EXHIBIT 10.3 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. SETTLEMENT AND LICENSE AGREEMENT

 

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                                                                EXHIBIT 10.3

 

           CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE

                       SECURITIES AND EXCHANGE COMMISSION.

                        ASTERISKS DENOTE SUCH OMISSIONS.

 

                        SETTLEMENT AND LICENSE AGREEMENT

 

     This is an agreement (hereinafter referred to as "Agreement") dated as of

this 12th day of April, 2005 (the "Effective Date"), by and between Kos

Pharmaceuticals, Inc., a corporation organized and existing under the laws of

the State of Florida and Kos Life Sciences, Inc., a corporation organized and

existing under the laws of Delaware (together, "Kos"), and Barr Laboratories,

Inc. ("Barr"), a corporation organized and existing under the laws of the State

of Delaware. Kos and Barr are sometimes individually referred to herein as a

"Party" and collectively referred to herein as "the Parties."

 

     WHEREAS, Kos Pharmaceuticals, Inc. and Barr are parties to the patent

litigation captioned, Kos Pharmaceuticals, Inc., v. Barr Laboratories, Inc.,

Civil Action No. 02 CV 1683 (VM), Civil Action No. 02 CV 8995 (VM), Civil Action

No. 04 CV 2403 (VM) and Civil Action No. 04 CV 7086 (VM), pending before the

Honorable Victor Marrero in the United States District Court for the Southern

District of New York (the "Lawsuit");

 

     WHEREAS, Kos currently manufactures and markets the Existing Niaspan

Products (as defined herein) and certain Existing Advicor Products (as defined

herein) and may in the future manufacture and market additional Niaspan Products

(as defined herein) and Advicor Products (as defined herein) (collectively with

the Existing Niaspan Products and the Existing Advicor Products, the "Kos

Products");

 

     WHEREAS, Barr has filed Abbreviated New Drug Applications (each an "ANDA")

with the FDA to seek permission to market a generic version of the Existing

Niaspan Products, including ANDA Nos. 76-250 (1000 mg tablets) and 76-378 (500

and 750 mg tablets);

 

     WHEREAS, Kos asserts in the Lawsuit that Barr's generic versions of the

Existing Niaspan Products would infringe certain claims of Kos' patents relating

to niacin (the "Patent Claims"), including certain claims in at least the

following patents: U.S. Patent Nos. 5,126,145, 5,268,181, 6,080,428, 6,129,930,

6,406,715, 6,676,967, and 6,746,691 (the "Asserted Patents");

 

     WHEREAS, with respect to certain claims of the Asserted Patents, Barr has

admitted infringement and has asserted affirmative defenses and counterclaims

alleging invalidity and unenforceability, and with respect to certain other

claims of the Asserted Patents, Barr has asserted affirmative defenses and

counterclaims alleging invalidity, unenforceability and/or non-infringement;

 

     WHEREAS, Kos also owns patents relating to niacin products that have not

been asserted against Barr in the pending litigation, including at least U.S.

Patent Nos. 6,469,035, and 6,818,229 (the "Unasserted Patents");

 

     WHEREAS, Kos also owns pending patent applications and may file in the

future other patent applications relating to its work on the Kos Products

including at least the following

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applications and any and all applications arising from those applications as

either a continuation application, a continuation-in-part application, and/or

divisional applications: ****

 

     WHEREAS, Barr has filed, or intends to file, ANDAs containing Paragraph IV

Certifications with respect to generic versions of other of the Kos Products;

and

 

     WHEREAS, the Parties wish to fully settle the Lawsuit and all patent issues

concerning Barr's generic versions of the Kos Products, upon the terms and

subject to the conditions set forth below;

 

     WHEREAS, settlement of the Lawsuit will help both Kos and Barr avoid the

substantial uncertainty and risk involved with prolonged litigation; and

 

     WHEREAS, settlement of the Lawsuit will permit both Kos and Barr to save

litigation costs, as well as adhere to the judicially recognized mandate that

encourages the settlement of litigation whenever possible; and

 

     WHEREAS, settlement of the Lawsuit will permit the management of both Kos

and Barr to refocus on running their respective companies rather than devoting

substantial time and resources to the patent litigation; and

 

     WHEREAS, pursuant to the terms of this Agreement, Barr will have the right

to enter the market for Niaspan and Advicor at least four (4) years prior to the

expiration of the last to expire of Kos' currently issued patents in the

Territory, thereby benefiting consumers by permitting generic entry that may not

have occurred if the Lawsuit was allowed to proceed; and

 

     WHEREAS, the public will benefit significantly from this final settlement

as it saves judicial resources and creates certainty for Kos and Barr that will

encourage the development, investment and marketing of Niaspan and Advicor and

other pharmaceutical products; and

 

     WHEREAS, by reducing litigation expenses, this Agreement allows saved money

to be spent on marketing and development of Niaspan and Advicor, allowing the

products to reach a larger group of patients and thus saving lives; and

 

     WHEREAS, money saved by settling the Lawsuit can now be invested by Kos and

Barr into research and development, thereby benefiting consumers by identifying

new uses for current drugs, as well as furthering the creation of new

proprietary medications; and

 

     WHEREAS, by settling the Lawsuit, Barr avoids the possibility of incurring

treble damages were Barr found to have willfully infringed the Asserted Patents

by entering the market prior to expiration of the Asserted Patents; and

 

     WHEREAS, by settling the Lawsuit, Barr avoids the possibility of having to

pay Kos' attorneys' fees were Barr's conduct found to be exceptional under 35

U.S.C. 285.

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      NOW, THEREFORE, in consideration of the mutual promises and covenants

contained in this Agreement and for other good and valuable consideration, the

receipt and sufficiency of which is hereby acknowledged, the Parties agree as

follows:

 

     1. The following terms, when used with initial capital letters shall have

the meaning set forth below.

 

          a. "Advicor Product" shall mean:

 

          (a) (i) the prescription extended release lovastatin 20mg/niacin 1gm

     tablet product for human use; (ii) the prescription extended release

     lovastatin 20mg/niacin 500 mg tablet product for human use; and (iii) the

     prescription extended release lovastatin 20mg/niacin 750 mg tablet product

     for human use, each of which is approved under NDA 21-249 and distributed

     and sold (or intended to be distributed or sold) by Kos in the Territory

     under the trademark Advicor(R) as of the Effective Date (together the

     "Existing Advicor Products"); and

 

          (b) future dosage formulations, strengths and presentations of the

     Existing Advicor Products, including all product extensions or newly named

     formulations of the Existing Advicor Products containing niacin (empirical

     formula of C(6)H(5)NO(2)) and lovastatin (empirical formula of

     C(24)H(36)O(5)) as the only active ingredients.:

 

          b. "ANDA" shall mean an abbreviated new drug application in the

     Territory.

 

          c. "Affiliate" shall mean any corporation, firm, partnership or other

     entity that directly or indirectly owns, is owned by or is under common

     ownership with a Party to the extent of at least fifty percent (50%) of the

     equity or other ownership interest having the power to vote on or direct

     the affairs of the entity and any person, firm, partnership, corporation or

     other entity actually controlled by, controlling or under common control

     with a Party.

 

          d. "Business Day" shall mean any day other than a Saturday, Sunday or

     day on which banks in New York, New York are authorized or obligated by

     applicable law to close. Any reference in this Agreement to "day" whether

     or not capitalized shall refer to a calendar day, not a Business Day.

 

          e. "Commercially Reasonable Efforts" shall mean, with respect to a

     Party, the efforts and resources which would be used by that Party

     consistent with its normal business practices with respect to a product at

     a similar stage in its development or product life and of similar market

     potential taking into account efficacy, safety, the anticipated approved

     labeling, the competitiveness of alternative products in the market place

     or under development, the patent and other proprietary position of the

     product, the likelihood of regulatory approval, the commercial value of the

     product and other relevant factors.

 

          f. "Co-Promotion Agreement" shall mean the Co-Promotion Agreement

     between the Parties dated as of the Effective Date.

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          g. "Fully Loaded Manufacturing Cost" shall mean, with respect to each

     Licensed Product, Barr's internal and external costs, determined in

     accordance with United States generally accepted accounting principles, as

     consistently applied by Barr in accordance with its past practice and in

     the ordinary course of its business for products other than Licensed

     Products, incurred in manufacturing, acquiring, packaging, transporting

     and/or storing such Licensed Product (including product testing activities

      relating to quality assurance, quality control and regulatory compliance),

     in each case to the extent related and allocable to the Licensed Product.

 

          h. "Gross Profit" shall mean Net Sales less Fully Loaded Manufacturing

     Cost.

 

           i. "Indications" shall mean the indications for use of the Advicor

     Product and the Niaspan Product, as approved by the FDA from time to time.

 

          j. "Kos Patents" shall mean all issued patents (including the Asserted

     Patents and the Unasserted Patents) as of the Effective Date, and all

     future patents which issue from patent applications (including the

     Applications) pending as of the Effective Date or future patent

     applications which claim any invention conceived prior to the Effective

     Date, which, in each case, are owned or controlled by Kos and which cover

     the Licensed Products.

 

          k. "License and Manufacturing Agreement" shall mean the License and

     Manufacturing Agreement between the Parties dated as of the Effective Date.

 

          l. "Licensed Intellectual Property" shall mean (i) the Kos Patents;

     (ii) all other intellectual property (other than trademarks) owned or

     controlled by Kos related to the Licensed Products; and (iii) all current

     and future regulatory exclusivities (including, but not limited to

     pediatric exclusivity) applicable to the Licensed Products.

 

          m. "Licensed Products" shall mean the Niacin Licensed Products and the

     Niacin-Lovastatin Licensed Products.

 

          n. "Losses" shall mean all pending and potential claims, demands, all

     manner of actions, causes of action, suits, debts, liabilities, losses,

     damages, attorneys' fees, costs, expenses, judgments, settlements,

     interest, punitive damages and other damages or costs of whatever nature,

     whether known or unknown, pending or future, certain or contingent.

 

          o. "NDA" shall mean a new drug application in the Territory.

 

          p. "Net Sales" shall mean the recorded gross sales of Licensed

     Products in the Territory to Third Parties in accordance with GAAP less the

     following deductions:

 

          (i)   sales and excise taxes, duties, and any other governmental

               charges imposed upon the production, importation, use or sale of

               a Product;

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          (ii) trade, quantity, cash and other discounts allowed on a Licensed

               Product to wholesalers or other Third Parties to whom the

               Licensed Products are sold and shipped directly;

 

          (iii) provisions for actual or expected allowances or credits to

               customers on account of rejection or return of a Licensed Product

               or on account of price reductions for a Licensed Product;

 

           (iv) Licensed Product rebates and Licensed Product charge-backs and

               other price reduction programs granted to managed care entities

               and pharmaceutical benefit management service entities (if Barr

               or any of its Affiliates chooses to contract one or more of the

               Licensed Products together with another Barr product with

               composite rebates or chargebacks, then rebates and or chargebacks

               for the affected Licensed Product will be recalculated based on

               the then average rebate or chargeback of the Licensed Product to

               the applicable customer category as if such Licensed Product is

               contracted independently of any other Barr product); and

 

          (v)   provisions for actual or expected write-offs of uncollectible

               customer accounts for previously recorded sales;

 

in each case determined and applied consistently in accordance with Barr's

commercial and accounting policies and practices consistently applied in a

manner consistent with GAAP. In the event that Net Sales as calculated for any

period under this Agreement are lower than the Licensed Product net sales

utilized by Barr in reporting Barr's revenue for financial reporting purposes in

Barr's SEC filings for the same period, including Barr's quarterly SEC Form 10-Q

and annual SEC Form 10-K ("Reported Licensed Product Net Sales"), then Net Sales

under this Agreement shall be increased by such amount as is necessary to make

them equal to the Reported Licensed Product Net Sales. For the avoidance of

doubt, "Net Sales" shall not include any sales by Barr or its Affiliates to Kos

or its Affiliates pursuant to the License and Manufacturing Agreement between

Kos Life Sciences, Inc. and Barr dated as of the Effective Date.

 

          q. "Niacin ANDAs" shall mean:

 

          (i)   Abbreviated New Drug Applications Nos. 76-250 (1gm tablets) and

               76-378 (500 and 750 mg tablets) which reference the products

                approved under New Drug Application 20-381, filed with the FDA by

               Barr or any of its Affiliates in order to obtain approval to

               manufacture and/or sell 1gm, 750 mg and/or 500 mg extended

               release oral niacin tablets (and any supplement or amendment

               filed pursuant to FDA requirements); and

 

          (ii) any other Abbreviated New Drug Application filed with the FDA by

               Barr or any of its Affiliates in order to obtain approval to

               manufacture and/or sell any oral dosage form containing niacin

               (empirical formula of C(6)H(5)NO(2)) as the single active

               ingredient (and any supplement or amendment filed pursuant to FDA

               requirements).

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          r. "Niacin-Lovastatin ANDA" shall mean:

 

          (i)   the Abbreviated New Drug Applications, which reference the

               product approved under New Drug Application 21-249, to be filed

               with the FDA by Barr or any of its Affiliates in order to obtain

               approval to manufacture and/or sell lovastatin 20mg/niacin/1 gm,

               lovastatin 20 mg/niacin 750 mg and lovastatin 20mg/niacin 500 mg

               extended release oral tablets (and any supplement or amendment

               filed pursuant to FDA requirements); and

 

          (ii) any other Abbreviated New Drug Application filed with the FDA by

               Barr or any of its Affiliates in order to obtain approval to

               manufacture and/or sell any oral dosage form containing niacin

               (empirical formula of C(6)H(5)NO(2)) and lovastatin (empirical

               formula of C(24)H(36)O(5)) as the only active ingredients (and

               any supplement or amendment filed pursuant to FDA requirements).

 

          s. "Niacin Licensed Products" shall mean 1 gm, 750 mg and/or 500 mg

     extended release oral niacin tablets and any oral dosage form containing

     niacin (empirical formula of C(6)H(5)NO(2)) as the single active ingredient

     which is manufactured pursuant to any Niacin ANDA.

 

          t. "Niacin-Lovastatin Licensed Products" shall mean lovastatin 20

     mg/niacin 1 gm, lovastatin 20 mg/niacin 750 mg and lovastatin 20 mg/niacin

     500 mg and any oral dosage form containing niacin (empirical formula of

     C(6)H(5)NO(2)) and lovastatin (empirical formula of C(24)H(36)O(5)) as the

     only active ingredients which is manufactured pursuant to any

     Niacin-Lovastatin ANDA.

 

          u. "Niaspan Product" shall mean:

 

          (a) (i) the prescription extended release niacin 1gm tablet product

     for human use; (ii) the prescription extended release niacin 500 mg tablet

     product for human use; and (iii) the prescription extended release niacin

     750mg tablet product for human use, each of which is approved under NDA

     20-381 and distributed and sold by Kos in the Territory under the trademark

     Niaspan(R) as of the Effective Date (together the "Existing Niaspan

     Products"); and

 

           (b) future dosage formulations, strengths and presentations of the

     Existing Niaspan Products (including any potential modified or reduced

     flush version of any Existing Niaspan Product), including all product

     extensions or newly named formulations of the Existing Niaspan Products

     containing niacin (empirical formula of C(6)H(5)NO(2)) as the single active

     ingredient.

 

          v. "Paragraph IV Certification" shall mean a certification as defined

     in 21 U.S.C. 355(j)(2)(A)(vii)(IV).

 

          w. "Patent Claims" shall mean those claims of the Asserted Patents

     which were alleged in the Lawsuit to be infringed by Barr's generic

     versions of the Existing Niaspan Products.

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          x. "Person" or "person" shall mean any individual, firm, corporation,

     partnership, limited liability company, trust, joint venture, governmental

     authority, or other entity or organization.

 

          y. "Proceeding" shall mean any action, audit, litigation,

     investigation, suit or other proceeding.

 

          z. "Territory" shall mean the United States of America and its

     territories and possessions, including the Commonwealth of Puerto Rico and

     the District of Columbia.

 

          aa. "Third Party" shall mean any person or entity other than Kos and

     Barr or their Affiliates.

 

     2. Upon the terms and subject to the conditions of this Agreement, in

consideration of the mutual execution of this Agreement and the mutual agreement

to be legally bound by the terms hereof, each Party, on behalf of itself and its

Affiliates, directors, officers, employees, agents, representatives, heirs,

assigns, predecessors or successors ("Related Parties"), hereby releases,

acquits and forever discharges the other Party and its Related Parties from any

and all Losses arising out of, derived from, predicated upon or relating to the

infringement of the Patent Claims by Barr's generic versions of the Existing

Niaspan Products, and the actions underlying such Patent Claims and the

Lawsuits; provided, however, nothing in this Agreement shall prevent or impair

the right of either Party to bring a Proceeding in court or any other forum for

a breach of this Agreement, the License and Manufacturing Agreement and the

Co-Promotion Agreement (including, without limitation, any claim for

infringement of any intellectual property based upon activities which are not

the subject of the license grants hereunder) or any representation, warranty or

covenant herein or therein. The Parties agree to the entry of a Consent

Dismissal Without Prejudice in the Litigation, and providing that each side

shall bear its own costs of suit and attorney fees. To effectuate this

provision, promptly following the execution of this Agreement, the Parties shall

cause the Consent Dismissal Without Prejudice attached hereto as Attachment A

(each Party acknowledging that the approval of the court is required in order to

make such Consent Dismissal Without Prejudice effective) to be filed with the

United States District Court for the Southern District of New York and shall

take all other necessary actions to obtain the settlement and dismissal of the

Lawsuits.

 

     3. Each Party acknowledges and agrees that:

 

          a. It may have sustained Losses that are presently unknown and

     unsuspected, and that such Losses might give rise to Losses in the future.

     Nevertheless, each Party acknowledges and agrees that this Agreement has

     been negotiated and agreed upon, notwithstanding the existence of such

     possible Losses, all of which have been hereby released under Section 2

     hereof.

 

          b. If any fact relating to this Agreement or the Lawsuits and now

     believed to be true is found hereafter to be other than, or different from,

     that which is now believed, each Party expressly assumes the risk of such

     difference in fact and agrees that this Agreement shall be, and will

     remain, effective notwithstanding any such difference in

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     fact, subject to each Party's right to bring a Proceeding for a breach of

     any representation or warranty herein.

 

          c. This Agreement may be pleaded as a full and complete defense to,

     and used as a basis for injunction against, any Proceeding that may be

     instituted, prosecuted or attempted in breach hereof.

 

          d. Kos and Barr agree that nothing in this Agreement or in the Consent

     Dismissal Without Prejudice shall be construed to preclude Barr from

     challenging the validity or enforceability of the Kos Patents, as they

     relate to products other than the Licensed Products; and Kos agrees not to

     take a contrary position in any Proceeding.

 

     4. Kos hereby grants to Barr a license, without the right to sublicense

(other than to Barr's Affiliates), under the Licensed Intellectual Property, to:

 

          a. manufacture for sale to Kos and its Affiliates or sublicensees at

     any time, as requested by Kos pursuant to the License and Manufacturing

     Agreement,

 

          b. make, have made and import in the Territory commencing prior to the

     Marketing License Effective Date for sale and offering for sale only

     commencing on or after the Marketing License Effective Date (as defined

     below), and

 

          c. sell and offer for sale only commencing on or after the Marketing

     License Effective Date and thereafter, to market, sell and have sold in the

     Territory,

 

Niacin Licensed Products and Niacin-Lovastatin Licensed Products (collectively,

the "Licensed Products") for all current and future Indications (the "License").

The License will be exclusive (even as to Kos and its Affiliates) only with

respect to generic versions (whether manufactured under an ANDA or an NDA) of

the Kos Products, and Kos shall not grant a license to any Affiliate or Third

Party to make, have made, import, offer for sale, or sell any generic versions

of the Kos Products. For avoidance of doubt, Kos retains the exclusive right to

make, have made, import, offer for sale, market and sell the Kos Products in

their branded presentations under Kos' NDAs (and any supplements or amendments

thereto).

 

     5. As