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Royalty Agreement

Royalty Agreement

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 This Royalty Agreement involves

TITAN PHARMACEUTICALS INC | Deerfield Private Design Fund II, LP | Deerfield Special Situations Fund, LP | Deerfield TTNP Corporation | Hoechst Marion Roussel, Inc | J E Flynn Capital LLC | Novartis and Vanda Pharmaceuticals Inc | Titan and Novartis Pharma AG | Titan Pharmaceuticals, Inc

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Title: ROYALTY AGREEMENT
Governing Law: New York     Date: 3/18/2011
Industry: Biotechnology and Drugs     Law Firm: Loeb Loeb;Robinson Bradshaw     Sector: Healthcare

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Exhibit 10.3

ROYALTY AGREEMENT

This ROYALTY AGREEMENT (this “ Agreement ”), dated March 15, 2011, is made by and between Deerfield Private Design Fund II, L.P. , a Delaware limited partnership (“ Design Fund II ”), Deerfield Special Situations Fund, L.P. , a Delaware limited partnership (“ DSS ”), Deerfield TTNP Corporation , a Delaware corporation (“ DTTNP ” and together with Design Fund II and DSS, “ Deerfield ”) and Titan Pharmaceuticals, Inc. , a Delaware corporation (“ Titan ”).

Background Statement

Whereas, pursuant to the Worldwide License Agreement between Hoechst Marion Roussel, Inc. (“ Sanofi ”) and Titan, having an effective date of December 31, 1996, as amended by one amendment dated April 26, 2004 (as amended, the “ Sanofi License ”), Titan is the exclusive worldwide licensee of certain intellectual property relating to the pharmaceutical compound Iloperidone;

Whereas, pursuant to the Sublicense Agreement between Titan and Novartis Pharma A.G. (“ Novartis ”), having an effective date of November 20, 1997, as amended by three amendments dated November 30, 1998, April 10, 2001, and June 4, 2004 (as amended, the “ Novartis Sublicense ”), Novartis is the exclusive sublicensee of certain of Titan’s rights and obligations under the Sanofi License;

Whereas, pursuant to the Amended and Restated Sublicense Agreement between Novartis and Vanda Pharmaceuticals Inc. (“ Vanda ”), having an effective date of October 12, 2009 (the “ Vanda Sublicence ”), Vanda and Novartis have entered into an agreement with respect to the sublicense of certain of Novartis’ rights under the Novartis Sublicense, as well as certain other rights of each of Vanda and Novartis, as described more fully in the Vanda Sublicense; and

Whereas, in consideration of a one-time payment of $3,000,000 made by Deerfield to Titan on the Effective Date, Deerfield is acquiring the right to receive certain payments as set forth herein;

Now, therefore, in consideration of the covenants and obligations expressed herein, and intending to be legally bound, Deerfield and Titan agree as follows:

Statement of Agreement

1. Definitions . Capitalized terms shall have the meaning set forth in this section. Unless the context requires otherwise, words in the singular include the plural, words in the plural include the singular, and words importing any gender shall be applicable to all genders. If a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb).

(a) “ Affiliate ” means with respect to any Person, each other Person that directly or indirectly, through one or more intermediaries, owns or controls, is controlled by or is under common control with, such Person. For the purpose of this Agreement, “ control ” means the


possession, directly or indirectly, of the power to direct or cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise.

(b) “ Agreement ” has the meaning set forth in the introductory paragraph.

(c) “ Business Day ” means any day other than Saturday, Sunday or a day on which banks in the City of New York are authorized or required to be closed.

(d) “ Compound ” has the meaning given such term in the Sanofi License as of the date hereof.

(e) “ DTTNP ” has the meaning set forth in the introductory paragraph.

(f) “ Deerfield ” has the meaning set forth in the introductory paragraph.

(g) “ Design Fund II ” has the meaning set forth in the introductory paragraph.

(h) “ DSS ” has the meaning set forth in the introductory paragraph.

(i) “ Earnings Report ” means, during any period when Titan is obligated to file reports under the provisions of the Securities Exchange Act of 1934, the Form 10-Q filed by Titan following each of the first three Quarters of its fiscal year and the Form 10-K filed by Titan following the fourth Quarter of its fiscal year, as long as such reports are timely filed. If such reports are not timely filed, then the “Earnings Report” means the press release, Form 8-K or other form of public communication issued by Titan whereby it reports revenue for such period.

(j) “ Effective Date ” has the meaning set forth in Section 3 .

(k) “ Facility Agreement ” means that Facility Agreement, dated as of the date hereof, between Design Fund II, DSS, Deerfield Special Situations Fund International, Limited, Deerfield Private Design Fund International II, L.P. and Titan, as amended, supplemented and replaced from time to time.

(l) “ Fanapt Intellectual Property ” means (i) all inventions, patents, patent applications, trade secrets, know-how, technical data, laboratory results, clinical results, manufacturing methods, copyrights, trademarks and other data, know-how and intellectual property owned, licensed or controlled by Titan, whenever acquired, that are necessary to develop, manufacture, have manufactured, use, promote, distribute, import, sell and offer for sale any Fanapt Product and (ii) any “Patents” or “Know-How” not otherwise included in subsection (i) of this definition.

(m) “ Fanapt Products ” means all products, including any bulk or finished pharmaceutical composition containing the Compound, whether as a sole active ingredient or in combination with another active ingredient, and in any formulation, such as would constitute a “Product,” “Depot Product,” or “Compound,” under any definition of such terms in any License Agreement as of the date hereof and as of any future date, or that practices any valid claim under any unexpired Patent or incorporates any Know-How.

 

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(n) “ Fanapt Regulatory Rights ” means any licenses, permits, approvals, codes, certifications and other authorizations or identifiers granted or required by any Governmental Authority required to manufacture, have manufactured, use, promote, distribute, import, sell and offer for sale any Fanapt Product.

(o) “ Fanapt Rights ” means any right, title or interest of Titan or its Affiliates in and to any Fanapt Intellectual Property, Fanapt Products or Fanapt Regulatory Rights, including, without limitation, as acquired or held by Titan pursuant to any of the License Agreements.

(p) “ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any municipal, local, city or county government, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

(q) “ Know-How ” means everything that would constitute Know-How as such term is defined in any of the License Agreements.

(r) “ Legal Requirement ” means any statute, law, treaty, rule, regulation, guidance, approval, order, decree, writ, injunction or determination of any Governmental Authority, court or arbitrator of competent jurisdiction; and, with respect to any Person, includes all such Legal Requirements applicable or binding upon such Person, its business or the ownership or use of any of its assets.

(s) “ Lien ” means any reservations of title, mortgage, claim, lien, security interest, pledge, hypothecation, escrow, charge, option or other restriction or encumbrance of any kind.

(t) “ License Agreements ” means the Sanofi License, the Novartis Sublicense and the Vanda Sublicense, in each case as such agreement may be amended or restated from time to time

(u) “ Net Sales ” shall be calculated in the manner described in the definition of Net Sales set forth in the Novartis Sublicense; provided , however , that Net Sales shall include, in addition to sales of Products (as defined in the Novartis Sublicense) by Novartis, all sales of Fanapt Products by Titan or any its Affiliates and all sales by any direct or indirect assignee or licensee of Titan or any of its Affiliates; provided further , however , that Net Sales shall not include (i) sales of Products in the ROW Territory by Vanda, its Affiliates, assignees or licensees pursuant to the Vanda Sublicense and (ii) sales of Fanapt Products by Persons other than Titan, Novartis or their Affiliates from which Titan receives, after the date hereof, no economic benefit. For purposes of the preceding sentence, Titan shall be deemed to receive an economic benefit from the sale of Fanapt Products if (i) such sale is made pursuant to any assignment, license or sublicense of any Fanapt Rights by Titan or any of its Affiliates, and (ii) Titan or any of its Affiliates receives, after the date hereof, any consideration for such sale or from any such assignment, license or sublicense of Fanapt Rights.

(v) “ Novartis ” has the meaning set forth in the Background Statement.

(w) “ Novartis Sublicense ” has the meaning set forth in the Background Statement.

 

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(x) “ Party ” means either Titan or Deerfield, and “ Parties ” means both Titan and Deerfield.

(y) “ Patents ” means everything that would constitute Patents as such term is defined in any of the License Agreements.

(z) “ Person ” means any natural person, corporation, limited liability company, partnership, association, trust, organization, Governmental Authority or other legal entity.

(aa) “ Purchase Price ” has the meaning set forth in Section 3 .

(bb) “ Quarter ” means a fiscal quarter of Titan.

(cc) “ ROW Territory ” has the meaning set forth in the Vanda Sublicense.

(dd) “ Royalty ” has the meaning set forth in Section 2(a) .

(ee) “ Royalty Term ” means the period beginning on the Effective Date and ending December 31, 2019.

(ff) “ Sanofi ” has the meaning set forth in the Background Statement.

(gg) “ Sanofi License ” has the meaning set forth in the Background Statement.

(hh) “ Territory ” means the world.

(ii) “ Titan ” has the meaning set forth in the introductory paragraph.

(jj) “ Transfer ” means any sale (or any transaction having the effect of a sale), assignment, conveyance of rights, deed of trust, Lien, license, sublicense, seizure or other transfer of any sort and to any degree, voluntary or involuntary, including by operation of law.

(kk) “ Vanda ” has the meaning set forth in the Background Statement.

(ll) “ Vanda Sublicense ” has the meaning set forth in the Background Statement.

2. Royalty .

(a) Royalty Amount . In consideration of the payment of the Purchase Price by Deerfield, Titan shall pay to Deerfield a royalty (the “ Royalty ”) equal to 2.5% of Net Sales occurring during the Royalty Term.

(b) Payment of the Royalty . No later than two Business Days following the later of (i) the date Titan files its Earnings Report for each Quarter of its fiscal year (but in no event later than sixty days following the last day of each of the first three Quarters and one hundred twenty days following the fourth Quarter of each fiscal year) and (ii) the date of receipt by Titan in immediately available funds of its royalty payment from Novartis for the applicable Quarter, Titan shall pay to Deerfield the Royalty for such Quarter. On the same day it makes a Royalty payment pursuant to this Section 2(b) , Titan shall deliver to Deerfield a written statement

 

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showing all Net Sales during such Quarter and Titan’s computation of the Royalty for such Quarter. All Royalty payments shall be made by wire transfer of immediately available funds to the account previously designated in writing to Titan by Deerfield for each of Design Fund II, DSS and DTTNP, allocated pursuant to Section 2(c) , or such new or additional account(s) as Deerfield shall designate in writing to Titan at least five Business Days prior to the date such Royalty payment shall be due. Titan may withhold from any payment of Royalty withholding taxes that it is required to withhold that are levied upon the Royalty by the United States or any state thereof, provided that Titan shall deliver to Deerfield copies of the filed tax return reporting such payments and official receipts (or such other evidence of payment reasonably acceptable to Deerfield) evidencing that such payments were in fact received by the applicable Governmental Authority.

(c) Allocation between Design Fund II, DSS and DTTNP . Unless otherwise agreed by all Parties, each payment of the Royalty shall be allocated and paid 37.28% to Design Fund II, 7.8% to DSS and 54.92 % to DTTNP, in each case rounded to the nearest cent ($0.01).

(d) Royalty Payments Following Termination . The termination of this Agreement, including termination due to the expiration of the Royalty Term, shall not terminate the obligation of Titan, or its Affiliates, licensees or assignees, to pay any Royalty accrued prior to termination. Upon termination of this Agreement, Deerfield shall have the right to retain any Royalty already paid by Titan under this Agreement.

(e) Delinquent Royalty Payments . Any Royalty not paid when due shall bear interest at a rate equal to the lower of (i) the highest rate permitted by applicable law, and (ii) one and one-half percent (1.5%) per month, compounded monthly.

(f) Audit Right . Upon not less than fourteen days’ written notice, Deerfield shall have the right to audit the books and records of Titan relating to sales or other transactions included in the definition of Net Sales for the purposes of determining the correctness of Titan’s computation and payment of the Royalty. Such audit may not be conducted more than once in any calendar year and shall be conducted during normal business hours by a national public accounting firm selected by Deerfield at its cost and reasonably acceptable to Titan, provided that such accounting firm enters into a reasonable confidentiality agreement prior to commencing any such audit. Titan shall provide such accounting firm with access to all pertinent books and records and shall reasonably cooperate with such accounting firm’s efforts to conduct such audits. If there has been an underpayment of the aggregate Royalty due for the period being audited of more than $25,000, Titan shall reimburse Deerfield for the reasonable out-of-pocket costs (including accountants’ fees) incurred by Deerfield in connection with such audit. In the event Deerfield claims that any such audit reveals an underpayment of the Royalty, Deerfield will make the audit papers for the relevant period available to Titan.

 

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3. Purchase Price . As consideration for Titan’s payment of the Royalty, Deerfield shall pay to Titan a one-time purchase price of $3,000,000 (the “ Purchase Price ”), which amount shall be paid in immediately available funds to an account specified by Titan on or before the date that is fifteen Business Days following the date hereof (such date, the “ Effective Date ”).

4. Covenants of Titan .

(a) Net Sales Records . Titan shall keep, or obtain from its sublicensees, complete, true and accurate books and records of all Net


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