Exhibit 10.38 EXCLUSIVE LICENSE AGREEMENT

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Kosan Biosciences Incorporated | Pfizer Inc

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Title: Exhibit 10.38 EXCLUSIVE LICENSE AGREEMENT
Governing Law: New York Date: 3/16/2007
Industry: Biotechnology and Drugs Sector: Healthcare

Exhibit 10.38

EXCLUSIVE LICENSE AGREEMENT

This License Agreement (“ Agreement ”) is entered into as of this 19 day of December, 2006 (“ Effective Date ”), by and between:

on the one hand,

Pfizer Inc, a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 234 East 42 ^nd Street, New York, New York 10017 (including its Affiliates (as defined herein, “ Licensee ”),

and on the other hand,

Kosan Biosciences Incorporated, a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 3832 Bay Center Place, Hayward, California 94545 (“ Kosan ”). Licensee and Kosan each may be referred to herein as a “Party,” and collectively as “Parties.”

WHEREAS, Kosan owns or possesses certain patent rights and know-how with respect to motilin agonist compounds, including KOS-2187;

WHEREAS, Kosan desires to license its technology and rights to Licensee for the continued development and commercialization of Kosan’s motilin agonist compounds, including but not limited to KOS-2187;

WHEREAS, Licensee desires to continue the development and commercialization of KOS-2187 and such other Kosan compounds as Licensee may determine could be beneficial in the treatment of GI disorders;

WHEREAS, Licensee desires to obtain an exclusive license under Kosan’s patent rights and know-how with respect to such compounds, including KOS-2187; and

WHEREAS, Kosan is willing to grant an exclusive license to Licensee under such patent rights and know-how all as more particularly described in, and subject to the terms and conditions of, this Agreement.

NOW THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties mutually agree as follows:

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED .

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following terms shall have the following meanings, and singular forms, plural forms and derivative forms (i.e. other parts of speech), shall be interpreted accordingly:

1.1 “ Affiliate ” means any corporation or non-corporate business entity which controls, is controlled by, or is under common control with a Party to this Agreement. A corporation or non-corporate business entity shall be regarded as in control of another corporation if it owns or directly or indirectly controls greater than fifty percent (>50%) of the voting stock of the other corporation or such lesser maximum percentage permitted in those jurisdictions where majority ownership by foreign entities is prohibited, or (a) in the absence of the ownership of greater than fifty percent (>50%) of the voting stock of a corporation, or (b) in the case of a non-corporate business entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or non-corporate business entity, as applicable, whether through the ownership or control of voting securities, by contract or otherwise.

1.2 “ Approval” or “Approved ” means any and all approvals, including supplements and amendments, licenses, registration or authorizations of any agency, department or bureau or government authority that are necessary for the manufacture, distribution, use marketing or sale of a pharmaceutical product in a regulatory jurisdiction.

1.3 “ Bulk KOS-2187 ” means Kosan’s inventory of the active pharmaceutical ingredient for KOS-2187.

1.4 “ Business Day ” or business day means a day other than Saturday, Sunday or any other day on which commercial banks located in New York, New York are obligated by applicable laws to close.

1.5 “ CTA ” means a Clinical Trial Authorization filed with the EMEA with respect to the EU or with the Regulatory Agency of a country within the EU for a compound to be developed for use within the Field.

1.6 “ Combination Product ” means a product that contains a Licensed Product in any dosage strength or formulation and one (1) additional active ingredient.

1.7 “ Commencement ” means, with respect to a clinical trial, the date upon which the first patient receives the first dose of an item that is the subject of such clinical trial.

1.8 “ Commercialize ” or “ Commercialization ” means all activities relating to the commercialization of a Licensed Product including, without limitation, promotion, marketing, sales and distribution.

1.9 “ Commercially Reasonable Efforts ” means those efforts and resources that Licensee would use were it developing or commercializing its own pharmaceutical products that are of similar market potential as the Licensed Product, taking into account product labeling or anticipated labeling, present and future market potential, past performance, financial return, medical and clinical considerations, present and future regulatory environment and competitive market conditions in the Field, all as measured by the facts and circumstances at the time such efforts are due.

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

1.11 “ Dollars ” or “ $ ” means US dollars.

1.12 “ EU ” means the European Union.

1.13 “ FDA ” means the US Food and Drug Administration and any successor entity thereto.

1.14 “ Field ” [*].

1.15 “ First Commercial Sale ” means the first sale of a Licensed Product to a Third Party.

1.16 [*]

1.17 [*]

1.18 “ GI Indication ” [*]

1.19 “ GI Product ” [*]

1.20 “ IND ” means an Investigational New Drug Application filed with FDA for a Licensed Product to be developed for use in the Field or foreign equivalent.

1.21 “ Joint Research and Development Plan ” shall have the meaning given in Section 6.4.

1.22 “ Know-How ” means all non-patented data, information, methods, procedures, processes and other know-how related to the use, manufacture or sale of Kosan Compound Library. Know-How includes but is not limited to: biological, chemical, biochemical, toxicological, pharmacological, metabolic, formulation, clinical, analytical and stability information, standard operating procedures and protocols relating

to the research scale, pilot scale and commercial scale synthesis of the Kosan Compound Library (other than such information and data which is or becomes the subject of a patent or patent application).

1.23 “ KOS-2187 ” means the compound known as [*].

1.24 “ Kosan Compound Library ” means the compounds generically or specifically described in the Kosan Patent Rights.

1.25 “ Kosan [*] Patent Rights ” means the patent applications listed on Exhibit A as Kosan Patent Family [*], including any patents issuing therefrom, as well as all continuations, continuations-in-part, divisions, patents of addition, reissues, renewals, extensions, substitutions, and supplementary protection certificates thereof, and the foreign patents and foreign patent applications corresponding to any of the foregoing.

1.26 “ Kosan Know-How ” means all Know-How that is Controlled by Kosan as of the Effective Date.

1.27 “ Kosan Patent Rights ” means all patents and patent applications that are Controlled by Kosan as of the Effective Date, including all continuations, continuations-in-part, divisions, patents of addition, reissues, renewals, extensions, substitutions, and supplementary protection certificates thereof, and the foreign patents and foreign patent applications corresponding to any of the foregoing. The Kosan Patent Rights existing as of the Effective Date are set forth in Exhibit A.

1.28 “ Kosan Technology ” means collectively Kosan Know-How and Kosan Patent Rights.

1.29 “ Licensed Product ” means (a) any product the manufacture, use or sale of which is covered by a Valid Claim or (b) any product covered by Section 4.1(c) with respect to countries where the manufacture, use or sale of the product is not covered by a Valid Claim.

1.30 “ Licensee ” means Licensee and its Affiliates.

1.31 “ Licensee Quarter ” means (i) in the US, each of the four (4) thirteen (13)-week periods used by Licensee in its audited financial reports, the first such period commencing on January 1 of any year and (ii) in any country in the Territory other than the US, each of the four (4) thirteen (13)-week periods used by Licensee in its audited financial reports, the first such period commencing on December 1 of any year. Provisions in this Agreement requiring a calculation of sales in the Territory in the first Licensee Quarter or in [*] consecutive Licensee Quarters shall be calculated by adding the sales in the first Licensee Quarter in the US pursuant to clause (i) above and the sales in the first Licensee Quarter outside of the US pursuant to clause (ii) above and likewise for each of the [*] Licensee Quarters in a particular year.

1.32 [*]

1.33 “ NDA ” means a New Drug Application filed with the FDA (or foreign equivalent thereof) for approval to market and sell a drug.

1.34 “ Net Sales ” means:

(a) with respect to a Licensed Product (subject to subsection (b) below), the amount invoiced by Licensee or a sublicensee for sales of such Licensed Product, to Third Parties, less, without duplication, (i) [*], (ii) [*]; and

(b) in the case of a Combination Product,

(i) if Licensee or any sublicensee separately sells in such country during such year when it sells such Combination Product both (1) one or more Licensed Products as a single chemical entity and (2) other products containing active pharmaceutical ingredient(s) as a single chemical entity, both of which are also contained in such Combination Product, then the Net Sales attributable to such Combination Product during such year shall be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/(A+B) where: A is the sum of Licensee’s (or its sublicensees’) average Net Sales prices per daily dose during such year for each Licensed Product in such Combination Product as a single chemical entity in such country and B is the sum of the average of Licensee’s (or its sublicensees’) Net Sales prices per daily dose during such year in such country, for each product(s) containing the active pharmaceutical ingredient(s) in such Combination Product (other than the Licensed Product) as a single chemical entity;

(ii) if Licensee or any sublicensee separately sells, in such country during such year when it sells such Combination Product, one or more Licensed Products as a single chemical entity but does not separately sell, in such country, other products containing the active pharmaceutical ingredient(s) that are also contained in such Combination Product, then the Net Sales attributable to such Combination Product during such year shall be calculated by multiplying the Net Sales of such Combination Product by the fraction A/C where: A is the sum of Licensee’s (or its sublicensees’) average Net Sales prices per daily dose during such year for each Licensed Product in such Combination Product as a single chemical entity in such country, and C is Licensee’s (or its sublicensees’) average Net Sales price per daily dose during such year for the Combination Product in such country; and

(iii) if Licensee or its sublicensee does not separately sell, in such country during such year when it sells such Combination Products, each Licensed Product contained in the Combination Product, then the Net Sales attributable to such Combination Product during such year shall be calculated by multiplying the Net Sales of such Combination Product by the fraction D/D+E where D is the fair market value of the portion of the Combination Product that contains the Licensed Product and E is the fair market value of the portion of the Combination Product containing the other active ingredient in the Combination Product, as the fair market values are determined by mutual agreement of the Parties.

In all cases, Net Sales shall be determined from books and records maintained in accordance with [*]

1.35 “ Non-GI Product ” means a Licensed Product that has been Approved for an indication [*].

1.36 “ Phase I ” means, with respect to the US, the first phase of human clinical trials using a limited number of human subjects to gain evidence of the safety and tolerability of a Licensed Product and information regarding pharmacokinetics and potentially pharmacological activity for such Licensed Product, which human clinical trials are completed prior to the initiation of Phase II, as described in 21 C.F.R. § 312.21(a), as may be amended, or, with respect to any other country or jurisdiction, the equivalent of such a clinical trial in such other country or jurisdiction.

1.37 “ Phase II ” means, with respect to the US, the second phase of human clinical trials of a Licensed Product to gain evidence of the efficacy in one or more indications and expanded evidence of the safety of such Licensed Product, as well as an indication of the dosage regimen required, as described in 21 C.F.R.§ 312.21(b), as may be amended, or, with respect to any other country or jurisdiction, the equivalent of such a clinical trial in such other country or jurisdiction.

1.38 [*]

1.39 [*]

1.40 [*]

1.41 “ Registration ” in relation to any Licensed Product means such approvals by government authorities in a country or community or association of countries included in the Territory (including, where applicable, price approvals) that are required to be obtained prior to marketing or selling such Licensed Product for use in the Field.

1.42 “ Regulatory Agency ” means, with respect to any particular country, the governmental authority, body, commission, agency or other instrumentality of such country (or the EMEA with respect to the EU), with the primary responsibility for the evaluation or approval of pharmaceutical products before a Licensed Product can be tested, marketed, promoted, distributed or sold in such country, including such governmental bodies that have jurisdiction over the pricing of such pharmaceutical product. The term “Regulatory Agency” includes the FDA.

1.43 “ Regulatory Filing ” means any filing with a Regulatory Agency relating to or to permit or request, as applicable, the clinical evaluation or Registration of a pharmaceutical product. Regulatory Filings include without limitation INDs, CTAs and NDAs.

1.44 “ Reverted Product ” means a Licensed Product (a) [*] and (b) that is required to be reverted to Kosan in accordance with Section 12.8.

1.45 “ Royalty Term ” shall be as defined in Section 4.1.

1.46 “ Second GI Product ” [*].

1.47 “ Second Non-GI Product ” [*]

1.48 “ Territory ” means the entire world.

1.49 “ Third Party ” means any party other than Kosan, Kosan’s Affiliates or Licensee.

1.50 “ US ” means the United States of America, its territories and possessions.

1.51 “ Valid Claim ” means any claim from (a) an issued and unexpired patent included within the Kosan Patent Rights that has not been revoked or held unenforceable or invalid by a final decision of a court or other governmental authority of competent jurisdiction, unappealable or unappealed within the time allowed for appeal or that has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise; or (b) a patent application included within the Kosan Patent Rights; provided however, that such a claim from a patent application has not been canceled, withdrawn, or abandoned or been pending for more than [*] from the date of its first priority filing anywhere in the world. If a claim of a patent application that ceased to be a Valid Claim under item (b) because of the passage of time that later issues as part of a patent within item (a), then it shall again be considered to be a Valid Claim effective as of the earlier of the grant, allowance or issuance of such patent.

ARTICLE 2

GRANT OF LICENSE/ASSIGNMENT OF PATENTS

2.1 Grant . Subject to the terms and conditions of this Agreement, Kosan hereby grants to Licensee, and Licensee hereby accepts on its and their behalf, an exclusive license, with a right to sublicense as provided in Section 2.2, under the Kosan Technology to (a) develop, use, sell, offer for sale, import and/or export Licensed Products in the Territory and in the Field, and (b) make and have made Licensed Products in the Territory for such development, use, sale, offering for sale, importation and/or exportation. [*]

2.2 Right to Sublicense . Licensee shall have the right to sublicense the rights granted under Section 2.1 to Third Parties in the Field or the Territory. Licensee assumes full responsibility for the performance of such sublicense, and compliance with the terms of this Agreement by such sublicensee, and will itself pay and account to Kosan for all royalties or other payments due under this Agreement by reason of the operations of any such sublicensee. Any agreement governing the terms of a sublicense by Licensee or any of its sublicensees of any of the rights granted under Section 2.1 must be consistent with the terms and conditions of this Agreement.

ARTICLE 3

MILESTONE PAYMENTS

3.1 Upfront Payment . Upon the Effective Date hereof, Licensee shall pay Kosan a non-refundable upfront license fee in the amount of Twelve Million Five Hundred Thousand Dollars ($12,500,000).

3.2 Milestone Payments .

(a) Development . Licensee shall pay to Kosan non-refundable milestone payments specified below with respect to development by Licensee and its sublicensees of Licensed Product as a human therapeutic no later than thirty (30) days after the following events have occurred.

Licensee will only pay the development milestones listed below once for each Licensed Product.

Licensee will pay development milestones for a Second GI Product only if [*]. Development milestone payments will then be paid [*] for the Second GI Product.

Licensee will pay development milestones for a Second Non-GI Product only if [*]. Milestone payments will then be paid [*] for the Second Non-GI Product.


Milestone Event	Milestone Payment
[*]	[	*]

It is the parties’ intent that each of the foregoing [*]. However, the parties recognize that it is possible that during the development of a Licensed Product, one or more of the above milestone events may be skipped. Therefore, if a particular milestone event occurs on a given date and, as of such date, any of the prior milestone events have not occurred, Licensee shall be required to make the prior milestone payment(s) as if such milestone event(s) had occurred as of the date the subsequent milestone event occurred.

(b) Examples .

(i) KOS-2187 enters into [*] but is discontinued in favor of another Licensed Product (“KOS-X”), which proceeds to [*]. In this situation, Licensee would be required to pay Kosan [*] within 30 days after [*] with KOS-2187, would not be required to pay Kosan a milestone payment for [*] with KOS-X and would be required to pay Kosan [*] within 30 days after [*] with KOS-X.

(ii) KOS-2187 proceeds through clinical development and is first Approved (in the US) on [*]. On [*], KOS-X is in [*] and [*] of KOS-X is initiated on [*]. In this situation, (A) with respect to KOS-2187, Licensee would be required to pay Kosan each of the first [*] milestone payments listed in the table above within 30 days of the occurrence of the applicable milestone event and (B) with respect to KOS-X, Licensee would be required to pay Kosan the [*] milestone payments listed in the table above within 30 days after [*].

(c) Commercialization . Licensee shall pay to Kosan non-refundable milestone payments specified below with respect to Commercialization by Licensee and its sublicensees of each Licensed Product as a human therapeutic no later than sixty (60) days after the end of the applicable Licensee Quarter. Licensee will pay each Commercialization milestone only once for each Licensed Product:


Milestone Event	Milestone Payment
Upon aggregate Net Sales in the Territory reaching $[] in any [] consecutive Licensee Quarters	$	[	*]

Upon aggregate Net Sales in the Territory reaching $[] in any [] consecutive Licensee Quarters	$	[	*]

Upon aggregate Net Sales in the Territory reaching $[] in any [] consecutive Licensee Quarters	$	[	*]

Upon aggregate Net Sales in the Territory reaching $[] in any [] consecutive Licensee Quarters	$	[	*]

(d) [ * ]

ARTICLE 4

ROYALTIES

4.1 Royalties in General . For each Licensed Product, the obligation of Licensee to pay Kosan royalties in a given country shall commence on the date of the First Commercial Sale of such Licensed Product by the Licensee in such country and shall continue until the later of (i) the date upon which no Valid Claim would cover the manufacture, use or sale of such Licensed Product in the country of manufacture, use or sale, or (ii) the date which is [*] after the date of such First Commercial Sale in such country (the “ Royalty Term ”).

(a) Licensee shall pay or cause to be paid to Kosan a royalty based on Net Sales of Licensed Products made by Licensee and its sublicensees [*] as provided for in the table below in this Section 4.1(a).

Total Annual Net Sales

of Licensed Products [*]

Royalty Rate

[*]

[

(b) [*].

(d) Examples

(1) [*]

4.2 Accrual of Royalties . No royalty shall be due or owing from the use or distribution of Licensed Product in transactions where no consideration is received by the Licensee, such as when Licensed Product is made or used for tests or development purposes or is distributed as samples. Royalties shall accrue based on the fair market value of any non-monetary consideration received. No royalties shall be payable on sales between Licensee, its Affiliates and sublicensees, but royalties shall be payable on subsequent sales by any such entities. No multiple royalties shall be payable under this Agreement because Commercialized Licensed Product is covered by more than one Valid Claim.

4.3 Compulsory Licenses . If Licensee is required to grant a compulsory license to a Third Party as required by the applicable laws of any country in the Territory under the Kosan Patent Rights, and the royalty rate payable to Licensee for sales of Licensed Product by such Third Party is lower than the royalty rate payable by Licensee to Kosan for such sales, then the royalty rate payable hereunder by Licensee for sales

of Licensed Products by such Third Party in such country shall be [*] payable by such Third Party to Licensee for such country. If Licensee is required to grant a license under this Section 4.3, the compulsory licensee shall not be considered a licensee under Section 4.4.

4.4 [*]

4.5 Third Party Royalty Obligations . If (a) in order to avoid infringement of any patent not licensed hereunder, it is reasonably necessary for Licensee to obtain a license from a Third Party in order to make, use, sell, offer for sale, supply, cause to be supplied, or import a Licensed Product in a country in the Territory and to pay a royalty or other consideration under such license (including in connection with the settlement of a patent infringement claim), in which case, Licensee shall discuss the matter with Kosan prior to obtaining such a license, or (b) shall be subject to a final court or other similar binding order or ruling requiring any payments, including the payment of a royalty to a Third Party patent holder in respect of sales of any Licensed Product in a country in the Territory, then the amount of Licensee’s royalty payments with respect to Net Sales for such Licensed Product in such country shall be reduced by [*] of (i) the royalties on sales of such Licensed Product payable by Licensee to such Third Party or (ii) other amount payable by Licensee specifically as a total buyout of all of the Third Party’s expected royalties on sales of such Licensed Product, provided, however, that in no event will a deduction, or deductions, under this Section 4.5, in the aggregate, reduce any royalty payment made by Licensee in respect of Net Sales of such Licensed Product by more than [*]. If, but for the proviso in the preceding sentence, the deduction under Section 4.5(ii) would have reduced a royalty payment made by Licensee by more than [*], then the amount of such deduction that exceeds [*] will be carried over to the subsequent royalty payment until the full amount the Licensee would have been entitled to deduct (absent the above limitation) is deducted.

ARTICLE 5

ROYALTY REPORTS AND ACCOUNTING

5.1 Royalty Payments; Royalty Reports . After the First Commercial Sale and for the remaining term of this Agreement, Licensee shall submit with each payment of royalties to Kosan a written royalty report (“ Royalty Report ”) covering sales of Licensed Product for each Licensee Quarter with the following information provided on a country-by-country basis:

(a) [*] for each Licensed Product (by country) in local currency and in Dollars;

(b) the royalties, payable in Dollars, which shall have accrued hereunder in respect to such Net Sales;

(d) the exchange rates used in determining the amount of Dollars; and

(e) the names and addresses of all sublicensees.

Royalty Reports shall be due for the entire Territory no later than sixty (60) days after the end of the Licensee Quarter to which they pertain. Royalty payments for each Licensee Quarter with respect to Net Sales covered by a Royalty Report shall be due at the same time as such written report for the Licensee Quarter.

5.2 Manner of Payment . All payments due under this Agreement shall be made in Dollars via wire transfer of immediately available funds.

5.3 Sales Record Audit . Licensee shall keep, and shall cause each of its Affiliates, and sublicensees, if any, to keep, full and accurate books of accounting in accordance with GAAP containing all particulars that may be necessary for the purpose of calculating all royalties payable to Kosan. Such books of accounting (including, without limitation, those of the Licensee’s Affiliates, and sublicensees, if any) shall be kept at their principal place of business and, with all necessary supporting data, shall during all reasonable times for the [*] next following the end of the calendar year to which each shall pertain, be open for inspection at reasonable times by an independent certified accountant selected by Kosan, and reasonably acceptable to Licensee, at Kosan’s expense, for the purpose of verifying royalty statements for compliance with this Agreement. Such accountant must have agreed in writing to maintain all information learned in confidence, except as necessary to disclose to Kosan such compliance or noncompliance by the Licensee. The results of each inspection, if any, shall be binding on both Parties other than in the case of manifest error. Kosan shall pay for such inspections, except that in the event there is any upward adjustment in aggregate royalties payable for the Licensee Quarter period of such inspection of more than [*] of the amount paid, Licensee shall pay for the reasonable out-of-pocket costs of such inspection. Any underpayments shall be paid by Licensee within ten (10) Business Days of notification of the results of such inspection. Any overpayments shall be promptly paid by Kosan.

5.4 Currency Exchange . Conversion of sales recorded in local currencies to Dollars for the purpose of calculating the sales milestone payments under Section 3.2(b) or royalty payments will be performed [*].

5.5 Taxes . It is understood and agreed between the Parties that any payments made under Sections 3.1, 3.2 or 4.1 of this Agreement are inclusive of any value added or similar tax imposed upon such payments. In addition, in the event any such payments made by Licensee become subject to withholding taxes under the laws of any jurisdiction, Licensee shall deduct and withhold the amount of such taxes for the account of Kosan to the extent required by applicable laws or regulations, such amounts payable to Kosan shall be reduced by the amount of taxes deducted and withheld, and Licensee shall pay the amounts of such taxes to the proper governmental authority in a timely manner and promptly transmit to Kosan an official tax certificate or other

evidence of such tax obligations together with proof of payment from the relevant governmental authority of all amounts deducted and withheld sufficient to enable Kosan to claim such payment of taxes. Any such withholding taxes required under applicable laws or regulations to be paid or withheld shall be an expense of, and borne solely by, Kosan. Licensee will provide Kosan with reasonable assistance to enable Kosan to recover such taxes as permitted by applicable laws or regulations.

5.6 Interest Due . Without limiting any other rights or remedies available to Kosan , Licensee shall pay Kosan interest on any payments that are not paid on or before the date such payments are due under this Agreement at an annual rate equal to the [*] rate effective for the date the payment was due, as reported by the Wall Street Journal. If the payment is still not received [*] after its due date, the interest rate will increase to [*].

ARTICLE 6

DEVELOPMENT AND MARKETING

6.1 Development and Commercialization . Licensee will use Commercially Reasonable Efforts to develop, seek Approval for and Commercialize [*], including KOS-2187, and in the event that [*], develop, seek Approval for and Commercialize [*], the manufacture, use or sale of which is covered by a Valid Claim. Licensee’s initial development plan for KOS-2187 is attached as Exhibit B. Licensee will have the sole authority and discretion to modify the development plan and to make all decisions relating to Licensed Product development and Commercialization, including termination.

6.2 Development Information Exchange . It is the parties’ intent that there will be open communications between the Parties to discuss the development of Licensed Products. [*] the Parties shall meet to review and discuss (a) past, current and anticipated development and regulatory activities with respect to Licensed Products, including without limitation the then current development plans and projected timing for the milestone events listed in Section 3.2, and (b) the status of prosecution and maintenance of Kosan Patent Rights. Development information exchange meetings shall be held at mutually agreeable times and at least [*] per calendar year shall be in person at a location to be designated by each Party in turn in Sandwich, UK, Nagoya, Japan, California, US or another location agreed by the Parties. Licensee and Kosan shall each bear all expenses of their respective representatives at development information exchange meetings. Licensee’s development lead for the Licensed Product will actively participate in each development information exchange meeting. [*], shall also be available at reasonable times to answer questions Kosan may have between development information exchange meetings.

6.3 Supply of Compound by Kosan . If requested by Licensee, Kosan shall deliver to Licensee or designee [*] within thirty (30) days after such request. If

requested by Licensee in writing within sixty (60) days after the Effective Date, Kosan [*] within thirty (30) days after the request by Licensee. Title and risk of loss of Bulk KOS-2187 and compounds within the Kosan Compound Library shall [*]. If requested by Licensee, Kosan will use reasonable efforts to obtain the consent of its Third Party manufacturer for KOS-2187 in order for Kosan to assign its rights under the manufacturing agreement with that manufacturer dated [*] with respect to manufacture of KOS-2187.

6.4 Research and Development Collaboration . In order to transition the continued research, Kosan Know-How, and initiate Phase I development of KOS-2187, the Parties will agree [*] to the Joint Research and Development Plan, as may be amended or supplemented from time to time by the Parties (the “Joint Research and Development Plan. The agreed elements of the Joint Research and Development Plan are attached as Exhibit C. If the Parties are unable to agree on the Joint Research and Development Plan, Licensee shall have the right to make any final decisions relating to development activities. Kosan shall use commercially reasonable efforts to conduct, on behalf of Licensee, the research and development activities set forth in the Joint Research and Development Plan. In conducting the Joint Research and Development Plan, Kosan shall comply with all applicable laws, regulations and generally accepted principles of good clinical practice. Licensee will pay Kosan its reasonable costs, as agreed in advance by the Parties, for its work under the Joint Research and Development Plan. Such payments shall be made on a quarterly basis within sixty (60) days after receipt of Kosan’s invoice therefor. Any taxes or withholding on the payments to be made by Licensee under this Section 6.4 (other than taxes on Kosan’s income) shall be borne by Licensee. Any invention covering the manufacture, use or sale of a compound within the Kosan Compound Library conceived or reduced to practice by employees or agents of Kosan or Licensee in performance of the Joint Research and Development Plan shall be [*] owned by [*], such inventions shall [*] and [*]. All data and information generated in the performance of the Joint Research and Development Plan shall be owned by [*] and shall be considered [*] Confidential Information, subject to the exceptions set forth in Section 10.3. Except for accrued obligations, and unless otherwise agreed by the Parties, the Parties’ obligations under the Joint Research and Development Plan shall terminate upon Commencement of the first Phase II trial for Licensed Product. In the event Licensee decides to initiate development activities with respect to a compound within the Kosan Compound Library other than KOS-2187 during the term of this Agreement, Licensee shall notify Kosan, and the Parties shall discuss whether Licensee is interested in having Kosan assist in any such activities under an amended Joint Research and Development Plan. In the event Kosan undergoes a Change of Control, Licensee shall have the right to terminate the Joint Research and Development Plan upon thirty days notice. Change of Control means that any of the following has occurred (i) a pharmaceutical company with sales of greater than $1 billion per year (“Large Pharmaceutical Company”) becomes the beneficial owner, directly or indirectly, of fifty percent or more of the voting stock of Kosan; (ii) Kosan enters into agreement with a Large Pharmaceutical Company providing for the sale of substantially all of Kosan’s assets; or (iii) Kosan enters into a merger, reorganization or consolidation agreement or other similar transaction with a Large Pharmaceutical Company.

ARTICLE 7

PATENT RIGHTS

7.1 Ownership, Prosecution and Maintenance of Kosan Patent Rights in the Territory, Except in the US . Within thirty (30) days of the Effective Date, Kosan shall execute an assignment transferring all of Kosan’s right, title and interest in and to the Kosan Patent Rights to Licensee in every country in the Territory except the US (“ Ex-US Kosan Patent Rights ”). Licensee shall have the right, but not the obligation, to prosecute any and all patent applications within the Ex-US Kosan Patent Rights, including but not limited to, the right to conduct interferences, oppositions, reissue proceedings and reexaminations, to obtain patents thereon, and to maintain all patents included therein. The prosecution and maintenance of the Ex-US Kosan Patent Rights may be performed by outside counsel of Licensee’s choosing. Kosan’s comments regarding the choice of such outside counsel shall be considered, but Licensee’s decision in this regard shall be final. Kosan will not file any additional patents claiming the manufacture, use or sale of any compound within the Kosan Compound Library, unless requested by Licensee. Licensee shall be responsible for one hundred percent (100%) of expenses incurred in preparing, filing, prosecuting and maintaining the Ex-US Kosan Patent Rights. Licensee shall keep Kosan fully informed in a timely manner, and, as is reasonably practicable, of the progress regarding the prosecution of each patent application included within the Ex-US Kosan Patent Rights. Kosan shall have the right to review all pending patent applications and other proceedings, and to make recommendations to Licensee regarding the prosecution of such patent applications; provided that all final decisions regarding the prosecution and maintenance of such Ex-US Kosan Patent Rights shall be made by Licensee.

7.2 Discontinuance/Abandonment . Notwithstanding Section 7.1, Licensee shall have the right to discontinue the prosecution of any patent application, or to abandon any patent, on a country-by-country basis, encompassed within the Ex-US Kosan Patent Rights. The cancellation or amendment of a claim or claims during the prosecution of a patent application in a country within the Ex-US Kosan Patent Rights shall not constitute a discontinuance or abandonment under this section, provided that such cancellation or abandonment does not prejudice the ability to obtain granted claims to the cancelled subject matter in a related continuation, divisional, or other application in such country. If Licensee decides to discontinue the prosecution of any patent application or to abandon any patent within the Ex-US Kosan Patent Rights in any country, Licensee shall inform Kosan at least sixty (60) days prior to such discontinuance and Kosan shall be given the opportunity to prosecute such patent application and/or maintain such patent at its expense prior to the date that such discontinuance would otherwise take effect. Kosan shall advise Licensee in writing of its decision regarding the opportunity to prosecute and/or maintain such application or

patent within thirty (30) days of the date of discontinuance and in the absence of a written decision from Kosan, Licensee shall have the right to discontinue or abandon such application or patent. In the event Kosan timely elects to prosecute and maintain such patent or patent application, Licensee shall execute an assignment transferring ownership of the patent or patent application to Kosan in each such country. Effective upon Kosan’s election to prosecute and maintain any patent or patent application in a particular country, Kosan may, in its sole discretion, elect, by written notice to Licensee, to exclude such patent or patent application from the Kosan Patent Rights under this Agreement.

7.3 Status of Ex-US Kosan Patent Rights .

(a) Initial . As of the Effective Date, Kosan shall advise Licensee as to the current status of any patent applications and patents included within the Ex-US Kosan Patent Rights, and, to the extent it has not previously done so, promptly make available to Licensee all documentation relating to such patent applications and patents, including, but not limited to, copies of all patent applications, relevant prior art, search reports, official actions and examination reports, and all correspondence to and from local agents or attorneys responsible for local prosecution of such applications.

(b) Annual . Within thirty (30) days after the end of each calendar year, Licensee shall: (i) advise Kosan as to the then-current status of any patent applications or patents within the Ex-US Kosan Patent Rights specifically relevant to any Licensed Product; and (ii) to the extent Kosan requests, make available to Kosan materially relevant documentation relating to such patent applications and patents, including, but not limited to, copies thereof.

(c) Notices . Kosan will execute and file at Licensee’s expense those notices and other filings as Licensee shall reasonably request be made, from time to time with any patent office or patent agency in the Ex-US Territory, and in all other respects shall reasonably cooperate with Licensee, to affect an orderly transfer of ownership and affect the further prosecution and maintenance of the Ex-US Kosan Patent Rights granted to Licensee under this Agreement.

7.4 Ownership, Prosecution and Maintenance of Kosan Patent Rights in the US

Prior to the assignment under Section 7.7, Kosan shall have the right to prosecute any and all patent applications within Kosan Patent Rights within the US (“ US Kosan Patent Rights ”) including but not limited to, the right to conduct interferences, oppositions, reissue proceedings and reexaminations, to obtain patents thereon, and to maintain all patents included therein. The prosecution and maintenance of US Kosan Patent Rights may be performed by outside counsel of Kosan’s choosing and approved by Licensee, which approval shall not be unreasonably withheld or delayed. Licensee hereby approves [*] as outside counsel. Licensee shall be responsible for one hundred percent (100%) of expenses incurred by Kosan in preparing, filing, prosecuting and maintaining the US Kosan Patent Rights. Kosan shall keep Licensee fully informed in a

timely manner, and as is reasonably practicable, of the progress regarding the prosecution of each patent application included within the US Kosan Patent Rights. Licensee shall have the right to review all pending patent applications and other proceedings, and to make recommendations to Kosan regarding the prosecution of such patent applications; provided that all final decisions regarding the prosecution and maintenance of such US Kosan Patent Rights shall be made by Kosan.

7.5 Discontinuance/Abandonment . Notwithstanding Section 7.4, Kosan shal

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