SECOND AMENDED AND RESTATED COLLABORATION AGREEMEN

Exhibit 10.26C

 

[*] indicates that a confidential portion of the text of this agreement has been omitted. The non-public information has been filed separately with the Securities and Exchange Commission.

 

EXECUTION COPY

 

SECOND AMENDED AND RESTATED

COLLABORATION AGREEMENT

 

THIS SECOND AMENDED AND RESTATED COLLABORATION AGREEMENT (this “ Agreement ”) is executed as of January 12, 2005 (the “ Signature Date ”) and is effective as of the 1st day of January 2005 (the “ Effective Date ”) by and between XOMA (US) LLC , a Delaware limited liability company having its principal place of business at 2910 Seventh Street, Berkeley, California 94710 (“ XOMA ”), and Genentech, Inc ., a Delaware corporation having its principal place of business at 1 DNA Way, South San Francisco, California 94080 (“ Genentech ”), each on behalf of itself and its Affiliates. XOMA and Genentech are sometimes referred to herein individually as a “Party” and collectively as the “Parties,” and references to “XOMA” and “Genentech” shall include their respective Affiliates.

 

RECITALS

 

1. Genentech licensed a monoclonal antibody (then known as MHM-24) to the CD11a cell integrin on the surface of leucocytes under the terms of an Evaluation and License Agreement dated July 1, 1991 among Genentech, The Chancellor Masters and Scholars of the University of Oxford, Andrew J. McMichael and James E.K. Hildreth (the “ Oxford Agreement ”). Genentech humanized such antibody and began its preclinical development, including the development of a pilot process for producing the antibody.

 

2. Genentech and XOMA’s predecessor in interest entered into that certain Collaboration Agreement effective as of April 22, 1996, as amended by the Amendment thereto dated as of April 14, 1999 (the “ Original Agreement ”) and as further amended by the Amended and Restated Collaboration Agreement dated March 31, 2003 (the “ First Amended and Restated Agreement ”).

 

3. XOMA Ltd. and Genentech entered into a Secured Note Agreement-Commercial Launch Loan on March 31, 2003, the full amount of the loan under which has been paid.

 

4. XOMA desires to terminate the U.S. profit and loss sharing arrangement under the First Amended and Restated Agreement and be released from its obligations under the Note Agreement; in lieu of profit and loss sharing, XOMA desires to receive royalties in the U.S. The Parties are further revising the royalty structure that would have applied had XOMA repaid to Genentech the entirety of the loan balance under the Note Agreement (defined below).

 

5. Genentech wishes to release XOMA Ltd. from its obligation under the Amended and Restated Convertible Secured Note Agreement - Development Loan between Genentech and XOMA Ltd. dated March 31, 2003 (the “ Note Agreement ”) to repay to Genentech the balance of the principal loaned to XOMA Ltd. under the Note Agreement and any interest accrued on that principal. In addition, Genentech wishes to release any security interest it may hold pursuant to the Security Agreement between Genentech and XOMA Ltd. dated March 31, 2003 (the “ Security Agreement ”).

 

6. Genentech and XOMA wish to amend and restate the First Amended and Restated Agreement on the terms set forth below.

ARTICLE 1: DEFINITIONS

 

The following terms shall have the following meanings as used in this Agreement:

 

1.1 “ Affiliate ” means an entity that, directly or indirectly, through one or more intermediaries, is controlled by XOMA or Genentech. As used herein, the term “control” will mean the direct or indirect ownership of fifty percent (50%) or more of the stock having the right to vote for directors thereof or the ability to otherwise control the management of the corporation or other business entity.

 

1.2 “ Aggregate Annual Net Sales ” means aggregating the Net Sales amounts (occurring in the applicable calendar year) of each Licensed Product sold in the applicable countries. For clarity, Net Sales amounts for different Licensed Products shall not be aggregated together and only Net Sales amounts of the same Licensed Product shall be aggregated together for the purpose of calculating royalty tiers.

 

1.3 “ Allocable Overhead ” means costs incurred by a Party or for its account that are attributable to a Party’s supervisory, services, occupancy costs, corporate bonus (to the extent not charged directly to department), and its payroll, information systems, human relations or purchasing functions and which are allocated to company departments based on space occupied or headcount or other activity-based method. Allocable Overhead shall not include any costs attributable to general corporate activities including, by way of example, executive management, investor relations, business development, legal affairs and finance.

 

1.4 “[*] Trial ” is defined in Section 2.1.

 

1.5 “ Anti-CD11a ” means that certain monoclonal antibody now known as Efalizumab, and other constructs with minor modifications thereto resulting from changes to the manufacturing process occurring after the transfer thereof from XOMA to Genentech, which recognizes the CD11a cell adhesion molecule on leucocytes, the full length sequences of the light and heavy chains of which are set forth in Exhibit A attached hereto and incorporated herein.

 

1.6 “ Clinical Trial ” means any clinical trial in which Anti-CD11a (individually and not as a combination) is tested in human subjects, whether or not conducted in the United States, and whether such trial is a Phase I trial designed to make an initial determination of safety, a Phase II trial designed to make a preliminary determination of efficacy and/or dose ranges, or a Phase III or pivotal trial designed to establish safety and efficacy for registration purposes, or for any other purpose, or any combination of the foregoing.

 

1.7 “ Combination Product Adjustment ” means the following with respect to sales by Genentech or any sublicensee other than an Ex-U.S. Partner: in the event a Licensed Product is sold in the form of a combination product containing one or more active ingredients in addition to a Licensed Product, Net Sales for such combination product will be adjusted by multiplying actual Net Sales of such combination product by the fraction A/(A + B), where A is the invoice price of a Licensed Product, if sold separately, and B is the invoice price of any other active component or components in the combination, if sold separately. If, on a country-by-country basis, the other active component or components in the combination are not sold separately in said country, Net Sales 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 Product if sold separately and C is the invoice price of the combination product. If, on a country-by-country basis, neither a Licensed Product nor the other active component or components of the combination product are sold separately in said country, Net Sales shall be determined by the Parties in good faith.

 

1.8 “ Commercially Reasonable and Diligent Efforts ” means those efforts consistent with the exercise of prudent scientific and business judgment, as applied to other pharmaceutical products of similar potential and market size by the Party in question.

 

1.9 “ Control ” means possession of the ability to grant a license or sublicense, or to authorize access and use, as provided for herein without violating the terms of any agreement or other arrangement with any Third Party.

 

1.10 “ Development Costs ” means costs, including Allocable Overhead, arising from a Clinical Trial (including transition of the [*] Trial). Development Costs shall include but are not limited to the cost of studies on the toxicological, pharmacokinetic, metabolic or clinical aspects of a Licensed Product conducted internally or by

 

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individual investigators or consultants necessary for the purpose of obtaining and/or maintaining approval of a Licensed Product in the Field by a government organization and costs for preparing, submitting, reviewing or developing data or information for the purpose of submission to a governmental authority to obtain and/or maintain approval of a Licensed Product in the Field as well as costs of studies to add data to or expand package inserts and costs of scientific advisory boards. Development Costs shall include the cost of post-launch clinical studies in support of a Licensed Product in the Field. Development Costs shall include expenses for compensation, benefits and travel and other employee-related expenses, as well as data management, statistical designs and studies, document preparation, and other expenses associated with the clinical testing program.

 

1.11 “[*] Trial ” is defined in Section 2.1.

 

1.12 “ Ex-U.S. Genentech Partner ” means an entity which has contractual rights pursuant to an agreement with Genentech to develop and commercialize Licensed Products in the Field in the Genentech Territory or any portion thereof.

 

1.13 “ Field ” means the use of Licensed Products for the treatment, diagnosis or prevention of any human condition, disorder or disease.

 

1.14 “ Genentech Know-How ” means Information that (i) Genentech discloses to XOMA under this Agreement and (ii) is within the Control of Genentech.

 

1.15 “ Genentech Patents ” means Patents issued by or filed with the United States Patent Office, owned by or Controlled by Genentech in whole or in part, that are necessary to make, use, sell, offer for sale or import a Licensed Product in the Field, including Patents owned jointly by the Parties as provided hereunder. Notwithstanding the foregoing, but subject to Section 12.10, Genentech Patents shall not include any of the following: (i) the Itakura/Riggs Patents (which term is defined on Exhibit B , which is attached hereto and incorporated herein), which patents Genentech represents are not required in connection with any manufacture or use of Anti-CD11a or a Licensed Product made in mammalian cells under this Agreement; (ii) the Cabilly Coexpression Patents (which term is defined on Exhibit B , which is attached hereto and incorporated herein); and (iii) the Cabilly Chimera Patents (which term is defined on Exhibit B, which is attached hereto and incorporated herein).

 

1.16 “ Genentech Territory ” means worldwide (except for the United States).

 

1.17 “ Gross Sales ” means the gross amount invoiced by Genentech or its Affiliates or sublicensees for sales of a Licensed Product to Third Parties in the applicable country or countries.

 

1.18 “ Information ” means techniques and data relating to any Licensed Products, including, but not limited to, biological materials, inventions, practices, methods, knowledge, know-how, skill, experience, test data including pharmacological, toxicological and clinical test data, analytical and quality control data, marketing, pricing, distribution, cost, sales, manufacturing, patent data or descriptions.

 

1.19 “ Investigational New Drug Application ” or “ IND ” means an “investigational new drug application,” as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, submitted for regulatory approval for initiating clinical trials in the United States, or any equivalent foreign application, registration or certification.

 

1.20 “ Licensed Product ” or “ Licensed Products ” means a formulation for use in the Field containing Anti-CD11a.

 

1.21 “ Net Sales ” means, with respect to sales in the United States, Gross Sales less the sum of (a), (b) and (c) where (a) is a provision, determined under generally accepted accounting principles in the United States, for (i) trade, cash and quantity discounts or rebates (other than price discounts granted at the time of invoicing and which are included in the determination of Gross Sales), (ii) credits or allowances given or made for rejection or

 

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return of previously sold products or for retroactive price reductions (including Medicare and similar types of rebates), (iii) taxes, duties or other governmental charges levied on or measured by the billing amount, as adjusted for rebates and refunds, (iv) charges for freight and insurance directly related to the distribution of Licensed Products (to the extent not paid by the Third Party customer), and (v) credits or allowances given or made for wastage replacement, indigent patient and any other sales programs agreed to by the Parties, (b) is a periodic adjustment of the provision determined in (a) to reflect amounts actually incurred for (i), (ii), (iii), (iv) and (v), and (c) is the Combination Product Adjustment as defined in this Agreement, if any. Provisions allowed in (a) and adjustments made in (b) and (c) will be reviewed by the Parties’ financial representatives.

 

With respect to sales by an Ex-U.S. Genentech Partner, Net Sales as used in the Agreement shall mean, as to each calendar quarter, the gross amount invoiced for all Licensed Products sold by an Ex-U.S. Genentech Partner, its Affiliates and sublicensees in arm’s length transactions to Third Parties other than the Ex-U.S. Genentech Partner’s Affiliates or sublicensees in the Genentech Territory during such quarter, less (i) rebates and price reductions, retroactive or otherwise (including rebates similar to Medicare or other government rebates), (ii) credits or allowances given or made for rejection or return of, and for uncollectible amounts on, previously sold Licensed Products, (iii) taxes, duties or other governmental charges levied on or measured by the billing amount, as adjusted for rebates and refunds, (iv) charges for freight, postage and insurance directly related to the distribution of Licensed Products (to the extent not paid by the Third Party customer), (v) credits or allowances given or made for wastage replacement, indigent patient and similar programs, to the extent actually deducted from the gross amount invoiced, and (vi) amounts debited on account of bad debts with respect to sales previously invoiced, all of items (i) – (vi) above as adjusted periodically to represent actual results in accordance with International Accounting Standards (IAS). If applicable, amounts calculated pursuant to the foregoing paragraph (including subsections (i) – (vi)), shall then be adjusted by the amount(s) defined in any agreement(s) between Genentech and any Ex-U.S. Genentech Partner(s) relating to the development of Anti-CD11a as the “Combination Product Adjustment” (which term may or may not be the same as the term “Combination Product Adjustment” as defined in Section 1.7 of this Agreement), if applicable.

 

“ Patent ” means (i) valid and enforceable letters patent, including any extension, registration, confirmation, reissue, continuation, division, continuation-in-part, re-examination or renewal thereof, and (ii) pending applications for letters patent.

 

“ Regulatory Approval ” means any approvals (including pricing and reimbursement approvals), licenses, registrations or authorizations of any federal, state or local regulatory agency, department, bureau or other governmental entity necessary for the manufacture and sale of Licensed Products in a regulatory jurisdiction.

 

“ Third Party ” means any entity other than XOMA or Genentech.

 

“ United States ” or “ U.S. ” shall mean the United States of America, its territories and possessions.

 

“ XOMA Know-How ” means Information which (i) XOMA discloses to Genentech under this Agreement and (ii) is within the Control of XOMA.

 

“ XOMA Patents ” means any and all Patents owned or Controlled in whole or in part by XOMA that are necessary to make, use, sell, import, or offer for sale Licensed Product in the Field, including XOMA’s interest in any Patents owned jointly by the Parties as provided hereunder.

 

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In addition, the following terms have the meanings given them in the corresponding Sections of this Agreement:

 

 

ARTICLE 2: DEVELOPMENT AND MARKETING OF LICENSED PRODUCTS

 

2.1 Current Clinical Trials .

 

(a) [*] Trial . XOMA and Genentech have been conducting a Clinical Trial of Raptiva® (or Efalizumab, a Licensed Product) for use in treating [*] (“[*] Trial ”). After the Effective Date, XOMA will continue performing its activities for the [*] Trial, in the same manner as XOMA has been performing those activities prior to the Effective Date, but in any event consistent with the existing protocols and other requirements for the [*] Trial. Reimbursement for Development Costs for the [*] Trial is addressed in Section 3.9.

 

(b) [*] Trial . XOMA and Genentech have been conducting preliminary work related to a Clinical Trial of Raptiva® (Efalizumab, a Licensed Product) for use in treating [*] (“[*] Trial ”). After the Signature Date, Genentech and XOMA will work together to transition the [*]Trial to Genentech or to one or more Third Parties selected and approved by Genentech. Reimbursement for Development Costs for such transition is addressed in Section 3.9.

 

2.2 Future Clinical Trials . During the [*] after the Effective Date, from time to time at Genentech’s sole discretion, Genentech may propose to XOMA that XOMA conduct a Clinical Trial or provide services in support of a Clinical Trial conducted by Genentech or a Third Party and related to a Licensed Product. XOMA will consider such proposal, and has no obligation to undertake any such Clinical Trial or to provide services in support of a Clinical Trial. If Genentech and XOMA agree to have XOMA conduct a Clinical Trial or provide services in support of a Clinical Trial, then the Parties shall negotiate in good faith with respect to terms under which XOMA would do so. It is understood that Genentech has no obligation to offer XOMA any opportunities to conduct Clinical Trials.

 

2.3 Sole Decision . Genentech shall have the sole right and the sole decision-making authority, to be exercised at its sole discretion, without consultation with XOMA or any other entity, regarding, all development, manufacturing, clinical, marketing and commercialization activities related to Licensed Products anywhere in the world, including rights and decision-making authority regarding involvement by Third Parties.

 

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ARTICLE 3: LOANS, PAYMENTS AND ROYALTIES

 

3.1 Finance Representatives . Each Party shall appoint a representative to serve as a contact for payments, royalty calculations and other financial issues under this Agreement. A Party may change its financial representative, at any time, on notice to the other Party. Financial representatives are not authorized to amend the terms of this Agreement or waive any rights on behalf of either Party. At XOMA’s request from time to time no more than once per calendar quarter, Genentech will provide to XOMA, for XOMA’s budgeting purposes only, information regarding projected sales of Licensed Products.

 

3.2 Note Agreement and Security Agreement .

 

(a) As consideration for the reduction in payments and royalties to XOMA under this Agreement, as of the Effective Date, Genentech shall release XOMA Ltd. from its obligation under the Note Agreement to pay to Genentech the balance of the amount of principal loaned to XOMA Ltd. under the Note Agreement (forty million dollars ($40,000,000)) and any interest accrued on that principal amount. XOMA Ltd.’s obligations under the Note Agreement are deemed satisfied.

 

(b) In connection with the foregoing release, the Security Agreement is terminated, and Genentech shall use Commercially Reasonable and Diligent Efforts to release any claim for any security interest that it holds under or in connection with the Security Agreement. In this subsection, Commercially Reasonable and Diligent Efforts include filing appropriate documentation with the USPTO and other governmental organizations, as appropriate.

 

3.3 Payments under the First Amended and Restated Agreement . Each Party is responsible for, and will continue to be responsible for, any and all payments owing or accrued under the First Amended and Restated Agreement prior to the Effective Date of this Agreement.

 

(a) Royalties . Without limiting the foregoing, Genentech shall pay XOMA for all royalties, for the period prior to the Effective Date of this Agreement, that Genentech has an obligation to pay under the First Amended and Restated Agreement.

 

(b) Loss Sharing . Also without limiting the foregoing, XOMA shall pay Genentech for XOMA’s share of all U.S. Commercialization Costs (as defined in the First Amended and Restated Agreement) incurred under the First Amended and Restated Agreement for the period prior to the Effective Date of this Agreement. XOMA’s share will be calculated pursuant to the terms of the First Amended and Restated Agreement.

 

(c) Payment Terms . Within two (2) business days after the Signature Date, XOMA shall transfer to Genentech [*] dollars ($[*]), which the Parties have agreed is an estimate of XOMA’s share of the U.S. Commercialization Costs (as defined in the First Amended and Restated Agreement) incurred during the third calendar quarter of 2004, reduced by an estimated amount of Development Costs for the first calendar quarter of 2005. The Parties will reconcile the foregoing estimates with the actual amounts on or before ten (10) business days after the end of the first calendar quarter of 2005. For any other amounts owed by XOMA under the First Amended and Restated Agreement (including XOMA’s share of the U.S. Commercialization Costs incurred between October 1, 2004 and December 31, 2004), Genentech may offset such amounts against royalties owed by Genentech under this Agreement. Such offset will be on a dollar-for-dollar basis until all amounts owed by XOMA under the First Amended and Restated Agreement have been paid in full.

 

3.4 Royalties . This Article 3 sets forth the only consideration due to XOMA regarding the subject matter of this Agreement.

 

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(a) Initial Period Royalty .

 

(1) Royalty for Sales in the United States . As consideration to XOMA for the licenses and other rights granted to Genentech under this Agreement, beginning as of the Effective Date and continuing for the first [*] from the date of the first commercial sale of a Licensed Product approved for commercial sale in the United States (i.e., [*] from November 17, 2003) (such period, the “ Initial U.S. Royalty Period ”) Genentech shall make royalty payments to XOMA as follows:

 

(A) Genentech shall pay a royalty of [*] percent ([*]%) for the portion of Aggregate Annual Net Sales of each Licensed Product in the United States that is less than [*] dollars (US$[*]).

 

(B) Genentech shall pay a royalty of [*] percent ([*]%) for the portion of Aggregate Annual Net Sales of each Licensed Product in the United States that is equal to or greater than [*] dollars (US$[*]).

 

(2) Royalty for Sales in the Genentech Territory . As consideration to XOMA for the licenses and other rights granted to Genentech under this Agreement, beginning as of the Effective Date and continuing on a country by country basis for the first [*] from the date of the first commercial sale of a Licensed Product approved for commercial sale in each such country in the Genentech Territory (each such period an “ Initial Ex-U.S. Royalty Period ”), Genentech shall pay a royalty of [*] percent ([*]%) of Net Sales of each Licensed Product in such country in the Genentech Territory. Without limiting Genentech’s obligations hereunder, it is understood that such an amount may be a pass-through royalty from one or more Ex-U.S. Genentech Partners.

 

(b) Royalties after Initial Period .

 

(1) Royalty After Initial Period for Sales in the United States . As consideration to XOMA for the licenses and other rights granted to Genentech under this Agreement, for sales inside the U.S. (i.e., sales outside the Genentech Territory) after the Initial U.S. Royalty Period and for the remainder of the Term, Genentech shall pay a royalty of either:

 

(A) if there is at least one FDA-approved indication for Licensed Products and a Third Party has obtained Regulatory Approval in any such indication to market either (i) an anti-CD11a product or (ii) a Non-Anti-CD18 Anti-LFA1 Protein Product, then [*] percent ([*]%) of Net Sales in the U.S.; or

 

(B) if not, then [*] percent ([*]%) of Net Sales inside the U.S. (i.e., outside the Genentech Territory).

 

For purposes of this subsection, “ Non-Anti-CD18 Anti-LFA1 Protein Product ” means an antibody or other protein that binds to LFA1, provided it is not an antibody that binds to CD18.

 

(2) No Royalty After Initial Period for Sales Outside the United States . On a country by country basis, after the end of the applicable Initial Ex-US Royalty Period, Genentech shall not owe any payments to XOMA for sales in such country in the Genentech Territory. After the Initial Ex-U.S. Royalty Period for each country within the Genentech Territory, Genentech shall have an exclusive, paid-up, irrevocable license under the XOMA Patents and XOMA Know-How to make, use, sell, offer for sale, have sold and import Licensed Product(s) in that country within the Genentech Territory.

 

(c) Third Party Royalties . Genentech is responsible for any royalties owed to Third Parties in connection with Licensed Products.

 

(d) Royalty Payment Timing . Royalty payments due under this Agreement shall be made quarterly within ninety (90) days following the end of each calendar quarter for which such royalties are due. Where Genentech has the right, pursuant to subsection 3.3(c), to offset against royalties under this Agreement amounts owed by XOMA under the First Amended and Restated Agreement, Genentech has no obligation to make payments except to the extent the royalties owed exceed the amount Genentech has a right to offset against such royalty payments under subsection 3.3(c).

 

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(e) Royalty Payment Reports . For each month during which any royalties are to be paid under this Agreement, Genentech shall (i) provide to XOMA an initial report with a good faith estimate of Net Sales and royalties for Net Sales in the U.S. (i.e., outside the Genentech Territory), within ten (10) business days after the end of the applicable month, and (ii) provide to XOMA an initial report with a good faith estimate of Net Sales and royalties for Net Sales inside the Genentech Territory, to the extent available to Genentech, within fifteen (15) business days after the end of the applicable month. In addition to the initial report, each royalty payment under subsection 3.4(d) must be accompanied by a final report summarizing the Net Sales during the relevant calendar quarter on a regional basis, or such other basis as available to Genentech. Royalties due will be promptly reconciled as necessary with reported Net Sales and Annual Aggregate Net Sales, including as a result of Genentech obtaining new or additional information from an Ex-U.S. Genentech Partner, whether as a result of an audit of that Ex-U.S. Genentech Partner or otherwise.

 

(f) Audits . Genentech shall maintain its books of accounts for, and records of Net Sales for, Licensed Product for [*] after such Net Sales occur. During the [*] period for records of Net Sales, XOMA may examine such records with respect to determining appropriate amounts of Net Sales as follows: Genentech shall permit an independent certified public accountant selected by XOMA (and reasonably acceptable to Genentech) to examine such books of account and records kept by Genentech as may be necessary to determine the correctness of any report or payment related to such royalty payments. Any such accountant shall enter into a confidentiality agreement with both parties. Such examination shall be made at reasonable times during regular business hours and upon at least twenty (20) business days’ prior notice. In addition, such examination may be conducted not more often than once each year and may cover only periods not previously subject to such examination. After Genentech’s review of the accountant’s examination report and its agreement with such report, or after a final determination pursuant to Article 11, Genentech shall immediately pay all understated royalty payments due to XOMA for Net Sales of Licensed Products by Genentech, together with interest on such amounts due from the date accrued, at the interest rate described in Section 3.4(g). XOMA shall be solely responsible for the expenses of an examination under this Section unless there is a final determination that royalty payments under this Agreement have been, [*] in the aggregate. In that case, Genentech promptly shall reimburse XOMA for the reasonable costs of the examination. Results of any such examination shall be provided to both Parties. Those results, along with any records or accounting information, are Confidential Information of Genentech and subject to Article 5. The foregoing clause survives expiration or termination of the royalty obligations under this Agreement for the period of time Genentech is required to maintain its relevant books and accounts, but no more than a total of [*].

 

(g) Late Payments . Any late payments under this Agreement shall bear interest at a rate of [*] (defined as the rate published in the U.S. Federal Reserve Bulletin H.15 or any successor bulletin thereto) plus [*] percent ([*]%) per annum or the maximum rate permitted by law, whichever is less.

 

(h) Taxes . XOMA shall pay any and all taxes levied on account of, or measured exclusively by, payments, including royalties, it receives under this Agreement. If laws or regulations require that taxes be withheld, Genentech shall (i) deduct those taxes from the remittable royalty, (ii) timely pay the taxes to the proper taxing authority, and (iii) send proof of payment to XOMA within sixty (60) days following that payment.

 

3.5 Blocked Currency . In any country where the local currency is blocked and cannot be removed from the country, royalties shall continue to be accrued in such country and Net Sales in such country shall continue to be reported, but such royalties will not be paid until they may be removed from the country. At such time as Genentech is able to remove such blocked currency from such country it shall also remove and pay any royalties accrued during such blocked period on XOMA’s behalf.

 

3.6 Foreign Exchange . For the purpose of computing Net Sales for Licensed Products sold in a currency other than United States Dollars, such currency shall be converted into United States Dollars in accordance with Genentech’s customary and usual translation procedures consistently applied.

 

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3.7 Payments to or Reports by Affiliates . Any payment required under any provision of this Agreement to be made to either Party or any report required to be made by any Party shall be made to or by an Affiliate of that Party if designated by that Party as the appropriate recipient or reporting entity.

 

3.8 Sublicensees . Any licenses or sublicenses granted by Genentech shall include an obligation for the licensee or sublicensee to account for and report its Net Sales of Licensed Product using the same accounting standards used to determine royalties owed on Net Sales of Licensed Products and Genentech shall pay royalties to XOMA as if the Net Sales of the sublicensee were Net Sales of Genentech.

 

3.9 Development Costs .

 

(a) Approved Budgets . Within ten (10) business days after the Signature Date, XOMA shall provide to Genentech an estimated budget of Development Costs for XOMA’s activities to transition the [*] Trial and to continue the [*] Trial under Section 2.1. Genentech and XOMA then will work together to produce final plans for the transition of the [*] Trial, and will agree on final budgets for both the transition and the [*] Trial. Each of the final agreed budgets then is an “ Approved Budget ” for purposes of this Agreement.

 

(b) Reimbursement . Genentech shall provide to XOMA a quarterly advance against Development Costs in an Approved Budget on or before the last day of the quarter prior to the quarter to which those advances apply; provided that the advance for the first quarter of 2005 will be paid as set forth in Section 3.3(c). The Parties, each through its financial representative, will meet within thirty (30) days after the end of each calendar quarter to review actual Development Costs in the just-completed calendar quarte