SECOND AMENDED AND RESTATED COLLABORATION AGREEMENT

 

SECOND AMENDED AND RESTATED COLLABORATION AGREEMENT

 

THIS SECOND AMENDED AND RESTATED COLLABORATION AGREEMENT (the “Agreement” ) executed on August 5, 2005 (the “Second Restatement Execution Date” ) and effective as of August 25, 2005 (the “Second Restatement Date” ), by and between ELI LILLY AND COMPANY , a corporation organized and existing under the laws of Indiana and its Affiliates (together “Lilly” ), and ISIS PHARMACEUTICALS, INC., a corporation organized and existing under the laws of Delaware ( “Isis” ).

 

RECITALS

 

A.                                    Isis is engaged in the research and development of antisense oligonucleotides and has accumulated considerable knowledge in the field of antisense technology, including processes and techniques relating to the design, synthesis and research of antisense oligonucleotides for use in gene functionalization and target validation and as therapeutic products.

 

B.                                      Lilly has expertise in the research, development, distribution and sale of prophylactic and therapeutic products for human use.

 

C.                                      Lilly and Isis entered into a collaboration agreement (the “Original Agreement” ) effective as of the Effective Date to identify, characterize and/or develop antisense oligonucleotides that modulate the expression of biological molecules and to characterize the effect of such modulation to validate gene targets for drug discovery, including antisense drug discovery.

 

D.                                     Lilly and Isis amended and restated the Original Agreement effective as of the Restatement Date (including all amendments thereto, the “Amended and Restated Agreement” ).

 

E.                                       Lilly and Isis amended the Amended and Restated Agreement by agreement dated June 17, 2002.

 

F.                                       Lilly and Isis extended the Oncology Term and further amended the Amended and Restated Agreement by agreement dated May 3, 2004 (the “May 3, 2004 Agreement” ).

 

G.                                      Lilly and Isis now desire to extend the Collaboration Term with respect to the Antisense Drug Discovery Program and the drug discovery Target Validation Program, both in the Collaboration Therapeutic Area of oncology, and to amend and restate certain terms of the Amended and Restated Agreement.

 

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AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the Parties agree as follows:

 

ARTICLE 1

DEFINITIONS; AMENDMENT AND RESTATEMENT

 

1.1                                                          Definitions.   Capitalized terms used in this Agreement, whether in the singular or plural, have the meanings set forth in Schedule 1.1 which is attached hereto and made part of this Agreement, or as otherwise specifically defined in this Agreement.

 

1.2                                                          Amendment and Restatement.   Effective as of the Second Restatement Date, this Agreement restates and supersedes the Original Agreement and the Amended and Restated Agreement as each has been amended through the Second Restatement Date.  The terms and conditions of the Original Agreement shall apply for the period from the Effective Date until the Restatement Date unless otherwise provided by the Amended and Restated Agreement (and any amendment thereto) or this Second Amended and Restated Agreement.  The terms and conditions of the Amended and Restated Agreement (and any amendment thereto) shall apply for the period from the Restatement Effective Date until the Second Restatement Date unless otherwise provided by this Second Amended and Restated Agreement.

 

ARTICLE 2

COLLABORATION OVERVIEW AND GOVERNANCE

 

2.1                                                          The Collaboration.   Lilly and Isis hereby agree to undertake the Collaboration during the Extended Collaboration Term under the terms and conditions set forth in this Agreement.  The Collaboration shall consist of the Target Validation Program and the Antisense Drug Discovery Program during the Extended Collaboration Term as directed by the Collaborative Research Plan.

 

2.2                                                          [DELETED].

 

2.3                                                          [DELETED].

 

2.4                                                          [DELETED].

 

2.5                                                          Governance - Executive Committee.   The strategic direction and overall management of the Collaboration during the Extended Collaboration Term shall be the responsibility of the Executive Committee.  The Executive Committee shall consist of the three (3) members from each Party listed in Schedule 2.5.  The Executive Committee may name additional members to the Executive Committee from time to time so long as each Party has an equal number of members.  Each Party will designate a member who will be the primary contact on the Executive Committee for that Party.  The designated Lilly representative shall be responsible for scheduling the meeting of the Executive Committee for that purpose.  Either

 

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Party can change its representatives on the Executive Committee by written notice to the other Party.

 

2.5.1                         Executive Committee Meetings.   During the Extended Collaboration Term and for one (1) year thereafter the Executive Committee shall meet at least every three (3) months to review the research carried out under the Collaboration and to consider modifications to the strategy and goals of the Target Validation Program and the Antisense Drug Discovery Program.  In addition, the Executive Committee may meet on an ad hoc basis. The Parties shall mutually agree upon the times and places for such meetings, alternating between Indianapolis, Indiana and Carlsbad, California, or such other location as members of the Executive Committee shall agree.  Each Party shall bear its own costs associated with holding and attending such meetings.  If mutually agreed by the Parties, such meetings may be held by videoconference or teleconference.  An agenda shall be agreed upon by the Executive Committee members and be distributed to the Parties no less than one (1) week before any semiannual meeting.  If a representative of a Party on the Executive Committee is unable to attend a meeting of the Executive Committee, such Party may designate an alternate to attend such meeting and vote on behalf of such missing representative.  In addition, each Party may, at its discretion, invite nonvoting employees, consultants or advisors (which consultants and advisors shall be under an obligation of confidentiality no less stringent than those terms set forth herein) to attend any meeting of the Executive Committee.  Minutes shall be kept of all Executive Committee meetings by the hosting Party and sent to all members of the Executive Committee for review and approval within seven (7) days after each meeting.  Minutes shall be deemed approved unless any member of the Executive Committee objects to the accuracy of such minutes by providing written notice to the other members of the Executive Committee within ten (10) days of receipt of the minutes; provided, however, that in the event of any such objection by a Party that the Parties are unable to resolve, such minutes shall reflect such unresolved dispute.

 

2.5.2                         Executive Committee Responsibilities.   The Executive Committee shall have the following responsibilities:

 

(a)                                   to review the Collaborative Research Plan from a strategic perspective;

 

(b)                                  to review the progress and results of the Collaboration to ensure that the Parties are meeting their commitments for both human and financial support and are each fulfilling all of their respective contractual obligations;

 

(c)                                   to attempt to resolve any disagreements between the Parties with respect to the research conducted under the Collaboration;

 

(d)                                  to optimize the value of the intellectual property arising from the Collaboration.

 

(e)                                   to review the Collaborative Research Plan from a scientific and operational perspective;

 

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(f)                                     to make changes to the portions of the Collaborative Research Plan relating to the Target Validation Program and the Antisense Drug Discovery Program as it deems necessary to accomplish the purpose of the Collaboration;

 

(g)                                  to prioritize and monitor progress of antisense lead identification for the Target Validation Program and Drug Discovery Program; provided, however, that if there is a disagreement concerning the prioritization of a Validation Target, such disagreement shall be decided by Lilly;

 

(h)                                  to review the qualifications of the Collaboration FTEs to ensure that the Parties are meeting the intent of the Collaborative Research Plan;

 

(i)                                      to approve changes to the allocation of Collaboration Funds set forth in the Collaborative Research Plan between the Target Validation Program and the Antisense Drug Discovery Program;

 

(j)                                      to review and approve the use of any Third Party in the Collaboration and expenses related thereto, including review and approval of any related Third Party contract;

 

(k)                                   to review and monitor all results of the work performed under Collaboration, including scientific efforts of both Parties, and providing prioritization, oversight and direction regarding such work in accordance with the Collaborative Research Plan;

 

(l)                                      to adopt and modify the Critical Success Factors related to a Collaboration Therapeutic Area either generally or specifically with respect to a Validation Target or a Drug Discovery Target as documented by approved Executive Committee minutes;

 

(m)                                to determine whether a Validation Target is an Accepted Validation Target or Rejected Validation Target or Abandoned Validation Target;

 

(n)                                  to designate Drug Discovery Targets and Validation Targets; and

 

(o)                                  to make a determination of whether a Drug Discovery ASO Compound meets the criteria for designation as a Development Candidate and making such designations.

 

2.5.3                         Executive Committee Decisions.   Decisions of the Executive Committee shall be made by unanimous vote, with each member having one (1) vote.  No vote of the Executive Committee may be taken unless all members of the Executive Committee vote.  If the Executive Committee is unable to reach a unanimous vote on any matter, then the matter shall be referred to [***].

 

2.5.4                         Executive Committee Quarterly Status Reports.   During the Extended Collaboration Term and upon expiration thereof the Executive Committee will prepare a quarterly status report that generally summarizes the research and development efforts conducted by each Party under the Collaboration during the two (2) previous Calendar Quarters.  The report shall include, without limitation, a general summary of important events, progress on critical

 

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success objectives, any milestones reached, personnel changes, learning points and other matters that the Executive Committee may deem appropriate.  The Executive Committee shall establish goals and objectives for the Collaboration.

 

2.6                                                          [DELETED].

 

2.6.1                         [DELETED] .

 

2.6.2                         [DELETED] .

 

2.6.3                         [DELETED] .

 

2.7                                                          [DELETED] .

 

2.7.1                         [DELETED].

 

2.7.2                         [DELETED].

 

2.8                                                          Dissolution of the Committees.   Upon expiration of the Initial Collaboration Term all committees other than the Executive Committee shall dissolve.  The Executive Committee shall cease having regular meetings twelve (12) months after expiration or termination of the Extended Collaboration Term but shall meet on an ad hoc basis for so long thereafter as is necessary

 

2.9                                                          Alliance Managers.   Each Party shall designate one (1) representative to coordinate the activities of the Parties under the Collaboration (the “Alliance Managers” ).  The Alliance Managers are listed on Schedule 2.9 .  The Alliance Managers’ responsibilities shall include maintenance of a current list of Validation Targets (including Rejected Validation Targets and Accepted Validation Targets), Drug Discovery Targets and Reserved Targets, coordinating meetings of the Executive Committee and otherwise facilitating the activities of the Parties in the course of the Collaboration under this Agreement.  Each Party may change its Alliance Manager by written notice to the other Party.

 

ARTICLE 3

THE COLLABORATION

 

3.1                                                          Collaboration Staffing.   Isis and Lilly employees involved in the Collaboration will conduct the research activities in a manner as required to maintain progress on the objectives of the Collaboration as set forth herein and in the Collaborative Research Plan.  To achieve these objectives, Isis and Lilly will assign qualified employees as set forth in the Collaborative Research Plan.  During the Extended Collaboration Term, Isis shall commit the number of Isis Collaboration FTEs to the Antisense Drug Discovery Program as specified in the Collaborative Research Plan.  By unanimous decision of the Executive Committee the number of FTEs committed to the Collaboration may be increased or decreased from the levels specified in the Collaborative Research Plan.  Lilly shall apply an appropriate number of FTEs to achieve the objectives set out for Lilly in the Collaborative Research Plan.  FTEs applied by Lilly to carry

 

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out the work set forth in the Collaborative Research Plan shall not be considered to be Lilly Collaboration FTEs and such FTEs shall not be reimbursed with Collaboration Funds.

 

3.2                                                          Subcontracting.   Except to the extent approved by the Executive Committee or as otherwise expressly permitted in the Collaborative Research Plan, neither Party shall subcontract to a Third Party any portion of the activities assigned to it under the Collaborative Research Plan, other than through the use of on site contract employees.  To the extent such subcontracting is approved, prior to engaging a Third Party, Isis or Lilly, as applicable, shall first obtain a written agreement with such Third Party containing appropriate confidentiality and non-use provisions as determined by the Parties and written assignments to Isis or Lilly, as applicable, of all Patent Rights and Know-How that such subcontractors may develop by reason of work performed under such contract.  Moreover, any Third Party subcontractor shall be required to perform its services in accordance with any applicable generally accepted professional standards as well as standards designated by the Executive Committee (if any) and with any applicable codes, rules and regulations.

 

3.3                                                          Staff Availability.   Each Party shall make its employees, and permitted subcontractors engaged in the Collaboration reasonably available upon reasonable notice during normal business hours at their respective places of employment to consult with the other Party on issues arising during Collaboration and in connection with any request from any regulatory agency, including those relating to regulatory, scientific, and technical issues.

 

3.4                                                          Facility Visits.   Representatives of Lilly and Isis may, upon reasonable notice during normal business hours, (a) visit the facilities where the Collaboration is being conducted, including by Third Parties, (b) consult informally, during such visits and by telephone, with personnel for the other Party performing work on the Collaboration, and (c) with the other Party’s prior approval, which approval shall not be unreasonably withheld, visit the sites of any experiments or tests being conducted by, or on behalf of, such other Party in connection with the Collaboration.  On such visits, an employee of the Party being visited shall accompany the employee(s) of the visiting Party.  If requested by a Party, the other Party shall cause appropriate individuals working on the Collaboration to be reasonably available for meetings at times and places reasonably convenient to the Party subject to such request.

 

3.5                                                          Exchange of Information.   Isis will promptly make available and disclose to Lilly such information regarding the sequence, design, synthesis and screening of Validation ASO Compounds and Drug Discovery ASO Compounds generated by Isis in carrying out the Collaboration as set forth in the Collaborative Research Plan.  All discoveries or inventions made in the course of the Collaboration by a Party will be promptly disclosed to the other Party.  At a Party’s request, the other Party will provide written reports of any studies performed by such other Party as part of the Collaboration required to support regulatory submissions relating to Products to be made by such first Party or its Sublicensees and will allow such first Party and its Sublicensees to use the data included in such reports to support such submissions.  The Parties are encouraged to communicate often by telephone, electronic mail or other mechanisms to keep each Party fully advised of the activities being carried out by a Party under the Collaboration.

 

3.6                                                          Records.   Isis and Lilly will each maintain records in sufficient detail and in good scientific and business manner appropriate for purposes such as patent and regulatory

 

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matters, which will be complete and accurate and will fully and properly reflect all work done and results achieved in the performance of the Collaboration including prompt signing and corroboration of laboratory notebooks and conception documents.

 

3.7                                                          Compliance.   All studies done in connection with the Collaboration shall be carried out in compliance with any applicable laws, regulations, or guidelines governing the conduct of research at the site where such studies are being conducted.  All animals involved in the Collaboration shall be provided humane care and treatment in accordance with generally acceptable current veterinary practices.

 

ARTICLE 4
THE REAGENT PROVISION PROGRAM

 

4.1                                                          [DELETED].

 

4.2                                                          [DELETED].

 

4.3                                                          [DELETED] .

 

4.4                                                          [DELETED] .

 

4.5                                                          [DELETED] .

 

4.6                                                          [DELETED] .

 

4.7                                                          [DELETED].

 

ARTICLE 5

THE DRUG DISCOVERY TARGET VALIDATION PROGRAM

 

5.1                                                          Description and Term.   The drug discovery Target Validation Program commenced on the Effective Date and shall continue to be conducted by Lilly and Isis during the Extended Collaboration Term in accordance with the Collaborative Research Plan.

 

5.2                                                          Target Designation.   Targets to be analyzed in the course of the drug discovery Target Validation Program shall be selected by Lilly in the Collaboration Therapeutic Area of oncology and designated as Validation Targets in accordance with this Section 5.2.  Lilly shall provide written notice to Isis identifying each Target that it wishes to designate as a Validation Target (a “Proposed Validation Target” ).  Within [***] days after such notice, Isis shall provide written notice to Lilly indicating whether such Proposed Validation Target is subject to any agreement between Isis and a Third Party under which such Third Party has or may acquire rights to ASO Products directed to such Proposed Validation Target, or whether Isis has an Isis Internal Program with respect to such Proposed Validation Target or ASO Products directed thereto.

 

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5.2.1                         If a Proposed Validation Target is not subject to an agreement between Isis and a Third Party under which such Third Party has or may acquire rights to ASO Products directed to such Proposed Validation Target and Isis does not have an Isis Internal Program with respect to such Proposed Validation Target or ASO Products directed thereto, then such Proposed Validation Target shall be deemed a Validation Target and shall be made part of the Target Validation Program.

 

5.2.2                         If a Proposed Validation Target is subject to an agreement between Isis and a Third Party under which such Third Party has or may acquire rights to ASO Products directed to such Proposed Validation Target [***].

 

5.2.3                         [***]

 

5.3                                                          Target Validation Program.   Validation Targets and Validation ASO Compounds directed thereto shall be analyzed under the Target Validation Program with the aim of achieving the applicable Critical Success Factors agreed to by the Executive Committee.  All results generated in the course of Target Validation Program shall be promptly provided to a member of the Executive Committee for the other Party by means of a written report generated by the Parties and by placing such results in a shared database.  [***].

 

5.3.1                         As of the Second Restatement Date there are no Validation Targets under evaluation in the Target Validation Program in any of the Collaboration Therapeutic Areas.  The Executive Committee may agree to add Validation Targets to the Collaborative Research Plan according to the procedure set forth in Section 5.2 but only in the Collaboration Therapeutic Area of oncology.

 

5.4                                                          Executive Committee Review.   At the next Executive Committee meeting following the completion of the evaluation of a Validation Target under the Target Validation Program, the Executive Committee shall review the results generated with respect to such Validation Target and shall determine whether such Validation Target has achieved the Critical Success Factors for such Validation Target.  If the Executive Committee determines that a Validation Target meets the Critical Success Factors, such Validation Target shall be deemed an “Accepted Validation Target.”   If the Executive Committee determines that a Validation Target does not meet the Critical Success Factors, such Validation Target shall be deemed a “Rejected Validation Target.”

 

5.5                                                          Accepted Validation Targets.   [***].

 

5.5.1                         Isis shall provide written notice to Lilly [***].

 

5.5.2                         Isis shall provide written notice to Lilly if [***].

 

5.5.3                         The Accepted Validation Targets as of the Second Restatement Execution Date are listed in Schedule 5.5.3 .

 

5.6                                                          Rejected Validation Targets.   [***].

 

5.6.1                         [***].

 

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5.6.2                         [***].

 

5.6.3                         The Rejected Validation Targets as of the Second Restatement Execution Date are listed in Schedule 5.6.3 .

 

5.7                                                          Lilly Rights Regarding Other Targets.   [***]

 

5.8                                                          Exclusive Targets.   During the Target Validation Program Term Lilly may elect to designate any Validation Target, respectively, an “Exclusive Target” as described in this Section 5.8.  Lilly shall provide Isis with a written description of each Target that Lilly desires to designate as an Exclusive Target.  The date upon which Isis receives such notice from Lilly shall be the “Target Notice Date.”   [***]

 

5.9                                                          Validation ASO Products.  Lilly shall have an option to obtain one or more licenses with respect to Validation ASO Products in accordance with Section 8.2.2.

 

5.10                                                    Lilly Confidential Information.   All information provided to Isis by Lilly with respect to a Validation Target shall be considered the Confidential Information of Lilly and shall be subject to the obligations of Article 10 of this Agreement, including any nucleic acid or amino acid sequence of a Validation Target that is provided to Isis by Lilly. As long as such information is Confidential Information, Isis shall use such Confidential Information of Lilly only (a) in the course of the Collaboration, (b) in Isis’ internal antisense drug discovery efforts as expressly permitted by this Agreement, or (c) as otherwise expressly permitted by this Agreement, but for no other purpose.

 

5.11                                                    Use and Disclosure.   Use of Validation ASO Compounds or Validation Targets by a Party as expressly permitted by this Agreement shall not be considered part of the Collaboration unless such use is carried out as specifically provided in the Collaborative Research Plan.  Know-How generated outside the course of the Collaboration by Lilly or Isis as expressly permitted by this Agreement, including through use of Validation ASO Compounds, Validation Non-ASO Compounds, or Validation Targets, shall not be Lilly Collaboration Know-How or Isis Collaboration Know-How, respectively, and any resulting Patent Rights shall not be Lilly Collaboration Patent Rights or Isis Collaboration Patent Rights, respectively.

 

5.12                                                    Abandoned Validation Targets.   The Executive Committee shall have the authority to designate one or more Validation Target(s) as “Abandoned Validation Target(s)” if the Executive Committee determines that no further work aimed at achieving the applicable Critical Success Factors for any such Validation Target should be carried out under the Target Validation Program.  Upon designation of a Validation Target as an Abandoned Validation Target no further work shall be conducted under the Validation Program on such Abandoned Validation Target.  Abandoned Validation Targets shall not be considered to be Validation Targets for purposes of the Agreement.  The terms of the Agreement with respect to Validation Targets, including ASO Compounds and Non-ASO Compounds directed thereto, shall not be applicable to any such Abandoned Validation Targets, including ASO Compounds and Non-ASO Compounds directed thereto, except as specifically provided otherwise in this Section 5.12. The terms of Section 5.6.2 of the Agreement with respect to Rejected Validation Targets and ASO Compounds directed thereto shall be applicable to all Abandoned Validation Targets and

 

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ASO Compounds directed thereto.  Lilly will have the right to designate any Abandoned Validation Target as an Exclusive Target, Reserved Target, or Validation Target in accordance with the terms of Sections 5.8, 6.8 and 5.2, respectively, of the Agreement (a “Designation Event” ).  For purposes of clarity, (i) there are no residual milestone or royalty payment obligations owing either Party to the other with respect to Abandoned Validation Targets, including ASO Compounds and Non-ASO Compounds directed thereto, unless a Designation Event occurs and only if specifically required by this Agreement and (ii) the LillyRight of First Negotiation under Section 8.3.3 will not apply to Abandoned Validation Targets, including ASO Compounds and Non-ASO Compounds directed thereto.  The Abandoned Validation Targets as of the Second Restatement Execution Date are listed in Schedule 5.12 .

 

ARTICLE 6

THE ANTISENSE DRUG DISCOVERY PROGRAM

 

6.1                                                          Description and Term.   The Antisense Drug Discovery Program shall continue to be conducted by Isis and Lilly during the Antisense Drug Discovery Term in accordance with the Collaborative Research Plan.  The Antisense Drug Discovery Term commenced on the Effective Date and shall continue until the expiration of the Extended Collaboration Term, unless Lilly exercises its option to extend the Antisense Drug Discovery Term, as provided in Section 13.1, the Parties otherwise mutually agree to extend or terminate the Antisense Drug Discovery Program, or the Collaboration is terminated in accordance with Article 13.  Lilly and Isis shall use commercially reasonable efforts to develop Drug Discovery ASO Compounds into Development Candidates in accordance with the Collaborative Research Plan.  The Collaborative Research Plan includes the Critical Success Factors for the Antisense Drug Discovery Program.  By execution of this Agreement the Critical Success Factors are approved by each Party.  The Executive Committee is responsible for implementing the Collaborative Research Plan, and any modifications or amendments thereto, consistent with the terms of this Agreement.

 

6.2                                                          Drug Discovery Target Designation.

 

6.2.1                         Targets Available for Designation as Drug Discovery Targets.   During the Antisense Drug Discovery Term, the Executive Committee shall designate the Drug Discovery Targets to be analyzed under the Antisense Drug Discovery Program in the Collaboration Therapeutic Area of oncology.  [***]  Targets designated as Drug Discovery Targets during the Antisense Drug Discovery Term may include any Target that is suspected of playing a role in the Collaboration Therapeutic Area of oncology, including Reserved Targets, Reagent Targets, Accepted Validation Targets, Exclusive Targets, Rejected Validation Targets, and other Targets that the Executive Committee determines to be of interest based on the scientific merits of applying Antisense Technology to modulate such Target; [***].  The Drug Discovery Targets provided by Isis for the Collaboration Therapeutic Area of oncology and the stage of development of such Targets as of the Second Restatement Date (i.e., whether such Target is a Stage 1, Stage 2 or Stage 3 Drug Discovery Target) are identified in Schedule 6.2 , which may be amended from time to time by agreement of the Parties.

 

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6.2.2                         Disagreements Regarding Drug Discovery Target Designation.   If the Executive Committee cannot agree on whether to designate a Target a Drug Discovery Target, [***].

 

6.2.3                         Restriction on Isis’ Right to Use Drug Discovery Targets.   Except as otherwise expressly permitted by this Agreement, Isis shall not (i) conduct any research on any Drug Discovery Target or any ASO Compound directed thereto, outside the course of the Collaboration either on its own or for a Third Party or (ii) grant or assign any rights to a Third Party with respect to any Drug Discovery Target or ASO Compound directed thereto, in each case, while such Drug Discovery Target is the subject of an Active Program.

 

6.3                                                          Further Designation as Stage 1, 2 or 3 Drug Discovery Target.   Concurrently with the designation by the Executive Committee of a Target as a Drug Discovery Target, the Executive Committee shall also designate such Target as a Stage 1 Drug Discovery Target, Stage 2 Drug Discovery Target, or Stage 3 Drug Discovery Target, as appropriate.

 

6.4                                                        Development Candidate Designation.

 

6.4.1                         During the Antisense Drug Discovery Term.   During the Antisense Drug Discovery Term if in the opinion of a Party, a Drug Discovery ASO Compound has met the Critical Success Factors set out in the Collaborative Research Plan and such Drug Discovery ASO Compound is ready for IND-enabling toxicology studies, such Party may recommend to the Executive Committee that such Drug Discovery ASO Compound be designated a Development Candidate and, at the next meeting of such Committee, the Committee shall vote on such matter.  If the Executive Committee determines that a Drug Discovery ASO Compound has met the Critical Success Factors, then such Drug Discovery ASO Compound shall be considered to be a “Development Candidate.”   Lilly shall have the option to license each Development Candidate in accordance with Section 8.2.3.

 

6.4.2                         After the Antisense Drug Discovery Term.   Subject to Section 6.5, after the Antisense Drug Discovery Term Lilly shall make the decision of whether a Drug Discovery ASO Compound corresponding to a Drug Discovery Target that is the subject of an Active Program shall be designated a Development Candidate, using criteria substantially similar to those used by the Executive Committee during the Antisense Drug Discovery Term and the Extended Collaboration Term.  Lilly shall have the option to license each Development Candidate in accordance with Section 8.2.3.

 

6.5                                                          Continued Development of Drug Discovery Targets After the Antisense Drug Discovery Term.  Within ten (10) days following expiration or termination (subject to Article 13) of the Antisense Drug Discovery Term and again on the [***] anniversary of such expiration or termination, Lilly shall provide Isis with written notice of those Drug Discovery Targets with respect to which Lilly intends to continue an Active Program.  In addition, from the date that is [***] months following such expiration or termination of the Antisense Drug Discovery Term until the [***] anniversary of the expiration or termination (subject to Article 13) of the Antisense Drug Discovery Term Lilly shall provide Isis with semiannual written reports describing the work conducted in the previous six (6) months on each such Drug Discovery Target and Drug Discovery ASO Compounds directed thereto in sufficient detail to

 

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permit Isis to verify that Lilly is maintaining an Active Program with respect thereto and notifying Isis of any such Drug Discovery Target with respect to which Lilly has discontinued an Active Program; provided, however, such reports shall be given annually once such Drug Discovery Target has been licensed by Lilly under Section 8.2.3.  Subject to the provisions of Article 13, for so long as Lilly maintains an Active Program with respect to a Drug Discovery Target after the expiration or termination of the Antisense Drug Discovery Term (but in no event to exceed [***] years after such expiration or termination), Lilly shall have the right to continue to perform research and development on such Drug Discovery Target and Drug Discovery ASO Compounds directed thereto.

 

6.5.1                         Active Programs.   As of the Second Restatement Execution Date there are no Active Programs in any of the Collaboration Therapeutic Areas other than those in the Collaboration Therapeutic Area of oncology.  As of the Second Restatement Date the Active Programs in the Collaboration Therapeutic Area of oncology are listed in Schedule 6.5.1 .

 

6.6                                                          Development and Commercialization of Development Candidates.   Unless agreed otherwise by the Executive Committee and subject to Section 8.2.3, Lilly shall be solely responsible for all development and commercialization activities relating to Development Candidates.

 

6.7                                                          Abandoned Drug Discovery Targets.   During the Antisense Drug Discovery Term, the Executive Committee may designate a Drug Discovery Target as an “Abandoned Drug Discovery Target” if such committee concludes that such Drug Discovery Target should no longer be the subject of an Active Program as part of the Collaboration.  [***].

 

6.7.1                         Effective as of Second Restatement Date, the [***] metabolics Targets listed Schedule 6.7.1 shall be deemed Abandoned Drug Discovery Targets.

 

6.7.2                         The Abandoned Drug Discovery Targets as of the Second Restatement Execution Date (including the [***] metabolics Targets listed Schedule 6.7.1 ) are listed in Schedule 6.7.2 .

 

6.8                                                          Reserved Targets.   During the Extended Collaboration Term Lilly may designate any Target related to a Collaboration Therapeutic Area as a “Reserved Target,” [***].  Lilly shall provide written notice to Isis identifying each Target that Lilly desires to designate as a Reserved Target.  The date upon which Isis receives such notice shall be deemed the “Reserved Target Notice Date.”   [***]

 

6.9                                                          Limitation on Number of Drug Discovery Targets and Reserved Targets.   During the Extended Collaboration Term, the total number of Reserved Targets shall not [***]. Within [***] days after the expiration of the Extended Collaboration Term, Lilly shall decrease the total number of Reserved Targets to [***] and such [***]. Reserved Targets shall be limited to Targets in the Collaboration Therapeutic Area of oncology. Effective as of the [***] anniversary of the expiration of the Extended Collaboration Term, no Target shall be deemed a Reserved Target for purposes of this Agreement.

 

6.9.1                         The Reserved Targets as of the Second Restatement Execution Date are listed in Schedule 6.9.1 .

 

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ARTICLE 7

DEVELOPMENT, COMMERCIALIZATION, MANUFACTURING AND SUPPLY

 

7.1                                                          Research Supply.   Isis shall supply Validation ASO Compounds and Drug Discovery ASO Compounds to Lilly as set forth in the Collaborative Research Plan.  In the event that Lilly elects to obtain additional quantities of a Validation ASO Compound and/or Drug Discovery ASO Compound for use outside of the Collaboration, Lilly shall so inform Isis in writing specifying the additional quantity desired by Lilly.  Isis shall promptly provide Lilly such additional quantities of such Validation ASO Compound and/or Drug Discovery ASO Compound in accordance with the specifications set out in the Collaborative Research Plan. Within [***] days after receipt of such Validation ASO Compound, and/or Drug Discovery ASO Compound, Lilly shall pay Isis [***] (inclusive of all shipping, freight and other delivery charges) for the first gram (or fraction thereof) of such additional Validation ASO Compound or Drug Discovery ASO Compound requested by and delivered to Lilly in any one order.  For any quantities of Validation ASO Compound or Drug Discovery ASO Compound requested by and delivered to Lilly above [***] in any one order Lilly shall pay for such extra quantity in an amount equal to [***] per gram or fraction thereof within [***] after receipt of such additional quantities of Validation ASO Compound, and/or Drug Discovery ASO Compound.

 

7.2                                                          Clinical Supply.   Upon request by Lilly, Isis will supply all of Lilly’s requirements of any Validation ASO Compound and/or Drug Discovery ASO Compound required by Lilly (not to exceed [***] such ASO Compounds per year, nor to exceed [***] kilograms of all ASO Compounds provided under this Section 7.2 per year) through the completion of Phase II Clinical Trials on such Validation ASO Compound or Drug Discovery ASO Compound.  Isis will also provide any information and documentation on such Validation ASO Compound or Drug Discovery ASO Compound that is required by regulatory authorities.  Isis will supply any such Validation ASO Compound or Drug Discovery ASO Compound pursuant to mutually agreed upon specifications.  The Parties will negotiate in good faith on the terms of a clinical supply agreement containing these and other customary terms.  If Isis is not able to supply a Validation ASO Compound or Drug Discovery ASO Compound to Lilly or if Lilly determines to obtain supply of any such Validation ASO Compound or Drug Discovery ASO Compounds from a Third Party, then Isis will, at Lilly’s request and expense, promptly transfer all necessary technology and technical assistance and grant all necessary rights and licenses to permit Lilly, a Lilly Sublicensee, or Third Parties on behalf of Lilly or a Lilly Sublicensee, to manufacture and supply such Validation ASO Compound and Drug Discovery ASO Compounds (a “Supply Transfer” ).  Notwithstanding the foregoing, for every Supply Transfer by Lilly or a Lilly Sublicensee, the following conditions apply (A) Lilly will obtain an agreement from any Lilly Sublicensee or Third Party that receives Isis’ technology as part of a Supply Transfer that such Lilly Sublicensee or Third Party can only use such technology on behalf of Lilly in connection with the relevant Validation ASO Compound and Drug Discovery ASO Compounds, and will keep such technology confidential and (B) Lilly will promptly notify Isis in writing identifying the Isis technology disclosed to a Lilly Sublicensee or Third Party as part of a Supply Transfer and identifying by name each such Lilly Sublicensee or Third Party and (C) Lilly will enforce the obligations of confidentiality and nonuse set forth in the agreement referred to above in Section 7.2(A).

 

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7.3                                                          Development and Commercialization.   Lilly shall be solely responsible for all development and commercialization of Lilly Products, including toxicology, clinical development, regulatory, manufacturing and commercialization efforts, except as agreed otherwise by the Parties.  Lilly and its Sublicensees shall have the sole right and responsibility for the preparation of any regulatory filings required in order to conduct clinical trials on Lilly Products in the Territory, together with the preparation of suitable applications for marketing approval in the Territory and shall be the owner and party of record of all such regulatory filings.  Isis shall cooperate with Lilly, at Lilly’s expense, as Lilly reasonably requires in preparing such regulatory filings including, without limitation, any and all data contained therein.

 

7.4                                                          STAT3 Material Supply.  Upon request by Lilly, Isis will supply Lilly with up to [***] grams of the ASO Compound directed to the STAT3 Target which was produced in accordance with Good Manufacturing Practices and is located at Isis’ facilities as of the Second Restatement Execution Date ( “STAT3 ASO Compound”) .  Isis will supply all such STAT3 ASO Compound in amounts requested by Lilly (not to exceed a total of [***] grams) through the initiation of [***] on such STAT3 ASO Compound; provided, however , that Lilly may purchase such STAT3 ASO Compound in no more than [***] installments, the last installment of which may be requested by Lilly no later than sixty (60) days after such STAT3 ASO Compound achieves [***].  Lilly shall pay Isis [***]gram [***] for the amount of STAT3 ASO Compound requested by Lilly. Isis will also provide any information and documentation on such STAT3 ASO Compound that is requested by Lilly and that is required by, or useful to, regulatory authorities at no additional cost to Lilly; provided, however , that Isis shall not be required to create any such documentation for Lilly, unless otherwise agreed by the Parties. Lilly acknowledges that the STAT3 ASO Compound is provided “AS IS,” without any warranty of any kind, express or implied, including any warranty of merchantability or fitness for a particular purpose.

 

ARTICLE 8

GRANT OF RIGHTS

 

8.1                                                          Licenses to Lilly.

 

8.1.1                         Research Licenses.   Subject to the terms and conditions of this Agreement, Isis hereby grants to Lilly:

 

(a)                                   a co-exclusive (with Isis), nonsublicensable, royalty free license during the Collaboration Term under the Isis Collaboration Technology solely to the extent necessary or appropriate to carry out Lilly’s responsibilities under the Collaborative Research Plan;

 

(b)                                  a non-exclusive, nonsublicensable, royalty free license, under the Isis Technology (i) solely to the extent necessary or appropriate to carry out Lilly’s responsibilities under the Collaborative Research Plan and (ii) to use Reagent ASO Compounds for internal research purposes (which shall include, without limitation, research conducted in connection with bona fide collaboration arrangements between Lilly and Third Parties); and

 

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(c)                                   an exclusive, nonsublicensable, royalty free license under the Isis Collaboration Blocking Patents, and a non-exclusive, nonsublicensable, royalty free license under the Isis Collaboration Technology other than the Isis Collaboration Blocking Patent Rights, in each case to conduct research outside the course of the Collaboration in the Non-ASO Field in the Territory.

 

8.1.2                         Product Licenses.   Subject to the terms and conditions of this Agreement, Isis hereby grants to Lilly (i) an exclusive license, including the right to sublicense, under the Isis Collaboration Blocking Patents, and (ii) a non-exclusive license, including the right to sublicense, under the Isis Collaboration Technology other than the Isis Collaboration Blocking Patents, in each case to make, use, import, sell and offer to sell Reagent Non-ASO Products, Validation Non-ASO Products, and Drug Discovery Non-ASO Products in the Territory.  Such licenses shall be royalty-bearing as expressly provided by this Agreement.

 

8.2                                                          Lilly Product Options.

 

8.2.1                         Option to Isis Blocking Patent Rights for Reagent Non-ASO Products.  Subject to the terms and conditions of this Agreement, Isis hereby grants to Lilly an option, exercisable on a Reagent Non-ASO Compound-by-Reagent Non-ASO Compound basis, to obtain a non-exclusive royalty-bearing licenses under the Isis Blocking Patent Rights to develop, make, use, import, offer for sale and sell Reagent Non-ASO Products in the Territory; such license(s) shall include the right to grant sublicenses solely for the purpose of developing, making, using, importing, offering for sale and selling the applicable Reagent Non-ASO Product.  Lilly may exercise an option granted pursuant to this Section 8.2.1 at any time during the term of this Agreement by providing written notice to Isis that includes a description of the Isis Blocking Patent Rights for which Lilly desires to obtain such non-exclusive license. Any license granted to Lilly pursuant to exercise of an option under this Section 8.2.1 shall be royalty-bearing in accordance with Section 9.3.1(b) hereof.

 

8.2.2                         Option to Reagent Targets and Validation Targets and Exclusive Targets.

 

(a)                                   Grant of Option.   Subject to the terms and conditions of this Agreement, Isis hereby grants to Lilly an option, exercisable on a Reagent Target-by-Reagent Target or Validation Target-by-Validation Target basis, as applicable, to obtain an exclusive, royalty-bearing license, including the right to sublicense, under the Isis Collaboration Technology and the Isis Technology to develop, make, use, import, offer for sale and sell Reagent ASO Products containing one or more Reagent ASO Compounds directed to such Reagent Target or Validation ASO Products containing one or more Validation ASO Compounds directed to such Validation Target, as applicable, in the Territory.

 

(b)                                  Exercise of Option.   Lilly may exercise an option granted pursuant to this Section 8.2.2 with respect to (i) any Reagent Target during the [***] year period commencing upon delivery to Lilly of a Reagent ASO Compound directed to such Reagent Target and (ii) any Validation Target, except Abandoned Validation Targets, during the Initial Collaboration Term and [***] year thereafter for Validation Targets in Collaboration Therapeutic Areas other than oncology and during the Target Validation Program Term and

 

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[***] year thereafter for Validation Targets in the Collaboration Therapeutic Area of oncology, in each case, by providing written notice to Isis that includes a description of such Reagent Target or Validation Target, as applicable.  The date that Isis receives such notice shall be deemed the “Section 8.2.2 Exercise Notice Date.”   Within [***] days following the Section 8.2.2 Exercise Notice Date for a Reagent Target or Validation Target, Isis shall notify Lilly whether or not Isis has granted or assigned any rights to any Third Party as permitted by this Agreement with respect to such Reagent Target or Validation Target, or any ASO Compounds directed thereto as of the Section 8.2.2 Exercise Notice Date and the nature of the rights so granted, if any, or whether Isis has an Isis Internal Program with respect to such Reagent Target or Validation Target.  Isis shall have no obligation to disclose to Lilly the identity of any such Third Party to which rights or licenses have been granted.  If Isis has not granted any such rights or license and does not have an Isis Internal Program with respect to such Target as of the Section 8.2.2 Exercise Notice Date, then Isis shall grant to Lilly, and is hereby deemed to grant to Lilly, the license described above in this Section 8.2.2 with respect to such Reagent Target or Validation Target as of the Section 8.2.2 Exercise Notice Date and Lilly shall be obligated to make payments to Isis with respect to such Reagent ASO Product or Validation ASO Product directed to such Reagent Target or Validation Target, as applicable, in accordance with Section 9.3.3.  It is understood and agreed that a Reagent Target or Validation Target may not be available to be licensed by Lilly under this Section 8.2.2 if: (i) Isis has previously granted a Third Party exclusive rights with respect to such Reagent Target and all ASO Compounds directed thereto or Validation Target and all ASO Compounds directed thereto, or (ii) Isis has an Isis Internal Program with respect to the Reagent Target or Validation Target.  The Reagent Targets and the date of delivery to Lilly of a Reagent ASO Compound directed to each such Reagent Target are listed in Schedule 8.2.2 .

 

(c)                                   Diligence and Reporting.   In order to maintain any license granted to Lilly under this Section 8.2.2 with respect to a Reagent Target or Validation Target, Lilly must (i) maintain an Active Program with respect to such Reagent Target or Validation Target, (ii) achieve Program Sanction Approval on Reagent ASO Compounds or Validation ASO Compounds directed to such Reagent Target or Validation Target, as applicable, in no more than [***] months from the time of licensing of such Target by Lilly and (iii) consider a Reagent ASO Compound directed to such Reagent Target or a Validation ASO Compound directed to such Validation Target under Lilly’s formal review process for Candidate Selection in no more than [***] months from Program Sanction Approval.  In the event that any of the foregoing diligence obligations is not met by Lilly with respect to a Reagent Target or Validation Target or ASO Compound directed thereto, the license granted to Lilly under this Section 8.2.2 with respect to such Reagent Target or Validation Target and ASO Compounds directed thereto shall terminate.  Lilly shall provide Isis with annual written reports that include a description of the research, development and commercialization activities by Lilly on any Reagent Target or Validation Target (and ASO Compounds directed thereto) licensed by Lilly under this Section 8.2.2.  Lilly shall provide prompt written notice to Isis when it ceases to have an Active Program on any Reagent Target or Validation Target licensed by Lilly pursuant to this Section 8.2.2 and thereafter such license shall terminate.  Within [***] months of such notice from Lilly, or within [***] months of termination of this Agreement by Isis pursuant to Section 13.4 or 13.5, Isis shall provide written notice to Lilly if it desires to develop an ASO Product to such Reagent Target or Validation Target and receive from Lilly summary reports on completed IND-enabling toxicology studies and completed clinical trials for the ASO Compound

 

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related to such Reagent Target or Validation Target.  Lilly shall provide such summary reports promptly after receiving such notice from Isis.  If Isis fails to provide such notice within such [***] month period Lilly shall have no obligation to provide such summary reports to Isis.  For purposes of clarity, if Isis fails to request such summary reports from Lilly for a Reagent Target or Validation Target for which Lilly ceases to have an Active Program, Isis may still develop an Isis Drug Discovery ASO Product to such Reagent Target or Validation Target, subject to the Lilly Right of First Negotiation under Section 8.3 and other applicable terms of this Agreement.

 

8.2.3                         Option to Drug Discovery ASO Targets.

 

(a)                                   Grant of Option.   Subject to the terms and conditions of this Agreement, Isis hereby grants to Lilly an exclusive option, exercisable on a Drug Discovery Target-by-Drug Discovery Target basis, to obtain an exclusive, royalty-bearing license, including the right to sublicense, under the Isis Collaboration Technology and the Isis Technology to develop, make, use, import, offer for sale and sell Drug Discovery ASO Products containing one or more Drug Discovery ASO Compounds directed to such Drug Discovery Target in the Territory.

 

(b)                                  Exercise of Option.   Lilly’s option under this Section 8.2.3 with respect to any Drug Discovery Target shall be exercisable during the Antisense Drug Discovery Term and for so long thereafter (not to exceed [***] as Lilly has an Active Program with respect thereto or to the Drug Discovery Target, provided, however , that such option shall, in any event, expire upon the earliest to occur of (i) [***] days after a Drug Discovery ASO Compound directed to such Drug Discovery Target achieves Candidate Selection or (ii) [***] after the date that a Drug Discovery ASO Compound directed to such Drug Discovery Target was designated a Development Candidate.  Lilly may exercise an option granted pursuant to this Section 8.2.3 by providing written notice to Isis that includes a description of the Drug Discovery Target for which Lilly desires to obtain such exclusive license.  The date that Isis receives such notice shall be deemed the “Section 8.2.3 Exercise Notice Date.”   The exclusive license described above in this Section 8.2.3 shall be deemed granted to Lilly on the Section 8.2.3 Exercise Notice Date and Lilly shall be obligated to make payments to Isis with respect to Drug Discovery ASO Products directed to such Drug Discovery Target in accordance with Section 9.3.4.  If Lilly fails to timely exercise its option under this Section 8.2.3, then thereafter the Drug Discovery Target corresponding to such the Drug Discovery ASO Compound shall be deemed an Abandoned Drug Discovery Target; provided, however, that prior to the expiration of Lilly’s option under this Section 8.2.3 with respect to such Drug Discovery Target, Lilly shall have the right to designate such Drug Discovery Target as a Reserved Target for no more than [***], subject to the provisions of Sections 6.8 and 6.9.

 

(c)                                   Diligence and Reporting.   In order to maintain any license granted to Lilly under this Section 8.2.3 with respect to a Drug Discovery Target, Lilly must maintain an Active Program on such Drug Discovery Target, and as long as Lilly has an Active Program with respect to a Drug Discovery Target Isis shall not conduct any research on its own or with a Third Party on such Drug Discovery Target or any ASO Compound directed to such Drug Discovery Target.  In the event that the foregoing diligence obligation is not met by Lilly with respect to a Drug Discovery Target or Drug Discovery ASO Compounds directed thereto, the license granted to Lilly under this Section 8.2.3 with respect to such Drug Discovery Target

 

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shall terminate.  Lilly shall provide Isis with annual written reports that include a description of the research, development and commercialization activities by Lilly on any Drug Discovery Target and Drug Discovery ASO Compounds related thereto licensed by Lilly under this Section 8.2.3.  Lilly shall provide prompt written notice to Isis when it ceases to have an Active Program on any Drug Discovery Target or Drug Discovery ASO Compounds directed thereto licensed by Lilly pursuant to this Section 8.2.3 and thereafter such license shall terminate.  Within [***] months of such notice from Lilly, or within [***] months of termination of this Agreement by Isis pursuant to Section 13.4 or 13.5, Isis shall provide written notice to Lilly if it desires to develop an ASO Product to such Drug Discovery Target and whether it desires to receive from Lilly summary reports on completed IND-enabling toxicology studies and completed clinical trials for the ASO Compound related to such Drug Discovery Target.  Lilly shall provide such summary reports promptly after receiving such notice from Isis.  If Isis fails to provide such notice within such [***] month period Lilly shall have no obligation to provide such summary reports to Isis.  For purposes of clarity, if Isis fails to requests such summary reports from Lilly for a Drug Discovery Target or Drug Discovery ASO Compounds the license to which is terminated as described above in this Section 8.2.3(c), Isis may develop an Isis Drug Discovery ASO Product to such Drug Discovery Target, subject to the Lilly Right of First Negotiation under Section 8.3 and other applicable terms of this Agreement.

 

8.3                                                          Lilly’s Right of First Negotiation.   Isis hereby grants to Lilly a right of first negotiation (the “Lilly Right of First Negotiation” ) to obtain from Isis an exclusive, worldwide, license under the Isis Collaboration Technology and the Isis Technology regarding (a) Isis Products directed to Abandoned Drug Discovery Targets, Exclusive Targets, Lilly-Blocked Targets (subject to Section 6.2.2) or Accepted Validation Targets that (i) Isis elects to partner or develop or commercialize in collaboration with a Third Party or (ii) are developed by Isis and achieve Phase III Study Initiation.  The Lilly Right of First Negotiation shall be exercisable by Lilly during the term of this Agreement and shall operate as follows:

 

8.3.1                         Isis shall promptly notify Lilly in writing (the “Isis Notification” ) of (i) its intention to negotiate with or seek a collaborator for the commercialization of any Isis Product directed to an Abandoned Drug Discovery Target or Accepted Validation Target or any Isis Reagent ASO Products and/or (ii) when any Isis Product directed to an Abandoned Drug Discovery Target, Exclusive Targets, Lilly-Blocked Targets or Accepted Validation Target achieves Phase III Study Initiation.  The Isis Notification shall include a description of the Isis Product that includes summaries of preclinical, toxicological and available clinical data and patent information of the level of detail included in a Clinical Investigators Brochure and, for Isis Products that achieve Phase III Study Initiation, a written report setting out the Phase II Clinical Trial Protocol and the Clinical Investigative Brochure for the Phase III Clinical Trials, in order to permit Lilly to evaluate its interest in exercising its rights under this Section 8.3.  All information contained in the Isis Notification shall be considered Confidential Information of Isis and subject to Article 10 and shall be used by Lilly solely for the purpose of evaluating its interest in exercising its rights under this Section 8.3.

 

8.3.2                         Lilly shall notify Isis within [***] days after receipt of the Isis Notification (the “Lilly Response Period” ), indicating its interest, if any, in initiating discussions regarding an agreement with Isis with respect to the commercialization of such Isis Product.

 

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8.3.3                         In the event that Lilly notifies Isis prior to the termination of the Lilly Response Period that it has an interest in the commercialization of such Isis Product (a “Lilly Expression of Interest” ), then the Parties shall negotiate exclusively in good faith reasonable terms that are intended to form the basis of a final agreement for a period of up to the longer of (i) [***] days from the date of Isis’s receipt of the Lilly Expression of Interest or (ii) [***] days from the Isis Notification.

 

8.3.4                         In the event that (i) Lilly fails to notify Isis prior to the termination of the Lilly Response Period, or (ii) Lilly notifies Isis prior to the termination of the Lilly Response Period that it has no interest in collaborating with Isis in the commercialization of such Isis Product, or (iii) the Parties fail to reach agreement on the terms that are intended to form the basis of a final agreement within [***] days of the Isis Notification, or (iv) the Parties fail to reach a final agreement within [***] days following the date on which the Parties reach agreement on the terms that are intended to form the basis of a final agreement, then Isis shall thereafter be free to develop such Isis Product on its own or to initiate discussions with potential alternative partners with respect to the commercialization of such Isis Product; provided, however, that in the event Isis enters into discussions with alternative partner the following provisions shall apply:

 

(a)                                   [***]  For the purpose of calculating net present value under this Section 8.3.4 the following timing definitions will apply:

 

(i)                                      [***] and

 

(ii)                                   [***] and

 

(b)                                  [***]

 

8.3.5                         Isis shall disclose the terms of any such proposed Third Party agreement terms to Lilly, and in the event that Lilly disputes that such terms meet the requirements of this Section 8.3, then an independent Third Party with the requisite expertise, selected by the Parties, shall make such determination.  The expense of such independent Third Party shall be shared equally by the Parties.  In the event that any Third Party terms include non-monetary consideration (e.g., licensing of patent rights), then such independent Third Party shall value such non-monetary consideration as well as any other terms offered by such Third Party and decide whether as a whole the Third Party offer exceeds the Lilly offer as set forth above.

 

8.3.6                         If a Third Party offer for the Isis Product exceeds the Lilly offer by the guidelines outlined in Section 8.3.4 and is accepted by Isis, Lilly shall receive from Isis the milestones and running royalty that would be owed by Isis to Lilly under Section 9.6.

 

8.3.7                         In the event that Lilly provides Isis with a timely offer of terms, pursuant to Section 8.3.3 (the “Lilly Offered Terms” ), but Isis does not enter into an agreement with Lilly or reach a mutually agreed-upon term sheet that represents a firm commitment from a Third Party approved by an officer of the company of such Third Party with respect to the commercialization of such ASO Product pursuant to the provisions of Section 8.3.4 within [***] months of the receipt by Isis of the Lilly Offered Terms, then the Lilly Right of First Negotiation with respect to such ASO Product shall be revived.

 

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8.3.8                         For each of the [***] Abandoned Drug Discovery Targets listed in Schedule 6.7.1 of this Agreement, the Lilly Right of First Negotiation shall not be applicable for a period of [***] months from the Second Restatement Date.  All other terms and conditions of this Agreement with respect to any Abandoned Drug Discovery Target shall remain in effect.  If Isis fails to enter into an agreement with a Third Party whereby Isis exclusively licenses the Isis right to commercialize ASO Products directed to any such Abandoned Drug Discovery Target listed in Schedule 6.7.1 of this Agreement within [***] months from the Second Restatement Date, the Lilly Right of First Negotiation and all other terms of this Section 8.3, other than this Section 8.3.8, shall immediately become effective and applicable to any such unlicensed Abandoned Drug Discovery Targets.

 

8.4                                                          Licenses to Isis.

 

8.4.1                         Research Licenses.   Subject to the terms and conditions of this Agreement, Lilly hereby grants to Isis:

 

(a)                                   a co-exclusive (with Lilly), nonsublicensable, royalty free license during the Collaboration Term under the Lilly Collaboration Technology solely to the extent necessary or appropriate to carry out Isis’ responsibilities under the Collaborative Research Plan;

 

(b)                                  an exclusive, nonsublicensable, royalty-free license under the Lilly Collaboration Technology in the ASO Field in the Territory to conduct research outside the course of the Collaboration; provided, however, that such license shall automatically terminate for any particular Lilly Collaboration Patent Right that covers a Reagent ASO Product, Validation ASO Product, or Drug Discovery ASO Product upon the licensing of the related Reagent Target, Validation Target or Drug Discovery Target by Lilly under Sections 8.2.1, 8.2.2 or 8.2.3.

 

8.4.2                         Product Licenses.   Subject to the terms and conditions of this Agreement, Lilly hereby grants to Isis an exclusive, royalty-bearing license, including the right to sublicense, under Lilly Collaboration Technology to develop, make, have made, use, import, offer for sale and sell Isis Validation ASO Products and Isis Drug Discovery ASO Products in the Territory.  Isis shall provide Lilly with annual written reports that include a description of the research, development and commercialization activities by Isis on any Isis Validation ASO Products or Isis Drug Discovery ASO Products licensed by Isis under this Section 8.4.2.

 

8.5                                                          Isis Option to License Lilly Non-Collaboration ASO Patent Rights.   Subject to the terms and conditions of this Agreement, including this Section 8.5, [***]. During the Reagent Provision Term plus [***] years thereafter Isis may acquire the Isis Option with respect to any such Reagent Target as set forth below:

 

(i)                                      [***].

 

(ii)                                   [***]  Isis shall be limited as to the number of Reagent Targets with respect to which it may make such inquiries as follows:

 

(1)                                   Until the expiration of [***] months after the Effective Date, Isis may not make any such inquiries;

 

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(2)                                   During the [***] months following the period described in Section 8.5(ii)(1), Isis may inquire on the status of up to [***]. Reagent Targets;

 

(3)                                   During the [***] months following the period described in Section 8.5(ii)(2), Isis may inquire on the status of up to [***].  Reagent Targets; and

 

(4)                                   During the [***] months following the period described in Section 8.5(ii)(3) and during each successive twelve [***] month period thereafter until the expiration of the [***] year following expiration of the Reagent Provision Term, Isis may inquire on the status of up to [***] Reagent Targets per [***] month period.

 

Isis may make such inquiries under this Section 8.5(ii) no more than [***] times per year; provided, however, [***].  Within five (5) days of receipt of any such notice from Isis under this Section 8.5(ii), the Third Party Reviewer shall notify Isis in writing whether such Reagent Target is an Excluded Reagent Target.

 

(iii)                                On or after such time as any Reagent Target validated and functionalized by Isis in its own internal drug discovery programs has reached [***].

 

(iv)                               Isis may exercise each Isis Option granted under Section 8.5(iii) at any time following such grant during the Reagent Provision Term plus [***] years upon written notice to Lilly.  Any license granted to Isis pursuant to exercise of an Isis Option under this Section 8.5 shall be royalty-bearing in accordance with Section 9.6.1 hereof.

 

(v)                                  Isis shall provide Lilly with annual written reports that include a description of the research, development and commercialization activities by Isis on any Isis Validation ASO Products or Isis Non-Collaboration ASO Products licensed by Isis under this Section 8.5.

 

8.6                                                          No Implied Licenses.  Except as expressly provided otherwise herein, neither Party hereto will be deemed by this Agreement to have been granted any license or other rights to the other Party’s intellectual property rights including any Third Party patent rights.

 

8.7                                                          [DELETED] .

 

8.8                                                          [DELETED] .

 

8.9                                                          Manufacturing Improvements.   During the first [***] years of the term of this Agreement, the Parties will meet at least annually to review Manufacturing Improvements developed by either of the Parties outside of the course of the Collaboration. [***].

 

8.9.1                         The entire right, title, and interest in and to all Manufacturing Improvements developed or invented solely by employees or consultants of Lilly during the term of this Agreement will be the sole and exclusive property of Lilly.  [***].

 

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8.9.2                         The entire right, title, and interest in and to all Manufacturing Improvements developed or invented solely by employees or consultants of Isis during the term of this Agreement will be the sole and exclusive property of Isis.  [***].

 

8.9.3                         The entire right, title, and interest in and to all Manufacturing Improvements developed or invented jointly by employees or consultants of Isis and Lilly during the term of this Agreement will be the joint property of Isis and Lilly.  Each Party will have an undivided joint ownership interest in such Manufacturing Improvements, and may license its rights under such Manufacturing Improvements for its own account and without the consent of the other Party, subject to the licenses granted to Lilly under Sections 8.1 and 8.2.

 

8.10                                                    Negative Covenant of Isis.   Isis hereby agrees that, for so long as a particular Validation Target or Drug Discovery Target is subject to restrictions on Isis’ use of such Target outside the Collaboration pursuant to Section 5.3, 5.5, 5.6, 5.8, 6.2.3 or 6.8, as applicable, or is subject to an exclusive license granted to Lilly under Section 8.2.2, 8.2.3, 8.3, 8.11 or 8.12 Isis shall not [***].  Upon mutual written agreement of the Parties during the Extended Collaboration Term, the Target Validation Program and/or Antisense Drug Discovery Program, as applicable, may be expanded to include activities directed to [***].

 

8.11                                                    STAT3 License Grant.

 

8.11.1                   Subject to the terms and conditions of this Agreement, Isis hereby grants to Lilly an exclusive, royalty-bearing license, including the right to sublicense, under the Isis Collaboration Technology and the Isis Technology to develop, make, use, import, offer for sale and sell ASO Products containing one or more ASO Compounds directed to the Target known as STAT3 (the “ STAT3 Target”) in the Territory.  Effective as of the Second Restatement Execution Date, the STAT3 Target shall be deemed a [***] licensed by Lilly under Section 8.2.3(b) and subject to all applicable terms of this Agreement, except as otherwise expressly permitted in this Agreement.

 

8.11.2                   Notwithstanding anything to the contrary in Section 9.3.4(a) of this Agreement, [***] license fee shall be payable by Lilly to Isis for the license granted to Lilly under Section 8.11.1.

 

8.11.3                   In addition to any milestone payments payable by Lilly to Isis under Section 9.3.4(b), and subject to all other terms and conditions thereof, Lilly will pay to Isis a milestone payment in the amount of [***] within thirty (30) days after achievement of Candidate Selection for the first Drug Discovery ASO Compound being developed as a Drug Discovery ASO Product that is directed to the STAT3 Target.

 

8.11.4                   If a Drug Discovery ASO Compound being developed as a Drug Discovery ASO Product that is directed to the STAT3 Target does not achieve [***] on or before [***] (the “STAT3 [***] Target Date”), the license granted to Lilly under Section 8.11.1 shall terminate; provided, however, that if such [***] will not be achieved by the STAT3 Candidate Selection Target Date due to scientific or regulatory issues, including but not limited to: [***], Lilly shall so inform Isis before the STAT3 [***] Target Date and the license granted to Lilly under Section 8.11.1 shall not terminate.  The Executive Committee shall thereafter promptly

 

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determine (i) a course of action including a detailed timetable of activities required to resolve such scientific or regulatory issue and (ii) an appropriate extension of time for STAT3 Candidate Selection Target Date.  This Agreement shall be amended to reflect the determination of the Executive Committee with regard to the extension of the STAT3 Candidate Selection Target Date.

 

8.11.5                   In addition to any extension of the STAT3 [***] Target Date under Section 8.11.6, Lilly shall have the option of extending the STAT3 [***] Target Date for up to [***] consecutive [***] day periods by paying Isis [***] for each such [***] day period.  All such fees shall be fully creditable against any payment later due from Lilly under Section 8.11.3 and Section 8.11.6.  Lilly may exercise each such option under this Section 8.11.5 by providing written notice to Isis before the STAT3 [***] Target Date or the expiration of any extensions thereof under Section 8.11.4 or this Section 8.11.5.  Any fee that becomes payable by Lilly to Isis under this Section 8.11.5 shall be paid by Lilly within [***] days of the written notice provided to Isis under this Section 8.11.5.

 

8.11.6                   Lilly shall have the right to eliminate the requirement to achieve Candidate Selection for the first Drug Discovery ASO Compound being developed as a Drug Discovery ASO Product that is directed to the STAT3 Target by the STAT3 [***] Target Date or any extension thereof by providing written notice to Isis and paying Isis the amount that would otherwise become payable to Isis under Section 8.11.3 as if the first Drug Discovery ASO Compound being developed as a Drug Discovery ASO Product that is directed to the STAT3 Target achieved [***]. Such amount shall be paid by Lilly within [***] days of the written notice provided to Isis under this Section 8.11.5. Any payment made by Lilly to Isis under this Section 8.11.6 shall be fully creditable against the milestone payment that becomes payable by Lilly to Isis under Section 8.11.3.

 

8.11.7                   Isis shall allow Lilly to conduct reasonable due diligence ( e.g., intellectual property, regulatory and scientific due diligence) on the STAT3 Target and the STAT3 ASO Compound following the Second Restatement Effective Date.

 

8.12                                                    Target Option

 

8.12.1                   Subject to the terms and conditions of this Agreement, and in addition to the options granted in Section 8.2 of this Agreement, Isis hereby grants to Lilly the right to obtain up to [***] exclusive options, on a Target-by-Target basis, to obtain an exclusive, royalty-bearing license, under (i) the Isis Collaboration Technology and the Isis Technology and (ii) the Isis Special Technology (subject to 8.12.4), to develop, make, use, import, offer for sale and sell ASO Products containing one or more ASO Compounds directed to the applicable Target in the Territory.

 

8.12.2                   Lilly’s may obtain one or more options under Section 8.12 for a period of [***] years after the expiration of Initial Collaboration Term.  Lilly may inquire of Isis whether an option is available under this Section 8.12 by providing written notice to an Isis designee (the “Isis Designee” ) that includes a description of up to [***] Targets for which Lilly may desire to obtain such option (the “Section 8.12.2 Option Notice” ).  The date that the Isis Designee receives such notice shall be deemed the “Section 8.12.2 Option Notice Date.”   Within ten (10)

 

23

 

business days following the Section 8.12.3 Option Notice Date for a particular Target, the Isis Designee will determine whether or not Isis has [***].  Within twenty (20) business days following the Section 8.12.2 Option Notice Date, but no sooner than of (10) business days thereafter, Lilly shall contact the Isis Designee and identify which of the [***] Targets described in the Section 8.12.2 Option Notice(each a “ Potential Optioned Target” ) Lilly desires to obtain an option on under Section 8.12.  If Isis has not [***] as of the Section 8.12.2 Option Notice Date, then any such Potential Optioned Target shall be deemed an “Optioned Target” as of the Section 8.12.2 Option Notice Date.  Each Party shall confirm the identity of each Optioned Target by written notice to the other Party.  The Isis Designee shall be an attorney in the Isis legal department or outside counsel representing Isis and shall sign a confidentiality agreement whereby such Isis Designee shall be obligated not to disclose to any other person or Party or to use for any purpose other than the purpose of providing notice to Lilly under this Section 8.12.2, all information provided by Lilly in its written notice to Isis under this Section 8.12.2.

 

8.12.3                   An option obtained by Lilly under this Section 8.12 shall be exercisable only during a period of [***] for all other Optioned Targets.  During such option period Isis shall allow Lilly to conduct intellectual property due diligence on Patent Rights (if any) that Isis has filed on such Optioned Target or ASO compounds directed thereto.  Lilly may exercise an option granted pursuant to this Section 8.12 by providing written notice to Isis that includes a description of the Optioned Target for which Lilly desires to obtain the exclusive license described in Section 8.12.1.  The date that Isis receives such notice shall be deemed the “Section 8.12 Exercise Notice Date.”   The exclusive license described above in this Section 8.12 shall be deemed granted to Lilly on the Section 8.12 Exercise Notice Date.  Any Target licensed by Lilly pursuant to this Section 8.12 shall be deemed a [***] licensed by Lilly under Section 8.2.3(b) and thereafter subject to all of the applicable terms of this Agreement; provided, however, notwithstanding anything to the contrary in Section 9.3.4(a) of this Agreement, the license fee payable by Lilly to Isis for a license granted to Lilly under Section 8.12 shall be [***].  Any option granted to Lilly under this Section 8.12 that is not exercised in accordance with Section 8.12.3 shall count against the [***] options that Lilly has a right to obtain under Section 8.12.1.  Any license granted pursuant to the exercise of an option under this Section 8.12.3 by Lilly shall be sublicensable by Lilly solely in connection with the grant of a license to develop, make, use, import, offer for sale and sell an ASO Product discovered and optimized by Isis and/or Lilly directed to the applicable Optioned Target.

 

8.12.4                   Isis Special Technology shall only be included in the license granted to Lilly pursuant to Section 8.12 if Lilly and Isis negotiate an agreement to license such Isis Special Technology as follows:

 

(a)                                   If Isis would have no financial obligations to a Third Party arising from the grant to Lilly and/or the practice by Lilly, its Affiliates, or Sublicensees, of the Isis Special Technology then any such agreement between Isis and Lilly under this Section 8.12.4 shall include terms providing that for the development and sale by Lilly of an ASO Product directed to an Optioned Target licensed by Lilly under this Section 8.12, [***].

 

(b)                                  If Isis would have financial obligations to a Third Party arising from the grant to Lilly and/or the practice by Lilly, its Affiliates, or Sublicensees, of the Isis

 

24

 

Special Technology then any such agreement between Isis and Lilly under this Section 8.12.4 shall include terms providing that [***].

 

(c)                                   In addition to Section 8.12.4(a) and Section 8.12.4(b), as applicable:

 

(i)                                      Lilly will compensate Isis for an [***]; and

 

(ii)                                   if Isis’ access to such Isis Special Technology is limited to [***]; and

 

(iii)                                Lilly will abide by all of the terms of the agreement with a Third Party under which Isis has obtained Control of such Isis Special Technology.

 

(d)                                  Notwithstanding anything to the contrary in this Section 8.12.4, any agreement negotiated between Isis and Lilly under this Section 8.12.4 shall contain terms that are [***].  The terms of Section 9.5 (Access to Third Party Rights) will not apply to any Isis Special Technology licensed to Lilly under this Section 8.12.

 

ARTICLE 9

 

PAYMENTS AND ACCOUNTING

 

9.1                                                          Collaboration Funding.  The Collaboration Funds shall be applied by Isis solely towards the Collaboration and in accordance with the Collaborative Research Plan.  All remaining Collaboration Funds as of the end of the Initial Collaboration Term shall be used to fund Isis Collaboration FTEs during the Extended Collaboration Term for those activities set forth in the Collaborative Research Plan, or as otherwise agreed upon in writing by the Parties, and for no other purpose.  Notwithstanding anything to the contrary in the Agreement or the Collaborative Research Plan, all Collaboration Funds designated in the Collaborative Research Plan to fund [***]. Isis shall be reimbursed from the Collaboration Funds for [***] Isis Collaboration FTEs dedicated to the [***] for the period of [***] as provided under the Collaborative Research Plan; provided, however , that an equivalent number of Isis Collaboration FTEs shall be dedicated to research on the Abandoned Drug Discovery Targets listed in Schedule 6.7.1 through the end of the Initial Collaboration Term.  Research and development conducted by Isis through the end of the Initial Collaboration Term on such on Abandoned Drug Discovery Targets shall be [***].  At Lilly’s request, Isis shall provide Lilly semiannual written reports on the research and development of the Abandoned Drug Discovery Targets listed in Schedule 6.7.1 and any Isis Internal Programs in the area of [***] for a period that is the longer of [***].

 

9.1.1                         Collaboration FTEs.   Isis shall maintain complete and accurate records of all monies expended by it for research under the Collaboration and the Collaboration FTEs applied in the course of the Collaboration.  During the Extended Collaboration Term, Isis will be obligated to report to Lilly only the number of Collaboration FTEs dedicated to work on the Collaboration for the previous Calendar Quarter.

 

9.1.2                         [DELETED]

 

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9.1.3           [DELETED]

 

9.1.4           Audits.   If a Party desires to audit the other Party’s records regarding Collaboration Funds and Collaboration FTEs, it shall utilize the independent, certified public accountant of the other Party to examine such records.  Such accountant shall be instructed to provide the Party desiring the audit a report on the findings of the agreed upon procedures which verifies any previous report made or payment submitted by the audited Party during such period.  The expense of such audit shall be borne by the auditing Party; provided, however, that if an error in favor of the auditing Party of more than the greater of [***] of the amount reported or paid or [***] is discovered, then such expenses shall be paid by the audited Party.  Any information received by a Party pursuant to this Section 9.1.4 shall be deemed to be the Confidential Information of the other Party.  This right to audit shall remain during the Collaboration Term and for a period of [***] years thereafter, but no more often than [***] per year.

 

9.1.5           [DELETED]

 

9.1.6           [DELETED]

 

9.1.7           [DELETED]

 

9.1.8           Payment of Royalty Reduction Fee.   Lilly paid to Isis [***] within thirty (30) days after the Restatement Date, which payment shall be applied to reduce the royalty rate payable under this Agreement with respect to a Drug Discovery ASO Product directed to the Drug Discovery Target known as [***].

 

9.2                    Technology Access Fee.

 

9.2.1           If Lilly is conducting any research, development or commercialization activities relating to any Lilly Product as of the [***] anniversary of the Effective Date, Lilly shall commence making the first of [***] equal installments of the Technology Access Fee to Isis.  For a period of [***] years thereafter, if Lilly continues to conducting any research, development or commercialization activities relating to any Lilly Product as of each anniversary of the Effective Date then Lilly shall pay the next installment of the Technology Access Fee. Technology Access Fee installments shall be paid by Lilly within [***] days after the [***] anniversary of the Effective Date and each anniversary date thereafter until a total [***] such Technology Access Fee installments have been made by Lilly.  The total amount of each such Technology Access Fee installment shall be calculated by:

 

(a)            subtracting from the Collaboration Funds both:

 

(i)             [***]; and

 

(ii)            [***]; and

 

(b)            [***] pursuant to this Section 9.2.

 

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9.2.2           As of the Second Restatement Execution Date the Parties acknowledge and agree that the total amount of the Technology Access Fee and each installment thereof that shall be payable by Lilly is zero.

 

9.2.3           Capitalized terms used in Section 9.2.1 and Section 9.2.2 that are not defined in this Agreement shall have the meanings set forth in the Loan Agreement.

 

9.2.4           Credits Against Technology Access Fee.  [***].

 

9.3                    License, Milestone and Royalty Payments - Lilly.

 

9.3.1           Reagent Non-ASO Products.

 

(a)            Milestone Payments.   Lilly will pay to Isis the following milestone payments for a Reagent Non-ASO Product within [***] days after achievement of each of the following events in the first Major Market Country; provided, however, that no milestone payment shall be due or owing for any Reagent Non-ASO Compound being developed as a Reagent ASO Product that has as its site of activity the same Target that is the site of activity of any Lilly Product with respect to which such milestone payment has already been paid:

 

Milestone Event		Milestone Payment
[***]		[***]
[***]		[***]
[***]		[***]

 

Lilly shall be obligated to pay milestone payments with respect to a Reagent Non-ASO Compound under this Section 9.3.1 only if such Reagent Non-ASO Compound achieves Program Sanction Approval within [***] years of the date that Lilly performs the Lilly First Pass In Vitro Assay with respect to the related Reagent ASO Compound delivered to Lilly by Isis under this Agreement that is directed to the same Target as such Reagent Non-ASO Compound, as reasonably evidenced by Lilly’s laboratory notebooks or other scientific records.

 

(b)            Royalties.   Lilly will pay to Isis [***] on the annual Net Sales of a Reagent Non-ASO Product on a country-by-country basis from the date of the First Commercial Sale in each such country of a Reagent Non-ASO Product until the expiration of the last to expire Isis Blocking Patent Right licensed by Lilly under Section 8.2.1 that includes a Valid Claim that Covers such Reagent Non-ASO Product.

 

9.3.2           Validation Non-ASO Products and Drug Discovery Non-ASO Products.

 

(a)            Milestone Payments.   Lilly will pay to Isis the following milestone payments for a Validation Non-ASO Product or Drug Discovery Non-ASO Product

 

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within thirty (30) days after achievement of each of the following events in the first Major Market Country; provided, however, that no milestone payment shall be due or owing for any Validation Non-ASO Compound being developed as a Validation Non-ASO Product or Drug Discovery Non-ASO Compound being developed as a Drug Discovery Non-ASO Product that has as its site of activity the same Target that is the site of activity of any Lilly Product with respect to which such milestone payment has already been paid:

 

Milestone Event		Milestone Payment
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

 

Lilly shall be obligated to make only those milestone payments for the events listed above in this Section 9.3.2 that occur after the Validation Target or Drug Discovery Target that is targeted by the Validation Non-ASO Compound being developed as a Validation Non-ASO Product or Drug Discovery Non-ASO Compound being developed as a Drug Discovery Non-ASO Product is designated [***].

 

Lilly shall be obligated to pay milestone payments with respect to a Validation Non-ASO Compound being developed as a Validation Non-ASO Product or Drug Discovery Non-ASO Compound being developed as a Drug Discovery Non-ASO Product under this Section 9.3.2 only if such Validation Non-ASO Compound or Drug Discovery Non-ASO Compound achieves Program Sanction Approval within [***] years and [***] months of the date that the related Validation ASO Compound or Drug Discovery ASO Compound that is directed to the same Target as the Validation Non-ASO Compound or Drug Discovery Non-ASO Compound is delivered to Lilly or the Collaboration for use thereunder, as applicable.

 

(b)            Royalties.   Lilly will pay the following royalties to Isis on a country-by-country basis from the date of the First Commercial Sale in each such country of a Validation Non-ASO Product or Drug Discovery Non-ASO Product:

 

(i)             [***] on the annual Net Sales of Validation Non-ASO Product or Drug Discovery Non-ASO Product for a period of [***] years if there is no Isis Collaboration Patent Right or Isis Patent Right that includes a Valid Claim that Covers such Validation Non-ASO Product or Drug Discovery Non-ASO Product; provided, however, that no royalty payment shall be owed by Lilly under this Section 9.3.2(b) for a Validation Non-ASO Product or Drug Discovery Non-ASO Product that is [***] or

 

(ii)            [***] on the annual Net Sales of a Validation Non-ASO Product or Drug Discovery Non-ASO Product until the expiration of the last to expire Isis

 

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Collaboration Patent Right or Isis Patent Right that includes a Valid Claim that Covers such Validation Non-ASO Product or Drug Discovery Non-ASO Product.

 

9.3.3           Reagent ASO Products and Validation ASO Products.

 

(a)            License Fees.   In the event that Lilly exercises its option to license a Reagent Target or a Validation Target in accordance with Section 8.2.2, Lilly shall pay Isis a one time license fee of [***] within [***] days after the Section 8.2.2 Exercise Notice Date for each such licensed Reagent Target or Validation Target.

 

(b)            Milestone Payments.   Lilly will pay to Isis the following milestone payments for a Reagent ASO Compound being developed as a Reagent ASO Product or a Validation ASO Compound being developed as a Validation ASO Product within thirty (30) days after achievement of each of the following events in the first Major Market Country; provided, however, that no milestone payment shall be due or owing for any Reagent ASO Compound or a Validation ASO Compound that has as its site of activity the same Target that is the site of activity of any Lilly Product with respect to which such milestone payment has already been paid:

 

Milestone Event		Milestone Payment
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

 

Provided, however, that with respect to any Combination Product that contains more than one (1) Reagent ASO Compound and/or Validation ASO Compound, Lilly shall be obligated to the milestones set forth in the foregoing table for Phase III Study Initiation, Registration and First Commercial Sale only once for such Combination Product.

 

(c)            Royalties.   Lilly will pay to Isis the following royalties on a country-by-country basis from the date of the First Commercial Sale in each such country of a Reagent ASO Product or a Validation ASO Product until the expiration of the last to expire Isis Collaboration Patent Right or Isis Patent Right that includes a Valid Claim that Covers such Reagent ASO Product or Validation ASO Product, as applicable:

 

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Worldwide Annual Sales of the Product		Royalty Rate
[***]		[***]
[***]		[***]
[***]		[***]

 

Provided, however, that the royalty rate payable by Lilly under this Section 9.3.3(c) shall be increased by the amount of any pass through royalties payable by Isis to a Third Party on Lilly’s sale of such Reagent ASO Product or Validation ASO Product but in no event shall the royalty rate payable by Lilly under this Section be increased to amount greater than [***].

 

9.3.4           Drug Discovery ASO Products.

 

(a)            License Fees.   In the event that Lilly exercises an option to license a Drug Discovery ASO Target in accordance with Section 8.2.3, Lilly shall pay the following applicable one-time license fee [***] days after the Section 8.2.3 Exercise Notice Date for each such Drug Discovery ASO Target:

 

Drug Discovery ASO Target		License Fee
[***]		[***]
[***]		[***]
[***]		[***]

 

(b)            Milestone Payments.   Lilly will pay to Isis the following milestone payments for a Drug Discovery ASO Compound being developed as a Drug Discovery ASO Product within [***] days after achievement of each of the following events in the first Major Market Country; provided, however, that no milestone payment shall be due or owing for any Drug Discovery ASO Compound that has as its site of activity the same Target that is the site of activity of any Drug Discovery ASO Product with respect to which such milestone payment has already been paid:

 

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MILESTONE PAYMENT

 

Milestone Event		Stage 1 Drug Discovery Target		Stage 2 Drug Discovery Target		Stage 3 Drug Discovery Target
[***]		[***]		[***]		[***]
[***]		[***]		[***]		[***]
[***]		[***]		[***]		[***]
[***]		[***]		[***]		[***]

 

Provided, however, that with respect to any Combination Product that contains more than one (1) Drug Discovery ASO Compound, Lilly shall be obligated to the milestones set forth in the foregoing table for Phase III Study Initiation, Registration and First Commercial Sale only once for such Combination Product.

 

(c)            Royalties.   Subject to Section 9.4, Lilly will pay to Isis the following royalties on a country-by-country basis from the date of the First Commercial Sale in each such country of a Drug Discovery ASO Product until the expiration of the last to expire Isis Collaboration Patent Right or Isis Patent Right that includes a Valid Claim that Covers such Drug Discovery ASO Product:

 

Royalty Rates

 

Worldwide Annual Net Sales of the Product		Stage 1 Drug Discovery Target		Stage 2 Drug Discovery Target		Stage 3 Drug Discovery Target
[***]		[***]		[***]		[***]
[***]		[***]		[***]		[***]
[***]		[***]		[***]		[***]

 

9.3.5           Lilly Sublicensing Obligations.   In the event that Lilly elects to sublicense its rights to a Reagent ASO Compound, a Drug Discovery ASO Product or a Validation ASO Product, as permitted by this Agreement, Lilly shall be obligated to pay to Isis, at Lilly’s option, either (i) [***] of any and all Sublicense Income received by Lilly pursuant to a sublicense agreement entered into by Lilly with respect to such Reagent ASO Compound, a Drug Discovery ASO Product or a Validation ASO Product or (ii) any payments as set forth in this Article 9 that would be owed by Lilly if Lilly were selling such Reagent ASO Product, Drug Discovery ASO Product or Validation ASO Product; provided, however, [***].

 

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9.3.6           [***] Payments.

 

(a)            Milestone Payments .  For any Validation ASO Product or Drug Discovery ASO Product developed by Lilly that is directed to [***] (and in addition to the milestone payments specified in Section 9.3.3(b) and Section 9.3.4(b) of the Agreement, as applicable) Lilly shall pay to Isis the applicable milestone payments payable by Isis to [***] under the [***] Agreement for an “Isis Antisense Product” (as defined in the [***] Agreement) directed to [***].  Such milestone payments are set forth in Schedule 9.4.3 of this Agreement.  Lilly shall pay each such milestone payment to Isis only if Isis remains obligated to pay such to [***] under the [***] Agreement at the time the applicable milestone is achieved.

 

(b)            [***] Royalties. The royalty rates specified in Sections 9.3.3(c) and Section 9.3.4(c) of the Agreement for Validation ASO Products or Drug Discovery ASO Products directed to [***] shall be increased by [***] in view of the pass through royalties of the same amount payable by Isis to [***] under the [***] Agreement for an “Isis Antisense Product” directed [***].  Lilly shall pay such pass through royalty to Isis for so long as such royalty is payable by Isis to [***] under the [***] Agreement. As of the date of this letter, such royalty payment is payable by Isis to [***] for a period of [***] years following the “First Commercial Sale” in a “Major Country” of the first “Isis Antisense Product” directed to [***]. For a second or subsequent “Isis Antisense Product” directed to [***], royalties are payable by Isis in a “Major Country” only during the [***] year period initiated by the “First Commercial Sale” of the first such “Isis Antisense Product”. For the purposes of this paragraph, the terms “Isis Antisense Product”, “First Commercial Sale”, and “Major Country” have the meanings set forth in the [***] Agreement.

 

(c)            [***] Non-ASO Products .  Lilly shall not be obligated to pay any milestone or royalty payments to Isis under the Agreement, including Sections 9.3.1 or 9.3.2 thereof, for any Reagent Non-ASO Product, Validation Non-ASO Product or Drug Discovery Non-ASO Product directed to the target known as [***].

 

9.4                    Pass Through Royalties.   [***].

 

9.4.1           [***].

 

9.4.2           [***]

 

9.4.3           [***]

 

9.4.4           [***]

 

9.4.5           Royalty Reduction.   In addition to those rights specified in Section 9.4.2, Lilly shall have the right to reduce the royalty rate for any present or future Lilly ASO Product payable to Isis under this Agreement by [***] by paying Isis [***] on or before [***].  The applicable Lilly ASO Product shall be designated by Lilly at any time during the term of this Agreement.

 

9.5                    Access to Third Party Rights.

 

9.5.1           Third Party Licenses. &nbs