AMENDED AND RESTATED COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

Exhibit 10.13(b)

 

[********] 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 406 of the Securities Act of 1933, as amended.

 

AMENDED AND RESTATED

COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

 

between

 

TARGACEPT, INC.

 

and

 

AVENTIS PHARMA SA

TABLE OF CONTENTS

 

 

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AMENDED AND RESTATED

COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

 

This Amended and Restated Collaborative Research and License Agreement (this “Agreement”) is made and entered into as of January 21, 2002, by and between Targacept, Inc. , a Delaware corporation having its principal place of business at 950 Reynolds Boulevard, Winston-Salem, North Carolina 27105 (“Targacept”), and Aventis Pharma SA , a corporation organized and existing under the laws of France having its principal place of business at 20, avenue Raymond Aron, 92160 Antony, France (“APSA”) (each of Targacept and APSA a “Party” and collectively, the “Parties”).

 

Recitals

 

Whereas, Targacept possesses proprietary technology and know-how related to the discovery, identification and/or synthesis of nicotinic agonists and has identified and applied for patents on certain nicotinic agonist compounds; and

 

Whereas, APSA is engaged in the research, development and marketing of products for the treatment of, among other things, central nervous system diseases and disorders; and

 

Whereas, Targacept and Aventis Pharmaceuticals Inc. (formerly known as Rhône-Poulenc Rorer Pharmaceuticals Inc. and Aventis Pharmaceutical Products Inc.), an Affiliate of APSA (“API”), are parties to a Collaborative Research and License Agreement dated December 30, 1998 (the “Original Agreement”) under which they collaborate in the discovery, development and commercialization of certain nicotinic compounds for specified indications; and

 

Whereas, API desires to assign its rights and obligations under the Original Agreement to APSA with effect as of the date hereof, and Targacept is willing to consent to such assignment as contemplated by Section 14.2 of the Original Agreement; and

 

Whereas, Targacept and APSA have, as of the date hereof, entered into the Second Collaboration Agreement (as defined herein) under which they will collaborate in the discovery, development and commercialization of nicotinic compounds included in, or derived from, the Aventis Compound Library (as defined in the Second Collaboration Agreement) for specified indications; and

 

Whereas, in connection with the Second Collaboration Agreement, Targacept and APSA desire to amend and restate the Original Agreement in its entirety as provided herein.

Now, therefore, in consideration of the various promises and undertakings set forth herein, the Parties agree as follows:

 

ARTICLE 1

 

Definitions

 

Unless otherwise specifically provided herein, the following terms shall have the following meanings:

 

1.1 “Affiliate” means any Person that Controls, is Controlled by or is under common Control with a Party.

 

1.2 “Agreement” shall have the meaning assigned to such term in the preamble.

 

1.3 “APSA” shall have the meaning assigned to such term in the preamble.

 

1.3A “APSA Competitor” means a company (or affiliate thereof) that has total annual worldwide sales of pharmaceutical products exceeding $500 million, and that APSA regards in good faith as a competitor of APSA.

 

1.4 “APSA Indemnitees” shall have the meaning assigned to such term in Section 10.2.

 

1.5 “APSA Know-How” means all know-how, trade secrets, techniques, methods, developments, materials, compositions, inventions or data of any kind necessary or useful for the identification, pharmacological development, synthesis, characterization, optimization, assaying, formulation and/or use of Collaboration Compounds or Licensed Products that is Controlled by APSA or an Affiliate of APSA at any time during the Research Term or the Follow-Up Period (but excluding the APSA Patents, the Joint Patents, the Research Technology and any information that APSA is restricted from disclosing due to confidentiality obligations to a Third Party).

 

1.6 “APSA Patents” means all Patent Rights Controlled by APSA or an Affiliate of APSA that claim methods or materials used for discovering, identifying, assaying, characterizing or optimizing any Collaboration Compounds to the extent that such Patent Rights claim inventions made (x) prior to or during the Research Term or (y) during the Follow-Up Period.

 

1.6A “APSA Research Technology” means the Research Technology made, developed or discovered solely by employees or agents of APSA and/or its Affiliates, but excluding Targacept Technology.

 

1.7 “Back-Up Compound” means any Collaboration Compound that has been selected as such hereunder, or any salt, solvate, prodrug form, inclusion complex or metabolite thereof.

 

1.8 “Blocking Claim” shall have the meaning assigned to such term in Section 2.8(c).

 

1.9 “Blocking Patent” shall have the meaning assigned to such term in Section 2.8(c).

1.10 “Collaboration Compound” means any Targacept Compound, or any salt, solvate, prodrug form, inclusion complex or metabolite thereof.

 

For the avoidance of doubt, all Development Compounds and Back-Up Compounds shall be deemed to be Collaboration Compounds.

 

1.11 “Confidential Information” means (a) all information and data supplied by a Party under this Agreement, which, if disclosed in written, graphic or electronic form, is marked or otherwise designated as “confidential” or “proprietary” and, if disclosed orally, is summarized and designated as “confidential” or “proprietary” in a writing provided to the receiving Party not later than sixty (60) days after such disclosure; and (b) all other information expressly classified as “Confidential Information” hereunder.

 

1.12 “Control” means: (a) with respect to an item of information or an intellectual property right, possession of the ability, whether by ownership or license, to grant a license or sublicense as provided for herein with respect to such item or right without violating the terms of any agreement or other arrangements with any Third Party; and (b) with respect to a Person, (i) the possession, directly or indirectly, of the power to direct the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise, or (ii) the ownership, directly or indirectly, of more than 50% of the voting securities or other ownership interests of such Person.

 

1.12A “Derivative” means with respect to any compound, a derivative or other improvement of such compound.

 

1.13 “Development Committee” or “DC” means that committee to be formed pursuant to Section 6.15.

 

1.14 “Development Compound” means any Collaboration Compound that has been selected as such hereunder, or any salt, solvate, prodrug form, inclusion complex or metabolite thereof.

 

1.15 “Development Plan” shall have the meaning assigned to such term in Section 3.1.

 

1.16 “Effective Date” means December 30, 1998.

 

1.16A “Estimated Amount” shall have the meaning assigned to such term in Section 2.6(c).

 

1.17 [Intentionally Omitted]

 

1.18 [Intentionally Omitted]

 

1.19 “Executive Research Committee” or “ERC” means that committee to be formed pursuant to Section 6.1.

 

1.20 [Intentionally Omitted]

1.21 “FDA” means the United States Food and Drug Administration, or the successor federal agency thereto.

 

1.22 “Field” means the treatment or prevention in Humans of one or more Indications.

 

1.23 “First Commercial Sale” means, with respect to any Licensed Product in any country, the first sale for use or consumption by the general public of such Licensed Product in such country after all Regulatory Approvals have been obtained in such country.

 

1.23A “Follow-Up Period” means the period commencing immediately after the Research Term and ending: (a) with respect to activities conducted pursuant to Section 5.1(a)(i) after the Research Term, six (6) months after the Research Term; and (b) with respect to activities conducted pursuant to Section 5.1(a)(ii) after the Research Term, two (2) years after the Research Term. However, by written agreement the Parties may extend the Follow-Up Period with respect to specified joint endeavors in connection with this Agreement.

 

1.24 “FTE” means a full-time Targacept scientist or laboratory technician or any other employee of Targacept or its Affiliates specifically approved as an FTE by APSA, who is dedicated to the Research or support thereof, or in the case of a less than full-time dedicated person, a full-time, equivalent person year, based upon a total of forty-seven (47) weeks ( i.e. , one thousand eight hundred eighty (1,880) hours) per year of scientific work on or directly related to the Research. Work on or directly related to the Research to be performed by such employees may include, without limitation, experimental laboratory work, recording and writing up results, reviewing literature and references, holding scientific discussions, and any other activities assigned to Targacept under the Research Plan.

 

1.24A “Full Royalty Term” shall have the meaning assigned to it in Section 7.3.

 

1.25 “IND” means an Investigational New Drug Application filed pursuant to the requirements of the FDA for approval to commence human clinical trials, and any equivalent application filed with any analogous regulatory authority in other countries or regulatory jurisdictions.

 

1.26 “Indication” means either of the following indications:

 

(a) Alzheimer’s Disease (based upon ante mortem diagnostic evaluations in use as of the Effective Date); or

 

(b) Parkinson’s Disease.

 

1.27 “Joint Patents” means all Patent Rights that claim or cover inventions within the Joint Research Technology.

 

1.28 “Joint Research Technology” means all Research Technology that is made, developed or discovered jointly by employees or agents of Targacept or its Affiliates and by employees or agents of APSA or its Affiliates, (a) prior to or during the Research Term or (b) during the Follow-Up Period, but excluding Targacept Technology.

 

1.29 “Key Employees” means J. Donald deBethizy; Merouane Bencherif; William S. Caldwell; and Patrick M. Lippiello.

1.30 “Know-How” means Targacept Know-How or APSA Know-How, as the case may be.

 

1.31 “Licensed Product” means any product, including any formulation thereof, containing or comprising a Development Compound.

 

1.32 “Losses” shall have the meaning assigned to such term in Section 10.1.

 

1.33 “Major Country” means each of France, Germany, Italy, Japan, Spain, the United Kingdom and the United States.

 

1.34 “Major Pharmaceutical Market” means each of the United States, the European Union (as it may be constituted from time to time) and Japan.

 

1.34A “Material Unexpected Technical Problem” shall have the meaning assigned to such term in Section 2.6(a).

 

1.35 “Materials” shall have the meaning assigned to such term in Section 2.9.

 

1.36 “Merger” shall have the meaning assigned to such term in Section 14.2.

 

1.37 “Milestone Event” shall have the meaning assigned to such term in Section 7.2.

 

1.38 “NDA” means a New Drug Application filed pursuant to the requirements of the FDA, as more fully defined in 21 C.F.R. § 314.50 et seq , and any equivalent application filed with any analogous regulatory authority in a Major Country (or, in the case of the centralized application process in the European Union, the European Medicines Evaluation Agency).

 

1.39 “Net Sales” means [********].

 

1.40 “Nicotinic Compound” means a chemical compound showing binding affinity for [********] receptors [********].

 

1.41 “Non-Filing Party” shall have the meaning assigned to it in Section 8.2(e).

 

1.41A “Non-Nicotinic Compound” means a compound having a binding affinity [********] to the [********] receptor [********].

 

1.41B “Other Metanicotine Compounds” means those compounds listed under the heading “Other Metanicotine Compounds” on Exhibit B .

 

1.41 [Intentionally Omitted]

 

1.41C “Partial Royalty Term” shall have the meaning assigned to it in Section 7.4

 

1.42 “Party” and “Parties” shall have the meaning assigned to such terms in the preamble.

1.43 “Patent Right” means rights under (a) any issued and existing letters patent, including any extensions, supplemental protection certificates, registration, confirmation, reissue, reexamination or renewal thereof, (b) pending applications, including any continuation, divisional, continuation-in-part application thereof, for any of the foregoing, and (c) all counterparts to any of the foregoing issued by or filed in any country or other jurisdiction.

 

1.43A “PCT” means the Patent Cooperation Treaty.

 

1.44 “Pentad Patents” means all Patent Rights Controlled by Targacept or an Affiliate of Targacept that claim the Pentad Technology.

 

1.45 “Pentad Technology” means proprietary know-how of Targacept and its Affiliates concerning structure activity, relationships of Nicotinic Compounds and nicotinic receptors, pharmacophore mapping of nicotinic receptors and computational and quantum mechanical methods for use in the design, synthesis and evaluation of pharmacologically active agents, including but not limited to Nicotinic Compounds.

 

1.46 “Person” means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof.

 

1.47 “Phase I” means that portion of the clinical development program which generally provides for the first introduction into humans of a product with the primary purpose of determining safety, metabolism and pharmacokinetic properties and clinical pharmacology of the product.

 

1.48 “Phase II” means that portion of the clinical development program which provides for small scale clinical trials primarily to determine efficacy of a product and certain other factors, such as dosing range.

 

1.49 “Phase III” means that portion of the clinical development program which provides for the pivotal trials of a product in sufficient numbers of patients to establish the safety and efficacy of a product for the desired label claims and indications.

 

1.50 “Phase Transition Criteria” shall have the meaning assigned to it in Exhibit A .

 

1.51 “Primary Screening” means conducting an assay, screen or other test on a Collaboration Compound under the Research to determine physical chemical profiles and in vitro pharmacological and toxicological profiles.

 

1.52 “Project Leaders” shall have the meaning ascribed to it in Section 6.14.

 

1.53 “Qualifying Offering” shall have the meaning ascribed to it in Section 13.1.

 

1.54 [Intentionally Omitted]

 

1.55 [Intentionally Omitted]

1.56 “Regulatory Approval” means any and all approvals (including price and reimbursement approvals), licenses, registrations, or authorizations of any federal, national, state, provincial or local regulatory agency, department, bureau or other government entity, necessary for the manufacture, use, storage, import, transport and sale of a Licensed Product in a country.

 

1.57 “Research” means the collaborative research program undertaken by the Parties pursuant to this Agreement to characterize, optimize and conduct research and development activities regarding Collaboration Compounds for use in the Field, in accordance with the Research and Development Plan.

 

1.58 “Research and Development Plan” shall have the meaning provided such term in Section 2.3.

 

1.59 “Research Technology” means all tangible and intangible know-how, trade secrets, inventions (whether or not patentable), discoveries, developments, data, clinical and preclinical results, information, and physical, chemical or biological material, compounds, and any replication of or any part of any of the foregoing, made by employees or agents of Targacept or its Affiliates or APSA or its Affiliates, either alone or jointly, (a) during the Research Term or (b) during the Follow-Up Period.

 

1.60 “Research Term” means the period during which the Parties shall conduct the Research, commencing on January 1, 1999 and terminating on December 31, 2002 or such later date as the Parties may mutually agree in writing.

 

1.61 “Screening Criteria” shall have the meaning assigned to such term in the Research and Development Plan.

 

1.61A “Second Collaboration Agreement” means the Collaborative Research and License Agreement between Targacept and APSA dated as of the date of this Agreement.

 

1.62 “Secondary Screening” means conducting any assay, screen or other test on a Collaboration Compound after the Primary Screening of such Collaboration Compound, for the purpose of confirming the results of the Primary Screening or determining additional physical chemical, pharmaceutical and process profiles and in vivo pharmacological and toxicological profiles.

 

1.62A “Semi-Annual Research Plan” shall have the meaning ascribed to it in Section 2.4.

 

1.63 “1734 Series” means those compounds listed under the heading “1734 Series” on Exhibit B .

 

1.64 “1767 Series” means those compounds listed under the heading “1767 Series” on Exhibit B .

 

1.65 “1768 Series” means those compounds listed under the heading “1768 Series” on Exhibit B .

 

1.65A “[********].

1.66 “Sublicensee” means any Third Party to which APSA has granted sublicense rights under the licenses granted APSA hereunder, which rights include at least the rights to make and sell Licensed Products. Third Parties that are permitted only to distribute and resell finished Licensed Products or that manufacture or finish Licensed Products for supply to APSA or its Affiliates are not “Sublicensees.”

 

1.67 “Targacept” shall have the meaning assigned to such term in the preamble.

 

1.68 [Intentionally Omitted]

 

1.69 “Targacept Compounds” means (a) any compound from the 1734 Series, the 2429 Series, the 2563 Series, the 1767 Series or the 1768 Series, (b) any Other Metanicotine Compound, (c) as of the UK License Date, any UK Compound, and (d) any compound identified by Targacept or its Affiliates prior to the end of the Research Term and believed by Targacept to operate through the a 4ß4 receptor, in each case together with any salt, solvate, prodrug form, inclusion complex, metabolite or Derivative thereof. No other compound, including without limitation RJR Compound No. 2403, shall be considered a Targacept Compound.

 

1.70 [Intentionally Omitted]

 

1.71 “Targacept Indemnitees” shall have the meaning assigned to such term in Section 10.1.

 

1.72 “Targacept Know-How” means all know-how, trade secrets, techniques, methods, developments, materials, compositions, inventions or data of any kind necessary or useful for the identification, pharmacological development, synthesis, characterization, optimization, assaying, formulation, manufacture and/or use of Collaboration Compounds or Licensed Products that is Controlled by Targacept or an Affiliate of Targacept at any time during the Research Term or the Follow-Up Period, but excluding the Pentad Technology, the Pentad Patents, the Targacept Patents, the Joint Patents, the Research Technology and any information that Targacept is restricted from disclosing due to confidentiality obligations to a Third Party.

 

1.73 “Targacept Patents” means all Patent Rights that are Controlled by Targacept or its Affiliates that claim (a) any Collaboration Compounds or Licensed Products (or pharmaceutical preparations containing the same), (b) the manufacture or use of any Collaboration Compounds or Licensed Products, (c) methods or materials used for discovering, identifying, assaying, characterizing or optimizing any Collaboration Compounds or (d) Targacept Compounds within the Research Technology, to the extent that such Patent Rights claim inventions made (x) prior to or during the Research Term or (y) during the Follow-Up Period.

 

1.73A “Targacept Research Technology” means both (i) the Research Technology made, developed or discovered solely by employees or agents of Targacept and/or its Affiliates and (ii) the Targacept Technology.

 

1.73B “Targacept Technology” means any Targacept Compounds (including, without limitation, Collaboration Compounds, Development Compounds, Back-Up Compounds, Terminated Compounds and Licensed Products) within the Research Technology made by employees

or agents of (i) APSA and/or its Affiliates, (ii) Targacept and/or its Affiliates or (iii) APSA and/or its Affiliates and Targacept and/or its Affiliates, jointly.

 

1.74 “Terminated Compound” means a Collaboration Compound that, pursuant to any provision of this Agreement, ceases to be a Collaboration Compound or a Licensed Product.

 

1.75 “Third Party” means a Person other than Targacept, APSA and Affiliates of either.

 

1.76 “Third Party License” shall have the meaning assigned to such term in Section 2.8(c).

 

1.76A “Threshold EU Market” means at any time any set of countries within the European Union which constituted during the prior calendar year at least 50% in dollar amount of all central nervous system related pharmaceutical sales in the European Union.

 

1.77 “2429 Series” means those compounds listed under the heading “2429 Series” on Exhibit B .

 

1.78 “2563 Series” means those compounds listed under the heading “2563 Series” on Exhibit B .

 

1.79 “UK Compounds” means those compounds listed under the heading “UK Compounds” on Exhibit B .

 

1.79A “UK License Date” shall have the meaning assigned to such term in Section 12.2(i).

 

1.79B “Valid Claim” means a claim of an issued and unexpired patent which has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken or, after mutual consultation and agreement between the Parties, an appeal is not taken within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

 

ARTICLE 2

 

Research

 

2.1 Collaborative Research. Commencing on the Effective Date, the Parties shall conduct the Research pursuant to the Research and Development Plan, with the goals of: (a) identifying and selecting those Collaboration Compounds that may be suitable for further scientific evaluation (immediately or at some future time during the Research Term) and those Collaboration Compounds that clearly do not warrant such further scientific evaluation and should instead be classified as Terminated Compounds; (b) further evaluating Collaboration Compounds; (c) identifying and selecting certain Collaboration Compounds for further development as Development Compounds; and (d) identifying and selecting certain Collaboration Compounds as Back-Up Compounds to the

Development Compounds. The Parties shall conduct the Research in accordance with this Agreement, the Research and Development Plan (as it may be amended hereunder from time to time), the Semi-Annual Research Plans established pursuant to the provisions of this Article 2 and the Phase Transition Criteria.

 

2.2 Screening of Collaboration Compounds and Selection of Development Compounds and Back-Up Compounds.

 

(a)

Primary and Secondary Screening of Collaboration Compounds. Targacept and APSA shall conduct Primary Screening and Secondary Screening of Collaboration Compounds during the Research Term, as set forth in the Research and Development Plan and the Semi-Annual Research Plans, and shall inform the ERC of the progress and results thereof.

 

(b)

Rejection of Collaboration Compounds. The ERC shall review the results of the Primary Screening and Secondary Screening of the Collaboration Compounds provided by the Parties pursuant to Section 2.2(a). Based upon the standards set forth in the Research and Development Plan and such other appropriate factors as the Parties mutually agree, the ERC shall determine whether any Collaboration Compounds clearly do not warrant further scientific evaluation and should instead be classified as Terminated Compounds. If a Collaboration Compound is classified as a Terminated Compound or is not selected as a Development Compound or Back-Up Compound within the time frames established hereunder, it shall automatically cease to be a Collaboration Compound and thereafter shall not be subject to research, development or commercialization by APSA or its Affiliates or Sublicensees pursuant to this Agreement.

 

(c)

Selection of Development Compounds and Back-Up Compounds; Rejection of Collaboration Compounds.

 

(1)

From time to time, the ERC shall review data relating to the Collaboration Compounds that is generated by the Research. Based upon standards set forth in the Research and Development Plan and such other appropriate factors as the ERC deems appropriate, the ERC (and after its term, the DC) shall identify and select the Development Compounds (and the Back-Up Compounds) for development (or potential development) in accordance with the Research and Development Plan. Up to [********] Collaboration Compounds may be classified at any time as Development Compounds and Back-Up Compounds for each Indication.

 

(2)

If a Collaboration Compound (a) is classified as a Terminated Compound under Section 2.2(b), (b) is a UK Compound and does not undergo Primary Screening within six (6) months after the later of UK License Date or the date such compound is

available for screening, (c) is an Other Metanicotine Compound and does not undergo Primary Screening within nine (9) months after the date such compound is available for screening, (d) does not undergo Primary Screening prior to the expiration of the Research Term, (e) undergoes Primary Screening prior to the expiration of the Research Term but does not meet the Screening Criteria set forth in the Research and Development Plan or (f) is not selected as a Development Compound or a Back-up Compound under Section 2.2(c)(i) within six (6) months after the end of the Research Term, it shall automatically cease to be a Collaboration Compound and thereafter shall not be subject to research, development or commercialization by APSA or its Affiliates or Sublicensees pursuant to this Agreement.

 

2.3 Research and Development Plan. Attached hereto as Exhibit C is the initial version of the Research and Development Plan (as it may be modified from time to time, the “Research and Development Plan”) that sets forth the plan for the Research activities expected to be performed by each Party pursuant to this Agreement. The Research and Development Plan may be amended by the ERC from time to time in accordance with the provisions of Article 6.

 

2.4 Semi-Annual Research Plans. On a semi-annual basis, the Parties shall establish a detailed research plan and budget, as may be modified from time to time (each a “Semi-Annual Research Plan”) for the activities to be performed by APSA and Targacept as part of the Research during the following six (6) month period starting January 1 or July 1, as the case may be (or such longer period as may be set forth for certain tasks in the Semi-Annual Research Plan). Each Semi-Annual Research Plan may be amended by the ERC from time to time in accordance with the provisions of Article 6. Each Semi-Annual Research Plan shall be in accord with the Research and Development Plan and shall specify in reasonable detail:

 

(a)

the objectives of the Research for the ensuing period(s);

 

(b)

the specific research and other activities to be performed by APSA and Targacept during such period;

 

(c)

the specific deliverables expected to be provided by APSA and Targacept, and the projected dates by which such deliverables will be provided;

 

(d)

the FTEs to be devoted by Targacept to its tasks under the Semi-Annual Research Plan; and

 

(e)

the total funding expected to be provided to Targacept for the ensuing six-month period to support Targacept’s Research activities (which funding will be subject to adjustment as provided in Section 2.6).

 

2.5 Preparation and Approval of Semi-Annual Research Plans. Attached hereto as Exhibit D is the Semi-Annual Research Plan for the initial period of the Research Term. The ERC shall meet at the earliest reasonably practicable time to establish, by mutual agreement of the

Parties, the priority for performing the Primary Screening and Secondary Screening of the Collaboration Compounds and to amend the initial Semi-Annual Research Plan as required to reflect such agreement. It is intended that the Semi-Annual Research Plan for each subsequent period during the Research Term shall be approved by the ERC by May 1 and December 1 of each calendar year during the Research Term.

 

2.6 Targacept Research Efforts.

 

(a)

Targacept agrees to commit such resources of Targacept and its Affiliates as are specified in the Semi-Annual Research Plans to perform its obligations set forth therein. Targacept agrees to commit such further resources as are reasonably necessary to perform its obligations set forth in each Semi-Annual Research Plan, provided, however , that Targacept shall have the right to notify the ERC promptly upon becoming aware of an unanticipated scientific or technical problem which makes it likely to preclude Targacept from fulfilling any obligation set forth in a Semi-Annual Research Plan with the FTEs [********] budgeted to the performance of such obligation (a “Material Unexpected Technical Problem”). As part of such notification, Targacept shall provide the ERC with a reasonably detailed description of such Material Unexpected Technical Problem, together with its good faith estimate of the number of additional FTEs and time which will be required to perform such obligation in light of such Material Unexpected Technical Problem. Upon receipt of such notification, the ERC shall then meet to determine whether to modify the Semi-Annual Research Plan as it applies to such obligation to (i) refocus the remaining unused FTE resources allocated to such obligation to other obligations under the Plan, (ii) increase the funding to be provided by APSA to Targacept for such obligation, subject to the agreement of both Parties on the amount of such increased funding, (iii) terminate any further Targacept activities relating to such obligation, (iv) provide additional non-financial resources from APSA to support Targacept’s activities, or (v) take such other action as may be mutually agreeable to the parties; provided, however, that, following notification of a Material Unexpected Technical Problem, Targacept shall not be required to perform activities related to an obligation after such notification unless and until the ERC acts to provide additional funding. In connection with the performance by Targacept of its obligations hereunder, Targacept shall maintain (or cause its Affiliates to maintain) and utilize such scientific staff, laboratories, offices and other facilities as are reasonably designed for such purposes. Targacept shall use personnel with such skills and experience as are reasonably designed to accomplish efficiently and expeditiously the objectives of the Research as set forth in the Research and Development Plan and each Semi-Annual Research Plan in good scientific manner and in compliance in all material respects with all applicable laws, rules, regulations, and all other requirements of applicable good laboratory practices; provided, however, that except as otherwise required by law, Targacept shall be required to comply only with general good laboratory practices as

practiced by like companies in the biotechnology industry in performing similar research and not with the requirements for Good Laboratory Practices prescribed by the FDA.

 

(b)

APSA shall reimburse Targacept for all fully documented expenses incurred by Targacept in performing its obligations under the Semi-Annual Research Plans in accordance with the following procedures:

 

(c)

Promptly following the commencement of the first calendar quarter covered by each Semi-Annual Research Plan, Targacept shall furnish APSA with an invoice in the amount of [********] of the product of (A) [********] (on an annualized basis) and (B) the total number of FTEs specified in such Semi-Annual Research Plan pursuant to Section 2.4(d). APSA shall advance Targacept such amount (the “Estimated Amount”) within forty-five days after receipt of such invoice.

 

(1)

No later than July 31 or February 28, as the case may be, immediately following the end of the six-month period covered by such Semi-Annual Research Plan, Targacept shall furnish APSA with a statement detailing the number of FTEs actually dedicated to the performance of each Research obligation set forth in such Semi-Annual Research Plan. However, for any obligation of Targacept set forth in such Semi-Annual Research Plan (as it may be amended from time to time pursuant to this Agreement), such statement (A) shall not state a number of FTEs less than [********] of the budgeted FTEs allocated to such obligation even if the number of FTEs actually dedicated to such performance was less than [********] of such budgeted amount; (B) shall not state a number of FTEs more than [********] of the budgeted FTEs allocated to such obligation even if the number of FTEs actually dedicated to such performance was more than [********] of such budgeted amount; and (C) absent authorization from the ERC, shall not include or request payment for any FTEs for any work performed on any obligation after the occurrence of a Material Unexpected Technical Problem related to such obligation.

 

(2)

Within forty-five (45) days after the receipt of such statement from Targacept, APSA shall pay Targacept an amount equal to the difference between (A) the product of (I) [********] (on an annualized basis) and (II) the total number of FTEs properly set forth in such statement, and (B) the Estimated Amount for such Semi-Annual Research Plan paid to Targacept pursuant to subparagraph (i) above.

 

(3)

Targacept shall keep complete and accurate books and financial records pertaining to its costs and expenses of performing the Research (in accordance with generally accepted accounting principles consistently applied), which books and financial

records shall be retained by Targacept until three (3) years after the end of the period to which such books and records pertain. APSA shall have the right, at its expense, to have certified public accountants, who shall be reasonably acceptable to Targacept, audit the books and financial records of Targacept relating to its costs and expenses during one or more six-month periods; provided, however, that APSA shall not have the right to audit a six-month period more than two (2) years after the end of such period, to conduct more than one such audit in any twelve-month period, or to audit any six-month period more than once.

 

2.7 APSA Research Efforts.

 

(a)

APSA agrees to commit such resources as are specified in the Semi-Annual Research Plans to perform its obligations set forth in each Semi-Annual Research Plan. APSA agrees to commit such further resources as are reasonably necessary to perform its obligations set forth in each Semi-Annual Research Plan, provided that APSA shall have the right to notify the ERC promptly upon becoming aware of an unanticipated scientific or technical problem that would be likely to preclude APSA from completing an obligation set forth in a Semi-Annual Research Plan for a manpower expenditure [********] and shall be permitted to discontinue work on such obligation if the ERC does not modify the Semi-Annual Research Plan with respect to such obligation in a manner reasonably acceptable to APSA. In the performance of its obligations, APSA shall maintain and utilize such scientific staff, laboratories, offices and other facilities as are reasonably designed for such purposes. APSA shall use personnel with such skills and experience as are reasonably designed to accomplish efficiently and expeditiously the objectives of the Research as set forth in the Research and Development Plan and each Semi-Annual Research Plan in good scientific manner and in compliance in all material respects with all applicable laws, rules, regulations, and all other requirements of applicable good laboratory practices; provided, however, that except as otherwise required by law, APSA shall be required to comply only with general good laboratory practices as practiced by like companies in the pharmaceutical industry in performing similar research and not with the requirements for Good Laboratory Practices prescribed by the FDA.

 

(b)

APSA shall be solely responsible for bearing the costs of any and all activities performed by APSA in connection with the Research.

 

2.8 Termination of Agreement During Research Term.

 

(a)

Termination for Material Breach of Research Obligations by Targacept or for Specified Change in Control. In the event that Targacept materially fails to perform its obligations with respect to the Research,

APSA may give notice to Targacept specifying the nature of the default, requiring it to cure such default and stating APSA’s intention to terminate Targacept’s participation in the Research if such default is not cured within the period set forth below. If (i) such default is not cured within sixty (60) days after the receipt of such notice; or (ii) such default is not curable within such period and Targacept has not commenced reasonable actions to cure such default or does not diligently continue to perform such actions; APSA may elect (x) to terminate all, but not less than all, of those provisions of this Agreement that create any continuing right or obligation of Targacept to perform the Research or any obligation of APSA to fund any such activity by Targacept in the future and to disband the ERC and the DC and (y) to assume all rights and powers of the ERC and the DC, without prejudice to any other rights and obligations of the Parties under this Agreement, which election shall be effected by giving written notice to Targacept and shall be effective immediately upon delivery of such notice. In addition, if any APSA Competitor becomes an Affiliate of Targacept, APSA shall have the right to make the election described in the immediately preceding sentence. Upon the election of APSA described in either of the two preceding sentences, Targacept shall promptly transfer to APSA copies of all data, reports, records and other materials under Targacept’s Control that relate to the Research and furnish to APSA all Materials developed or Controlled by Targacept that are used or useful in connection with the Research.

 

(b)

Termination for Material Breach of Research Obligations by APSA. In the event that APSA materially fails to perform its obligations with respect to the Research, Targacept shall have the right to terminate this Agreement in accordance with Section 11.2(a) hereof.

 

(c)

Termination Due to Issuance of Third Party Patent Rights. In the event that, prior to the end of the Research Term, (i) a Patent Right owned by a Third Party is either granted or published in a Major Pharmaceutical Market; (ii) such Patent Right (a “Blocking Patent”) claims (A) methods of treating one of the Indications using Nicotinic Compounds, or (B) the composition of matter of a significant portion of the Collaboration Compounds identified by Targacept as of the Effective Date (each, a “Blocking Claim”); and (iii) in the opinion of patent counsel selected by APSA, (A) with respect to a published Blocking Patent, it is likely that enforceable letters patent will issue with at least one of such Blocking Claims covering the United States, Japan or a Threshold EU Market and (B) it is unlikely that the Parties will be able to avoid infringing such claims, then:

 

(x) if the Blocking Patent is held by [********] , then Targacept shall have the right, for a period of six (6) months, to use commercially reasonable, good faith efforts to negotiate and obtain a license under such Blocking Patent on commercially reasonable terms (for royalties not exceeding [********] % of

Net Sales or such higher amount agreed to by the Parties) that permits APSA, Targacept and their respective Affiliates (and, in the case of APSA, its Sublicensees) to continue to pursue the discovery, development, manufacture and commercialization of Licensed Products for use in the Field as provided hereunder (a “Third Party License”) and thereafter APSA shall have the right to use commercially reasonable, good faith efforts to negotiate and obtain such Third Party License on commercially reasonable terms, in either case with the cost of such license (including without limitation license fees, milestone payments and royalties) to be set off against any payments owed to Targacept by APSA pursuant to Section 7.2 or Section 7.3; provided, however, that in no event shall the aggregate amount set off in any calendar quarter against royalties payable pursuant to Section 7.3 in such calendar quarter exceed [********] thereof;

 

(y) if the Blocking Patent is held by any Third Party other than [********] , APSA shall use commercially reasonable, good faith efforts to negotiate and obtain a Third Party License on commercially reasonable terms, except where APSA in good faith believes that such negotiation would be futile because such Third Party is an APSA Competitor, with the cost of such license (including without limitation license fees, milestone payments and royalties) to be borne equally by APSA and Targacept, with Targacept’s share of such costs to be set off against any payments owed to Targacept by APSA pursuant to Section 7.2 or Section 7.3; provided, however, that in no event shall the aggregate amount set off in any calendar quarter against royalties payable under Section 7.3 in such calendar quarter exceed [********] thereof;

 

(z) If the Parties do not obtain a Third Party License from [********] or if APSA is unable, after commercially reasonable, good faith efforts, to obtain a Third Party License from any other Third Party holding a Blocking Patent or if APSA does not seek such a Third Party License because APSA in good faith believes that such negotiation would be futile because such Third Party is an APSA Competitor, then APSA shall have the right to terminate this Agreement pursuant to Section 11.3.

 

2.9 Material Transfer. In order to facilitate the Research, either Party may provide to the other Party certain biological materials or chemical compounds including, but not limited to Collaboration Compounds, receptors, reagents and screens (collectively, “Materials”) owned by or licensed to the supplying Party (other than under this Agreement) for use by the other Party in furtherance of the Research, subject to a separate global Material Transfer Agreement if desired by the supplying Party, in a form to be mutually agreed by the Parties. Except as otherwise provided under this Agreement, all such Materials delivered to the other Party shall remain the sole property of the

supplying Party, shall be used only in furtherance of the Research and solely under the control of the other Party, shall not be used or delivered to or for the benefit of any Third Party (or in the case of APSA, any Sublicensee) without the prior written consent of the supplying Party, and shall not be used in research or testing involving human subjects. The Materials supplied under this Section 2.9 shall be used with prudence and appropriate caution in any experimental work, since not all of their characteristics may be known. SUBJECT TO SECTIONS 12.1 AND 12.2 HEREOF, THE MATERIALS ARE PROVIDED “AS IS” AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.

 

2.10 Liability. Except as otherwise set forth in Section 10.1, in connection with the conduct of the Research, each Party shall be responsible for, and hereby assumes, any and all risks of personal injury or property damage attributable to the negligent acts or omissions of that Party or its Affiliates, and their respective directors, officers, employees and agents.

 

2.11 Exclusivity of Research. During the Research Term, each Party agrees not to, and agrees to cause its Affiliates not to, (a) conduct any activity, either on its own, or for the benefit of, sponsored by, or pursuant to any type of corporate partnership with, any Third Party, that has as its goal or intent discovering, identifying, researching, developing or marketing Nicotinic Compounds (including without limitation any Collaboration Compounds) for use in the Field, except pursuant to this Agreement or the Second Collaboration Agreement, or (b) grant any license, either express or implied, or any option to license, to any Third Party to utilize any intellectual property Controlled by such Party or its Affiliates for the purpose of discovering, identifying, researching, developing or marketing Nicotinic Compounds for use in the Field, except to the extent expressly permitted by this Agreement or the Second Collaboration Agreement ; provided, however, that a Party may terminate the foregoing covenant as it applies to such Party, as one of its remedies and not to the exclusion of any other remedy such Party may have, if the other Party materially violates its obligations under the foregoing covenant.

 

2.12 Subcontractors. Either Party may subcontract to Affiliates or Third Parties portions of the Research to be performed by it, subject to the provisions of this Section 2.12. Any subcontractor shall enter into a confidentiality agreement with the contracting party, and shall be in compliance in all material respects with all requirements of applicable laws and regulations, together with all applicable good laboratory practices and good manufacturing practices. The contracting Party shall at all times be responsible for the performance of such subcontractor. Upon the reasonable request of the other Party, a Party shall provide a written list of all subcontractors other than Affiliates with whom such Party has subcontracted under this Section 2.12.

 

2.13 No Warranty of Success. Nothing contained in this Agreement shall be construed as a warranty on the part of either Party that any results will be achieved by such Party, or that any particular Patent Rights or Know-How developed during the Research will be commercially exploitable.

 

2.14 No Solicitation of Employees. During the Research Term and for a period of two (2) years thereafter, each Party agrees not to, and agrees to cause its Affiliates not to, without the consent of the other Party, solicit the employment of any person who during the course of employment with such other Party or any of such other Party’s Affiliates was involved with activities related to or

conducted in furtherance of the Research. For purposes of this Section 2.14, “solicit” shall not be deemed to cover general solicitations of employment not specifically targeted at employees of the other party or any of its Affiliates. This provision shall not preclude either Party from soliciting the employment of any person whose employment with the other Party has terminated or any person who has announced his or her impending resignation or retirement from the other Party.

 

ARTICLE 3

 

Development and Commercialization

 

3.1 Development Plans. Within sixty (60) days after a Development Compound is selected for development in accordance with Section 2.2(c), APSA shall prepare a reasonably detailed plan for the initial development of such Development Compound in each Major Pharmaceutical Market for review and approval by the DC (each, a “Development Plan”). On a semi-annual basis, APSA shall apprise the DC of progress under each Development Plan and shall submit revisions to existing Development Plans to the DC for review and approval by the DC.

 

3.2 Development Responsibilities of APSA; Diligence. APSA shall be solely responsible for and shall have the sole right to develop the Development Compounds through preclinical development and all phases of clinical trials, and to make all applications for and obtain all Regulatory Approvals on a worldwide basis. For each Development Compound, APSA shall use commercially reasonable efforts, which efforts shall not be less than those used by APSA with respect to the development of its own compounds of comparable commercial significance, to develop such compound for the relevant Indication in each Major Pharmaceutical Market, subject to Section 3.3. For the purpose of assessing the commercial reasonableness of such efforts, the effect on other competitive products of APSA and its Affiliates of diverting resources to the development of the Development Compound shall not be considered. APSA shall be solely responsible for bearing all costs and expenses in connection with the development of each Development Compound.

 

3.3 Termination of Development of a Development Compound. APSA may terminate the development of any Development Compound at any time upon prior notice to the DC and may at that time designate such compound as a Back-Up Compound. If APSA terminates the development of any Development Compound and does not designate such compound as a Back-Up Compound, or if APSA does not act in accordance with the diligence obligations set forth in Section 3.2 with respect to a Development Compound, such compound shall be deemed to be a Terminated Compound. So long as APSA (or its Affiliates or Sublicensees) continues to act in accordance with the diligence obligations set forth in Section 3.2 to pursue the preclinical and clinical development of at least one Development Compound for use in an Indication (or so long as APSA has produced a Licensed Product for such Indication) APSA’s cessation of development efforts with respect to one or more other Development Compounds or Back-Up Compounds in such Indication shall not be deemed to be a breach of APSA’s diligence obligations hereunder with respect to such Indication. Further, if after the end of the Research Term, APSA has conducted development with respect to one or more Development Compounds in an Indication in accordance with the diligence obligations set forth in Section 3.2 and there is no reasonable additional preclinical or clinical work or investigation to pursue on any Development Compounds or Back-Up Compounds for such Indication, or alternatively APSA determines that it no longer desires to continue working on the Development Compounds in such Indication, then APSA may cease further work on the Development Compounds and Back-Up

Compounds in such Indication, without there being a breach of such diligence obligations, so long as APSA has produced a Licensed Product for such Indication or so long as APSA terminates the Agreement with respect to such Indication pursuant to Section 11.3 within sixty (60) days of ceasing such work.

 

3.4 Termination of Development of all Development Compounds. If after the Research Term APSA and its Affiliates or Sublicensees fail to use commercially reasonable efforts to pursue the preclinical and clinical development of at least one Development Compound for use in an Indication in the Major Pharmaceutical Markets and have not produced a Licensed Product for such Indication, and do not initiate and continue using such efforts within sixty (60) days after written notice from Targacept specifying such failure and the nature of such failure, then Targacept may terminate this Agreement under Section 11.2 as it applies to such Indication.

 

3.5 Breach of Development Diligence Obligations. If at any time Targacept determines that APSA is not meeting the standards set forth in Section 3.2, before taking any action with respect to such determination Targacept shall provide APSA with written notice specifying the basis for such determination and any underlying facts in support thereof, and APSA shall have the same cure rights (whether such failure applies to one or more Development Compounds or one or both Indications) that it would have for a default under Section 11.2(a).

 

3.6 Development Information and Reporting. From and after the commencement of the first Phase I trial covering a Development Compound, APSA shall prepare and maintain complete and accurate information regarding the worldwide clinical development of Development Compounds and shall make such information available to the DC in the form of reasonably detailed reports provided to the DC at least on a semi-annual basis. Such reports shall reasonably and accurately summarize the status and results of such development efforts. APSA also shall respond to reasonable requests by the DC for additional information regarding the development of Development Compounds. The DC shall provide comments to APSA regarding such development efforts, and APSA shall reasonably consider such comments.

 

3.7 [Intentionally Omitted]

 

3.8 Commercialization Responsibilities of APSA; Diligence. APSA shall be solely responsible for and shall have the sole right to commercialize each Licensed Product for each Indication. With respect to each Licensed Product, after receipt of Regulatory Approval APSA shall use commercially reasonable efforts, which efforts shall not be less than those used by APSA with respect to the commercialization of its own products of comparable commercial significance, to commercialize such Licensed Product for the relevant Indication in each Major Pharmaceutical Market. For the purpose of assessing the commercial reasonableness of such efforts, the effect on other competitive products of APSA and its Affiliates of diverting resources to the commercialization of the Licensed Product shall not be considered. APSA shall be solely responsible for bearing all costs and expenses in connection with such commercialization efforts.

 

3.9 Termination of Commercialization of a Licensed Product. APSA may terminate the commercialization of any Licensed Product at any time upon prior notice to the DC. If APSA terminates the commercialization of any Licensed Product containing a certain Collaboration Compound without undertaking the commercialization of another Licensed Product containing that same Collaboration Compound, then such Collaboration Compound shall be deemed to be a Terminated Compound.

3.10 Termination of Commercialization of all Licensed Products. If APSA and its Affiliates or Sublicensees fail to act in accordance with the diligence obligations imposed by Section 3.8 in commercializing a particular Licensed Product for an Indication in any of the Major Pharmaceutical Markets, then Targacept shall be entitled to terminate the license granted to APSA pursuant to Section 5.1(b) regarding such Licensed Product for such Indication in such Major Pharmaceutical Market. In the event that APSA is not acting in accordance with the diligence obligations imposed by Section 3.8 to commercialize at least one Licensed Product in a Major Pharmaceutical Market for a particular Indication, then Targacept shall be entitled to terminate the licen