel in the course of performing the Research Collaboration, including without limitation any such invention comprising a Hit Compound, Lead Compound or Product, or method of use or process for the synthesis thereof or composition-of-matter containing such Hit Compound, Lead Compound or Product.  The Collaboration Patents may include the following types of patent applications and patents:  divisionals, continuations, continuations-in-part, reissues, reexaminations, renewals or extensions, substitutions, confirmations, registrations and revalidations.

 

1.5                                 “Collaboration Know-How” shall mean all Know-How made or developed solely or jointly by Array and/or InterMune in the course of performing the Research Collaboration, in each case, which is necessary or useful for the development, manufacture, use, sale or other commercialization of any Hit Compound, Lead Compound or Product.  Collaboration Know-How does not include patentable inventions claimed in the Collaboration Patents.

 

1.6                                 “Consumer Price Index” or “CPI” means the Consumer Price Index, All Urban Consumers, as published by the U.S. Bureau of Labor Statistics.

 

1.7                                 “Control” shall mean, with respect to any patent application, patent or Know-How, the ownership of, or possession of a license under, such patent application, patent or Know-How, together with the right to grant a license to the other Party thereunder as provided in this Agreement.

 

1.8                                 “Field” shall mean the discovery, development and commercialization of chemical entities for the therapeutic or prophylactic treatment of diseases and conditions in humans, a mechanism of action of which chemical entities is to modulate the activity of a Target.

 

1.9                                 “FTE” shall mean a full-time person dedicated to the Research Collaboration, or in the case of less than a full-time, dedicated person, a full-time equivalent person year, based upon a total of one thousand eight hundred eighty (1,880) hours per year of work in connection with the Research Collaboration.

 

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1.10                           “JRC” or “Joint Research Committee” shall have the meaning set forth in Section 3.1.

 

1.11                           “Hit Compound” shall mean any chemical entity that meets the Hit Compound Criteria.

 

1.12                           “Hit Compound Criteria” shall mean (i) those criteria set forth in the Research Plan to be “Hit Compound Criteria,” and/or (ii) such other criteria as are approved by the JRC and agreed in writing by the Parties. If the Parties agree to any such other criteria, then their writing shall clearly set forth whether such criteria are in addition to, or alternative to, such criteria set forth in the Research Plan as of the Effective Date.

 

1.13                           “Know-How” shall mean ideas, inventions, data, instructions, processes, formulas, expert opinions and other information (including, without limitation, biological, chemical, pharmacological, toxicological, pharmaceutical, physical, analytical, clinical, safety, manufacturing and quality control data and information).

 

1.14                           “Lead Compound” shall mean any chemical entity that meets the Lead Compound Criteria.

 

1.15                           “Lead Compound Criteria” shall mean (i) those criteria set forth in the Research Plan to be “Lead Compound Criteria,” and/or (ii) such other criteria as are approved by the JRC and agreed in writing by the parties.  If the Parties agree to any such other criteria, then their writing shall clearly set forth whether such criteria are in addition to, or alternative to, such criteria set forth in the Research Plan as of the Effective Date.

 

1.16                           “NDA” shall mean a New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or any corresponding foreign application, registration or certification.

 

1.17                           “Net Sales” shall mean [ * ].

 

1.18                           “Party” or “Parties” shall mean, respectively, Array or InterMune individually, or Array and InterMune collectively.

 

1.19                           “Phase II” shall mean the phase of human clinical trials for which the primary endpoints include a determination of dose ranges and/or a preliminary determination of efficacy in patients in the United States or a country other than the United States.  Phase II specifically excludes that phase of human clinical trials commonly referred to as “Phase I” clinical trials, which are solely intended to determine safety but not definitive dosing and efficacy of a pharmaceutical.

 

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1.20                           “Phase III” shall mean the phase of human clinical trials the principal purpose of which are to establish safety and efficacy of one or more particular doses in patients being studied, and which will (or are intended to) satisfy the requirements of a pivotal trial for purposes of obtaining approval of a product in a country by the health regulatory authority in such country to market such product.

 

1.21                           “Preparatory Know-How” shall mean all Know-How made or developed by Array [ * ] that relates to the subject matter of the Research Collaboration and/or to any Hit Compound, Lead Compound or Product, to the extent Controlled by Array.

 

1.22                           “Preparatory Patents” shall mean all patent applications and patents anywhere in the world claiming any invention conceived and/or reduced to practice by Array [ * ] that relates to the subject matter of the Research Collaboration and/or to any Hit Compound, Lead Compound or Product, in each case to the extent Controlled by Array.

 

1.23                           “Product” shall mean any diagnostic, therapeutic or prophylactic product incorporating as an active ingredient a Hit Compound or a Lead Compound.

 

1.24                           “Research Collaboration” shall mean the research activities undertaken by the Parties during the Research Term pursuant to Sections 2.1 to 2.3 below.

 

1.25                           “Research Plan” shall mean the written research plan that the Parties have agreed to on or before the Effective Date.  The Research Plan may be amended from time to time by mutual agreement of the Parties, and shall be updated as set forth in Section 2.2.2.

 

1.26                           “Research Term” shall mean the term of the Research Collaboration, as provided in Section 2.3 below.

 

1.27                           “Reserved Target” shall mean those targets identified in Exhibit A as “Reserved Targets.”

 

1.28                           “Sublicensee” shall mean, with respect to a particular Product, a Third Party to whom InterMune has granted a license or sublicense under the Collaboration Technology to make and sell such Product.  As used in this Agreement, “Sublicensee” shall specifically exclude a Third Party to whom InterMune has granted the right to distribute such Product, provided that the economics of the distribution relationship involve payment of a transfer price by the distributor, but not a royalty to InterMune calculated as a percentage of net sales of the Product by the distributor.

 

1.29                           “Target(s)” shall mean (i) the target identified in Exhibit A as the “Target,” and (ii) any Reserved Target selected in accordance with Section 2.2.1 below for use in the Research Collaboration.

 

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1.30                           “Third Party” shall mean any person or entity other than Array and InterMune, and their respective Affiliates.

 

1.31                           “Valid Claim” shall mean [ * ].

 

ARTICLE 2
RESEARCH COLLABORATION

 

2.1                                 Goals.  The goal of the Research Collaboration is the discovery and optimization of patentable compositions that are orally active small molecule inhibitors in the Field pursuant to the Research Plan.

 

2.2                                 Conduct of the Research Collaboration.  Subject to the terms and conditions set forth herein, the Parties agree to conduct research under the Research Collaboration, which shall be funded as set forth in Article 5 below.  During the Research Term, Array and InterMune shall collaborate and each use their commercially reasonable efforts to conduct their respective responsibilities under the Research Collaboration in accordance with the Research Plan, within the time frames contemplated therein.  In particular, Array shall devote the numbers of FTEs set forth for it to devote in the Research Plan to carrying out the tasks assigned to Array at the times set forth therein.

 

2.2.1                        Target Selection.  The initial subject of the Research Collaboration shall be the Target identified in the Research Plan as of the Effective Date.  During the Research Term, either Party may propose in writing that the Research Collaboration be expanded to include research involving one of more Reserved Target(s).  Upon written consent of the other Party, each Reserved Target so proposed shall cease to be a Reserved Target for purposes of this Agreement and shall thereafter be deemed a Target.

 

2.2.2                        Research Plan.  The Research Collaboration shall be carried out in accordance with the Research Plan.  The Research Plan as it exists as of the Effective Date establishes specific research objectives and the general research tasks to be performed and resources to be provided by each Party.  Promptly after the Effective Date, the Parties shall meet and agree on the more specific tasks to be undertaken to achieve such research objectives and general tasks, the specific anticipated timelines for such specific tasks, and an FTE schedule setting forth how many FTEs Array will devote to the performance of the tasks assigned to it in each quarter of the Research Term.  Within thirty (30) days after the Effective Date, the JRC shall meet to discuss and approve such an update to the Research Plan to cover such subject matter.  Thereafter, the Research Plan shall be reviewed on an ongoing basis and may be amended by the Joint Research Committee in accordance with Article 3, or by the Parties in accordance with Section 4.4.

 

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2.3                                 Term and Termination of Research Collaboration.   The Research Collaboration shall commence on the Effective Date and shall end upon the first to occur of (i) two (2) years after the Effective Date, (ii) the termination of this Agreement, or (iii) ninety (90) days after written notice from InterMune that InterMune elects (in its sole discretion) to early terminate the Research Collaboration, such notice to be given no earlier than nine (9) months after the Effective Date (such period beginning on the Effective Date and ending upon the earliest of (i), (ii) and (iii), the “Research Term”).  InterMune shall have the right to extend the Research Term for up to an additional two (2) years.  To exercise such right, InterMune shall provide written notice to Array on or before the date ninety (90) days before the second anniversary of the Effective Date.

 

2.4                                 Selection of Candidates for Further Development.  From time to time, either Party may suggest that the JRC consider a particular Hit Compound or Lead Compound to be recommended to InterMune for selection for further development.  The JRC’s recommendation is not binding on InterMune.  The purpose of having the JRC make any such recommendation is to foster collaboration and scientific exchange between the Parties during the Research Term.  InterMune agrees to inform Array of any Hit Compounds and Lead Compounds researched hereunder for which InterMune is undertaking any GLP toxicology studies in the next report under Section 7.2 after such studies commence.

 

2.5                                 Records; Inspection.

 

(a)                                  Records.  Array and InterMune shall maintain records of the Research Collaboration (or cause such records to be maintained) in sufficient detail and in good scientific manner as will properly reflect all work done and results achieved in the performance of the Research Collaboration (including all data in the form required under any applicable governmental regulations and as directed by the JRC).

 

(b)                                 Reports and Information Exchange.  Each Party shall keep the other Party, including the Joint Research Committee, informed as to its progress under the Research Plan.  During the Research Term, Array and InterMune shall each provide the other, at least once quarterly, a reasonably detailed written summary of research activities and results in connection with the Research Collaboration.  In addition, if requested in writing by InterMune, Array shall provide InterMune with copies of its records required to be kept pursuant to Section 2.5(a), including without limitation the relevant portions of laboratory notebooks of Array personnel participating in the Research Collaboration.

 

2.6                                 Post Research Collaboration Activities.  For each Hit Compound, Lead Compound and Product, as between the Parties, InterMune shall be responsible, at its sole expense, for conducting all clinical development of such Lead Compound or Product following the termination of the Research Term, and all commercialization of such Hit Compound, Lead Compound or Product.

 

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2.7                                 Exclusivity.

 

2.7.1                        General.  Except in performing pursuant to the Research Collaboration, Array and its Affiliates shall not knowingly [ * ], alone or with a Third Party, [ * ] specifically directed to (i) [ * ], during the Research Term and for a period of [ * ] thereafter, (ii) or [ * ], during the Research Term.  It is understood and agreed that [ * ] shall not be deemed a violation of this Section 2.7.

 

2.7.2                        Option.  During the Research Term, prior to Array or any of its Affiliates entering into material or substantial negotiations with a third party in connection with [ * ], other than a Target or a Reserved Target, or using [ * ], Array will notify InterMune in writing of such intent.  Within thirty (30) days after receipt of such notice, InterMune will notify Array in writing whether InterMune is interested in pursuing such activities in collaboration with Array, under terms equivalent to those contained in the Agreement.  If so, InterMune and Array will negotiate in good faith an agreement under which Array and InterMune would collaborate on such compound discovery research.  If the parties have not agreed upon terms and conditions of such an agreement within ninety (90) days after receipt of InterMune’s notice, or if InterMune does not indicate its interest within such thirty (30) day period, then Array and its Affiliates shall be free to pursue [ * ] that was the subject of Array’s notice to InterMune, alone or with a Third Party, without further obligation to InterMune, [ * ].

 

2.7.3                        Change of Control.  Notwithstanding the provision of Sections 2.7.1 and 2.7.2, in the event of a Change of Control (as defined below) of Array, the provisions of such Sections shall not apply to any research or development program that a portion of the surviving entity that was not Array (prior to the Change of Control) had ongoing as of immediately prior to the date of such Change of Control.  For purposes of this Section 2.7, a “Change of Control” shall mean the merger, consolidation, sale of substantially all of its assets or similar transaction or series of transactions, as a result of which Array’s shareholders before such transaction or series of transactions own less than fifty percent (50%) of the total number of voting securities of the surviving entity immediately after such transaction or series of transactions.  For clarity, if as a result of any such Change of Control, Array exists as a wholly owned subsidiary of a parent, then the provisions of this Section 2.7 shall continue to apply to Array, but not to such parent.

 

2.8                                 Existing Library Compounds.  As of the Effective Date, the Parties will focus upon new compound libraries created pursuant to the Research Collaboration, and the Parties will not engage in high throughput screening against pre-existing or separate compound libraries of Array pursuant to the Research Collaboration.

 

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ARTICLE 3
MANAGEMENT

 

3.1                                 Joint Research Committee.  Promptly after the Effective Date, InterMune and Array will establish a committee (the “Joint Research Committee” or “JRC”) to oversee, review and recommend direction of the Research Collaboration, and provide advice regarding prosecution of jointly-owned patent applications directed to inventions within the Collaboration Technology.  The responsibilities of the Joint Research Committee shall include, among other things: (i) setting priorities and modifying the Research Plan; (ii) recommending the number of FTEs to be provided for in the Research Plan; (iii) monitoring and reporting research progress and ensuring open and frequent exchange between the Parties regarding Research Collaboration activities; and (iv) recommending Hit Compounds and Lead Compounds for selection by InterMune as candidates for further development.  The JRC (and any of its subcommittees) shall have no authority to amend or waive compliance with this Agreement.  The JRC’s decision-making shall be as set forth in Section 3.4.

 

3.2                                 Membership.  The JRC shall include two (2) representatives of each of InterMune and Array.  Each Party’s members shall be selected by that Party.  Array and InterMune may each replace its JRC representatives at any time, upon written notice to the other Party.  From time to time, the JRC may establish subcommittees, to oversee particular projects or activities, and such subcommittees will be constituted as the JRC agrees.

 

3.3                                 Meetings.  During the Research Term, the JRC shall meet at least quarterly, or as agreed by the Parties, at such locations as the Parties agree, and will otherwise communicate regularly by telephone, electronic mail, facsimile and/or video conference.  With the consent of the Parties, other representatives of Array or InterMune may attend JRC meetings as nonvoting observers.  Each Party shall be responsible for all of its own expenses associated with attendance of such meetings.  The first meeting of the JRC shall occur within forty-five (45) days after the Effective Date.

 

3.4                                 Decision Making.  Decisions of the JRC shall be made by unanimous agreement.  In the event that unanimity is not achieved within the JRC, then, other than with respect to setting criteria for Hit Compounds and Lead Compounds, InterMune shall have the deciding vote; provided, however, that notwithstanding the foregoing, Array shall not be obligated, as a result of such a deciding vote by InterMune, to violate any obligation or agreement it may have to or with any Third Party; provided that the obligation to or agreement with the Third Party is not in conflict with this Agreement as originally executed or the activities that would be required or contemplated of Array under the Research Plan as it exists as of the Effective Date.  Disputes among the JRC or the Parties as to whether to change or add to the Hit Compound Criteria and/or the Lead Compound Criteria shall be non-justiciable, and the Hit Compound Criteria and the Lead Compound Criteria shall remain as they exist as of the Effective Date unless the Parties otherwise agree in writing.

 

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ARTICLE 4
LICENSES

 

4.1                                 Research Licenses.

 

4.1.1                        Grant from InterMune.  InterMune hereby grants Array a worldwide, non-exclusive, non-transferable, non-sublicensable, royalty-free, right and license, under InterMune’s interest in the Collaboration Technology, solely to conduct the Research Collaboration during the Research Term.

 

4.1.2                        Grant from Array.  Array hereby grants InterMune a worldwide, non-exclusive, non-transferable, non-sublicensable, royalty-free, right and license, under Array’s interest in the Collaboration Technology and under the Preparatory Patents and the Preparatory Know-How, solely to conduct the Research Collaboration during the Research Term.

 

4.2                                 Commercial License.

 

4.2.1                        License to Lead Compounds, Development Candidates and Corresponding Products.  Subject to the terms and conditions of this Agreement, Array hereby grants to InterMune a worldwide, exclusive, royalty-bearing right and license under Array’s interest in the Collaboration Technology and under the Preparatory Patents, to research, develop, make, have made, use, import, offer for sale and sell Hit Compounds, Lead Compounds and Products worldwide.

 

4.2.2                        Preparatory Know-How.  Subject to the terms and conditions of this Agreement, Array hereby grants to InterMune a worldwide, non-exclusive, royalty-bearing right and license under the Preparatory Know-How to research, develop, make, have made, use, import, offer for sale and sell Hit Compounds, Lead Compounds and Products worldwide.

 

4.2.3                        Sublicenses.  Subject to the terms and conditions of this Agreement, InterMune shall have the right to sublicense the rights granted in Section 4.2.1 above through one (1) or more tiers of sublicensees.  Each sublicense granted by InterMune shall be consistent with all the terms and conditions of this Agreement, and shall automatically terminate with respect to the patents and know-how licensed hereunder when this Agreement terminates.   InterMune shall remain responsible to Array for the compliance of each such Sublicensee with this Agreement as applicable to such Sublicensee, and the payment of any amounts due hereunder as a result of the activities of Sublicensees.

 

4.2.4                        Marketing Rights.  InterMune shall have the exclusive right to market, sell and distribute Products.  In exercising such rights, InterMune may select trademarks for such Products, and InterMune shall own all right, title or interest in such trademarks (subject to any pre-existing rights of Array or Third Parties).

 

4.3                                 License to Array.  InterMune hereby grants to Array a worldwide, non-exclusive, transferable, royalty-free right and license, with the right to grant and authorize sublicenses,

 

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under InterMune’s interest in the Collaboration Technology, to exploit the same outside the scope of Array’s exclusive license to InterMune pursuant to Section 4.2.

 

4.4                                 Third-Party Licenses.  In the event that the Parties agree to acquire additional technologies from a Third Party specifically for use in the conduct of the Research Collaboration in the Field, InterMune will be responsible for the payment of any amounts due to Third Parties for the license of intellectual property which directly applies to any Target, and the costs of negotiating, preparing and executing any such license, unless the Parties otherwise mutually agree in writing.  InterMune shall use its reasonable efforts to negotiate in good faith and obtain all Third Party licenses that it agrees to seek because they are necessary or useful for the conduct of the Research Collaboration.  If, during the Research Term, InterMune is unable, despite such efforts, to obtain any license necessary for the conduct of the Research Collaboration, and the Parties are unable to agree to amend the Research Plan such that such license is no longer necessary to the conduct of the Research Collaboration, then InterMune shall have the right to terminate this Agreement upon thirty (30) days notice.

 

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

 

4.6                                 No Products Other than Products.  Except as otherwise agreed in writing or specifically provided in the terms of this Agreement, neither InterMune nor its Affiliates nor Sublicensees shall, directly or indirectly, commercialize any Hit Compound or Lead Compound itself or the method of manufacture or use of which is claimed by the Collaboration Patents or uses the Collaboration Know-How, other than as a Product in accordance with this Agreement (i.e., any Products sold by InterMune, its Affiliates and Sublicensees in exercise of the license granted InterMune in Section 4.2.1 shall be milestone and royalty-bearing to the extent set forth in this Agreement).

 

ARTICLE 5
PAYMENTS

 

5.1                                 Research Collaboration Funding.

 

5.1.1                        Research Phase Payment Schedule.  InterMune agrees to pay Array research funding for the conduct of the Research Collaboration quarterly, in advance, in an amount equal to one quarter (1/4) of [ * ] FTEs (or, if lesser, the number of Array FTEs scheduled in the Research Plan to be provided by Array in the upcoming quarter), multiplied by the applicable Array FTE Rate (as defined below in Section 5.1.2).  The initial quarterly payment shall be made on or before the date Array FTEs are first deployed in accordance with the Research Plan, and subsequent payments shall be made on or before the first day of each calendar quarter thereafter.  Such payments are non-creditable and non-refundable, subject to the

 

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remainder of this Section 5.1.1.  Within thirty (30) days after the end of each calendar quarter during which InterMune is funding Array FTEs devoted to the Research Collaboration, Array shall notify InterMune in writing of the number of FTEs Array actually devoted to the Research Collaboration during such calendar quarter.  If such actual FTEs are less than the number of FTEs for which InterMune paid, then InterMune may credit the overpayment against the next payment due Array under this Agreement.  If no payment will be due Array within the next three (3) months after Array was required to notify InterMune of such actual FTEs, Array shall promptly refund the overpayment to InterMune.  In addition, InterMune may audit Array’s FTE records relating to the Research Collaboration, in the same manner and subject to the same restrictions as those set forth for Array’s audits pursuant to Section 6.4, and any discrepancies shall be trued-up as provided in the foregoing two (2) sentences.  In no event shall InterMune be required to fund a greater number of Array FTEs in any calendar quarter than one quarter (1/4) of [ * ] FTEs, or, if lesser, those provided in the Research Plan for Array to provide in such quarter.

 

5.1.2                        FTE Rate.  The “Array FTE Rate” shall be equal to [ * ] per FTE per year.  Effective after the first anniversary of the Effective Date, the FTE Rate shall increase no more than once annually by the percentage increase, if any, in the Consumer Price Index for all Urban Consumers, as published by the U.S. Department of Labor, Bureau of Statistics, since the Effective Date or the last adjustment hereunder, whichever is later.

 

5.1.3                        Non-FTE Costs.  Non-FTE costs and research requirements associated with performance of the Research Collaboration at Array shall be borne by Array, except that Array shall not be required to incur any extraordinary [ * ] costs without Array’s prior written consent.  Extraordinary [ * ] costs means material costs in excess of [ * ].

 

5.1.4                        PK Outsourcing.  In the event that the Parties agree, in the course of the Research Collaboration, to enter into one or more agreements with a Third Party(ies) for the performance of [ * ] with respect to a particular Hit Compound(s) and/or Lead Compound(s), the Parties shall be responsible for the payment of the aggregate amounts due such Third Party(ies) under such agreements as follows:  (i) Array shall be responsible for payment of [ * ] due during each of (1) the period commencing on the Effective Date and ending on the first anniversary thereof, and (2) the following twelve (12) months (unless the Research Term is earlier terminated); and (ii) InterMune shall responsible for the payment of all additional amounts that are approved in advance by InterMune.  The Parties anticipate that they will contract with Third Parties for [ * ] in each year of the Research Term.  The Parties will mutually agree the specific studies to be conducted, and the specific Third Parties that will conduct the studies.  Array shall not unreasonably withhold its agreement to particular such studies, or withhold its consent to the Parties contracting for any such studies on the grounds of the cost of the studies.

 

5.2                                 Development Funding.  In addition to the funding obligations set forth in Section 5.1, InterMune shall be responsible for all costs and expenses for otherwise developing and

 

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commercializing the Products, including without limitation, preclinical development, clinical development, premarketing and commercial activities.  For clarity, this means that as between the Parties, InterMune is responsible for the costs of activities in exercise of the license granted it in Section 4.2.1.

 

5.3                                 Milestones.  InterMune shall pay to Array the following amounts [ * ] following the first achievement by Array or by InterMune or its Affiliates, Sublicensees or other designees, as the case may be, of each of the following milestones with respect any [ * ] or Product that itself, or the manufacture, use or sale of which is claimed by a Valid Claim or that incorporates as its active ingredient a Hit Compound that was identified as such pursuant to the Research Collaboration (a “Milestone Product”).

 

Milestones		Payment Amount
1.[ * ]		$	[ * ]
2.[ * ]		$	[ * ]
3.[ * ]		$	[ * ]
4.[ * ]		$	[ * ]
5.[ * ]		$	[ * ]

 

5.3.1                        Milestone payments [ * ] set forth above shall each be payable [ * ] upon the achievement of the corresponding milestone event with a Milestone Product [ * ], and [ * ] upon the achievement of the corresponding milestone event with a Milestone Product [ * ].  Milestone payment [ * ] set forth above shall be due [ * ], and milestone payments [ * ] set forth above shall be due [ * ], regardless of the number of additional times the corresponding milestone events are achieved with one (1) or multiple [ * ] or Milestone Products.

 

5.3.2                        In the event that one or more milestone payments described above becomes due (a “Later Milestone”) in relation to the achievement of a corresponding milestone event with a Milestone Product [ * ], and one or more of the earlier-stage milestone payments has not been paid to Array in relation to the achievement of a corresponding milestone event with a Milestone Product [ * ], then all earlier-stage milestone payments in relation to the achievement of a corresponding milestone event with a Milestone Product [ * ] that have not been paid shall be paid together with the Later Milestone payment.  Similarly, if a Later Milestone becomes due in relation to the achievement of the corresponding milestone event with a Milestone Product [ * ], then all earlier stage milestone payments in relation to the achievement of the corresponding milestone events with a Milestone Product [ * ] shall be paid together with such Later Milestone. For clarity, nothing in this Section 5.3.2 shall be deemed to contradict the limits

 

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set forth in Section 5.3.1 as to the number of times each milestone payment is available under this Agreement.

 

5.3.3                        For purposes of this Section 5.3, a clinical trial shall be deemed initiated upon the first dosing of the first patient in such trial.

 

5.4                                 Royalties.

 

5.4.1                        Products.  InterMune shall pay Array a running royalty of [ * ] of Net Sales of each Product during the time periods and in countries in which its manufacture, use or sale of such Product is claimed by a Valid Claim.  Such rate shall not be increased if multiple Valid Claims claim the manufacture, use or sale of such Product.  Notwithstanding the foregoing, if and when the only Valid Claim claiming such manufacture, use or sale is a claim directed to a method of use or manufacture solely invented by InterMune (an “InterMune Sole Non-composition Claim”), then no such running royalty shall be due.  No running royalties shall be due hereunder on the basis of the use of the Collaboration Know-How.

 

5.4.2                        Royalty Term.  InterMune’s obligation to pay royalties to Array under this Section 5.4 shall continue for each Product that itself or the method of manufacture or use of which is claimed by a Valid Claim, on a country-by-country basis, until such time as there are no Valid Claims (other than InterMune Sole Non-composition Claims) which but for the licenses granted herein would be infringed by the manufacture, use or sale of such Product in such country.  Upon the expiration of such term of royalties in any country with respect to any Product, InterMune’s license under Section 4.2 with respect to such Product in such country shall automatically become fully paid, nonexclusive and perpetual.

 

5.4.3                        Third Party Royalties.  In the event that (i) it becomes necessary or useful for InterMune to obtain a license under a valid, issued patent of a Third Party, where such patent covers the composition, methods of therapeutic use, or all practical methods of synthesis of a Product, and such patent would be infringed, but for the existence of the Third-Party license, by the discovery, research, development or sale of such Product, and (ii) InterMune must pay such Third Party for such license a royalty on Net Sales of such Product in a particular country, then InterMune may deduct [ * ] of the royalties reasonably so paid to such Third Party against royalties due Array on Net Sales of such Product; provided that the royalties otherwise due to Array in any quarter will not be lower than [ * ] (the “Floor”) by operation of an offset provided for in this Section 5.4.3.  Amounts that InterMune is unable to deduct in a particular calendar quarter due to the Floor may be carried forward and deducted in future calendar quarters, subject always to the Floor in the future calendar quarters.

 

5.4.4                        Combination Products. If InterMune sells any Product in the form of a combination product containing one or more active ingredients in addition to the active ingredient that is a Lead Compound (which may be either combined in a single formulation or

 

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packaged as separate formulations sold as a single package), Net Sales for such combination product will be calculated by multiplying actual Net Sales of such combination product by the fraction A/(A+B) where A is the invoice price of the Lead Compound portion of the combination product if sold separately, and B is the total invoice price of the other active ingredient or ingredients in the combination, if sold separately.  If, on a country-by-country basis, the other active ingredient or ingredients in the combination are not sold separately in said country, Net Sales for the purpose of determining royalties due hereunder on the combination product shall be calculated by multiplying actual Net Sales of such combination product by the fraction A/C where A is the invoice price of the Lead Compound portion of the combination product if sold separately, and C is the invoice price of the combination product.  If, on a country-by-country basis, the Licensed Product is not sold separately in said country, Net Sales for the purposes of determining royalties of the combination product shall be determined by the Parties in good faith on the basis of the fair market values of the different active ingredients of the combination Product.

 

5.4.5                        Compulsory License.  If either Party learns that a Third Party other than an InterMune Affiliate or Sublicensee has obtained a compulsory license in any country under the Collaboration Patents, or Identified Patents or Preparatory Patents exclusively licensed to InterMune hereunder, to sell a Competitive Product (as defined below), then such Party shall promptly notify the other Party of such occurrence.  If the royalty rate payable to Array under such compulsory license is less than the royalty rate otherwise applicable in such country hereunder, then, in each calendar year in which the Competitive Product is being sold in such country, and units of the Competitive Product equal at least [ * ] of the total combined units of such Competitive Product and the Product in the particular country, sold in such calendar year, then the royalty rate set forth in Section 5.4.1 shall be reduced, with respect to Net Sales in such country, to the lower royalty rates applicable in such country pursuant to such compulsory license.  Any reduction in the royalty due Array as a result of sales of such Competitive Product shall be available to InterMune only with respect to Net Sales in those calendar years and in those countries described by the foregoing sentence.  For the purposes of this Section 5.4.5, a “Competitive Product” shall mean any product the manufacture, use or sale of which is claimed by any of the foregoing patents, and which competes with any Product in the relevant country.  If such compulsory license is required to be granted by InterMune, then the amounts received by InterMune pursuant to such compulsory license shall be deemed to be Net Sales hereunder (in lieu of the sales pursuant to the compulsory license being included in Net Sales).

 

5.4.6                        Later Claims.  If (a) InterMune was not required to pay royalties on Net Sales of any Product during a time period when and in a country where a pending claim that would have qualified as a Valid Claim but for claiming a first priority to more than five (5) years from the date pendency was determined (that was “Temporarily Disqualified”, with derivative forms being interpreted accordingly), and that covers such Product itself or the method of manufacture or use thereof in such country, and (b) such claim later issues as an issued Valid Claim covering such Product itself or the method of manufacture or use thereof in such country,

 

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then (c) with the next royalty report due pursuant to Section 6.1 after such issuance (but no sooner than thirty (30) days after such issuance), InterMune shall report and pay to Array the royalties that would have been due pursuant to Section 5.4.1 on Net Sales of such Product in such country but for the Temporary Disqualification of such claim.

 

ARTICLE 6
PAYMENTS; BOOKS AND RECORDS

 

6.1                                 Royalty Reports and Payments.  After the first sale of a Product on which royalties are payable by InterMune or its Affiliates or Sublicensees hereunder, InterMune shall make quarterly written reports to Array within [ * ] after the end of each calendar quarter, stating in each such report, separately for InterMune and each Affiliate and Sublicensee, the aggregate Net Sales, by country, of each Product sold during the calendar quarter upon which a royalty is payable under Section 5.4 above.  InterMune shall pay to Array royalties due at the rates specified in Section 5.4.

 

6.2                                 Payment Method.  All payments due under this Agreement shall be made from a bank located in the United States by bank wire transfer in immediately available funds to a bank account designated by Array.  All payments hereunder shall be made in U.S. dollars.  In the event that the due date of any payment subject to Article 5 hereof is a Saturday, Sunday or national holiday, such payment may be paid on the following business day.  Any payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New