EXHIBIT 10.1 LICENSE AGREEMENT

EXHIBIT 10.1

 

EXECUTION

 

Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as **. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

 

LICENSE AGREEMENT

 

dated as of April 13, 2002

 

by and between

 

Unigene Laboratories, Inc.

 

and

 

SmithKline Beecham Corporation

TABLE OF CONTENTS

 

 

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LICENSE AGREEMENT

 

This License Agreement (the “Agreement”), dated April 13, 2002 is made by and between SmithKline Beecham Corporation, a GlaxoSmithKline company (“GSK”), a Pennsylvania corporation, and Unigene Laboratories, Inc. (“Unigene”), a Delaware corporation (each a “Party” and collectively, the “Parties”).

 

R E C I T A L S

 

WHEREAS , Unigene has developed certain proprietary technology related to oral PTH (as defined below); and

 

WHEREAS , Unigene is the owner of all right, title and interest in, or otherwise controls, certain Unigene Patent Rights (as defined below) and Unigene Know-How (as defined below) relating to pharmaceutical compositions for oral delivery of an active PTH peptide and the manufacture thereof; and

 

WHEREAS , Unigene desires to grant to GSK, and GSK desires to obtain, an exclusive license throughout the world under this Agreement to discover, develop, make, have made, market, sell and import certain Licensed Products (as defined below) throughout the world under the aforesaid Unigene Patent Rights and Unigene Know-How ;

 

NOW, THEREFORE , in consideration of the mutual covenants set forth in this Agreement, GSK and Unigene hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1. “ Acceptance ” of an IND , NDA , or MAA or equivalent means the date of receipt by GSK of notice of acceptance from the FDA (or its equivalent in a country outside the U.S.) of an IND , NDA , or MAA for a Licensed Product for substantive review.

 

1.2. “ Affiliate ” means any legal entity (such as a corporation, partnership, or limited liability company) that Controls , is Controlled by or is under common Control with a Party to this Agreement. For the purposes of this definition, the term “ Control ” means: (i) beneficial ownership of at least fifty percent (50%) of the voting securities of a corporation or other business organization with voting securities (or such lesser percentage which is the maximum allowed by a foreign corporation in a particular jurisdiction); (ii) a fifty percent (50%) or greater interest in the net assets or profits of a partnership or other business organization without voting securities; or (iii) the ability to direct the affairs of any such entity.

 

1.3. “ API ” or “ Active Pharmaceutical Ingredient ” means PTH , in bulk active ingredient form meeting the specifications agreed to by the Parties pursuant to Article 5.

 

1.4. “ ** Patent ” means US Patent **.

1.5. “ Approval ” of an NDA in the United States means the FDA ’s approval of an NDA filed by or on behalf of GSK under this Agreement for marketing Licensed Product in the United States. With respect to an MAA , Approval means the approval by all appropriate regulatory authorities of an MAA filed by or on behalf of GSK under this Agreement for a Licensed Product , (i) with respect to Europe, by the European Union, or other central authority; or in at least three (3) of the European Major Markets ; and (ii) with respect to Japan, in Japan.

 

1.6. “ Calendar Quarter ” means a three (3) month period ending on March 31, June 30, September 30 or December 31.

 

1.7. “ Commencement of Phase I Clinical Studies ” means the date the first patient is enrolled by or on behalf of GSK in the first Phase I clinical trial for a Licensed Product .

 

1.8. “ Commencement of Phase II Clinical Studies ” means the date the first patient is enrolled by or on behalf of GSK in the first Phase II clinical trial for a Licensed Product .

 

1.9. “ Commencement of Phase III Clinical Studies ” means the date the first patient is enrolled by or on behalf of GSK in the first Phase III clinical trial for a Licensed Product .

 

1.10. Confidential Information ” means (i) any proprietary or confidential information or material in tangible form disclosed hereunder that is marked as “Confidential” at the time it is delivered to the receiving Party, (ii) proprietary or confidential information disclosed orally hereunder which is identified as confidential or proprietary when disclosed and such disclosure of confidential information is confirmed in writing within a reasonable period of time thereafter by the disclosing Party, and/or (iii) any information or material subject to an obligation of confidentiality pursuant to that certain Confidential Disclosure Agreement entered into by the Parties as of October 18, 2001.

 

1.11. “ Control ,” “ Controls ,” “ Controlled, ” or “ Controlling ” means (except with respect to “ Affiliate ” as defined in Section 1.2) possession of the ability to grant the licenses or sublicenses as provided herein without violating the terms of any license agreement or other arrangement with any Third Party , or any government regulation or statute.

 

1.12. “ Cost of Goods ” means the fully allocated cost of manufacturing API which shall comprise all direct costs (including but not limited to labor, materials, energy, utilities, quality control or other costs incurred directly in the manufacture of API ) and normal production overhead (including but not limited to direct administrative labor costs, applicable manufacturing facility and equipment maintenance, relevant insurances, and applicable depreciation of manufacturing equipment and manufacturing facility,) specifically allocable to the production of such API , excluding (i) any royalties owed to Third Parties and (ii) payments provided to Unigene for FTE manufacturing resources in accordance with Section 3.10. Cost of Goods shall be determined in accordance with US generally accepted accounting principles.

 

1.13. “ Effective Date ” means the date on which this Agreement was executed by both Parties, as set forth above.

 

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1.14. “ European Major Markets ” means France, Germany, Italy, Spain, and the United Kingdom.

 

1.15. “ Equivalent Product ” means, as it pertains to a particular Licensed Product for which there are Net Sales , a product that contains an oral formulation of PTH where such formulation is (a) claimed by a Unigene Formulation Patent and (b) includes the identical PTH molecule as in that particular Licensed Product .

 

1.16. “ Field ” means the use of the Licensed Product for the prophylactic and/or therapeutic treatment of human diseases including, but not limited to, osteoporosis.

 

1.17. “ FDA ” means, with respect to the United States, the United States Food and Drug Administration, any successor entity thereto, or any equivalent foreign regulatory authority(ies) in the particular country of the Territory .

 

1.18. “ First Commercial Sale ” means the first sale of Licensed Product to a Third Party by GSK or its Affiliate or sublicensee in a country in the Territory.

 

1.19. “ Full-Time Equivalent ” or “ FTE ” means the effort equivalent to one (1) full-time employee of Unigene working on a specific project or task assigned under this Agreement, who, in Unigene’s determination, is qualified to perform such work, based on a total of ** (**) hours of work per year.

 

1.20. “ GSK Patent Rights ” means: (i) all patents and patent applications arising from work conducted by GSK in the course of conducting its activities under this Agreement during the Term of this Agreement claiming generically or specifically the manufacture, use or sale of PTH , API , or Licensed Product , including, without limitation, a process for manufacturing PTH , API , or Licensed Product , or an intermediate used in such process or a use of PTH , API , or Licensed Product ; and (ii) any divisions, continuations, continuations-in-part, reissues, reexaminations, patents of additions, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in clause (i) above, and any substitutions, confirmations, registrations or revalidations of any of the foregoing, in each case which is owned or Controlled , in whole or part, by license, assignment or otherwise by GSK during the Term of the Agreement, to the extent GSK has the right to license or sublicense such GSK Patent Rights , and also to the extent to which they do not pertain to any active component of Licensed Product other than PTH or API , and subject to any limitations of any such license or sublicense. For the avoidance of doubt, GSK Patent Rights shall include GSK Inventions (as defined in Section 6.1.1) and Dependent GSK Improvements (as defined in Section 6.2.1), but shall not include Joint Patent Rights .

 

1.21. “ GSK Know-How ” means all ideas, inventions, data, instructions, processes, formulas, expert opinions and information, including, without limitation, biological, chemical, pharmacological, physical and analytical, clinical, safety, manufacturing and quality control data and information arising from work conducted by GSK in the course of performing its activities under this Agreement, in each case, which are necessary or useful for the development, testing,

 

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use, manufacture or sale of PTH , API , or Licensed Product , to the extent to which they do not pertain to any active component of Licensed Product other than PTH or API, and which are in the possession of and owned or Controlled by GSK. GSK Know-How does not include (i) know-how related to mammalian cell culture or (ii) any GSK Inventions for so long as such are included in the GSK Patent Rights. For the avoidance of doubt, GSK Know-How shall include GSK Inventions (as defined in Section 6.1.1) and Dependent GSK Improvements (as defined in Section 6.2.1). GSK Know-How shall be Confidential Information of GSK as defined in Section 1.10.

 

1.22. “ IND ” means an investigational new drug application filed with the FDA prior to beginning clinical trials in humans or any comparable application filed with the regulatory authorities of a country other than the United States, prior to beginning clinical trials in humans in that country; provided, however, that for purposes of this definition, an IND shall not include an investigational new drug application regarding the testing of several closely related compounds to aid in the selection of a lead compound for further human clinical development.

 

1.23. “ Joint Patent Rights ” means (i) all patents and patent applications arising from Joint Inventions (as defined in Section 6.1.1), and (ii) and divisions, continuations, continuations-in-part, reissues, reexaminations, patents of additions, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in clause (i) above, and any substitutions, confirmations, registrations or revalidations of any of the foregoing.

 

1.24. “ Licensed Product ” means a drug product in finished pharmaceutical form, in any formulation containing or incorporating PTH, alone or in combination with any pharmacologically active ingredient which is a non-peptide or non-peptidomimetic or proprietary GSK peptide, which product incorporates Unigene Know-How and/or is covered by Unigene Patent Rights and/or Joint Patent Rights ; provided, that, in GSK’s discretion, it may request that the Parties enter into good faith negotiations regarding the grant of rights to GSK under Licensed Technology to commercialize a drug product in a formulation containing or incorporating PTH in combination with a peptide or peptidomimetic compound that is not proprietary to GSK, and, in the event Unigene has not granted, or is not presently in discussions regarding the grant of such rights to a Third Party , the Parties shall enter into such negotiations.

 

1.25. “ Licensed Technology ” means Unigene Know-How and Unigene Patent Rights and Joint Patent Rights. For avoidance of doubt, Licensed Technology shall include ** IP and UT Patent.

 

1.26. “ MAA Pricing Approval ” means with respect to a Licensed Product in a country, any requisite pricing and reimbursement approval by the appropriate regulatory authorities, such approval being at a level which is acceptable to GSK with respect to commercial return such that it is commercially reasonable for GSK to launch Licensed Product .

 

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1.27. “ Marketing Approval Application” or “MAA ” means a filing for marketing approval (not including pricing or reimbursement approval) in a country other than the United States, in each case with respect to a Licensed Product in the Territory .

 

1.28. “ Marketing Authorization ” means an MAA and/or NDA.

 

1.29. “ Net Sales ” means the gross amount billed or invoiced on sales by GSK, its Affiliates and sublicensees of Licensed Product (the “Selling Party”), less the following:

 

(i)

customary trade, quantity, and cash discounts or rebates actually allowed on Licensed Product ;

 

(ii)

credits or allowances given to customers for rejections or returns of Licensed Product or on account of retroactive price reductions affecting such Licensed Product ;

 

(iii)

sales and excise taxes and duties paid or allowed by the Selling Party and any other governmental charges levied on the production, importation, use or sale of a Licensed Product ;

 

(iv)

transportation charges to the extent that they are included in the price or otherwise paid by the purchaser, including insurance, for transporting Licensed Product ; and

 

(v)

Licensed Product rebates and Licensed Product chargebacks including those granted to managed-care entities and government agencies; and

 

(vi)

** percent (**%) of the sum of gross sales less the amounts set forth in clauses (i) through (v) above to reflect the actual uncollectable accounts.

 

Sales or transfers of Licensed Products among GSK, an Affiliate and/or a sublicensee shall be excluded from the computation of Net Sales, and no royalties will be payable on such sales.

 

1.30. “ NDA ” means, with respect to the United States, a New Drug Application (as defined in 21 C.F.R. § 314.50 et. seq . or any successor regulations), and all subsequent supplements to that NDA .

 

1.31. “ ** ” means **, a corporation with offices at **.

 

1.32. “ ** IP “ means ** Patent **, ** Patent No. **, and any other patent and/or patent applications, including any future divisionals, continuations, continuations-in-part, reissues and reexaminations, licensed to Unigene pursuant to the ** License Agreement .

 

1.33. “ ** License Agreement ” means the license agreement between Unigene and ** relating to the ** IP , ** .

 

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1.34. “ Phase I ” means Phase I clinical trials, as prescribed by applicable FDA regulations.

 

1.35. “ Phase II ” means Phase II clinical trials, as prescribed by applicable FDA regulations.

 

1.36. “ Phase III ” means Phase III clinical trials, as prescribed by applicable FDA regulations.

 

1.37. “ PTH ” means all forms of parathyroid hormone and any and all formulations thereof (including, but not limited to truncates, fusion proteins, muteins and chemical modifications of any or all of the aforementioned).

 

1.38. “ Similar Product ” means, as it pertains to a particular Licensed Product for which there are Net Sales , a product that contains an oral formulation of PTH which is (a) not claimed by a Unigene Formulation Patent and/or (b) includes a PTH molecule other than the identical PTH molecule in that particular Licensed Product or in an Equivalent Product to such particular Licensed Product .

 

1.39. “ Term ” means the term of this Agreement as set forth in Section 10.1.

 

1.40. “ Territory ” means all the countries and territories of the world; provided that, should this Agreement expire as to any country or territory pursuant to Section 10.1, or should GSK terminate this Agreement as to any country or territory pursuant to Section 10.4, such country or territory shall no longer be considered within the Territory . As used in this Agreement, “country” shall refer to country or territory, as appropriate.

 

1.41. “ Third Party(ies) ” means any party(ies) other than Unigene, GSK, or an Affiliate of either of them.

 

1.42. “ Unigene Formulation Patent Rights ” means: (i) all patents and patent applications in existence as of the Effective Date or arising during the Term of this Agreement claiming generically or specifically the formulation of PTH ; and (ii) any divisions, continuations, continuations-in-part, reissues, reexaminations, patents of additions, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in clause (i) above, and any substitutions, confirmations, registrations or revalidations of any of the foregoing, in each case which is owned or Controlled , in whole or part, by license, assignment or otherwise by Unigene as of the Effective Date or during the Term of the Agreement, to the extent Unigene has the right to license or sublicense such Unigene Formulation Patent Rights , and subject to any limitations of any such license or sublicense. The current list of patent applications and patents encompassed within Unigene Formulation Patent Rights is set forth in Appendix A to this Agreement, attached hereto and incorporated herein. Appendix A shall be updated on a semi-annual basis during the Term of the Agreement. For the avoidance of doubt, Unigene Formulation Patent Rights shall include Unigene Inventions (as defined in Section 6.1.1) and ** IP .

 

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1.43. “ Unigene General Patent Rights ” means: (i) all patents and patent applications in existence as of the Effective Date or during the Term of this Agreement claiming generically or specifically the manufacture, use or sale of PTH, API or Licensed Product including, without limitation, a process for manufacturing PTH, API or Licensed Product , or an intermediate used in such process or a use of PTH , API or Licensed Product ; and (ii) any divisions, continuations, continuations-in-part, reissues, reexaminations, patents of additions, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in clause (i) above, and any substitutions, confirmations, registrations or revalidations of any of the foregoing, in each case which is owned or Controlled , in whole or part, by license, assignment or otherwise by Unigene as of the Effective Date or during the Term of the Agreement, to the extent Unigene has the right to license or sublicense such Unigene General Patent Rights , and subject to any limitations of any such license or sublicense. The current list of patent applications and patents encompassed within Unigene General Patent Rights is set forth in Appendix A. Appendix A shall be updated by Unigene on a semi-annual basis during the Term of the Agreement. For the avoidance of doubt, Unigene General Patent Rights shall include Unigene Inventions (as defined in Section 6.1.1) and the UT Patent (as defined below).

 

1.44. “ Unigene Know-How ” means all ideas, inventions, data, instructions, processes, formulas, expert opinions and information, including, without limitation, biological, chemical, pharmacological, physical and analytical, clinical, safety, manufacturing and quality control data and information, in each case, which are necessary or useful for the development, testing, use, manufacture or sale of API , PTH or Licensed Product and which is in the possession of and owned or Controlled by Unigene. Unigene Know-How does not include any Unigene Inventions for so long as such are included in the Unigene Patent Rights . For avoidance of doubt, Unigene Know-How shall include Unigene Inventions (as defined in Section 6.1.1). Unigene Know-How shall be Confidential Information of Unigene as defined in Section 1.10.

 

1.45. “ Unigene Patent Rights ” means Unigene Formulation Patent Rights and Unigene General Patent Rights.

 

1.46. “ UT Patent” means U.S. Patent No. 5,264,365.

 

1.47. “ UT Patent License Agreement” means the license agreement between Unigene and the University of Texas relating to the UT Patent , which shall be executed no later than June 30, 2002.

 

1.48. “ Valid Claim ” means either: (i) a claim of an issued patent within Unigene Formulation Patent Rights that has not been held unenforceable or invalid by an agency or a court of competent jurisdiction in any unappealable or unappealed decision or (ii) a claim of a pending patent application within Unigene Formulation Patent Rights that has not been outstanding for more than three (3) years, nor abandoned or finally rejected without the possibility of appeal or refiling.

 

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1.49. “ Work Plan ” means the plan, as described in Section 4.2, and as set forth in Appendix B to this Agreement, attached hereto and incorporated herein.

 

ARTICLE 2

LICENSE GRANTS

 

2.1. License Grant from Unigene to GSK .

 

2.1.1. Subject to the terms and conditions of this Agreement, Unigene hereby grants to GSK (i) an exclusive license, even as to Unigene, under the Licensed Technology , to make, have made, use, sell, offer for sale and import Licensed Product in the Territory in the Field and (ii) an exclusive license, even as to Unigene, under the Licensed Technology , to make, have made, use, and import API and PTH in the Territory . These licenses include the right to sublicense as to using, selling, offering for sale and importing Licensed Product, the right to sublicense as to using and importing API and PTH and, subject to Section 2.1.2, the right to sublicense as to making and having made API, PTH and Licensed Product .

 

2.1.2. (a) GSK has the right to sublicense all aspects of secondary manufacture of Licensed Product (i.e., the manufacture of Licensed Product other than manufacture of API and PTH ) without further consent or approval of Unigene;

 

(b) If, during the Term , GSK elects not to manufacture API or PTH itself for Licensed Product, and the Parties do not agree to a supply agreement pursuant to Section 5.2, GSK may select a Third Party manufacturer to produce API and/or PTH required by GSK; provided, however, that prior to contracting with a Third Party manufacturer to produce API and/or PTH , GSK shall consult with Unigene to ensure that the Third Party manufacturer is acceptable to Unigene, and Unigene shall not unreasonably withhold or delay its consent to the retention by GSK of the Third Party manufacturer. Should GSK contract with a Third Party for the manufacture of API and/or PTH pursuant to this Section, GSK shall ensure that such Third Party agrees to keep confidential any Unigene Know-How provided to it, under confidentiality provisions no less stringent than those applicable to Unigene and GSK under Article 8.

 

2.1.3. Notwithstanding the grant of exclusive license to GSK in Sections 2.1.1 and 2.1.2, Unigene shall have the right to manufacture PTH for a Third Party or for GSK in accordance with Article 5, but only to the extent that (i) such PTH is not the identical PTH molecule as is then being developed and/or commercialized by GSK anywhere in the Territory in the Field; and (ii) Unigene has obtained a binding contractual commitment of the Third Party that such PTH shall not be used by the Third Party or any of its partners, agents, licensees for oral delivery of PTH in the Field in the Territory . Any contract that Unigene enters into with a Third Party shall include the right of GSK to enforce such contract on behalf of Unigene against the Third Party .

 

2.2. Sublicense of ** IP . Upon the effective date of the ** License Agreement , Unigene exclusively sublicenses to GSK its rights under the ** License Agreement . In

 

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exchange for such sublicense, upon Unigene’s written request, GSK shall promptly pay to ** the license fees and milestones due and owing under the ** License Agreement to the extent set forth in Section 3.7.

 

2.3. UT Patent License Agreement . Upon the effective date of the UT Patent License Agreement , the UT Patent shall become part of Unigene Patent Rights . Unigene shall remain obligated for any and all license fees and milestones due and owing under the UT Patent License Agreement .

 

2.4. License Grant from GSK to Unigene on Termination . In the event of termination by GSK under Section 10.4, or termination by Unigene under Section 10.2 or 10.3, and in accordance with Section 10.5.4, upon such termination, GSK grants to Unigene the following license:

 

(a) an exclusive, world-wide, royalty-free, irrevocable, perpetual license, with the right to grant sublicenses, under GSK Patent Rights, GSK Know-How , Joint Patent Rights and Joint Inventions (other than GSK Inventions and Joint Inventions licensed to Unigene pursuant to Section 6.2), solely to make, have made, use, sell, offer for sale and import an oral PTH product;

 

(b) the license granted to Unigene under this Section 2.4 shall not include any license to develop or commercialize any drug product which does not include PTH, and any such license from GSK to Unigene for such drug product under GSK Patent Rights , GSK Know-How , Joint Patent Rights and Joint Inventions (other than GSK Inventions and Joint Inventions licensed to Unigene pursuant to Section 6.2) shall be subject to good faith negotiation between the Parties, which negotiation may result in a grant of such license if GSK is not pursuing development of commercialization of such drug product itself or with another company.

 

ARTICLE 3

PAYMENTS

 

3.1. Initial Fee to Unigene . In partial consideration for the license to Licensed Technology granted to GSK under Section 2.1 of this Agreement, GSK shall pay to Unigene two million U.S. dollars (U.S. $2,000,000) within ** (**) business days after the Effective Date , which amount shall be non-refundable and not creditable against other amounts due Unigene under this Agreement.

 

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3.2. Milestone Payments to Unigene.

 

(a) Licensed Product . In partial consideration for the license to Licensed Technology granted to GSK under Section 2.1 of this Agreement, GSK shall pay Unigene the following amounts following the first achievement by Unigene, GSK, its Affiliates or sublicensees, as applicable, as the case may be, of each of the following milestones with respect to the Licensed Product (“Milestones”):

 

 

provided that:

 

(1) GSK shall provide written notice of achievement of a Milestone to Unigene within ** (**) business days after such event. Unigene shall provide an invoice to GSK within ** (**) business days of receipt of the notification. Notwithstanding the foregoing, as to Milestones 1 and 2, Unigene shall provide an invoice to GSK upon achievement of such Milestones. GSK shall pay Unigene the Milestone amount within ** (**) business days of receipt of an invoice from Unigene;

 

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(2) each such payment shall be made only one time, based upon the first Licensed Product to achieve a particular Milestone, regardless of how many times such Milestone is achieved, and Milestone 4 shall be paid only after Milestone 3 has been achieved and paid;

 

(3) payment shall not be owed for a Milestone that is not achieved, provided that (a) upon the achievement of any of Milestones 5 – 7, all prior Milestones are deemed achieved as of that date, and payments for such prior Milestones are due and owing according to this Section 3.2, and (b) as to Milestones, 1,2, and 8 – 17, the Milestones may be achieved in any order, and achievement of any Milestone shall be subject to payment under this Section 3.2 whenever achieved;

 

(4) each such payment shall be non-refundable and non-creditable to GSK against other amounts due to Unigene under this Agreement; and

 

(5) the achievement of “**”, “**” and “**” as used in this Section 3.2 shall be determined by criteria established by the JDC (as defined in Section 4.3), but, in any case, should the JDC decide to progress toward Commencement of Phase I Clinical Trials (Milestone 5), if either of Milestone 3 and Milestone 4 has not yet been achieved, it shall be deemed achieved as of the date of the achievement of Milestone 5, and payment for either or both such Milestones, if not previously made, shall be due and owing according to this Section 3.2;

 

(6) “annual worldwide Net Sales ” as used in this Section shall mean the aggregate Net Sales for all Licensed Product in a calendar year across all countries in the Territory .

 

3.3. Second Generation Licensed Product . In partial consideration for the license to Licensed Technology granted to GSK under Section 2.1 of this Agreement, should GSK, in its sole discretion and at its option, undertake development of a second generation Licensed Product and achieve ** for such second generation Licensed Product , GSK shall pay to Unigene ** U.S. dollars (U.S.$**), which amount shall be non-refundable and not creditable against other amounts due Unigene under this Agreement. For purposes of this Section 3.3, “second generation Licensed Product ” shall mean a Licensed Product which enters Phase I after First Commercial Sale of a different Licensed Product . GSK shall provide written notice to Unigene immediately upon such ** , and pay Unigene within ** (**) days of receipt of an invoice. Except for the fee set forth in this Section 3.3, there shall be no other milestone payments for each such second generation Licensed Product .

 

3.4. Unigene Formulation Patent Rights Royalties .

 

3.4.1. Royalties on Net Sales where Valid Claim of Unigene Formulation Patent Rights Exists . In partial consideration of the license and rights granted under Unigene

 

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Formulation Patent Rights hereunder, GSK shall pay royalties to Unigene on Net Sales of all Licensed Products covered by a Valid Claim of Unigene Formulation Patent Rights as follows:

 

(a) ** percent (**%) of annual Net Sales up to ** U.S. dollars (<U.S. $**);

 

(b) ** percent (**%) of annual Net Sales including and in excess of ** U.S. dollars ( ³ US $**) up to ** U.S. dollars (<U.S . $**);

 

(c) ** percent (**%) of annual Net Sales including and in excess of ** U.S. dollars ( ³ U.S. $**) up to ** U.S. dollars (<U.S. $**); and

 

(d) ** percent (**%) of annual Net Sales including and in excess of ** U.S. dollars ( ³ U.S. $**);

 

provided that, for purposes of this Section, achievement of the Net Sales thresholds set forth shall be determined by adding the total annual Net Sales of all Licensed Products during each calendar year in all countries of the Territory in which there is a Valid Claim of Unigene Formulation Patent Rights claiming the particular Licensed Product at the time such Net Sales of such Licensed Product occur.

 

By way of example, if the annual Net Sales were ** U.S. dollars (U.S. $**), then the royalties due under this Section would be ** U.S. dollars (U.S. $**), calculated as (U.S. $** x **%) plus (U.S. $** x **%).

 

3.4.2. Payment of Royalties . Payment of royalties shall be made forty-five (45) days after the end of each Calendar Quarter on all Net Sales in the preceding quarter (“Quarterly Payment”). Each Quarterly Payment shall be accompanied by a report detailing the total Net Sales by country in the Territory for the preceding Calendar Quarter , and, if GSK is claiming a reduced royalty rate under Section 3.4.3 or 3.4.4, the sales volume of the Equivalent Product or Similar Product , as measured by IMS or an equivalent Third Party service acceptable to both Parties. In the event that a Net Sales threshold as described in Section 3.4.1 is met during a Calendar Quarter , all subsequent Quarterly Payments in that calendar year shall be made at the higher applicable royalty rate. Included in the Quarterly Payment for the fourth Calendar Quarter of each calendar year, GSK shall include any additional royalties owed for Net Sales in the calendar year to which the last Calendar Quarter relates, based on the annual Net Sales .

 

3.4.3. Royalty where Substantial Competition of an Equivalent Product Exists . Where substantial competition by an Equivalent Product exists in a country in which a Valid Claim within all Unigene Formulation Patent Rights exists, the applicable royalties set forth in Section 3.4.1 on Net Sales in such country shall be reduced by ** percent (**%) for each Calendar Quarter in which substantial competition exists. By the term “substantial competition” as used in this Section 3.4.3 is meant the situation where an Equivalent Product

 

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achieves ** percent (**%) or more sales (by volume) of the Licensed Product , in such country, as measured by IMS or an equivalent Third Party service acceptable to both Parties, on a monthly basis for each month of a Calendar Quarter .

 

3.4.4. Royalty where Substantial Competition of a Similar Product Exists . In the event Section 3.4.3 does not apply, where substantial competition by a Similar Product exists in a country in which a Valid Claim within the Unigene Formulation Patent Rights exists, the applicable royalties set forth in Section 3.4.1 on Net Sales in such country shall be reduced by ** percent (**%) for each Calendar Quarter in which substantial competition exists. By the term “substantial competition” as used in this Section 3.4.4 is meant the situation where a Similar Product achieves ** percent (**%) or more sales (by volume) of the Licensed Product in such country, as measured by IMS or an equivalent Third Party service acceptable to both Parties, on a monthly basis for each month of a Calendar Quarter .

 

3.4.5. Single Royalty; Non-Royalty Sales . No royalty shall be payable under Section 3.4.1 above with respect to sales of the Licensed Product among GSK, its Affiliates and sublicensees for resale to a Third Party . In no event shall more than one such royalty be due Unigene hereunder with respect to the sale of each Licensed Product , even if such Licensed Product is covered by more than one Valid Claim within the Unigene Formulation Patent Rights .

 

3.5. Royalties on Net Sales where No Valid Claim of Unigene Formulation Patent Rights Exists . In the event that no royalty on certain Net Sales is paid under Section 3.4, as further consideration for the licenses granted to GSK under Section 2.1 of this Agreement, GSK shall pay to Unigene ** percent (**%) of the otherwise applicable royalty rate set forth in Section 3.4.1 on such Net Sales. Where substantial competition exists in such country where there is no Valid Claim , the royalty rate outlined in Section 3.4 on Net Sales in such country shall be reduced by ** percent (**%) for each Calendar Quarter in which substantial competition exists. By the term “substantial competition” as used in this Section 3.5 is meant the situation where an Equivalent Product achieves ** percent (**%), or Similar Product achieves ** percent (**%) or more sales (by volume) of the Licensed Product , in such country, as measured by IMS or an equivalent Third Party service acceptable to both Parties, on a monthly basis for each month of the Calendar Quarter .

 

3.6. Royalty Term . The obligation of GSK to pay royalties under Section 3.4 shall continue for each Licensed Product on a Licensed Product -by- Licensed Product and country-by-country basis, until such time as there are no Valid Claims of Unigene Formulation Patent Rights covering the manufacture, sale or use of such Licensed Product in such country. The obligation of GSK to pay royalties under Section 3.5 shall continue for each Licensed Product on a Licensed Product -by- Licensed Product basis and country-by-country basis until ** (**) years from the date of First Commercial Sale of such Licensed Product in such country. In the event that the obligation of GSK to pay royalties under Section 3.4.1 as to a Licensed Product expires prior to ** (**) years from the date of First Commercial Sale of such Licensed Product , upon such expiration, GSK shall be obliged to pay royalties under Section 3.5 as to such Licensed Product .

 

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3.7. ** License Fees and Milestones . In accordance with Unigene’s sub-license to GSK of the ** License Agreement , GSK shall be fully responsible for the prompt payment to ** , upon Unigene’s prompt notice and request, of those certain license fees and milestones due from Unigene to ** under the ** License Agreement and specified below, not to exceed the amounts set forth below:

 

 

provided that:

 

(1) each such payment shall be made only one time to ** by GSK based upon the first Licensed Product to achieve a particular Milestone regardless of how many times such Milestone is achieved;

 

(2) the Milestone 2 payment shall not be made in the event Milestone 3 occurs prior to Milestone 2;

 

(3) payment shall not be owed for a Milestone that is not reached; and

 

(4) as to Milestone 4, the option to pay the Milestone on successful ** or ** shall be as specified in the ** License Agreement .

 

GSK shall pay the above amounts to ** upon Unigene’s notice and request and in accordance with the ** License Agreement ; provided, however, that in the event that GSK fails to remit such payment to ** in a timely fashion after receiving notice from Unigene that payment to ** is due from GSK, Unigene shall be entitled to remit payment directly to ** . In such event, Unigene shall be entitled to seek reimbursement from GSK of any amounts paid to **, or, at Unigene’s option, to deduct any such payments from future payments due GSK under this Agreement. Other than as set forth above, Unigene shall be fully responsible for any other royalties, license fees, Milestones and any and all other payments due from Unigene to ** or any other entity under the ** License Agreement .

 

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3.8. Third Party Fees or Royalties . GSK shall be fully responsible for the payment of any additional royalties, license fees, milestones and any and all other payments due to Third Parties other than those due under the ** License Agreement or in relation to the UT Patent that are required for GSK or its licensees to develop, manufacture, use, market, sell or import ** or Licensed Product , until First Commercial Sale of Licensed Product . After First Commercial Sale , Unigene shall be responsible for ** percent (**%) of royalties due Third Parties which are directly related to GSK or its licensees’ manufacture, use, sale or import of Licensed Technology , at GSK’s request and upon provision of sufficient documentation by GSK to show the existence of such an obligation and its direct relation to the Licensed Technology . Unigene shall meet its responsibility for such payments solely in the form of deductions from Quarterly Payments, and in no event shall such deductions exceed ** percent (**%) of any Quarterly Payment. GSK shall consult with Unigene before entering into any agreement which might subject Unigene to obligations under this Section 3.8; however, GSK shall retain the right of final decision.

 

3.9. Third Party Payments - ** Patent .

 

3.9.1. Unigene Notification Regarding ** Patent . Notwithstanding Unigene’s obligations under Section 3.8 of this Agreement to reimburse part of certain Third Party payments, Unigene shall have no such obligation to make any such payments for use of technology claimed in the ** Patent in the event that: (i) Unigene notifies GSK in writing that it believes that the method of manufacture of the API and/or the Licensed Product is not within the scope of any claim of the ** Patent ; and (ii) GSK does not respond in writing to Unigene within forty-five (45) days of receipt of Unigene’s notice. In the event GSK provides written response to Unigene, GSK will notify Unigene of its election to have an outside patent expert (“Outside Expert”) who is not affiliated with either Party determine whether the method of manufacturing the API and/or the Licensed Product is within one or more claims of the ** Patent , in accordance with Section 3.9.2 below.

 

3.9.2. Outside Expert Opinion on Scope of ** Patent . In the event that GSK gives notice to Unigene under Section 3.9.1 that GSK elects an Outside Expert determination, the Parties shall promptly select a mutually acceptable objective patent expert to act as Outside Expert and shall supply such Outside Expert with such materials and information as either Party may deem relevant, or as the Outside Expert may request. The Outside Expert will be asked to render a full and well reasoned, written opinion (“Opinion”) that the Outside Expert believes that it is more likely than not that either:

 

(1) the manufacturing process for the API and/or Licensed Product is within the scope of the ** Patent; or

 

(2) the method of manufacturing the API and/or Licensed Product is outside the scope of the ** Patent .

 

The Outside Expert, in rendering this Opinion, shall utilize only the facts and materials provided by the Parties and shall apply the body of law relevant to patent claim interpretation for

 

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infringement purposes (including doctrine of equivalents and file history estoppel analysis), as set forth in Title 35 of the United States Code and related case law. The Opinion shall contain the Outside Expert’s explanation for his conclusions and shall be provided to both parties promptly after completion.

 

3.9.3. Effect of Opinion . In the event that the Outside Expert determines that the method of manufacturing the API and/or Licensed Product is not within the scope of the ** Patent , then Unigene shall not be required to reimburse GSK with respect to the ** Patent, and GSK shall reimburse Unigene for all deductions from Quarterly Payments related to use of technology claimed in the ** Patent made after the date of notice provided under Section 3.9.1, such reimbursement to be made no later than the next Quarterly Payment after the date of the Opinion set forth in Section 3.9.2. In the event that the Outside Expert determines that the method of manufacturing the API and/or the Licensed Product is within the scope of the ** Patent , then Unigene’s obligation of reimbursement under Section 3.7 with respect to the ** Patent shall continue uninterrupted.

 

3.9.4. Fees . The fees paid to the Outside Expert shall be borne equally between the Parties.

 

3.9.5. Finality . The Opinion of the Outside Expert shall be final for the purposes of determining Unigene’s reimbursement obligations under Section 3.7 of this Agreement with respect only to the ** Patent , and shall not be appealable by either Party. However, the procedure set forth in Section 3.9 may be repeated upon the request of either Party in the event that the method of manufacturing the API and/or Licensed Product is substantially changed and/or the ** Patent is reissued subsequent to the rendering of an Opinion by an Outside Expert.

 

3.10. Unigene FTE Payments . As consideration for work conducted by Unigene FTE s in accordance with the Work Plan and/or as authorized by the JDC or Project Team, GSK shall pay Unigene ** U.S. dollars (U.S. $**) per year per Unigene FTE , which rate shall increase each calendar year upon the anniversary date of the Effective Date by a percentage equal to the increase in the CPI, All Urban Consumers, in the previous calendar year, and shall reimburse Unigene for all preapproved out-of-pocket costs and expenses (including, but not limited to, reasonable travel and hotel costs) consistent with the Work Plan and/or as authorized by the JDC or Project Team. Subject to further changes in the Work Plan at the mutual agreement of the Parties, the maximum payments payable to Unigene are set forth in Appendix B. GSK shall make payment to Unigene on a monthly basis for work conducted by Unigene in accordance with the Work Plan within ** (**) days of receipt of an invoice from Unigene. Each invoice shall describe in detail the work performed by Unigene FTE s and a breakdown of hours of work performed.

 

3.11. Currencies . Payments under this Agreement shall be made in United States Dollars. Revenues and expenses for each country shall be converted into United States Dollars using the applicable exchange rate for converting such local currency to the United States Dollar in accordance with the exchange rates used by GSK in producing its financial accounts at the time and detailed in its annual report.

 

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3.12. Manner of Payments . All sums due to Unigene or to ** under this Agreement shall be payable in United States Dollars by bank wire transfer in immediately available funds to such bank account as Unigene shall designate. GSK shall notify Unigene as to the date and amount of any such wire transfer to Unigene at least two (2) business days prior to such transfer. Interest for payments that are not paid within thirty (30) days of the date on which they were due shall accrue at **percent (**%) per month or portion thereof from the date payment was due.

 

3.13. Tax Withholding . Any tax, duty or other levy paid or required to be withheld by GSK or its sublicensees on account of royalties or other payments payable to Unigene or ** under this Agreement shall be deducted from the amount of royalties or payments otherwise due, provided that GSK shall make such deductions only to the minimum extent required by the relevant jurisdiction. GSK shall secure and send to Unigene and ** proof of any such taxes, duties or other levies withheld and paid by