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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
As filed with the Securities and Exchange Commission on September 29, 2014
Registration No. 333-198410
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DERMIRA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
2834
(Primary Standard Industrial Classification Code Number) |
27-3267680
(I.R.S. Employer Identification Number) |
2055 Woodside Road
Redwood City, California 94061
(650) 421-7200
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Thomas G. Wiggans
Chief Executive Officer and Chairman of the Board
2055 Woodside Road
Redwood City, California 94061
(650) 421-7200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||||
Douglas Cogen, Esq. Michael A. Brown, Esq. Robert A. Freedman, Esq. Fenwick & West LLP 801 California Street Mountain View, CA 94041 (650) 988-8500 |
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Andrew L. Guggenhime Chief Operating Officer and Chief Financial Officer 2055 Woodside Road Redwood City, California 94061 (650) 421-7200 |
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Andrew S. Williamson, Esq. David G. Peinsipp, Esq. Charles S. Kim, Esq. Cooley LLP 101 California Street, 5 th Floor San Francisco, CA 94111 (415) 693-2000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer
ý
(Do not check if a smaller reporting company) |
Smaller reporting company o |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 2014
PRELIMINARY PROSPECTUS
5,350,000 Shares
Dermira, Inc.
Common Stock
$ per share
This is an initial public offering of shares of our common stock. We are selling shares of common stock in this offering. We currently expect the initial public offering price to be between $14.00 and $16.00 per share of common stock. Concurrently with the closing of this offering, entities affiliated with UCB Pharma S.A. will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial public offering price, or 500,000 shares based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range.
We have granted the underwriters an option to purchase up to 802,500 additional shares of common stock to cover over-allotments.
We have applied to list our common stock on The NASDAQ Global Market under the symbol "DERM."
Investing in our common stock involves risks. See "Risk Factors" beginning on page 14.
We are an "emerging growth company" under applicable Securities and Exchange Commission rules and will be eligible for reduced public company disclosure requirements. See "SummaryImplications of Being an Emerging Growth Company."
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Share | Total | ||
---|---|---|---|---|
Public Offering Price | $ | $ | ||
Underwriting Discount(1) | $ | $ | ||
Proceeds to Dermira (before expenses) | $ | $ |
Certain of our principal stockholders affiliated with our directors have indicated an interest in purchasing up to $15.0 million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering.
The underwriters expect to deliver the shares to purchasers on or about , 2014 through the book-entry facilities of The Depository Trust Company.
Citigroup | Leerink Partners | |
Guggenheim Securities |
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Needham & Company |
, 2014
We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
Persons who come into possession of this prospectus and any applicable free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.
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This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our common stock, you should read this summary together with the more detailed information, including our consolidated financial statements and the accompanying notes, provided elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the sections entitled "Risk Factors," "Selected Consolidated Financial Data," our consolidated financial statements and the accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case included elsewhere in this prospectus. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements."
We are a specialty biopharmaceutical company focused on bringing innovative and differentiated medical dermatology products to dermatologists and their patients. Our management team has extensive experience in product development and commercialization, having served in leadership roles at several leading dermatology companies. Our strategy is to leverage this experience to in-license, acquire, develop and commercialize products that we believe can be successful in the dermatology marketplace. Our portfolio of five product candidates targets significant market opportunities and includes three late-stage product candidates, Cimzia (certolizumab pegol), which we are developing in collaboration with UCB Pharma S.A. for the treatment of moderate-to-severe plaque psoriasis, DRM04, which we are developing for the treatment of hyperhidrosis, or excessive sweating, and DRM01, which we are developing for the treatment of acne.
Medical dermatology focuses on therapeutic solutions to treat serious skin conditions, such as psoriasis, acne, atopic dermatitis, commonly known as eczema, and hyperhidrosis. These diseases impact millions of people worldwide and can have significant, multidimensional effects on patients' quality of life, including their physical, functional and emotional well-being. Furthermore, according to multiple published studies, patients report that medical dermatology conditions affect quality of life in ways comparable to other serious diseases, such as cancer, heart disease, diabetes, epilepsy, asthma and arthritis.
We believe that medical dermatology represents a particularly attractive segment of the biopharmaceutical industry for multiple reasons:
We believe that these industry dynamics present an opportunity for us to establish our company as a leader in dermatology product development and commercialization, and we plan to capitalize on that opportunity for the benefit of patients and dermatologists.
Dermira was founded by Thomas G. Wiggans, Eugene A. Bauer, M.D., Christopher M. Griffith and Luis C. Peña with the vision of building a leading dermatology company. Several members of our management team, including Mr. Wiggans, Dr. Bauer and Mr. Peña, have extensive experience within the dermatology field, including having served in executive roles at leading dermatology companies such
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as Connetics Corporation, Peplin, Inc. and Stiefel Laboratories, Inc., a GlaxoSmithKline LLC Company, or Stiefel. This experience brings us significant insight into product and commercial opportunities, as well as a broad network of relationships with leaders within the industry and medical community.
Our three late-stage product candidates are:
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symptoms of acne. Based on the results of this Phase 2a clinical trial, we intend to file an IND with the FDA and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015.
In addition, we have two early-stage programs in preclinical development for the treatment of inflammatory skin diseases and acne.
Our strategy is to in-license, acquire, develop and commercialize innovative and differentiated medical dermatology products that we believe can be successful in the dermatology marketplace. The key components of our strategy are to:
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exceptional opportunity to build relationships with opinion leaders, advocacy groups and medical practitioners. We intend to take advantage of this opportunity in order to accelerate the identification, in-licensing, acquisition, development and commercialization of product candidates and products that we believe can be successful in the dermatology marketplace.
Key Markets for Our Product Candidates
The Moderate-to-Severe Plaque Psoriasis Market
Psoriasis is a chronic, complex, immune-mediated disease that requires long-term treatment. It is commonly considered the most prevalent autoimmune disease in the world. According to Decision Resources, the diagnosed prevalence of psoriasis in the United States was approximately 9.3 million people, or approximately 2.8% of the population, in 2012.
According to Decision Resources, U.S. sales of psoriasis prescriptions accounted for $3.6 billion in 2012. In the same year, U.S. sales of biologic therapies for moderate-to-severe plaque psoriasis were $2.9 billion, of which $2.3 billion were from TNF inhibitors. According to data provided by IMS Health National Prescription Audit and National Sales Perspectives, between 2009 and 2012, sales of biologic therapies attributable to U.S. dermatologists grew at an average annual rate of 20% and sales of TNF inhibitors attributable to U.S. dermatologists grew at an average annual rate of 9%.
We believe that there is a substantial opportunity for continued expansion of the market for biologic psoriasis therapies. Even with the significant recent growth in the market, penetration of biologics into the addressable population of moderate-to-severe plaque psoriasis patients remains relatively low, particularly in comparison to other large biologics markets. We believe that penetration into the psoriasis patient population may continue to increase as dermatologists become more familiar with available biologic therapies, particularly, the established safety record of TNF inhibitors, and as new biologic products reach the market. Decision Resources projects that U.S. sales of branded, systemic psoriasis therapies will increase from approximately $3.1 billion in 2012 to $5.7 billion by 2022.
The Hyperhidrosis Market
Hyperhidrosis is a condition of excessive sweating beyond what is physiologically required to maintain normal thermal regulation. Primary hyperhidrosis, which is excessive sweating without a known cause, can affect the underarms, palms of the hands, soles of the feet, face and other areas. Several studies have demonstrated that excessive sweating often impedes normal daily activities and can result in occupational, emotional, psychological, social and physical impairment. In the United States, based on the most recent data available, the prevalence of hyperhidrosis was estimated in 2003 to be 2.8% of the population, or roughly 7.8 million people. According to published studies, approximately half of hyperhidrosis sufferers have axillary hyperhidrosis.
The market for products to control sweating is large and highly underpenetrated by prescription pharmaceutical products. Despite the limited efficacy of over-the-counter, or OTC, antiperspirants for the alleviation of hyperhidrosis symptoms, according to a 2003 survey, only 38% of hyperhidrosis patients had discussed their condition with a healthcare professional. We believe that this is largely a result of the lack of effective, well-tolerated, convenient prescription treatment options. Patients who seek treatment from a physician most commonly receive prescription topical antiperspirants. While these topical antiperspirants generate over 500,000 prescriptions annually in the United States, their use is limited by modest efficacy and skin irritation, particularly in patients with more severe disease. We believe that the market opportunity for a new, effective, well-tolerated topical hyperhidrosis treatment is substantially larger than the current market for prescription topical antiperspirants because such a therapy could further penetrate the segment of patients who seek treatment from a physician and encourage more patients to seek treatment.
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The Acne Market
Acne is one of the most common skin diseases. It is characterized by clogging of the pores and associated local skin lesions. Acne lesions are believed to result from an interaction of multiple pathogenic, or contributing, factors, including excessive sebum production. Acne can significantly impact patients' quality of life, resulting in social, psychological and emotional impairments that are comparable to those reported by patients with epilepsy, asthma, diabetes or arthritis. According to widely-cited data, it is estimated that acne affected more than 85% of teenagers globally in 1994, 150 million people globally as of 2008 and 40 to 50 million Americans as of 1998. Acne is one of the most common reasons for visiting a dermatologist. In 2007, acne represented about one-fourth of U.S. dermatologists' patient volume.
According to VisionGain, acne accounted for approximately $3.7 billion in global pharmaceutical sales in 2012. In the same year, each of the three major prescription pharmaceutical product classes that are predominantly used to treat acne generated between approximately $670 million and $1.9 billion in U.S. sales, according to data provided by Symphony Health Solutions, Pharmaceutical Audit Suite. These three product classes have been available for over 30 years, and we believe that growth in this market recently has been significantly limited by a lack of innovation in new product development.
We believe that there is a substantial unmet need and commercial opportunity for a topical acne therapy that targets sebum production. Acne treatment guidelines published by the Global Alliance to Improve Outcomes in Acne recommend that acne treatment be directed toward as many pathogenic factors as possible. Accordingly, patients are often treated with combination regimens that incorporate agents with complementary mechanisms of action targeting different pathogenic factors. The vast majority of acne patients are treated with topical therapies, and all of the four primary pathogenic factors except for excessive sebum production can be targeted with available topical treatments. While systemic therapies may be used to effectively inhibit sebum production, their use is limited by significant, systemic side effects. As a result, we believe that the introduction of a topical acne treatment that targets sebum production could establish a new product class and expand the acne market.
Selected Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, but are not limited to, the following:
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Concurrently with the closing of this offering, entities affiliated with UCB will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial offering price, or 500,000 shares based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus.
We were incorporated in the State of Delaware in August 2010 under the name Skintelligence, Inc. We changed our name to Dermira, Inc. in September 2011. Our principal executive offices are located at 2055 Woodside Road, Redwood City, California 94061, and our telephone number is (650) 421-7200. Our website address is www.dermira.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock.
Unless the context indicates otherwise, as used in this prospectus, the terms "Company," "Dermira," "Registrant," "we," "us" and "our" refer to Dermira, Inc., a Delaware corporation, and its sole subsidiary taken as a whole, unless otherwise noted.
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We have registered the trademark "Dermira" in Australia, the European Union, Japan and Switzerland and have a trademark application for the trademark "Dermira" pending with the U.S. Patent and Trademark Office and the Canadian Intellectual Property Office. The Dermira logo and all product names are our common law trademarks. All other service marks, trademarks and tradenames appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and tradenames referred to in this prospectus appear without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an "emerging growth company" as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. We would cease to be an emerging growth company upon the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a "large accelerated filer," with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of this offering.
The JOBS Act also permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies and thereby allows us to delay the adoption of those standards until those standards would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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Shares of common stock offered by us |
5,350,000 shares | |
Over-allotment option to be offered by us |
802,500 shares |
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Shares of common stock sold in the concurrent private placement |
Concurrently with the closing of this offering, entities affiliated with UCB will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial public offering price, or 500,000 shares based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. We will receive the full proceeds from the sale and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of these shares to entities affiliated with UCB will not be registered in this offering. We refer to the private placement of these shares of common stock as the concurrent private placement. |
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Shares of common stock to be outstanding immediately after this offering and the concurrent private placement |
16,891,179 shares (17,693,679 shares if the over-allotment option is exercised in full) |
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Potential Insider Participation |
Certain of our principal stockholders affiliated with our directors have indicated an interest in purchasing up to $15.0 million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering. |
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Use of proceeds |
We estimate that the net proceeds from the sale of our common stock sold in this offering will be approximately $71.2 million, assuming an initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We also expect to receive $7.5 million from the sale by us of common stock in the concurrent private placement, at a price per share equal to the initial public offering price. We currently intend to use the net proceeds from this offering and the concurrent private placement for external research and development expenses associated with the development of our Cimzia, DRM04 and DRM01 product candidates, with the balance primarily used to fund internal research and development expenses associated with all of our product candidates, working capital, capital expenditures and other general corporate purposes. See "Use of Proceeds." |
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Risk factors |
You should read the "Risk Factors" section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
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Proposed NASDAQ symbol |
"DERM" |
The number of shares of our common stock to be outstanding following this offering and the concurrent private placement is based on 11,041,179 shares of our common stock outstanding as of June 30, 2014. This number assumes the conversion of all outstanding shares of our convertible preferred stock, which will occur automatically in connection with the completion of this offering, and excludes:
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thereunder, as more fully described in "Executive CompensationEmployee Benefit and Stock Plans."
Unless otherwise noted, the information in this prospectus reflects and assumes the following:
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Summary Consolidated Financial Data
The following summary consolidated financial data should be read with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
The following tables summarize our consolidated financial data. We derived our summary consolidated statements of operations data for the years ended December 31, 2012 and 2013 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our summary consolidated statements of operations data for the six months ended June 30, 2013 and 2014 and our summary consolidated balance sheet data as of June 30, 2014 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair presentation of our consolidated financial position as of June 30, 2014 and our consolidated results of operations for the six months ended June 30, 2013 and 2014. Our historical results are not necessarily indicative of the results to be expected in the future, and the results for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year or any other period. You should read the following summary consolidated financial data in conjunction with the sections entitled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
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As of June 30, 2014 | |||||||||
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Actual | Pro Forma(1) |
Pro Forma
As Adjusted(2) |
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(in thousands, unaudited)
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Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
$ | 9,774 | $ | 58,587 | $ | 137,270 | ||||
Working capital |
3,921 | 52,794 | 131,477 | |||||||
Total assets |
16,530 | 65,343 | 144,026 | |||||||
Convertible preferred stock warrant liability |
60 | | | |||||||
Bank term loan, current and non-current |
1,931 | 1,931 | 1,931 | |||||||
Convertible preferred stock |
64,588 | | | |||||||
Additional paid-in capital |
1,283 | 114,733 | 193,410 | |||||||
Accumulated deficit |
(68,075 | ) | (68,075 | ) | (68,075 | ) | ||||
Total stockholders' (deficit) equity |
(66,787 | ) | 46,674 | 125,357 |
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exercisable for 11,276 shares of common stock in connection with this offering; and (d) the filing of our restated certificate of incorporation and the effectiveness of our restated bylaws, as if our restated certificate of incorporation was filed and our restated bylaws had become effective on June 30, 2014.
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Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the consolidated financial statements, the notes thereto and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could decline, and you could lose part or all of your investment.
Risks Related to Development, Regulatory Approval and Commercialization
Our business is dependent on the successful development, regulatory approval and commercialization of our product candidates, primarily Cimzia, which we are developing in collaboration with UCB Pharma S.A., DRM04 and DRM01.
Our portfolio of five product candidates includes three late-stage product candidates, Cimzia (certolizumab pegol), an injectable biologic tumor necrosis factor-alpha inhibitor, or TNF inhibitor, for the treatment of moderate-to-severe plaque psoriasis, DRM04, a topical treatment for hyperhidrosis, or excessive sweating, and DRM01, a topical sebum inhibitor for the treatment of acne. We are also developing DRM02, a topical treatment targeting phosphodiesterase-4 for inflammatory skin diseases, and DRM05, a topical photodynamic therapy for acne. The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of our late-stage product candidates. The successful development and commercialization of Cimzia is subject to a number of risks under our development and commercialization agreement with UCB, or the UCB agreement. For more information about these risks, see "Risks Related to Our Collaboration with UCB." In the future, we may also become dependent on one or more of our early-stage product candidates or any future product candidates that we may in-license, acquire or develop. The clinical and commercial success of our product candidates will depend on a number of factors, including the following:
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If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays or an inability to obtain regulatory approvals or commercialize our product candidates. Even if regulatory approvals are obtained, we may never be able to successfully commercialize any of our product candidates. Accordingly, we cannot assure you that we will be able to generate sufficient revenue through the sale of our product candidates or any future product candidates to continue our business.
We have had significant and increasing operating expenses and we will require substantial additional financing to achieve our goals, which we may not be able to obtain when needed and on acceptable terms, or at all. We have a history of losses and may not be able to achieve or maintain profitability, which could cause our business and operating results to suffer.
We are a clinical-stage specialty biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We are not profitable and have incurred losses in each year since we commenced operations in August 2010. We have incurred net losses of $20.3 million, $22.4 million and $17.3 million for the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2014, respectively. As of June 30, 2014, we had an accumulated deficit of $68.1 million.
We have financed our operations primarily through the sale of equity securities and convertible debt securities. Since our inception, most of our resources have been dedicated to the preclinical and clinical development of our product candidates. The size of our future net losses will depend, in part, on our future expenses and our ability to generate revenue, if any. Revenue from our current and potential future collaborations is uncertain because milestones or other contingent payments under our agreements may not be achieved or received.
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As of June 30, 2014, we had capital resources consisting of cash and cash equivalents of $9.8 million and in August 2014, we issued shares of our Series C convertible preferred stock and received related net proceeds of $48.8 million. We will continue to expend substantial cash resources for the foreseeable future for the clinical development of our product candidates and development of any other indications and product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, manufacturing and supply, as well as marketing and selling any products approved for sale. In particular, our Phase 3 clinical programs for our product candidates will require substantial funds to complete. We plan to finance the development and commercialization of Cimzia in part through milestone payments made by UCB under the UCB agreement. In addition, other unanticipated costs may arise. Because the conduct and results of any clinical trial are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current and any future product candidates.
We believe that the net proceeds from this offering and the concurrent private placement and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations through at least the next 12 months. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available capital resources much faster than we currently expect or require more capital to fund our operations than we currently expect. Our currently anticipated expenditures for the development of our lead product candidates, Cimzia, DRM04 and DRM01, exceed the net proceeds from this offering and the concurrent private placement and our existing cash and cash equivalents. We will need to raise additional capital following this offering to fund our operations and continue to support our planned research and development and commercialization activities. We have substantial contractual obligations to UCB. For more information about our collaboration with UCB, see "BusinessCollaborations and License AgreementsCollaboration with UCB." In the event we are unable to raise sufficient capital to fund our development and commercialization obligations to UCB, we will face significant contractual liability.
The amount and timing of our future funding requirements will depend on many factors, including:
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We cannot be certain that additional funding will be available on acceptable terms, or at all. Our current loan and security agreement contains negative covenants that restrict our ability to obtain additional debt financing. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans.
In order to fund the development and potential commercialization of our product candidates, we may also need to enter into collaboration agreements with pharmaceutical and biotechnology companies. Our ability to establish and maintain these collaborations is highly uncertain and subject to a number of variables. Under these arrangements, we may be responsible for substantial costs in connection with the clinical development, regulatory approval or the commercialization of a partnered product candidate. Furthermore, the payments we could receive from our potential collaboration partners may be subject to numerous conditions and may ultimately be insufficient to cover the cost of this development and commercialization.
If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or commercialization efforts, or other aspects of our business plan. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.
The UCB agreement requires us to pay substantial development costs in order for UCB to seek approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis from the FDA, the European Medicines Agency and the Canadian federal department for health. Our inability to fund our obligations under the UCB agreement would harm our business and operating results.
The UCB agreement requires us to pay all development costs in order for UCB to seek approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis from the FDA, the European Medicines Agency, or the EMA, as established by Regulation (EC) 2309/93 and Regulation (EC) 726/2004, and the Canadian federal department for health, or Health Canada, up to a specified amount greater than $75.0 million and less than $95.0 million, with any development costs in excess of this amount to be shared equally by us and UCB. Delays in the commencement, enrollment and completion of clinical trials, including as a result of regulatory requirements, could substantially increase our product development costs. We do not know whether our planned clinical trials will begin on time or will be completed on budget or on schedule, or at all. While UCB is obligated to pay us if certain development and regulatory approval milestones are met, these milestone payments will not increase
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even if our development costs increase, so we would be required to bear a greater portion of any increased costs, which would adversely impact our financial position. The costs associated with product development can increase for a variety of reasons, including:
In addition, a clinical trial may be suspended or terminated by us, UCB, the FDA, the EMA, Health Canada or other regulatory authorities due to a number of factors, including:
Clinical drug development for our product candidates is very expensive, time-consuming and uncertain. Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.
Clinical drug development for our product candidates is very expensive, time-consuming, difficult to design and implement and its outcome is inherently uncertain. Before obtaining regulatory approval for the commercial sale of a product candidate, we must demonstrate through clinical trials that a product candidate is both safe and effective for use in the target indication. Most product candidates that commence clinical trials are never approved by regulatory authorities for commercialization. Our product candidates are in various stages of development. We expect that clinical trials for these product candidates will continue for several years, but may take significantly longer than expected to complete. In addition, we, any partner with which we currently or may in the future collaborate, the FDA, an
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IRB or other regulatory authorities, including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to or terminate our clinical trials at any time, for various reasons, including:
In the case of our topical product candidates, we are seeking to deliver sufficient concentrations of the active pharmaceutical ingredient, or API, through the skin barrier to the targeted dermal tissue to achieve the intended therapeutic effect. As a result, safety and efficacy can be difficult to establish. The topical route of administration may involve new dosage forms, which can be difficult to develop and manufacture and may raise novel regulatory issues and result in development or review delays. For
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example, the dosage form for DRM04 is an API-saturated wipe, and we are not aware of previous FDA approvals of prescription drug wipes.
We or any partner with which we may collaborate may suffer significant setbacks in our clinical trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. In the event that we or our potential partners abandon or are delayed in the clinical development efforts related to our product candidates, we may not be able to execute on our business plan effectively and our business, financial condition, operating results and prospects would be harmed. In particular, for Cimzia, if we experience delays in the completion of, or if we terminate, clinical trials, our ability to receive development-, regulatory- or sales-based milestone payments and royalties under the UCB agreement will be reduced, delayed or prevented.
We may be unable to obtain regulatory approval for Cimzia, DRM04, DRM01 or our early-stage product candidates under applicable regulatory requirements. The FDA and foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit or deny approval of product candidates. The delay, limitation or denial of any regulatory approval would adversely impact commercialization, our potential to generate revenue, our business and our operating results.
We currently have no products approved for sale, and we may never obtain regulatory approval to commercialize any of our current or future product candidates. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to our drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign countries, and such regulations differ from country to country. We are not permitted to market any of our current product candidates in the United States until we receive approval of a new drug application, or NDA, or biologics license application, or BLA, or other applicable regulatory filing from the FDA. We are also not permitted to market any of our current product candidates in any foreign countries until we receive the requisite approval from the applicable regulatory authorities of such countries.
To gain approval to market a biologic product such as Cimzia or a new drug such as DRM04 or DRM01, the FDA and foreign regulatory authorities must receive preclinical and clinical data that adequately demonstrate the safety, purity, potency, efficacy and compliant manufacturing of the product for the intended indication applied for in an NDA, BLA or other applicable regulatory filing. The development and approval of biologic and new drug products involves a long, expensive and uncertain process, and delay or failure can occur at any stage. A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in clinical trials, including in Phase 3 clinical development, even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we or our partners may conduct. For example, in our Phase 2 clinical trial for Cimzia in moderate-to-severe plaque psoriasis, a six-point physical global assessment, or PGA, scale was used, and we intend to use a five-point PGA scale in the Phase 3 clinical trials. As a result, data from our Phase 2 clinical trial may not accurately predict Phase 3 results. In addition, for DRM04, the results of our Phase 2a and Phase 2b clinical trials may not accurately predict results in our Phase 3 clinical trials that will have larger numbers of patients. Even for a drug such as Cimzia that has been approved for multiple indications, regulatory review processes are lengthy and uncertain.
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The FDA and foreign regulatory bodies have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of product candidates for many reasons, including:
Of the large number of drugs, including biologics, in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. For example, the FDA may not agree with our Phase 3 clinical trial protocols for Cimzia. In addition, our product candidates may not be approved by the FDA or applicable foreign regulatory agencies even though they meet specified endpoints in our clinical trials. The FDA or applicable foreign regulatory
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agencies may ask us to conduct additional costly and time-consuming clinical trials in order to obtain marketing approval or approval to enter into an advanced phase of development, or may change the requirements for approval even after such agency has reviewed and commented on the design for the clinical trials. In our collaboration with UCB, we are required to pursue development in support of UCB seeking approval from each of the FDA, the EMA and Health Canada, although we have the right to abandon pursuit of regulatory approval in Canada. If UCB is unable to obtain and retain regulatory approval for the marketing of Cimzia for psoriasis, we could lose our ability to receive royalties and regulatory- and sales-based milestone payments, which would adversely affect our financial position and business.
Any delay in obtaining, or inability to obtain, applicable regulatory approval for any of our product candidates would delay or prevent commercialization of our product candidates and would harm our business, financial condition, operating results and prospects.
UCB substantially controls the governance of our collaboration, and may make decisions regarding product development, regulatory strategy and commercialization that may not be in our best interests.
To oversee the parties' activities in the collaboration, the UCB agreement provides for the establishment of a joint steering committee, joint development team, joint development committee, joint commercialization team and joint commercialization committee on which we each have representation, and while the parties have agreed to make committee decisions by consensus, UCB has final decision-making authority for the overall regulatory, development and commercialization strategy for Cimzia, market access activities, pricing and reimbursement activities, promotion, distribution, packaging, sales and safety and pharmacovigilance.
In exercising its final decision-making authority, UCB may make decisions regarding product development or regulatory strategy based on its determination of how to best preserve and extend regulatory approvals for Cimzia in indications other than psoriasis, which may delay or prevent achieving regulatory approval for Cimzia for the treatment of psoriasis.
If Cimzia does receive regulatory approval for the treatment of psoriasis in the United States or Canada, UCB could use its final decision-making authority to direct our market access, promotional or medical affairs activities to dermatologists in ways that would adversely impact sales attributable to dermatologists, including due to a concern that such activities could adversely impact sales of Cimzia attributable to physicians other than dermatologists, for which UCB is not required to pay us royalties or milestone payments. If such limitations resulted in reduced sales of Cimzia to dermatologists, the royalties and sales-based milestone payments we could receive under the UCB agreement would be adversely affected, negatively impacting our financial performance.
We have never conducted a Phase 3 clinical trial before, and may be unable to successfully do so for any of our product candidates.
The conduct of a Phase 3 clinical trial is a complicated process. Although our employees have conducted Phase 3 clinical trials in the past while employed at other companies, we as a company have not conducted a Phase 3 clinical trial before, and as a result may require more time and incur greater costs than we anticipate. For example, we intend to commence Phase 3 clinical trials for Cimzia in the first half of 2015, as more fully described in "BusinessOur Product CandidatesCimzia." Failure to commence or complete, or delays in, our planned clinical trials, would prevent us from or delay us in obtaining regulatory approval of and commercializing our product candidates and could prevent us from or delay us in receiving development- or regulatory-based milestone payments and commercializing Cimzia for the treatment of psoriasis, which would adversely impact our financial performance.
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Even if our current product candidates or any future product candidates obtain regulatory approval, they may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.
The commercial success of any of our current or future product candidates, if approved, will depend significantly on the broad adoption and use of the resulting product by physicians and patients for approved indications, and may not be commercially successful. The degree and rate of physician and patient adoption of our current or future product candidates, if approved, will depend on a number of factors, including:
If any of our current or future product candidates are approved for use but fail to achieve the broad degree of physician and patient adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.
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Enbrel, Humira and Stelara, injectable biologics for the treatment of moderate-to-severe plaque psoriasis, achieved aggregate sales of $4.0 billion in 2012 and we are uncertain whether this market, including off-label use of other injectable biologics for the treatment of psoriasis, has peaked or may still grow and whether we could displace any existing market share if Cimzia is approved for the treatment of moderate-to-severe plaque psoriasis. In particular, Cimzia's administration schedule may not be perceived as advantageous and its theoretical advantages may not lead to a perception of Cimzia being safer or comparably effective to Humira or Enbrel. Even if approved for moderate-to-severe plaque psoriasis, we may not be able to utilize directly comparative head-to-head data on the clinical performance of Cimzia relative to other TNF inhibitors or biologics in our marketing materials and may not be able to promote any theoretical advantages that are not in our approved product labeling.
Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing of health care products competitive with those that we are developing. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, clinical trial expertise, intellectual property portfolios, experience in obtaining patents and regulatory approvals for product candidates and other resources than us. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts. In addition, certain of our product candidates, if approved, may compete with other dermatological products, including over-the-counter treatments, for a share of some patients' discretionary budgets and for physicians' attention within their clinical practices.
Many pharmaceutical companies currently offer products, and continue to develop additional alternative product candidates and technologies, for indications similar to those targeted by our product candidates, including AbbVie Inc., Actavis plc, Allergan, Inc., Amgen Inc., Anacor Pharmaceuticals, Inc., Astellas Pharma US, Inc., Bayer HealthCare AG (formerly Intendis, Inc.), Eisai Co., Ltd., Galderma S.A., GlaxoSmithKline LLC, or GSK, Janssen Biotech, Inc., Johnson & Johnson, LEO Pharma A/S, Maruho Co., Ltd., Merck & Co., Inc., Miramar Labs, Inc., Mitsubishi Tanabe Pharma Corporation, Mylan Inc., Pfizer Inc., Regeneron Pharmaceuticals, Inc., Revance Therapeutics, Inc., Takeda Pharmaceutical Company Limited, Teva Pharmaceutical Industries Ltd. and Valeant Pharmaceuticals International. The markets for dermatological therapies are competitive and are characterized by significant technological development and new product introduction. We anticipate that, if we obtain regulatory approval of our product candidates, we will face significant competition from other approved therapies. If approved, our product candidates may also compete with unregulated, unapproved and off-label treatments. Certain of our product candidates, if approved, will present novel therapeutic approaches for the approved indications and will have to compete with existing therapies, some of which are widely known and accepted by physicians and patients. To compete successfully in this market, we will have to demonstrate that the relative cost, safety and efficacy of our approved products, if any, provide an attractive alternative to existing and other new therapies. Such competition could lead to reduced market share for our product candidates and contribute to downward pressure on the pricing of our product candidates, which could harm our business, financial condition, operating results and prospects. For more information about the competition we face, see "BusinessCompetition."
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Due to less stringent regulatory requirements in certain foreign countries, there are many more dermatological products and procedures available for use in those international markets than are approved for use in the United States. In certain international markets, there are also fewer limitations on the claims that our competitors can make about the effectiveness of their products and the manner in which they can market them. As a result, we expect to face more competition in these markets than in the United States.
Cimzia faces intense competition and most of our competitors have significantly greater resources than we do.
If approved for the treatment of psoriasis, Cimzia will face direct competition from numerous other injected products such as Enbrel, Humira, Remicade and Stelara, and the existence of these products may limit the market size for Cimzia. In addition, Cimzia will compete against oral systemic treatments for psoriasis, which include acitretin, methotrexate and cyclosporine, and against a number of approved topical treatments for psoriasis, including branded drugs and generic versions where available. There are a number of other treatments used for psoriasis, including light-based treatments, topical corticosteroids and non-prescription topical treatments. Certain alternative treatments offered by competitors may be available at a lower price and may offer greater efficacy or a better safety profile.
Additional products and treatments, including numerous injectable biological products currently in clinical trials, may also receive regulatory approval in one or more territories in which we compete, and these existing and new products may be more effective, more widely used and less costly than ours, which may reduce the sales on which we receive royalties and sales-based milestone payments under the UCB agreement. Even if a generic product or an over-the-counter product is less effective than our product candidates, a less effective generic or over-the-counter product may be more quickly adopted by health insurers, physicians and patients than our competing product candidates based upon cost or convenience.
Cimzia may face competition from biosimilars, which may have an adverse impact on future sales.
Even if Cimzia for the treatment of psoriasis achieves regulatory approval, we may face competition from biosimilars. In the United States, the Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated approval pathway for biological products that are demonstrated to be "highly similar," or "biosimilar," to or "interchangeable" with an FDA-approved biological product. This new pathway could allow competitors to reference the FDA's prior determinations regarding innovative biological products and to obtain approval of a biosimilar application 12 years after the time of approval of the innovative biological product. The 12-year exclusivity period does not prevent another company from developing a product that is highly similar to the innovative product, generating all the data necessary for a full BLA and seeking approval. Exclusivity only assures that another company cannot rely on the FDA's prior determinations in approving a BLA for an innovator's biological product to support the biosimilar product's approval. In his proposed budget for fiscal year 2014, President Obama proposed to reduce this 12-year period of exclusivity to seven years and proposed to prohibit additional periods of exclusivity due to minor changes in product formulations, a practice often referred to as "evergreening." It is possible that Congress may take these or other measures to reduce or eliminate periods of exclusivity. The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have an adverse effect on the future commercial prospects for Cimzia. If competitors are able to obtain marketing approval for biosimilars referencing Cimzia or other branded biologic products against which Cimzia competes, Cimzia may become subject to competition from such biosimilars. Such competition could lead to off-label use of the biosimilar for psoriasis or reduced market share and contribute to downward pressure on pricing and reduced profit margins.
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We expect to face generic competition for our product candidates, which could adversely affect our business, financial condition, operating results and prospects.
Upon the expiration or loss of any patent protection for any of our product candidates that are approved, or upon the "at-risk" launch, despite pending patent infringement litigation against the generic product, by a generic competitor of a generic version of any of our product candidates that are approved, which may be sold at significantly lower prices than our approved product candidates, we could lose a significant portion of sales of that product in a short period of time, which would adversely affect our business, financial condition, operating results and prospects. In particular, our DRM04 product candidate faces competition from generic oral and compounded topical anticholinergic agents. In addition, we may be subject to additional competition from third parties pursuing topical formulations of other anticholingeric agents for hyperhidrosis.
Use of patient-reported outcome assessments, or PROs, in our DRM04 clinical trials may delay the development of DRM04 or increase our development costs.
Due to the difficulty of objectively measuring the symptoms of hyperhidrosis, PROs will have an important role in the development and regulatory approval of our DRM04 product candidate. PROs involve patients' subjective assessments of efficacy, and this subjectivity increases the uncertainty of determining clinical endpoints. Such assessments can be influenced by factors outside of our control, and can vary widely from day to day for a particular patient, and from patient to patient and site to site within a clinical trial. Furthermore, we intend to use a new PRO in our Phase 2 clinical program and pursue the use of the new PRO to measure efficacy in our planned Phase 3 clinical program for DRM04. It is possible that the FDA will not accept the new PRO or will require changes in the PRO, potentially delaying clinical development of DRM04, increasing our costs and making additional clinical trials necessary.
Any product candidates that we commercialize, or that any partner with which we may collaborate commercializes, will be subject to ongoing and continued regulatory review.
Even after we or our partners achieve U.S. regulatory approval for a product candidate, if any, we or our partners will be subject to continued regulatory review and compliance obligations. For example, with respect to our product candidates, the FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. A product candidate's approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials or a REMS, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for our product candidates. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP requirements and with the FDA's good clinical practice, or GCP, requirements and good laboratory practice, or GLP, requirements, which are regulations and guidelines enforced by the FDA for all of our product candidates in clinical and preclinical development, and for any clinical trials that we conduct post-approval. To the extent that a product candidate is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.
In addition, manufacturers of drug and biologic products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians, withdrawal of the product from the market or suspension of manufacturing.
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If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
The regulations, policies or guidance of the FDA and other applicable government agencies may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
We have conducted and may in the future conduct clinical trials for our product candidates outside the United States and the FDA and applicable foreign regulatory authorities may not accept data from such trials.
We have conducted and may in the future choose to conduct one or more of our clinical trials outside the United States, including in Canada and Europe. For example, our Phase 3 clinical trials for Cimzia that we intend to commence in the first half of 2015 will be conducted in multiple countries. Although the FDA or applicable foreign regulatory authority may accept data from clinical trials conducted outside the United States or the applicable jurisdiction, acceptance of such study data by the FDA or applicable foreign regulatory authority may be subject to certain conditions. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is
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able to validate the data through an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be no assurance the FDA or applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or applicable foreign regulatory authority does not accept such data, it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan.
Our product candidates may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in post-approval regulatory action.
Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. Undesirable side effects caused by product candidates could cause us, any partners with which we may collaborate or regulatory authorities to interrupt, modify, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign authorities. For example, if we obtain regulatory approval for Cimzia for the treatment of moderate-to-severe plaque psoriasis, we expect that regulatory authorities will require us to include the same box warning regarding increased risk of serious infections that may lead to hospitalization or death and a potential association with increased cancer risk in TNF inhibitors, of which Cimzia is one, that is currently included in labeling for Cimzia for the treatment of other indications. Results of clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us, or our potential partners, to cease further development of or deny approval of product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition, operating results and prospects.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by our product candidates after obtaining U.S. or foreign regulatory approval or other products with the same or related active ingredients, a number of potentially negative consequences could result, including:
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Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us or our potential partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.
We may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in injury to a patient or even death. We cannot offer any assurance that we will not face product liability suits in the future, nor can we assure you that our insurance coverage will be sufficient to cover our liability under any such cases.
In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:
We have obtained product liability insurance coverage for clinical trials. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. We will need to increase our product liability coverage if any of our product candidates receive regulatory approval, which will be costly, and we may be unable to obtain this
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increased product liability insurance on commercially reasonable terms, or at all. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and could harm our business, financial condition, operating results and prospects.
If any of our product candidates are approved for marketing and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, product liability claims and significant fines, penalties and sanctions, and our brand and reputation could be harmed.
The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug and biologic products. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or such other regulatory agencies as reflected in the product's approved labeling and comparative safety or efficacy claims cannot be made without direct comparative clinical data. For example, if Cimzia is approved for use in the United States for the treatment of moderate-to-severe plaque psoriasis, due to the design of our Phase 3 clinical trial comparing Cimzia to Enbrel, the prescribing information may not include data comparing the clinical performance of Cimzia and Enbrel and we may not be able to utilize directly comparative head-to-head data on the clinical performance of Cimzia to Enbrel in our marketing materials. Similarly, although our DRM04 product candidate, if approved, may appeal to individuals who have not been diagnosed with hyperhidrosis, we will only be able to promote DRM04 for its approved indication. If we are found to have promoted off-label uses of any of our product candidates, we may receive warning or untitled letters and become subject to significant liability, which would materially harm our business. Both federal and state governments have levied large civil and criminal fines against companies for alleged improper promotion and have enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management's attention could be diverted from our business operations, significant legal expenses could be incurred and our brand and reputation could be damaged. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities constitute promotion of an off-label use, which could result in significant penalties, including criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations.
We cannot, however, prevent a physician from using our product candidates outside of those indications for use when in the physician's independent professional medical judgment he or she deems appropriate. Physicians may also misuse our product candidates or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our product candidates are misused or used with improper technique, we may become subject to costly litigation by physicians or their patients. Furthermore, the use of our product candidates for indications other than those cleared by the FDA may not effectively treat such conditions, which could harm our reputation among physicians and patients.
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We may choose not to continue developing or commercializing any of our product candidates other than Cimzia at any time during development or after approval, which would reduce or eliminate our potential return on investment for those product candidates.
At any time, we may decide to discontinue the development of any of our product candidates other than Cimzia or not to continue commercializing one or more of our approved product candidates other than Cimzia for a variety of reasons, including the appearance of new technologies that make our product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses. We are, however, required to develop and commercialize Cimzia in accordance with our obligations to UCB regardless of our potential return on our investment with respect to Cimzia.
We or our current and prospective partners may be subject to product recalls in the future that could harm our brand and reputation and could negatively affect our business.
We or our current and prospective partners may be subject to product recalls, withdrawals or seizures if any of our product candidates, if approved for marketing, fail to meet specifications or are believed to cause injury or illness or if we are alleged to have violated governmental regulations including those related to the manufacture, labeling, promotion, sale or distribution. Any recall, withdrawal or seizure in the future could materially and adversely affect consumer confidence in our brands and lead to decreased demand for our approved products. In addition, a recall, withdrawal or seizure of any of our approved products would require significant management attention, would likely result in substantial and unexpected expenditures and would harm our business, financial condition and operating results.
If the FDA does not conclude that certain of our product candidates satisfy the requirements under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or Section 505(b)(2), or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.
We are currently developing one product candidate, DRM04, for which we intend to seek FDA approval through the Section 505(b)(2) regulatory pathway. DRM04 is a topical formulation of an anticholinergic agent that has been approved for systemic administration in other indications. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference. Reliance on safety findings made by the FDA in approving the anticholinergic agent we intend to reference in our NDA could expedite the development program for our product candidates by potentially decreasing the amount of preclinical or clinical data that we would need to generate in order to obtain FDA approval. DRM04 differs from the approved product we intend to reference in chemical structure, route of administration, dosage form and indication, and, as a result, the FDA may not permit us to use this approach to regulatory approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, if the Section 505(b)(2) regulatory pathway fails to significantly decrease the amount of testing we must conduct, we may need to conduct additional preclinical or clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this was to occur, the time and financial resources required to obtain FDA approval for DRM04, or any other product candidate for which we seek approval pursuant to the Section 505(b)(2) regulatory pathway in the future, and complications and
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risks associated with these product candidates, would likely substantially increase. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than our product candidates, which would likely harm our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.
In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA's interpretation of Section 505(b)(2). If the FDA's interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its Section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved referenced product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to faster product development or earlier approval.
If we or any partners with which we may collaborate are unable to achieve and maintain coverage and adequate levels of reimbursement for any of our product candidates for which we receive regulatory approval, or any future products we may seek to commercialize, their commercial success may be severely hindered.
For any of our product candidates that become available only by prescription, successful sales by us or by any partners with which we may collaborate depend on the availability of coverage and adequate reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. If any of our product candidates do not demonstrate attractive efficacy profiles, they may not qualify for coverage and reimbursement. In addition, certain currently approved therapies for the treatment of hyperhidrosis have received limited or no reimbursement coverage by insurers and, accordingly, coverage for DRM04, if approved, may not be available. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
In addition, the market for our product candidates will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.
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Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, although private third-party payors tend to follow Medicare, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects.
Healthcare reform measures could hinder or prevent the commercial success of our products and product candidates.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future revenue and profitability and the future revenue and profitability of any partner with which we may collaborate. Federal and state lawmakers regularly propose and, at times, enact legislation that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, in March 2010, President Obama signed one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which are expected to impact existing government healthcare programs and result in the development of new programs. The Affordable Care Act, among other things, (1) increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to certain individuals enrolled in Medicaid managed care organizations, (2) established annual fees on manufacturers of certain branded prescription drugs and (3) enacted a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals and imaging centers.
More recently, the Protecting Access to Medicare Act of 2014, signed into law in April 2014, provides for a 0.5% change from 2013 federal payment rates under the Medicare Physician Fee Schedule through 2014 and a 0% update from January 1 until April 1, 2015. Congressional failure to intervene to prevent these changes in payment rates may adversely affect our revenue and operating results.
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We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.
We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition.
Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We are subject to regulation by both the federal government and the states in which we or our partners conduct our business. The laws and regulations that may affect our ability to operate include:
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commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be provided to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
Our business involves the use of hazardous materials and we and our third-party suppliers and manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
The manufacturing activities of our third-party suppliers and manufacturers involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our suppliers' or manufacturers' facilities pending use and disposal. We and our suppliers and manufacturers cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, injury to our service providers and others and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party suppliers and manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste insurance coverage.
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Our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional, reckless or negligent conduct or unauthorized activity that violates: laws or regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws and data privacy; or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations, and serious harm to our reputation. In addition, federal procurement laws impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics and conduct. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our operating results.
Risks Related to Our Collaboration with UCB
The UCB agreement is terminable by UCB if we consummate a change of control with a significant number of competitor companies, which may adversely impact the likelihood that we will be acquired.
If we consummate a change of control with a third party that is clinically developing or commercializing a biologic TNF inhibitor, UCB has the right to terminate the UCB agreement. If such termination occurs prior to the grant of regulatory approval for Cimzia for the treatment of psoriasis, we would be obligated to pay the remaining costs for which we would be responsible under the agreed development plan reduced by the amount of development milestone payments that would have been payable upon achievement of applicable development milestones if and when such milestones are achieved. This could make an acquisition of us by any such company economically unattractive, potentially prohibitively so. Among the companies that we are aware are currently clinically developing or commercializing biologic TNF inhibitors are AbbVie, Actavis, Amgen, Baxter International Inc., Boehringer Ingelheim, Biogen Idec Inc., Eisai, GSK, Hospira, Inc., Johnson & Johnson, Merck, Mitsubishi Tanabe Pharma Corporation, Mylan, Novartis AG, Pfizer, Ranbaxy Laboratories Limited, Sandoz Inc., Stiefel Laboratories, Inc., a GSK Company, Takeda and Teva. Additional companies may develop or commercialize a biologic TNF inhibitor in the future. The resulting unlikelihood of an acquisition of us by these companies may reduce our future strategic options and the likelihood of our stockholders participating in a company sale transaction that could be financially attractive to them.
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In addition, UCB has the right to terminate the UCB agreement with the same economic consequences if we consummate a change of control with a company that is not clinically developing or commercializing a biologic TNF inhibitor but that otherwise does not meet all of the following requirements:
It is therefore possible that other potential acquirers, even though not developing or commercializing a biologic TNF inhibitor, would not meet one or more of these criteria, making an acquisition of us by such a company unlikely, further reducing the ability of our stockholders to participate in a transaction that could be financially attractive to them.
We could have significant disputes with UCB over our collaboration, which could adversely impact our ability to obtain any of its intended benefits.
We cannot ensure that UCB will fulfill its obligations under the UCB agreement. We may assert that UCB has not fulfilled its obligations, which UCB may dispute. UCB may assert that we have not fulfilled our obligations under the UCB agreement, which we may dispute. If UCB asserts that we have materially breached the UCB agreement and seeks to terminate the UCB agreement, our ability to realize the anticipated or any benefits from this collaboration would be adversely affected. Any disputes we have with UCB could lead to delays in, or termination of, the development and commercialization of Cimzia for the treatment of psoriasis and time-consuming and expensive arbitration. In any such dispute, UCB will have considerably more resources than we will to pursue such dispute, which may make it less likely that we will prevail in any such dispute, regardless of the relative merit of our position.
We are dependent on UCB for product supply.
Under the UCB agreement, UCB is solely responsible for supplying sufficient quantities of Cimzia as well as the comparator drugs and placebo to be used in our planned Phase 3 clinical trials and any post-approval studies that are conducted. We are not permitted to obtain these materials from any other source. If we experience any interruption in product supply, potentially due to UCB's own dependencies on its suppliers, or due to damage to or destruction of its or its suppliers' facilities or equipment or noncompliance with regulatory requirements, or if we incorrectly forecast our product supply requirements or UCB incorrectly plans its manufacturing production, or if UCB were to allocate supplies of Cimzia to its commercial sales rather than to our development program, it could impact our ability to timely supply our clinical sites, and cause potentially serious delays in the timing of our clinical studies and substantially increased costs if studies need to be adjusted or re-performed.
UCB is also solely responsible for and controls all aspects of the manufacture, distribution and supply of Cimzia for commercialization, including providing any product samples that we may use in our marketing and promotion activities as well as the product that will be sold from which we would
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derive royalties and any sales-based milestone payments. If UCB experiences any interruption in product supply for any of the reasons described in the prior paragraph, or if UCB were to allocate its supplies of Cimzia to commercial sales attributable to physicians other than dermatologists, it could adversely impact the sales from which we derive such royalties and payments, and our financial results.
We have agreed with UCB to a scope of exclusivity that will prevent us from developing and commercializing a material category of products, which could harm our current and future business prospects, including the likelihood that we will be acquired.
We have agreed that, during the term of the UCB agreement, except in limited circumstances, we and our affiliates will not clinically develop, seek regulatory approval for or commercialize a biologic TNF inhibitor other than Cimzia, or promote any other biologic TNF inhibitor to any dermatologist in the United States or Canada. If, during the term of the UCB agreement, we acquire or are acquired by a third party that is clinically developing or commercializing a biologic TNF inhibitor, in addition to UCB's termination rights described above, we have agreed to either cease such clinical development or commercialization or divest such product candidate. These exclusivity obligations may inhibit our business opportunities by excluding an important class of products, TNF inhibitors, from potential development or commercialization by us. In addition, any acquirer of us would also be subject to these exclusivity obligations, which will potentially exclude companies that are or would consider developing or commercializing TNF inhibitors from acquiring us, which may reduce the likelihood of our being acquired in a transaction that could be beneficial to our stockholders.
UCB may determine that further development of Cimzia for the treatment of psoriasis poses a significant safety risk and terminate the UCB agreement, which would adversely affect our business.
The UCB agreement is terminable by UCB if it determines that a validated safety signal is established, the magnitude of which UCB determines constitutes a significant patient risk so that the development or commercialization of Cimzia should cease. In such event, while UCB would be obligated to reimburse us for certain costs we have incurred by paying to us royalties on sales of Cimzia in the United States and Canada, such reimbursement will likely take years, and if sales of Cimzia cease in all indications, we will likely never recoup such costs. In any event, if the UCB agreement were to be terminated for safety reasons, we would not be able to develop a dermatology-focused sales force using Cimzia as our initial commercial product or realize any royalties or sales-based milestones, and therefore our principal strategic and financial objectives in pursuing this collaboration would not be achieved.
UCB has made very limited representations, warranties and indemnities to us regarding its ownership of and the validity of the intellectual property related to Cimzia, and that its and our activities in our collaboration will not infringe the intellectual property rights of third parties.
In the UCB agreement, UCB has made very limited representations, warranties and indemnities to us that the development of Cimzia for the treatment of psoriasis and the sale and promotion of Cimzia for the treatment of psoriasis and psoriatic arthritis will not infringe a patent or other intellectual property right of a third party, or that UCB's intellectual property related to Cimzia is valid. If third parties bring claims that the intellectual property relevant to the collaboration and Cimzia infringes the intellectual property rights of such third party, we or UCB could be enjoined from performing our activities under the UCB agreement, exposed to substantial damages or required to pay royalties to such third party, or any combination of these adverse effects. Any third-party royalties that would need to be paid in connection with the activities under our collaboration would be included in our cost of goods and therefore could reduce the financial benefits that we receive from sales of Cimzia. In addition, if a claim is made against us in connection with our collaboration, UCB may control the
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defense of such claim, and may make different decisions than we would make, potentially exposing us to increased liability.
Risks Related to Our Dependence on Third Parties other than UCB
We have in the past relied and expect to continue to rely on third-party CROs and other third parties to conduct and oversee our clinical trials and other aspects of product development. If these third parties do not meet our requirements or otherwise conduct the trials as required, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our product candidates when expected or at all.
We have in the past relied and expect to continue to rely on third-party CROs to conduct and oversee our clinical trials and other aspects of product development. We also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA's regulations and GCPs, which are an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security and recordkeeping for drug and biologic products. These CROs and other third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. We rely heavily on these parties for the execution of our clinical trials and preclinical studies, and control only certain aspects of their activities. We and our CROs and other third-party contractors are required to comply with GCP and GLP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP and GLP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP and GLP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authority may require us to perform additional clinical trials before approving our or our partners' marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical or preclinical trials complies with applicable GCP and GLP requirements. In addition, our clinical trials must generally be conducted with product produced under cGMP regulations. Our failure to comply with these regulations and policies may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be able to enter into arrangements with alternative CROs or clinical trial sites, or do so on commercially reasonable terms. In addition, if our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.
We rely completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers, we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.
We do not currently have, nor do we plan to acquire, the infrastructure or capability to supply, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products.
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Our ability to develop our product candidates depends and our ability to commercially supply our products will depend, in part, on our ability to successfully obtain the APIs and other substances and materials used in our product candidates from third parties and to have finished products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates.
We do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. Although we are ultimately responsible for ensuring compliance with regulatory requirements such as cGMPs, we are dependent on our contract suppliers and manufacturers for day-to-day compliance with cGMPs for production of both APIs and finished products. Facilities used by our contract suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. If the safety of any product or product candidate or component is compromised due to a failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, clinical trials or regulatory submissions or approvals of our product candidates, and could entail higher costs or result in our being unable to effectively commercialize our approved products on a timely basis, or at all.
We also rely and will continue to rely on certain third parties as the sole source of the materials they supply or the finished products they manufacture. UCB is solely responsible for and controls all aspects of the manufacture, distribution and supply of Cimzia. For more information about risks related to the manufacture of Cimzia, see "Risks Related to Our Collaboration with UCB." Some of the APIs and other substances and materials used in our product candidates are currently available only from one or a limited number of domestic or foreign suppliers and foreign manufacturers and certain of our finished product candidates are manufactured by one or a limited number of contract manufacturers. In the event an existing supplier fails to supply product on a timely basis or in the requested amount, supplies product that fails to meet regulatory requirements, becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source or if we or our manufacturers are unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we likely would incur added costs and delays in identifying or qualifying replacement manufacturers and materials and there can be no assurance that replacements would be available to us on a timely basis, on acceptable terms or at all. We are currently in the process of transitioning the manufacture of certain of our APIs and product candidates to new contract manufacturers, which creates risks of additional cost and delay. In certain cases we may be required to get regulatory approval to use alternative suppliers, and this process of approval could delay production of our products or development of product candidates indefinitely. In particular, we are dependent on our current suppliers of the nonwoven material and foil in our DRM04 product candidate, and any need to find and qualify new suppliers for these materials would adversely affect our business. We and our manufacturers do not currently maintain inventory of these APIs and other substances and materials. Any interruption in the supply of an API or other substance or material or in the manufacture of a finished product could have a material adverse effect on our business, financial condition, operating results and prospects.
In addition, these contract manufacturers are engaged with other companies to supply and manufacture materials or products for such companies, which also exposes our suppliers and manufacturers to regulatory risks for the production of such materials and products. As a result, failure
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to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract supplier's or manufacturer's facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of our product candidates, or if it withdraws its approval in the future, we may need to find alternative supply or manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval of or market our product candidates, if approved.
To date, our drug substances and product candidates have been manufactured in small quantities for preclinical studies and early-stage clinical trials. As we prepare for later-stage clinical trials and potential commercialization, we will need to take steps to increase the scale of production of our drug substances and product candidates, which may include transferring production to new third-party suppliers or manufacturers. In order to conduct larger or late-stage scale clinical trials for our product candidates and supply sufficient commercial quantities of the resulting drug product and its components, if that product candidate is approved for sale, our contract manufacturers and suppliers will need to produce our drug substances and product candidates in larger quantities, more cost effectively and, in certain cases, at higher yields than they currently achieve. These third-party contractors may not be able to successfully increase the manufacturing capacity for any of such drug substance and product candidates in a timely or cost-effective manner or at all. Significant scale up of manufacturing may require additional processes, technologies and validation studies, which are costly, may not be successful and which the FDA and foreign regulatory authorities must review and approve. In addition, quality issues may arise during those scale-up activities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during the manufacturing and packaging process, or during shipping and storage of the APIs or the finished product. If our third-party contractors are unable to successfully scale up the manufacture of any of our product candidates in sufficient quality and quantity and at commercially reasonable prices, and we are unable to find one or more replacement suppliers or manufacturers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and we are unable to successfully transfer the processes on a timely basis, the development of that product candidate and regulatory approval or commercial launch for any resulting products may be delayed, or there may be a shortage in supply, either of which could significantly harm our business, financial condition, operating results and prospects.
We expect to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future. Our supply and manufacturing agreements, if any, do not guarantee that a contract supplier or manufacturer will provide services adequate for our needs. We and our contract suppliers and manufacturers continue to improve production processes, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes. While we attempt to build in certain contractual obligations on such third-party suppliers and manufacturers, we may not be able to ensure that such third parties comply with these obligations. Depending on the extent of any difficulties encountered, we could experience an interruption in clinical or commercial supply, with the result that the development, regulatory approval or commercialization of our product candidates may be delayed or interrupted. In addition, third-party suppliers and manufacturers may have the ability to increase the price payable by us for the supply of the APIs and other substances and materials used in our product candidates, in some cases without our consent.
Additionally, any damage to or destruction of our third-party manufacturers' or suppliers' facilities or equipment may significantly impair our ability to have our product candidates manufactured on a timely basis. Furthermore, if a contract manufacturer or supplier becomes financially distressed or insolvent, or discontinues our relationship beyond the term of any existing agreement for any other reason, this could result in substantial management time and expense to identify, qualify and transfer processes to alternative manufacturers or suppliers, and could lead to an interruption in clinical or commercial supply.
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Our reliance on contract manufacturers and suppliers further exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information.
In addition, the manufacturing facilities of certain of our suppliers are located outside of the United States. This may give rise to difficulties in importing our products or product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation or defective packaging.
Manufacturing and supply of the APIs and other substances and materials used in our product candidates and finished drug products is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after products have been manufactured and distributed.
Manufacturing and supply of APIs, other substances and materials and finished drug products is technically challenging. Changes beyond our direct control can impact the quality, volume, price and successful delivery of our product candidates and can impede, delay, limit or prevent the successful development and commercialization of our product candidates. Mistakes and mishandling are not uncommon and can affect successful production and supply. Some of these risks include:
Any of these factors could result in delays or higher costs in connection with our clinical trials, regulatory submissions, required approvals or commercialization of our products, which could harm our business, financial condition, operating results and prospects.
If we are not able to establish and maintain collaborations, we may have to alter our development and commercialization plans.
The development and potential commercialization of our product candidates will require substantial additional cash to fund expenses. In order to fund further development of our product candidates, we may collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. We face significant competition in seeking appropriate partners. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the partner's resources and experience, the terms and conditions of the proposed collaboration and the proposed partner's evaluation of a number of factors. Those
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factors may include the design or results of clinical trials; the likelihood of approval by the FDA or other regulatory authorities; the potential market for the subject product candidate; the costs and complexities of manufacturing and delivering such product candidate to patients; the potential of competing products; any uncertainty with respect to our ownership of our intellectual property; and industry and market conditions generally. The partner may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential partners. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future partners.
Collaborations typically impose detailed obligations on each party, such as those required under the UCB agreement. If we were to breach our obligations, we may face substantial consequences, including potential termination of the collaboration, and our rights to our partners' product candidates, in which we have invested substantial time and money, would be lost.
We may not be successful in our efforts to implement collaborations or other alternative arrangements for the development of our product candidates. When we partner with a third party for development and commercialization of a product candidate, we can expect to relinquish to the third party some or all of the control over the future success of that product candidate. Our collaboration partner may not devote sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing preclinical and initial clinical development of a partnered product candidate or research program, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
Risks Related to Our Business and Financial Operations
We will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in executing our growth strategy and managing any growth.
Our management, personnel, systems and facilities currently in place are not adequate to support our business plan and future growth. We will need to further expand our scientific, sales and marketing, managerial, operational, financial and other resources to support our planned research, development and commercialization activities.
Our need to manage our operations, growth and various projects effectively requires that we:
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In addition, historically, we have utilized and continue to utilize the services of part-time outside consultants to perform a number of tasks for us, including tasks related to preclinical and clinical testing. Our growth strategy may also entail expanding our use of consultants to implement these and other tasks going forward. We rely on consultants for certain functions of our business and will need to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. There can be no assurance that we will be able to manage our existing consultants or find other competent outside consultants, as needed, on economically reasonable terms, or at all. If we are not able to effectively manage our growth and expand our organization by hiring new employees and expanding our use of consultants, we might be unable to implement successfully the tasks necessary to execute effectively on our planned research, development and commercialization activities and, accordingly, might not achieve our research, development and commercialization goals.
If we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize our product candidates or otherwise implement our business plan.
Our ability to compete in the highly competitive pharmaceuticals industry depends upon our ability to attract and retain highly qualified managerial, scientific, medical, sales and marketing and other personnel. We are highly dependent on our management and scientific personnel, including: our Chief Executive Officer and Chairman of the Board, Thomas G. Wiggans; our Chief Medical Officer and a member of our board of directors, Eugene A. Bauer, M.D.; our Chief Operating Officer and Chief Financial Officer, Andrew L. Guggenhime; our Executive Vice President, Product Development, Luis C. Peña; and our Vice President, Corporate Development and Strategy, Christopher M. Griffith. The loss of the services of any of these individuals could impede, delay or prevent the successful development of our product pipeline, completion of our planned clinical trials, commercialization of our product candidates or in-licensing or acquisition of new assets and could negatively impact our ability to successfully implement our business plan. If we lose the services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We do not maintain "key man" insurance policies on the lives of these individuals or the lives of any of our other employees. We employ all of our executive officers and key personnel on an at-will basis and their employment can be terminated by us or them at any time, for any reason and without notice. In order to retain valuable employees at our company, in addition to salary and cash incentives, we provide stock options that vest over time. The value to employees of stock options that vest over time will be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract offers from other companies.
We might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Francisco Bay Area where we are headquartered. We could have difficulty attracting experienced personnel to our company and may be required to expend
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significant financial resources in our employee recruitment and retention efforts. Many of the other pharmaceutical companies with whom we compete for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will harm our ability to implement our business strategy and achieve our business objectives.
In addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.
We currently have limited marketing capabilities and no sales organization. If we are unable to establish sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize our product candidates, if approved, or generate product revenue.
We currently have limited marketing capabilities and no sales organization. To commercialize our product candidates, if approved, in the United States, Canada, the European Union and other jurisdictions we seek to enter, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. Although our employees have experience in the marketing, sale and distribution of pharmaceutical products from prior employment at other companies, we as a company have no prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. To commercialize Cimzia, we also intend to leverage the commercial infrastructure of our partner UCB in selected areas such as managed care and patient access, which will provide us with resources and expertise in these areas that are greater than we could initially build ourselves. If we are unable to utilize UCB's resources and expertise in this way, the cost, time and complexity involved in developing our own commercial infrastructure will likely increase. We may choose to collaborate with additional third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates. The inability to successfully commercialize our product candidates, either on our own or through collaborations with one or more third parties, would harm our business, financial condition, operating results and prospects.
Our failure to successfully in-license, acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.
We intend to in-license, acquire, develop and market additional products and product candidates. Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements.
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The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.
We intend to in-license and acquire product candidates and may in-license and acquire commercial-stage products or engage in other strategic transactions, which could impact our liquidity, increase our expenses and present significant distractions to our management.
Our strategy is to in-license and acquire product candidates and we may in-license and acquire commercial-stage products or engage in other strategic transactions. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions entail numerous potential operational and financial risks, including:
Accordingly, there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business, financial condition, operating results and prospects. We have no current plan, commitment or obligation to enter into any transaction described above.
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The terms of our credit facility place restrictions on our operating and financial flexibility and if we fail to comply with the covenants and other obligations under our credit facility, the lenders may be able to accelerate amounts owed under the facility and may foreclose upon the assets securing our obligations.
At any time when we have the ability to obtain a term loan or we have outstanding borrowings under our loan and security agreement, as amended, with Square 1 Bank, we will be required to maintain certain deposit accounts with Square 1 Bank and we will be prohibited from engaging in significant business transactions without the prior consent of Square 1 Bank, including a change of control, the acquisition by us of another company, incurring additional indebtedness or engaging in new business activities other than those reasonably related or incidental to our current business activities. These restrictions could significantly limit our ability to respond to changes in our business or competitive activities or take advantage of business opportunities that may create value for our stockholders. As part of the credit facility, we granted to Square 1 Bank a first priority lien on all our assets other than our intellectual property, subject to certain limited exceptions. In addition, in the event of a default under this agreement, our repayment obligations may be accelerated in full and, in the event that we do not have sufficient capital to repay the amounts then owed, Square 1 Bank may foreclose on the assets securing our obligations under the credit facility. In addition, the terms of our loan and security agreement restrict our ability to pay dividends. Furthermore, if we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations.
Our operations to date have been primarily limited to researching and developing our product candidates and undertaking preclinical studies and clinical trials of our product candidates. We have not yet obtained regulatory approvals for any of our product candidates. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. From time to time, we may enter into collaboration agreements and license agreements with other companies that include development funding and significant upfront and milestone expenditures and payments, and we expect that amounts earned from or paid pursuant to these agreements will be a significant source of our capital expenditures and an important source of our revenue. Accordingly, our revenue and profitability will depend on development funding and the achievement of development and clinical milestones under the UCB agreement, as well as any potential future collaboration and license agreements and sales of our products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as determined by our board of directors, and recognize the cost as an expense over the employee's requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:
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Our operating results and liquidity needs could be negatively affected by market fluctuations and economic downturn.
Our operating results and liquidity could be negatively affected by economic conditions generally, both in the United States and elsewhere around the world. The market for discretionary medical products and procedures may be particularly vulnerable to unfavorable economic conditions. Some patients may consider certain of our product candidates to be discretionary, and if full reimbursement for such products is not available, demand for these products may be tied to the discretionary spending levels of our targeted patient populations. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our operating results and liquidity could be adversely affected by those factors in many ways, including weakening demand for certain of our products and making it more difficult for us to raise funds if necessary, and our stock price may
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decline. Additionally, although we plan to market our products primarily in the United States, our partners have extensive global operations, indirectly exposing us to risk.
The report of our independent registered public accounting firm on our 2013 consolidated financial statements contains an explanatory paragraph regarding going concern, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern.
Since inception, we have experienced recurring operating losses and negative cash flows and we expect to continue to generate operating losses and consume significant cash resources in the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern without additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2013 consolidated financial statements with respect to this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and we may have a more difficult time obtaining financing.
We have prepared our consolidated financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our 2013 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Our ability to utilize our net operating loss, or NOL, carryforwards and research and development income tax credit carryforwards may be limited.
As of December 31, 2013, we had NOL carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes of $43.8 million, $43.8 million and $3.0 million, respectively. If not utilized, the federal and California NOL carryforwards will begin expiring during the year ended December 31, 2031 and the Canadian NOL carryforwards will begin expiring during the year ended December 31, 2029. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership over a three year period, the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We believe that, with our initial public offering and other transactions that have occurred over the past three years, we may have triggered an "ownership change" limitation. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
We may be adversely affected by natural disasters and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters are located in Redwood City, California, near major earthquake and fire zones. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as enterprise financial systems, manufacturing resource planning or enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Our contract manufacturers' and suppliers' facilities are located in multiple locations, where other natural disasters or similar events, such as blizzards, tornadoes, fires, explosions or large-scale accidents or power outages, could severely disrupt our operations and have a material
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adverse effect on our business, financial condition, operating results and prospects. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the businesses of our partners, manufacturers or the economy as a whole. All of the aforementioned risks may be further increased if we do not implement a disaster recovery plan or our partners' or manufacturers' disaster recovery plans prove to be inadequate. To the extent that any of the above should result in delays in the regulatory approval, manufacture, distribution or commercialization of our product candidates, our business, financial condition, operating results and prospects would suffer.
Our business and operations would suffer in the event of failures in our internal computer systems.
Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing activities, development programs and our business operations. For example, the loss of manufacturing records or clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further commercialization and development of our products and product candidates could be delayed.
Risks Related to Our Intellectual Property
We may not be able to obtain or enforce patent rights or other intellectual property rights that cover our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
Our success with respect to our product candidates and technologies will depend in part on our ability to obtain and maintain patent protection in both the United States and other countries, to preserve our trade secrets and to prevent third parties from infringing upon our proprietary rights. Our ability to protect any of our product candidates from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable patents.
Our patent portfolio includes patents and patent applications in the United States and foreign jurisdictions where we believe there is a market opportunity for our products. The covered technology and the scope of coverage vary from country to country. For those countries where we do not have granted patents, we may not have any ability to prevent the unauthorized use of our technologies. Any patents that we may obtain may be narrow in scope and thus easily circumvented by competitors. Further, in countries where we do not have granted patents, third parties may be able to make, use or sell products identical to or substantially similar to, our product candidates.
The patent application process, also known as patent prosecution, is expensive and time-consuming, and we and our current or future licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our current licensors, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. If our current licensors, or any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or
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enforcement of any patent rights, such patent rights could be compromised and we might not be able to prevent third parties from making, using and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial condition and operating results.
Due to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any existing patents or any patents we might obtain or license may not cover our product candidates, or may not provide us with sufficient protection for our product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies. In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents have issued or will issue, we cannot guarantee that the claims of these patents are or will be held valid or enforceable by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us.
Competitors in the field of dermatologic therapeutics have created a substantial amount of prior art, including scientific publications, patents and patent applications. Our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Although we believe that our technology includes certain inventions that are unique and not duplicative of any prior art, we do not have outstanding issued patents covering all of the recent developments in our technology and we are unsure of the patent protection that we will be successful in obtaining, if any. Even if the patents do successfully issue, third parties may design around or challenge the validity, enforceability or scope of such issued patents or any other issued patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. In particular, due to the extensive prior art relating to anticholingeric agents to control hyperhidrosis and because DRM04 is a form of a generic anticholinergic agent, the patent protection available for DRM04 may not prevent competitors from developing and commercializing similar products. If the breadth or strength of protection provided by the patents we hold or pursue with respect to our product candidates is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our product candidates.
The laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property in foreign jurisdictions, our business prospects could be substantially harmed. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.
The degree of future protection of our proprietary rights is uncertain. Patent protection may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from generic versions of our product candidates. Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can market a product candidate under patent protection, which may particularly affect the profitability of our early-stage product candidates. The issued U.S. patents relating to DRM04 will expire between 2020 and 2029. The issued U.S. patents relating to Cimzia will expire between 2014 and 2024.
Proprietary trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how by entering into confidentiality agreements with third parties, and intellectual property protection agreements with certain employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. We also have limited control over the protection of trade secrets used by our suppliers, manufacturers and other third parties. There can be no assurance that binding agreements will not be breached, that we would have adequate remedies for any breach or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the scope and value of patents, once obtained.
For our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or USPTO, is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact the AIA will have on the operation of our business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business. An important change introduced by the AIA is that, as of March 16, 2013, the United States
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transitioned to a "first-to-file" system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.
Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors' ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement on infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have an adverse effect on our business.
If we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important to our business.
We are a party to certain license agreements that impose various diligence, milestone, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the respective licensors may have the right to terminate the license, in which event we may not be able to develop or market the affected product candidate. The loss of such rights could materially adversely affect our business, financial condition, operating results and prospects. For more information about these license arrangements, see "BusinessCollaborations and License Agreements."
If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in that litigation could have a material adverse effect on our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We cannot assure you that marketing and selling such candidates and using such technologies will not infringe existing or future patents. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields relating to our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that our product candidates, technologies or methods of delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents cover various drugs, biologics, drug delivery systems or their methods of use, and which of these patents may be valid and enforceable. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
In addition, there may be issued patents of third parties that are infringed or are alleged to be infringed by our product candidates or proprietary technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our own and in-licensed issued patents or our pending applications. Our competitors may have filed, and may in the future file, patent applications covering our product candidates or technology similar to ours. Any such patent application may have priority over our own and in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. If
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another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of in-licensed technology, the licensor may have to participate, in the United States, in an interference proceeding to determine priority of invention.
We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates or proprietary technologies infringe such third parties' intellectual property rights, including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act. These lawsuits could claim that there are existing patent rights for such drug and this type of litigation can be costly and could adversely affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents or the patents asserted against us are ultimately established as invalid. There is a risk that a court would decide that we are infringing the third party's patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party's patents.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. To date, no litigation asserting infringement claims has ever been brought against us. If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including:
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm our ability to raise additional funds or otherwise adversely affect our business, financial condition, operating results and prospects.
Because we rely on certain third-party licensors and partners, and will continue to do so in the future, if one of our licensors or partners is sued for infringing a third party's intellectual property rights, our business, financial condition, operating results and prospects could suffer in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed to indemnify certain third-party licensors and partners against claims of infringement caused by our proprietary technologies, and we have entered or may enter into cost-sharing agreements with some our licensors and partners that could require us to pay some of the costs of patent litigation brought against those third parties whether or not the alleged infringement is caused by our proprietary technologies. In certain instances, these cost-sharing agreements could also require us to assume greater responsibility for infringement damages than would be assumed just on the basis of our technology.
The occurrence of any of the foregoing could adversely affect our business, financial condition or operating results.
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We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time-consuming.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied. An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated, interpreted narrowly or amended such that they do not cover our product candidates. Moreover, such adverse determinations could put our patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope to cover our product candidates or to prevent others from marketing similar products.
Interference, derivation or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or potential partners. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or potential partners, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their former employers or their former or current customers.
As is common in the biotechnology and pharmaceutical industries, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our products and product candidates, many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims. Even if we are successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to our management team, not viewed favorably by investors and other third parties and may potentially result in an unfavorable outcome.
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Risks Related to this Offering, the Securities Markets and Ownership of Our Common Stock
There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline and you may not be able to resell your shares at or above the initial public offering price.
There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock might not develop upon the closing of this offering or, if it does develop, it might not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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In addition, the stock markets, and in particular The NASDAQ Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, any future testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with the fiscal year ending December 31, 2015. However, for as long as we are an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls
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could detect problems that our management's assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
We will incur significantly increased costs as a result of and devote substantial management time to operating as a public company.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and The NASDAQ Global Market, including the establishment and maintenance of effective disclosure and financial controls, changes in corporate governance practices and required filing of annual, quarterly and current reports with respect to our business and operating results. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. We will also need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and will need to establish an internal audit function. We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. This could also make it more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
Future sales of our common stock or securities convertible into our common stock may depress our stock price.
Sales of a substantial number of shares of our common stock or securities convertible into our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering and the concurrent private placement, we will have 22,688,220 outstanding shares of common stock, based on the number of shares outstanding as of September 1, 2014, that may be sold after the expiration of lock-up agreements at least 180 days after the date of this prospectus, unless held by an affiliate of ours, as more fully described in the section entitled "Shares Eligible for Future Sale." Moreover, we also intend to register all shares of common stock that we may issue after this offering under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described above and in the section entitled "Shares Eligible for Future SaleLock-Up/Market Standoff
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Agreements." If a large number of shares of our common stock or securities convertible into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our common stock and impede our ability to raise future capital. Citigroup Global Markets Inc. and Leerink Partners LLC, however, may permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the end of the lock-up period.
Our directors, executive officers and principal stockholders will continue to have substantial control over us after this offering and the concurrent private placement and could delay or prevent a change of corporate control.
Upon completion of this offering and the concurrent private placement, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, 68.3% of our outstanding common stock or 72.8% of our outstanding common stock if certain of our principal stockholders affiliated with our directors purchase all of the approximately $15.0 million of shares in common stock for which they have indicated an interest in purchasing in this offering, in each case, based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership could harm the market price of our common stock by:
See "Principal Stockholders" below for more information regarding the ownership of our outstanding stock by our executive officers, directors and holders of more than 5% of our common stock, together with their affiliates.
Delaware law and provisions in our restated certificate of incorporation and restated bylaws that will be in effect at the closing of our initial public offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.
Following the closing of our initial public offering, the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change of control by prohibiting us from engaging in a business combination with stockholders owning in excess of 15% of our outstanding voting stock for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and restated bylaws that will be in effect at the closing of our initial public offering will contain provisions that may make the acquisition of our company more difficult, including the following:
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These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing so as to cause us to take certain corporate actions you desire.
We qualify as an "emerging growth company" as defined in the JOBS Act and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We qualify as an "emerging growth company" as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including certain reduced financial statement reporting obligations, reduced disclosure obligations about our executive compensation arrangements, exemptions from the requirement that we solicit non-binding advisory votes on executive compensation or golden parachute arrangements and exemption from the auditor's attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." We will remain an "emerging growth company" until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenue of $1 billion or more, (2) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering, (3) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Because management has broad discretion as to the use of the net proceeds from this offering and the concurrent private placement, you may not agree with how we use them, and such proceeds may not be applied successfully.
Our management will have considerable discretion over the use of proceeds from this offering and the concurrent private placement. We currently intend to use the net proceeds from this offering and the concurrent private placement for external research and development expenses associated with the development of our Cimzia, DRM04 and DRM01 product candidates, with the balance primarily used to fund internal research and development expenses associated with all of our product candidates, working capital, capital expenditures and other general corporate purposes. In addition, a portion of the net proceeds may also be used to acquire or in-license, as applicable, product candidates, technologies, compounds, other assets or complementary businesses. However, our management will have broad discretion in the application of the net proceeds from this offering and the concurrent private placement and could spend the proceeds in ways that do not necessarily improve our operating
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results or enhance the value of our common stock, or that you otherwise do not agree with. You will be relying on the judgment of our management concerning these uses and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The failure of our management to apply these funds effectively could, among other things, result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.
If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share after giving effect to this offering and the concurrent private placement of $9.54 per share as of June 30, 2014, based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased shares of our capital stock. You will experience additional dilution upon exercise of the outstanding warrant and outstanding stock options and other equity awards that may be granted under our equity incentive plans, and when we otherwise issue additional shares of our common stock. For more information, see "Dilution."
The sale of shares to entities affiliated with UCB in the concurrent private placement will reduce the available public float for our shares.
Entities affiliated with UCB have agreed to purchase shares of our common stock with an aggregate purchase price of $7.5 million in the concurrent private placement at the price offered to the public in this offering, or 500,000 shares based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. As of September 1, 2014, entities affiliated with UCB beneficially owned approximately 8.4% of our outstanding capital stock. The sale of these shares to entities affiliated with UCB will not be registered in this offering. Following this offering and the concurrent private placement, the number of shares beneficially owned by entities affiliated with UCB after this offering will be as set forth in the beneficial ownership table in "Principal Stockholders" elsewhere in this prospectus. In addition, the concurrent private placement will reduce the available public float for our shares because these entities will be restricted from selling the shares pursuant to lock-up agreements they have entered into with the underwriters in this offering and pursuant to restrictions under applicable securities laws. As a result, the sale of shares in the concurrent private placement will reduce the liquidity of our common stock relative to what it would have been had these shares been sold in this offering and been purchased by investors that were not affiliated with us.
We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, the terms of our loan and security agreement currently restrict our ability to pay dividends. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future consolidated results of operations and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "potentially," "continue," "anticipate," "intend," "expect," "could," "would," "project," "plan" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our consolidated financial condition, consolidated results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the "Risk Factors" section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or revised expectations.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and our experience to date in, the markets for our products. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications that is included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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We estimate that the net proceeds from our sale of 5,350,000 shares of our common stock in this offering, excluding the proceeds from the concurrent private placement, at an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $71.2 million. If the underwriters' over-allotment option is exercised in full, we estimate that we will receive additional net proceeds of $11.2 million. A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by $5.0 million, assuming the number of shares offered by us remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease) the net proceeds to us from this offering by approximately $14.0 million, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions. We also expect to receive $7.5 million from the sale by us of shares of our common stock in the concurrent private placement, at the initial public offering price, for an aggregate amount to be raised by us in this offering and the concurrent private placement of $78.7 million, assuming an initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. For more information, please see "Certain Relationships and Related Party TransactionsConcurrent Private Placement."
The principal purposes of this offering are to create a public market for our common stock, obtain additional capital, facilitate our future access to the public equity markets and increase awareness of our company.
As of June 30, 2014, we had cash and cash equivalents of $9.8 million and received an additional $48.8 million in net proceeds from the sale of shares of our Series C convertible preferred stock in August 2014. We currently intend to use the net proceeds we receive from this offering and the concurrent private placement, together with our existing cash and cash equivalents, as follows:
Additionally, we may use a portion of the net proceeds from this offering and the concurrent private placement to expand our current business by in-licensing or acquiring, as the case may be, commercial products, product candidates, technologies, compounds, other assets or complementary businesses, using cash or shares of our common stock. However, we have no current plans, commitments or obligations to do so.
We believe that the net proceeds from this offering and the concurrent private placement, together with our existing cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for at least the next 12 months, including for the initiation of Phase 3 clinical trials for Cimzia and a Phase 2b clinical program for DRM01, and through the receipt of data from our ongoing Phase 2b
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clinical trial for DRM04. This expected use of the net proceeds from this offering and the concurrent private placement represents our intentions based upon our current plans and business conditions. We cannot specify with certainty all of the particular uses of the net proceeds that we will receive from this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures will depend on numerous factors, including the ongoing status of and results from clinical trials and other studies, as well as any strategic collaborations that we may enter into with third parties for our product candidates, any in-licensing transactions or acquisitions, any unforeseen cash needs and the performance of our investments.
We will have broad discretion over the uses of the net proceeds of this offering and the concurrent private placement and investors will be relying on the judgment of our management regarding the application of the proceeds. Pending these uses, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.
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We have never declared or paid cash dividends on our capital stock. We do not expect to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings, if any, will be used for the operation and growth of our business. Any future determination to declare cash dividends would be subject to the discretion of our board of directors and would depend upon various factors, including our results of operations, financial condition and capital requirements, restrictions that may be imposed by applicable law and our contracts and other factors deemed relevant by our board of directors. In addition, the terms of our loan and security agreement with Square 1 Bank currently restrict our ability to pay dividends.
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The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2014 on:
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You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock" and our consolidated financial statements and related notes included elsewhere in this prospectus.
|
As of June 30, 2014 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Actual | Pro Forma |
Pro Forma
As Adjusted(1) |
|||||||
|
(in thousands, except share and per share amounts)
(unaudited) |
|||||||||
Cash and cash equivalents |
$ | 9,774 | $ | 58,587 | $ | 137,270 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Convertible preferred stock warrant liability |
$ | 60 | $ | | $ | | ||||
| | | | | | | | | | |
Bank term loan, current and non-current |
1,931 | 1,931 | 1,931 | |||||||
| | | | | | | | | | |
Convertible preferred stock, $0.001 par value: 10,700,619 shares authorized, 10,133,665 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted |
64,588 | | | |||||||
| | | | | | | | | | |
Stockholders' deficit |
||||||||||
Preferred stock, $0.001 par value: no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted |
| | | |||||||
Common stock, $0.001 par value: 23,965,517 shares authorized, 907,514 shares issued and outstanding, actual; 500,000,000 shares authorized, 16,338,220 shares issued and outstanding, pro forma; 500,000,000 shares authorized, 22,188,220 shares issued and outstanding, pro forma as adjusted |
5 | 16 | 22 | |||||||
Additional paid-in capital |
1,283 | 114,733 | 193,410 | |||||||
Accumulated deficit |
(68,075 | ) | (68,075 | ) | (68,075 | ) | ||||
| | | | | | | | | | |
Total stockholders' (deficit) equity |
(66,787 | ) | 46,674 | 125,357 | ||||||
| | | | | | | | | | |
Total capitalization |
$ | (208 | ) | $ | 48,605 | $ | 127,288 | |||
| | | | | | | | | | |
| | | | | | | | | | |
The number of shares of our common stock to be outstanding following this offering and the concurrent private placement is based on 11,041,179 shares of our common stock outstanding as of June 30, 2014. This number assumes the conversion of all outstanding shares of our convertible
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preferred stock, which will occur automatically in connection with the completion of this offering, and excludes:
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If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after our initial public offering and the concurrent private placement.
As of June 30, 2014, our pro forma net tangible book value was $42.4 million, or $2.59 per share of common stock. Pro forma net tangible book value per share represents the amount of our tangible assets less our liabilities divided by the total number of shares of our common stock outstanding, after giving effect (1) the issuance of 5,297,041 shares of our Series C convertible preferred stock that were issued after June 30, 2014 and receipt of the related net proceeds of $48.8 million, (2) the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock effective immediately upon the completion of this offering, (3) the automatic conversion of an outstanding warrant exercisable for 11,276 shares of our Series B convertible preferred stock into a warrant exercisable for 11,276 shares of common stock in connection with this offering and (4) the filing of our restated certificate of incorporation and the effectiveness of our restated bylaws, as if our restated certificate of incorporation was filed and our restated bylaws had become effective on June 30, 2014.
Our pro forma as adjusted net tangible book value as of June 30, 2014 was $121.1 million, or $5.46 per share of common stock. Pro forma as adjusted net tangible book value per share reflects the pro forma adjustments described above and the sale by us of 5,850,000 shares of our common stock in this offering and the concurrent private placement, at our initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. This represents an immediate increase in pro forma as adjusted net tangible book value of $2.87 per share to existing stockholders and immediate dilution of $9.54 per share to new investors purchasing shares in the offering and the concurrent private placement.
The following table illustrates this per share dilution to new investors:
Assumed initial public offering price per share |
$ | 15.00 | |||||
Pro forma net tangible book value per share as of June 30, 2014 |
$ | 2.59 | |||||
Increase in pro forma net tangible book value per share attributable to new investors in this offering and the concurrent private placement |
2.87 | ||||||
| | | | | | | |
Pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement |
5.46 | ||||||
| | | | | | | |
Dilution per share to new investors in this offering and the concurrent private placement |
$ | 9.54 | |||||
| | | | | | | |
| | | | | | | |
A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement by $0.23 per share or $(0.24) per share, respectively, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease) the dilution to new investors by $0.40 per share or $(0.36) per share, respectively, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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If the underwriters exercise their over-allotment option in full, our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement would be $5.75 per share, and the dilution in pro forma net tangible book value per share to new investors in this offering and the concurrent private placement would be $9.25 per share of common stock.
The following table summarizes, on a pro forma as adjusted basis as of June 30, 2014, the differences between the number of shares of common stock purchased from us by existing stockholders, by investors in the concurrent private placement and by new investors participating in this offering, the total cash consideration and the average price per share paid to us by existing stockholders, by investors in the concurrent private placement and by new investors purchasing shares in this offering, at the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses:
|
Shares Purchased | Total Consideration |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average
Price Per Share |
|||||||||||||||
|
Number | Percent | Amount | Percent | ||||||||||||
Existing stockholders |
16,338,220 | 73.6 | % | $ | 115,014,257 | 56.7 | % | $ | 7.04 | |||||||
Concurrent private placement investors |
500,000 | 2.3 | 7,500,000 | 3.7 | 15.0 | |||||||||||
New public investors |
5,350,000 | 24.1 | 80,250,000 | 39.6 | 15.0 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
22,188,220 | 100 | % | $ | 202,764,257 | 100 | % | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share of our common stock, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, would increase (decrease) the total consideration paid by new investors by $5.4 million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions.
If the underwriters exercise their over-allotment option in full, the number of shares of common stock held by existing stockholders will be reduced to 71.1% of the total number of shares of common stock to be outstanding after this offering and the concurrent private placement, and the number of shares of common stock held by investors participating in this offering and the concurrent private placement will be further increased to 28.9% of the total number of shares of common stock to be outstanding after this offering and the concurrent private placement.
Certain of our existing stockholders affiliated with our directors have indicated an interest in purchasing up to $15.0 million of shares of our common stock in this offering at the initial public offering price. As these indications of interest are non-binding, the foregoing discussion and table do not reflect the potential purchase of any shares in this offering by our existing stockholders.
The table and discussion above are based on 11,041,179 shares of our common stock outstanding as of June 30, 2014. This number assumes the conversion of all outstanding shares of our convertible preferred stock, which will occur automatically in connection with the completion of this offering, and excludes:
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72
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
We derived our selected consolidated statements of operations data for the years ended December 31, 2012 and 2013 and our selected consolidated balance sheet data as of December 31, 2012 and 2013 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our selected consolidated statements of operations data for the six months ended June 30, 2013 and 2014 and our selected consolidated balance sheet data as of June 30, 2014 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair presentation of our consolidated financial position as of June 30, 2014 and our consolidated results of operations for the six months ended June 30, 2013 and 2014. Our historical results are not necessarily indicative of the results to be expected in the future, and the results for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year or any other period. You should read the following selected consolidated financial data in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and is qualified in its entirety by our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
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|
As of
December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As of
June 30, 2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
(in thousands, unaudited)
|
|||||||||
Consolidated Balance Sheet Data: |
||||||||||
Cash and cash equivalents |
$ | 7,872 | $ | 22,144 | $ | 9,774 | ||||
Working capital |
3,647 | 17,973 | 3,921 | |||||||
Total assets |
12,514 | 26,871 | 16,530 | |||||||
Convertible preferred stock warrant liability |
| 61 | 60 | |||||||
Bank term loan, current and non-current |
| 1,919 | 1,931 | |||||||
Convertible preferred stock |
35,089 | 59,588 | 64,588 | |||||||
Additional paid-in capital |
674 | 966 | 1,283 | |||||||
Accumulated deficit |
(28,424 | ) | (50,774 | ) | (68,075 | ) | ||||
Total stockholders' (deficit) equity |
(27,745 | ) | (49,803 | ) | (66,787 | ) |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those forward-looking statements. Factors that could cause or contribute to such differences include those identified below and those discussed in the section entitled "Risk Factors" included elsewhere in this prospectus.
Overview
We are a specialty biopharmaceutical company focused on bringing innovative and differentiated medical dermatology products to dermatologists and their patients. Our management team has extensive experience in product development and commercialization, having served in leadership roles at several leading dermatology companies. Our strategy is to leverage this experience to in-license, acquire, develop and commercialize products that we believe can be successful in the dermatology marketplace. Our portfolio of five product candidates targets significant market opportunities and includes three late-stage product candidates, Cimzia (certolizumab pegol), which we are developing in collaboration with UCB Pharma S.A., for the treatment of moderate-to-severe plaque psoriasis, DRM04, which we are developing for the treatment of hyperhidrosis, or excessive sweating, and DRM01, which we are developing for the treatment of acne.
Since our founding in 2010, we have executed three significant transactions resulting in a portfolio of five product candidates. In August 2011, we acquired Valocor Therapeutics, Inc., which gave us rights to a portfolio of intellectual property and product candidates to treat acne and inflammatory skin diseases. In April 2013, we entered into agreements with Rose U LLC and Stiefel Laboratories, Inc., a GlaxoSmithKline LLC Company, or Stiefel, to obtain rights to intellectual property related to DRM04 for the treatment of hyperhidrosis. In March 2014, we entered into an agreement to collaborate with UCB to develop and commercialize Cimzia in dermatology.
Our three late-stage product candidates are:
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by blocking the action of acetylcholine, a molecule that transmits signals within the nervous system that are responsible for a range of bodily functions, including the activation of sweat glands. DRM04 is a topical formulation of a novel form of an anticholinergic agent that has been approved for systemic administration in other indications, and it is designed to inhibit sweat production by blocking the activation of sweat glands following topical administration. Two randomized, double-blind, vehicle-controlled Phase 2 clinical trials, including a 198-patient, multi-center Phase 2b clinical trial and a 38-patient Phase 2a clinical trial, have demonstrated significant reductions in the signs and symptoms of primary axillary, or underarm, hyperhidrosis in patients treated with a topical formulation of the anticholinergic agent that has been approved for systemic administration in other indications, which we call the topical formulation of the reference agent. In addition, we are currently conducting a Phase 2b clinical trial in patients with primary axillary hyperhidrosis in which we are comparing DRM04 to the topical formulation of the reference agent. We expect data from this trial in the first half of 2015. If successful, we intend to commence a Phase 3 clinical program, which would include one or more Phase 3 clinical trials, in the second half of 2015.
In addition, we have two early-stage programs in preclinical development:
Since our inception, we have devoted substantially all of our efforts to developing our product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. We do not have any approved products and have never generated any revenue from product sales or otherwise. We have financed our operations primarily through the sale of equity securities and convertible debt securities, from which we raised $64.6 million of net cash from our inception through June 30, 2014 and raised an additional $48.8 million of net cash in August 2014.
We have never been profitable and, as of June 30, 2014, we had an accumulated deficit of $68.1 million. We incurred net losses of $20.3 million and $22.4 million in the years ended December 31, 2012 and 2013, respectively, and $11.0 million and $17.3 million for the six months ended June 30, 2013 and 2014, respectively. We expect to continue to incur net losses for the foreseeable future as we advance our current and potential additional product candidates through clinical development, seek regulatory approval for them and prepare for and proceed to commercialization. We expect to incur significant commercialization costs in advance of any of our product candidates receiving regulatory approval. As a result, we will need substantial additional funding to support our operating activities. Adequate funding may not be available to us on acceptable terms, or at all. We currently anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. Our failure to obtain sufficient funds on acceptable terms as and when needed could have a material adverse effect on our business, results of operations and financial condition.
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Financial Operations Overview
Revenue
To date, we have not generated any revenue. Under our development and commercialization agreement with UCB, or the UCB agreement, we may generate revenue from development-, regulatory- and sales-based milestone payments and royalties. Under our Right of First Negotiation Agreement with Maruho Co., Ltd., or Maruho, if we enter into an exclusive license to develop and commercialize any of our product candidates with Maruho, we may generate license revenue. Other than the revenue we may generate in connection with these agreements, we do not expect to generate any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into other collaborative agreements with third parties.
Research and Development Expenses
We expense both internal and external research and development expenses to operations as they are incurred. We track the external research and development costs incurred for each of our product candidates. We do not track our internal research and development costs by product candidate, as these costs are typically spread across multiple product candidates.
External research and development expenses consist primarily of costs incurred for the development of our product candidates and include:
Internal research and development costs include:
During the year ended December 31, 2012, development work was ongoing for DRM01, DRM02 and DRM05. During this period, external costs associated with DRM05 totaled $8.2 million, or 48% of our total research and development expenses, and external costs associated with DRM01 and DRM02, combined, totaled $4.9 million, or 29% of our total research and development expenses.
During the year ended December 31, 2013, external costs associated with DRM05 totaled $3.7 million, or 21% of our total research and development expenses, a decrease of $4.5 million from the prior year. During the year ended December 31, 2013, external costs associated with DRM01 and DRM02, combined, totaled $5.7 million, or 32% of our total research and development expenses, an increase of $0.8 million from the prior year. This increase was due to both product candidates moving forward to Phase 2a clinical trials. The addition of our DRM04 product candidate in April 2013, which we obtained through our licensing agreement with Rose U, and subsequent research and development activities, resulted in external costs of $3.8 million, or 21% of our total research and development expenses, during the year ended December 31, 2013.
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For the six months ended June 30, 2013, external costs associated with DRM05 were $2.9 million, or 33% of our total research and development expenses. External costs associated with DRM01 and DRM02, combined, were $3.0 million, or 34% of our total research and development expenses.
For the six months ended June 30, 2014, external costs associated with DRM04 were $5.8 million, or 43% of our total research and development expenses, reflecting the advancement of DRM04 into Phase 2b clinical trials. Total external costs associated with DRM01 and DRM02, combined, were $3.8 million, or 27% of our total research and development expenses, and reflected the continuation of the Phase 2a clinical trials.
For each of the above periods, the balance of our research and development expenses were comprised primarily of internal costs.
We expect that our future research and development efforts will be focused on our late-stage clinical programs, Cimzia, DRM04 and DRM01. UCB filed an IND for Cimzia in September 2014, and we and UCB intend to commence Phase 3 clinical trials in the first half of 2015. For DRM04, we are currently conducting a Phase 2b clinical trial and expect data from this trial in the first half of 2015. If successful, we intend to initiate a Phase 3 clinical program in the second half of 2015. For DRM01, we have completed a Phase 2a clinical trial that demonstrated significant reductions in the signs and symptoms of acne. Based on the results of this clinical trial, we intend to file an IND and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015. We also expect to continue to evaluate our early-stage product candidates, DRM02 and DRM05, to determine which, if any, we would advance into later stages of development.
We expect our research and development expenses to increase substantially in the future as we continue development of our product candidates. In particular, we expect to incur substantial research and development expenses associated with Cimzia beginning in the second half of 2014 to prepare for Phase 3 clinical trials that we intend to initiate in the first half of 2015.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation and travel expenses, for personnel in our executive, finance, corporate development and other administrative functions. Other general and administrative expenses include allocated depreciation and facility-related costs, legal costs of pursuing patent protection of our intellectual property, and professional services fees for auditing, tax and general legal services.
We expect our general and administrative expenses to increase substantially in the future as we expand our operating activities and prepare for potential commercialization of our product candidates, increase our headcount, and support our operations as a public company, including increased expenses related to legal, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors' and officers' liability insurance premiums and investor relations activities.
Interest and Other Income (Expense), Net
Interest income consists primarily of interest received or earned on our cash and cash equivalents balances. Other income (expense) primarily includes gains and losses from the remeasurement of our convertible preferred stock warrant liability and gains and losses on our foreign currency transactions.
We will continue to record adjustments to the estimated fair value of our convertible preferred stock warrant liability until such time as the instrument is exercised, expires or converts into a warrant to purchase shares of our common stock. At that time, our convertible preferred stock warrant liability will be reclassified to additional paid-in capital, a component of stockholders' (deficit) equity, and we
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will no longer record any related periodic fair value adjustments. See also "Critical Accounting Policies and Significant EstimatesEstimated Fair Value of Convertible Preferred Stock Warrant."
Interest Expense
Interest expense consists of cash and non-cash interest costs related to our bank term loan. The non-cash interest costs consist of the amortization of the fair value of the warrant that was issued to the lender in connection with our bank term loan, with the initial fair value of the warrant being amortized to interest expense over the term of the governing agreement.
Results of Operations
Comparison of the Six Months Ended June 30, 2013 and 2014
|
Six Months
Ended June 30, |
Change | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2014 | $ | % | |||||||||
|
(Unaudited)
|
|
|
||||||||||
|
(in thousands, except percentages)
|
||||||||||||
Operating expenses: |
|||||||||||||
Research and development |
$ | 8,778 | $ | 13,648 | $ | 4,870 | 55 | % | |||||
General and administrative |
2,205 | 3,552 | 1,347 | 61 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
10,983 | 17,200 | 6,217 | 57 | |||||||||
| | | | | | | | | | | | | |
Loss from operations |
(10,983 | ) | (17,200 | ) | (6,217 | ) | 57 | ||||||
Interest and other income (expense), net |
12 | (34 | ) | (46 | ) | 383 | |||||||
Interest expense |
| (67 | ) | (67 | ) | * | |||||||
| | | | | | | | | | | | | |
Net loss |
$ | (10,971 | ) | $ | (17,301 | ) | $ | (6,330 | ) | 58 | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Research and Development. Research and development expenses increased $4.9 million, or 55%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. This increase was due to a $5.2 million increase in external costs related to our DRM04 product candidate, a $1.2 million increase in internal costs related primarily to headcount growth and additional consulting fees and a $0.7 million increase in external costs related to our DRM01 and DRM02 product candidates. These increases in research and development expenses were partially offset by a $2.3 million decrease in external costs associated with our DRM05 product candidate.
General and Administrative. General and administrative expenses increased $1.3 million, or 61%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. This increase reflects $0.8 million of legal and consulting services incurred in the evaluation, due diligence and negotiations associated with the UCB collaboration transaction in the first quarter of 2014, a $0.6 million increase in personnel expenses and a $0.4 million increase in audit and accounting consultation expenses, which were partially offset by a transaction advisory fee of $0.5 million incurred in the first quarter of 2013 in connection with the agreement we entered into with Maruho.
Interest and Other Income (Expense), Net. Amounts recorded in interest and other income (expense), net for both periods were primarily related to foreign currency exchange gains relating to our Canadian subsidiary and payments made to non-U.S. third-party service providers.
Interest Expense. The increase in interest expense was due to interest incurred on borrowings of $2.0 million under the bank term loan we entered into in December 2013.
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Comparison of the Years Ended December 31, 2012 and 2013
|
Year Ended
December 31, |
Change | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | $ | % | |||||||||
|
(in thousands, except percentages)
|
||||||||||||
Operating expenses: |
|||||||||||||
Research and development |
$ | 17,055 | $ | 17,937 | $ | 882 | 5 | % | |||||
General and administrative |
3,148 | 4,366 | 1,218 | 39 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
20,203 | 22,303 | 2,100 | 10 | |||||||||
| | | | | | | | | | | | | |
Loss from operations |
(20,203 | ) | (22,303 | ) | (2,100 | ) | 10 | ||||||
Interest and other income (expense), net |
(51 | ) | (38 | ) | 13 | (25 | ) | ||||||
Interest expense |
| (9 | ) | (9 | ) | * | |||||||
| | | | | | | | | | | | | |
Net loss |
$ | (20,254 | ) | $ | (22,350 | ) | $ | (2,096 | ) | 10 | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Research and Development. Research and development expenses increased $0.9 million, or 5%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. This increase was due to increases in external costs of $3.6 million related to our DRM04 product candidate and $0.8 million related to our DRM01 and DRM02 product candidates, and internal costs of $1.0 million, partially offset by a decrease in external costs of $4.5 million related to our DRM05 product candidate.
The increase in external costs of $3.6 million related to our DRM04 product candidate was primarily due to our preparation for, and commencement of, one Phase 2b clinical trial that we initiated for this product candidate in the fourth quarter of 2013. The increase in external costs of $0.8 million related to our DRM01 and DRM02 product candidates was primarily due to our commencement of Phase 2a clinical trials in 2013. The increase in internal costs of $1.0 million was primarily due to an increase in headcount. The decrease in external costs of $4.5 million related to our DRM05 product candidate was primarily due to the completion of clinical trials in mid-2013, a decrease in costs associated with the development and manufacture of the device used as part of the photodynamic therapy, and $1.0 million in milestone-related expenses related to a licensing agreement with QLT, Inc. that were incurred in 2012 but not in 2013.
General and Administrative. General and administrative expenses increased $1.2 million, or 39%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. This increase was primarily due to the transaction advisory fee of $0.5 million incurred in the first quarter of 2013 related to the Maruho agreement we entered into in March 2013, professional services fees of $0.5 million related to higher audit and legal fees, and increases in consulting and legal expenses of $0.2 million related to the evaluation, due diligence and negotiations associated with the UCB agreement.
Interest and Other Income (Expense), Net. The $13,000 decrease in interest and other income (expense), net for the year ended December 31, 2013 compared to the year ended December 31, 2012 was due primarily to lower foreign currency exchange losses incurred by us in 2013 relating to our Canadian subsidiary and lower payments made to our non-U.S. third-party service providers.
Interest Expense. The increase in interest expense was due to interest incurred on borrowings of $2.0 million under the bank term loan we entered into in December 2013.
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Liquidity and Capital Resources
Since our inception through June 30, 2014, we have financed our operations primarily with $64.6 million in net proceeds from the issuance and sale of equity securities and convertible debt securities. In addition, we received $10.0 million related to our agreement with Maruho entered into in March 2013, and $2.0 million in bank financing under a $7.5 million bank loan agreement entered into in December 2013. As of June 30, 2014, we had $9.8 million of cash and cash equivalents. Our cash and cash equivalents are held in a variety of interest-bearing instruments, including money market accounts and obligations of U.S. government agencies. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.
Our primary use of cash is to fund our operating expenses, which consist principally of research and development expenditures. As of March 31, 2014, we had an accumulated deficit of $59.3 million and there was substantial doubt about our ability to continue as a going concern if we did not secure additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2013 consolidated financial statements with respect to this uncertainty.
As of June 30, 2014, we had an accumulated deficit of $68.1 million. In August 2014, we issued 5,297,041 shares of Series C convertible preferred stock at a price of $9.628 per share for aggregate net proceeds of $48.8 million. In addition, we are entitled to borrow $5.5 million under our Term Loan B as more fully described in "Loan and Security Agreement." We expect to incur additional losses in the future as we conduct research and development and pre-commercialization activities, and potential commercialization and marketing activities, and to support the administrative and reporting requirements of a public company. Therefore, we will need to raise additional capital to fund our operations. We cannot ensure that additional financing will be available to us in the amounts we need or that such financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or other aspects of our business plan. We also may be required to relinquish, license or otherwise dispose of rights to products or product candidates that we would otherwise seek to commercialize or develop ourselves on terms that are less favorable than might otherwise be available.
We believe that our estimated net proceeds from this offering and the concurrent private placement of our common stock, together with our existing cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
Cash Flows
The following table shows a summary of our cash flows for each of the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (in thousands):
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Net cash (used in) provided by: |
|||||||||||||
Operating activities |
$ | (17,253 | ) | $ | (12,157 | ) | $ | (2,388 | ) | $ | (17,340 | ) | |
Investing activities |
(36 | ) | (50 | ) | (24 | ) | (37 | ) | |||||
Financing activities |
12,064 | 26,479 | 24,499 | 5,007 | |||||||||
| | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents |
$ | (5,225 | ) | $ | 14,272 | $ | 22,087 | $ | (12,370 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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Operating Activities. Net cash used in operating activities was $2.4 million for the six months ended June 30, 2013 and consisted primarily of our net loss of $11.0 million and a $1.5 million decrease in accounts payable and accrued liabilities primarily due to higher disbursements, partially offset by a $10 million increase in deferred revenue related to our agreement with Maruho. Net cash used in operating activities was $17.3 million for the six months ended June 30, 2014 and consisted primarily of our net loss of $17.3 million and a $0.6 million decrease in accounts payable due to higher disbursements, partially offset by a $0.9 million increase in accrued liabilities related primarily to higher research and development accruals.
Net cash used in operating activities was $17.3 million for the year ended December 31, 2012 and consisted primarily of our net loss of $20.3 million, partially offset by increases in accounts payable and accrued liabilities of $1.2 million and $1.5 million, respectively. The increases in accounts payable and accrued liabilities were primarily due to higher clinical trial expenses. Net cash used in operating activities was $12.2 million for the year ended December 31, 2013 and consisted primarily of our net loss of $22.4 million, partially offset by a $10.0 million increase in deferred revenue related to our agreement with Maruho.
Investing Activities. Net cash used in investing activities for the six months ended June 30, 2013 and 2014 was $24,000 and $37,000, respectively. The amounts were for purchases of property and equipment.
Net cash used in investing activities for the years ended December 31, 2012 and 2013 was $36,000 and $50,000, respectively. The amounts were for purchases of property and equipment.
Financing Activities. Net cash provided by financing activities was $24.5 million for the six months ended June 30, 2013 and consisted of the net proceeds from the sale of our Series B convertible preferred stock in March 2013. Net cash provided by financing activities was $5.0 million for the six months ended June 30, 2014 and related primarily to the net proceeds from the sale of shares of our Series B convertible preferred stock in April 2014.
Net cash provided by financing activities was $12.1 million for the year ended December 31, 2012 and consisted of the net proceeds from the sale of our Series A convertible preferred stock in August 2012. Net cash provided by financing activities was $26.5 million for the year ended December 31, 2013 and consisted primarily of the net proceeds of $24.5 million from the sale of our Series B convertible preferred stock in March 2013 and borrowings of $2.0 million under our bank term loan.
Operating and Capital Expenditure Requirements
We have incurred losses since our inception. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. Additionally, as a public company, we will incur significant audit, legal and other expenses that we did not incur as a private company. We believe that our estimated net proceeds from this offering and the concurrent private placement of our common stock, together with our existing cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we will need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. We cannot assure you that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.
Please see "Risk Factors" for additional risks associated with our substantial capital requirements.
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Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of December 31, 2013:
|
Payments Due by Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
|
Less than
One Year |
1 - 3 Years | 3 - 5 Years |
More than
5 Years |
|||||||||||
|
(in thousands)
|
|||||||||||||||
Debt obligations(1) |
$ | 2,055 | $ | 133 | $ | 1,600 | $ | 322 | $ | | ||||||
Interest expense payments(2) |
255 | 123 | 129 | 3 | | |||||||||||
Operating lease obligations(3) |
168 | 168 | | | | |||||||||||
| | | | | | | | | | | | | | | | |
Total contractual obligations |
$ | 2,478 | $ | 424 | $ | 1,729 | $ | 325 | $ | | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
In March 2014 and May 2014, we entered into sublease agreements for additional office space at our current location in Redwood City, California. The sublease agreements terminate in November 2014 and the total estimated cost for this space is $165,000 over the full term of the subleases. These amounts are not included in the table above.
We entered into a lease agreement in July 2014 and an amendment in September 2014 for a facility totaling approximately 18,651 square feet in Menlo Park, California and intend to relocate our corporate headquarters to this facility in the fourth quarter of 2014. The term of the lease commences December 2014 and terminates November 2019. The total estimated lease payments for this facility over the five-year term of the lease are approximately $8 million. This amount is not included in the table above.
In September 2014, we entered into an amendment to the bank term loan agreement, which provided for the following revisions: (1) the interest only end date was extended from October 2014 to June 2016 for Term Loan A and from December 2014 to June 2016 for Term Loan B; (2) the maturity date was extended from April 2017 to December 2018 for Term Loan A and from June 2017 to December 2018 for Term Loan B; (3) the date through which the Term Loan B is available to us was extended from October 2014 to September 2015; and (4) the fee that we are required to pay the lender upon the final repayment of the amounts borrowed under Term Loan A was increased from 2.75% to 6.00% of the original principal amount borrowed. These revisions are not included in the table above.
Pursuant to the UCB agreement, we are responsible for paying all development costs specified under the UCB agreement and incurred in connection with the development plan up to a specified amount greater than $75.0 million and less than $95.0 million, plus our internal development costs. Any development costs in excess of this amount or for any required clinical trials in pediatric patients will be shared equally. Development costs for any EMA-specific post-approval studies will be borne solely by UCB. UCB is obligated to pay us up to an aggregate of $36.0 million if certain development milestones are met, and up to an additional aggregate of $13.5 million upon the grant of regulatory approval, including pricing and reimbursement approval, in certain European countries. These amounts are not included in the table above.
In addition to the amounts set forth in the table above, we have certain obligations under licensing agreements with third parties contingent upon achieving various development, regulatory and commercial milestones. Pursuant to our license agreement with Rose U and related agreement with
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Stiefel with respect to our DRM04 product candidate, we are required to pay additional amounts totaling up to $4.6 million upon the achievement of specified development, commercialization and other milestones under these agreements. In addition, we are obligated to pay Rose U low-to-mid single-digit royalties on net product sales and low double-digit royalties on sublicense fees and certain milestone, royalty and other contingent payments received from sublicensees, to the extent such amounts are in excess of the milestone and royalty payments we are obligated to pay Rose U directly upon the events or sales triggering such payments. In the future, we may owe milestone- and royalty-based payments under our license agreements for two of our early-stage product candidates, DRM02 and DRM05.
Loan and Security Agreement
In December 2013, we entered into a loan and security agreement, or the Loan Agreement, with Square 1 Bank, or the Bank, which provides for two term loans available to us of $2.0 million and $5.5 million, respectively. In September 2014, we entered into an amendment to the Loan Agreement. Borrowings under the term loans bear interest at the greater of: (1) 5.10% above the treasury rate in effect on the date that a term loan is funded; or (2) 5.50%, which rate will be fixed on the date of funding of the term loan. We may prepay borrowings without paying a penalty or premium.
On the closing date of the Loan Agreement, we borrowed $2.0 million under the first term loan, or Term Loan A. Borrowings under Term Loan A mature in December 19, 2018 and are secured by all of our assets other than our intellectual property, subject to certain limited exceptions, and bear interest at a rate of 5.77% per annum. Borrowings under Term Loan A are to be repaid over a period of 60 months as follows: (1) commencing on January 11, 2014, 30 monthly payments of interest only; and (2) commencing on June 19, 2016, 30 equal monthly payments of $66,666.67, plus interest. Upon final repayment of Term Loan A, we are required to pay the Bank a fee of $120,000. We are accruing this fee monthly over the loan term on a straight-line basis and are recording it as interest expense in our consolidated statement of operations.
The second term loan, or Term Loan B, of $5.5 million is available to us any time between the date on which our board of directors determines that we have achieved certain positive top-line Phase 2 clinical trial results and September 30, 2015. As of June 30, 2014, we had no borrowings under Term Loan B and were not entitled to borrow funds under Term Loan B. Subsequent to June 30, 2014, our board of directors has determined that we achieved positive top-line Phase 2 clinical trial results from two of our Phase 2 programs, which satisfied the condition to our ability to borrow funds under Term Loan B. As a result, we are now entitled to borrow funds under Term Loan B. Borrowings, if any, under Term Loan B would be repaid over a period of months as follows: (1) commencing on the 11 th day following the date of Term Loan B, monthly payments of interest only to the earlier of (a) June 19, 2016 or (b) six months following the date of Term Loan B; and (2) commencing on the last day of the month immediately following the interest only end date, equal monthly payments of principal, plus interest, to the maturity date of December 19, 2018. Upon final repayment of Term Loan B, we would be required to pay the Bank a fee equal to 2.75% of the original principal amount borrowed under Term Loan B.
The Loan Agreement is subject to certain representations and warranties, certain affirmative and negative covenants, certain conditions and events of default that are customarily required for similar financings. As of December 31, 2013 and June 30, 2014, the Company was in compliance with all of the covenants.
In connection with the Loan Agreement, we agreed to issue the Bank a warrant to purchase up to 17,805 shares of our Series B convertible preferred stock, with an exercise price of $8.4245 per share. The number of shares issuable pursuant to the warrant at any date is 8,902 shares plus 1% of the amount drawn through that date under the Loan Agreement divided by 8.4245. Following the entry into the Loan Agreement and the concurrent funding of Term Loan A, and as of December 31, 2013
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and June 30, 2014, the warrant was exercisable for 11,276 shares of Series B convertible preferred stock, consisting of the 8,902 initial shares related to the Loan Agreement and an additional 2,374 shares related to the draw-down of Term Loan A.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
JOBS Act
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. The JOBS Act permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies and thereby allows us to delay the adoption of those standards until those standards would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign exchange sensitivities as follows:
Interest Rate Risk
As of June 30, 2014, we had cash and cash equivalents of $9.8 million, which consisted of bank deposits, money market funds and obligations of U.S. government agencies. These interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant. All of our outstanding debt obligations carry fixed interest rates.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.
Foreign Exchange Risk
Our operations are primarily conducted in the United States using the U.S. dollar. However, we conduct operations in Canada, primarily to fund our Canadian subsidiary, and engage in contracts with third-party clinical and regulatory suppliers that are denominated in currencies other than U.S. dollars, whereby settlement of our obligations for these activities are denominated in the local currency. Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction with the resulting assets and liabilities being translated into the U.S. dollar at exchange rates prevailing at the balance sheet date. The resulting foreign exchange (gains) losses, which were $57,000, $43,000, $(7,000) and $40,000 for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014, respectively, are included in interest and other income (expense), net in our consolidated statements of operations and comprehensive loss. We do not use currency forward exchange contracts to offset the related effect on the underlying transactions denominated in a foreign currency.
A hypothetical 10% change in foreign exchange rates during any of the preceding periods presented would have had an insignificant effect on our consolidated financial statements.
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Critical Accounting Polices and Significant Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from management's estimates. To the extent that there are material differences between these estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations and cash flows will be affected.
While our significant accounting policies are described in the notes to our consolidated financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported consolidated financial results, as these policies relate to the more significant areas involving management's judgments and estimates.
Accrued Research and Development Expenses
We record accruals for estimated costs of research, preclinical and clinical studies, and drug and process manufacturing development, which are a significant component of our research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers, including CROs. Our contracts with CROs generally include pass-through fees for regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with the respective agreements. In the event we make advance payments, the payments are recorded as a prepaid asset and recognized as the services are performed. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.
We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. To date, there have been no material differences from our accrued estimated expenses to the actual expenses. However, variations in the assumptions used to estimate accruals, including variations in the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from our estimates, resulting in adjustments to research and development expenses in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our financial condition and results of operations.
Common Stock Valuation and Stock-Based Compensation
We maintain an equity incentive plan to provide long-term incentive for employees, officers, directors, consultants and advisors. The plan allows for the issuance of incentive stock options to employees and nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to employees, officers, directors, consultants and advisors.
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We are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards made to employees and directors, including employee stock options. We recognize this expense over the requisite service period. In addition, we recognize stock-based compensation expense in the consolidated statements of operations and comprehensive loss based on awards expected to vest and, therefore, the amount of expense has been reduced for estimated forfeitures. We use the straight-line method for expense attribution.
Under the applicable accounting guidance for equity incentive awards granted to non-employees, the measurement date at which the fair value of the equity incentive awards is measured is equal to the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached and (2) the date at which the counterparty's performance is complete. We recognize stock-based compensation expense for the fair value of the vested portion of the equity incentive awards in the consolidated statements of operations and comprehensive loss. We remeasure the fair value of options granted to consultants as the options vest.
The valuation model we used for calculating the fair value of awards for stock-based compensation expense is the Black-Scholes option-pricing model, or the Black-Scholes model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term weighted-average period of time that the options granted are expected to be outstanding, the volatility of our common stock, an assumed risk-free interest rate and an estimated forfeiture rate. We use the "simplified method" to determine the expected term of the stock option. Volatility is based on an average of the historical volatilities of the common stock of publicly traded companies with characteristics similar to us. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. Potential forfeitures of awards are estimated based on our historical forfeiture experience and an analysis of similar companies. The estimate of forfeitures will be adjusted over the service period to the extent that actual forfeitures differ, or are expected to differ, from prior estimates.
The following table summarizes the assumptions we used to determine the fair value of employee stock options:
|
Year Ended
December 31, 2013 |
Six Months Ended
June 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
|
|
(Unaudited)
|
|||||
Expected term (years) |
6.1 | 6.0 | |||||
Expected volatility |
76.0 | % | 76.0 | % | |||
Risk-free interest rate |
1.3 | % | 1.9 | % | |||
Expected dividend rate |
0.0 | % | 0.0 | % |
Fair Value of Common Stock. As discussed below, the fair value of the shares of our common stock underlying the stock options has historically been determined by our board of directors. Because there has been no public market for our common stock, our board of directors has determined the fair value of our common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of our convertible preferred stock, our operating and financial performance, the lack of liquidity of our convertible preferred stock, and general and industry-specific economic outlooks.
Expected Term. The expected term of stock options represents the weighted-average period that our stock options are expected to remain outstanding. Since we have insufficient historical information regarding our stock options to provide a basis for estimate of expected term, we use the simplified method, which is the average of the weighted-average vesting period and contractual term of the option, to estimate the expected life of our stock option awards.
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Expected Volatility. Since there has been no public market for our common stock and lack of company specific historical volatility, we have determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies. In evaluating similarity, we consider factors such as industry, stage of life cycle and size.
Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.
Expected Dividend Rate. We assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so.
Estimated Forfeitures. We are required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data and the experience of other companies in the same industry to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, we record the difference as a cumulative adjustment in the period that the estimates are revised.
Service Period. We amortize all stock-based compensation over the requisite service period of the awards, which is generally the same as the vesting period of the awards. We amortize the fair value cost on a straight-line basis over the expected service periods. We estimate when and if performance-based grants will be earned. If we consider the award to be probable, we recognize expense over the estimated service period, which would be the estimated period of performance. If we do not consider the awards probable of achievement, we recognize no amount of stock-based compensation.
If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. We currently estimate when and if performance-based grants will be earned. If we do not consider the awards probable of achievement, we recognize no amount of stock-based compensation. If we consider the award to be probable, we record expense over the estimated service period. To the extent that our assumptions are incorrect, the amount of stock-based compensation recorded will change.
Our intent has been to grant all options with an exercise price not less than the fair value of our common stock underlying those options on the date of grant. We have determined the estimated fair value of our common stock at each valuation date in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our board of directors, with the assistance of management, developed these valuations using significant judgment and taking into account numerous factors, including developments at our company, market conditions and contemporaneous independent third-party valuations.
For all option grant dates through June 30, 2014, our board determined the enterprise value based on the Market Approach using the Option Pricing Method, or OPM, and the Income Approach using the Probability Weighted Expected Return Method, or PWERM.
Under the Market Approach, we estimate the value based upon analysis of similar companies. We then apply these derived multiples or values to our financial metrics to estimate our market value. The Income Approach, or Discounted Cash Flow Method, estimates value based on the expectation of future net cash flows, which are then discounted back to the present using a rate of return derived from companies of similar type and risk profile. The allocation of these enterprise values to each part of our capital structure, including our common stock, was done under the Market Approach based on OPM. OPM treats the rights of the holders of preferred and common stock as equivalent to call
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options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights. OPM derives the implied equity value of a company from a recent transaction involving the company's own securities issued on an arms-length basis. Under the PWERM, the value is estimated based upon analysis of future values for the enterprise under varying scenarios, and probabilities are ascribed to these scenarios based on expected future outcomes.
For valuations completed following the closing of this initial public offering, the fair value of our common stock will be determined based on the closing price of our common stock as reported on The NASDAQ Global Market on the date of grant.
The following table summarizes by grant date the number of shares of common stock subject to options granted from January 1, 2013 through August 25, 2014, the per share exercise price of the award, the fair value of our common stock on each grant date:
Grant Date
|
Number of
Shares Granted |
Exercise
Price Per Share |
Estimated
Fair Value Per Share of Common Stock |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
January 4, 2013 |
508,060 | $ | 1.218 | $ | 1.218 | |||||
July 11, 2013 |
290,208 | 1.74 | 1.74 | |||||||
October 3, 2013 |
1,724 | 1.74 | 1.74 | |||||||
December 10, 2013 |
23,275 | 1.74 | 1.74 | |||||||
January 13, 2014 |
12,931 | 1.74 | 1.74 | |||||||
February 7, 2014 |
16,378 | 1.74 | 1.74 | |||||||
June 5, 2014 |
504,646 | 5.51 | 5.51 |
We determined, after consultation with the underwriters, that our initial public offering price range will be $14.00 to $16.00 per share. As of the dates of the January 13, 2014, February 7, 2014 and June 5, 2014 stock option grants, our board of directors had determined the fair value of our common stock to be $1.74 per share (for the January and February 2014 grants) and $5.51 per share (for the June 2014 grants). The determination was based upon the objective and subjective factors described above. We believe the difference between the fair value of our common stock for the January, February and June 2014 grants, in each case as determined by our board of directors, and the initial offering price range is a result of the following factors:
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In September 2014, our compensation committee or board of directors approved equity awards for an aggregate of up to 1,106,903 shares of our common stock that will be issuable upon the exercise of options to purchase common stock with an exercise price per share equal to the initial public offering price, which options will be granted on the day that the registration statement for this offering is declared effective.
We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods likely will increase.
Estimated Fair Value of Convertible Preferred Stock Warrant
Our outstanding convertible preferred stock warrant is classified as a liability on our consolidated balance sheets at fair value as it is contingently redeemable because it may obligate us to transfer assets to the holders at a future date under certain circumstances, such as a deemed liquidation event. We remeasure our convertible preferred stock warrant to fair value at each balance sheet date and record the corresponding gain or loss from the adjustment in our consolidated statements of operations and comprehensive loss as interest income and other income (expense), net. We will continue to record adjustments to the fair value of the convertible preferred stock warrant until it is exercised, converted into a warrant to purchase common stock or expires, at which time the warrant will no longer require remeasurement.
We estimate the fair values of our convertible preferred stock warrant using an option-pricing model or a hybrid of the option-pricing model and the probability-weighted expected return method. The option-pricing model is based on inputs as of the valuation measurement dates, including our estimates regarding the equity value at the valuation measurement dates, the volatility of the price of our convertible preferred stock, the remaining contractual term of the warrant, and the risk-free interest rates. The hybrid methodology is applied to various exit scenarios and each scenario is weighted based on our estimate of the probability of the scenario occurring.
Impairment of Long-Lived Assets
We assess changes in the performance of our product candidates in relation to our expectations, and industry, economic, and regulatory conditions and make assumptions regarding estimated future cash flows in evaluating the value of our property and equipment, goodwill and in-process research and development, or IPR&D.
We periodically evaluate whether current facts or circumstances indicate that the carrying values of our long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets is compared to the carrying value to determine whether impairment exists. If the asset is determined to be impaired, the loss is
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measured based on the difference between the asset's fair value and its carrying value. If quoted market prices are not available, we will estimate fair value using a discounted value of estimated future cash flows approach.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired in connection with the acquisition of Valocor. We test goodwill for impairment on at least an annual basis, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the goodwill is less than its carrying amount. Some of the factors considered in the assessment include general macro-economic conditions, conditions specific to the industry and market, and the successful development of our product candidates. If we conclude it is more likely than not that the fair value of the goodwill is less than its carrying amount, a quantitative fair value test is performed.
IPR&D represents the fair value assigned to incomplete research projects that we acquired through the acquisition of Valocor which, at the time of acquisition, had not reached technological feasibility. The amount was capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the project. We test IPR&D for impairment at least annually, or more frequently, if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the IPR&D intangible asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value is performed.
We have not recorded any impairment of our long-lived assets to date.
Net Operating Loss Carryforwards
We use the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We establish a valuation allowance when necessary to reduce deferred tax assets to the amount we expect to be realizeable. Financial statement effects of uncertain tax positions are recognized when it is more likely than not, based on the technical merits of the position, that they will be sustained upon examination. If the tax positions are not more likely than not to be sustained upon examination, we record reserves against those positions. Interest and penalties related to unrecognized tax benefits are included within our provision for income tax.
As of December 31, 2013, we had net operating loss, or NOL, carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes of $43.8 million, $43.8 million and $3.0 million, respectively. The federal and California NOL carryforwards will begin expiring during the year ended December 31, 2031 and the Canadian NOL carryforwards will begin expiring during the year ended December 31, 2029. The NOL carryforwards related to deferred tax assets do not include excess tax benefits from employee stock option exercises.
As of December 31, 2013, we also had research and development credit carryforwards of $0.2 million, $0.3 million and $0.5 million available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes, respectively. The federal and Canadian credit carryforwards will begin expiring in 2032 and the California state credit carryforwards have no expiration date.
Our future utilization of our NOL carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to Internal Revenue Code Section 382, as a result of ownership changes that may have occurred previously or that could occur in the future.
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Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, or ASU 2013-11, that provides for disclosure requirements related to unrecognized tax benefits in certain situations. We adopted ASU 2013-11 in the first quarter of 2014 and adoption of this standard did not have material impact on our consolidated results of operations or financial position.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers , or ASU 2014-09, which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. This guidance is effective for the fiscal years and interim reporting periods beginning after December 15, 2016. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and related disclosures.
On June 10, 2014, the FASB issued ASU 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, or ASU 2014-10, which eliminates the definition of a development stage entity, eliminates the development stage presentation and disclosure requirements under Accounting Standards Codification, or ASC, 915 Development Stage Entities , or ASC 915, and amends provisions of existing variable interest entity guidance under ASC 810 Consolidation . As a result of the changes, entities which meet the former definition of a development stage entity will no longer be required to: (1) present inception-to-date information in the statements of income, cash flows, and stockholder equity; (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged; and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. Furthermore, ASU 2014-10 clarifies disclosures about risks and uncertainties under ASC Topic 275, Risks and Uncertainties, that apply to companies that have not commenced planned principal operations. Finally, variable interest entity rules no longer contain an exception for development stage entities and, as a result, development stage entities will have to be evaluated for consolidation in the same manner as non-development stage entities.
Under ASU 2014-10, entities are no longer required to apply the presentation and disclosure provisions of ASC 915 during annual periods beginning after December 15, 2014. In addition, the revisions to the consolidation standards are effective for annual periods beginning after December 15, 2015 for public entities and are effective for annual periods beginning after December 15, 2016 for nonpublic entities. Early adoption is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities).
We have adopted ASU 2014-10 effective as of its issuance date. Adoption of this standard had no impact on our financial position, results of operations, or cash flows; however, the presentation of the consolidated financial statements and related disclosures in the notes to the consolidated financial statements has been changed to eliminate the disclosures that are no longer required.
We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the consolidated financial statements as a result of future adoption.
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Overview
We are a specialty biopharmaceutical company focused on bringing innovative and differentiated medical dermatology products to dermatologists and their patients. Our management team has extensive experience in product development and commercialization, having served in leadership roles at several leading dermatology companies. Our strategy is to leverage this experience to in-license, acquire, develop and commercialize products that we believe can be successful in the dermatology marketplace. Our portfolio of five product candidates targets significant market opportunities and includes three late-stage product candidates, Cimzia (certolizumab pegol), which we are developing in collaboration with UCB Pharma S.A. for the treatment of moderate-to-severe plaque psoriasis, DRM04, which we are developing for the treatment of hyperhidrosis, or excessive sweating, and DRM01, which we are developing for the treatment of acne.
Medical dermatology focuses on therapeutic solutions to treat serious skin conditions, such as psoriasis, acne, atopic dermatitis, commonly known as eczema, and hyperhidrosis. These diseases impact millions of people worldwide and can have significant, multidimensional effects on patients' quality of life, including their physical, functional and emotional well-being. Furthermore, according to multiple published studies, patients report that medical dermatology conditions affect quality of life in ways comparable to other serious diseases, such as cancer, heart disease, diabetes, epilepsy, asthma and arthritis.
We believe that medical dermatology represents a particularly attractive segment of the biopharmaceutical industry for multiple reasons:
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sizes, patients can be rapidly enrolled in clinical trials and the cost of monitoring study populations treated with topical, as opposed to systemic, therapies can be relatively low. In many dermatology indications, product development is further streamlined by well-established regulatory pathways. In addition, the same or similar efficacy endpoints can often be used to measure success in early- and late-stage clinical trials, which increases the predictability of late-stage clinical trial outcomes based on early-stage results. We believe that the development of our product candidates may benefit from one or more of these efficiencies.
We believe that these industry dynamics present an opportunity for us to establish our company as a leader in dermatology product development and commercialization, and we plan to capitalize on that opportunity for the benefit of patients and dermatologists.
Dermira was founded by Thomas G. Wiggans, Eugene A. Bauer, M.D., Christopher M. Griffith and Luis C. Peña with the vision of building a leading dermatology company. Several members of our management team, including Mr. Wiggans, Dr. Bauer and Mr. Peña, have extensive experience within the dermatology field, including having served in executive roles at leading dermatology companies such as Connetics Corporation, Peplin, Inc. and Stiefel Laboratories, Inc., a GSK Company, or Stiefel. This experience brings us significant insight into product and commercial opportunities, as well as a broad network of relationships with leaders within the industry and medical community. Our team has extensive experience with products representing a variety of therapeutic modalities, including biologics and small molecules, and routes of administration, including systemic and topical products. At Connetics, members of our senior management team secured five marketing approvals for new dermatology products from the U.S. Food and Drug Administration, or the FDA, within seven years and successfully built a new product category across a number of highly competitive markets characterized by extensive branded and generic competition. For more information on our management, see "ManagementExecutive Officers and Directors."
Since our founding in 2010, we have executed three significant transactions resulting in a portfolio of five product candidates. In August 2011, we acquired Valocor Therapeutics, Inc., which gave us rights to a portfolio of intellectual property and product candidates to treat acne and inflammatory skin diseases. In April 2013, we entered into agreements with Rose U LLC and Stiefel to obtain rights to intellectual property related to DRM04 for the treatment of hyperhidrosis. In March 2014, we entered into an agreement to collaborate with UCB to develop and commercialize Cimzia in dermatology.
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Our three late-stage product candidates are:
In addition, we have two early-stage programs in preclinical development:
Our Strategy
Our strategy is to in-license, acquire, develop and commercialize innovative and differentiated medical dermatology products that we believe can be successful in the dermatology marketplace. The key components of our strategy are to:
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and Stiefel. We produced positive Phase 2a clinical trial results within one year of initiating our first clinical trial of DRM01 and intend to commence a Phase 2b clinical program in the first half of 2015. We believe that our team's expertise in designing and executing product development programs in dermatology, combined with the relative efficiencies of dermatology product development, will enable us to rapidly develop our late-stage product candidates.
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Canada following regulatory approval of Cimzia for the treatment of psoriasis in these countries. We plan to leverage the infrastructure of our partner, UCB, to support our marketing of Cimzia in the United States and Canada.
Overview of the Dermatology Market
Skin is the largest and fastest-growing organ in the human body. There are over 3,000 different skin conditions and diseases, many of which have profound effects on patients' lives. Dermatologists work with patients to find solutions for their skin concerns. These solutions fall broadly into either medical dermatology, which focuses on the treatment of diseases such as psoriasis, atopic dermatitis, hyperhidrosis and acne, or aesthetics, which focuses on improving the patient's appearance, most frequently the signs of aging.
We focus on the medical dermatology market, which addresses many highly prevalent conditions. These conditions can have significant, multidimensional effects on patients' quality of life, including their physical, functional and emotional well-being. For example, psoriasis has been shown to affect a patient's quality of life to an extent similar to that seen in other chronic diseases such as cancer, arthritis, hypertension, heart disease, diabetes and depression. Acne patients have equated their condition as comparable to other serious diseases, such as diabetes, epilepsy, asthma and arthritis. Studies have found hyperhidrosis impedes normal daily activities and can result in occupational, emotional, psychological, social and physical impairment.
According to VisionGain, the medical dermatology market was valued at over $21 billion in global pharmaceutical sales in 2012. According to the 2010 National Ambulatory Medical Care Survey, there are 56 million annual office visits for medical dermatology conditions in the United States alone. In 2009, there were an estimated 34 million office visits to U.S. dermatologists. Inflammatory skin diseases and acne account for a significant proportion of the market for prescription medical dermatology products. Inflammatory skin diseases, such as psoriasis, an autoimmune disease that can be associated with a wide range of skin symptoms, atopic dermatitis, a disorder involving disruption in the skin's ability to insulate the body from exposure to external substances, and rosacea, a condition characterized by redness and often disfiguration of the central face, collectively represent the largest market in medical dermatology, accounting for over $9.5 billion in global pharmaceutical sales in 2012. Acne accounted for approximately $3.7 billion of global pharmaceutical sales in 2012. According to widely-cited data, it is estimated that acne affected more than 85% of teenagers globally in 1994, 150 million people globally as of 2008 and 40 to 50 million Americans as of 1998.
In light of the overall lack of innovation in the research and development of new dermatology treatments, the medical dermatology market includes a large number of marginally differentiated products with relatively modest sales. However, there are a number of examples of truly innovative topical, oral and injectable products that have created large markets. These include Elidel and Protopic, topical calcineurin inhibitors for the treatment of atopic dermatitis that achieved aggregate peak sales of over $500 million in 2004, Accutane, an oral retinoid for the treatment of acne that achieved peak sales of approximately $760 million in 2000, and Enbrel, Humira and Stelara, injectable biologics that
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achieved aggregate sales of $4.0 billion in 2012 for the treatment of moderate-to-severe plaque psoriasis.
There were approximately 10,800 dermatologists practicing in the United States in 2012. We believe that dermatologists generally share three characteristics that are relevant to the marketing of dermatology products. First, dermatologists, as a specialty, tend to be particularly focused on the safety of pharmaceutical products because, while skin diseases can have profound effects on patients' quality of life, few are life-threatening. As a result, dermatologists, as well as their patients, often prefer to use topical treatments when possible to limit the risk of systemic side effects. If systemic treatments are required, many dermatologists favor products with well-established safety profiles relative to newer treatments with less safety experience, even if newer treatments may be more effective. Second, dermatologists, who are in relatively short supply in comparison with the demand from patients in the United States, tend to place a high level of emphasis on products that are easy to use because they often manage high volumes of patients. This contributes to their general preference for topical treatments, as well as systemic treatments with well-established safety profiles and limited monitoring requirements. Third, dermatologists tend to engage with sales and medical affairs personnel from the biopharmaceutical industry regarding the scientific evidence supporting dermatology products and the challenges experienced by physicians and patients in the use of these products. Dermatologists often rely on trusted relationships with scientifically competent, customer-focused sales representatives who can provide them with the necessary information to support their use of appropriate treatments.
Our Product Candidates
Our portfolio of product candidates is summarized in the following table:
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Cimzia
Cimzia is our late-stage product candidate for the treatment of moderate-to-severe plaque psoriasis. Moderate-to-severe plaque psoriasis is a chronic, inflammatory skin disease characterized by excessive growth of certain skin cells and a wide range of symptoms, including redness, scaling, itching and burning. Cimzia is an injectable biologic TNF inhibitor that was launched by UCB in 2008 and has been used in tens of thousands of patients. It is approved for numerous indications spanning multiple medical specialties, including rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis and Crohn's disease, in multiple countries, including the United States. In 2013, Cimzia generated worldwide sales of over $800 million, an increase of 27% compared to 2012. In March 2014, we entered into an agreement to collaborate with UCB to develop Cimzia for the treatment of moderate-to-severe plaque psoriasis in the United States, Canada and the European Union and, upon regulatory approval for marketing of the psoriasis indication, to market Cimzia to dermatologists in the United States and Canada.
UCB has conducted two Phase 2 clinical trials, including a 176-patient, randomized, multi-center, double-blind, placebo-controlled trial, that demonstrated significant reductions in the signs and symptoms of moderate-to-severe plaque psoriasis. As the Phase 2 psoriasis clinical trials were conducted in France and Germany, they were not covered by an IND. In June 2014, we and UCB conducted an end-of-Phase 2 meeting with the FDA during which we requested and received feedback from the FDA regarding certain elements of our proposed clinical development plan for Cimzia in psoriasis, including the design and size of Phase 3 clinical trials. UCB filed an IND for the treatment of moderate-to-severe plaque psoriasis with the FDA in September 2014, and we and UCB intend to commence Phase 3 clinical trials in the first half of 2015. If the results of the Phase 3 clinical trials are positive, we plan to work with UCB to secure approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis and market the product to dermatologists in the United States and Canada.
The Moderate-to-Severe Plaque Psoriasis Market
Psoriasis is a chronic, complex, immune-mediated disease that requires long-term treatment. It is commonly considered the most prevalent autoimmune disease in the world. According to Decision Resources, the diagnosed prevalence of psoriasis in the United States was approximately 9.3 million people, or approximately 2.8% of the population, in 2012. In the same year, U.S. sales of psoriasis prescriptions accounted for $3.6 billion, of which $2.9 billion were from biologic therapies and $2.3 billion were from biologic TNF inhibitors alone.
Approximately 80% of psoriasis patients have plaque psoriasis. These patients typically have symmetrically distributed plaques of thickened, inflamed, red skin covered with silvery scales located on portions of the body including the elbows, knees, scalp or back. Approximately 20% of plaque psoriasis patients have moderate-to-severe disease. The National Psoriasis Foundation classifies moderate-to-severe plaque psoriasis as affecting at least 3% of the body surface area, although other factors, such as the location of lesions and their impact on quality of life, are also considered in assessing disease severity.
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BIOPHOTO ASSOCIATES/Photo Researchers/Getty Images
Moderate-to-Severe Plaque Psoriasis
The symptoms of psoriasis are not limited to the skin, and evidence increasingly suggests that skin symptoms of psoriasis are a dermal manifestation of a systemic autoimmune disorder. Psoriasis often presents with one or more comorbidities associated with inflammatory etiology, such as joint disease or cardiovascular disease. Psoriatic arthritis, which is psoriasis with concomitant joint disease, develops in up to 40% of psoriasis patients, according to the International Federation of Psoriasis Associations. Recent studies have found that psoriasis is also associated with a significantly increased risk of major adverse cardiovascular events, including heart attack, stroke and cardiovascular mortality. A population-based study conducted from 1987 to 2002 of approximately 18,000 patients concluded that patients with psoriasis requiring systemic or light-based therapy had an average lifespan six years shorter than that of the control population. As a result, there is increasing interest in treating psoriasis with products that can address the systemic manifestations of the disease.
Moderate-to-Severe Plaque Psoriasis Treatments: Options and Limitations
Psoriasis treatments are chosen based on factors including disease severity, comorbidities, patient preference and insurance coverage. Topical treatments, such as steroids, vitamin D derivatives and retinoids, are typically insufficient for patients with moderate-to-severe disease. For decades, moderate-to-severe plaque psoriasis has been treated with traditional light-based or systemic therapies, which are moderately effective and have significant limitations. Light-based therapies are time-consuming and inconvenient and have been associated with accelerated damaging of the skin and increased risk of cancer. Traditional systemic therapies, such as oral and injectable methotrexate, oral cyclosporine and oral acitretin, have well-documented side effects, such as liver and kidney toxicity, increases in blood fats and birth defects, that require intensive monitoring by the prescribing physician.
The treatment of moderate-to-severe plaque psoriasis has been transformed by the introduction of biologic TNF inhibitors over the past decade. TNF is a naturally occurring molecule that promotes inflammation in the body. In psoriasis and many other inflammatory diseases, such as rheumatoid arthritis and psoriatic arthritis, TNF promotes inflammation in certain areas of the body that leads to clinical manifestations of the disease, such as excessive growth of skin cells in psoriasis, damage to joint tissue in rheumatoid arthritis and both of these manifestations in psoriatic arthritis. Consistent with its role in a number of inflammatory conditions that involve organs other than the skin, it is thought that
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TNF may play a role in comorbidities of psoriasis that are associated with inflammatory etiology, such as rheumatoid arthritis and psoriatic arthritis, joint disease and cardiovascular disease. TNF inhibitors treat psoriasis and other inflammatory conditions by binding to and suppressing the biological activity of TNF.
In psoriasis and many other inflammatory diseases, such as rheumatoid arthritis and psoriatic arthritis, TNF inhibitors offer improved efficacy over traditional systemic therapies that have more frequent side effects and require more intensive monitoring. Since their launch into the rheumatology market in the late 1990s, TNF inhibitors have grown to become one of the largest-selling product classes in the pharmaceutical industry. According to published sources, U.S. sales of TNF inhibitors were approximately $14.6 billion in 2012. In the same year, U.S. sales of TNF inhibitors for the treatment of psoriasis were $2.3 billion, according to Decision Resources.
The TNF inhibitor class has become established as the most frequently used biologic therapy for moderate-to-severe plaque psoriasis. The two self-administered TNF inhibitors approved for marketing in psoriasis are Enbrel and Humira.
The only other TNF inhibitor approved for psoriasis in the United States and Canada is Remicade, which is an intravenously administered TNF-binding antibody. According to Decision Resources, U.S. sales of Remicade for the treatment of psoriasis were approximately $110 million in 2012.
While most moderate-to-severe plaque psoriasis patients are initially treated with traditional systemic therapies, according to Decision Resources, dermatologists increasingly express a preference to use TNF inhibitors as first-line systemic therapy because of their efficacy, especially in the presence of concomitant psoriatic arthritis, and improved safety profile relative to conventional systemic agents.
Based on the significant therapeutic and commercial success of TNF inhibitors, new systemic therapies for psoriasis have been and are in the process of being developed. Stelara, a biologic product that inhibits two other important inflammatory molecules called interleukin 12 and interleukin 23, was launched in 2009. Notwithstanding its efficacy and convenient administration profile, we believe that Stelara is currently being used primarily as an alternative option for patients who have previously received TNF inhibitors because of its more limited long-term safety data and insurance coverage. According to Decision Resources, U.S. sales of Stelara for the treatment of psoriasis were approximately $630 million in 2012.
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While these approved biologics have become useful therapeutic options for dermatologists and their psoriasis patients, they suffer from limitations, including the fact that some patients fail to respond, experience reduced response over time or experience side effects. Accordingly, patients treated with TNF inhibitors and other biologics may rotate between different products, including multiple TNF inhibitors. According to an analysis of survey data collected by the National Psoriasis Foundation published in JAMA Dermatology, roughly half of moderate-to-severe plaque psoriasis patients remain unsatisfied with their treatment options.
The Cimzia Solution
Cimzia is a product comprising the TNF-binding portion, or fragment, of an antibody linked to a polymer called polyethylene glycol, or PEG. Attachment of PEG to pharmaceuticals, a process termed pegylation, improves the stability of the pharmaceutical product in the systemic circulation, resulting in more sustained pharmacological activity following administration to the patient. Cimzia is typically injected by the patient every two to four weeks. It is the only pegylated antibody fragment approved for marketing within the TNF inhibitor class.
We believe that Cimzia's molecular structure may offer pharmacological advantages relative to other TNF inhibitors. From an efficacy standpoint, it has been shown in animal studies that Cimzia preferentially accumulates in inflamed tissue to a greater extent than Humira. It is also thought that pegylation may reduce the immunogenicity of Cimzia, which could lead to more durable efficacy. From a safety standpoint, because Cimzia is not a complete antibody, it, like Enbrel, lacks certain biological activities that could potentially lead to toxicity. We believe that these characteristics support a clinical safety and efficacy profile that would be attractive to dermatologists.
Cimzia has demonstrated an attractive efficacy, safety, tolerability and convenience profile across a range of indications, including psoriasis. Based on a cross-study comparison of efficacy data we have compiled from the placebo-controlled Phase 2 clinical trial of Cimzia and published reports regarding the largest pivotal Phase 3 clinical trials conducted with Enbrel and Humira, we believe that Cimzia has an attractive efficacy profile in comparison to these market-leading TNF inhibitors in psoriasis. A comparison of efficacy across these three separate clinical trials on the basis of the most widely accepted efficacy endpoints is shown below.
Cross-study comparison of Cimzia, Enbrel and Humira
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In each of these studies, patients with moderate-to-severe plaque psoriasis received at least 12 weeks of therapy. In the Cimzia Phase 2 clinical trial, 176 patients were randomized to receive either (1) an initial dose of 400 milligrams, or mg, of Cimzia, followed by Cimzia at a dose of 200 mg once every two weeks, or q2w, (2) Cimzia at a dose of 400 mg q2w, or (3) placebo. In the Enbrel Phase 3 clinical trial, 407 patients were randomized to receive either (1) Enbrel at a dose of 50 mg twice weekly, or biw, which is the recommended dose for the first three months of treatment in the U.S. prescribing information, or (2) placebo. In the Humira Phase 3 clinical trial, 1,212 patients were randomized to receive either (1) Humira at an initial dose of 80 mg, followed by Humira at a dose of 40 mg q2w starting one week later, which is the recommended dosing regimen in the U.S. prescribing information, or (2) placebo.
Response rates were reported in terms of the proportion of treated patients who achieved a 75% improvement in the clinical grading scale called the Psoriasis Area and Severity Index, or PASI 75, the endpoint most widely used to measure treatment success in clinical psoriasis trials, and the proportion of patients who achieved clearing or near clearing of psoriasis, as rated by the investigator on a scale called the Physician's Global Assessment, or PGA, 12 weeks following the start of therapy. While there were some differences in the patient populations, particularly in terms of sample size, disease severity, weight and the proportions who had previously used biologic therapies, as well as the PGA scales used to assess efficacy, that make it difficult to draw conclusions from this cross-study comparison, and while this cross-study comparison will not be used to support regulatory filings for Cimzia, we believe that this comparison suggests that Cimzia will have an attractive efficacy profile in comparison to the leading TNF inhibitors in the psoriasis market today. We believe that the efficacy of Cimzia will be particularly attractive to dermatologists as they continue to become more comfortable with the safety profile of the TNF inhibitor class and more interested in improved efficacy.
In addition to efficacy, we believe that Cimzia has other attributes that will be attractive to dermatologists and their patients. Based on accumulated experience in psoriasis and other indications, we believe that the safety profile of Cimzia is consistent with that of other TNF inhibitors. The most frequent adverse events associated with Cimzia are upper respiratory infections, rash and urinary tract infections. As observed with other TNF inhibitors, the most serious adverse reactions are serious infections, heart failure and, possibly, cancer. In addition, we believe that administration every two weeks would be a more convenient dosing regimen for patients than once or twice weekly dosing of Enbrel.
The Market Opportunity
The market for systemic psoriasis therapies is large and growing, and we expect this market growth to continue as dermatologists continue to increase their use of biologic therapies and new products reach the market. We believe that the TNF inhibitor class will continue to represent a significant segment of this market and that Cimzia will be positioned to compete effectively within the market for systemic psoriasis therapies.
According to Decision Resources, U.S. sales of psoriasis prescriptions accounted for $3.6 billion in 2012. In the same year, U.S. sales of biologic therapies for moderate-to-severe plaque psoriasis were $2.9 billion, of which $2.3 billion were from TNF inhibitors. We believe that dermatologists write a significant majority of the prescriptions for biologics in psoriasis. While the same data are not available for sales of TNF inhibitors in psoriasis, data provided by IMS Health National Prescription Audit and National Sales Perspectives indicate that dermatologists accounted for 75% of U.S. sales of Stelara in the first half of 2013, when Stelara was only approved for the treatment of moderate-to-severe plaque psoriasis.
Since the launch of Stelara in 2009 and through 2012, sales of biologic treatments attributable to U.S. dermatologists grew at an average annual rate of 20%. Over the same period, sales of TNF
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inhibitors attributable to U.S. dermatologists grew at an average annual rate of 9%. This indicates that, since the introduction of Stelara, the market for biologics in psoriasis has been expanding beyond that attributable to the continuing growth of the TNF inhibitor class.
We believe that there is a substantial opportunity for continued expansion of the market for biologic psoriasis therapies. Even with the significant recent growth in the market, penetration of biologics into the addressable population of moderate-to-severe plaque psoriasis patients remains relatively low, particularly in comparison to other large biologics markets. In the United States in 2012, according to Decision Resources, only 10.5% of treated moderate-to-severe psoriasis patients received biologics, and 21.7% of treated rheumatoid arthritis patients received biologics. We believe that penetration into the psoriasis patient population may continue to increase as dermatologists become more familiar with available biologic therapies, particularly, the established safety record of TNF inhibitors, and as new biologic products reach the market. Decision Resources projects that U.S. sales of branded, systemic psoriasis therapies will increase from approximately $3.1 billion in 2012 to $5.7 billion by 2022.
We believe that the TNF inhibitor class is, and will continue to be, well positioned within the psoriasis market for a number of reasons:
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Stelara and other potential competing non-TNF inhibitor therapies that target fewer indications and smaller aggregate patient populations.
Accordingly, while there are a number of other systemic products under development for psoriasis by large pharmaceutical companies, including late-stage product candidates representing biologic and oral therapies with alternative mechanisms of action, as well as biosimilar versions of TNF inhibitors, we believe that the branded TNF inhibitor class is well positioned within the psoriasis market because of its longstanding role in the treatment of the disease, its established safety record within the safety-oriented dermatology specialty, its strong efficacy profile in skin symptoms and systemic aspects of the disease and preferred access accorded to products in the class by insurance companies in light of their widespread use across numerous indications. Many of the products and product candidates under late-stage development in psoriasis suffer from one or more potential limitations, such as relatively unproven safety profiles, limited or unproven activity in systemic aspects of the disease, and limited or unproven utility in other indications, that could represent significant disadvantages relative to TNF inhibitors. As a result, we expect the market for TNF inhibitors in psoriasis to remain substantial over the long-term.
In light of its molecular properties and clinical profile, we believe that if successfully developed in psoriasis, Cimzia presents an opportunity to offer dermatologists a product that delivers the strong efficacy of a TNF-binding antibody product such as Humira with the potential safety advantages of a non-antibody product such as Enbrel. We believe that this is a compelling proposition that can be communicated particularly effectively by a dermatology-focused company like ours that is committed to providing the highest level of scientific expertise to dermatologists. In addition, our collaboration with UCB will enable us to utilize the substantial infrastructure UCB has developed to support commercialization of Cimzia in other indications and markets, including established manufacturing and distribution capabilities. We also believe that Cimzia's significant commercial business in other indications will contribute to contracting leverage with insurers that represents a potential advantage relative to competing products with other mechanisms of action that may experience more limited use outside of psoriasis. Within the context of the advantages of the TNF inhibitor class relative to other available and potentially emerging new therapies, we believe that Cimzia, if successfully developed in psoriasis, will be well positioned to compete in the large, growing market for branded, systemic psoriasis therapies.
Clinical Development
Phase 2 Clinical Trials. Clinical development of Cimzia to date has been conducted by UCB. In addition to a number of studies in other indications, UCB has completed two Phase 2 clinical trials evaluating Cimzia in adults with moderate-to-severe plaque psoriasis. The first Phase 2 clinical trial demonstrated that Cimzia improved the signs and symptoms of psoriasis, with up to 82.8% of patients achieving a PASI 75 response. The second Phase 2 clinical trial demonstrated that patients who relapsed after withdrawal of Cimzia therapy achieved a similar response after subsequent treatment with Cimzia.
The first Phase 2 clinical trial was a multi-center, double-blind, placebo-controlled study in which 176 patients were randomized to receive 12 weeks of therapy in accordance with one of three regimens: (1) an initial loading dose of 400 mg of Cimzia, followed by Cimzia at a dose of 200 mg q2w, or Cimzia 200 mg; (2) Cimzia at a dose of 400 mg q2w, or Cimzia 400 mg; or (3) placebo. At the end of the 12-week treatment period, patients entered a follow-up period of 12 to 24 weeks. The co-primary efficacy endpoints were the proportion of patients achieving a PASI 75 response and the proportion of patients achieving a score of "clear" or "almost clear" on a six-point PGA scale 12 weeks after the start of therapy. Results for these endpoints are presented below.
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Primary Endpoint: PASI 75 at Week 12
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90. Intention to treat (ITT) population shown = all randomized patients (n=176).
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Primary Endpoint: PGA at Week 12
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90. Intention to treat (ITT) population shown = all randomized patients (n=176).
At week 12, a PASI 75 response was observed in 6.8% of patients (4/59) who received placebo, 74.6% of patients (44/59) who received Cimzia 200 mg and 82.8% of patients (48/58) who received Cimzia 400 mg. A PGA response was observed in 1.7% of patients (1/59) who received placebo, 52.5% of patients (31/59) who received Cimzia 200 mg and 72.4% of patients (42/58) who received Cimzia 400 mg. Both Cimzia dosing regimens demonstrated meaningful and statistically significant improvements relative to placebo for both co-primary efficacy endpoints.
The second Phase 2 clinical trial was a re-treatment extension study, in which patients who achieved a PASI 75 response 12 weeks after the start of therapy in the first Phase 2 clinical trial and subsequently relapsed during the follow-up period began receiving the same treatment as they did in the first Phase 2 clinical trial. Relapse was defined as a loss of more than 50% of the maximum PASI improvement achieved in the first Phase 2 clinical trial. The primary efficacy endpoint was a comparison between the median PASI score achieved 12 weeks after the start of therapy in the first Phase 2 clinical trial and the median PASI score achieved 12 weeks after the start of re-treatment in the second Phase 2 clinical trial. At the end of the 12-week re-treatment period, improvements in PASI score were once again observed for both Cimzia treatment regimens. No significant difference was observed between the median PASI score achieved 12 weeks after the start of therapy in the first Phase 2 clinical trial and the median PASI score achieved 12 weeks after the start of re-treatment in the second Phase 2 clinical trial. According to the authors who published the results, efficacy observed
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during the second Phase 2 clinical trial was similar to that observed during the first Phase 2 clinical trial. Efficacy results are presented below.
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90. Actual values taken from UCB (Study C87040 CSR 2008. Table 14.2.2:7).
According to the authors who published the results of these Phase 2 clinical trials in the British Journal of Dermatology, the safety profile of Cimzia in these Phase 2 clinical trials in psoriasis was consistent with that observed in previous Cimzia clinical trials in other indications, as well as in clinical trials of other TNF inhibitors. A summary of treatment-emergent adverse events, or TEAEs, is presented in the following table.
|
First treatment study |
|
Re-treatment study(a) | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Patients, n (% of patients)
|
Placebo
(n = 58) |
Cimzia
200 mg (n = 60) |
Cimzia
400 mg (n = 57) |
All
(n = 175) |
Cimzia
200 mg (n = 34) |
Cimzia
400 mg (n = 37) |
All
(n = 71) |
|||||||||||||||
Total AEs, n |
133 | 156 | 125 | 414 | 36 | 36 | 72 | |||||||||||||||
Any AE |
41 (71% | ) | 43 (72% | ) | 40 (70% | ) | 124 (71% | ) | 14 (41% | ) | 18 (49% | ) | 32 (45% | ) | ||||||||
Led to permanent discontinuation |
3 (5% | ) | 2 (3% | ) | 2 (4% | )(b) | 7 (4% | )(b) | 0 | 0 | 0 | |||||||||||
Serious AEs |
1 (2% | ) | 2 (3% | ) | 3 (5% | )(c) | 6 (3% | )(c) | 0 | 0 | 0 | |||||||||||
Infections |
0 | 1 (2% | ) | 2 (4% | ) | 3 (2% | ) | 0 | 0 | 0 |
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90.
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Most adverse events were mild or moderate. In the first Phase 2 clinical trial, which was placebo-controlled, no meaningful differences in the incidence of TEAEs were observed among treatment groups. The most frequently reported TEAEs were nasal congestion, headache and itching. Excluding pregnancies reported as serious adverse events leading to permanent discontinuation of treatment in two patients receiving Cimzia 400 mg, serious adverse events were reported in six patients, including (1) one patient who received placebo and experienced hemorrhagic diarrhea, (2) two patients who received Cimzia 200 mg, comprising one who experienced a contusion related to a motor vehicle accident and one who experienced a urinary tract infection and gastroenteritis, and (3) three patients who received Cimzia 400 mg, comprising one who experienced disseminated tuberculosis, one with anxiety and gastroenteritis and one with psoriasis. The patient who developed tuberculosis had previously received an attenuated, live tuberculosis vaccine and had good resolution of tuberculosis following treatment with anti-tuberculosis medication. In the second Phase 2 clinical trial, a lower proportion of patients reported TEAEs in comparison to the first Phase 2 clinical trial, and there were no serious adverse events or permanent discontinuations from treatment due to adverse events.
Phase 3 Clinical Program. Based on the results of these two Phase 2 clinical trials, we and UCB conducted an end-of-Phase 2 meeting with the FDA and a scientific advice procedure with the European Medicines Agency, or the EMA, in June 2014 during which we requested and received feedback from the FDA and EMA regarding certain elements of our proposed clinical development plan for Cimzia in psoriasis, including the design and size of Phase 3 clinical trials. As the Phase 2 psoriasis clinical trials were conducted in France and Germany, they were not covered by an IND. UCB filed an IND for the treatment of moderate-to-severe plaque psoriasis with the FDA in September 2014, and we and UCB intend to commence Phase 3 clinical trials in the first half of 2015.
Our planned Phase 3 clinical program consists of three randomized, multi-center, blinded Phase 3 clinical trials that will be conducted in multiple countries. In these trials, we plan to enroll a total of approximately 1,000 moderate-to-severe plaque psoriasis patients, including patients who have and patients who have not previously been treated with biologic products, such as TNF inhibitors. The program comprises two clinical trials designed to demonstrate the superiority of treatment with Cimzia relative to placebo, which we call the placebo-controlled Phase 3 clinical trials, and one clinical trial designed to demonstrate the superiority of treatment with Cimzia relative to placebo and relative to treatment with Enbrel, which we call the active-controlled Phase 3 clinical trial. We expect that these trials will be designed as follows:
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12 weeks: (1) a loading dose of Cimzia, followed by Cimzia at a dose of 200 mg q2w for 8 weeks; (2) Cimzia at a dose of 400 mg q2w for 12 weeks; (3) placebo; or (4) Enbrel at a dose of 50 mg twice weekly for 12 weeks, which is the recommended initial dose in the U.S. prescribing information. In this trial, the primary efficacy endpoint will be the proportion of patients achieving a PASI 75 response 12 weeks after the start of treatment. Following the initial 12-week period, patients will be assigned to receive the same or different regimens for up to an additional 36 weeks in order to assess secondary endpoints and other measures pertaining to the safety and efficacy of longer-term treatment, including evaluation of the optimal regimen for maintenance therapy, as well as the effect of Cimzia treatment in patients who were initially treated with Enbrel. Thereafter, some patients will receive Cimzia on an open-label basis for up to an additional 96 weeks in order to gather additional data on the long-term use of Cimzia in moderate-to-severe plaque psoriasis.
We and UCB anticipate that marketing applications for Cimzia in moderate-to-severe plaque psoriasis will be based on the data collected through 48 weeks after the start of treatment in each of the three Phase 3 clinical trials, including the results of the primary endpoints at either 12 or 16 weeks and additional results collected during this 48-week period. We believe that if these results are positive, data on 48 weeks of treatment would be sufficient to support an initial marketing application for the treatment of a chronic disease such as moderate-to-severe plaque psoriasis. For the purpose of seeking FDA approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis, we intend to use the results of the initial 16-week treatment period in the placebo-controlled Phase 3 clinical trials to establish efficacy. In addition, we intend to submit the results obtained from weeks 16 through 48 of the active-controlled Phase 3 clinical trial in order to support dosing recommendations for long-term use.
If the results of the Phase 3 clinical trials are positive, we plan to work with UCB to secure approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis and market the product to dermatologists in the United States and Canada.
DRM04
DRM04 is our late-stage product candidate for the treatment of hyperhidrosis, or excessive sweating. DRM04, a topical formulation of a novel form of a small-molecule anticholinergic agent that has been approved for systemic administration in other indications, is designed to inhibit sweat production by blocking the activation of sweat glands following topical administration. The products currently approved for the treatment of hyperhidrosis suffer from limitations such as moderate efficacy, significant side effects or cumbersome or invasive administration regimens. We believe that, if approved, DRM04 would be a convenient, effective and well-tolerated topical prescription therapy for this disease. In light of the limitations of available hyperhidrosis therapies, we believe that the introduction of such a product could expand the hyperhidrosis market by further penetrating the segment of patients who seek treatment from physicians and encouraging more patients to seek treatment.
Two randomized, double-blind, vehicle-controlled Phase 2 clinical trials, including a 198-patient, multi-center Phase 2b clinical trial and a 38-patient Phase 2a clinical trial, have demonstrated significant reductions in the signs and symptoms of primary axillary, or underarm, hyperhidrosis in patients treated with a topical formulation of the anticholinergic agent that has been approved for systemic administration in other indications, which we call the topical formulation of the reference agent. In addition, we are currently conducting a Phase 2b clinical trial in patients with primary axillary hyperhidrosis in which we are comparing DRM04 to the topical formulation of the reference agent. We have conducted the two Phase 2b clinical trials under an IND that was originally filed by Stiefel and that we reactivated in November 2013. We expect data from our ongoing Phase 2b clinical trial in the
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first half of 2015. If successful, we intend to commence a Phase 3 clinical program, which would include one or more Phase 3 clinical trials, in the second half of 2015.
The Hyperhidrosis Market
Hyperhidrosis is a condition of excessive sweating beyond what is physiologically required to maintain normal thermal regulation. Sweat is produced by glands in the skin and released to the skin surface through ducts. Sweat gland activity is controlled by the nervous system. The nervous system transmits signals to the sweat glands through acetylcholine, which is known as a neurotransmitter. Primary hyperhidrosis, which is excessive sweating without a known cause, is localized and characteristically symmetric. It can affect the underarms, palms of the hands, soles of the feet, face and other areas. Several studies have demonstrated that excessive sweating often impedes normal daily activities and can result in occupational, emotional, psychological, social and physical impairment.
In the United States, based on the most recent data available, the prevalence of hyperhidrosis was estimated in 2003 to be 2.8% of the population, or roughly 7.8 million people. According to published studies, approximately half of hyperhidrosis sufferers have axillary hyperhidrosis, and approximately one third of axillary hyperhidrosis sufferers, or 1.3 million Americans, have severe disease that is barely tolerable and frequently interferes or is intolerable and always interferes with daily activities.
The market for products to control sweating is large and highly underpenetrated by prescription pharmaceutical products. Despite the limited efficacy of over-the-counter, or OTC, antiperspirants for the alleviation of hyperhidrosis symptoms, according to a 2003 survey, only 38% of hyperhidrosis patients had discussed their condition with a healthcare professional. In addition, patients may suffer from excessive sweating for years before seeking treatment. One study analyzing data from 1993-2005 indicated that patients experienced an average duration of untreated symptoms of 8.9 years. We believe that this is largely a result of the lack of effective, well-tolerated, convenient prescription treatment options. Patients who seek treatment from a physician most commonly receive prescription topical antiperspirants. While these topical antiperspirants generate over 500,000 prescriptions annually in the United States, their use is limited by modest efficacy and skin irritation, particularly in patients with more severe disease. We believe that the market opportunity for a new, effective, well-tolerated topical hyperhidrosis treatment is substantially larger than the current market for prescription topical antiperspirants because such a therapy could further penetrate the segment of patients who seek treatment from a physician, as well as encourage more patients to seek treatment.
Current Hyperhidrosis Treatments: Options and Limitations
Current treatment options for hyperhidrosis generally fall into one of three categories:
Use of these treatments is determined by factors that include affected area and severity of disease.
For decades, topical antiperspirants containing metal salts have been the most widely-used treatment option for hyperhidrosis. OTC antiperspirants contain low concentrations of metal salts and are generally well-tolerated but limited in efficacy. Prescription antiperspirants containing higher concentrations of metal salts are typically recommended as the treatment of choice when OTC antiperspirants are not effective. However, these prescription antiperspirants are only moderately more effective, and their tolerability is limited by skin irritation associated with increased metal salt concentrations, which react with water to form irritating hydrochloric acid.
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Therapeutic options for patients who are unsatisfied with topical antiperspirants are largely limited to more cumbersome or invasive treatment strategies directed to blocking the activation of, destroying or removing the sweat glands. Intradermal injections of botulinum toxin, or Botox, a neurotoxin that blocks the release of acetylcholine, are effective but can be painful and must be administered by a physician, on average through 20 to 30 injections every six to nine months. A microwave device designed to overheat and destroy sweat glands is an alternative option, but treatment can be painful, requires multiple physician visits and is generally not covered by insurance. These treatments are time-consuming and require a significant investment of training and administration time and, in the case of microwave treatment, capital investment by the treating physician, limiting their potential reach to physicians. They are also not approved or well suited for application to the hands or feet. Iontophoresis, which involves soaking the hands or feet in water through which an electrical current is passed, can be performed in a physician's office or at home but requires repeated, time-consuming treatments, is irritating and is not well suited to treatment of the axillae. Patients with severe disease may be treated with surgical techniques that involve removal of sweat glands or destruction of nerves that transmit activating signals to the glands. Surgery is a significant undertaking that can be associated with a number of severe side effects, including increased sweat production in other body areas. As a result of the shortcomings of these treatment options, they are used much less frequently than topical treatments.
Oral anticholinergics, which block the interaction of acetylcholine with cholinergic receptors responsible for sweat gland activation, have demonstrated efficacy in small clinical hyperhidrosis studies. Although they are not currently approved by the FDA for the treatment of hyperhidrosis, they are sometimes used off-label. However, well-known systemic side effects, such as dry mouth, blurred vision, urinary retention and increased heart rate, often limit their use at doses required for efficacy in hyperhidrosis.
As a result of the limitations of available treatments, we believe that there is a significant unmet need for a new, effective, well-tolerated, self-administered, topical hyperhidrosis therapy that can be used across the range of body areas that can be affected by the disease.
The DRM04 Solution
DRM04 is a topical formulation of a novel form of a small-molecule anticholinergic agent that has been approved for systemic administration in other indications. Our initial target indication is the treatment of primary axillary hyperhidrosis. We believe that, if approved, DRM04 would be a convenient, effective and well-tolerated topical prescription therapy for this disease.
DRM04 is designed to block sweat production by inhibiting the interaction between acetylcholine and the cholinergic receptors responsible for sweat gland activation. The concept of inhibiting sweat production by blocking acetylcholine neurotransmission has been clinically validated in studies of Botox and anticholinergics for the treatment of hyperhidrosis. We believe that local, topical administration of DRM04 may offer advantages over oral administration of an anticholinergic by limiting uptake into the systemic circulation and thereby reducing the likelihood and severity of systemic side effects. We believe that it may also offer advantages over the injectable administration of Botox by providing a self-administered, non-invasive, more convenient alternative.
Clinical Development
Our initial target indication for DRM04 is primary axillary hyperhidrosis. Our development strategy involves two parts. First, we have assessed the safety, efficacy and tolerability of a topical formulation of the reference agent. Based on the results of this evaluation, we are currently assessing the profile of DRM04 compared to that of the topical formulation of the reference agent. We intend to develop DRM04 under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or the
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505(b)(2) pathway. Under the 505(b)(2) pathway, the FDA may allow us to leverage findings made by the FDA with regard to safety in approving the systemic administration of the reference agent in other indications and thereby reduce the amount of additional data we need to generate to support marketing approval of DRM04. The degree to which we can leverage such findings will be dependent upon the similarity between DRM04 in hyperhidrosis and the reference agent in its approved dosage forms and indications. Key differences, such as chemical form, route of administration, dosage form and indication, may affect the amount of additional data we will be required to generate. Our Phase 2 development program includes two completed Phase 2 clinical trials of the topical formulation of the reference agent and one ongoing Phase 2b clinical trial comparing DRM04 to the topical formulation of the reference agent.
Phase 2a Clinical Trial. The completed Phase 2a clinical trial was a randomized, double-blind study in 38 patients with severe primary axillary hyperhidrosis. In six cohorts of six to seven patients each, two concentrations of the reference agent (2% and 4%) in each of two topical formulations (A and B) were compared with their respective vehicles, which contain no active ingredient. These cohorts are summarized below.
|
Formulation A | Formulation B | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Concentration of reference agent |
4% | 2% | 0% (vehicle) | 4% | 2% | 0% (vehicle) | ||||||
| | | | | | | | | | | | |
Number of patients enrolled |
6 | 6 | 7 | 6 | 6 | 7 |
Patients were instructed to apply the study product once daily for four weeks using wipes saturated with either the topical formulation of the reference agent or vehicle only. Efficacy was evaluated based on axillary sweat production and disease severity. Assessments were conducted approximately weekly during the four-week treatment period and two weeks after the end of this treatment period. Disease severity was measured using a widely-used patient-reported outcome tool called the Hyperhidrosis Disease Severity Scale, or HDSS, wherein patients rate the severity of their disease on a four-point scale. Patients who rate the severity of their disease as a three or a four on the HDSS are considered to have severe disease, while those who rate it as a one or a two are considered to have mild or moderate disease. All 38 patients enrolled in the clinical trial rated the severity of their disease as a three or a four on the HDSS prior to the start of treatment. Trial inclusion criteria required that, prior to the start of treatment, all patients produce at least 50 mg of sweat in each axilla over a five-minute period.
Overall, more patients in the groups treated with the topical formulations of the reference agent than in the vehicle-only groups experienced a reduction in axillary sweating and a reduction in disease severity over the four-week treatment period. Of the 38 patients enrolled in the study, 19 patients received one of the two formulations and 19 patients received the other formulation. Of the 19 who received the formulation selected for further development, which we refer to as Formulation A, all completed at least two weeks of treatment with the exception of one who received vehicle only. This patient withdrew due to an adverse event of dry mouth after one day of treatment with vehicle only and was excluded from the efficacy analysis.
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Presented below are efficacy data for the 18 patients in whom the efficacy of Formulation A was assessed, including 12 who received the reference agent and six who received the vehicle only.
Nine of 12 patients treated with the reference agent reported an improvement in their perception of disease severity, as assessed using the HDSS, from severe to mild or moderate at the first on-treatment assessment, which was conducted approximately one week after the start of therapy. By the second weekly assessment, all 12 severe hyperhidrosis patients treated with the reference agent reported their disease severity as mild or moderate, in comparison with one of six patients who received the vehicle only. In weeks three and four, five out of six patients in each of the 2% and 4% treatment groups reported on their disease severity. Of those patients who reported assessments, patients treated with the reference agent continued to report disease severity as mild or moderate in all reported assessments through the end of the four-week treatment period, except one patient who discontinued treatment after two weeks at the 4% dose who was therefore counted as a non-responder at weeks three and four.
Among the 14 patients treated with Formulation A whose sweat production was measured at the end of the four-week treatment period, sweat production in the nine patients treated with the reference agent was on average 61% lower than at the start of therapy, in comparison with an average 1% increase in sweat production in the five patients who received vehicle only. The effect of the reference agent on sweating and disease severity appeared to be reversible, as a trend toward a return to levels reported at the start of therapy was observed two weeks following cessation of therapy.
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Adverse events observed across all 38 patients enrolled in the trial are summarized below. The proportions of patients enrolled in each cohort in which selected types of adverse events were reported are shown in parentheses.
|
Formulation A | Formulation B | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Concentration of reference agent |
4% | 2% |
0%
(vehicle) |
4% | 2% |
0%
(vehicle) |
||||||
| | | | | | | | | | | | |
Number of patients enrolled |
6 | 6 | 7 | 6 | 6 | 7 | ||||||
Number of patients reporting any adverse event (% of patients enrolled) |
4 (67%) | 4 (67%) | 5 (71%) | 5 (83%) | 3 (50%) | 4 (57%) | ||||||
Number of patients reporting any treatment-related adverse event (% of patients enrolled) |
2 (33%) | 3 (50%) | 5 (71%) | 3 (50%) | 3 (50%) | 3 (43%) | ||||||
Number of treatment-related adverse events |
6 | 4 | 6 | 9 | 4 | 3 |
Across all 38 patients enrolled in the trial, the most common TEAEs were dry mouth and upper respiratory tract infection. No serious adverse events were reported. The occurrence of systemic adverse events appeared to be dependent on dose, regardless of the formulation used.
This Phase 2a clinical trial was designed to demonstrate proof-of-concept for the treatment of hyperhidrosis with the topical formulation of the reference agent and was not powered to demonstrate the statistical significance of any of the results. While we believe that the results demonstrated proof-of-concept for the treatment of hyperhidrosis with the topical formulation of the reference agent, the absence of any demonstration of statistical significance increases the possibility that the observations occurred by chance.
Phase 2b Clinical Program. Based on the Phase 2a data, we are conducting a Phase 2b clinical program in patients with primary axillary hyperhidrosis. Our Phase 2b clinical program comprises two Phase 2b clinical trials:
Both are randomized, multi-center, double-blind, vehicle-controlled trials in which the topical formulation of the reference agent, DRM04 or vehicle only, as applicable, is administered once daily for four weeks and efficacy is evaluated based on the HDSS and assessments of sweat production. In addition to the HDSS, in Study DRM04-HH02 we are using a patient-reported outcome assessment we have developed that we believe may enable a more specific assessment of disease severity relative to the HDSS.
Study DRM04-HH01. In Study DRM04-HH01, 198 patients with severe primary axillary hyperhidrosis were randomized to receive a topical formulation containing one of four concentrations of the reference agent (1%, 2%, 3% or 4%) or vehicle only. As in the Phase 2a clinical trial, patients were instructed to apply the study product once daily for four weeks using wipes saturated with either the topical formulation of the reference agent or vehicle only, and efficacy was evaluated based on axillary sweat production and the HDSS. Assessments were conducted approximately weekly during the four-week treatment period and the two-week period after the end of this treatment period. All 198 patients enrolled in the clinical trial rated the severity of their disease as a three or a four on the four-point HDSS prior to the start of treatment. Trial inclusion criteria required that prior to the start of treatment, all patients produce at least 50 mg of sweat in each axilla over a five-minute period.
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The two primary efficacy endpoints evaluated in this trial were (1) the proportion of patients achieving an improvement of at least two points from baseline in HDSS score and (2) the average absolute change from baseline in sweat production, each as measured at the end of the four-week treatment period. For the purpose of the primary endpoint pertaining to sweat production, sweat production was assessed in each patient as the average of the amounts of sweat produced in each axilla during a five-minute period.
As outlined below, the topical formulation of the reference agent demonstrated dose-dependent and, at certain doses, statistically significant improvements relative to vehicle in both primary efficacy endpoints. The following chart summarizes the impact of the reference agent on disease severity, assessed as the proportion of patients achieving an improvement of at least two points in HDSS score from baseline to the end of the four-week treatment period.
Primary Endpoint: HDSS Response Rate at Week Four
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
ITT population shown = all randomized patients dispensed study product (n = 198). Patients with missing data points were considered non-responders.
At the end of the four-week treatment period, 36.8% to 52.5% of patients in each cohort treated with the reference agent achieved an improvement of at least two points in HDSS score, in comparison with 22.5% of patients who received the vehicle only. Based on these results, patients treated with the reference agent were between 63% and 133% more likely, depending on the concentration of the
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reference agent they received, to achieve an improvement of at least two points in HDSS score than patients who received the vehicle only.
The following chart summarizes the impact of the reference agent on sweat production, assessed as the average absolute change in sweat production from baseline to the end of the four-week treatment period.
Primary Endpoint: Average Absolute Change in Sweat Production at Week Four
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
ITT population shown = all randomized patients dispensed study product (n = 198). The last available on-treatment observation was used to estimate missing data points.
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The following table summarizes one of several non-primary efficacy analyses we conducted: the impact of the reference agent on sweat production, assessed as the percent change in sweat production from baseline to the end of the four-week treatment period.
Concentration of reference agent
|
Vehicle (0%) | 1% | 2% | 3% | 4% | |||||
---|---|---|---|---|---|---|---|---|---|---|
N |
40 | 38 | 40 | 40 | 40 | |||||
Average percent reduction sweat production from baseline |
43.2% | 54.4% | 60.2% | 73.4% | 71.7% | |||||
P-value(a) |
0.3378 | 0.1534 | 0.0045 | 0.0055 |
ITT population shown = all randomized patients dispensed study product (n = 198). The last available on-treatment observation was used to estimate missing data points.
From baseline to week four, patients in each cohort treated with the reference agent achieved an average reduction in sweat production of 56.6 to 91.4 mg, or 54.4% to 73.4%, in comparison with a reduction of 55.8 mg, or 43.2%, in patients who received the vehicle only.
In this trial, the most common adverse events were dry mouth, upper respiratory tract infection, dry skin and blurred vision. Dry mouth, dry skin and blurred vision are well-known, reversible side effects of anticholinergic agents and were generally observed more frequently in patients who received higher concentrations of the reference agent. Upper respiratory tract infections were observed at similar frequencies in patients receiving the reference agent and patients receiving the vehicle only. Patients treated with the reference agent withdrew from the study due to adverse events rates of 2.6% (1/38) in the 1% cohort, 5.0% (2/40) in the 2% cohort, 2.5% (1/40) in the 3% cohort and 20.0% (8/40) in the 4% cohort. None of the patients who received the vehicle only withdrew due to an adverse event. No treatment-related serious adverse events were reported.
Study DRM04-HH02. In our ongoing Study DRM04-HH02, which is designed to facilitate the development of DRM04 based on data available to characterize the reference agent, we are comparing the topical formulation of the reference agent to DRM04. In this trial, we are randomizing approximately 100 patients with severe primary axillary hyperhidrosis into five cohorts of approximately 20 patients each. Each of the five cohorts is assigned to receive one of the following: a topical formulation containing one of two concentrations of the reference agent, DRM04 containing one of two concentrations of the novel form of the reference agent, or vehicle only. The vehicle in the topical formulation of the reference agent is the same as in DRM04.
Patients are instructed to apply the study product once daily for four weeks using wipes saturated with the topical formulation of the reference agent, DRM04 or vehicle only. We are evaluating efficacy based on axillary sweat production, the HDSS and the patient-reported outcome assessment we have developed that we believe may enable a more specific assessment of disease severity relative to the HDSS. As in Study DRM04-HH01, assessments are to be scheduled approximately weekly during the four-week treatment period and the two-week period after the end of this treatment period. As in the Phase 2a clinical trial and Study DRM04-HH01, we are enrolling patients in Study DRM04-HH02 who,
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prior to the start of treatment, rate the severity of their disease as a three or a four on the HDSS and produce at least 50 mg of sweat in each axilla over a five-minute period.
We began enrolling patients in Study DRM04-HH02 in April 2014 and expect to complete enrollment and obtain the results of this clinical trial in the first half of 2015. Data from all three of our Phase 2 clinical trials will be used to support dose selection for potential Phase 3 clinical trials. We intend to pursue the use of our patient-reported outcome assessment as a measurement of efficacy in our Phase 3 clinical program. Subject to discussions with the FDA, we currently anticipate that the design of potential Phase 3 clinical trials to evaluate the efficacy and safety of DRM04 would be generally similar to the design of Study DRM04-HH02, except that in potential Phase 3 clinical trials, DRM04 would be the only study product evaluated, the dose(s) evaluated would be selected based on the results of our Phase 2 clinical trials and trials would be sized in order to meet patient exposure requirements for regulatory approval.
DRM01
DRM01 is our late-stage product candidate for the treatment of acne. It is a novel, small-molecule prodrug designed to inhibit the production of sebum by delivering a widely-studied lipid synthesis inhibitor to the skin following topical administration. If approved for marketing, DRM01 could add an attractive new mechanism of action to the set of treatment strategies available to dermatologists and their acne patients. We believe that the introduction of such a product could establish a new product class and expand the acne market.
In June 2014, we completed a 108-patient, randomized, multi-center, double-blind, vehicle-controlled Phase 2a clinical trial that demonstrated significant reductions in the signs and symptoms of acne. As this Phase 2a clinical trial was conducted in Canada, it was not covered by an IND. Based on the results of this trial, we intend to file an IND with the FDA and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015.
The Acne Market
Acne is a common skin disease characterized by clogging of the pores and associated local skin lesions that usually appear on the face, chest or back. Acne lesions are believed to result from an interaction of four primary pathogenic factors:
Clogged pores can become enlarged and inflamed as sebum and its breakdown products accumulate, resulting in visible lesions that can be unsightly and cause permanent scarring. Acne can significantly impact patients' quality of life, resulting in social, psychological and emotional impairments
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that are comparable to those reported by patients with epilepsy, asthma, diabetes or arthritis. Effective treatment can dramatically improve acne patients' quality of life.
|
|
Acne
Acne is one of the most common skin diseases. According to widely-cited data, it is estimated that acne affected more than 85% of teenagers globally in 1994, 150 million people globally as of 2008 and 40 to 50 million Americans as of 1998. Acne is one of the most common reasons for visiting a dermatologist. In 2007, acne represented about one-fourth of U.S. dermatologists' patient volume.
According to VisionGain, acne accounted for approximately $3.7 billion in global pharmaceutical sales in 2012. In the same year, each of the three major prescription pharmaceutical product classes that are predominantly used to treat acne generated between approximately $670 million and $1.9 billion in U.S. sales, according to data provided by Symphony Health Solutions, Pharmaceutical Audit Suite. These three product classes have been available for over 30 years, and we believe that growth in this market recently has been significantly limited by a lack of innovation in new product development. While the acne market includes a large number of marginally differentiated products with relatively modest sales, which we believe is a result of the lack of innovation in new product development, there are examples of products that have created large markets in acne. These include Accutane, an oral retinoid that achieved peak sales of approximately $760 million in 2000, and Solodyn, an oral antibiotic that achieved peak sales of approximately $400 million in 2010. We believe that the introduction of a topical treatment with a new mechanism of action could establish a new product class and expand the acne market.
Current Acne Treatments: Options and Limitations
Acne is commonly treated with topical and oral therapies, often in combination. As for many other skin diseases, dermatologists and their patients often prefer to use topical products that can act locally in the skin while limiting the risk of systemic side effects. As a result, the vast majority of acne patients are treated with topical therapies. For patients with more severe disease, oral treatments are used, usually in combination with topical products. Many patients receive combination therapies comprising two or more topical agents with or without an oral agent.
Acne treatment guidelines published by the Global Alliance to Improve Outcomes in Acne recommend that acne treatment be directed toward as many of the four primary pathogenic factors as possible. Accordingly, patients are often treated with combination regimens that incorporate multiple agents with complementary mechanisms of action targeting different pathogenic factors. All of the four primary pathogenic factors except for excessive sebum production can be targeted with available topical treatments. While systemic therapies may be used to effectively inhibit sebum production, their use is
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limited by significant, systemic side effects. As a result, we believe that there is an unmet need for a topical treatment that targets excessive sebum production.
For decades, the same four prescription pharmaceutical product classes have been used to treat acne:
While these available acne treatments are effective in many patients, an unmet need remains for effective therapies that are not associated with antibiotic resistance or treatment-limiting side effects, particularly therapies with novel mechanisms of action. In the context of guidelines recommending that acne therapy be directed to as many of the four primary pathogenic factors as possible, the absence of an available topical treatment that targets excessive sebum production, the systemic side effects associated with oral treatments that target this pathogenic factor and the overall preference for topical products in dermatology, we believe that there is a substantial unmet need and commercial opportunity for a new product class that targets sebum production following topical administration.
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The DRM01 Solution
DRM01 is a novel, small-molecule prodrug designed to inhibit the production of sebum by delivering a well-characterized lipid synthesis inhibitor to the skin following topical administration. A prodrug is a medication designed to be converted to its active form in the body, often in order to enhance delivery of the active form to the site of action by improving the pharmaceutical properties of the molecule administered to the patient. DRM01 is designed to be converted in the body to a lipid synthesis inhibitor that was originally discovered and evaluated in preclinical studies as a potential systemic lipid-lowering treatment and was later found to inhibit sebum production in sebum-producing cells. The lipid synthesis inhibitor targets acetyl coenzyme-A carboxylase, an enzyme that plays an important role in the synthesis of fatty acids, a type of lipid that represents an essential component of the majority of sebum lipids. While systemic administration of the lipid synthesis inhibitor to animals was found to effectively reduce systemic lipid levels and enabled characterization of its preclinical safety profile, the molecule did not reduce sebum production in animals following topical administration. DRM01 is the result of a drug discovery program directed to leveraging the well-characterized nature of the lipid synthesis inhibitor by identifying a prodrug that effectively reduces sebum production when administered topically.
We have completed a 108-patient, randomized, multi-center, double-blind, vehicle-controlled Phase 2a clinical trial that was designed in accordance with published FDA draft guidance regarding the development of acne drugs. In this trial, patients treated with DRM01 achieved significant improvements relative to baseline and relative to patients who received vehicle only in the measures of acne severity that are most widely accepted by clinicians and the FDA as primary endpoints supporting the approval, labeling and use of prescription acne products. We believe that the overall efficacy, safety and tolerability profile observed in our Phase 2a clinical trial of DRM01 compares favorably to the profiles of the leading products in the acne market today, including topical and systemic therapies. This attractive clinical profile is supported by preclinical studies demonstrating that DRM01 inhibits, in a dose-dependent manner, the production of key sebum components in sebum-producing cells and reduces sebaceous gland size in animals.
Clinical Development
We are developing DRM01 in accordance with published FDA draft guidance regarding the development of acne drugs. This draft guidance sets forth the FDA's recommendations regarding the design, conduct and analysis of clinical trials intended to support marketing approval for new acne products. We believe that this published draft guidance streamlines the process of acne drug development by defining the FDA's expectations regarding the design, conduct and analysis of clinical trials. This presents an opportunity to design initial clinical trials that are similar in design to the Phase 3 clinical trials that would be conducted to support regulatory approval if the initial clinical trials are successful, which we believe enhances the predictability of late-stage clinical trial outcomes based on earlier-stage results. In addition, we believe that the principles set forth in the published FDA draft guidance can be used, in the context of guidance obtained from foreign regulatory authorities, to inform the design of a development program that can support marketing approval of a new acne product in jurisdictions outside the United States.
We have completed a Phase 1 clinical trial and a Phase 2a clinical trial to assess the efficacy, safety and tolerability of DRM01. Both trials were conducted in Canada.
Phase 1 Clinical Trial. In the Phase 1 clinical trial, six healthy volunteers applied topical DRM01 gel to the face for seven days. All subjects completed dosing, and no adverse events were reported.
Phase 2a Clinical Trial. The FDA recommends that the principal clinical trials used to demonstrate safety and efficacy in support of marketing approval be randomized, multi-center, blinded trials designed to demonstrate superiority of the investigational product relative to a vehicle or placebo
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control following a treatment duration of at least 12 weeks. Our Phase 2a clinical trial was a randomized, multi-center, double-blind, vehicle-controlled study designed in accordance with the published FDA draft guidance. In this trial, 108 patients with moderate or severe acne were instructed to apply either DRM01 gel or vehicle gel to the face twice daily for 12 weeks. DRM01 gel was formulated at a concentration of 7.5%. Of the 108 patients enrolled in the trial, 53 were randomized to receive DRM01, and the other 55 were randomized to receive vehicle only.
Three primary efficacy endpoints recommended in the published FDA draft guidance were used as primary efficacy endpoints in this trial:
In our trial, lesions were counted by the investigators, and a successful improvement in IGA score was defined as a reduction from baseline of at least two points on the IGA scale. As is standard practice in acne clinical trials, the primary efficacy endpoints were assessed at the end of the 12-week treatment period.
As outlined below, DRM01 demonstrated statistically significant improvements relative to vehicle in all three primary efficacy endpoints. The following chart summarizes the impact of DRM01 on acne lesion counts.
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Primary Endpoints: Absolute Changes in Lesion Counts at Week 12
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
As recommended in the published FDA draft guidance regarding the development of acne drugs, data are presented from the ITT population, defined as all randomized patients who were dispensed study product, and the last available on-treatment observation is used to estimate missing data points. The average lesion count at baseline includes all 108 patients in the ITT population. Missing data for one patient in the vehicle cohort for whom no on-treatment efficacy assessment was available are excluded from the patient population observed the end of the 12-week treatment period.
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The following table summarizes two of several secondary analyses we conducted: the percent reductions in inflammatory and non-inflammatory lesion counts from baseline to the end of the 12-week treatment period.
|
Inflammatory lesion count |
Non-inflammatory
lesion count |
||||||
---|---|---|---|---|---|---|---|---|
|
Vehicle | DRM01 | Vehicle | DRM01 | ||||
N |
54 | 53 | 54 | 53 | ||||
Average percent reduction in lesion count from baseline |
45.9% | 63.9% | 28.8% | 48.1% | ||||
P-value(a) |
0.0006 | 0.0025 |
As recommended in the published FDA draft guidance regarding the development of acne drugs, data are presented from the ITT population, defined as all randomized patients who were dispensed study product, and the last available on-treatment observation is used to estimate missing data points. Missing data for one patient in the vehicle cohort for whom no on-treatment efficacy assessment was available are excluded from the patient population observed at the end of the 12-week treatment period.
From baseline to week 12, the number of inflammatory lesions in patients treated with DRM01 was reduced by an average of 19.3, or 63.9%, in comparison with 13.3, or 45.9%, in patients who received the vehicle only. Over the same time period, the number of non-inflammatory lesions in patients treated with DRM01 was reduced by an average of 19.9, or 48.1%, in comparison with 11.2, or 28.8%, in patients who received the vehicle only. Based on these results, patients treated with DRM01 achieved a 45% greater average absolute reduction in inflammatory lesion count and a 78% greater average absolute reduction in non-inflammatory lesion count than patients who received vehicle only.
The following chart summarizes the impact of DRM01 on the third primary efficacy endpoint: the proportion of patients who achieved a successful improvement the severity of their disease, as assessed using the IGA.
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Primary Endpoint: IGA Response Rate at Week 12
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
As recommended in the published FDA draft guidance regarding the development of acne drugs, data are presented from the ITT population, defined as all randomized patients who were dispensed study product. In this analysis, patients with missing data points were considered non-responders.
At the end of the 12-week treatment period, 24.5% of patients (13/53) who received DRM01 achieved a successful improvement in the IGA score, in comparison with 7.3% of patients (4/55) who received the vehicle only. Based on these results, patients treated with DRM01 were more than three times more likely than patients who received vehicle only to achieve a successful improvement in IGA score.
When analyzing the Phase 2a study data looking at per-protocol patients, a population that is smaller in size and thus has lower statistical power, although the IGA and inflammatory lesion count results are statistically significant (p = 0.0314 and p = 0.0048, respectively), the non-inflammatory lesion count results do not reach statistical significance (p = 0.0566).
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Adverse events observed in this clinical trial are summarized below. The proportion of patients enrolled in each of the two cohorts in which selected types of adverse events were reported are shown in parentheses.
Cohort
|
DRM01 | Vehicle | |||||
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Number of patients enrolled |
53 | 55 | |||||
Number of patients reporting any adverse event (% of patients enrolled) |
35 (66.0% | ) | 38 (69.1% | ) | |||
Number of patients reporting any treatment-related adverse event (% of patients enrolled) |
12 (22.6% | ) | 8 (14.5% | ) |
The most common adverse events were upper respiratory tract infections, which were considered unrelated to treatment, and application-site conditions, which are frequently observed in most clinical trials of topical products. No treatment-related serious adverse events were reported.
Phase 2b Clinical Program. Based on the attractive efficacy, safety and tolerability profile observed in the Phase 2a clinical trial, including significant improvements in the measures of acne severity that are most widely accepted by clinicians and the FDA as primary endpoints supporting the approval, labeling and use of prescription acne products, we intend to file an IND and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015. We expect that our Phase 2b clinical program will include a dose-ranging Phase 2b clinical trial comparing multiple DRM01 administration regimens to vehicle only. If the results of these trial(s) are positive, we intend to use them to support dose selection for Phase 3 development. As with our completed Phase 2a clinical trial, we intend to design our Phase 2b clinical program and any Phase 3 clinical trials in accordance with the published FDA draft guidance regarding the development of acne drugs.
The Market Opportunity
According to VisionGain, acne accounted for approximately $3.7 billion in global pharmaceutical sales in 2012. In the same year, each of the three major prescription pharmaceutical product classes that are predominantly used to treat acne generated between approximately $670 million and $1.9 billion in U.S. sales, according to data provided by Symphony Health Solutions, Pharmaceutical Audit Suite. These three product classes have been available for over 30 years, and we believe that growth in this market recently has been significantly limited by a lack of innovation in new product development. We believe that the introduction of a topical treatment with a new mechanism of action could establish a new product class and expand the acne market.
We believe that the profile of DRM01, including its novel mechanism of action and the overall efficacy, safety and tolerability profile observed in our Phase 2a clinical trial, compares favorably to the profiles of the leading products in the acne market today, including topical and systemic therapies. Based on a cross-study comparison of efficacy data we have compiled from the Phase 2a clinical trial of DRM01 and the U.S. prescribing information describing the largest pivotal Phase 3 clinical trials conducted with the leading products in the U.S. market, as measured by annual U.S. sales in 2012, across the four principal prescription pharmaceutical product classes labeled to treat acne with the exception of oral isotretinoin, which is only indicated for severe, recalcitrant, nodular acne, we believe that DRM01 may have an attractive efficacy profile in comparison to these leading products. A comparison of efficacy across these six separate clinical trials on the basis of the measures of acne severity that are most widely accepted by clinicians and the FDA as primary endpoints supporting the approval, labeling and use of prescription acne products is shown below.
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Cross-study comparison of DRM01 and leading acne products in the U.S. market
In each of these studies, acne patients received at least 12 weeks of therapy. In the DRM01 Phase 2a clinical trial, 108 patients were randomized to receive either topical treatment with DRM01 gel twice daily or vehicle gel. In the Aczone Phase 3 clinical trial, 1,525 patients were randomized to receive either topical treatment with Aczone gel twice daily, which is the labeled administration regimen in the United States, or vehicle gel. In the Differin Phase 3 clinical trial, 392 patients were randomized to receive either topical treatment with Differin gel once daily, which is the labeled administration regimen in the United States, or vehicle gel. In the Epiduo Phase 3 clinical trial, 833 patients were randomized to receive either topical treatment with Epiduo gel once daily, which is the labeled administration regimen in the United States, or vehicle gel. In the Solodyn Phase 3 clinical trial, 473 patients were randomized to receive either oral treatment with Solodyn once daily or placebo. In this clinical trial, Solodyn was administered in accordance with the labeled administration regimen in the United States, except that the dose range of 0.76 to 1.5 mg per kilogram of body weight was wider than the labeled dose range of 0.92 to 1.11 mg per kilogram of body weight. In the Yaz Phase 3 clinical trial, 458 patients were randomized to receive either oral treatment with Yaz once daily, which is the labeled administration frequency in the United States, or placebo.
Efficacy data are presented in terms of the average reductions in the numbers of inflammatory and non-inflammatory acne lesions from baseline, expressed as a percentage of the corresponding numbers of lesions present at baseline, as well as the proportions of patients who achieved a successful improvement in the severity of their acne, as rated by the investigator, or PGA success. Data are reported at 12 weeks following the start of therapy except in the case of Yaz, for which data are reported in the U.S. prescribing information at 155 days, or approximately 22 weeks, following the start of therapy. As Solodyn is only approved for the treatment of inflammatory acne, reductions in non-inflammatory lesion counts are not reported in the U.S. prescribing information for this product. While there were some differences in the patient populations, particularly in terms of sample size, disease severity, age and sex, as well as differences in each of the scales and definitions used to assess PGA success, that make it difficult to draw conclusions from this cross-study comparison, and while this cross-study comparison will not be used to support regulatory filings for DRM01, we believe that
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DRM01 may have an attractive efficacy profile in comparison to these leading products in the U.S. acne market today, though without direct comparative efficacy data, we will not be able to make comparative efficacy claims.
In addition to its efficacy, we believe that DRM01 has other attributes that would be attractive to dermatologists and their patients. If the safety and tolerability profile observed in our Phase 2a clinical trial is confirmed in Phase 3 clinical trials, we believe that topical administration of DRM01 would offer physicians an attractive avenue to incorporate targeting of sebum production into acne treatment without the risk of the systemic side effects associated with oral isotretinoin and hormonal therapies, which are currently the only approved pharmaceutical products that effectively inhibit sebum production. In the context of guidelines published by the Global Alliance to Improve Outcomes in Acne recommending that acne treatment be directed toward as many pathogenic factors as possible and the overall preference for topical products in dermatology, we believe that as a topical sebum inhibitor with a mechanism of action that we believe is complementary to all available topical acne treatments, DRM01 would be well-positioned in the acne market.
Early-Stage Development Programs
We are developing one product candidate, DRM02, for the topical treatment of inflammatory skin diseases, and one product candidate, DRM05, for the topical treatment of acne.
DRM02
DRM02 is a novel, topical PDE4 inhibitor under preclinical development for the treatment of inflammatory skin diseases. PDE4 is an enzyme that plays an important role in promoting inflammation. Both systemically and topically administered PDE4 inhibitors have demonstrated efficacy in the treatment of psoriasis and atopic dermatitis in clinical trials. However, systemic treatment has resulted in dose-limiting side effects, including nausea, vomiting and gastric acid production. We believe that a topical PDE4 inhibitor such as DRM02 may offer the advantage of local anti-inflammatory action within the skin, while limiting uptake into the systemic circulation, thereby reducing the risk of systemic side effects observed with oral PDE4 inhibitors.
Preclinical studies have demonstrated that in animal models, DRM02 inhibits the response to a variety of inflammatory stimuli, as well as the production of a range of inflammatory mediators implicated in inflammatory skin diseases. We have completed a Phase 1 clinical trial and a Phase 2a proof-of-concept clinical program exploring the preliminary safety, tolerability and efficacy of DRM02 in patients with inflammatory skin diseases. Initial clinical efficacy data indicate that DRM02 gel was not more effective than vehicle-only gel. We are determining next steps for this product candidate.
DRM05
DRM05 is a novel, topical PDT under preclinical development for the treatment of acne. PDT is an approach to selectively eliminate target tissue by administering a photosensitizing agent to the target tissue, then exposing the tissue to light to activate the photosensitizing agent. PDT is performed in a physician's office and has been approved for the treatment of other skin conditions, such as actinic keratosis. Topical PDT has shown promising efficacy in acne, but has been limited by painful, visible side effects. We believe that there is currently no approved PDT for the treatment of acne.
DRM05 is designed to treat acne by selectively ablating sebaceous glands. We believe that if we are able to selectively target the distribution of our novel photosensitizer to the sebaceous glands and limit distribution to surrounding tissues, DRM05 could be associated with fewer side effects than available topical PDT. Our development program is focused on demonstrating proof-of-concept for DRM05 in animals. If we are successful, we intend to advance DRM05 into clinical development.
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Competition
Our industry is highly competitive and subject to rapid and significant change. While we believe that our development and commercialization experience, scientific knowledge and industry relationships provide us with competitive advantages, we face competition from pharmaceutical and biotechnology companies, including specialty pharmaceutical companies, and generic drug companies, academic institutions, government agencies and research institutions.
Many of our competitors have significantly greater financial, technical and human resources than we have. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other novel therapies that are more effective, safer or less costly than our current or future product candidates, or obtain regulatory approval for their products more rapidly than we may obtain approval for our product candidates. Our success will be based in part on our ability to identify, develop and manage a portfolio of product candidates that are safer and more effective than competing products.
Moderate-to-Severe Plaque Psoriasis
If approved for the treatment of moderate-to-severe plaque psoriasis, we anticipate that Cimzia would compete with other approved psoriasis therapeutics, including:
In addition to approved moderate-to-severe plaque psoriasis treatments, there are also several pharmaceutical product candidates under development that could potentially be used to treat psoriasis and compete with Cimzia. Products for which applications for marketing in psoriasis are under review by the FDA include Otezla, which is marketed by Celgene Corporation in psoriatic arthritis, and secukinumab, which is being developed by Novartis. In addition, product candidates in Phase 3 clinical trials include Xeljanz, which is marketed in rheumatoid arthritis by Pfizer, ixekizumab from Eli Lilly and Company, brodalumab from Amgen and tildrakizumab from Merck. There are multiple biosimilar versions of TNF inhibitors under development, including late-stage biosimilar versions of Humira from Amgen, Sandoz and Boehringer Ingelheim and other biosimilar versions of TNF inhibitors in development by companies, including Baxter International Inc. and Hospira, Inc.
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Hyperhidrosis
If approved for the treatment of primary axillary hyperhidrosis, we anticipate that DRM04 would compete with other therapies used for hyperhidrosis, including:
In addition to approved hyperhidrosis treatments, there are also several treatments under development that could potentially be used to treat hyperhidrosis and compete with DRM04, including a laser-based procedure from Cynosure, Inc., an ultrasound device from Ulthera, Inc., topical forms of botulinum toxin A from Revance Therapeutics, Inc. and Anterios, Inc., and topical anticholinergic product candidates from Brickell Biotech, Inc. and GlaxoSmithKline LLC, or GSK.
Acne
If approved for the treatment of acne, we anticipate that DRM01 and DRM05 would compete with other approved prescription acne products, including:
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In addition to approved prescription acne therapies, a number of prescription products are used off-label for the treatment of acne, including branded and generic products containing the oral hormonal therapy spironolactone, such as Aldactone, marketed by G.D. Searle LLC, a division of Pfizer.
In addition to prescription acne therapies, a wide range of OTC and device products are used to treat acne, including OTC benzoyl peroxide products and skin cleansers, such as Proactiv, marketed by Guthy-Renker LLC, as well as light-based therapies, such as Blu-U, marketed by Dusa Pharmaceuticals, Inc., a division of Sun Pharmaceutical Industries, Inc.
In addition to commercially available products, there are several product candidates in development that could potentially be used to treat acne and compete with DRM01 or DRM05. Late-stage product candidates include topical antimicrobials in development by Galderma, Valeant and Maruho Co., Ltd., and light-based therapies in development by Photocure ASA, LEO Pharma and KLOX Technologies, Inc. Early-stage product candidates are in development by Androscience Corporation, Valeant, Galderma, Braintree Laboratories, Inc., Novan, Inc., Anterios and Foamix, Ltd.
Inflammatory Skin Diseases
If approved for the treatment for one or more inflammatory skin diseases, we anticipate that DRM02 would compete with other therapies approved for the same or similar indications, as well as potential product candidates for such indications. Currently approved therapies include topical corticosteroids, which are widely available and mostly generic; topical calcineurin inhibitors, antimicrobials, vasoconstrictors, vitamin D derivatives, and retinoids; oral antihistamines, antibiotics and retinoids; and injectable biologics. There are several product candidates in development for the potential treatment of inflammatory skin diseases from competitors including Allergan, Anacor Pharmaceuticals, Inc., Astellas Pharma US, Inc., Bayer, Pfizer, Galderma, GSK, LEO Pharma, McNeil-PPC, Inc., Regeneron Pharmaceuticals, Inc., Sanofi and Valeant.
Commercial Operations
We intend to build a commercial infrastructure in the United States and Canada to support the commercialization of our product candidates, if and when we believe that a regulatory approval of the first of such product candidates appears likely in the near term. We intend to build a targeted sales force to establish relationships with dermatologists. We expect that our sales force will be supported by sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure, we will have to invest significant financial and management resources, some of which will be committed prior to any confirmation that our product candidates will be approved, and we could invest resources and then later learn that a particular product candidate is not being approved. To commercialize Cimzia, we also intend to leverage the commercial infrastructure of our partner, UCB, in selected areas, such as manufacturing, distribution, managed care and patient access, which would provide us with additional resources and expertise in these areas. We may also partner with third parties to help us reach other geographic markets or therapeutic specialties.
Intellectual Property
Our success depends in large part upon our ability to obtain and maintain proprietary protection for our products and technologies, and to operate without infringing the proprietary rights of others. We seek to avoid the latter by monitoring patents and publications that may affect our business, and to the extent we identify such developments, evaluate and take appropriate courses of action. With respect to the former, our policy is to protect our proprietary position by, among other methods, filing for patent applications on inventions that are important to the development and conduct of our business with the U.S. Patent and Trademark Office, or USPTO, and its foreign counterparts.
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As of September 1, 2014, we own or have an exclusive license to 23 issued U.S. patents and 88 issued foreign patents, which include granted European patent rights that have been validated in various EU member states, and 12 pending U.S. patent applications and 37 pending foreign patent applications. Of these patents and patent applications:
In addition, we have patents and patent applications not included in the figures noted above related to Cimzia licensed to us under the UCB agreement, including six issued U.S. patents and two issued Canadian patents. These patents cover the Cimzia TNF inhibitor and related molecules for making them, and will expire between 2014 and 2024. Yeda Research and Development Co. Ltd., or Yeda, has alleged that Cimzia infringes on U.S. Patent No. 6,090,923, a patent owned by Yeda, or the '923 Patent. In response, UCB filed a complaint in August 2014 seeking declaratory judgment that the '923 Patent is invalid, Cimzia does not infringe on the '923 Patent, the '923 Patent is unenforceable and any claim for infringement by UCB of the '923 Patent is barred.
Altogether, our issued U.S. and foreign patents and pending U.S. and foreign patent applications, if issued, for our lead product candidates, Cimzia, DRM04 and DRM01, will expire between 2014 and 2034.
We also use other forms of protection, such as trademark, copyright, and trade secret protection, to protect our intellectual property, particularly where we do not believe patent protection is appropriate or obtainable. We aim to take advantage of all of the intellectual property rights that are available to us and believe that this comprehensive approach will provide us with proprietary positions for our product candidates, where available.
Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.
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We also protect our proprietary information by requiring our employees, consultants, contractors and other advisors to execute nondisclosure and assignment of invention agreements upon commencement of their respective employment or engagement. Agreements with our employees also prevent them from bringing the proprietary rights of third parties to us. In addition, we also require confidentiality or service agreements from third parties that receive our confidential information or materials.
Collaborations and License Agreements
Collaboration with UCB
In March 2014, we entered into a development and commercialization agreement with UCB, or the UCB agreement, which provides that we will develop Cimzia for the treatment of psoriasis in order for UCB to seek regulatory approval from the FDA, the European Medicines Agency, or the EMA, and the Canadian federal department for health, or Health Canada, and upon the grant of regulatory approval in the United States and Canada, that we will promote sales of Cimzia to dermatologists and conduct related medical affairs activities in the United States and Canada. Unless earlier terminated, the term of the UCB agreement is 12.5 years following the first commercial launch following regulatory approval of Cimzia for the treatment of psoriasis in the United States and Canada. In connection with the UCB agreement, UCB purchased $5.0 million of shares of our Series B convertible preferred stock in April 2014, purchased $7.5 million of shares of our Series C convertible preferred stock in August 2014 and concurrently with this offering will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial public offering price, or 500,000 shares based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus.
We have agreed with UCB on a development plan to obtain regulatory approval from the FDA, EMA and Health Canada, which may be amended as necessary to meet the requirements of these regulatory authorities for approval. We are responsible for paying all development costs specified under the UCB agreement and incurred in connection with the development plan up to a specified amount greater than $75.0 million and less than $95.0 million, plus our internal development costs. Any development costs in excess of this amount or for any required clinical trials in pediatric patients will be shared equally. Development costs for any EMA-specific post-approval studies will be borne solely by UCB. UCB is obligated to pay us up to an aggregate of $36.0 million if certain development milestones are met, and up to an additional aggregate of $13.5 million upon the grant of regulatory approval, including pricing and reimbursement approval, in certain European countries.
Under the terms of the UCB agreement, we will have the exclusive rights upon regulatory approval of the psoriasis indication to promote Cimzia to dermatologists in the United States and Canada. Following such regulatory approval, UCB will book sales and is obligated to pay us royalties representing a percentage of the annual gross margin (after subtracting the costs of certain commercialization support services to be provided by UCB) from Cimzia sales attributed to dermatologists for all indications in the United States and Canada. In each year, the royalties will be payable quarterly and are tiered based upon increasing levels of annual net sales attributed to dermatologists in such year, with UCB retaining between 10% and, above $150.0 million of such annual net sales in such year, 50%, and Dermira receiving the balance, of such annual gross margin. In addition, UCB is obligated to pay us up to an aggregate of $40.0 million upon the achievement of tiered milestones based on annual net sales of Cimzia attributed to dermatologists in the United States and Canada.
We have decision-making authority for the level of commercial and medical affairs activities we conduct and are responsible for the costs and expenses that we incur in connection with such activities. We have agreed to make minimum annual numbers of promotional presentations to dermatologists in
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the United States or that a minimum portion of the incentive compensation paid to our sales force will be based on sales of Cimzia attributable to dermatologists in the United States.
The UCB agreement provides for the establishment of a joint steering committee, joint development committee and joint commercialization committee to oversee and coordinate the parties' activities under the UCB agreement. We and UCB have agreed to make committee decisions by consensus and although UCB has final decision-making authority for development, regulatory and commercialization strategy (including product pricing), except as required by regulatory authorities, UCB cannot amend the agreed development plan or increase the development budget without our approval.
We have agreed that, during the term of the UCB agreement, except in limited circumstances, we and our affiliates will not clinically develop, seek regulatory approval for or commercialize a biologic TNF inhibitor other than Cimzia, or promote any other biologic TNF inhibitor to any dermatologist in the United States or Canada. UCB has agreed that during the term of the UCB agreement, except in limited circumstances, it and its affiliates will not clinically develop, seek regulatory approval for or commercialize a biologic TNF inhibitor other than Cimzia for the treatment of psoriasis or psoriatic arthritis in the United States or Canada, or promote any other biologic TNF inhibitor to any dermatologist in the United States or Canada.
If during the term of the UCB agreement, we acquire or are acquired by a third party that is clinically developing or commercializing a biologic TNF inhibitor, UCB has the right to terminate the agreement if we do not either cease such clinical development or commercialization or divest such product. If we consummate a change of control with a third party that is clinically developing or commercializing a biologic TNF inhibitor, UCB has the right to terminate the UCB agreement. The sale, transfer, exclusive license or other disposition of our assets will be considered a change of control only if it constitutes all or substantially all of our assets and includes our rights to develop and/or commercialize Cimzia under the UCB agreement.
UCB does not have the right to terminate the UCB agreement if we consummate a change of control with a third party that is not clinically developing or commercializing a biologic TNF inhibitor, which we refer to as a non-competitor company, so long as (1) the non-competitor company either (a) is engaged in the development or commercialization of a pharmaceutical product or (b) will maintain us as an operating entity and will maintain at least 50% of our executive management team for at least 12 months, (2) the non-competitor company has sufficient working capital to continue and complete our development obligations under the UCB agreement (taking into consideration any milestone payments to be made by UCB) and has the ability to obtain sufficient funding to perform the commercial and medical affairs activities and other obligations for which we are responsible under the UCB agreement and (3) if the change of control occurs prior to the date of the grant of first regulatory approval for Cimzia for the treatment of psoriasis in the United States, Canada or the European Union, the non-competitor company agrees in writing to complete such development obligations. If we consummate a change of control with a non-competitor company that does not meet all of these requirements, then UCB has the right to terminate the UCB agreement.
Without the prior written consent of UCB, we are not permitted to assign or transfer our rights or obligations under the UCB agreement other than to our affiliates or a non-competitor company that meets the requirements described in the prior paragraph or in the event UCB elects not to terminate the UCB agreement in connection with a change of control having had the right to do so.
If during the term of the UCB agreement UCB acquires or is acquired by, a third party that is clinically developing or commercializing a biologic TNF inhibitor for the treatment of psoriasis or targeting dermatologists for the treatment of psoriatic arthritis, in either case, in the United States or Canada, we have the right to terminate the agreement if UCB does not either cease such clinical development or commercialization or divest such product.
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The UCB agreement is terminable by UCB if we commit an uncured material breach of the UCB agreement, in the event of our insolvency, or following our change of control with a competitor company or with a non-competitor company that does not meet the requirements described above. In these events, we are obligated to transition to UCB at our expense our activities under the UCB agreement and if such termination occurs prior to the grant of regulatory approval for Cimzia for the treatment of psoriasis, we are obligated to pay the remaining costs for which we would be responsible under the agreed development plan reduced by the amount of development milestone payments that would have been payable upon achievement of applicable development milestones when such milestones are achieved. UCB will remain responsible for its share of the development costs above the agreed amount and for pediatric clinical studies and its sole responsibility to fund any EMA-specific post-approval studies. If we comply with these development funding obligations, UCB is obligated to reimburse us for the development costs we incur less any applicable development milestone deductions, and if the termination occurs following regulatory approval, less any royalty payments and sales-based milestone payments made, by paying to us a low single-digit royalty on the net sales received by UCB from the sale of Cimzia in the United States and Canada in all indications until all such costs we have incurred have been reimbursed.
The UCB agreement is also terminable by UCB if it determines that a validated safety signal is established the magnitude of which UCB determines constitutes a significant patient risk so that the development or commercialization of Cimzia should cease. In this event, UCB is obligated to reimburse us for the development, commercial and medical affairs costs we have incurred in accordance with the UCB agreement by paying to us a low single-digit royalty on the net sales received by UCB from the sale of Cimzia in the United States and Canada in all indications until all costs have been reimbursed. Upon such a termination, UCB is obligated to no longer develop or commercialize Cimzia for the treatment of psoriasis anywhere in the world.
The UCB agreement is terminable by us if UCB commits an uncured material breach of the UCB agreement or in the event of UCB's insolvency. In such events, UCB is obligated to pay us an amount equal to the fair market value of the UCB agreement to us subject, if termination occurs before we and UCB have received the complete data set used to assess the primary efficacy endpoint of the first Phase 3 clinical trial of Cimzia for the treatment of psoriasis, to a minimum amount equal to a multiple of more than one time but less than two times the sum of the development, commercial and medical affairs costs we have incurred, the costs we incur transitioning development and commercialization to UCB and the costs, which we refer to as disruption and transition costs, that we incur as a result of termination, including terminating employees, reducing or disposing facilities and equipment and terminating or modifying agreements with third parties. The fair market value of the UCB agreement is the amount that a willing buyer would pay to a willing seller in an arm's length transaction for all of our rights under the UCB agreement, plus the disruption and transition costs. UCB is obligated to increase the payments to be made to us described in this paragraph by a tax gross-up equal to the income and other taxes incurred by us with respect to the receipt of such payments and the receipt of such gross-up amount, and if the payment to us is based on the minimum amount calculated above, instead of the determination of the fair market value of the UCB agreement, UCB may offset such payment by the aggregate amount of all development milestone payments that UCB previously paid to us. We and UCB have agreed to cooperate to minimize the amount of such taxes and if the resulting transaction structure results in taxation either to us, our affiliates or our stockholders, then the tax gross-up payment will also include an amount to be paid to such persons sufficient to cause their net tax costs to be no greater than the taxes they would have paid had the consideration received in such transaction been taxed net of basis at the long-term capital gains rate.
The UCB agreement is also terminable by us after we and UCB have received the complete data set used to assess the primary efficacy endpoint of the first Phase 3 clinical trial of Cimzia for the treatment of psoriasis. In this event, we are obligated to pay the costs of winding down all then-ongoing clinical studies or, if UCB elects to continue the development and commercialization of Cimzia for the
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treatment of psoriasis, continue to pay the costs for which we would have been responsible under the agreed development plan up to the completion, or the date of termination by UCB, of all then-ongoing clinical studies, reduced by the amount of development milestone payments that would have been payable upon achievement of applicable development milestones when such milestones are achieved. UCB will remain responsible for its share of development costs above the agreed amount and for pediatric clinical studies and its sole responsibility to fund any EMA-specific post-approval studies. If we comply with these development funding obligations and Cimzia is approved for the treatment of psoriasis, UCB is obligated to reimburse us for the net development costs we incur by paying to us a low single-digit royalty on the net sales received by UCB from the sale of Cimzia in the United States and Canada in all indications until all such costs we have incurred have been reimbursed.
The UCB agreement is also terminable by us following the commercial launch of Cimzia if UCB implements one or more business decision(s) specifically aimed and directed exclusively at Cimzia for the treatment of moderate-to-severe plaque psoriasis alone with the intention of materially benefiting the rest of UCB's Cimzia franchise and that UCB knew or reasonably should have known that such business decision(s) would, and such business decision(s) did, in fact, result in a material decrease in the amount of royalties payable to us under the UCB agreement. We shall have no right to terminate the UCB agreement if UCB (i) initiates corrective action immediately on receipt by it of a notice from us to reverse said material decrease in the amount of royalties payable to us under the UCB agreement and (ii) until such corrective action has taken effect so as to reverse such material decrease, UCB has reimbursed us in an amount equivalent to the loss of royalties under the UCB agreement from the date of the implementation of such business decision(s) up to the date of such reversal.
Agreements with Rose U and Stiefel
In April 2013, we entered into an exclusive license agreement with Rose U pursuant to which we obtained a worldwide exclusive license within a field of use including hyperhidrosis to practice, enforce and otherwise exploit certain patent rights, know-how and data related to DRM04. The license agreement with Rose U included a sublicense of certain data and an assignment of certain regulatory filings which Rose U had obtained from Stiefel. In connection with the license agreement we entered into a letter agreement with Stiefel pursuant to which we assumed Rose U's obligation to pay Stiefel approximately $2.5 million in connection with the commercialization of products developed using the licensed data and to indemnify Stiefel for claims arising from the use, development or commercialization of products developed using the Stiefel data. The agreements require us to use commercially reasonable efforts to develop and commercialize products using the licensed patent rights, know-how and data.
Pursuant to these agreements with Rose U and the related agreement with Stiefel with respect to our DRM04 product candidate, we are required to pay additional amounts totaling up to $4.6 million upon the achievement of specified development, commercialization and other milestones under these agreements. In addition, we are obligated to pay Rose U low-to-mid single-digit royalties on net product sales and low double-digit royalties on sublicense fees and certain milestone, royalty and other contingent payments received from sublicensees, to the extent such amounts are in excess of the milestone and royalty payments we are obligated to pay Rose U directly upon the events or sales triggering such payments.
We are permitted to grant sublicenses to the licensed rights and may assign the agreements upon an acquisition of us or our assets that relate to the license agreement, provided that in the event of an acquisition of our assets we must first pay to Stiefel the commercialization payment we are obligated to make on behalf of Rose U, if such amount has not already been paid. We may terminate the license agreement if Rose U experiences certain insolvency events or if Rose U commits a material breach of the license agreement, subject to applicable cure provisions. We may also terminate the license agreement if we determine that development results or market dynamics do not justify further development or commercialization of licensed products, in which case, all patent and technology rights
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shall revert to Rose U and we will (i) grant Rose U a perpetual nonexclusive license to any improvements owned by us that have been applied to or used with DRM04, at a royalty rate to be mutually agreed through good faith negotiation, and (ii) for 120 days after such termination, assist and cooperate with Rose U (at Rose U's expense) in connection with the license of such improvements to Rose U. Rose U may terminate the license in certain circumstances if we experience certain insolvency events or if we commit a material breach of the license agreement or if we cause Rose U to be in material breach of its license agreement with Stiefel, subject in each case to applicable cure provisions. Subject to earlier termination, the license agreement remains in effect until 15 years following the first commercial sale of a licensed product have elapsed or, if later, the date that the last patent or patent application in the licensed patent rights has expired or been revoked, invalidated or abandoned. As of July 25, 2014, the last-to-expire issued patent relating to DRM04 that we license under the license agreement with Rose U expires in 2029.
Government Regulation
FDA Drug Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, or NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (1) in compliance with federal regulations; (2) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors; and (3) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
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The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval at each site at which the clinical trial will be conducted. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements, or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. For dermatology products, Phase 2 usually involves trials in a limited patient population to determine metabolism, pharmacokinetics, the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 clinical trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases the FDA requires two adequate and well-controlled Phase 3 clinical trials with statistically significant results to demonstrate the efficacy of the drug. A single Phase 3 clinical trial with other confirmatory evidence may be sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of an effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product's pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and sponsor under an approved new drug application are also subject to annual product and establishment user fees. These fees are typically increased annually.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of new drug applications. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists. For biologics, priority review is further limited only for drugs intended to treat a serious or life-threatening disease relative to the currently approved products. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with current good manufacturing practice, or cGMP, is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
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After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
The Hatch-Waxman Act
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant's product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as "generic equivalents" to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA's Orange Book. Specifically, the applicant must certify that: (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product's listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has
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provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then commence a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Exclusivity
Upon NDA approval of a new chemical entity or NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot receive any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approval an ANDA for a generic drug that includes the change.
An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification and, thus, no ANDA may be filed before the expiration of the exclusivity period.
Section 505(b)(2) New Drug Applications
Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2), or 505(b)(2), NDA, which enables the applicant to rely, in part, on the FDA's previous approval of a similar product, or published literature, in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.
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Biologics
Cimzia is a biological product. Biological products used for the prevention, treatment or cure of a disease or condition of a human being are subject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of NDAs. Biological products are approved for marketing under provisions of the Public Health Service Act, or PHSA, via a Biologics License Application, or BLA. However, the application process and requirements for approval of BLAs and BLA supplements, including review timelines, are very similar to those for NDAs and NDA supplements, and biologics are associated with similar approval risks and costs as drugs. To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in the United States and between states.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer's tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency and effectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing and are subject to periodic inspection after approval.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, creates an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage form and strength, and that there be no meaningful differences between the biological product and the reference product in terms of safety, purity and potency. Biosimilarity must be shown through analytical studies, animal studies and at least one clinical study, absent a waiver by the Secretary. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. No biosimilar or interchangeable products have been approved under the BPCIA to date. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation which are still being evaluated by the FDA.
A reference biologic is granted 12 years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other biologics for the same condition of use for the lesser of (1) one year after first commercial marketing of the first interchangeable biosimilar, (2) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (3) 18 months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable
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biosimilar applicant, or (4) 42 months after the first interchangeable biosimilar's application has been approved if a patent lawsuit is ongoing within the 42-month period.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five year patent extension. The allowable patent term extension is calculated as half of the drug's testing phase, the time between IND application and NDA submission, and all of the review phase, the time between NDA submission and approval, up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Post-Approval Requirements
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, risk evaluation and mitigation strategies, or REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
Pediatric Information
Under the Pediatric Research Equity Act, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data.
The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any exclusivity, patent or non-patent, for a drug if certain conditions are met. Conditions for exclusivity include the FDA's determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written
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request for pediatric studies and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly-available information to gain knowledge regarding the progress of development programs.
Regulation Outside of the United States
In addition to regulations in the United States, we will be subject to regulations of other countries governing any clinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. Certain countries outside of the United States have a process similar to the FDA's that requires the submission of a clinical trial application, or CTA, much like the IND prior to the commencement of human clinical trials. In the European Union, for example, a CTA must be submitted to each country's national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country's requirements, clinical trial development may proceed. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders or diabetes and is optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Anti-Kickback, False Claims Laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry. These laws include, among others, anti-kickback statutes, false claims statutes and other statutes pertaining to healthcare fraud and abuse. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. The Patient Protection and Affordable Care Act, or PPACA, as
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amended, amended the intent element of the federal anti-kickback statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exceptions or safe harbor.
Federal false claims laws prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate federal false claims laws. Additionally, PPACA amended the federal healthcare program anti-kickback statute such that a violation of that statute can serve as a basis for liability under certain federal false claims laws.
The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offerer or payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the healthcare fraud and false statements statutes, which prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations, or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items, or services.
Violations of these federal healthcare fraud and abuse laws are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs.
Other Federal and State Regulatory Requirements
The Centers for Medicare & Medicaid Services, or CMS, has issued a final rule pursuant to PPACA that requires certain manufacturers of prescription drugs to annually collect and report information on payments or transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Manufacturers were required to begin collecting information on August 1, 2013, with the first reports due March 31, 2014. The reported data is expected to be posted in searchable form on a public website beginning September 30, 2014. Failure to submit required information may result in civil monetary penalties.
In addition, several states now require prescription drug companies to report expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners and entities in these states. Other states prohibit various other marketing-related activities. Still other states require the posting of information relating to clinical studies and
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their outcomes. In addition, California, Connecticut, Nevada and Massachusetts require pharmaceutical companies to implement compliance programs and marketing codes. Several additional states are considering similar proposals. Some of the state laws are broader in scope than federal laws. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.
Reimbursement
Sales of any of our product candidates that are approved will depend, in part, on the extent to which the costs of our approved products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If any of our products are approved and these third-party payors do not consider our approved products to be cost-effective compared to other therapies, they may not cover our approved products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our approved products on a profitable basis.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices for our approved products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The ARRA provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to the U.S. Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of any approved product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor's product could adversely affect the sales of our product candidates. If third-party payors do not consider our approved products to be cost-effective compared
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to other available therapies, they may not cover our approved products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our approved products on a profitable basis.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the ACA, enacted in March 2010, is expected to have a significant impact on the health care industry. The ACA is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. We cannot predict the impact of the ACA on pharmaceutical companies, as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred. In addition, although the U.S. Supreme Court upheld the constitutionality of most of the ACA, some states have indicated that they intend to not implement certain sections of the ACA, and some members of the U.S. Congress are still working to repeal parts of the ACA. These challenges add to the uncertainty of the legislative changes enacted as part of ACA.
In addition, in some non-U.S. jurisdictions, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, product candidates launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Manufacturing and Supply
We currently contract with third parties for the manufacture of our small-molecule drug substances and drug products for preclinical studies and clinical trials and intend to continue doing so in the future. All of our clinical drug product manufacturing activities are in compliance with cGMP. We have assembled a team of experienced employees and consultants to provide the necessary technical, quality and regulatory oversight over the contract manufacturing organizations, or CMOs, with which we contract. We rely on third-party cGMP manufacturers for scale-up and process development work and to produce sufficient quantities of development product candidates for use in clinical and preclinical trials. We currently have development contracts and quality agreements with four CMOs for the manufacturing of our four small-molecule drug substances and three additional CMOs for the manufacturing of our four topical drug products. We anticipate that these CMOs will have capacity to support commercial scale, but we do not have any formal agreements at this time with any of these CMOs to cover commercial production. We also may elect to pursue other CMOs for manufacturing supplies for later-stage trials and for commercialization. We currently have no plans to establish a manufacturing capability, but rather plan to continue to rely on third-party cGMP manufacturers for any future trials and commercialization of the small-molecule compounds for which we retain manufacturing responsibility. Under the UCB agreement, UCB retains all responsibilities for the manufacture of Cimzia.
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Employees
As of September 1, 2014, we had 25 regular full-time employees, including 17 in research and development. We had one employee located outside of the United States as of September 1, 2014. From time to time, we also retain independent contractors to support our organization. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Facilities
Our corporate headquarters are located in Redwood City, California, where we occupy facilities totaling approximately 14,700 square feet, consisting of approximately 8,500 square feet under lease agreements that expire in November 2014 and approximately 6,200 square feet under a month-to-month lease. We entered into a lease agreement in July 2014 and an amendment in September 2014 for a facility totaling approximately 18,651 square feet in Menlo Park, California. We intend to relocate our corporate headquarters to this facility in the fourth quarter of 2014. The term of the lease commences December 2014 and terminates November 2019, with an option to renew for an additional three-year term. We use our current facilities and intend to use our future facility for our research and development and general and administrative personnel. We believe that our current and future facilities are adequate to meet our needs for the immediate future.
Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.
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The following table provides information regarding our executive officers and directors as of September 1, 2014:
Name
|
Age | Position | |||
---|---|---|---|---|---|
Executive Officers: |
|||||
Thomas G. Wiggans |
62 | Chief Executive Officer and Chairman of the Board | |||
Eugene A. Bauer, M.D. |
72 | Chief Medical Officer and Director | |||
Christopher M. Griffith |
38 | Vice President, Corporate Development & Strategy | |||
Andrew L. Guggenhime |
46 | Chief Operating Officer and Chief Financial Officer | |||
Luis C. Peña |
52 | Executive Vice President, Product Development | |||
Non-Employee Directors: |
|||||
David E. Cohen, M.D., M.P.H.(1)(4) |
49 | Director | |||
Fred B. Craves, Ph.D.(2)(4) |
69 | Director | |||
Matthew K. Fust(1)(3) |
50 | Director | |||
Wende S. Hutton(3) |
54 | Director | |||
Mark D. McDade |
59 | Director | |||
Jake R. Nunn(4) |
44 | Director | |||
William R. Ringo(1)(3) |
68 | Director |
Executive Officers
Thomas G. Wiggans founded our company in August 2010, has served as our Chief Executive Officer and a member of our board of directors since August 2010 and has served as the Chairman of our board of directors since April 2014. Mr. Wiggans has served on the boards of various industry organizations, educational institutions and private and public companies, including service on the boards of directors of Onyx Pharmaceuticals, Inc., a biopharmaceutical company, from March 2005 until its acquisition by Amgen Inc. in October 2013, Sangamo Biosciences, Inc. from June 2008 until June 2012, Somaxon Pharmaceuticals, Inc. from June 2008 until May 2012 and as chairman of the board of directors of Excaliard Pharmaceuticals, Inc. from October 2010 until its acquisition by Pfizer Inc. in December 2011. From October 2007, Mr. Wiggans served as Chairman of the board of directors of Peplin, Inc., a biotechnology company, and in August 2008, he became its Chief Executive Officer, and he served in these positions until Peplin's acquisition by LEO Pharma A/S in November 2009. Previously, Mr. Wiggans served as Chief Executive Officer of Connetics Corporation, a biotechnology company, from 1994, and as Chairman of the board of directors of Connetics from January 2006, and he served in these positions until December 2006 when Connetics was acquired by Stiefel Laboratories, Inc. From 1992 to 1994, Mr. Wiggans served as President and Chief Operating Officer of CytoTherapeutics Inc., a biotechnology company. From 1980 to 1992, Mr. Wiggans served at Ares-Serono S.A. in various management positions including President of its U.S. pharmaceutical operations and Managing Director of its U.K. pharmaceutical operations. Mr. Wiggans began his career with Eli Lilly and Company, a pharmaceutical company. In addition, Mr. Wiggans is Chairman of the Biotechnology Institute, a non-profit educational organization, and is a member of the board of trustees of the University of Kansas Endowment Association. Mr. Wiggans holds a B.S. in pharmacy from the University of Kansas and an M.B.A. from Southern Methodist University. Our board of directors
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believes that Mr. Wiggans' depth of senior management experience and his track record of new product development and commercialization as well as his experience serving on the boards of directors of public and private companies in the life sciences industry, qualify him to serve as the Chairman of our board of directors.
Eugene A. Bauer, M.D. founded our company in August 2010, has served as a member of our board of directors since August 2010 and has served as our Chief Medical Officer since October 2011. Dr. Bauer has served on the boards of directors of a number of public and private companies, including the boards of directors of Patient Safety Technologies, Inc. from January 2010 until June 2010 and Vyteris, Inc. from February 2010 until June 2012. From June 2006, Dr. Bauer served as a member of Peplin's board of directors, and in October 2008, he became its President and Chief Medical Officer, and he served in these positions until Peplin's acquisition by LEO Pharma in November 2009. From November 2004 to October 2008, Dr. Bauer was Chief Executive Officer of Neosil Inc., a dermatology company that was acquired by Peplin in October 2008. In 1993, Dr. Bauer co-founded Connetics, where he served as a member of the board of directors until October 2005. Dr. Bauer served as Dean of the Stanford University School of Medicine from 1995 to 2001 and as Chair of the Department of Dermatology at the Stanford University School of Medicine from 1988 to 1995. Dr. Bauer is a Lucy Becker Professor, Emeritus, in the School of Medicine at Stanford University, a position he has held since 2002. In addition, he is a member of the boards of directors of Medgenics, Inc., Dr. Tattoff, Inc., First Wave Technologies, Inc., Cerecor, Inc., and Kadmon Corporation, LLC. Dr. Bauer previously served as a member of the boards of directors of Protalex, Inc., Vyteris, Peplin, PetDRx, Inc., Arbor Vita Corp., Patient Safety Technologies, Inc., MediSync Bioservices and Modigene Inc. (now PROLOR Biotech, Inc.). Dr. Bauer was a U.S. National Institutes of Health, or NIH, funded investigator for 25 years and has served on review groups for the NIH. Dr. Bauer has been elected to several societies, including the Institute of Medicine of the National Academy of Sciences. Dr. Bauer received a B.S. in medicine and an M.D. from Northwestern University. Our board of directors believes that Dr. Bauer's educational and scientific background and his product development and management experience at a number of dermatology companies, as well as his experience serving on the boards of directors of public and private companies in the life sciences industry, qualify him to serve on our board of directors.
Christopher M. Griffith founded our company in August 2010 and has served as our Vice President of Corporate Development and Strategy since August 2011, after previously serving as our Head of Corporate Development and Strategy since September 2010. From July 2005 to September 2010, Mr. Griffith worked in corporate development at Gilead Sciences, Inc., most recently as Associate Director of Corporate Development. From May 2004 to August 2004, Mr. Griffith worked in the bio-oncology strategy group at Genentech, Inc., a biotechnology company. From 2001 to 2003, Mr. Griffith worked at Bay City Capital. Mr. Griffith received B.S. and M.S. degrees in biological sciences from Stanford University and an M.B.A. degree from Harvard Business School.
Andrew L. Guggenhime has served as our Chief Operating Officer and Chief Financial Officer since April 2014. From September 2011 to April 2014, Mr. Guggenhime served as Chief Financial Officer for CardioDx, Inc., a molecular diagnostics life sciences company, where he currently serves as a director. From September 2010 to April 2011, Mr. Guggenhime served as Chief Financial Officer for Calistoga Pharmaceuticals, Inc., a biotechnology company acquired in April 2011 by Gilead. From December 2008 to June 2010, Mr. Guggenhime served as Senior Vice President and Chief Financial Officer for Facet Biotech Corporation, a biotechnology company acquired in April 2010 by Abbott Laboratories. Facet Biotech Corporation was spun off from PDL BioPharma, Inc., a biopharmaceutical company, at which Mr. Guggenhime served as Chief Financial Officer from April 2006 to December 2008. From October 2000 to March 2006, Mr. Guggenhime served as Senior Vice President and Chief Financial Officer for Neoforma, Inc., a provider of supply-chain management solutions for the healthcare industry, and from January to October 2000 he served as its Vice President, Corporate Development.
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Mr. Guggenhime began his career in financial services at Merrill Lynch & Co. and Wells Fargo & Company. Mr. Guggenhime holds an M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University and a B.A. in international politics and economics from Middlebury College.
Luis C. Peña is a co-founder and has served as our Executive Vice President of Product Development since July 2013, after previously serving as our Vice President of Product Development since June 2011. From November 2010 to June 2011, Mr. Peña served as a consultant to our company. Mr. Peña served as Vice President, Head of Global Prescription Development at Stiefel, a GSK company, from January 2010 to March 2011 and, from January 2007 to December 2009, Mr. Peña served as Senior Vice President Portfolio Planning and Management at Stiefel Laboratories, prior to its acquisition by GlaxoSmithKline LLC. From 2005 to 2007, Mr. Peña served as Vice President of Portfolio Planning and Management of Connetics. From 2001 to 2005, Mr. Peña served as Vice President of Product Development of Nuvelo, Inc., a biopharmaceutical company. Previously, Mr. Peña served as Senior Director of Project Planning and Management for Theravance, Incorporated, a pharmaceutical company, and held various positions in manufacturing, research and development at Genentech, Inc., a biotechnology company. Mr. Peña currently serves as an advisor to the SPARK program for the Stanford University School of Medicine where he has been an advisor since 2012. Mr. Peña holds a B.S. in biochemistry from San Francisco State University.
Non-Employee Directors
David E. Cohen, M.D., M.P.H. has been a director of our Company since June 2014. Dr. Cohen previously served us as a scientific advisor from July 2010 to June 2014. Since 1993, Dr. Cohen has held positions at the New York University School of Medicine, including as Chief of Allergy and Contact Dermatitis since 1994, Director of Occupational and Environmental Dermatology since 1994, Associate Professor of Dermatology since 2005, Vice Chairman of Clinical Affairs since 2008, and the Charles C. and Dorothea E. Harris Professor of Dermatology since May 2013. Dr. Cohen has also served as a lecturer of Environmental Sciences at the Columbia University School of Public Health since 1993. In addition, he has been an attending physician at the Ronald O. Perelman Department of Dermatology at the Tisch Hospital at New York University Medical Center and at Bellevue Hospital Center since 1994. Dr. Cohen served on the boards of directors of Vyteris from June 2011 to January 2012 and Connetics from December 2005 until its sale to Stiefel Laboratories in December 2006. Dr. Cohen has served as a clinical consultant to numerous companies. Dr. Cohen has also served on the boards and committees of a number of professional organizations, including as President of the American Contact Dermatitis Society, as a founding board member of the American Acne and Rosacea society, as President of the Dermatology Section for the New York Academy of Medicine and on several committees of the American Academy of Dermatology and the American College of Allergy, Asthma, and Immunology. Dr. Cohen is also a member of the editorial board of Journal of Drugs in Dermatology and the editorial advisory boards of Dermatitis and Skin and Allergy News. Dr. Cohen earned a B.S. in biomedical science from the City University of New York, an M.D. from State University of New York at Stony Brook School of Medicine and an M.P.H. in environmental science from Columbia University School of Public Health. Our board of directors believes that Dr. Cohen's extensive experience in dermatology research and treatment as well as his understanding of dermatology from the physician's perspective qualify him to serve on our board of directors.
Fred B. Craves, Ph.D. has been a director of our company since August 2010. Dr. Craves is an investment partner, a Managing Director and a co-founder of Bay City Capital, or BCC, and has served as a member of the board of directors and Chairman of the executive committee of BCC since June 1997. Prior to founding BCC in 1996, Dr. Craves founded Burrill & Craves, a merchant bank focused on biotechnology and emerging pharmaceutical companies, in 1994. Dr. Craves served as Executive Vice President of Schering Berlin, Inc., a pharmaceutical company, and Chief Executive Officer and President of Berlex Laboratories, Inc., a research, development and manufacturing organization, from
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1990 to 1993. Dr. Craves was also the founding Chairman of the board of directors and Chief Executive Officer of Codon, Inc. and co-founder of Creative Biomolecules, both biotechnology companies. Dr. Craves is a member of the boards of directors of several privately held companies. Dr. Craves previously served as a member of the board of directors of VIA Pharmaceuticals, Inc. from August 2004 to September 2011 and Poniard Pharmaceuticals, Inc. from June 1993 to September 2013. He also serves as a member of The J. David Gladstone Institutes' Advisory Council and is a member of the board of trustees of Loyola Marymount University in Los Angeles. Dr. Craves earned a B.S. degree in biology from Georgetown University, an M.S. in biochemical pharmacology from Wayne State University and a Ph.D. in pharmacology and experimental toxicology from the University of California, San Francisco. Our board of directors believes that Dr. Craves' investment experience and extensive knowledge of the life sciences industry qualify him to serve on our board of directors.
Matthew K. Fust has been a director of our company since April 2014. Mr. Fust was Executive Vice President and Chief Financial Officer at Onyx from January 2009 until its acquisition by Amgen in October 2013. Mr. Fust continued as an employee of Amgen until January 2014. Prior to joining Onyx, Mr. Fust was Senior Vice President and Chief Financial Officer at Jazz Pharmaceuticals, Inc., a biopharmaceutical company, from May 2003 to December 2008. From May 2002 to May 2003, Mr. Fust was Chief Financial Officer at Perlegen Sciences, Inc., a pharmacogenomics company. Previously, he was Senior Vice President and Chief Financial Officer at ALZA Corporation, a biopharmaceutical company, where he was an executive from June 1996 to January 2002. From 1991 until 1996, Mr. Fust was a manager in the healthcare strategy practice at Andersen Consulting. Mr. Fust serves as a member of the board of directors of MacroGenics, Inc., Sunesis Pharmaceuticals, Inc., and Ultragenyx Pharmaceutical, Inc., each of which are publicly-traded biotechnology companies. Mr. Fust holds a B.A. in accounting from the University of Minnesota and an M.B.A. from the Stanford Graduate School of Business. Our board of directors believes that Mr. Fust's financial expertise, with its focus on the pharmaceutical and biopharmaceutical industries, qualifies him to serve on our board of directors.
Wende S. Hutton has been a director of our company since August 2011. Ms. Hutton has been a Partner at Canaan Partners, a global venture capital firm, since 2004, and is currently a General Partner. Ms. Hutton served on the board of directors of Chimerix, Inc. from February 2012 until June 2014 and currently sits on the boards of directors of a number of private companies. From 2002 to 2003, Ms. Hutton was a General Partner at Spring Ridge Partners and from 1994 to 2001, Ms. Hutton was a General Partner at Mayfield Fund after having served as a venture partner from 1993 to 1994. Her prior experience includes general management at GenPharm International and business development and marketing positions at Nellcor Inc. Ms. Hutton earned an A.B. in human biology from Stanford University and an M.B.A. from Harvard Business School. Our board of directors believes that Ms. Hutton's experience in finance and expertise in the drug development, medical device, pharmaceutical and diagnostics fields qualify her to serve on our board of directors.
Mark D. McDade has been a director of our company since August 2014. Mr. McDade has been the Executive Vice President, Established Brands, Solutions and Supply of UCB S.A., a biopharmaceutical company, since February 2013 after previously serving as UCB's Executive Vice President, Global Operations from January 2009 to February 2013 and as UCB's Executive Vice President, Corporate Strategy and Development from April 2008 to December 2008. From November 2002 until October 2007, Mr. McDade served as Chief Executive Officer and on the board of directors of PDL BioPharma, Inc. From December 2000 until November 2002, Mr. McDade served as Chief Executive Officer of Signature BioScience Inc., a drug discovery company. Prior to that, he co-founded and served as Chief Operating Officer at Corixa Corporation, a biopharmaceutical company, from September 1994 until December 1998, and as President and Chief Operating Officer from January 1999 to November 2000. Previously, Mr. McDade was Chief Operating Officer of Boehringer Mannheim Therapeutics, the biopharmaceutical division of Corange Limited, and held numerous business development and general management positions at Sandoz Ltd. He has been a director of Five Prime
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Therapeutics, Inc., a biotechnology company, since July 2006. From April 2005 to July 2009, he served on the board of directors of Cytokinetics, Incorporated, a biotechnology company. Mr. McDade received a B.A. in history from Dartmouth College and an M.B.A. from Harvard Business School. Pursuant to our development and commercialization agreement with UCB, or the UCB agreement, UCB is entitled to designate one member of our board of directors and has designated Mr. McDade. In addition, our board of directors believes that Mr. McDade's executive leadership experience, extensive business development and operations experience, and service on the boards of directors of companies in the biopharmaceutical industry qualify him to serve on our board of directors.
Jake R. Nunn has been a director of our company since May 2011. Mr. Nunn has been a Partner at New Enterprise Associates, Inc., a venture capital firm, since June 2006. From January 2001 to June 2006, Mr. Nunn served as a Partner and an analyst for the MPM BioEquities Fund, a life sciences fund at MPM Capital, L.P., a private equity firm. Previously, Mr. Nunn was a healthcare research analyst and portfolio manager at Franklin Templeton Investments and an investment banker with Alex, Brown & Sons. Mr. Nunn currently serves on the boards of directors of Hyperion Therapeutics, Inc., Transcept Pharmaceuticals, Inc., Trevena, Inc. and TriVascular Technologies, Inc. and on the board of directors of one private company. Mr. Nunn received his A.B. in economics from Dartmouth College and his M.B.A. from the Stanford Graduate School of Business. Mr. Nunn also holds the Chartered Financial Analyst designation, and is a member of the C.F.A. Society of San Francisco. Our board of directors believes that Mr. Nunn's experience investing in life sciences, specialty pharmaceuticals, biotechnology and medical device companies, as well as his business and financial background, qualify him to serve on our board of directors.
William R. Ringo has been a director of our company since July 2014. Mr. Ringo has served as a senior advisor to Barclays Healthcare Group and as a strategic advisor to Sofinnova Ventures, a venture capital firm, since June 2010. From April 2008 until his retirement in April 2010, Mr. Ringo was Senior Vice President of Business Development and Corporate Strategy at Pfizer Inc., a pharmaceutical company. Prior to joining Pfizer, he served as an executive in residence at Warburg Pincus and Sofinnova Ventures. From August 2004 to April 2006, Mr. Ringo was President and Chief Executive Officer of Abgenix, Inc., a biotechnology firm. Previously, Mr. Ringo held a number of senior positions in the oncology and critical care, internal medicine, infection disease and sales and marketing divisions at Eli Lilly & Company from 1973 until 2001. Mr. Ringo is currently a member of the boards of directors of Assembly Biosciences, Inc., Immune Design Corp., Mirati Therapeutics, Inc. and Sangamo Biosciences, Inc. Mr. Ringo previously served as a member of the boards of directors of Onyx Pharmaceuticals, Inc. from 2011 to 2013. Mr. Ringo received a B.S. in industrial management and an M.B.A. from the University of Dayton. Our board of directors believes that Mr. Ringo's extensive senior executive experience and service on the boards of directors of a number of private and public biotechnology and pharmaceutical companies in the life sciences industry qualify him to serve on our board of directors.
Election of Officers
Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers.
Board of Directors
Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of nine members. Our current certificate of incorporation and voting agreement among certain investors provide for two directors to be elected by holders of our common stock, three directors to be elected by holders of our Series A convertible preferred stock and all other directors to be elected by the holders of our common stock and preferred stock voting together as a single class on an as-converted to common stock basis. Ms. Hutton,
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Dr. Craves and Mr. Nunn are the designees of our Series A convertible preferred stock, Mr. Wiggans and Dr. Bauer are the designees of our common stock and Dr. Cohen and Messrs. Fust, McDade and Ringo are designees of our common stock and preferred stock voting together.
The voting agreement and the provisions of our certificate of incorporation by which Ms. Hutton, Drs. Bauer and Craves and Messrs. McDade, Nunn and Wiggans were elected will terminate in connection with our initial public offering. Pursuant to the UCB agreement, UCB is entitled to designate one member of our board of directors, currently Mr. McDade, and we have agreed not to remove the UCB designee prior to, and to renominate the UCB designee for election at each annual meeting of stockholders taking place prior to the earliest of the date that (1) Dermira has terminated the UCB agreement for certain breaches of UCB, (2) UCB has terminated the UCB agreement for certain breaches of Dermira, (3) UCB ceases to own 50% of the shares of Dermira that it has purchased directly from Dermira, (4) Dermira consummates a change of control, (5) specified time periods after the termination of the UCB agreement other than for a breach and (6) the later of the date on which (a) all valid claims under a patent relevant to the UCB agreement have expired or the last unexpired valid claim of this patent is declared invalid and (b) the net sales of Cimzia to dermatologists in a calendar year during the term of the UCB agreement are less than a specified percentage of the net sales of Cimzia to dermatologists in any prior calendar year during the term of the UCB agreement. Other than the foregoing provisions of the UCB agreement, there will be no contractual obligations regarding the election of our directors. Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.
Classified Board of Directors
Our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows.
Each director's term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering authorize only our board of directors to fill vacancies on our board of directors. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
The classification of our board of directors may have the effect of delaying or preventing changes in control of our company. See "Description of Capital StockAnti-Takeover ProvisionsRestated Certificate of Incorporation and Restated Bylaws Provisions."
Director Independence
Our common stock will be listed on The NASDAQ Global Market, or NASDAQ. Under NASDAQ rules, independent directors must comprise a majority of a listed company's board of
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directors within a specified period of the completion of this offering. In addition, NASDAQ rules require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominating and corporate governance committees be independent. Under NASDAQ rules, a director will only qualify as an "independent director" if, in the opinion of that company's board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 within the one year transition period provided by Rule 10A-3 and current NASDAQ rules.
Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that Ms. Hutton, Drs. Cohen and Craves and Messrs. Fust, Nunn and Ringo, representing six of our nine directors, are "independent directors" as defined under the applicable rules and regulations of the Securities and Exchange Commission, or the SEC, and the listing requirements and rules of NASDAQ. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director's business and personal activities and relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section titled "Certain Relationships and Related Party Transactions." In particular, our board of directors considered each of the following:
Board Leadership Structure
Our board of directors believes that it should maintain flexibility to select the Chairman of our board of directors and adjust our board leadership structure from time to time. In April 2014, our board determined that appointing Mr. Wiggans, our Chief Executive Officer, as the Chairman of our board and establishing a Lead Independent Director was in our best interests and those of our stockholders. Our board of directors determined that having our Chief Executive Officer also serve as the Chairman of our board provides us with optimally effective leadership. Mr. Wiggans founded and has led our company since its inception. Our board believes that Mr. Wiggans' strategic vision for our business, his in-depth knowledge of our products and operations, the dermatology field and life sciences industry, and his experience serving as the Chairman of the board of directors and chief executive officer of other successful public companies make him well qualified to serve as both chairman of our board and Chief Executive Officer.
The role given to the Lead Independent Director helps ensure a strong independent and active board of directors. Our Lead Independent Director's duties include, among other things, presiding at
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all meetings of our board of directors in the absence of the Chairman of our board, presiding at all executive sessions of the independent directors, serving as a liaison between the Chairman of our board and the independent directors of our board, consulting with the Chairman of our board regarding the agenda for meetings of our board and the information sent to our board in connection with its meetings, having authority to call meetings of our board and meetings of the independent directors and such other duties and responsibilities as our board may from time to time authorize. In April 2014, our board selected Dr. Craves to serve as lead independent director.
Committees of Our Board of Directors
Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below as of the closing of our initial public offering. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee will operate under a charter approved by our board of directors. Following this offering, copies of each committee's charter will be posted on the investor relations section of our website.
Audit Committee
Our audit committee is comprised of Matthew K. Fust, David E. Cohen and William R. Ringo. Mr. Fust is the chairperson of our audit committee. Messrs. Fust and Ringo and Dr. Cohen each meet the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Mr. Fust is an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:
Compensation Committee
Our compensation committee is comprised of Wende S. Hutton, Matthew K. Fust and William R. Ringo. Ms. Hutton is the chairperson of our compensation committee. The composition of our compensation committee meets the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Each member of this committee is (1) an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code,
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and (2) a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee is responsible for, among other things:
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is comprised of Jake R. Nunn, David E. Cohen and Fred B. Craves. Mr. Nunn is the chairperson of our nominating and corporate governance committee. The composition of our nominating and corporate governance committee meets the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Our nominating and corporate governance committee is responsible for, among other things:
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the year ended December 31, 2013.
In August 2011 and August 2012, we sold shares of our Series A convertible preferred stock to Mr. Wiggans, Dr. Bauer and entities affiliated with each of Ms. Hutton, Dr. Craves and Mr. Nunn. We have described the amounts of these sales and purchases in more detail under the section entitled "Certain Relationships and Related Party TransactionsSeries A Convertible Preferred Stock Financing." In March 2013, we sold shares of our Series B convertible preferred stock to entities affiliated with each of Ms. Hutton, Dr. Craves and Mr. Nunn and in April 2014, we sold shares of our Series B convertible preferred stock to entities affiliated with Dr. Craves and Mr. McDade. We have described the amounts of these sales and purchases in more detail under the section entitled "Certain Relationships and Related Party TransactionsSeries B Convertible Preferred Stock Financing." In August 2014, we sold shares of our Series C convertible preferred stock to entities affiliated with each of Ms. Hutton, Dr. Craves and Messrs. McDade, Nunn and Wiggans. We have described the amounts of these sales and purchases in more detail under the section entitled "Certain Relationships and Related Party TransactionsSeries C Convertible Preferred Stock Financing."
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In connection with the sales of our preferred stock, we entered into agreements that grant customary preferred stock rights to all of our major preferred stock investors. These rights include registration rights, rights of first refusal, co-sale rights with respect to certain stock transfers, information rights and other similar rights. All of these rights, other than the registration rights, will terminate upon the closing of this offering. For a description of the registration rights, see "Description of Capital StockRegistration Rights."
Mr. Fust served as an executive officer of Onyx from January 2009 until Onyx's acquisition by Amgen Inc. in October 2013, during which time Mr. Wiggans served as a member of Onyx's board of directors and as a member of its compensation committee.
Codes of Business Conduct and Ethics
Our board of directors has adopted codes of business conduct and ethics that apply to all of our employees, officers and directors. The full text of our codes of conduct will be posted on the investor relations section of our website. The reference to our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our codes of conduct, or waivers of these provisions, on our website or in public filings.
Non-Employee Director Compensation
We did not pay any compensation, reimburse any expenses (other than customary expenses in connection with the attendance of meetings of our board of directors) or grant any equity awards in the year ended December 31, 2013 to any non-employee member of our board of directors.
In August 2014, our board of directors adopted a compensation program for non-employee directors to apply following the closing of this offering.
Each of our non-employee directors will receive an annual cash retainer of $35,000 and our Lead Independent Director will receive an additional annual cash retainer of $15,000. The chairs of our audit committee, our compensation committee and our nominating and corporate governance committee will receive annual cash retainers of $15,000, $10,000 and $7,500, respectively. Each member of our audit committee, our compensation committee and our nominating and corporate governance committee will receive annual cash retainers of $7,500, $5,000 and $3,500, respectively. We do not pay fees to directors for attendance at meetings of our board of directors and its committees.
Each non-employee director who becomes a member of our board of directors after this offering will be granted an initial option to purchase 20,689 shares of our common stock upon election to our board of directors vesting and becoming exercisable as to one-third of the shares each anniversary of the grant date over three years. On the date of each annual stockholder meeting subsequent to this offering, each non-employee director who continues to serve on our board of directors immediately following such meeting will automatically be granted an option to purchase 10,344 shares of our common stock, subject to proration on a monthly basis in the event the non-employee director has not served an entire year on our board of directors since his or her last stock option grant, vesting and becoming exercisable as to 100% of the shares on the first anniversary following the grant date. Each option will have an exercise price equal to the fair market value of our common stock on the date of grant, will have a ten-year term and will accelerate as to all then-unvested shares immediately prior to the effectiveness of a change of control.
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The following tables and accompanying narrative disclosure set forth information about the compensation provided to our executive officers during the year ended December 31, 2013. These executive officers, who include our principal executive officer and the two most highly-compensated executive officers (other than our principal executive officer) who were serving as executive officers as of December 31, 2013, the end of our last completed fiscal year, were:
We refer to these individuals in this section as our "Named Executive Officers."
Summary Compensation Table
The following table presents summary information regarding the total compensation that was awarded to, earned by or paid to our Named Executive Officers for services rendered in all capacities during the year ended December 31, 2013.
Name and
Principal Position |
Salary
($) |
Option
Awards ($)(1) |
Non-Equity
Incentive Plan Compensation ($)(2) |
All Other
Compensation ($)(3) |
Total
($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Thomas G. Wiggans |
$ | 360,062 | $ | 263,156 | $ | 103,013 | | $ | 726,231 | |||||||
Chief Executive Officer and Chairman of the Board |
||||||||||||||||
Eugene A. Bauer |
325,000 | 117,929 | 77,391 | $ | 3,684 | 524,004 | ||||||||||
Chief Medical Officer |
||||||||||||||||
Luis C. Peña |
267,475 | 124,482 | 74,000 | | 465,957 | |||||||||||
Executive Vice President, Product Development |
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Employment Agreements and Offer Letters
We have entered into employment agreements or offer letters with each of our Named Executive Officers. The employment agreements or offer letters generally provide for at-will employment, the initial terms and conditions of employment of each Named Executive Officer, including base salary, annual bonus opportunity, eligibility to participate in our employee benefit plans and, in certain cases, an initial equity award. Each of these arrangements was approved by our then current Chief Executive Officer or our board of directors. The material terms of these employment agreements and offer letters are summarized below. These summaries are qualified in their entirety by reference to the actual text of the employment agreements and offer letters, which are filed as exhibits to the registration statement of which this prospectus is a part. In addition, each of our Named Executive Officers has executed a form of our standard employee intellectual property protection agreement.
Mr. Wiggans' Employment Agreement
On August 18, 2010, we entered into an employment agreement with Mr. Wiggans in connection with his appointment as our Chief Executive Officer, which we subsequently amended and restated on August 4, 2011. The terms and conditions of his amended employment agreement provided for an annual base salary of $350,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and other employee benefits as we establish for our employees from time to time. His original employment agreement provided for the opportunity to purchase 172,413 shares of our common stock, with a purchase price of $0.0058 per share. In satisfaction of the terms of the employment agreement, Mr. Wiggans purchased 172,413 shares of our common stock in August 2010.
Dr. Bauer's Employment Agreement
On November 1, 2010, we entered into an employment agreement with Dr. Bauer in connection with his appointment as our Chief Medical Officer, which we subsequently amended and restated on August 4, 2011. The terms and conditions of his amended employment agreement provided for an annual base salary of $162,500 based on Dr. Bauer devoting 50% of his business time, attention and effort to the affairs of our company, subject to adjustment from time to time, and eligibility for an annual bonus, reimbursement for health insurance coverage and other employee benefits as we establish for our employees from time to time. Dr. Bauer currently devotes 100% of his business time, attention and effort to the affairs of our company, and in connection with his transition to full-time service to our company, his base salary was increased to $325,000.
Mr. Peña's Employment Offer Letter
On June 1, 2011, we entered into an employment offer letter with Mr. Peña in connection with his appointment as our Vice President of Product Development, which we subsequently amended and restated on August 3, 2011 and July 17, 2012. The terms and conditions of his amended and restated employment offer letter provided for an annual base salary of $260,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and other employee benefits as we establish for our employees from time to time. His original employment offer letter provided for the grant of an option to purchase 94,827 shares of our common stock, with a purchase price to be established following our initial equity financing, and his 2012 amended and restated employment offer letter provided for an additional option grant to purchase a number of shares to be determined following the closing of the second tranche of our Series A convertible preferred stock financing. In satisfaction of the terms of the offer letter, Mr. Peña received an option grant to purchase 94,827 shares of our common stock in October 2011 and an additional option grant to purchase 32,506 shares in January 2013.
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Potential Payments upon Termination or Change in Control
In September 2014, we adopted a severance and change in control policy applicable to our Named Executive Officers and certain other employees pursuant to which each Named Executive Officer entered into a severance and change in control agreement that superseded all previous severance and change of control arrangements we had entered into with our Named Executive Officers. The severance and change in control agreement has a term of three years, which renews unless we provide written notice of non-renewal. Under the severance and change in control agreement:
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Outstanding Equity Awards at Fiscal Year-End Table
The following table presents, for each of the Named Executive Officers, information regarding outstanding stock options held as of December 31, 2013.
|
Option Awards | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of
Securities Underlying Unexercised Options (#) Exercisable |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Option
Exercise Price ($) |
Option
Expiration Date |
|||||||||
Mr. Wiggans |
137,389 | (1) | 116,253 | $ | 0.986 | 10/3/2021 | |||||||
|
| (2) | 184,349 | 1.218 | 1/3/2023 | ||||||||
|
| (2) | 98,430 | 1.74 | 7/10/2023 | ||||||||
Dr. Bauer |
59,818 | (1) | 50,616 | 0.986 | 10/3/2021 | ||||||||
|
15,014 | (2) | 17,744 | 0.986 | 2/8/2022 | ||||||||
|
| (2) | 146,234 | 1.218 | 1/3/2023 | ||||||||
Mr. Peña |
3,189 | (1) | 948 | 0.0058 | 11/15/2020 | ||||||||
|
59,267 | (2) | 35,560 | 0.986 | 10/3/2021 | ||||||||
|
| (2) | 32,506 | 1.218 | 1/3/2023 | ||||||||
|
| (2) | 84,260 | 1.74 | 7/10/2023 |
Employee Benefit and Stock Plans
2010 Equity Incentive Plan
Our board of directors adopted the 2010 Plan in October 2010 and our stockholders subsequently approved it in October 2010. We subsequently amended the 2010 Plan in August 2011, March 2013, July 2013, April 2014 and August 2014. Our board of directors, or a committee thereof appointed by our board of directors, administers the 2010 Plan and the awards granted under it. The plan administrator has the authority to modify outstanding awards under the 2010 Plan. The 2010 Plan provides for the grant of both incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, and nonstatutory stock options, as well as for the issuance of shares of restricted stock awards, or RSAs, restricted stock units, or RSUs, and stock appreciation rights, or SARs. We may grant incentive stock options only to our employees and employees of our majority-owned subsidiaries. We may grant nonstatutory stock options, RSAs, RSUs and SARs to our employees, directors and consultants and employees, directors and consultants of our majority-owned subsidiaries. The exercise price of each stock option must be at least equal to the fair market value of our common stock on the date of grant, unless expressly determined in writing by the plan administrator. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under the 2010 Plan is 10 years, except that the maximum permitted term of incentive stock options granted to 10% stockholders is five years. In the event of an acquisition (as defined in the 2010 Plan), the 2010 Plan provides that, unless the applicable option agreement provides otherwise or our board of directors or compensation committee takes certain actions, such as
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accelerating the vesting of the awards or providing for the assumption, conversion or replacement of the option by an acquirer, awards held by current employees, directors and consultants will terminate if not vested or exercised prior to the effective time of the acquisition.
As of September 1, 2014, we had reserved 2,456,785 shares of our common stock for issuance under the 2010 Plan and 185,274 shares remained available for future grant. We will cease issuing awards under the 2010 Plan upon the implementation of the 2014 Equity Incentive Plan, or the 2014 Plan. The 2014 Plan will be effective on the date immediately prior to the date of this prospectus. As a result, we will not grant any additional options under the 2010 Plan following that date, and the 2010 Plan will terminate at that time. However, any outstanding options granted under the 2010 Plan will remain outstanding, subject to the terms of the 2010 Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms. Options granted under the 2010 Plan have terms similar to those described below with respect to options to be granted under the 2014 Plan.
2014 Equity Incentive Plan
We have adopted the 2014 Plan that will become effective on the date immediately prior to the date of this prospectus and will serve as the successor to the 2010 Plan. We reserved 1,896,551 shares of our common stock to be issued under the 2014 Plan. The number of shares reserved for issuance under the 2014 Plan will increase automatically on January 1 of each of our fiscal years beginning 2015 and continuing through 2024 by the number of shares equal to 4% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our board of directors may reduce the amount of the increase in any particular year. In addition, the following shares of our common stock will be available for grant and issuance under the 2014 Plan:
The 2014 Plan authorizes the award of stock options, RSAs, SARs, RSUs, performance awards and stock bonuses. No person will be eligible to receive more than 5,172,413 shares in any calendar year under the 2014 Plan other than a new employee of ours, who will be eligible to receive no more than
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10,344,827 shares under the plan in the calendar year in which the employee commences employment. No participant will be eligible to receive more than $10,000,000 in performance awards in any calendar year. No more than 43,103,448 shares will be issued pursuant to the exercise of incentive stock options. The aggregate number of shares of our common stock that may be subject to awards granted to any one non-employee director pursuant to the 2014 Plan in any calendar year shall not exceed 172,413.
The 2014 Plan will be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret the 2014 Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.
The 2014 Plan will provide for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair market value of our common stock on the date of grant. The compensation committee has the authority to reprice any outstanding stock option or SAR (by reducing the exercise price of any outstanding option or SAR, canceling an option or SAR in exchange for cash or another equity award) under the 2014 Plan without the approval of our stockholders.
We anticipate that, in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under the 2014 Plan is 10 years.
An RSA is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price, if any, of an RSA will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares will be forfeited to or repurchased by us.
SARs provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price at grant up to a maximum amount of cash or number of shares. SARs may vest based on time or achievement of performance conditions.
RSUs represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we will deliver to the holder of the RSU shares of our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash. We anticipate that, in general, RSUs will vest over a four-year period.
Performance awards cover a number of shares of our common stock that may be settled upon achievement of the pre-established performance conditions as provided in the 2014 Plan in cash or by issuance of the underlying shares. These awards are subject to forfeiture prior to settlement due to termination of employment or failure to achieve the performance conditions.
Stock bonuses may be granted as additional compensation for past or future service or performance, and therefore, no payment will be required for any shares awarded under a stock bonus. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares (if any) will be forfeited to us.
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The 2014 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on income tax deductibility imposed by Section 162(m) of the Code. Our compensation committee may structure awards so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance goals during a designated performance period.
Our compensation committee may establish performance goals by selecting from one or more of the following performance criteria: (1) profit before tax; (2) billings; (3) revenue; (4) net revenue; (5) earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings); (6) operating income; (7) operating margin; (8) operating profit; (9) controllable operating profit or net operating profit; (10) net profit; (11) gross margin; (12) operating expenses or operating expenses as a percentage of revenue; (13) net income; (14) earnings per share; (15) total stockholder return; (16) market share; (17) return on assets or net assets; (18) our stock price; (19) growth in stockholder value relative to a pre-determined index; (20) return on equity; (21) return on invested capital; (22) cash flow (including free cash flow or operating cash flows); (23) cash conversion cycle; (24) economic value added; (25) individual confidential business objectives; (26) contract awards or backlog; (27) overhead or other expense reduction; (28) credit rating; (29) strategic plan development and implementation; (30) succession plan development and implementation; (31) improvement in workforce diversity; (32) customer indicators; (33) new product invention or innovation; (34) attainment of research and development milestones; (35) improvements in productivity; (36) bookings; (37) attainment of objective operating goals and employee metrics; and (38) any other metric that is capable of measurement as determined by our compensation committee.
Awards granted under the 2014 Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee. Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee's guardian or legal representative. Options granted under the 2014 Plan generally may be exercised for a period of three months after the termination of the optionee's service to us, for a period of 12 months in the case of death or for a period of six months in the case of disability, or such longer period as our compensation committee may provide. Options generally terminate immediately upon termination of employment for cause.
If we are party to a merger or consolidation, sale of all or substantially all assets or similar change in control transaction, outstanding awards, including any vesting provisions, may be assumed or substituted by the successor company. In the alternative, outstanding awards may be cancelled in connection with a cash payment. Outstanding awards that are not assumed, substituted or cashed out will accelerate in full and expire upon the closing of the transaction. Awards held by non-employee directors will immediately vest as to all or any portion of the shares subject to the stock award and will become exercisable at such times and on such conditions as the compensation committee determines.
The 2014 Plan will terminate 10 years from the date our board of directors approved it, unless it is terminated earlier by our board of directors. Our board of directors may amend or terminate the 2014 Plan at any time. If our board of directors amends the 2014 Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable law.
2014 Employee Stock Purchase Plan
We have adopted a 2014 Employee Stock Purchase Plan, or the 2014 ESPP, in order to enable eligible employees to purchase shares of our common stock at a discount following the date of this offering. Purchases will be accomplished through participation in discrete offering periods. The 2014 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code. We initially reserved 301,724 shares of our common stock for issuance under the 2014 ESPP. The number of shares reserved for issuance under the 2014 ESPP will increase automatically on January 1 of each
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of our fiscal years beginning 2015 and continuing through 2024 by the number of shares equal to the greater of 1% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of the 2014 ESPP will not exceed 6,034,482 shares of our common stock.
Our compensation committee will administer the 2014 ESPP. Our employees generally are eligible to participate in the 2014 ESPP. Our compensation committee may in its discretion elect to exclude employees who work fewer than 20 hours per week or five months in a calendar year. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in the 2014 ESPP, are ineligible to participate in the 2014 ESPP. We may impose additional restrictions on eligibility. Under the 2014 ESPP, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible employees will be able to select a rate of payroll deduction between 1% and 15% of their eligible cash compensation. We will also have the right to amend or terminate the 2014 ESPP at any time. The 2014 ESPP will terminate on the tenth anniversary of the effective date of this offering, unless it is terminated earlier by our board of directors.
The 2014 ESPP is implemented through a series of offering periods with durations of not more than 27 months under which our employees who meet the eligibility requirements for participation in that offering period will automatically be granted a nontransferable option to purchase shares in that offering period. For subsequent offering periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent offering periods. Except for the first offering period, each offering period will run for 24 months, with purchase periods occurring every six months. The first offering period will begin upon the effective date of this offering and will end on November 15, 2016, or another date selected by our compensation committee. Except for the first purchase period, each purchase period will be for six months, commencing each May 15 and November 15. The purchase periods under the first offering period will end on May 15, 2015, November 15, 2015, May 15, 2016 and November 15, 2016. An employee's participation automatically ends upon termination of employment for any reason.
No participant will have the right to purchase shares of our common stock in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar year, that have a fair market value of more than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than 1,551 shares during any one purchase period or a lesser amount determined by our compensation committee. The purchase price for shares of our common stock purchased under the 2014 ESPP will be 85% of the lesser of the fair market value of our common stock on (1) the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period. The fair market value of our common stock for purposes of our first offering period under the 2014 ESPP will be the price at which shares are first sold to the public under this offering.
If we experience a change in control transaction, any offering period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction and the 2014 ESPP will then terminate on the closing of the proposed change in control.
401(k) Plan
We sponsor a retirement plan intended to qualify for favorable tax treatment under Section 401(a) of the Code, containing a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. U.S. employees who have attained at least 21 years of age are generally
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eligible to participate in the plan on the first day of the calendar month following the employees' date of hire, subject to certain eligibility requirements. Participants may make pre-tax contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit on pre-tax contributions under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. Pre-tax contributions by participants and the income earned on those contributions are generally not taxable to participants until withdrawn. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee's interest in his or her pre-tax deferrals is 100% vested when contributed. Although the plan provides for a discretionary employer matching contribution, to date we have not made such a contribution on behalf of employees. The Plan permits all eligible Plan participants to contribute between 1% and 100% of eligible compensation, on a pre-tax basis, into their accounts.
Limitations on Liability and Indemnification Matters
Our restated certificate of incorporation that will become effective in connection with the closing of this offering contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the Delaware General Corporation Law, or DGCL. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
Our restated certificate of incorporation and our restated bylaws that will become effective in connection with the closing of this offering require us to indemnify our directors and officers to the maximum extent not prohibited by the DGCL and allow us to indemnify other employees and agents as set forth in the DGCL. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted.
We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, officers and certain of our key employees, in addition to the indemnification provided for in our restated certificate of incorporation and restated bylaws. These agreements, among other things, require us to indemnify our directors, officers and key employees for certain expenses, including attorneys' fees, judgments, penalties, fines and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which these individuals provide services at our request. Subject to certain limitations, our indemnification agreements also require us to advance expenses incurred by our directors, officers and key employees for the defense of any action for which indemnification is required or permitted.
We believe that provisions of our restated certificate of incorporation, bylaws and indemnification agreements are necessary to attract and retain qualified directors, officers and key employees. We also maintain directors' and officers' liability insurance.
The limitation of liability and indemnification provisions in our restated certificate of incorporation and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation
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against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the executive officer and director compensation arrangements discussed above under "ManagementNon-Employee Director Compensation" and "Executive Compensation," below we describe transactions since January 1, 2011 to which we have been or will be a participant, in which the amount involved in the transaction exceeds or will exceed $120,000 and in which any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Series C Convertible Preferred Stock Financing
In August 2014, we sold an aggregate of 5,297,041 shares of our Series C convertible preferred stock at a purchase price of $9.628 per share for an aggregate purchase price of approximately $51.0 million. Each share of our Series C convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The purchasers of our Series C convertible preferred stock are entitled to specified registration rights. For additional information, see "Description of Capital StockRegistration Rights." The following table summarizes the Series C convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our Series C convertible preferred stock. Please refer to the section titled "Principal Stockholders" for more details regarding the shares held by these entities.
Name of Stockholder
|
Shares of
Series C Convertible Preferred Stock |
Total
Purchase Price |
|||||
---|---|---|---|---|---|---|---|
Apple Tree Partners IV, L.P. |
1,038,637 | $ | 9,999,999 | ||||
Entities affiliated with Fidelity Investments |
1,038,636 | 9,999,999 | |||||
UCB S.A.(1) |
778,977 | 7,500,000 | |||||
Entities affiliated with Bay City Capital(2) |
382,840 | 3,685,992 | |||||
New Enterprise Associates 13, Limited Partnership(3) |
382,840 | 3,685,992 | |||||
Canaan VIII L.P.(4) |
272,955 | 2,628,014 | |||||
Wiggans Living Trust dated 5/14/02(5) |
25,965 | 249,999 |
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Series B Convertible Preferred Stock Financing
In two closings in March 2013 and April 2014, we sold an aggregate of 3,561,040 shares of our Series B convertible preferred stock at a purchase price of $8.4245 per share for an aggregate purchase price of approximately $30.0 million. Each share of our Series B convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The purchasers of our Series B convertible preferred stock are entitled to specified registration rights. For additional information, see "Description of Capital StockRegistration Rights." The following table summarizes the Series B convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our Series B convertible preferred stock. Please refer to the section titled "Principal Stockholders" for more details regarding the shares held by these entities.
Name of Stockholder
|
Shares of
Series B Convertible Preferred Stock |
Total
Purchase Price |
|||||
---|---|---|---|---|---|---|---|
Maruho Co., Ltd. |
1,187,014 | $ | 10,000,001 | ||||
New Enterprise Associates 13, Limited Partnership(1) |
655,321 | 5,520,754 | |||||
Entities affiliated with Bay City Capital(2) |
655,320 | 5,520,755 | |||||
UCB S.A. |
593,507 | 5,000,000 | |||||
Canaan VIII L.P.(3) |
469,878 | 3,958,492 |
Series A Convertible Preferred Stock Financing
In two closings in August 2011 and August 2012, we sold an aggregate of 6,572,625 shares of our Series A convertible preferred stock for an aggregate purchase price of approximately $34.0 million, consisting of (1) 5,792,619 shares purchased in cash for a price of $5.365 per share and (2) 780,006 shares purchased pursuant to the conversion of secured convertible promissory notes at a price of $3.7555 per share, a 30% discount on the cash price per share of the Series A convertible preferred stock. Each share of our Series A convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The purchasers of our Series A convertible preferred stock are entitled to specified registration rights. For additional information, see "Description of Capital StockRegistration Rights." The following table summarizes the Series A convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. Other than with respect to the discounted price per share for shares purchased upon conversion of promissory notes, as set forth in the preceding paragraph, the terms of these purchases were the same for all purchasers of our
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Series A convertible preferred stock. Please refer to the section titled "Principal Stockholders" for more details regarding the shares held by these entities.
Name of Stockholder
|
Shares of
Series A Convertible Preferred Stock |
Total
Purchase Price |
|||||
---|---|---|---|---|---|---|---|
Entities affiliated with New Enterprise Associates(1) |
2,382,135 | $ | 12,218,181 | ||||
Entities affiliated with Bay City Capital(2) |
2,382,135 | 12,218,181 | |||||
Canaan VIII L.P.(3) |
1,708,040 | 9,163,636 | |||||
Thomas G. Wiggans(4) |
82,043 | 330,616 | |||||
Eugene A. Bauer(5) |
18,272 | 76,123 |
Convertible Note Financing
In September 2010, we entered into a Note Purchase Agreement pursuant to which we issued and sold to investors secured convertible promissory notes with an aggregate principal amount of $1.0 million. In May 2011, we amended the Note Purchase Agreement to, among other things, issue and sell to investors additional secured convertible promissory notes with an aggregate principal amount of $1.8 million. These notes were secured by our assets and accrued interest at an annual rate of 10%, compounded monthly. The aggregate principal amount of these notes, together with unpaid accrued interest thereon, was converted into shares of our Series A convertible preferred stock in August 2011 at a price per share of $3.7555, a 30% discount on the cash price per share of the Series A convertible preferred stock. None of these notes remain outstanding.
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The following table summarizes the secured convertible promissory notes purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our secured convertible promissory notes.
Name of Note Purchaser
|
Principal
Amount |
Shares of Series A
Convertible Preferred Stock Received Upon Conversion |
|||||
---|---|---|---|---|---|---|---|
Entities affiliated with Bay City Capital(1) |
$ | 1,216,028 | 349,165 | ||||
New Enterprise Associates 13, Limited Partnership(2) |
1,283,972 | 349,165 | |||||
Thomas G. Wiggans(3) |
250,000 | 68,064 | |||||
Eugene A. Bauer(4) |
50,000 | 13,612 |
Agreement with UCB
In March 2014, we entered into a development and commercialization agreement with UCB Pharma S.A., or UCB, pursuant to which we will develop Cimzia in order for UCB to seek regulatory approval from the U.S. Food and Drug Administration, the European Medicines Agency and the Canadian federal department for health for the treatment of psoriasis, and upon the grant of regulatory approval in the United States and Canada, for us to promote sales of Cimzia to dermatologists and conduct related medical affairs activities in the United States and Canada.
In April 2014, UCB purchased 593,507 shares of our Series B convertible preferred stock for an aggregate purchase price of approximately $5.0 million. In August 2014, UCB purchased 778,977 shares of our Series C convertible preferred stock for an aggregate purchase price of approximately $7.5 million. As of September 1, 2014 and prior to this offering and the concurrent private placement, UCB owned approximately 8.4% of our outstanding capital stock.
For more information regarding this agreement, see "BusinessCollaborations and License AgreementsCollaboration with UCB."
Concurrent Private Placement
We have entered into a purchase agreement whereby entities affiliated with UCB have agreed to purchase an aggregate of $7.5 million of shares of our common stock in the concurrent private placement at the same price as the price offered to the public in this offering, or 500,000 shares based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. As of September 1, 2014, entities affiliated with UCB beneficially owned approximately 8.4% of our outstanding capital stock and immediately following this offering and the concurrent private placement, entities affiliated with UCB
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will beneficially own approximately 8.4% of our common stock, which is based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. The sale of these shares to entities affiliated with UCB will not be registered in this offering.
UCB agreed to enter into the purchase agreement providing for the concurrent private placement pursuant to the terms of the Development and Commercialisation Agreement with UCB, discussed more fully in "BusinessCollaborations and License AgreementsCollaboration with UCB."
Potential Insider Participation
Certain of our principal stockholders affiliated with our directors have indicated an interest in purchasing up to $15.0 million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering.
Agreement with Maruho
In March 2013, we entered into a Right of First Negotiation Agreement with Maruho, pursuant to which we will provide Maruho with certain information and the right to negotiate an exclusive license to develop and commercialize certain of our products in specified territories. In connection with the entry into this agreement, Maruho paid us $10.0 million, which will be credited against certain payments payable by Maruho to us if we enter into an exclusive license for any of our products. Maruho's right of first negotiation will expire upon the later to occur of (a) when we have notified Maruho in writing that we have completed Phase 2a clinical trials for specified topical pharmaceutical products within our product portfolio as of March 2013, or the Specified Dermira Products, or (b) three years after we and Maruho have entered into a license agreement for one or more Specified Dermira Products.
In March 2013, Maruho purchased 1,187,014 shares of our Series B convertible preferred stock for an aggregate purchase price of $10.0 million. As of September 1, 2014 and prior to this offering and the concurrent private placement, Maruho owned approximately 7.3% of our outstanding capital stock.
Other than Maruho's status as a stockholder and our contractual relationship pursuant to the Right of First Negotiation Agreement, we have no other relationship with Maruho.
Amended and Restated Investors' Rights Agreement
We have entered into an amended and restated investors' rights agreement with certain holders of our common stock and holders of our convertible preferred stock, including entities with which certain of our directors are affiliated. These stockholders are entitled to rights with respect to the registration of their shares following our initial public offering under the Securities Act. For a description of these registration rights, see "Description of Capital StockRegistration Rights."
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements, our restated certificate of incorporation and our restated bylaws will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers. For more information regarding these agreements, see "Executive CompensationLimitations on Liability and Indemnification Matters."
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Review, Approval or Ratification of Transactions with Related Parties
Our written related party transactions policy and the charters of our audit committee and our nominating and corporate governance committee require that any transaction with a related party that must be reported under applicable rules of the Securities and Exchange Commission (other than compensation-related matters) must be reviewed and approved or ratified by the audit committee, unless the related party is, or is associated with, a member of that committee, in which event the transaction must be reviewed and approved by the nominating and corporate governance committee. These committees have not adopted policies or procedures for review of, or standards for approval of, related party transactions but intend to do so in the future.
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The following table sets forth certain information with respect to the beneficial ownership of our common stock as of September 1, 2014, and as adjusted to reflect the sale of common stock by us in this offering and the concurrent private placement, for:
We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws.
Applicable percentage ownership is based on 16,338,220 shares of common stock issued and outstanding as of September 1, 2014 and assumes the conversion of all outstanding shares of preferred stock into an aggregate of 15,430,706 shares of our common stock. For purposes of computing the applicable percentage of shares beneficially owned by a person after this offering in the table below, we have assumed that 5,850,000 shares of common stock will be issued by us in our initial public offering and the concurrent private placement based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person or entity that are currently exercisable or that will become exercisable within 60 days of September 1, 2014. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table on the following page is c/o Dermira, Inc., 2055 Woodside Road, Redwood City, California 94061.
Certain of our principal stockholders affiliated with our directors have indicated an interest in purchasing up to $15.0 million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering. The following table does not reflect any potential purchases by these parties.
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|
Shares Beneficially Owned
Prior to this Offering and the Concurrent Private Placement |
Shares Beneficially
Owned After this Offering and the Concurrent Private Placement |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Number | Percentage | Number | Percentage | |||||||||
5% Stockholders: |
|||||||||||||
Entities affiliated with New Enterprise Associates(1) |
3,437,537 | 21.0 | % | 3,437,537 | 15.5 | % | |||||||
Entities affiliated with Bay City Capital(2) |
3,437,535 | 21.0 | 3,437,535 | 15.5 | |||||||||
Canaan VIII L.P.(3) |
2,450,873 | 15.0 | 2,450,873 | 11.0 | |||||||||
UCB S.A.(4) |
1,372,484 | 8.4 | 1,872,484 | 8.4 | |||||||||
Maruho Co., Ltd.(5) |
1,187,014 | 7.3 | 1,187,014 | 5.3 | |||||||||
Apple Tree Partners IV, L.P.(6) |
1,038,637 | 6.4 | 1,038,637 | 4.7 | |||||||||
Entities affiliated with Fidelity Investments(7) |
1,038,636 | 6.4 | 1,038,636 | 4.7 | |||||||||
Directors and Named Executive Officers: |
|
|
|
|
|||||||||
Thomas G. Wiggans(8) |
582,062 | 3.5 | 582,062 | 2.6 | |||||||||
Eugene A. Bauer(9) |
273,118 | 1.7 | 273,118 | 1.2 | |||||||||
Luis C. Peña(10) |
123,625 | * | 123,625 | * | |||||||||
David E. Cohen (11) |
54,308 | * | 54,308 | * | |||||||||
Fred B. Craves (2) |
3,437,535 | 21.0 | 3,437,535 | 15.5 | |||||||||
Matthew K. Fust(12) |
3,879 | * | 3,879 | * | |||||||||
Wende S. Hutton(13) |
| * | | * | |||||||||
Mark D. McDade(14) |
| * | 1,293 | * | |||||||||
Jake R. Nunn(15) |
| * | | * | |||||||||
William R. Ringo(16) |
| * | 1,939 | * | |||||||||
All executive officers and directors as a group (12 persons)(17) |
4,608,438 | 27.0 | 4,611,670 | 20.1 |
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voting and investment power over these entities. The address for the entities affiliated with Bay City Capital is 750 Battery Street Suite 400, San Francisco, CA 94111.
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Upon the closing of this offering and the filing of our restated certificate of incorporation, our authorized capital stock will consist of 500,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.
Pursuant to the provisions of our certificate of incorporation, all of our outstanding convertible preferred stock will automatically convert into common stock effective immediately upon the completion of this offering. Assuming (1) the issuance of 5,297,041 shares of our Series C convertible preferred stock that were issued after June 30, 2014 and (2) the conversion of all outstanding shares of our convertible preferred stock into shares of common stock, as of June 30, 2014, there were 16,338,220 shares of our common stock issued and outstanding, held by approximately 55 stockholders of record, and no shares of our preferred stock outstanding. Our board of directors is authorized, without stockholder approval, to issue additional shares of our capital stock.
Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See "Dividend Policy" above.
Voting Rights
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation. Accordingly, holders of a majority of the shares of our common stock will be able to elect all of our directors. Our restated certificate of incorporation establishes a classified board of directors, to be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
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Preferred Stock
Pursuant to the provisions of our certificate of incorporation, each currently-outstanding share of convertible preferred stock will automatically be converted into one share of common stock effective immediately upon the completion of this offering. Following this offering, no shares of preferred stock will be outstanding.
Following this offering, pursuant to our restated certificate of incorporation, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of their qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.
Stock Options
As of June 30, 2014, we had outstanding options to purchase an aggregate of 2,265,305 shares of our common stock, with a weighted-average exercise price of $2.15. In September 2014, our compensation committee or board of directors approved equity awards for an aggregate of up to 1,106,903 shares of our common stock that will be issuable upon the exercise of options to purchase common stock with an exercise price per share equal to the initial public offering price, which options will be granted on the day that the registration statement for this offering is declared effective.
Warrant
We have one outstanding warrant, which was issued to Square 1 Bank in connection with our credit facility. The number of shares of our Series B convertible preferred stock issuable pursuant to the warrant at any date is 8,902 shares plus 1% of the amount of borrowings under our credit facility as of such date divided by 8.4245. The warrant is exercisable for up to a maximum of 17,805 shares of our Series B convertible preferred stock, with an exercise price of $8.4245 per share, and upon the closing of this offering the warrant will become exercisable for the same number of shares of our common stock. As of June 30, 2014, this warrant was exercisable for 11,276 shares of our Series B convertible preferred stock. The exercise price of this warrant may be paid either in cash or by surrendering the right to receive shares of common stock having a value equal to the exercise price.
Registration Rights
Following the completion of this offering, the holders of certain outstanding shares of our common stock and the holders of shares of our common stock issuable upon conversion of our convertible preferred stock, or their permitted transferees, will be entitled to rights with respect to the registration of these shares under the Securities Act. These shares are referred to as registrable securities. Immediately following this offering, there will be approximately 15,689,324 registrable securities outstanding. These rights are provided under the terms of an amended and restated investors' rights agreement between us and the holders of these shares, which was entered into in connection with our preferred stock financings, and include demand registration rights, short-form registration rights and
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piggyback registration rights. In any registration made pursuant to such amended and restated investors' rights agreement, all fees, costs and expenses of underwritten registrations, including fees and disbursements of one special counsel to the selling stockholders not to exceed $50,000, will be borne by us and all selling expenses, including estimated underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.
The registration rights terminate five years following the completion of this offering or, with respect to any particular stockholder, at such time as that stockholder holds less than one percent of our outstanding stock, we have completed this offering and such stockholder can sell all of its shares during any three-month period pursuant to Rule 144 of the Securities Act.
Demand Registration Rights
Under the terms of the amended and restated investors' rights agreement, if we receive a written request, at any time after 180 days following the effective date of this offering, from the holders of at least 66 2 / 3 % of the registrable securities then outstanding that we file a registration statement under the Securities Act covering the registration of outstanding registrable securities, then we will be required to use our reasonable best efforts to register, within 90 days of such written request, all of the shares requested to be registered for public resale, if the amount of registrable securities to be registered will have aggregate gross proceeds (before underwriting discounts and commissions) of at least $10.0 million. We are required to effect only two registrations pursuant to this provision of the amended and restated investors' rights agreement. We may postpone the filing of a registration statement no more than once during any 12-month period for up to 120 days if our board of directors determines that the filing would be detrimental to us and our stockholders. We are not required to effect a demand registration under certain additional circumstances specified in the amended and restated investors' rights agreement.
Form S-3 Registration Rights
The holders of at least 30% of the registrable securities then outstanding can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $5.0 million. The stockholders may require us to effect at most two registration statements on Form S-3 in any 12-month period. We may postpone the filing of a registration statement on Form S-3 no more than once during any 12-month period for up to 120 days if our board of directors determines that the filing would be detrimental to us and our stockholders. We are not required to effect a registration on Form S-3 under certain additional circumstances specified in the amended and restated investors' rights agreement.
Piggyback Registration Rights
In connection with this offering, holders of our registrable securities were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their registrable securities in this offering. If we register any of our securities for public sale in another offering, holders of registrable securities will have the right to include their shares in the registration statement. However, this right does not apply to a demand registration, a registration relating to employee benefit plans, a registration relating to a corporate reorganization, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of registrable securities. The underwriters of any underwritten offering will have the right to limit the number of shares registered by these holders if they determine in good faith that marketing factors require limitation, in which case the number of shares to be registered will be apportioned, first, to us for our own account and, second, pro rata among the holders of registrable securities requesting inclusion of their registrable securities in such registration statement, according to the total number of
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registrable securities held by each such holder. However, the number of shares to be registered by these holders cannot be reduced below 30% of the total shares covered by the registration statement, other than in the initial public offering.
Anti-Takeover Provisions
The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, regulating corporate takeovers. In general, DGCL Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:
Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that DGCL Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
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Restated Certificate of Incorporation and Restated Bylaws Provisions
Our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, including the following:
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Exchange Listing
We have applied to list our common stock on The NASDAQ Global Market under the symbol "DERM."
Transfer Agent and Registrar
Upon the completion of this offering, the transfer agent and registrar for our common stock will be American Stock Transfer and Trust Company, LLC. The transfer agent's address is 6201 15 th Avenue, Brooklyn, New York 11219, and its telephone number is (800) 937-5449.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for shares of our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.
Upon the closing of this offering and the concurrent private placement, we will have a total of 22,188,220 shares of our common stock outstanding, assuming (1) the issuance of 5,297,041 shares of our Series C convertible preferred stock that were issued after June 30, 2014 and (2) the conversion of all outstanding shares of our convertible preferred stock into shares of common stock, as of June 30, 2014 and based on (x) the 11,041,179 shares of our capital stock outstanding as of June 30, 2014 and (y) an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. Of these outstanding shares, all of the 5,350,000 shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, could only be sold in compliance with the Rule 144 limitations described below.
The remaining outstanding shares of our common stock, including the shares issued in the concurrent private placement, will be deemed "restricted securities" as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, substantially all of our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements and the provisions of our amended and restated investors' rights agreement described above under "Description of Capital StockRegistration Rights," subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:
Lock-Up/Market Standoff Agreements
All of our directors and officers and all of our security holders are subject to lock-up agreements or market standoff provisions that, subject to exceptions described in the section entitled "Underwriting" below, prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options to acquire shares of our common stock or any security or instrument related to our common stock, or entering into any swap, hedge or other arrangement that transfers any of the economic consequences of ownership of our common stock, for a period of 180 days following the date of this prospectus, without
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the prior written consent of Citigroup Global Markets Inc. and Leerink Partners LLC. These agreements are subject to certain exceptions. See "Underwriting."
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
Stock Options
In connection with this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of our common stock reserved for issuance under our stock plans. In addition, we intend to file a registration statement on Form S-8 or such other form as may be required under the Securities Act for the resale of shares of our common stock issued upon the exercise of options that were not granted under Rule 701. We expect to file this registration statement as soon as permitted under the Securities Act. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice and public information requirements of Rule 144 and will
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not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject.
Registration Rights
We have granted demand, piggyback and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see "Description of Capital StockRegistration Rights."
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK
This section summarizes the material U.S. federal income tax considerations relating to the acquisition, ownership and disposition of our common stock by "non-U.S. holders" (as defined below) pursuant to this offering. This summary does not provide a complete analysis of all potential U.S. federal income tax considerations relating thereto. The information provided below is based upon provisions of the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions currently in effect. These authorities may change at any time, possibly retroactively, or the Internal Revenue Service, or IRS, might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of our common stock could differ from those described below. As a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.
This summary does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below. In addition, this discussion does not address tax considerations applicable to an investor's particular circumstances or to investors that may be subject to special tax rules, including:
In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes is a beneficial owner of our common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Accordingly, this summary does not address tax considerations
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applicable to partnerships that hold our common stock, and partners in such partnerships should consult their tax advisors.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES
Non-U.S. Holder Defined
For purposes of this summary, a "non-U.S. holder" is any holder of our common stock, other than a partnership, that is not:
If you are a non-U.S. citizen that is an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.
Dividends
We do not expect to declare or make any distributions on our common stock in the foreseeable future and the terms of our credit facility currently restrict our ability to pay dividends. If we do pay dividends on shares of our common stock, however, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holder's adjusted tax basis in shares of our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of our common stock. See "Sale of Common Stock."
Any dividend paid to a non-U.S. holder on our common stock that is not effectively connected with a non-U.S. holder's conduct of a trade or business in the United States will generally be subject to U.S. withholding tax at a 30% rate. The withholding tax might not apply, however, or might apply at a reduced rate, under the terms of an applicable income tax treaty between the United States and the non-U.S. holder's country of residence. You should consult your tax advisors regarding your entitlement to benefits under a relevant income tax treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing a Form W-8BEN or Form W-8BEN-E (or any successor form) or appropriate substitute form to us or our paying agent. If
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the non-U.S. holder holds the stock through a financial institution or other agent acting on the holder's behalf, the holder will be required to provide appropriate documentation to the agent. The holder's agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a partnership or other pass-through entity, the certification requirements generally apply to the partners or other owners rather than to the partnership or other entity, and the partnership or other entity must provide the partners' or other owners' documentation to us or our paying agent. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.
Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder, and if required by an applicable income tax treaty between the United States and the non-U.S. holder's country of residence, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are not subject to U.S. withholding tax. To obtain this exemption, a non-U.S. holder must provide us or our paying agent with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to being taxed at graduated tax rates, dividends received by corporate non-U.S. holders that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.
Sale of Common Stock
Subject to the discussion below regarding the Foreign Account Tax Compliance Act, non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange or other disposition of our common stock unless:
The FIRPTA rules may apply to a sale, exchange or other disposition of our common stock if we are, or were within the shorter of the five-year period preceding the disposition and the non-U.S. holder's holding period, a "U.S. real property holding corporation," or USRPHC. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of the value of our business assets. We do not believe that we are a USRPHC and we do not anticipate becoming one in the future. Even if we become a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if beneficially owned by a non-U.S. holder that actually or constructively owned more than 5% of our outstanding common stock at some time within the five-year period preceding the disposition.
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If any gain from the sale, exchange or other disposition of our common stock, (1) is effectively connected with a U.S. trade or business conducted by a non-U.S. holder and (2) if required by an applicable income tax treaty between the United States and the non-U.S. holder's country of residence, is attributable to a permanent establishment (or, in certain cases involving individuals, a fixed base) maintained by such non-U.S. holder in the United States, then the gain generally will be subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the non-U.S. holder is a corporation, under certain circumstances, that portion of its earnings and profits that is effectively connected with its U.S. trade or business, subject to certain adjustments, generally would be subject also to a "branch profits tax." The branch profits tax rate is 30%, although an applicable income tax treaty between the United States and the non-U.S. holder's country of residence might provide for a lower rate.
U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedent's country of residence provides otherwise.
Backup Withholding and Information Reporting
The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by "backup withholding" rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28%. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign, provided they establish such exemption.
Payments to non-U.S. holders of dividends on common stock generally will not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its nonresident status (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. The certification procedures to claim treaty benefits described under "Dividends" will generally satisfy the certification requirements necessary to avoid the backup withholding tax. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.
Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and the broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding,
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will apply to a payment of proceeds, even if that payment is made outside of the United States, if you sell our common stock through a non-U.S. office of a broker that is:
unless the broker has documentary evidence that the beneficial owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary).
Backup withholding is not an additional tax. Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act, or FATCA, will impose a U.S. federal withholding tax of 30% on certain "withholdable payments" (including U.S. source dividends and the gross proceeds from the sale or other disposition of U.S. stock) to foreign financial institutions and other non-U.S. entities that fail to comply with certain certification and information reporting requirements. The obligation to withhold under FATCA is currently expected to apply to, among other items, (1) dividends on our common stock that are paid after June 30, 2014 and (2) gross proceeds from the disposition of our common stock paid after December 31, 2016.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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Citigroup Global Markets Inc. and Leerink Partners LLC are acting as joint book-running managers of this offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter's name in the following table.
Underwriters
|
Number of
Shares |
|||
---|---|---|---|---|
Citigroup Global Markets Inc. |
||||
Leerink Partners LLC |
||||
Guggenheim Securities, LLC |
||||
Needham & Company, LLC |
||||
| | | | |
Total |
5,350,000 | |||
| | | | |
| | | | |
The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $ per share. If all the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to make sales to discretionary accounts.
If the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 802,500 additional shares at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.
We, our officers, directors and holders of all of our securities have agreed that, subject to specified limited exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of the representatives, dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our common stock. The representatives, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice.
Prior to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares will be determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price will be our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot ensure however, that the price at which the shares will sell in the public market after this offering will not be
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lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.
We have applied to have our shares listed on The NASDAQ Global Market under the symbol "DERM."
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option.
|
Paid by Dermira, Inc. | ||||||
---|---|---|---|---|---|---|---|
|
No Exercise | Full Exercise | |||||
Per share |
$ | $ | |||||
Total |
$ | $ |
We estimate that our portion of the total expenses of this offering will be $ . We have also agreed to reimburse the underwriters for certain FINRA-related and other expenses incurred by them in connection with this offering in an amount up to $40,000.
In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on The NASDAQ Global Market, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
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Relationships
The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The underwriters and their respective affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and short positions in such securities and instruments.
In August 2014, Leerink Holdings LLC and Leerink Swann Co-Investment Fund, LLC, each an affiliate of Leerink Partners LLC, purchased an aggregate of 103,862 shares of our Series C convertible preferred stock at a purchase price per share of $9.628 in our Series C convertible preferred stock financing. Leerink Partners LLC is a beneficial owner of all 103,862 of these shares which are deemed to be underwriting compensation. All such shares are subject to the 180-day lock-up restrictions described above. Leerink Partners LLC, Leerink Holdings LLC and Leerink Swann Co-Investment Fund, LLC have also each executed a lock-up agreement with respect to the shares purchased, whereby they have agreed that such shares, including the 103,862 shares of common stock which will be issued as a result of the conversion of the Series C convertible preferred stock upon the closing of this offering, shall not be sold during the offering, or sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the public offering, subject to the exceptions provided in FINRA Rule 5110(g)(2).
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus may not be made to the public in that relevant member state other than:
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provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an "offer of securities to the public" in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
The sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (1) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order, or (2) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a "relevant person"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:
Such offers, sales and distributions will be made in France only:
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The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (2) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The shares offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (1) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (2) in compliance with any other applicable requirements of Japanese law.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (2) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
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shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
Notice to Prospective Investors in Australia
No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia, or the Corporations Act) in relation to the common stock has been or will be lodged with the Australian Securities & Investments Commission, or ASIC. This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
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Concurrently with this offering, entities affiliated with UCB Pharma S.A. will purchase from us in a private placement an aggregate of $7.5 million of shares of our common stock at the same price as the price offered to the public in this offering, or 500,000 shares based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. The sale of these shares to entities affiliated with UCB Pharma S.A. will not be registered in this offering.
The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, San Francisco, California, which beneficially owns an aggregate of 43,103 shares of our common stock, representing approximately 0.39% of our outstanding shares of capital stock as of June 30, 2014. Certain legal matters relating to this offering will be passed upon for the underwriters by Cooley LLP, San Francisco, California.
The consolidated financial statements of Dermira, Inc. at December 31, 2012 and 2013 and for each of the two years in the period ended December 31, 2013 appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about the ability of Dermira, Inc. to continue as a going concern as described in Note 1 to the consolidated financial statements) appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, or the SEC, a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon the closing of our initial public offering, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. A copy of the registration statement and the exhibits filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholders
Dermira, Inc.
We have audited the accompanying consolidated balance sheets of Dermira, Inc. (the Company) as of December 31, 2012 and 2013, and the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' (deficit) equity, and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dermira, Inc. at December 31, 2012 and 2013, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that Dermira, Inc. will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, the Company has incurred recurring operating losses and negative cash flows since inception and expects to continue to generate operating losses and consume significant cash resources in the foreseeable future. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The 2013 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Redwood
City, California
June 26, 2014, except for Note 16,
as to which the date is September 19, 2014
F-2
DERMIRA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
December 31, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
June 30,
2014 |
Pro Forma as
of June 30, 2014 |
|||||||||||
|
2012 | 2013 | |||||||||||
|
|
|
(Unaudited)
|
(Unaudited)
|
|||||||||
Assets |
|||||||||||||
Current assets: |
|||||||||||||
Cash and cash equivalents |
$ | 7,872 | $ | 22,144 | $ | 9,774 | |||||||
Prepaid expenses and other current assets |
160 | 344 | 693 | ||||||||||
| | | | | | | | | | | | | |
Total current assets |
8,032 | 22,488 | 10,467 | ||||||||||
Property and equipment, net |
35 | 61 | 79 | ||||||||||
Intangible assets |
3,520 | 3,520 | 3,520 | ||||||||||
Goodwill |
771 | 771 | 771 | ||||||||||
Other assets |
156 | 31 | 1,693 | ||||||||||
| | | | | | | | | | | | | |
Total assets |
$ | 12,514 | $ | 26,871 | $ | 16,530 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities, convertible preferred stock and stockholders' (deficit) equity |
|||||||||||||
Current liabilities: |
|||||||||||||
Accounts payable |
$ | 1,984 | $ | 2,322 | $ | 2,263 | |||||||
Accrued liabilities |
2,401 | 1,999 | 3,690 | ||||||||||
Convertible preferred stock warrant liability |
| 61 | 60 | | |||||||||
Bank term loan, current portion |
| 133 | 533 | ||||||||||
| | | | | | | | | | | | | |
Total current liabilities |
4,385 | 4,515 | 6,546 | ||||||||||
Long-term liabilities: |
|||||||||||||
Deferred revenue |
| 10,000 | 10,000 | ||||||||||
Bank term loan, net of current portion |
| 1,786 | 1,398 | ||||||||||
Deferred tax liability |
785 | 785 | 785 | ||||||||||
| | | | | | | | | | | | | |
Total liabilities |
5,170 | 17,086 | 18,729 | ||||||||||
| | | | | | | | | | | | | |
Commitments and contingencies |
|||||||||||||
Convertible preferred stock, $0.001 par value per share; 8,103,448 shares authorized as of December 31, 2012 and 10,107,111 shares authorized as of December 31, 2013; 6,572,625 shares issued and outstanding as of December 31, 2012, 9,540,158 shares issued and outstanding as of December 31, 2013 and 10,133,665 shares issued and outstanding as of June 30, 2014 (unaudited); (aggregate liquidation value of $35,262 as of December 31, 2012 and $60,262 as of December 31, 2013); no shares issued and outstanding as of June 30, 2014, pro forma (unaudited) |
35,089 |
59,588 |
64,588 |
|
|||||||||
Stockholders' (deficit) equity: |
|
|
|
|
|||||||||
Common stock: $0.001 par value per share; 23,275,862 shares authorized as of December 31, 2013; 901,308 shares issued and outstanding as of December 31, 2012 and 2013 and 907,514 shares issued and outstanding as of June 30, 2014 (unaudited); 16,338,220 shares issued and outstanding as of June 30, 2014, pro forma (unaudited) |
5 | 5 | 5 | $ | 94 | ||||||||
Additional paid-in capital |
674 | 966 | 1,283 | 114,655 | |||||||||
Accumulated deficit |
(28,424 | ) | (50,774 | ) | (68,075 | ) | (68,075 | ) | |||||
| | | | | | | | | | | | | |
Total stockholders' (deficit) equity |
(27,745 | ) | (49,803 | ) | (66,787 | ) | 46,674 | ||||||
| | | | | | | | | | | | | |
Total liabilities, convertible preferred stock and stockholders' (deficit) equity |
$ | 12,514 | $ | 26,871 | $ | 16,530 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
DERMIRA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Operating expenses: |
|||||||||||||
Research and development |
$ | 17,055 | $ | 17,937 | $ | 8,778 | $ | 13,648 | |||||
General and administrative |
3,148 | 4,366 | 2,205 | 3,552 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
20,203 | 22,303 | 10,983 | 17,200 | |||||||||
| | | | | | | | | | | | | |
Loss from operations |
(20,203 | ) | (22,303 | ) | (10,983 | ) | (17,200 | ) | |||||
Interest and other income (expense), net |
(51 | ) | (38 | ) | 12 | (34 | ) | ||||||
Interest expense |
| (9 | ) | | (67 | ) | |||||||
| | | | | | | | | | | | | |
Net loss and comprehensive loss |
$ | (20,254 | ) | $ | (22,350 | ) | $ | (10,971 | ) | $ | (17,301 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss per share, basic and diluted |
$ | (27.99 | ) | $ | (27.03 | ) | $ | (13.88 | ) | $ | (19.28 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted-average common shares used to compute net loss per share, basic and diluted |
723,607 | 826,757 | 790,512 | 897,356 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma net loss per share, basic and diluted (unaudited) |
$ | (2.31 | ) | $ | (1.62 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted-average common shares used to compute pro forma net loss per share, basic and diluted, (unaudited) |
9,667,715 | 10,706,395 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
DERMIRA, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT) EQUITY
(in thousands, except share amounts)
|
Convertible
Preferred Stock |
|
|
|
|
|
|
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Common Stock |
|
|
|
|||||||||||||||||||
|
|
Additional
Paid-In Capital |
Accumulated
Deficit |
Total
Stockholders' Deficit |
||||||||||||||||||||
|
Shares | Amount |
|
Shares | Amount | |||||||||||||||||||
Balance at December 31, 2011 |
4,317,268 | $ | 23,025 | 901,308 | $ | 5 | $ | 508 | $ | (8,170 | ) | $ | (7,657 | ) | ||||||||||
Issuance of Series A convertible preferred stock, net of issuance cost of $36 |
2,255,357 | 12,064 | | | | | | |||||||||||||||||
Stock-based compensation |
| | 166 | 166 | ||||||||||||||||||||
Net loss |
| | | | | (20,254 | ) | (20,254 | ) | |||||||||||||||
Balance at December 31, 2012 |
6,572,625 | 35,089 | 901,308 | 5 | 674 | (28,424 | ) | (27,745 | ) | |||||||||||||||
Issuance of Series B convertible preferred stock, net of issuance cost of $500 |
2,967,533 | 24,499 | | | | | | |||||||||||||||||
Stock-based compensation |
| | | | 292 | | 292 | |||||||||||||||||
Net loss |
| | | | | (22,350 | ) | (22,350 | ) | |||||||||||||||
Balance at December 31, 2013 |
9,540,158 | 59,588 | 901,308 | 5 | 966 | (50,774 | ) | (49,803 | ) | |||||||||||||||
Issuance of Series B convertible preferred stock (unaudited) |
593,507 | 5,000 | | | | | | |||||||||||||||||
Exercise of stock options (unaudited) |
| | 6,206 | | 7 | | 7 | |||||||||||||||||
Stock-based compensation (unaudited) |
| | | | 310 | | 310 | |||||||||||||||||
Net loss (unaudited) |
| | | | | (17,301 | ) | (17,301 | ) | |||||||||||||||
Balance at June 30, 2014 (unaudited) |
10,133,665 | $ | 64,588 | 907,514 | $ | 5 | $ | 1,283 | $ | (68,075 | ) | $ | (66,787 | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
DERMIRA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Cash flows from operating activities |
|||||||||||||
Net loss |
$ | (20,254 | ) | $ | (22,350 | ) | $ | (10,971 | ) | $ | (17,301 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
|||||||||||||
Depreciation and amortization |
12 | 22 | 10 | 19 | |||||||||
Stock-based compensation |
166 | 292 | 120 | 310 | |||||||||
Loss on disposal of property and equipment |
| 2 | 1 | | |||||||||
Amortization of bank term loan issuance costs |
| | | 12 | |||||||||
Revaluation of convertible preferred stock warrant liability |
| | | (1 | ) | ||||||||
Changes in assets and liabilities: |
|||||||||||||
Prepaid expenses and other current assets |
119 | (184 | ) | (190 | ) | (349 | ) | ||||||
Other assets |
(11 | ) | 125 | 124 | (393 | ) | |||||||
Accounts payable |
1,199 | 338 | (1,012 | ) | (561 | ) | |||||||
Accrued liabilities |
1,516 | (402 | ) | (470 | ) | 924 | |||||||
Deferred revenue |
| 10,000 | 10,000 | | |||||||||
| | | | | | | | | | | | | |
Net cash used in operating activities |
(17,253 | ) | (12,157 | ) | (2,388 | ) | (17,340 | ) | |||||
| | | | | | | | | | | | | |
Cash flows from investing activities |
|||||||||||||
Purchase of property and equipment |
(36 | ) | (50 | ) | (24 | ) | (37 | ) | |||||
| | | | | | | | | | | | | |
Net cash used in investing activities |
(36 | ) | (50 | ) | (24 | ) | (37 | ) | |||||
| | | | | | | | | | | | | |
Cash flows from financing activities |
|||||||||||||
Net proceeds from issuance of convertible preferred stock |
12,064 | 24,499 | 24,499 | 5,000 | |||||||||
Proceeds from common stock option exercise |
| | | 7 | |||||||||
Net borrowings from bank term loan |
| 1,980 | | | |||||||||
| | | | | | | | | | | | | |
Net cash provided by financing activities |
12,064 | 26,479 | 24,499 | 5,007 | |||||||||
| | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents |
(5,225 | ) | 14,272 | 22,087 | (12,370 | ) | |||||||
Cash and cash equivalents at beginning of period |
13,097 | 7,872 | 7,872 | 22,144 | |||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | 7,872 | $ | 22,144 | $ | 29,959 | $ | 9,774 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Supplemental disclosure of cash flow information |
|||||||||||||
Cash paid for interest |
| | | $ | 58 | ||||||||
Supplemental disclosure of noncash financing activities |
|||||||||||||
Issuance of warrants in connection with bank term loan |
| $ | 61 | | | ||||||||
Unpaid deferred offering costs |
| | | $ | 1,269 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Dermira, Inc. (the "Company") was incorporated in the State of Delaware in August 2010 under the name Skintelligence, Inc. The Company changed its name to Dermira, Inc. in September 2011. In August 2010, the Company acquired Valocor Therapeutics, Inc., which was subsequently renamed Dermira (Canada), Inc. ("Dermira Canada") and is the Company's wholly owned subsidiary. The Company is a biopharmaceutical company focused on bringing medical dermatology products to dermatologists and their patients. The Company's management team has experience in product development and commercialization, having served in leadership roles at several dermatology companies. The Company's portfolio of five product candidates includes two late-stage product candidates, Cimzia (certolizumab pegol), which the Company is developing in collaboration with UCB Pharma S.A. for the treatment of moderate-to-severe plaque psoriasis, and DRM04, which the Company is developing for the treatment of hyperhidrosis, or excessive sweating. The Company also has three earlier-stage programs in development for the treatment of acne and inflammatory skin diseases. The Company's corporate headquarters are located in Redwood City, California, where it occupies facilities totaling approximately 14,700 square feet.
Need for Additional Capital
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. In the course of its development activities, the Company has sustained significant operating losses and expects such losses to continue over the next several years. The Company's success depends on the outcome of its research and development activities. Through June 30, 2014, the Company has incurred cumulative net losses of $68.1 million (unaudited). Management expects to incur substantial losses in the future to conduct product research and development and pre-commercialization activities. Additional capital will be needed to undertake these activities and meet the operating requirements of the Company through 2014 and beyond. The Company may raise such capital through the issuance of additional equity, borrowings or strategic alliances with other companies. However, if such financing is not available at adequate levels or on acceptable terms, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its commercialization efforts, enter into a collaboration or other similar arrangement with respect to commercialization rights to any of its product candidates, out-license intellectual property rights to its product candidates or sell unsecured assets, or any combination of the above, any of which may have a material adverse effect on the Company's business, results of operations, financial condition or its ability to fund its scheduled obligations on a timely basis or at all.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and Dermira Canada and have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). All significant intercompany transactions and balances have been eliminated during consolidation. Certain 2012 balances have been reclassified to conform to the current year presentation. The 2012 reclassifications were primarily made to reclassify legal expenses from research and development expense to general and administration expense in the consolidated statements of operations and comprehensive loss.
F-7
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting periods. On an ongoing basis, management evaluates its estimates, including those related to accrued research and development expenses, long-lived assets, fair value of common stock, convertible preferred stock and related warrants, stock-based compensation, and the valuation of deferred tax assets. The Company bases its estimates on its historical experience and also on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates.
Unaudited Interim Consolidated Financial Statements
The interim consolidated balance sheet as of June 30, 2014 and the interim consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' (deficit) equity and cash flows for the six months ended June 30, 2013 and 2014 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's consolidated financial position as of June 30, 2014 and its consolidated results of operations and comprehensive loss, convertible preferred stock and stockholders' (deficit) equity and cash flows for the six months ended June 30, 2013 and 2014. The financial data and the other financial information disclosed in these notes to the consolidated financial statements related to the six months ended June 30, 2013 and 2014 are also unaudited. The consolidated results of operations and comprehensive loss for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any other future annual or interim period.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information has been prepared assuming immediately upon the closing of the Company's initial public offering ("IPO"): (1) the issuance of 5,297,041 shares of our Series C convertible preferred stock that were issued after June 30, 2014; (2) the conversion of all outstanding shares of convertible preferred stock into shares of common stock and (3) the related reclassification of the convertible preferred stock warrant liability to additional paid-in-capital. The unaudited pro forma financial information does not assume any proceeds from the proposed IPO.
Risks and Uncertainties
The product candidates developed by the Company require approvals from the U.S. Food and Drug Administration ("FDA") and foreign regulatory agencies prior to commercial sales in the United States or foreign jurisdictions, respectively. There can be no assurance that the Company's current and future product candidates will receive the necessary approvals. If the Company is denied approval or approval is delayed, it may have a material adverse impact on the Company's business and its financial condition.
The Company is subject to risks common to early-stage companies in the pharmaceutical industry, including dependence on the clinical and commercial success of its product candidates, ability to obtain
F-8
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
regulatory approval of its product candidates, compliance with regulatory requirements, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and patients, significant competition and ability to manage third party manufacturers, suppliers and contract research organizations ("CROs").
Cash and Cash Equivalents
The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include deposits, money market accounts and obligations of U.S. government agencies. Cash and cash equivalents are recorded at face value or cost, which approximates fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. The Company invests its excess cash in money market funds and obligations of U.S. government agencies. Bank deposits are held by a single financial institution with a strong credit rating and these deposits may at times be in excess of insured limits. The Company is exposed to credit risk in the event of a default by the financial institution holding its cash and cash equivalents and issuers of investments to the extent recorded on the balance sheets. The Company's investment policy limits investments to certain types of debt securities issued by the U.S. government and its agencies and places restrictions on maturities and concentration by type and issuer.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company primarily applies the market approach for recurring fair value measurements.
The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The carrying amount of the Company's cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued liabilities, and convertible preferred stock warrant liability approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for bank term loans with similar terms, the carrying value of the Company's bank term loan approximates its fair value.
Property and Equipment
Property and equipment are stated at cost, subject to adjustments for impairments, less accumulated depreciation and amortization. Property and equipment consist of computer equipment and furniture. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives for the related assets. The Company has determined the estimated life of assets in property and equipment to be three years. Maintenance and repairs that do not extend the life of or improve an asset are expensed in the period incurred.
F-9
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Impairment of Long-Lived Assets
The Company assesses changes in the performance of its product candidates in relation to its expectations, and industry, economic and regulatory conditions and makes assumptions regarding estimated future cash flows in evaluating the value of its property and equipment, goodwill and in-process research and development ("IPR&D").
The Company periodically evaluates whether current facts or circumstances indicate that the carrying values of its long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets is compared to the carrying value to determine whether impairment exists. If the asset is determined to be impaired, the loss is measured based on the difference between the asset's fair value and its carrying value. If quoted market prices are not available, the Company will estimate fair value using a discounted value of estimated future cash flows approach.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired in connection with the acquisition of Valocor. The Company tests goodwill for impairment on at least an annual basis, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the goodwill is less than its carrying amount. Some of the factors considered by the Company in its assessment include general macro-economic conditions, conditions specific to the industry and market, and the successful development of its product candidates. If the Company concludes it is more likely than not that the fair value of the goodwill is less than its carrying amount, a quantitative fair value test is performed.
IPR&D represents the fair value assigned to incomplete research projects that the Company acquired through the acquisition of Valocor which, at the time of acquisition, had not reached technological feasibility. The amount was capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the project. The Company tests IPR&D for impairment at least annually, or more frequently, if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the IPR&D intangible asset is less than its carrying amount. If the Company concludes it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value is performed.
Deferred Offering Costs (unaudited)
Deferred offering costs, consisting of legal, accounting, filing and other fees related to the Series C convertible preferred stock financing and IPO, are capitalized. The deferred offering costs will be offset against proceeds from the Series C convertible preferred stock financing and IPO upon the closing of the Series C convertible preferred stock financing and the effectiveness of the IPO, respectively. In the event the IPO was terminated, all capitalized deferred offering costs would be expensed. As of June 30, 2014, $1.7 million of deferred offering costs were capitalized, which are included in other assets in the consolidated balance sheet. No amounts were deferred as of December 31, 2013.
Research and Development Expenses
The Company expenses both internal and external research and development expenses to operations as they are incurred. The Company's research and development expenses consist primarily
F-10
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
of costs incurred for the development of its product candidates and include: (1) expenses incurred under agreements with CROs, investigative sites and consultants to conduct clinical trials and preclinical and non-clinical studies; (2) costs to acquire, develop and manufacture supplies for clinical trials and other studies, including fees paid to contract manufacturing organizations ("CMOs"); (3) salaries and related costs, including stock-based compensation and travel expenses, for personnel in research and development functions; (4) costs related to compliance with drug development regulatory requirements; (5) depreciation and other allocated facility-related and overhead expenses; and (6) licensing fees and milestone payments incurred under product license agreements.
Accrued Research and Development Expenses
The Company records accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of the Company's ongoing research and development activities is conducted by third-party service providers, including CROs. The Company's contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on actual work completed in accordance with the respective agreements. In the event the Company makes advance payments, the payments are recorded as a prepaid asset and recognized as the services are performed. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.
The Company makes significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company's understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in the Company reporting amounts that are too high or too low in any particular period. The Company's accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. To date, there have been no material differences from the Company's accrued estimated expenses to the actual clinical trial expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to the number of patients enrolled, the rate of patient enrollment, and the actual services performed may vary from the Company's estimates, resulting in adjustments to clinical trial expense in future periods. Changes in these estimates that result in material changes to the Company's accruals could materially affect its financial condition and results of operations.
Income Taxes
The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary
F-11
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
to reduce deferred tax assets to the amount expected to be realized. Financial statement effects of uncertain tax positions are recognized when it is more-likely-than-not, based on the technical merits of the position, that it will be sustained upon examination. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax. The Company has not been subject to any interest and penalties through December 31, 2013.
Stock-Based Compensation
The Company maintains an equity incentive plan under which incentive stock options may be granted to employees and nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights may be granted to employees, officers, directors, consultants and advisors.
For stock options granted to employees and directors, the Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. The fair value of stock options is determined using the Black-Scholes option-pricing model. The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and the experience of other companies in the same industry, and will continue to evaluate the adequacy of the forfeiture rate assumption based on actual forfeitures, analysis of employee turnover, and other related factors.
Stock-based compensation expense related to stock options granted to nonemployees is recognized based on the fair value of the stock options, determined using the Black-Scholes option-pricing model, as they are earned. The awards vest over the time period during which the nonemployee provides services to the Company.
Convertible Preferred Stock Warrant Liability
The freestanding warrant for shares that are puttable is classified as a liability on the balance sheet and is carried at estimated fair value. At the end of each reporting period, changes in the estimated fair value during the period are recorded in interest and other income (expense), net, in the consolidated statement of operations. The Company will continue to adjust the carrying value of the warrant until the earlier of the exercise of the warrant or the completion of a liquidation event, including the completion of an IPO, at which time the liability will be reclassified to additional paid-in capital in the consolidated statement of stockholders' (deficit) equity.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited), comprehensive loss was equal to net loss.
Net Loss and Unaudited Pro Forma Net Loss Per Share
Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for dilutive potential
F-12
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
shares of common stock. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive.
The unaudited pro forma basic and diluted loss per share for the year ended December 31, 2013 and the six months ended June 30, 2014 were computed using the weighted-average number of shares of common stock outstanding, including the pro forma effect of the conversion of all then-outstanding shares of convertible preferred stock into shares of common stock. Also, the numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to remove gains and losses resulting from remeasurements of the outstanding convertible preferred stock warrant liability through June 30, 2014, as it is assumed that these warrants will either be converted to potentially dilutive shares or be net exercised prior to an IPO and will no longer require periodic revaluation.
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows (in thousands, except share and per share amounts):
The following outstanding dilutive potential shares of common stock were excluded from the computations of diluted net loss per share for the periods presented as the effect of including such securities would be antidilutive:
|
As of December 31, | As of June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Convertible preferred stock, as converted to common stock |
6,572,625 | 9,540,158 | 9,540,158 | 10,133,665 | |||||||||
Warrant to purchase convertible preferred stock, as converted to a common stock warrant |
| 11,276 | | 11,276 | |||||||||
Options to purchase common stock |
920,323 | 1,743,590 | 1,428,383 | 2,265,305 | |||||||||
Common stock subject to repurchase |
116,465 | 9,788 | 102,997 | 2,783 | |||||||||
| | | | | | | | | | | | | |
|
7,609,413 | 11,304,812 | 11,071,538 | 12,413,029 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-13
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Unaudited pro forma net loss per share is computed using the weighted-average number of common shares outstanding after giving effect to the conversion of all the outstanding convertible preferred stock into shares of common stock as of the date of issuance.
The following table sets forth the computation of the Company's unaudited pro forma basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):
F-14
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11") that provides for disclosure requirements related to unrecognized tax benefits in certain situations. The Company adopted ASU 2013-11 in the first quarter of 2014 and adoption of this standard did not have a material impact on its results of operations or financial position.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. This guidance is effective for the fiscal years and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption of ASU 2014-09 will have on its consolidated financial statements and related disclosures.
In June 2014, the FASB issued Accounting Standards Update 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation ("ASU 2014-10"), which eliminates the definition of a development stage entity, eliminates the development stage presentation and disclosure requirements under Accounting Standards Codification ("ASC") 915, Development Stage Entities ("ASC 915"), and amends provisions of existing variable interest entity guidance under ASC 810, Consolidation . As a result of the changes, entities which meet the former definition of a development stage entity will no longer be required to: (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity; (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged; and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. Furthermore, ASU 2014-10 clarifies disclosures about risks and uncertainties under ASC Topic 275, Risks and Uncertainties, that apply to companies that have not commenced planned principal operations. Finally, variable interest entity rules no longer contain an exception for development stage entities and, as a result, development stage entities will have to be evaluated for consolidation in the same manner as non-development stage entities.
Under ASU 2014-10, entities are no longer required to apply the presentation and disclosure provisions of ASC 915 during annual periods beginning after December 15, 2014. In addition, the revisions to the consolidation standards are effective for annual periods beginning after December 15, 2015 for public entities and are effective for annual periods beginning after December 15, 2016 for nonpublic entities. Early adoption is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities).
The Company has adopted ASU 2014-10 effective as of its issuance date. Adoption of this standard had no impact on the Company's financial position, results of operations, or cash flows; however, the presentation of the consolidated financial statements has been changed to eliminate the disclosures that are no longer required.
F-15
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business or no material effect is expected on the consolidated financial statements as a result of future adoption.
3. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance for fair value establishes a three-level hierarchy for disclosure of fair value measurements, as follows:
Level 1Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2Inputs (other than quoted market prices included in Level 1) that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument's anticipated life.
Level 3Unobservable inputs that are supported by little or no market activity and reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following tables set forth the fair value of the Company's financial instruments that were measured at fair value on a recurring basis as of December 31, 2012 and 2013 and June 30, 2014 (in thousands):
|
As of December 31, 2012 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Financial assets: |
|||||||||||||
Money market funds |
$ | 7,362 | $ | | $ | | $ | 7,362 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-16
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Fair Value Measurements (Continued)
|
As of June 30, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
|
(Unaudited)
|
||||||||||||
Financial assets: |
|||||||||||||
Money market funds |
$ | 1,874 | $ | | $ | | $ | 1,874 | |||||
U.S. government agencies |
7,000 | | 7,000 | ||||||||||
| | | | | | | | | | | | | |
Total financial assets |
$ | 1,874 | $ | 7,000 | $ | | $ | 8,874 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Financial liabilities: |
|||||||||||||
Preferred stock warrant liability |
$ | | $ | | $ | 60 | $ | 60 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Level 3 liabilities comprise convertible preferred stock warrant liability (see Note 10). The following table sets forth a summary of the changes in the estimated fair value of the Company's convertible preferred stock warrant, which were measured at fair value on a recurring basis (in thousands):
Balance as of December 31, 2012 |
$ | | ||
Issuance of preferred stock warrant |
61 | |||
| | | | |
Balance as of December 31, 2013 |
61 | |||
Decrease in fair value included in other income (expense), net (unaudited) |
(1 | ) | ||
| | | | |
Balance as of June 30, 2014 (unaudited) |
$ | 60 | ||
| | | | |
| | | | |
Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades, broker/dealer quotes. The Company classifies obligations of U.S. government agencies as Level 2. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilities that are measured at fair value on a recurring basis consist of convertible preferred stock warrant liability.
There were no transfers between Level 1 and Level 2 during the periods presented.
F-17
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Property and Equipment
The following table is a summary of property and equipment (in thousands):
|
December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
June 30,
2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
|
|
(Unaudited)
|
|||||||
Computer equipment |
$ | 28 | $ | 55 | $ | 83 | ||||
Office furniture |
21 | 41 | 50 | |||||||
| | | | | | | | | | |
Total property and equipment |
49 | 96 | 133 | |||||||
Less accumulated depreciation and amortization |
(14 | ) | (35 | ) | (54 | ) | ||||
| | | | | | | | | | |
Property and equipment, net |
$ | 35 | $ | 61 | $ | 79 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Property and equipment depreciation and amortization expense was $12,000, $22,000, $10,000, and $19,000 for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited), respectively.
5. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
June 30,
2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
|
|
(Unaudited)
|
|||||||
Accrued compensation |
$ | 677 | $ | 949 | $ | 930 | ||||
Accrued outside research and development services |
1,600 | 596 | 1,623 | |||||||
Accrued professional and consulting services |
118 | 400 | 1,062 | |||||||
Other |
6 | 54 | 75 | |||||||
| | | | | | | | | | |
|
$ | 2,401 | $ | 1,999 | $ | 3,690 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
6. Intangible Assets
In-Process Research and Development
In connection with the acquisition of Valocor in 2011, the Company acquired intangible assets that were associated with IPR&D projects relating to preclinical product candidates. The acquisition-date fair value of these intangible assets was $3.5 million. The Company estimated the fair value of each product candidate using the income approach, which discounts expected future cash flows to present value using discount rates ranging from 15.70% to 26.74% which were based on the estimated weighted-average cost of capital for companies with profiles substantially similar to that of Valocor. As of all periods presented, these assets are considered to be indefinite-lived and will not be amortized, but will be tested for impairment on an annual basis, as well as between annual tests if changes in circumstances indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives.
F-18
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Intangible Assets (Continued)
Goodwill
The Company recorded the goodwill resulting from the Valocor acquisition separately on its consolidated balance sheet as of the acquisition date. Goodwill is tested for impairment on an annual basis, as well as between annual tests if there are changes in circumstances that would indicate a reduction in the fair value of the goodwill below its carrying amount.
The net book value of intangible assets and goodwill as of December 31, 2012 and 2013 and June 30, 2014 (unaudited) was as follows (in thousands):
|
Net Book
Value |
|||
---|---|---|---|---|
Intangible assetsIPR&D |
$ | 3,520 | ||
Goodwill |
771 | |||
| | | | |
Total intangible assets with indefinite lives |
$ | 4,291 | ||
| | | | |
| | | | |
7. Loan Agreement
In December 2013, the Company entered into a loan and security agreement (the "Loan Agreement") with Square 1 Bank (the "Bank") that provides for two term loans available to the Company of $2.0 million and $5.5 million, respectively. Borrowings under the term loans bear interest at the greater of: (1) 5.10% above the treasury rate in effect on the date that a term loan is funded; or (2) 5.50%, which rate will be fixed on the date of funding of the term loan. Upon final repayment of the amounts borrowed, the Company is required to pay the Bank a fee equal to 2.75% of the original principal amount borrowed. The Company may prepay borrowings without paying a penalty or premium.
On the closing date of the Loan Agreement, the Company borrowed $2.0 million under the first term loan ("Term Loan A"). The amount borrowed under Term Loan A matures in April 2017 and is secured by all assets of the Company other than the Company's intellectual property, subject to certain limited exceptions, and bears interest at a rate of 5.77% per annum. The amount borrowed under Term Loan A is to be repaid over a period of 40 months as follows: (1) commencing on January 11, 2014, 10 monthly payments of interest only; and (2) commencing on November 1, 2014, 30 equal monthly payments of $66,666.67, plus interest. Upon final repayment of Term Loan A, the Company is required to pay the Bank a fee of $55,000. The Company is accruing this fee monthly over the loan term on a straight-line basis and is recording it as interest expense in the consolidated statement of operations.
The second term loan ("Term Loan B") of $5.5 million is available to the Company any time between the date the Company achieves certain positive top-line Phase 2 clinical trial results and October 31, 2014. As of June 30, 2014 (unaudited), the Company had no borrowings under Term Loan B and was not entitled to borrow funds under Term Loan B. Borrowings, if any, under Term Loan B would be repaid over a period of months as follows: (1) commencing on the 11 th day following the date of Term Loan B, monthly payments of interest only to the earlier of (a) December 31, 2014 or (b) six months following the date of Term Loan B; and (2) commencing on the last day of the month immediately following the interest only end date, equal monthly payments of principal, plus interest, to the maturity date of June 30, 2017. Upon final repayment of Term Loan B, the Company would be
F-19
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Loan Agreement (Continued)
required to pay the Bank a fee equal to 2.75% of the original principal amount borrowed under Term Loan B.
The Loan Agreement is subject to certain representations and warranties, certain affirmative and negative covenants, certain conditions and events of default that are customarily required for similar financings. The affirmative covenants include, among other things, that the Company delivers timely financial statements and reports to the Bank, timely files taxes, maintains certain operating accounts subject to control agreements in favor of the Bank, maintains liability and other insurance, maintains at least two active and ongoing drug development programs and pledges security interests in any ownership interest of a future subsidiary. The negative covenants preclude, among other things, disposing of certain assets, engaging in certain mergers or acquisitions, incurring additional indebtedness, encumbering any collateral, paying dividends or making prohibited investments, in each case, without the prior consent of the Bank. As of December 31, 2013 and June 30, 2014, the Company was in compliance with all of the covenants.
In connection with the Loan Agreement, the Company agreed to issue the Bank a warrant to purchase up to 17,805 shares of the Company's Series B convertible preferred stock, with an exercise price of $8.4245 per share. The number of shares issuable pursuant to the warrant at any date is 8,902 shares plus 1% of the amount of borrowings under the Loan Agreement as of such date divided by 8.4245. Following the entry into the Loan Agreement and the concurrent funding of Term Loan A, and as of December 31, 2013 and June 30, 2014 (unaudited), the warrant was exercisable for 11,276 shares of Series B convertible preferred stock, consisting of the 8,902 initial shares related to the Loan Agreement and an additional 2,374 shares related to Term Loan A. The fair value of the warrant of approximately $61,000 was recorded as a debt discount and amortized to interest expense using the straight-line method over the loan term. The Company recognized interest expense of $0 and $9,000 from the amortization of the warrant-related debt discount for the years ended December 31, 2013 and the six months ended June 30, 2014 (unaudited), respectively. The unamortized debt discount balance was $61,000 and $52,000 as of December 31, 2013 and June 30, 2014 (unaudited), respectively.
As of December 31, 2013, future principal and interest payments under Term Loan A are as follows (in thousands):
|
|
|||
---|---|---|---|---|
Year Ending December 31, |
||||
2014 |
$ | 256 | ||
2015 |
888 | |||
2016 |
841 | |||
2017 |
325 | |||
| | | | |
Total payments |
2,310 | |||
Less: |
||||
Cash interest payments and balloon payment accretion |
(310 | ) | ||
Unamortized bank fees and warrant value issued |
(81 | ) | ||
| | | | |
Total principal payments |
1,919 | |||
Less: current portion |
(133 | ) | ||
| | | | |
Long-term portion of bank term loan |
$ | 1,786 | ||
| | | | |
| | | | |
F-20
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Loan Agreement (Continued)
The Company incurred interest expense in connection with Term Loan A to the Bank totaling $67,000 during the six months ended June 30, 2014 (unaudited).
8. Commitments and Contingencies
Facility Lease
The Company leases its corporate headquarters facility in Redwood City, California under a noncancelable operating lease agreement. The lease agreement was entered into in September 2011, and amended in November 2011 for additional space in the same facility. The lease terminates in November 2014. As of December 31, 2013, the future minimum lease payments for this facility were $168,000.
In December 2013, the Company entered into a lease agreement with respect to additional space in the same facility. The lease commenced January 2014 and is on a month-to-month basis at a rate of $10,000 per month. Monthly rent payments under the lease agreement increase $1,000 per month in each subsequent month the Company rents the space. The Company is required to provide the landlord a 30-day notice of its plan to terminate the lease agreement.
In March 2014 and May 2014 (unaudited), the Company entered into sublease agreements for additional office space in the same facility. The subleases commenced in May 2014 and terminate in November 2014, and the total cost for this space is approximately $165,000 over the full term of the subleases.
Rent expense for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited) was $183,000, $257,000, $112,000 and $224,000, respectively. The terms of the facility leases provide for rental payments on a monthly basis on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company is not subject to any current pending legal matters or claims.
Indemnification
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
F-21
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies (Continued)
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
No amounts associated with such indemnifications have been recorded to date.
9. Technology Agreements
QLT Agreement
In May 2010, Valocor entered into an asset purchase agreement and an exclusive license agreement with QLT, Inc., a Canadian company, and acquired rights to certain dermatological product candidates, as defined therein. Upon the Company's acquisition of Valocor in August 2011, Valocor became a wholly owned subsidiary of the Company and subsequently the name of the subsidiary was changed to Dermira (Canada), Inc.
Subsequently, the license agreement with QLT was assigned to Valeant Pharmaceuticals International, Inc. ("VPII") and subsequently to VPII's affiliate, Valeant Pharmaceuticals Luxembourg S.a.r.l. ("Valeant") in connection with VPII's acquisition of QLT's Visudyne business. In December 2012, Dermira Canada and Valeant entered into an amendment to the license agreement under which Dermira Canada agreed to pay Valeant $400,000 upon execution of the amendment and $600,000 on July 31, 2013, in return for certain modifications to the license agreement, including the elimination of any further payment obligations to Valeant, VPII or QLT. Both of these amounts were recorded as research and development expenses in the statement of operations for the year ended December 31, 2012. In conjunction with this amendment, in February 2013, Dermira Canada and Valeant obtained the consent of the University of British Columbia ("UBC") to the amendment of obligations of Valeant and Dermira to UBC. As consideration for UBC's consent, and as outlined in a May 2012 agreement with UBC, Dermira Canada paid UBC $50,000 and agreed to pay UBC an additional amount upon the achievement of a specified activity under the May 2012 letter agreement. The Company recorded the $50,000 as research and development expenses in its statement of operations for the year ended December 31, 2012.
Maruho Agreement
In March 2013, the Company entered into a Right of First Negotiation Agreement with Maruho Co., Ltd. Under the terms of the agreement, the Company provided Maruho with certain information and the right to negotiate an exclusive license to develop and commercialize certain of the Company's product candidates in specified territories. In connection with the entry into this agreement, Maruho paid the Company a nonrefundable upfront payment of $10.0 million, which will be credited against certain payments payable by Maruho to the Company if the two parties enter into an exclusive license for any of the Company's products. If the parties do not enter into such an arrangement, the Company will be entitled to keep the funds without further obligation. As of December 31, 2013, the Company recorded the $10.0 million as deferred revenue on its consolidated balance sheet. The revenue will be recognized in connection with and pursuant to a future license arrangement, if any, or at the time the parties decide not to enter into such a license, at which point the entire amount would be recognized as revenue.
F-22
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Technology Agreements (Continued)
In connection with the execution of the Right of First Negotiation Agreement, Maruho purchased 1,187,014 shares of the Company's Series B convertible preferred stock for an aggregate purchase price of $10.0 million.
Rose U Agreement
In April 2013, the Company entered into an exclusive license agreement with Rose U, LLC to license certain patents, patent applications and know-how. This agreement includes a sublicense and assignment of certain know-how licensed and assigned to Rose U by Stiefel Laboratories, Inc., a GSK Company, the prior licensee of such patents. In connection with this agreement, the Company also entered into a letter agreement with Stiefel. The Company paid fees of $0.3 million to Rose U in connection with execution of these agreements and is required to pay additional amounts totaling up to $4.6 million upon the achievement of specified development, commercialization and other milestones under these agreements. In addition, the Company is also obligated to pay Rose U low-to-mid single-digit royalties on net product sales and low double-digit royalties on sublicense fees and certain milestone, royalty and other contingent payments received from sublicensees, to the extent such amounts are in excess of the milestone and royalty payments the Company is obligated to pay Rose U directly upon the events or sales triggering such payments. The initial fee of $0.2 million was recorded to research and development expense in the statement of operations for the year ended December 31, 2013.
UCB Agreement
In March 2014, the Company entered into a development and commercialization agreement with UCB (the "UCB agreement"), for the Company to develop Cimzia in order for UCB to seek regulatory approval from the FDA, European Medicines Agency ("EMA") and the Canadian federal department for health ("Health Canada") for the treatment of psoriasis, and upon the grant of regulatory approval in the United States and Canada, for the Company to promote sales of Cimzia to dermatologists and conduct related medical affairs activities in the United States and Canada. Unless earlier terminated, the term of the UCB agreement is 12.5 years following the first commercial launch following regulatory approval of Cimzia for the treatment of psoriasis in the United States or Canada.
The Company has agreed with UCB on a development plan to obtain regulatory approval from the FDA, the EMA and Health Canada, which may be amended as necessary to meet the requirements of these regulatory authorities for approval. The Company is responsible for development costs under the development plan up to a specified cap greater than $75.0 million and less than $95.0 million, plus its internal development costs. Any development costs in excess of this cap or for any required clinical trials in pediatric patients will be shared equally. Development costs for any EMA-specific post-approval studies will be borne solely by UCB. UCB is obligated to pay the Company up to an aggregate of $36.0 million if certain development milestones are met, and up to an additional aggregate of $13.5 million upon the grant of regulatory approval, including pricing and reimbursement approval, in certain European countries.
Under the terms of the UCB agreement, the Company will have the exclusive rights upon regulatory approval of the psoriasis indication to promote Cimzia to dermatologists in the United States and Canada. Following such regulatory approval, UCB will book sales and is obligated to pay the Company royalties representing a percentage of the annual gross profits (after subtracting the costs of
F-23
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Technology Agreements (Continued)
certain commercialization support services to be provided by UCB) from Cimzia sales attributed to dermatologists in all indications in the United States and Canada. In each year, the royalties payable to the Company are tiered based upon increasing levels of annual net sales attributed to dermatologists in such year, with UCB retaining between 10% and, above $150.0 million of such annual net sales in such year, 50%, and the Company receiving the balance, of such annual gross profits. In addition, UCB is obligated to pay the Company up to an aggregate of $40.0 million upon the achievement of tiered milestones based on annual net sales of Cimzia attributed to dermatologists in the United States and Canada.
In connection with the UCB agreement, UCB purchased $5.0 million of the Company's Series B preferred stock at $8.4245 per share in April 2014. Concurrently with the IPO, entities affiliated with UCB will purchase from the Company in a private placement shares of the Company's common stock with an aggregate purchase price of $7.5 million, at a price per share equal to the initial public offering price. The sale of these shares to entities affiliated with UCB will not be registered in the IPO.
10. Series B Convertible Preferred Stock Warrant
On December 11, 2013, in connection with the Square 1 Bank Term Loan A (see Note 7), the Company issued the Bank a warrant to purchase up to 17,805 shares of the Company's Series B convertible preferred stock with an exercise price of $8.4245 per share and a contractual term of seven years from issuance. The number of shares issuable pursuant to the warrant at any date is 8,902 shares plus 1% of the amount drawn through that date under the Loan Agreement divided by 8.4245. Following the entry into the Loan Agreement and the concurrent funding of Term Loan A, the warrant was exercisable for 11,276 shares of Series B convertible preferred stock. The fair value of the warrant of approximately $61,000 was recorded as debt discount and warrant liability upon issuance. The fair value of the warrant on the date of issue was determined using the Black-Scholes option-pricing model with the following weighted-average assumptions: (1) seven-year contractual term; (2) 66.0% expected volatility; (3) 1.6% risk-free interest rate; and (4) no expected dividend.
The fair value of the outstanding convertible preferred stock warrant was remeasured as of December 31, 2013 using a Black-Scholes option-pricing model with the following assumptions:
Expected term (in years) |
7.0 | |||
Expected volatility |
66.0 | % | ||
Risk-free interest rate |
1.6 | % | ||
Expected dividend rate |
0.0 | % |
Fair Value of Convertible Preferred Stock. The fair value of the shares of the convertible preferred stock underlying the preferred stock warrant has historically been determined by the Company's Board of Directors. Because there has been no public market for the Company's convertible preferred stock, the Board of Directors has determined fair value of the Company's convertible preferred stock at each balance sheet date by considering a number of objective and subjective factors, including valuation of comparable companies, sales of the Company's convertible preferred stock to unrelated third parties, the Company's operating and financial performance, the lack of liquidity of the Company's convertible preferred stock, and general and industry-specific economic outlooks, among other factors.
F-24
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Series B Convertible Preferred Stock Warrant (Continued)
Remaining Contractual Term. The Company derived the remaining contractual term based on the time from the consolidated balance sheet date until the preferred stock warrant's expiration date.
Expected Volatility. Since the Company was a private entity with no historical data regarding the volatility of its preferred stock, the expected volatility used is based on volatility of a group of similar entities. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the remaining contractual term of the warrants.
Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend rate of zero in the valuation model.
As of June 30, 2014 (unaudited), the Company revalued the Series B convertible preferred stock warrant using a hybrid of the option-pricing method and the probability-weighted expected return method. The hybrid method was applied to various exit scenarios and each scenario was weighted based on the Company's estimate of the probability of the scenario occurring. The fair value of the warrant using the hybrid method was $60,000.
11. Common Stock
As of December 31, 2013 and June 30, 2014, the Company was authorized to issue up to 23,275,862 shares and 23,965,517 shares (unaudited), respectively, of common stock, par value $0.001 per share. The Company had reserved shares of common stock, on an as converted basis, for issuance as follows:
|
As of December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As of
June 30, 2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
|
|
(Unaudited)
|
|||||||
Share-based payments outstanding under stock incentive plans |
920,323 | 1,743,590 | 2,265,305 | |||||||
Conversion of convertible preferred stock |
6,572,625 | 9,540,158 | 10,133,665 | |||||||
Issuances upon exercise of convertible preferred stock warrant |
| 11,276 | 11,276 | |||||||
Shares available for future stock option grants |
1,352,518 | 142,506 | 55,964 | |||||||
| | | | | | | | | | |
|
8,845,466 | 11,437,530 | 12,466,210 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
From August 2010 to October 2010, the Company issued 400,857 shares of restricted common stock at $0.001 per share to service providers of the Company under common stock purchase agreements. The shares purchased under the stock purchase agreements vest over time. The unvested shares of common stock are subject to a right of repurchase by the Company in the event of cessation of services. Included in common stock outstanding as of December 31, 2012 and 2013 and as of June 30, 2014 (unaudited) were 116,465, 9,788 and 2,783 shares, respectively, which were subject to the Company's right to repurchase relating to these common stock purchase agreements.
F-25
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Convertible Preferred Stock
As of December 31, 2013 and June 30, 2014, the Company was authorized to issue up to 10,107,111 shares and 10,700,619 shares (unaudited), respectively, of preferred stock, par value $0.001 per share.
As of December 31, 2012, outstanding convertible preferred stock was comprised of the following (in thousands, except share and per share amounts):
|
Shares
Authorized |
Shares
Issued and Outstanding |
Carrying
Value |
Liquidation
Value per Share |
Liquidation
Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
8,103,448 | 6,572,625 | $ | 35,089 | $ | 5.365 | $ | 35,262 |
As of December 31, 2013, outstanding convertible preferred stock was comprised of the following (in thousands, except share and per share amounts):
|
Shares
Authorized |
Shares
Issued and Outstanding |
Carrying
Value |
Liquidation
Value per Share |
Liquidation
Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
6,572,629 | 6,572,625 | $ | 35,089 | $ | 5.365 | $ | 35,262 | ||||||||
Series B |
3,534,482 | 2,967,533 | 24,499 | 8.4245 | 25,000 | |||||||||||
| | | | | | | | | | | | | | | | |
|
10,107,111 | 9,540,158 | $ | 59,588 | $ | 60,262 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
As of June 30, 2014 (unaudited), outstanding convertible preferred stock was comprised of the following (in thousands, except share and per share amounts):
|
Shares
Authorized |
Shares
Issued and Outstanding |
Carrying
Value |
Liquidation
Value per Share |
Liquidation
Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
6,572,629 | 6,572,625 | $ | 35,089 | $ | 5.365 | $ | 35,262 | ||||||||
Series B |
4,127,990 | 3,561,040 | 29,499 | 8.4245 | 30,000 | |||||||||||
| | | | | | | | | | | | | | | | |
|
10,700,619 | 10,133,665 | $ | 64,588 | $ | 65,262 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The Company recorded the convertible preferred stock at fair value, net of issuance costs, on the dates of issuance. The Company classifies the convertible preferred stock outside of stockholders' (deficit) equity because the shares contain liquidation features that are not solely within the Company's control. For the six months ended June 30, 2014, the Company did not adjust the carrying values of the convertible preferred stock to the deemed redemption values of such shares since a liquidation event was not probable. Subsequent adjustments to the carrying values to the ultimate redemption values will be made only if and when it becomes probable that such a liquidation event will occur.
The rights, preferences and privileges of the convertible preferred stock are as follows:
Conversion
Each share of Series A and Series B convertible preferred stock is convertible into shares of common stock at an initial conversion price of $5.365 per share and $8.4245 per share, respectively. Each share of convertible preferred stock is convertible, at the option of the holder, at any time into fully paid and nonassessable shares of common stock. Conversion of all shares of convertible preferred stock is automatic upon: (1) affirmative election of the holders of a majority of the shares of
F-26
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Convertible Preferred Stock (Continued)
convertible preferred stock outstanding; or (2) the closing of a firm commitment underwritten public offering of common stock with a price per share of not less than the conversion price of the Series B convertible preferred stock then in effect and gross cash proceeds to the Company of at least $50.0 million (before deduction of underwriters' commissions and expenses).
The number of shares of common stock to which a convertible preferred stockholder is entitled upon conversion of such stockholder's convertible preferred stock is the product obtained by multiplying the convertible preferred stock conversion rate by the number of shares of convertible preferred stock being converted, subject to adjustments as provided in the Company's Restated Certificate of Incorporation. As of December 31, 2012 and 2013 and June 30, 2014 (unaudited), all shares of Series A and Series B convertible preferred stock were convertible into common stock on a one-for-one basis.
The Series A and Series B convertible preferred stock conversion prices are subject to adjustment upon any future stock splits or stock combinations, reclassifications or exchanges of similar shares, or upon a reorganization, merger or consolidation of the Company. In addition, the conversion prices are subject to adjustment upon any issuance of stock below the stated conversion prices for each series of convertible preferred stock, subject to certain exceptions.
Special Mandatory Conversion
At any time prior to the automatic conversion of the convertible preferred stock or conversion of the convertible preferred stock pursuant to a liquidation, dissolution or winding up of the Company or a deemed liquidation event, if certain investors do not participate in a qualified financing by purchasing their pro rata amount (based upon designated commitment percentages) up to a threshold amount, on the terms generally applicable to other investors in the qualified financing, then each share of convertible preferred stock held by those investors will be automatically converted into the number of shares of common stock equal to 50% of the shares of common stock that such investors would be entitled to receive upon an optional conversion at the applicable conversion price for the series of preferred stock in question that is in effect immediately prior to the consummation of such qualified financing. Once each such investor has purchased preferred stock in an amount equal to the threshold amount, such automatic special mandatory conversion provision is no longer applicable as to such investor.
Voting
Stockholders of the Series A and Series B convertible preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock are convertible on the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or written consent is solicited. Holders of convertible preferred stock vote together as one class with the common stock, and have voting rights and powers that differ from the common stock as specified in the Company's Amended and Restated Certificate of Incorporation. For so long as at least 25% of the shares of convertible preferred stock remain outstanding, the approval of convertible preferred stockholders is required for a number of significant changes to the Company, including the creation of a new class or series of shares of capital stock and amendments to the Company's Amended and Restated Certificate of Incorporation and Bylaws.
F-27
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Convertible Preferred Stock (Continued)
So long as at least 25% of the shares of Series A convertible preferred stock remain outstanding, the holders of Series A convertible preferred stock, voting as a separate series, will be allowed to elect three directors of the Company, the holders of the common stock, voting as a separate class, are allowed to elect two directors of the Company.
Liquidation
In the event of a liquidation, dissolution, or winding up of the Company, whether voluntarily or involuntarily, and upon certain other defined events, the holders of the Series A and Series B convertible preferred stock are also entitled to receive liquidation preferences in amounts per share equal to the original issue price of $5.3650 and $8.4245, respectively, plus the amount of any declared and unpaid dividends on such shares of convertible preferred stock. Liquidation payments are made in preference to any payments to the holders of common stock. If the funds or assets from the liquidation event are insufficient to permit the payment of Series A and Series B convertible preferred stock holders their full liquidation preferences, then all the funds or assets will be distributed among the holders Series A and Series B convertible preferred stock pro rata, on a pari passu basis, according to their respective liquidation preferences. If there are any funds remaining after the payment of the liquidation preference of $5.3650 per share and $8.4245 per share to the holders of the Series A and Series B convertible preferred stock, respectively, then all remaining funds shall be distributed among the holders of the shares of Series A and Series B convertible preferred stock and common stock, pro rata based on the number of shares held by each such holder (on an as-converted to common stock basis), provided, however, that if the aggregate amount the holders of Series A and Series B preferred stock are entitled to receive exceeds $16.0950 per share and $25.2735 per share, respectively, then each holder of Series A and Series B convertible preferred stock shall only be entitled to receive the greater of (1) $16.0950 per share and $25.2735 per share, respectively, or (2) the amount such holder would have received if all shares of Series A and Series B convertible preferred stock had been converted into common stock immediately prior to a liquidation, dissolution or winding up of the Company.
Dividends
Holders of Series A and Series B convertible preferred stock are entitled to receive dividends out of any assets legally available only when, as, and if declared by the Board of Directors, prior to and in preference to any declaration or payment of any dividend on the common stock. Such dividends shall be noncumulative. The dividend rate for the Series A and Series B convertible preferred stock per share per annum is $0.4292 and $0.67396, respectively. To date, the Board of Directors has not declared any dividends.
Redemption
The convertible preferred stock is not redeemable as it does not have a set redemption date or a date after which the shares may be redeemed by the holders.
13. Stock Option Plan
The Company adopted the 2010 Equity Incentive Plan (the "2010 Plan"), as amended, which provides for the granting of stock options to employees, officers, directors, consultants and advisors of the Company. Options granted under the 2010 Plan may be either incentive stock options or
F-28
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
nonqualified stock options. Incentive stock options ("ISOs") may be granted only to Company employees, including officers and directors who are also employees. Nonqualified stock options ("NSOs") may be granted to Company employees, officers, directors, consultants and advisors. As of December 31, 2013 and June 30, 2014 (unaudited), the Company had reserved 1,886,095 and 2,327,475 shares of common stock for issuance under the 2010 Plan, respectively.
Options to purchase the Company's common stock may be granted at a price not less than the fair value in the case of both NSOs and ISOs, except that an ISO granted to an employee who owns more than 10% of the voting power of all classes of stock of the Company shall have an exercise price of no less than 110% of the fair value per share on the grant date and expire five years from the date of grant. The fair value and vesting terms of options issued are determined by the Board of Directors. Options under the 2010 Plan may be granted for periods of up to 10 years, unless subject to the provisions regarding 10% stockholders. Employee options granted by the Company generally vest over four years at a rate of 25% upon the first anniversary of the issuance date and monthly thereafter.
The following summary of stock option activity for the periods presented is as follows (in thousands, except share and per share amounts):
|
Shares
Available for Grant |
Shares
Subject to Outstanding Options |
Weighted-
Average Exercise Price Per Share |
Weighted-
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Options outstanding at December 31, 2011 |
1,314,558 | 958,283 | $ | 0.99 | ||||||||||||
Additional shares reserved under plan |
| | | |||||||||||||
Options granted |
(125,859 | ) | 125,859 | 0.99 | ||||||||||||
Options exercised |
| | | |||||||||||||
Options forfeited |
163,819 | (163,819 | ) | 0.99 | ||||||||||||
| | | | | | | | | | | | | | | | |
Options outstanding at December 31, 2012 |
1,352,518 | 920,323 | 0.99 | |||||||||||||
Reduction in shares reserved under plan |
(844,433 | ) | | | ||||||||||||
Additional shares reserved under plan |
457,688 | | | |||||||||||||
Options granted |
(823,267 | ) | 823,267 | 1.42 | ||||||||||||
Options exercised |
| | | |||||||||||||
Options forfeited |
| | | |||||||||||||
| | | | | | | | | | | | | | | | |
Options outstanding at December 31, 2013 |
142,506 | 1,743,590 | 1.18 | |||||||||||||
Additional shares reserved under plan (unaudited) |
441,379 | | | |||||||||||||
Options granted (unaudited) |
(533,955 | ) | 533,955 | 5.28 | ||||||||||||
Options exercised (unaudited) |
| (6,206 | ) | 1.10 | ||||||||||||
Options forfeited (unaudited) |
6,034 | (6,034 | ) | 1.74 | ||||||||||||
| | | | | | | | | | | | | | | | |
Options outstanding at June 30, 2014 (unaudited) |
55,964 | 2,265,305 | $ | 2.15 | 8.4 | $ | 11,297 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Vested and expected to vest as of December 31, 2012 |
852,050 | 0.96 | 8.8 | 222 | ||||||||||||
Exercisable as of December 31, 2012 |
298,929 | 0.94 | 8.7 | 83 | ||||||||||||
Vested and expected to vest as of December 31, 2013 |
1,583,625 | 1.17 | 8.5 | 905 | ||||||||||||
Exercisable as of December 31, 2013 |
538,958 | 0.96 | 7.8 | 420 | ||||||||||||
Vested and expected to vest as of June 30, 2014 (unaudited) |
2,069,647 | 2.11 | 8.4 | 10,401 | ||||||||||||
Exercisable as of June 30, 2014 (unaudited) |
841,167 | 1.04 | 7.6 | 5,126 |
F-29
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
The following table summarizes information with respect to stock options outstanding and currently exercisable as of December 31, 2013:
|
Options Outstanding | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Exercise Price
|
Number of
Options |
Weighted-
Average Remaining Contractual Life (In Years) |
Options
Exercisable |
|||||||
$0.0058 |
25,169 | 6.9 | 19,926 | |||||||
$0.986 |
895,155 | 7.8 | 510,807 | |||||||
$1.218 |
508,060 | 9.0 | | |||||||
$1.74 |
315,206 | 9.6 | 8,225 | |||||||
| | | | | | | | | | |
|
1,743,590 | 538,958 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
The following table summarizes information with respect to stock options outstanding and currently exercisable as of June 30, 2014 (unaudited):
|
Options Outstanding | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Exercise Price
|
Number of
Options |
Weighted-
Average Remaining Contractual Life (In Years) |
Options
Exercisable |
|||||||
$0.0058 |
25,169 | 6.4 | 23,073 | |||||||
$0.986 |
889,982 | 7.3 | 609,768 | |||||||
$1.218 |
508,060 | 8.5 | 179,934 | |||||||
$1.74 |
337,448 | 9.1 | 27,099 | |||||||
$5.51 |
504,646 | 9.9 | 1,293 | |||||||
| | | | | | | | | | |
|
2,265,305 | 841,167 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
Stock Options Granted to Employees
During the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2014 (unaudited), the Company granted stock options to employees and nonemployee directors to purchase shares of common stock with a weighted-average grant date fair value of $0.64, $0.93 and $3.60 per share, respectively, and a weighted-average exercise price of $0.99, $1.40 and $5.30 per share, respectively. As of December 31, 2012 and 2013 and June 30, 2014 (unaudited), there was total unrecognized compensation expense of $0.3 million, $0.7 million and $2.2 million, respectively, to be recognized over a period of approximately 2.77 years, 2.48 years and 2.43 years, respectively.
The Company estimated the fair value of stock options using the Black-Scholes option-pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the
F-30
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
requisite service period of the awards. The fair value of the employee stock options was estimated using the following weighted-average assumptions:
|
Year Ended
December 31, |
Six Months
Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Expected term (years) |
6.0 | 6.1 | 6.1 | 6.0 | |||||||||
Expected volatility |
71.0 | % | 76.0 | % | 76.0 | % | 76.0 | % | |||||
Risk-free interest rate |
1.1 | % | 1.3 | % | 1.1 | % | 1.9 | % | |||||
Expected dividend rate |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
Fair Value of Common Stock. The fair value of the shares of the Company's common stock underlying the stock options has historically been determined by the Company's Board of Directors. Because there has been no public market for the Company's common stock, its Board of Directors has determined the fair value of the Company's common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of the Company's convertible preferred stock, the Company's operating and financial performance, the lack of liquidity of the Company's capital stock, and the general and industry-specific economic outlooks.
Expected Term. The expected term of stock options represents the weighted-average period that the stock options are expected to remain outstanding. Since the Company has insufficient historical information regarding its stock options to provide a basis for estimate of expected term, the Company uses the simplified method, which is the average of the weighted-average vesting period and contractual term of the option, to estimate the expected life of its stock option awards.
Expected Volatility. Since there has been no public market for the Company's common stock and lack of specific historical volatility, the Company has determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the options.
Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend rate of zero in the valuation model.
Estimated Forfeitures. The Company is required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses its historical forfeiture experience and the experience of other companies in the same industry to estimate pre-vesting option forfeitures and record stock based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference is recorded as a cumulative adjustment in the period that the estimates are revised.
F-31
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
Stock Options Granted to Nonemployees
Stock-based compensation expense related to stock options granted to nonemployees is recognized as the stock options are earned. During the year ended December 31, 2012, the Company granted options to purchase 3,448 shares of common stock to a nonemployee with an exercise price of $0.986 per share. During the year ended December 31, 2013, the Company granted options to purchase 36,031 shares of common stock to nonemployees with an exercise price of $1.74 per share. During the six months ended June 30, 2014 (unaudited), the Company did not grant any options to purchase shares of common stock to nonemployees.
Compensation expense related to these options during the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited) was approximately $23,000, $38,000, $13,000 and $106,000, respectively.
The Company believes that the fair value of the stock options is more reliably measurable than the fair value of services received. The fair value of the stock options granted is calculated at each reporting date using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Expected term (in years) |
9.1 | 8.3 | 8.2 | 7.9 | |||||||||
Expected volatility |
67.0 | % | 72.0 | % | 73.0 | % | 73.0 | % | |||||
Risk-free interest rate |
1.6 | % | 2.4 | % | 1.5 | % | 2.3 | % | |||||
Expected dividend rate |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
Total Stock-Based Compensation
Total stock-based compensation expense related to options granted to employees and nonemployees was allocated as follows (in thousands):
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Research and development: |
$ | 120 | $ | 196 | $ | 80 | $ | 227 | |||||
Sales, general and administrative: |
46 | 96 | 40 | 83 | |||||||||
| | | | | | | | | | | | | |
Total stock-based compensation expense |
$ | 166 | $ | 292 | $ | 120 | $ | 310 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
There were no capitalized stock-based compensation costs or recognized stock-based compensation tax benefits during the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited).
F-32
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Employee Benefit Plan
The Company sponsors a 401(k) defined contribution plan for its employees. This plan provides for tax-deferred salary deductions for all employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to this plan, as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company may match employee contributions in amounts to be determined at the Company's sole discretion. The Company has made no contributions to the plan for the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2013 and 2014 (unaudited).
15. Income Taxes
There is no provision for income taxes for the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2013 and 2014 (unaudited) as the Company has only generated pretax losses since inception.
Significant components of the Company's deferred tax assets and liabilities as of December 31, 2012 and 2013 consisted of the following (in thousands):
|
Year Ended December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2012 | 2013 | |||||
Deferred tax assets: |
|||||||
Net operating loss carryforwards |
$ | 9,468 | $ | 18,192 | |||
Depreciation and amortization |
584 | 565 | |||||
Research and development tax credits |
601 | 921 | |||||
Accruals and stock-based compensation expense |
96 | 139 | |||||
Fixed assets |
1 | 2 | |||||
| | | | | | | |
Total deferred tax assets |
10,750 | 19,819 | |||||
Deferred tax asset valuation allowance |
(10,750 | ) | (19,819 | ) | |||
| | | | | | | |
Net deferred tax assets |
| | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Acquired IPR&D |
(785 | ) | (785 | ) | |||
| | | | | | | |
Net deferred tax assets prior to valuation allowance |
(785 | ) | (785 | ) | |||
| | | | | | | |
Net deferred tax liabilities |
$ | (785 | ) | $ | (785 | ) | |
| | | | | | | |
| | | | | | | |
F-33
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
Reconciliations of the statutory federal income tax (benefit) rate to the Company's effective tax for the years ended December 31, 2012 and 2013 are as follows:
|
Year Ended December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2012 | 2013 | |||||
Tax (benefit) at statutory federal rate |
34.0 | % | 34.0 | % | |||
State tax (benefit), net of federal benefit |
5.8 | % | 5.8 | % | |||
Foreign tax, net of federal benefit |
(4.5 | )% | (1.1 | )% | |||
Permanent differences |
(0.2 | )% | (0.4 | )% | |||
Research and development credits |
0.4 | % | 0.9 | % | |||
Change in valuation allowance |
(35.5 | )% | (39.2 | )% | |||
| | | | | | | |
Provision for income taxes |
0.0 | % | 0.0 | % | |||
| | | | | | | |
| | | | | | | |
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset net deferred tax assets as of December 31, 2012 and 2013 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. The Company's valuation allowance increased by approximately $8.0 million and $9.1 million for the years ended December 31, 2012 and 2013, respectively.
As of December 31, 2013, the Company had net operating loss ("NOL") carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes of $43.8 million, $43.8 million and $3.0 million, respectively. The federal and California NOL carryforwards will begin expiring during the year ended December 31, 2031 and the Canadian NOL carryforwards will begin expiring during the year ended December 31, 2029. The NOL carryforwards related to deferred tax assets do not include excess tax benefits from employee stock option exercises.
As of December 31, 2013, the Company also had research and development credit carryforwards of $0.2 million, $0.3 million and $0.5 million available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes, respectively. The federal and Canadian credit carryforwards will begin expiring in 2032 and the California state credit carryforwards has no expiration date.
The Company recorded approximately $122,000 in tax refunds in connection with qualified research and development costs incurred in Canada. This amount is reflected in other assets on the Company's consolidated balance sheet as of December 31, 2012. The tax refund was collected during the year ended December 31, 2013.
In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change NOL carryforwards is subject to an annual limitation under Section 382 of the Internal Revenue Code (California has similar laws). The annual limitation generally is determined by multiplying the value of the Company's stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. The ability of the Company to use its remaining NOL carryforwards
F-34
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
may be further limited if the Company experiences a Section 382 ownership change in connection with this offering or as a result of future changes in its stock ownership.
The Company recognizes uncertain tax positions when it is more likely than not, based on the technical merits, that the position will not be sustained upon examination. The guidance also clarifies the financial statement classification of tax-related penalties and interest and sets forth new disclosure regarding unrecognized tax benefits. The Company's policy is to include interest and penalties, if any, related to unrecognized tax benefits within the Company's provision for income taxes.
As the Company has a full valuation allowance against its deferred tax assets, the unrecognized tax benefits will reduce the deferred tax assets and the valuation allowance in the same amount. The Company does not expect the amount of unrecognized tax benefits to change in the next 12 months. A reconciliation of the of the unrecognized tax benefits is as follows (in thousands):
Balance as of December 31, 2011 |
$ | 72 | ||
Addition based on tax position related to current year |
50 | |||
| | | | |
Balance as of December 31, 2012 |
122 | |||
Addition based on tax position related to current year |
155 | |||
Increases related to tax positions taken during a prior period |
53 | |||
| | | | |
Balance as of December 31, 2013 |
$ | 330 | ||
| | | | |
| | | | |
The Company files income tax returns in the United States, California and Canada. The Company is not currently under examination by income tax authorities in federal, state, Canadian or other jurisdictions. All tax returns for 2010 and later will remain open for examination by the federal, state and Canadian authorities for three, four and four years, respectively, from the date of utilization of any net operating loss or credits.
16. Subsequent Events
The Company's Board of Directors has approved, and holders of the requisite number of outstanding shares of the Company's capital stock have approved, an amendment to the Company's Restated Certificate of Incorporation to effect a 5.8-to-1 reverse stock split of the Company's outstanding capital stock. The reverse stock split was effected on September 18, 2014, the date that the Certificate of Amendment to the Restated Certificate of Incorporation was filed with the Delaware Secretary of State. The reverse stock split did not result in an adjustment to par value. In the Certificate of Amendment to the Restated Certificate of Incorporation filed to effect the reverse stock split, the Company (1) decreased the number of authorized shares of convertible preferred stock from 89,601,458 to 40,874,365 shares, (2) decreased the number of authorized shares of convertible Series A preferred stock from 38,121,253 to 6,572,629 and (3) decreased the authorized shares of convertible Series B preferred stock from 23,942,342 to 3,578,847. The reverse stock split is reflected in the accompanying consolidated financial statements and related notes on a retroactive basis for all periods presented.
F-35
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Subsequent Events (unaudited)
For the purposes of the consolidated financial statements as of December 31, 2013 and the year then ended, the Company has evaluated subsequent events through June 26, 2014, the date the audited annual consolidated financial statements were confidentially submitted to the U.S. Securities and Exchange Commission ("SEC") in a registration statement on Form S-1. For the purposes of the unaudited interim consolidated financial statements as of June 30, 2014 and the six-month period then ended, such evaluation of subsequent events has been performed through September 29, 2014. Except as described below, the Company has concluded that no subsequent event has occurred that requires disclosure.
Lease Agreement
The Company entered into a lease agreement on July 24, 2014 and an amendment on September 10, 2014 for a facility totaling approximately 18,651 square feet in Menlo Park, California and intends to relocate its corporate headquarters to this facility in the fourth quarter of 2014. The term of the lease is five years, commencing December 2014 and terminating November 2019, with an option to renew for an additional three-year term. The base rent is approximately $97,918 per month during the first year of the lease and increases by three percent annually. Rent expenses include the base rent plus additional fees to cover the Company's share of certain facility expenses, including utilities, property taxes, insurance and maintenance. The estimated amount of these additional fees is approximately $22,381 per month during the first year of the lease. The total estimated lease payments for this facility over the five-year term of the lease are approximately $8 million.
In addition, the Company is required to issue the lessor of the building either a security deposit or a letter of credit of $500,000 that may be used by or drawn upon by the lessor in the event of default of certain terms under the lease agreement. If there is no event of default under the agreement after the 30 th month of the lease term, the letter of credit may be reduced to $250,000. On August 13, 2014, the Company provided a letter of credit to the lessor in the amount of $500,000, which is collateralized by a certificate of deposit. The collateralized certificate of deposit is restricted cash and recorded in the Company's consolidated balance sheet as other assets.
Increase in Shares of Common Stock under 2010 Equity Incentive Plan
On August 14, 2014, the Company's Board of Directors and stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Plan from 2,327,475 shares to 2,456,785 shares.
Restated Certificate of Incorporation
On August 14, 2014, the Company restated its Restated Certificate of Incorporation to, among other things, (1) decrease its authorized shares of common stock from 23,965,517 to 21,724,137 shares, (2) increase its authorized shares of convertible preferred stock from 10,700,619 to 15,448,525 shares, of which 5,297,049 shares are designated as Series C convertible preferred stock, and (3) set forth the rights, preferences and privileges of the Series C convertible preferred stock.
F-36
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Subsequent Events (unaudited) (Continued)
Sales of Series C Convertible Preferred Stock
On August 15, 2014, the Company issued 5,297,041 shares of Series C convertible preferred stock to seven new investors and five current investors at a purchase price of $9.628 per share for net proceeds of $48.8 million.
Approval of the Ability to Borrow Funds under Term Loan B
On August 26, 2014, the Company's Board of Directors determined that the Company achieved positive top-line Phase 2 clinical trial results from two of its Phase 2 programs, which satisfied the condition to the Company's ability to borrow funds under Term Loan B. As a result, the Company is now entitled to borrow funds under Term Loan B.
Approval of Restated Certificate of Incorporation
On September 9, 2014, the Company's Board of Directors approved a Restated Certificate of Incorporation that will become effective upon the filing with the Secretary of State of the State of Delaware, to occur immediately prior to the closing of the IPO. The Restated Certificate of Incorporation increases the authorized share capital to 500,000,000 shares of common stock, $0.001 par value per share, and reduces the authorized share capital to 10,000,000 shares of undesignated preferred stock, $0.001 par value per share.
Option Grants
On September 9, 2014, the Company's Board of Directors approved the grant of options to purchase 244,835 shares of the Company's common stock at an exercise price per share equal to the initial public offering price, all of which will be granted on the day that the registration statement for the IPO is declared effective.
2014 Equity Incentive Plan
On September 9, 2014, the Company's Board of Directors adopted and approved the 2014 Equity Incentive Plan (the "2014 EIP") to become effective on the day prior to the effective date of the IPO. The 2014 EIP authorizes the reservation of 1,896,551 shares of the Company's common stock, plus any shares reserved or remaining for issuance, or that become available upon forfeiture or repurchase by the Company, under the 2010 Plan. On January 1 of each of the first ten years commencing after the effective date of the IPO, the number of shares of the Company's common stock reserved for issuance under the 2014 EIP will increase automatically by an amount equal to 4% of the number of shares of the Company's common stock outstanding on the preceding December 31, unless the Company's Board of Directors elects to authorize a lesser number of shares.
2014 Employee Stock Purchase Plan
On September 9, 2014, the Company's Board of Directors adopted and approved the 2014 Employee Stock Purchase Plan (the "2014 ESPP") to become effective on the effective date of the IPO. The 2014 ESPP authorizes the reservation of 301,724 shares of the Company's common stock. On January 1 of each of the first ten years commencing after the effective date of the IPO, the number of shares of the Company's common stock reserved for issuance under the 2014 ESPP will increase
F-37
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Subsequent Events (unaudited) (Continued)
automatically by an amount equal to 1% of the number of shares of the Company's common stock outstanding on the preceding December 31, unless the Company's Board of Directors elects to authorize a lesser number of shares.
Amendment to Loan Agreement
On September 19, 2014, the Company entered into an amendment to the Loan Agreement with the Bank, which provided for the following revisions to the Loan Agreement: (1) the interest only end date was extended from October 31, 2014 to June 19, 2016 for Term Loan A and from December 31, 2014 to June 19, 2016 for Term Loan B; (2) the maturity date was extended from April 30, 2017 to December 19, 2018 for Term Loan A and from June 30, 2017 to December 19, 2018 for Term Loan B; (3) the date through which the Term Loan B is available to the Company was extended from October 31, 2014 to September 30, 2015; and (4) the fee that the Company is required to pay the Bank upon the final repayment of the amounts borrowed under Term Loan A was increased from 2.75% to 6.00% of the original principal amount borrowed.
F-38
5,350,000 Shares
Dermira, Inc.
Common Stock
PRELIMINARY PROSPECTUS
, 2014
Citigroup Leerink Partners Guggenheim Securities Needham & Company |
Through and including , 2014 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, paid or payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and The NASDAQ Global Market listing fee:
|
Amount
Paid or to be Paid |
|||
---|---|---|---|---|
SEC registration fee |
$ | 12,679 | ||
FINRA filing fee |
15,266 | |||
NASDAQ Global Market listing fee |
125,000 | |||
Blue sky qualification fees and expenses |
5,000 | |||
Printing and engraving expenses |
275,000 | |||
Legal fees and expenses |
1,745,000 | |||
Accounting fees and expenses |
855,000 | |||
Transfer agent and registrar fees and expenses |
20,000 | |||
Miscellaneous expenses |
397,055 | |||
| | | | |
Total |
$ | 3,450,000 | ||
| | | | |
| | | | |
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, the Registrant's restated certificate of incorporation to be effective in connection with the closing of this offering contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:
As permitted by the Delaware General Corporation Law, the Registrant's restated bylaws to be effective upon the closing of this offering, provide that:
II-1
Prior to the closing of this offering, the Registrant has entered into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's restated certificate of incorporation and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the Registrant for which indemnification is sought. Reference is also made to Section 8 of the underwriting agreement to be filed as Exhibit 1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant's restated certificate of incorporation, restated bylaws and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant's directors and executive officers for liabilities arising under the Securities Act.
The Registrant currently carries liability insurance for its directors and officers.
Three of the Registrant's directors (Fred B. Craves, Wende S. Hutton and Jake R. Nunn) are also indemnified by their employers with regard to their service on the Registrant's board of directors.
Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
Exhibit Document
|
Number | |||
---|---|---|---|---|
Form of Underwriting Agreement |
1.1 | |||
Form of Restated Certificate of Incorporation to be effective upon the closing of this offering |
3.2 | |||
Form of Restated Bylaws to be effective upon the closing of this offering |
3.4 | |||
Amended and Restated Investors Rights Agreement dated March 28, 2013, as amended, among the Registrant and certain of its stockholders |
4.2 | |||
Form of Indemnification Agreement |
10.1 |
Item 15. Recent Sales of Unregistered Securities.
Since September 20, 2011 and through September 19, 2014, the Registrant has issued and sold the following securities:
II-2
upon Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering, and the Registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above. All recipients of the foregoing transactions either received adequate information about the Registrant or had access, through their relationships with the Registrant, to such information. Furthermore, the Registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
|
|
Incorporated by Reference |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit
Number |
Description of Document | Form |
File
No. |
Exhibit |
Filing
Date |
Filed
Herewith |
|||||||||
1.1 | Form of Underwriting Agreement. | S-1 | 333-198410 | 1.1 | 9/19/2014 | ||||||||||
3.1 | Restated Certificate of Incorporation, as amended. | S-1 | 333-198410 | 3.1 | 9/19/2014 | ||||||||||
3.2 | Form of Restated Certificate of Incorporation to be effective upon closing of this offering. | S-1 | 333-198410 | 3.2 | 9/12/2014 | ||||||||||
3.3 | Bylaws, as currently in effect. | S-1 | 333-198410 | 3.3 | 8/27/2014 | ||||||||||
3.4 | Form of Restated Bylaws to be effective upon closing of this offering. | S-1 | 333-198410 | 3.4 | 9/12/2014 | ||||||||||
4.1 | Form of Common Stock Certificate. | S-1 | 333-198410 | 4.1 | 8/27/2014 | ||||||||||
4.2 | Amended and Restated Investors' Rights Agreement, dated August 15, 2014, by and among the Registrant and certain of its stockholders. | S-1 | 333-198410 | 4.2 | 8/27/2014 | ||||||||||
5.1 | Opinion of Fenwick & West LLP. | S-1 | 333-198410 | 5.1 | 9/19/2014 | ||||||||||
10.1 | Form of Indemnity Agreement. | S-1 | 333-198410 | 10.1 | 9/19/2014 | ||||||||||
10.2 | 2010 Equity Incentive Plan and forms of award agreements. | S-1 | 333-198410 | 10.2 | 8/27/2014 |
II-3
|
|
Incorporated by Reference |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit
Number |
Description of Document | Form |
File
No. |
Exhibit |
Filing
Date |
Filed
Herewith |
|||||||||
10.3 | 2014 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of stock option award agreement, stock option exercise agreement, restricted stock agreement, stock appreciation right award agreement, restricted stock unit award agreement, performance shares award agreement and stock bonus agreement. | S-1 | 333-198410 | 10.3 | 9/19/2014 | ||||||||||
10.4 | 2014 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and form of subscription agreement. | S-1 | 333-198410 | 10.4 | 9/19/2014 | ||||||||||
10.5 | Amended and Restated Employment Agreement, dated August 4, 2011, by and between the Registrant and Thomas G. Wiggans. | S-1 | 333-198410 | 10.5 | 8/27/2014 | ||||||||||
10.6 | Amended and Restated Employment Agreement, dated August 4, 2011, by and between the Registrant and Eugene A. Bauer. | S-1 | 333-198410 | 10.6 | 8/27/2014 | ||||||||||
10.7 | Offer Letter, accepted and agreed to July 17, 2012, by and between the Registrant and Luis C. Peña. | S-1 | 333-198410 | 10.7 | 8/27/2014 | ||||||||||
10.8 | Lease, dated September 12, 2011, by and between the Registrant and Woodside Road Holdings, LLC, as amended to date. | S-1 | 333-198410 | 10.8 | 8/27/2014 | ||||||||||
10.9 | | Development and Commercialisation Agreement, dated March 21, 2014, by and between the Registrant and UCB Pharma S.A. | X | ||||||||||||
10.10 | | Exclusive License Agreement, dated April 26, 2013, by and between the Registrant and Rose U LLC. | X | ||||||||||||
10.11 | Loan and Security Agreement, dated December 11, 2013, as amended, by and between the Registrant and Square 1 Bank. | S-1 | 333-198410 | 10.11 | 9/19/2014 | ||||||||||
10.12 | | Right of First Negotiation Agreement, dated March 28, 2013, by and between the Registrant and Maruho Co., Ltd. | X | ||||||||||||
10.13 | Lease Agreement, dated July 24, 2014, as amended, by and between the Registrant and Middlefield Park. | S-1 | 333-198410 | 10.13 | 9/12/2014 | ||||||||||
10.14 | Form of Severance and Change in Control Agreement. | S-1 | 333-198410 | 10.14 | 9/12/2014 | ||||||||||
21.1 | Subsidiaries of the Registrant. | S-1 | 333-198410 | 21.1 | 8/27/2014 | ||||||||||
23.1 | Consent of independent registered public accounting firm. | X | |||||||||||||
23.2 | Consent of Fenwick & West LLP (included in Exhibit 5.1). | S-1 | 333-198410 | 23.2 | 9/19/2014 | ||||||||||
24.1 | Power of Attorney. | S-1 | 333-198410 | 24.1 | 8/27/2014 |
(b) Financial Statement Schedule.
No financial statement schedules are provided because the information called for is not required or is shown either in the consolidated financial statements or notes.
II-4
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-5
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redwood City, State of California, on this 29th day of September, 2014.
DERMIRA, INC. | ||||
|
|
By: |
|
/s/ THOMAS G. WIGGANS Thomas G. Wiggans Chief Executive Officer and Chairman of the Board |
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||||
---|---|---|---|---|---|---|
|
|
|
|
|
|
|
/s/ THOMAS G. WIGGANS
Thomas G. Wiggans |
Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | September 29, 2014 | ||||
/s/ ANDREW L. GUGGENHIME Andrew L. Guggenhime |
|
Chief Operating Officer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
|
September 29, 2014 |
||
* Eugene A. Bauer |
|
Chief Medical Officer and Director |
|
September 29, 2014 |
||
* David E. Cohen |
|
Director |
|
September 29, 2014 |
||
* Fred B. Craves |
|
Director |
|
September 29, 2014 |
||
* Matthew K. Fust |
|
Director |
|
September 29, 2014 |
||
* Wende S. Hutton |
|
Director |
|
September 29, 2014 |
II-6
Signature
|
Title
|
Date
|
||||
---|---|---|---|---|---|---|
|
|
|
|
|
|
|
*
Mark D. McDade |
Director | September 29, 2014 | ||||
* Jake R. Nunn |
|
Director |
|
September 29, 2014 |
||
* William R. Ringo |
|
Director |
|
September 29, 2014 |
||
*By: |
|
/s/ ANDREW L. GUGGENHIME Andrew L. Guggenhime |
|
Attorney-in-Fact |
|
September 29, 2014 |
II-7
|
|
Incorporated by Reference |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit
Number |
Description of Document | Form |
File
No. |
Exhibit |
Filing
Date |
Filed
Herewith |
|||||||||
1.1 | Form of Underwriting Agreement. | S-1 | 333-198410 | 1.1 | 9/19/2014 | ||||||||||
3.1 | Restated Certificate of Incorporation, as amended. | S-1 | 333-198410 | 3.1 | 9/19/2014 | ||||||||||
3.2 | Form of Restated Certificate of Incorporation to be effective upon closing of this offering. | S-1 | 333-198410 | 3.2 | 9/12/2014 | ||||||||||
3.3 | Bylaws, as currently in effect. | S-1 | 333-198410 | 3.3 | 8/27/2014 | ||||||||||
3.4 | Form of Restated Bylaws to be effective upon closing of this offering. | S-1 | 333-198410 | 3.4 | 9/12/2014 | ||||||||||
4.1 | Form of Common Stock Certificate. | S-1 | 333-198410 | 4.1 | 8/27/2014 | ||||||||||
4.2 | Amended and Restated Investors' Rights Agreement, dated August 15, 2014, by and among the Registrant and certain of its stockholders. | S-1 | 333-198410 | 4.2 | 8/27/2014 | ||||||||||
5.1 | Opinion of Fenwick & West LLP. | S-1 | 333-198410 | 5.1 | 9/19/2014 | ||||||||||
10.1 | Form of Indemnity Agreement. | S-1 | 333-198410 | 10.1 | 9/19/2014 | ||||||||||
10.2 | 2010 Equity Incentive Plan and forms of award agreements. | S-1 | 333-198410 | 10.2 | 8/27/2014 | ||||||||||
10.3 | 2014 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of stock option award agreement, stock option exercise agreement, restricted stock agreement, stock appreciation right award agreement, restricted stock unit award agreement, performance shares award agreement and stock bonus agreement. | S-1 | 333-198410 | 10.3 | 9/19/2014 | ||||||||||
10.4 | 2014 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and form of subscription agreement. | S-1 | 333-198410 | 10.4 | 9/19/2014 | ||||||||||
10.5 | Amended and Restated Employment Agreement, dated August 4, 2011, by and between the Registrant and Thomas G. Wiggans. | S-1 | 333-198410 | 10.5 | 8/27/2014 | ||||||||||
10.6 | Amended and Restated Employment Agreement, dated August 4, 2011, by and between the Registrant and Eugene A. Bauer. | S-1 | 333-198410 | 10.6 | 8/27/2014 | ||||||||||
10.7 | Offer Letter, accepted and agreed to July 17, 2012, by and between the Registrant and Luis C. Peña. | S-1 | 333-198410 | 10.7 | 8/27/2014 | ||||||||||
10.8 | Lease, dated September 12, 2011, by and between the Registrant and Woodside Road Holdings, LLC, as amended to date. | S-1 | 333-198410 | 10.8 | 8/27/2014 | ||||||||||
10.9 | | Development and Commercialisation Agreement, dated March 21, 2014, by and between the Registrant and UCB Pharma S.A. | X | ||||||||||||
10.10 | | Exclusive License Agreement, dated April 26, 2013, by and between the Registrant and Rose U LLC. | X | ||||||||||||
10.11 | Loan and Security Agreement, dated December 11, 2013, as amended, by and between the Registrant and Square 1 Bank. | S-1 | 333-198410 | 10.11 | 9/19/2014 | ||||||||||
10.12 | | Right of First Negotiation Agreement, dated March 28, 2013, by and between the Registrant and Maruho Co., Ltd. | X | ||||||||||||
10.13 | Lease Agreement, dated July 24, 2014, as amended, by and between the Registrant and Middlefield Park. | S-1 | 333-198410 | 10.13 | 9/12/2014 | ||||||||||
10.14 | Form of Severance and Change in Control Agreement. | S-1 | 333-198410 | 10.14 | 9/12/2014 | ||||||||||
21.1 | Subsidiaries of the Registrant. | S-1 | 333-198410 | 21.1 | 8/27/2014 |
|
|
Incorporated by Reference |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit
Number |
Description of Document | Form |
File
No. |
Exhibit |
Filing
Date |
Filed
Herewith |
|||||||||
23.1 | Consent of independent registered public accounting firm. | X | |||||||||||||
23.2 | Consent of Fenwick & West LLP (included in Exhibit 5.1). | S-1 | 333-198410 | 23.2 | 9/19/2014 | ||||||||||
24.1 | Power of Attorney. | S-1 | 333-198410 | 24.1 | 8/27/2014 |
Exhibit 10.9
|
[*] 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. |
DATED MARCH 21, 2014
(1) DERMIRA, INC.
AND
(2) UCB PHARMA S.A.
DEVELOPMENT AND COMMERCIALISATION AGREEMENT
CONTENTS
1. |
DEFINITIONS AND INTERPRETATION |
1 |
2. |
CONDITIONS PRECEDENT AND FUNDING |
26 |
3. |
SCOPE OF AGREEMENT |
34 |
4. |
GOVERNANCE |
36 |
5. |
DEVELOPMENT |
49 |
6. |
INFORMATION TRANSFER AND TECHNICAL ASSISTANCE |
67 |
7. |
COMMERCIALISATION |
68 |
8. |
MANUFACTURE AND SUPPLY |
76 |
9. |
MEDICAL AFFAIRS, PHARMACOVIGILANCE AND OTHER REGULATORY MATTERS |
76 |
10. |
FINANCIAL PROVISIONS |
79 |
11. |
REPORTING |
88 |
12. |
EXCLUSIVITY AND NON-COMPETE |
90 |
13. |
COMPLIANCE |
92 |
14. |
INTELLECTUAL PROPERTY RIGHTS AND GRANT OF RIGHTS |
94 |
15. |
WARRANTIES |
101 |
16. |
INDEMNITY, LIABILITY |
104 |
17. |
CONFIDENTIALITY |
106 |
18. |
CHANGE OF CONTOL |
110 |
19. |
ASSIGNMENT |
112 |
20. |
TERM AND TERMINATION |
112 |
21. |
EFFECT OF TERMINATION |
114 |
22. |
WAIVER |
124 |
23. |
DISPUTE RESOLUTION |
124 |
24. |
ENTIRE AGREEMENT |
127 |
25. |
VARIATION |
127 |
26. |
SEVERANCE |
128 |
27. |
COUNTERPARTS |
128 |
28. |
THIRD PARTY RIGHTS |
128 |
29. |
NO PARTNERSHIP OR AGENCY |
128 |
30. |
NON-SOLICITATION OF EMPLOYEES |
128 |
31. |
FORCE MAJEURE |
129 |
32. |
NOTICES |
129 |
33. |
GOVERNING LAW AND JURISDICTION |
130 |
DEVELOPMENT AND COMMERCIALISATION AGREEMENT
THIS AGREEMENT is dated the 21 st day of March 2014 (the Effective Date ).
BETWEEN:
(1) DERMIRA, INC. , a corporation organised under the laws of the State of Delaware, with its principal offices located at 2055 Woodside Road, Suite 270, Redwood City, California 94061, the United States of America ( Dermira ); and
(2) UCB PHARMA S.A. , a limited liability corporation incorporated under the laws of Belgium, with registered office at Allée de la Recherche 60, 1070 Brussels, Belgium ( UCB )
WHEREAS:
(A) UCB is a biopharmaceutical company with experience in the discovery, development and commercialisation of antibodies as therapeutic products and is the owner of the Product (as defined below) which it is developing and commercialising in a number of indications throughout the Territory (as defined below).
(B) Dermira is a biotechnology company focused on developing and commercialising therapies in dermatology.
(C) UCB wishes to collaborate with Dermira to undertake a development program for the Product in the Development Indication (as defined below) and , on grant of Regulatory Approval for the Product in the Development Indication, for Dermira to undertake Dermira Commercial Activities (as defined below) and certain Medical Affairs activities for the Product in the Development Indication and the Promotion Indication, in each case to Dermatologists (as defined below) in the Promotion Territory (as defined below).
(D) UCB and Dermira have agreed that Dermira will Develop and undertake such Dermira Commercial Activities and Medical Affairs Activities and the Parties will Commercialise the Product as described above in accordance with the terms and conditions of this Agreement.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this Agreement the following words and expressions shall have the meanings ascribed to them (unless expressly provided or the context requires otherwise) as follows:
Adverse Drug Experience means any serious, non-serious or unexpected adverse event associated with the use of a drug in humans, whether or not considered drug-related, that may come to the attention of either of the Parties or their respective
Affiliates or Third Party subcontractors of Dermira with regard to the Product, as such events may be further described in the Safety Agreement but in any event including but not limited to those that are of such a nature and magnitude that they are required under Applicable Law to be reported to the FDA, EMA, Health Canada or one or more Regulatory Authorities throughout the Territory.
Affiliate means, with respect to a Person, any Person that, directly or indirectly, through one or more intermediaries, from time to time, controls, is controlled by or is under common control with such first Person. For purposes of this definition, control and, with correlative meanings, the terms controlled by and under common control with mean (a) the possession, directly or indirectly, of the power to direct the management or policies of a Person, whether through the ownership of voting securities, by contract relating to voting rights or corporate governance, or otherwise; or (b) the ownership, directly or indirectly, of at least fifty per cent (50%) of the voting securities or other ownership interest of a Person.
Aggregate Investment Amount means (a) $15,000,000 less (b) the Initial Subsequent Financing Amount.
Agreement means this development and commercialisation agreement (together with the Schedules annexed thereto, the terms and contents of which are hereby incorporated by reference), as the same may be amended, varied or otherwise altered in accordance with its terms.
Alliance Manager means an individual employee representative designated by each Party in accordance with Section 4.13 to promote effective communication between the Parties and coordination of the Parties activities and responsibilities with respect to the Product under this Agreement.
Annual Net Sales means, in relation to any given Calendar Year during the Term, the total amount of Net Sales which are Royalty Bearing Sales.
Applicable Law means the applicable laws, rules, and regulations, including any rules, regulations, guidelines, or other requirements of the Regulatory Authorities, that may be in effect from time to time in the Territory.
Arising IP means all Information and Materials arising from activities performed under this Agreement and Intellectual Property Rights subsisting therein or derived or derivable therefrom.
Audit shall have the meaning ascribed to it in Section 11.4.
Background IP means, with respect to a Party, (a) the Intellectual Property Rights Controlled by such Party or any of its Affiliates as of the Effective Date and (b) the Intellectual Property Rights to which a Party gains Control outside the activities under this Agreement during the Term and, in each case (a) and (b), that are reasonably necessary, relevant or otherwise useful for performing the activities under this Agreement and/or for the exercise of rights under any license granted hereunder as applicable.
Biologic means antibodies, proteins, conjugates or other molecules which fall within the definitions of Biological Product in Title 42 of the U.S. Code §262(i)(1) and/or Biosimilar or Biosimilarity in Title 42 of the U.S. Code §262(i)(2).
BLA means a Biologic License Application, as defined in the PHSA (42 U.S.C. § 262) and applicable regulations promulgated thereunder (or any equivalent application that replaces such application and including amendments and supplements thereto ) to obtain Regulatory Approval in the United States of America, or any corresponding applications for marketing authorisations or submissions filed with the relevant Regulatory Authorities to obtain Regulatory Approvals in any other country in the Territory.
Branding Strategy has the meaning ascribed to it in Section 7.14.
Business Day means a day other than a Saturday or Sunday on which banking institutions in Brussels, Belgium and New York, United States of America, are open for business.
Calendar Month means each of the twelve (12) calendar months in a Calendar Year.
Calendar Quarter means, with respect to any given Calendar Year, the respective periods of three (3) consecutive Calendar Months ending on March 31, June 30, September 30 or December 31; provided, however, that (i) the first calendar quarter of the Term shall extend from the Effective Date to the end of the first full calendar quarter thereafter; and (ii) the last calendar quarter of the Term shall end upon the date of termination or expiration of this Agreement.
Calendar Year means each successive period of twelve (12) consecutive Calendar Months commencing on January 1 and ending on December 31; provided, however, that (i) the first calendar year of the Term shall commence on the Effective Date and end on December 31 of the same year; and (ii) the last calendar year of the Term shall commence on January 1 of the calendar year in which this Agreement terminates or expires and end on the date of termination or expiration of this Agreement.
Cap shall have the meaning ascribed to it in Section 10.1(b).
Change of Control means, with respect to Dermira, the occurrence of any of the following events:
(i) the acquisition by any Third Party (or a group of Third Parties acting in concert), whether in a single transaction or a series of related transactions, of beneficial ownership of securities of Dermira representing more than fifty percent (50%) of the combined voting power of Dermiras then outstanding securities entitled to vote generally in the election of directors, provided, that (A) Dermiras current stockholders shall not be deemed to be acting in concert by virtue of their current or future ownership of Dermira securities or rights as security holders (including rights to nominate members of Dermiras board of directors) and (B) Third Parties who purchase Dermira securities in future financing transactions, including a public offering, shall not be deemed to be acting in concert by virtue of purchasing the same securities and collectively negotiating, or
receiving, their rights as security holders in such financing transactions;
(ii) the consummation of a merger (including without limitation any reverse merger or other similar transaction or series of transactions) or consolidation of Dermira with a Third Party, which results in (1) Dermiras voting securities outstanding as immediately prior thereto representing (either by remaining outstanding or by being converted into voting securities of the surviving or another entity) fifty percent (50%) or less of the combined voting power of the voting securities of, as applicable, Dermira or such surviving or other entity which are outstanding as immediately after such merger or consolidation or (2) a change of fifty percent (50%) or more of either the members of Dermiras incumbent board of directors or executive management (Executive Vice Presidents and above) directly responsible for Development and Dermira Commercial Activities, in either case, as existing immediately prior thereto.
(iii) the bona fide sale, transfer, exclusive licence, or other disposition, whether in a single transaction or series of related transactions, by Dermira (or its Affiliates) to a Third Party of all or substantially all the assets of Dermira and its Affiliates taken as a whole, provided that such assets include the right to Develop and/or Commercialise the Product as provided under this Agreement.
CIA or Corporate Integrity Agreement shall have the meaning ascribed to it in Section 13.4.
Cimzia® means the PEGylated fragment (Fab) of an anti-TNF a antibody, owned and Commercialised by UCB as Cimzia ® , having the INN certolizumab pegol .
Cimzia® Trademarks means the Trademarks listed in Schedule 1 , Part A and such other Trademarks that UCB should decide to use to brand or market the Product.
Clinical Study means a human clinical trial in human subjects that is required by Applicable Law, or otherwise recommended by the Regulatory Authorities, to obtain or maintain Regulatory Approval.
CMC Data means the chemistry, manufacturing and controls Information required by Applicable Law or otherwise desirable to support any Drug Approval Application in the Territory.
Combination Product means a product incorporating Cimzia® as an active ingredient together with one or more other active ingredient(s) that is sold either as a fixed dose or as separate doses in a single package.
Commencement Date means the date on which this Agreement comes into full force and effect in accordance with Section 2.2.
Commercial Functions means with respect to each country within the Territory in relation to both the Promotion Indication and the Development Indication, those
activities related to Commercialisation for which UCB has responsibility (unless otherwise delegated by UCB to Dermira as set forth in this Agreement) and final decision making authority, as set out in Schedule 2 .
Commercially Reasonable Efforts means a level of commercially reasonable efforts to Develop, obtain Regulatory Approval, supply and Commercialise and perform Medical Affairs activities for the Product that are consistent with the type and scope of efforts a company similarly situated as the applicable Party would devote to a Product wholly-owned by such Party at a similar stage of Development and Commercialisation. Without limiting the foregoing, Commercially Reasonable Efforts require that each Party: (i) assign responsibility for the relevant activities to specific employees who are responsible for progress and monitor such progress on a regular basis; (ii) set and consistently seek to achieve specific and meaningful objectives and timelines for carrying out such activities; and (iii) consistently make and implement decisions and allocate resources consistent with the efforts described above. Commercially Reasonable Efforts shall be determined on a market-by-market and indication-by-indication basis for the Product, and it is acknowledged and understood that the level of efforts will be different for different markets and may change over time, and may take into account issues of safety and efficacy, product profile, market opportunity and profitability, the Patent and other proprietary position of the Product, and the then current competitive environment for the Product.
Commercialisation means, with respect to the Product: (a) any and all activities (whether before or after Regulatory Approval) related to the market access activities, pricing and reimbursement activities, marketing research, marketing, detailing, and promotion of the Product and (b) after Regulatory Approval for commercial sale has been granted, distributing, distribution channels, logistics, packaging, offering to commercially sell and commercially selling the Product, importing, exporting or transporting the Product for commercial sale with respect to the foregoing. For clarity, Commercialisation shall not include any Medical Affairs activities. When used as a verb, Commercialising means to engage in Commercialisation and Commercialise and Commercialised shall have corresponding meanings.
Commercialisation Plan means a detailed, annual, consolidated plan for the Commercialisation of the Product by the Parties (including the Dermira Commercial Activities) in the Promotion Territory in the Promotion Indication and the Development Indication, as applicable. Commercialisation Plan, as used in this Agreement, shall be deemed to include the plans contained therein to the extent applicable the Commercialisation of the Product by the Parties in the Promotion Territory in the Promotion Indication and the Development Indication, including but not limited to, and to the extent applicable to the same, Local Dermira Commercial Plans and, in relation to the Product in the Development Indication, a Launch Plan.
Commercial Transition Plan means the plan, based on the Development and Commercial Transition Checklist, to be implemented on termination of the Dermira Commercial Activities for the Product in the Promotion Indication and the Development Indication in the Promotion Territory, details of which are to be agreed between the Parties and approved in accordance with Section 4.31(m).
Committee shall have the meaning ascribed to it in Section 4.1.
Comparator Drug means etanercept, or any other pharmaceutical product used as a comparator drug as the Parties may mutually agree after the Effective Date, for use in the Clinical Studies conducted for the Development of the Product in the Development Indication in accordance with the Development Plan.
Comparator Drug Placebo means the placebo supplied by UCB for use in the Clinical Studies that is formulated identically to the Comparator Drug used in the same Clinical Studies, except that the Comparator Drug Placebo does not contain the active ingredient contained in such Comparator Drug.
Comparator Drugs and Placebo means any and all (a) Comparator Drugs and (b) Placebos.
Competing Product means a product, not being the Product or a Combination Product, containing any Biologic capable of interacting with and inhibiting or decreasing the function of the Target that has as its primary mechanism of action the modulation of the Target caused by such Biologic directly binding to the Target, such primary mechanism of action delivering a pharmacological effect.
Competitor Company means any Third Party, including any Affiliates of such Third Party, who is conducting clinical development of and/or commercialising a Competing Product.
Confidential Information shall have the meaning ascribed to it in Section 17.1.
Confidentiality Agreement means the agreement, entered into between the Parties and dated July 2, 2013, and each subsequent amendment.
Contacts shall have the meaning ascribed to it in Section 4.33.
Control or Controlled means, with respect to any Information, Materials, UCB Materials, Regulatory Documentation, Patent, Trademark or other Intellectual Property Right, possession of the right, whether directly or indirectly, and whether by ownership, license or otherwise, to assign or grant a license, sublicense or other right to or under such Information, Material, UCB Material, Regulatory Documentation, Patent, Trademark or other Intellectual Property Right as provided for in this Agreement without violating the terms of any agreement or other binding arrangement with any Third Party.
Corporate Function shall mean the performance of activities by or on behalf of each Party with respect to activities performed by non-commercial or medical departments, including without limitation charitable contributions, regulatory functions including regulatory reporting, and compliance.
Cost of Goods means, in relation to UCB, (i) for any Product and/or component of a Product that is Manufactured by UCB, (a) the costs of direct material purchased for use in the Manufacture of the Product and the costs of the Manufacture and supply of the Product (including any delivery device such as the pre-filled syringe or any autoinjector if sold (or, in the case of the clinical supply, used) with the Product), (b) depreciation, repair, maintenance and operating costs of the production facilities utilized in the
*Confidential Treatment Requested
Manufacture of the Product, (c) the costs of quality, stability and in-process controls, (d) building operating costs, other than any included in the subpart (b) above, (e) direct labour costs and reasonable overhead costs, (f) the costs of non-capitalized manufacturing process improvement and cost reduction efforts, (g) the costs of filling, finishing and packaging the Product; and (h) Third Party Royalties, in each case as determined in conformity with IFRS, consistently applied and to the extent utilized in and directly allocable to the production of the Product without allocating any excess idle capacity in any manufacturing facility to the production of the Product and/or (ii) to the extent that the Product or any component thereof (including any delivery device such as the pre-filled syringe and/or autoinjector if sold, or in the case of clinical supply, used with the Product) is Manufactured on behalf of UCB by a Third Party subcontractor, the actual amount paid by UCB to such Third Party for such Product or such component as delivered to UCB. For the purposes of this definition, reference to Product includes Sample. Cost of Goods for the Product, Samples, Product Placebo, Comparator Drug and Comparator Drug Placebo as of the Effective Date are set forth in Schedule 4 . In addition, Cost of Goods for (A) the Product (except for any New Formulations, New Presentations and/or Line Extensions) and the Product Placebo under Section 5.11 for clinical use, and/or (B) Cost of Goods for the purpose of calculating Gross Margin hereunder, in each case for a particular Calendar Year, shall not exceed [*] United States dollars (US$ [*]) [*] of the Product (consisting of [*] containing [*]) for such Calendar Year (the COGS Cap ), with such COGS Cap for a particular Calendar Year starting in [*] to be adjusted by the percentage change in the Consumer Price Index (All Urban Users) (as published by the U.S. Department of Labor Statistics) during the prior Calendar Year or, if such index is no longer published, a mutually agreed appropriate replacement index, for the preceding Calendar Year, to reflect changes in costs. COGS Cap for any New Formulation, New Presentation and/or Line Extension shall be subject to the Parties future agreement. Costs of Goods for Comparator Drug and Comparator Drug Placebo shall mean the actual amount paid by UCB to a Third Party to purchase and supply such Comparator Drug and Comparator Drug Placebo, as applicable [*].
CRF means case report form.
CRO means (i) in the first instance, [*] or (ii) such other Third Party contract research organisation recommended by the JDT and approved by the JDC in accordance with Section 3.4, and, in each case (i) and (ii), engaged by Dermira to undertake on behalf of Dermira certain or all aspects of and activities in relation to the Development of the Development Indication, which shall include at a minimum the engagement, monitoring and auditing of the clinical trial sites in connection with any Phase 3 Study or any Post-Approval Study in the Development Indication.
CRO Agreement shall have the meaning ascribed to it in Section 5.10(a)(iii).
CTA means clinical trial application and supporting documentation filed with a relevant Regulatory Authority within the European Union for authority to commence
*Confidential Treatment Requested
Clinical Studies for a medicinal product in the relevant jurisdiction, or the equivalent application or filing filed with any equivalent Regulatory Authority outside the European Union, which application shall include all documents required by Applicable Law.
Current Formulation means the approved formulations of Cimzia® (including the formulations for lyophilized vials, pre-filled syringes and the autoinjector) existing as of the Effective Date, each as described in the relevant approved BLAs existing as of the Effective Date.
Current Presentation means the lyophilized vials, the pre-filled syringe, and/or the autoinjector containing the Current Formulation which is in accordance with approved Drug Approval Applications for the Product in the Territory.
Damages shall have the meaning ascribed to in Section 16.1.
Dermatologist means a Healthcare Professional, in the relevant country within the Promotion Territory specialising in the treatment and prevention of diseases of the skin, hair or nails (including physician assistants and nurse practitioners in a Healthcare Professionals office). For clarity, for the purpose of calculating Royalty Bearing Sales, Dermatologist shall only include physician assistants and nurse practitioners to the extent such physician assistants and nurse practitioners prescribe in the name of and/or on behalf of and using the prescriptions in the name of the relevant Healthcare Professional.
Dermira Arising IP shall have the meaning ascribed to in Section 14.8.
Dermira Background IP means the Background IP of Dermira.
Dermira Board means the Board of Directors of Dermira.
Dermira Breach Termination Date means the date on which Dermira has fulfilled all of its obligations pursuant to Section 21.2 following a termination of this Agreement by UCB pursuant to Section 20.4 or Section 20.6(c).
Dermira Indemnified Parties shall have the meaning ascribed to in Section 16.2.
Dermira Product Arising IP shall have the meaning ascribed to in Section 14.9.
Dermira Commercial Activities means, with respect to the Product, those activities to be undertaken by Dermira to encourage sales of the Product, including Detailing, marketing, advertising, reimbursement field support, training for product administration, sales analytics, initiating and facilitating of the d istribution of Samples, Marketing, Corporate Function, promotional educational grants, sponsorships and other acts related to promotion, in each case to Dermatologists, details of which shall be set out in the Commercial Plan.
Dermira Responsible Parties shall have the meaning ascribed to in Section 16.1.
Detail or Detailing means an interactive face-to-face meeting or presentation, in an individual or group setting, by a Sales Representative of Dermira to a Dermatologist (including physician assistants and nurse practitioners in a Dermatologists office) in
the Promotion Territory, during which the Sales Representative discusses the Product, its approved Promotion Indication or its approved Development Indication. A Sample drop or a reminder shall not alone constitute a Detail.
Development means, with respect to the Product, all activities related to Clinical Studies, statistical analysis and report writing, the preparation of Drug Approval Applications for submission by UCB, regulatory affairs with respect to the foregoing and all other activities necessary or reasonably useful or otherwise requested or required by a Regulatory Authority as a condition or in support of obtaining or maintaining a Regulatory Approval for the Product. Development shall include any Post-Approval Studies to the extent set forth in Section 5.4. When used as a verb, Develop means to engage in Development.
Development and Commercial Transition Checklist the checklist attached to this Agreement as Schedule 3 , forming the basis of the Development Transition Plan and the Commercial Transition Plan, each to be developed by the Parties pursuant to Section 4.
Development Costs means the external costs, fees and expenses of preparing for, arranging, conducting or having conducted each Phase 3 Study or any Post-Approval Study for the Development Indication in the Development Territory, including the Cost of Goods for the Product and Comparator Drugs and Placebo, as such Clinical Studies are set out in the Initial Development Plan and, subsequently, the Development Plan.
Development Indication means (a) with respect to Development, the treatment of psoriasis in adults, and, if applicable, children, as required by the FDA, EMA or Health Canada or otherwise provided in the Development Plan; and (b) with respect to the Commercialisation activities, the treatment of psoriasis in adults, and, if applicable, children, as further defined in each of the FDA, Health Canada and EMA approved product labels, as applicable, after the grant of the applicable Regulatory Approval.
Development Plan means a detailed work plan, including a detailed breakdown of the protocols, timelines and JDC-Approved Development Budget for the conduct of: (a) each Phase 3 Study, (b) any Post-Approval Study for the Development Indication to the extent described in Section 5.4, and (c) any other Development activities with respect to the Product agreed upon by the Parties, together with the Development Responsibility Matrix and the Regulatory Responsibility Matrix.
Development Responsibility Matrix means the responsibility matrix allocating Development responsibilities between the Parties as set forth in Schedule 6 .
Development Term means the period beginning on the Effective Date and ending on the earlier of (i) the grant of Regulatory Approval in the Development Indication by each of the FDA, Health Canada and the EMA, or, if any Post-Approval Study(ies) in the Development Indication is required by the FDA, Health Canada and/or the EMA, the completion of the last of such Post-Approval Studies, or (ii) termination of this Agreement by a Party in accordance with its rights set out in Section 20.
Development Territory means those countries agreed by the JDC in which Clinical Studies are to be conducted in accordance with the Development Plan.
Development Transition Plan means the plan, based on the Development and Commercial Transition Checklist, to be implemented on termination of the Development for the Product in the Development in the Development Territory, details of are to be agreed between the Parties and approved in accordance with Section 4.23(k).
Disclosing Party has the meaning set out in Section 17.1.
Dispute means any dispute or disagreement between the Parties in connection with this Agreement, its construction, or the rights, obligations or liabilities of either Party under this Agreement which has not been settled or otherwise resolved by and between the Parties by the appropriate Committee.
Disruption and Transition Costs means those documented internal and external costs and expenses actually and reasonably incurred by Dermira directly in relation to (A) the termination of its right to Develop the Product in the Development Indication in the Development Territory and/or (B) the conduct those Dermira Commercial Activities and Medical Affairs activities agreed to be undertaken in accordance with this Agreement, including (i) the termination of its employees (including the cost of reasonable severance packages consistent with relevant market practices and pursuant to Dermiras standard policies) as a direct result of such termination of Dermiras rights; (ii) the reduction or disposal of facilities and equipment as a direct result of such termination of Dermiras rights; and (iii) the termination or modification of Third Party agreements directly applicable to such Development, Dermira Commercial Activities, and Medical Affairs activities.
Divest means, with respect to a Competing Product, a divestiture of such Competing Product to a Third Party by sale, license or otherwise; provided that if such divestiture is by way of one or more licenses or sublicenses, a Party and its Affiliates retain no rights, whether directly or indirectly, to commercialise the Competing Product through the conduct of marketing, promotion, medical affairs, distribution, supply, sales and/or regulatory activities with respect to such Competing Product. For clarity, such Party shall not be deemed to commercialise the Competing Product by virtue of having the right to: (i) receive license fees, milestone payments, royalties and other monetary consideration on the commercialisation of such Competing Product, (ii) defend claims of infringement alleged against them or their licensees, (iii) assert claims of infringement against persons who may infringe their Intellectual Property Rights with respect to the Competing Product and recover damages and other remedies in respect of the same and/or (iv) otherwise control Prosecution connected with any Patent Rights licensed in respect of the Competing Product.
Drug Approval Application means a BLA supplement (FDA), NDA supplement (Health Canada) or any corresponding foreign application in the Territory, including, with respect to the European Union, a Type II Variation application procedure (defined in Commission Regulation EC 1234/2008) filed with the EMA to vary the marketing authorisation in the European Union for the Product relating to the addition of the Development Indication.
Effective Date means the date signature of this Agreement by both Parties, being the date first above written.
EMA means the European Medicines Agency as established by Regulation (EC) 2309/93 and Regulation (EC) 726/2004, or any successor agency thereto.
EMA Development Meeting shall have the meaning ascribed to it in Section 5.2.
European Union means the economic, scientific and political organization of member states as it may be constituted from time to time, which, as of the Effective Date, consists of Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, the United Kingdom and a portion of Cyprus.
Excluded Sales shall have the meaning ascribed to it in Section 10.11.
Expiry Date means the date on which all valid claims of U.S. Patent No. [*] w have expired or the last unexpired valid claim is declared invalid and revoked by a judgment of a court of final determination with no right of appeal against such judgment.
Extended Unit Sales shall have the meaning ascribed to it in Section 10.9(a).
Fair Market Value shall have the meaning ascribed to it, and shall be determined in accordance with the mechanism set out, in Section 21.7.
FDA means the United States Food and Drug Administration and any successor agency thereto.
FDA Development Meeting means the pre-Phase 3 Study meeting or correspondence with the FDA with respect to the Product for the purpose of seeking the guidance from and acceptance by the FDA of the content of Initial Development Plan.
Financing means any sale or series of related sales by Dermira of convertible preferred stock after the date of this Agreement.
GCP means Good Clinical Practices as set forth in, as applicable, the ICH Harmonized Guidance on Good Clinical Practice (CPMP/ICH/135/95), 21 C.F.R. Parts 50 and 56 et seq., and other equivalent regulations or standards in the Territory, including as such standards, practices, procedures, requirements and regulations may be amended from time to time.
GMP means Good Manufacturing Practices as set forth in, as applicable, 21 C.F.R. Part 210, et seq., the Rules Governing Medicinal Products in the European Union volume 4, and other equivalent regulations or standards in the Territory, including as such standards, practices, procedures, requirements and regulations may be amended from time to time.
Gross Margin means the Royalty Bearing Sales of Product minus (i) the Cost of Goods of the Product to which such Royalty Bearing Sales pertain; (ii) the Cost of Goods of Samples provided by UCB to Dermira during the applicable accounting period; (iii) the UCB Commercialisation Cost Deductions as set forth in Section 7.7;
*Confidential Treatment Requested
(iv) Branded Prescription Drug Tax as described in Section 10.12; (v) the costs of Recall as expressly set forth in Section 9.6; and (vi) the out of pocket shipping costs actually incurred by UCB for the shipment of the Samples for use by Dermira in connection with the Dermira Commercial Activities. An example of the calculation of the Gross Margin is set forth in Schedule 7 .
Gross Sales shall be calculated in accordance with the mechanism set out in Schedule 7 , and have the meaning ascribed to it, in Section 10.9.
Health Canada means Canadian federal department for health or any successor agency thereto.
Healthcare Professional means a doctor of medicine (for example, MD or MBBS) who is authorised or otherwise licensed to practice medicine or surgery in the state, territory or country in which the doctor practices, and any other healthcare professional who is legally authorized to prescribe medication.
IB shall have the meaning ascribed to it in Section 4.25(d).
ICF shall have the meaning ascribed to it in Section 4.25(e).
ICH Guidelines means rules, regulations and guidelines issued by the international conference on harmonisation of technical requirements for registration of pharmaceuticals for human use as amended from time to time.
IFRS mean the then current International Financial Reporting Standards, as published by the International Accounting Standards Board as endorsed by the European Union.
IMPD means the documentation accompanying a CTA, comprising information in relation to the quality, manufacture and control of the investigational medicinal product, and data from non-clinical studies and from its clinical use.
IMS means the information provider IMS Health, or its successors in title.
Incentive Compensation means the amount actually received by a Dermira Sales Representative each Calendar Year under the Incentive Compensation Plan.
Incentive Compensation Plan means Dermiras internal, sales performance-based bonus scheme for the monetary compensation paid to a Dermira Sales Representative based on the total volume of sales of all Dermira products (including the Product) by such Sales Representative or any other similar sales performance-based bonus scheme.
IND means an Investigational New Drug application filed with the FDA for authorization to commence Clinical Studies, and its equivalent filing to a Regulatory Authority in the other countries within the Development Territory.
Information means any inventions (whether patentable or not), data, instructions, ideas, software, algorithms, discoveries, procedures, methods, techniques, formulae, biological sequences, advice and any other knowledge each in whatever form .
Initial Development Plan means the Development Plan agreed by the Parties for the purposes of the FDA Development Meeting, a draft of which is attached to this Agreement as Schedule 8 as it exists at the Effective Date.
Initial Subsequent Financing Amount means an amount not less than $5,000,000 and not more than $7,500,000, to be mutually determined in good faith by UCB and Dermira within five days of UCBs receipt of the Qualified Financing Notice or Triggering Financing Notice (each as defined below), as applicable; provided, that if the parties are not able to come to agreement by such time then such amount shall be determined by UCB, in its sole discretion, within 10 days of its receipt of the Qualified Financing Notice or Triggering Financing Notice, as applicable.
INN means the international non-proprietary name assigned by the World Health Organization.
Institutions shall have the meaning ascribed to it in Section 5.10(a)(i).
Intellectual Property Rights means all Patent Rights, Trademarks, utility certificates and models, inventors certificates, copyrights, database rights, designs, domain names, Know-How and any other proprietary rights, priority rights, prior user rights, rights in Confidential Information and all other rights of a like nature in each case whether registered or unregistered and in any jurisdiction.
Interim Clinical Study Report shall have the meaning ascribed to it in Section 5.7(b).
Investigator shall have the meaning ascribed to it in Section 5.10(a)(i).
IPO means Dermiras initial public offering of securities registered under the Securities Act.
IPO Price means the price per share equal to the price per share that the Dermira common stock is sold to the public in the IPO, as set forth on the cover of the final prospectus filed with the SEC.
IRA means that certain Amended and Restated Investors Rights Agreement, by and among Dermira, the Investors (as defined therein) and the Stockholders (as defined therein), dated March 28, 2013.
JDC-Approved Development Budget means the budget setting forth the Development Costs allocated for each activity or set of activities to be performed by or on behalf of Dermira under the Development Plan as approved by the JDC and as may be amended from time to time in accordance with Section 5.3, the initial version of which is included in the Development Plan.
Joint Commercialisation Committee or JCC means the joint commercialisation committee established and functioning in accordance with Section 4.
Joint Commercialisation Team or JCT means the joint commercialisation team established and functioning in accordance with Section 4.
Joint Development Committee or JDC means the joint development committee established and functioning in accordance with Section 4.
Joint Development Team or JDT means the joint development team established and functioning in accordance with Section 4.
Joint Steering Committee or JSC means the joint steering committee established and functioning in accordance with Section 4.
Joint Arising IP shall have the meaning ascribed to in Section 14.8.
Know-How means Information, Materials and UCB Materials to which the obligations of confidence in Section 17 apply. For the avoidance of doubt, if and to the extent any such Information, Materials or UCB Materials cease to be subject to the obligations of confidence in Section 17 (i.e. the Information, Materials or UCB Materials satisfy one of the exceptions set forth in Section 17.2), such Information, Material or UCB Material shall cease to be Know-How for the purposes of this Agreement.
Launch means the commercial launch of the Product for the Development Indication in each country within the Promotion Territory following the grant of Regulatory Approval in such country of the Development Indication, including the Parties respective activities as set forth in (i) the Commercialisation Plan, such as the initiation of importation, marketing, promotion, Medical Affairs activities, market access activities, and distribution of the Product in order to sell the Product in such country in the Development Indication and (ii) the Medical Affairs Plan.
Launch Plan means each plan for the Launch of the Product in the Development Indication in the Promotion Territory to be conducted by the Parties, approved by the JSC.
LCIA shall have the meaning ascribed to it in Section 23.1(a).
Line Extension means any extension or modification (other than any New Formulations or New Presentations) to the Product Labelling for the Product with respect to (i) sub-populations (i.e. age, gender, disease state), (ii) alternative dosing regimen, or (iii) sub-indications within the Promotion Indication or the Development Indication.
Local Dermira Commercial Plan means, with respect to each country within the Promotion Territory, the annual, JCC approved plan for the Dermira Commercial Activities for the Product in the Promotion Territory in each of the Promotion Indication and the Development Indication, as the case may be, in such country as well as Commercialisation activities to be conducted by UCB to support and enable such Dermira Commercial Activities, each such plan being derived from and in accordance with the Commercialisation Plan.
Long Stop Date shall have the meaning ascribed to it in Section 2.2.
Manufacture means all activities related to the production, manufacture, processing, formulation, filling, finishing, packaging, labelling, shipping and holding of the Product, including process development, process qualification and validation, scale-up, pre-clinical, clinical and commercial manufacture and analytic development, process improvements and optimization, product characterization, stability testing, quality assurance, quality control and release.
Market Information means the information provided by and sourced from the [*] which provides the detail of the number of [*] in the Promotion Territory [*] or such other market information as agreed by the Parties in accordance with Section 10.8. A sample of the [*] is set out in Schedule 9 .
Marketing shall mean the performance of activities by or on behalf of each Party with respect to Commercial-related activities including without limitation development of brand and Product promotional strategies, promotional sponsorships, allocation and recordkeeping of Samples, and speaker programs.
Materials means any tangible biological, chemical or physical materials .
Medical Affairs means the performance of activities by or on behalf of each Party with respect to accredited continuing medical education for the Product, clinical studies conducted after Regulatory Approval other than Post-Approval Studies, and other medical affairs activities including without limitation oversight of MSLs, support for investigator initiated studies, publication-related activities, activities performed by medical/scientific liaisons, scientific publications, disease state medical education, professional symposia, and speaker and activity programs.
Medical Affairs Budget shall have the meaning ascribed to it in Section 9.2.
Medical Affairs Plan means the annual consolidated plan detailing the Medical Affairs activities to be undertaken and/or funded for the Product in Promotion Indication and the Development Indication to Dermatologists in the Promotion Territory.
MSL means an employee of a Party whose duties include the provision of medical science liaison activities which include activities of a medical, scientific and/or educational nature and that are targeted to Dermatologists in order to introduce and explain to Dermatologists the Product and all related science in accordance with Applicable Law, industry standards and as agreed between the Parties pursuant to Section 9.3.
M&A Notice shall have the meaning ascribed to it in Section 18.1.
NDS means a new drug submission, as the same relates to such submissions to Health Canada.
Net Sales means the actual amount of Gross Sales invoiced by UCB, or its Affiliate or licensee, for sales or other disposition of the Product in the Promotion Territory to a Third Party purchaser, less the following accrual based deductions to the extent directly attributable to such sales and to the extent such deductions are not already reflected in such gross amount invoiced, in each case across all indications for the Product:
(a) normal and customary rebates, quantity, patient discount programs, trade and cash discounts to customers actually allowed and properly taken;
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(b) governmental and other rebates, chargebacks or administrative fees (or equivalents thereof) granted to managed health care organisations, pharmacy benefit managers (or equivalents thereof) or to national, federal, state, provincial, local and other governments, their respective agencies, purchasers and reimbursers or to trade customers actually allowed and properly taken;
(c) retroactive price reductions, credits or allowances actually granted upon rejections, damaged goods, destruction, recalls or returns of the Product (for clarity, costs associated with Product that is the subject of a market recall, market withdrawal, correction, removal or seizure shall not be deductible from Net Sales);
(d) freight, postage, shipping and insurance charges actually allowed or paid for delivery of the Product, to the extent included in the gross sales price; and
(e) sales taxes, excise taxes, use taxes, import/export duties or other governmental taxes (other than taxes based on income or capital gains) actually due or incurred and payable to government authorities with respect to such sales, including value-added taxes, to the extent applicable, excluding however, the Branded Prescription Drug Fee Program.
Any of the above deductions shall only be permitted if incurred in the ordinary course of business in type and amount consistent with good industry practice and determined in accordance with IFRS as applied by UCB on a consistent basis across its products for external reporting purposes.
Any Product used for a Clinical Study, or used or distributed in the Promotion Territory free of charge for promotional or advertising purposes, including Samples, shall not be included in Net Sales. Any Product used or distributed in the Promotion Territory free of charge, (i) as charitable donations, or (ii) for compassionate use, named-patient, indigent patient or other similar uses shall not be included in Net Sales. Net Sales will not include transfers among UCB or its Affiliates or its licensees, but in such cases the royalty shall be due and calculated on UCBs or its Affiliates or licensees Net Sales to the first independent Third Party.
In the event the Product is sold as a Combination Product in the Promotion Territory, the Net Sales of the Product in a country within the Promotion Territory, for the purposes of this Agreement, shall be determined by multiplying the Net Sales (as defined above) of the Combination Product in such country by the fraction A/(A+B) where A is the weighted (by sales volume) average sale price in such country of Product when sold separately in finished form, and B is the weighted (by sales volume) average sale price in such country of the other active ingredient(s) sold separately in finished form.
If the weighted (by sales volume) average sale price of the Product when sold separately in finished form in a country within the Promotion Territory can be determined, but the weighted (by sales volume) average sale price of the other active ingredient(s) when sold separately in finished form in such country cannot be
determined, Net Sales for purposes of determining royalty payments shall be calculated by multiplying the Net Sales (as defined above) of the Combination Product by the fraction A/C, where A is the weighted (by sales volume) average sale price in such country of the Product when sold separately in finished form in such country, and C is the weighted (by sales volume) average sale price of the Combination Product in such country.
In the case of any other sale or other disposal for value, such as barter or counter trade, of any Product or Combination Product, or part thereof, other than in an arms length transaction exclusively for money, Net Sales shall be calculated as above on the fair market value of the consideration given.
New Formulation means a formulation of Cimzia® as the sole active ingredient other than the Current Formulation.
New Presentation means a presentation with Cimzia® as the sole active ingredient other than the Current Presentation.
New Third Party Licence shall have the meaning ascribed to it in Section 10.17.
Non-Breach Termination means the termination of this Agreement by either party pursuant to Section 20.5, Section 20.6(d) or Section 20.8.
Non-Breach Termination Date means (a) the two-year anniversary of a Non-Breach Termination if UCB has invested the full Aggregate Investment Amount as of the date of the Non-Breach Termination and, provided, that a Non-Breach Termination Date shall not be deemed to occur pursuant to this clause (a) if, prior to such two-year anniversary, UCB and Dermira shall have entered into a binding development, collaboration, research or marketing or other commercialization agreement (in which event, the Non-Breach Termination Date shall be as provided in such binding agreement) or (b) the five-year anniversary of a Non-Breach Termination if UCB has complied with its funding obligations under Sections 2.5 and 2.6 through the date of the Non-Breach Termination and continues to comply with its funding obligations following such Non-Breach Termination pursuant to the terms of Section 2 (and upon any failure by UCB to so comply, the Non-Breach Termination Date shall be deemed to occur on the date of such non-compliance) or (c) on or following a Non-Breach Termination if UCB has complied with its funding obligations under Sections 2.5 and 2.6 through the date of the Non-Breach Termination and UCB provides written notice to Dermira deeming the Non-Breach Termination Date to have occurred.
Non-Competitor Company means a Non-Qualified Non-Competitor Company and/or a Qualified Non-Competitor Company.
Non-Qualified Non-Competitor Company means a Third Party (i) with which Dermira consummates a Change of Control transaction; and (ii) that is not a Competitor Company; and (iii) that is not a Qualified Non-Competitor Company.
Off-label Promotion means the promotion of the Product (i) for an indication, (ii) in an age group, (iii) in a dosage, or (iv) in a form of administration, in each case (i) to (iv) for which Regulatory Approval has not been obtained, or any other unauthorised use.
OXO GOOD GRIPS Trademarks shall mean the Trademarks under the Control of Helen of Troy Limited specified in schedules to and subject to the terms and conditions of the OXO Trademarks Sublicence Agreement.
OXO Trademarks Sublicense Agreement shall mean the agreement contained in Schedule 1 , Part B of this Agreement.
Party means Dermira or UCB and Parties means Dermira and UCB.
Patent Rights means all patent applications and patents and any continuations, continuations-in-part, divisionals, reissues, re-examinations, patent term extensions, supplementary protection certificates or the like and any substitutions, confirmations, registrations or additions of or to any of the foregoing .
Peak Sales Termination Date means the date on which Net Sales of the Product to Dermatologists in a Calendar Year during the Term are less than [*]% of the Net Sales of the Product to Dermatologists in any prior Calendar Year during the Term.
Person means an individual, sole proprietorship, partnership, corporation, trust, unincorporated association or other similar entity or organisation.
Phase 3 Study means a Clinical Study or series of Clinical Studies with a defined dose or set of doses of the Product which is designed to be appropriately powered to demonstrate the efficacy and safety of the Product for the Development Indication and will enable the preparation and submission of a Drug Approval Application for Regulatory Approval to the FDA, Health Canada and the EMA.
Phase 3 Protocol means the protocol for a Phase 3 Study, synopses of which at the Effective Date are annexed to this Agreement as Schedule 10 .
PHSA means the United States Public Health Service Act as amended from time to time.
Paediatric Plan means a human clinical trial in paediatric patients designed to satisfy the requirements of the Paediatric Committee (PDCO) of the EMA, or the equivalent as promulgated by the FDA for the Development of the Development Indication in the paediatric patient population. Such Paediatric Plan, including the measures contained within it and proof of compliance with such measures, is a condition for the submission and obtaining of Regulatory Approval for the Development Indication in adult patients.
Placebo means, collectively or individually as applicable, the Comparator Drug Placebo and/or the Product Placebo.
Post-Approval Study means any Clinical Study, patient registry or other data collection effort for the Product with respect to the Development Indication that is initiated in one or more countries after receipt of Regulatory Approval for such Development Indication and not to support or obtain an application for Regulatory Approval for another indication, which Clinical Study is required by the FDA, Health Canada or the EMA as a post-approval commitment or other condition to receiving Regulatory Approval for the Product in the Development Indication by the FDA, Health Canada or the EMA including but not limited to clinical experience trials,
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post-approval studies intended to evaluate clinical outcomes or the risk/benefits of the Product, paediatric studies (including Paediatric Plans) and studies that are required by a Regulatory Authority as post-approval commitments or other conditions to receiving Regulatory Approval for the Product in the Development Indication by the FDA, Health Canada or the EMA.
Post-Approval Study Protocol means the protocol for a Post-Approval Study in the Development Indication.
Press Release means the communication to be made to the public, subject to Section 17.10, as soon as practicable following the Commencement Date, the agreed form of wording of which will be agreed in writing by the Parties.
Price Range means the preliminary price range submitted by Dermira to the SEC for the IPO.
Pricing and Reimbursement Approval means, for each country or region within the Promotion Territory where Pricing and Reimbursement Authorities, Regulatory Authorities or other competent public or private bodies and authorities must approve or determine gross and/or net pricing or pricing reimbursement or formulary coverage for pharmaceutical products that are distributed and sold in such country or region, such approvals or determinations.
Pricing and Reimbursement Authority means any applicable supra-national, federal, national, regional, state, provincial or local agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to Pricing and Reimbursement Approvals for the Product.
Privacy Laws shall have the meaning ascribed to it in Section 21.6.
Product means (a) the Current Presentation and (b) any and all New Formulations, New Presentations, and Line Extensions.
Product Arising IP shall have the meaning ascribed to in Section 14.7.
Product Data means all data, reports and results with respect to the Product made, collected or otherwise generated by or on behalf of a Party or the Parties jointly in the course of the Development of the Product for the Development Indication.
Product Labelling means, with respect to the Product and each country in the Territory, (a) the Regulatory Authority-approved full prescribing information for the Product for such country, including any required patient information and (b) all labels and other written, printed or graphic matter upon a container, wrapper or any package insert utilized with or for the Product in such country.
Product Literature means, with respect to a given country in the Promotion Territory, any promotional, medical, informative and other information intended for distribution or use by Sales Representatives in connection with the Dermira Commercial Activities for the Product in such country (whether in the form of written, printed, graphic, electronic, audio or video materials), and shall include, without limitation, all related Sales Representative training materials.
Product Placebo means the placebo supplied by UCB for use in the Clinical Studies that is manufactured in accordance with the same manufacturing process as the Product and used in the same Clinical Studies, except that the Product Placebo does not contain Cimzia® as an active ingredient.
Product Warranty shall have the meaning ascribed to it in Section 5.11(a).
Promotion Indication means the treatment of psoriatic arthritis in adults, and, if applicable, children, as defined in each of the FDA, Health Canada and EMA approved product labels, as applicable.
Promotion Territory means (a) the United States of America, namely the fifty (50) states of the United States of America and the District of Columbia and (b) Canada.
Promotional and Product Services Related Functions means (a) promotion, marketing, advertising, and/or sale of the Product; (b) the development, preparation, or dissemination of Promotional Materials, or the provision of services relating to, the Product; and (c) post-marketing research, development, and publication-related activities involving the Product.
Promotional Materials means any and all promotional, advertising, communication and educational or speaker materials relating to the Product which are developed for use in connection with the marketing, Dermira Commercial Activities and sale of the Product in the Promotion Territory, and shall include, without limitation, sales training materials, Product Literature, journal advertisements, sales aids, formulary binders, promotional publication reprints, direct mail, direct-to-consumer advertising, websites and internet postings, broadcast advertisements, promotional displays and exhibits, sales reminder aids. For clarity, Promotional Materials shall not include any Medical Affairs materials.
Prosecution means, with respect to Patent Rights, the preparation, drafting, filing, prosecution (including, without limitation, any patent interference proceedings, reissue proceedings, patent opposition proceedings, re-examinations, or other similar proceedings), patent term extensions, paediatric extensions, supplementary protection certificates, and the maintenance of such Patent Rights in the Territory.
Qualified Equity Financing means the first sale by Dermira of convertible preferred stock in one transaction or a series of related transactions after the closing of the Initial Equity Financing (as defined below) in which Dermira receives proceeds, net of any discounts or commissions, of at least $10,000,000 from one or more investors, exclusive of any amount that UCB invests in such transaction or series of related transactions.
Qualified Equity Financing Per Share Price means the price per share of the preferred stock sold by Dermira in the Qualified Equity Financing.
Qualified IPO shall have the meaning set forth in the Restated Certificate.
Qualified Non-Competitor Company means a Third Party (i) with which Dermira consummates a Change of Control transaction; and (ii) that is not a Competitor Company; and (iii) that is engaged in the development and/or commercialisation of a
pharmaceutical product, or after completion of such Change of Control transaction, will maintain Dermira as an operating entity and will maintain at least fifty percent (50%) of the executive management team of Dermira existing immediately prior to completion of such Change of Control transaction (holding a position that is executive vice president or higher) for at least twelve (12) Calendar Months after completion of such Change of Control transaction; and (iv) that, immediately following completion of such Change of Control transaction, has sufficient working capital to continue and complete (to the extent not already completed by Dermira) the Development of the Product in the Development Indication in the Development Territory as provided in the JDC-Approved Development Budget (taking into consideration any milestone payments to be made by UCB under Section 10.2 when such milestone payments become due so long as such Third Party has sufficient working capital to complete the Development activities as set forth in the Development Plan that precedes such milestone event) , and (v) has the ability to obtain sufficient funding to perform the Dermira Commercial Activities and Medical Affairs for which Dermira is responsible, and to comply with Dermiras other obligations under this Agreement, in each case when such activities or obligations are required to be performed under this Agreement.
Recall shall have the meaning ascribed to it in Section 9.6.
Receiving Party has the meaning ascribed to it in Section 17.1.
Regulatory Approval means, with respect to the Product in a particular country in the Territory, any and all approvals (including Drug Approval Applications), licenses, registrations or authorizations of any Regulatory Authority necessary to commercially distribute, sell or market the Product in such country, including, where applicable, (a) pre- and post-approval marketing authorizations and (b) labelling approval, but in each case excluding Pricing and Reimbursement Approval.
Regulatory Authority means any applicable supra-national, federal, national, regional, state, provincial or local regulatory agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to the Commercialisation of the Product in the Territory.
Regulatory Documentation means all applications, registrations, licenses, authorizations and approvals, all correspondence submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority), and all supporting documents, in each case, relating to the Product, and all data contained in any of the foregoing, including all IMPDs, CTAs, INDs, clinical trial applications, Drug Approval Applications, supplements to a BLA, supplements to an NDS, Regulatory Approvals, regulatory drug lists, marketing and promotion documents, Product Data, adverse event files and complaint files and Manufacturing records (including any CMC Data).
Regulatory Responsibility Matrix means the responsibility matrix allocating regulatory responsibilities between the Parties as set forth in Schedule 11 .
Related Claim means any claim or other dispute arising out of or relating to a Dispute or to the transactions contemplated under this Agreement or to the inducement
of any Party to enter into this Agreement, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise.
Reserved Territory means all countries and territories in the world, but excluding the Promotion Territory.
Restated Certificate means that certain Restated Certificate of Incorporation of Dermira, Inc., filed with the Delaware Secretary of State on March 27, 2013.
Retention Period shall have the meaning ascribed to it in Section 5.12(b).
Review Board means an institutional review board, independent ethics committee or other group formally designated by an Institution in compliance with 21 C.F.R. Part 56 or analogous provisions of Applicable Law outside the United States to review, approve the initiation of, and conduct periodic review of, a Phase 3 Study or Post-Approval Study.
ROFR Agreement means that certain Amended and Restated Right of First Refusal and Co-Sale Agreement, by and among Dermira and the Major Stockholders (as defined therein), dated March 28, 2013.
Royalty Bearing Sales means the aggregate Net Sales from units of the Product sold in the Promotion Territory during the Term and attributable to Dermatologists in the Promotion Territory as determined by the Market Information.
Safety Agreement means the agreement to be entered into by and between the Parties prior to the Commencement Date governing the Parties respective responsibilities with respect to Adverse Drug Experiences, pharmacovigilance, complaints and other safety-related matters with respect to the Product.
Safety Process means UCBs process of safety signal detection management and assessment in relation to the Product that is consistent with UCBs practice, strategy and evaluation criteria for safety signal detection management and assessment in relation to its other marketed products, in the form provided by UCB to Dermira prior to the Effective Date and attached to this Agreement as Schedule 12 .
Sales Force means, with respect to a given country or region in the Promotion Territory, the Sales Representatives and sales management personnel who are employed by either of the Parties or their respective Affiliates, in each case to undertake Dermira Commercial Activities for the Product to Healthcare Professionals in the Promotion Territory.
Sales Representative means, as applicable, an individual who is employed by Dermira, or by one of its Affiliates, and appropriately trained to undertake Dermira Commercial Activities for the Product to Dermatologists in one or more countries in the Promotion Territory.
Sales Year means either (a) the period of twelve (12) Calendar Months commencing on the date of t he Launch of the Product in the Development Indication in the United States of America and ending on the first anniversary of such Launch (the First Sales Year ) or (b) on expiry of the First Sales Year, each subsequent period of twelve (12) Calendar Months (each a Subsequent Sales Year ).
Sample means a unit of the Product that is not intended to be sold and is intended solely for distribution free of charge and in accordance with Applicable Law to Healthcare Professionals to promote the sale and use of the Product in the Territory.
SEC means the United States Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Senior Executives means: (a) with respect to Dermira, its Chief Executive Officer; and (b) with respect to UCB, (i) a member of its executive committee having direct responsibility for the Product within UCB and having knowledge and authority to resolve the applicable matter.
Series B Financing Documents means the IRA, ROFR Agreement and Voting Agreement.
Series B Preferred Stock shall have the meaning set forth in the Restated Certificate.
Series B Per Share Price means $1.4525.
SOP means standard operating procedure.
Source Documents means all recorded original observations and notations of clinical activities and all reports and records necessary for the evaluation and reconstruction of a Phase 3 Study or any Post-Approval Study in the Development Indication, regardless of form, in each case as maintained by the Institutions.
SPA means that certain Series B Preferred Stock Purchase Agreement, by and among Dermira and the Investors (as defined therein), dated March 28, 2013, as amended by that certain Amendment No. 1 to Series B Preferred Stock Purchase Agreement, which will be dated as of the date of the closing of the Initial Equity Financing (the SPA Amendment ).
Study Documentation means all Regulatory Documentation pertaining to a Phase 3 Study and any Post-Approval Study in the Development Indication, including Source Documents, case report forms, data correction forms, case histories, monitoring reports and appointment schedules and any other documentation required by this Agreement or Applicable Law.
SSAR shall have the meaning ascribed to it in Section 4.27.
Target means human TNF a .
Term shall have the meaning ascribed to it in Section 20.1.
Territory means the Promotion Territory and the Reserved Territory.
Third Financing Per Share Price means the price per share of the preferred stock sold by Dermira in the Third Financing.
Third Party means any Person or other legal entity other than the Parties or their respective Affiliates.
Third Party Claim shall have the meaning ascribed to in Section 16.3.
Third Party Licences means those licenses and/or sublicenses with respect to the Product (or the Development, Manufacture, Commercialisation and/or use of the Product) which are held by UCB and/or its Affiliates under agreements with Third Parties listed in Schedule 13 and which exist as of the Effective Date.
Third Party Royalties means [*] royalty payments actually paid by UCB to Third Parties under the terms of a Third Party License to the extent attributable to the Development of the Product in the Development Indication in the Promotion Territory and the Commercialisation of the Product in the Development Indication and/or Promotion Indication in the Promotion Territory.
Trademark means any and all corporate names, service marks, logos, trade dress and trademarks (whether or not registered) and all applications therefor and registrations thereof, and all renewals, extensions or modifications thereto.
Trial Master File means the guidelines on and the documentation relating to a Clinical Study, including archiving, qualification of inspectors, inspection readiness and inspection procedures to verify compliance of the Clinical Study in question with Directive 2001/20/EC, as amended, and dependent legislation and to enable the evaluation of the conduct of the Clinical Study and the quality of the data produced therefrom.
Transfer of Obligations Checklist means a transfer of obligations established by the JDT in accordance with Section 5.10(j).
Trigger Date means the date on which Regulatory Approval for the Product in the Development Indication is granted in the Promotion Territory.
Triggering Financing Per Share Price means the weighted-average price per share of the preferred stock sold by Dermira in the Triggering Financing and all previously consummated unrelated Financings following the Initial Equity Financing, which together with the Triggering Financing, would result in Dermira receiving aggregate proceeds, net of any discounts or commissions, of least $10,000,000 from one or more investors, exclusive of any amount that UCB invests in such Financings.
UCB Arising IP shall have the meaning ascribed to in Section 14.8.
UCB Background IP means the Background IP of UCB, including certain Patent Rights detailed in Schedule 14 and Third Party Licenses listed in Schedule 13 .
UCB Breach Termination means a termination of this Agreement by Dermira pursuant to Section 20.4 for a breach by UCB, Section 20.6(a), Section 20.6(b), Section 20.7(a) or Section 20.7(b).
UCB Commercialisation Cost Deductions shall have the meaning ascribed to it in Section 7.7.
UCB Hub Services means those services also known as the Cimplicity ® Program, as outlined in Schedule 15 .
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UCB Indemnified Parties shall have the meaning ascribed to it in Section 16.1.
UCB Information means the Information supplied by or on behalf of UCB under this Agreement.
UCB Materials means the Materials supplied by or on behalf of UCB under this Agreement.
UCB Responsible Parties shall have the meaning ascribed to it in Section 16.2.
UCB Subsidiary means any direct or indirect wholly-owned subsidiary of UCB.
US$ means United States dollars.
Voting Agreement means that certain Amended and Restated Voting and Drag-Along Agreement, by and among Dermira and the Holders (as defined therein), dated March 28, 2013.
WAC means, in relation to the Product, the whole sale acquisition cost charged by UCB for the Product, calculated on a country-by-country basis as the weighted average of such whole sale acquisition cost on a per extended unit basis, normalized by dosage strength of the active ingredient, across all indications and uses of the Product in the applicable country in the Promotion Territory.
1.2 Interpretation. In this Agreement, unless the context otherwise requires:
(a) references to this Agreement shall mean this Agreement and any and all Schedules to it, each as amended from time to time in accordance with the provisions of this Agreement;
(b) references to a particular Section, Schedule or Paragraph shall be a reference to that Section, schedule or paragraph in this Agreement;
(c) words in the singular shall include the plural and vice versa and references to the masculine gender shall include the feminine gender and vice versa;
(d) headings are for convenience only and shall be ignored in interpreting this Agreement;
(e) the words include, including or in particular are to be construed without limitation to the generality of the preceding words;
(f) references to a statute include any statutory modification, extension or re-enactment of that statute;
(g) any reference to writing includes a reference to any communication effected by facsimile transmission or similar means but not e-mail.
1.3 If there is any inconsistency between Sections 1 to 33 (inclusive) of this Agreement and any Schedule, such Sections shall prevail.
2. CONDITIONS PRECEDENT AND FUNDING
2.1 Sections 1 (as applicable), 2, 3, 4, 5.1-5.3(b)(i), 6, 7.1, 9.4, 13, 14, 17, 20.3, 21.1, and 24 through 33 shall take effect on the Effective Date in each case to the extent applicable to the Parties rights and obligations prior to the Long Stop Date. Save in relation to those Sections referred to in this Section 2.1, no other provisions of this Agreement shall have any force or effect, and the Parties shall have no rights or obligations under this Agreement unless and until the conditions set out in Section 2.2 are satisfied.
2.2 Save as provided under Section 2.1, the terms of this Agreement are conditional upon and shall enter into full force and effect if, and only if, within sixty (60) Business Days of receipt from the FDA of its written comments arising from the FDA Development Meeting (the Long Stop Date ):
(a) Dermira has successfully obtained an initial minimum of twenty million United States dollars (US$ 20,000,000) of capital increase ( which initial minimum shall includ e the capital increase received as part of the UCB investment as set forth in Sections 2.4 and 2.5) ; and
(b) Neither Party has served notice of termination of this Agreement on the other Party in accordance with the provisions of Section 5.1(d)
such date being the Commencement Date .
2.3 If the conditions set out in Section 2.2 are not satisfied by the Long Stop Date, this Agreement shall terminate in accordance with Section 20.3 and the provisions of Section 21.1 shall apply.
2.4 Sales of Series B Preferred Stock.
(a) Within 21 days of the Effective Date , Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, 3,442,341 shares of Series B Preferred Stock at the Series B Per Share Price (the Initial Investment Shares ).
(b) Payment of the aggregate purchase price for the Initial Investment Shares (the Financing Purchase Price ) shall be made concurrently with the closing of such Financing (the Initial Equity Financing ) by wire transfer of immediately available funds to the account specified in writing by Dermira to UCB, subject to the satisfaction or waiver of the conditions set forth in Section 2.4(c). Payment of the Financing Purchase Price for the Initial Investment Shares shall be made against delivery to UCB of the Initial Investment Shares, which shares shall be certificated and delivered to UCB promptly following the closing of the Initial Equity Financing.
(c) The purchase of the Initial Investment Shares shall be made pursuant to the terms and conditions of the SPA and the Series B Financing Documents; provided, that:
(i) UCB shall execute the SPA Amendment and joinders to the Series B Financing Documents, in each case, in a form reasonably acceptable to Dermira and UCB;
(ii) the SPA Amendment shall contain a representation and warranty of Dermira that, as of the closing of the Initial Equity Financing, no material adverse effect on the business and operations of Dermira and its Subsidiaries taken as a whole since the date of the Initial Closing (as defined in the SPA) has occurred;
(iii) UCB shall be deemed an Investor pursuant to the SPA, IRA and Voting Agreement and a Preferred Stockholder pursuant to the ROFR Agreement; and
(iv) the Restated Certificate shall be amended to increase the authorized number of shares of Series B Preferred Stock and Common Stock by a number equal to the number of Initial Investment Shares; provided , that , for the avoidance of doubt, Section 6.3 of Article V of the Restated Certificate shall not be amended and UCB shall not be subject to any Special Mandatory Conversion (as defined in the Restated Certificate).
2.5 Subsequent Sale(s) of Preferred Stock.
(a) Qualified Equity Financing.
(i) Following the consummation of the Initial Equity Financing and until the earliest of (A) the Non-Breach Termination Date, (B) a termination of this Agreement other than a Non-Breach Termination, (C) an IPO, (D) a Change of Control, (E) a Triggering Financing Closing (as defined below) and (F) March 31, 2016, upon such time as Dermira has determined that it is reasonably likely that it will consummate a Qualified Equity Financing, but in no event less than 25 days prior to the execution of the purchase agreement providing for such Qualified Equity Financing (the Qualified Financing Closing ), Dermira shall notify UCB in writing of such Qualified Equity Financing (including the material terms thereof) (the Qualified Financing Notice ). Following the date of the Qualified Financing Notice, Dermira shall keep UCB reasonably informed of any material changes to the information contained in the Qualified Financing Notice and shall provide UCB with drafts of the applicable Subsequent Financing
Documents that it sends to the lead investor in such Qualified Equity Financing promptly following distribution to such lead investor.
(ii) Concurrently with the Qualified Financing Closing, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Initial Subsequent Financing Amount of the class of Dermira preferred stock sold in the Qualified Equity Financing at the Qualified Equity Financing Per Share Price.
(b) Triggering Financing.
(i) Following the consummation of the Initial Equity Financing and until the earliest of (A) the Non-Breach Termination Date, (B) a termination of this Agreement other than a Non-Breach Termination, (C) an IPO, (D) a Change of Control, (E) a Qualified Financing Closing and (F) March 31, 2016, upon such time as Dermira has determined that it is reasonably likely that it will consummate a Financing, which is not a Qualified Equity Financing but pursuant to which Dermira would receive aggregate proceeds (together with any unrelated Financings that are not Qualified Equity Financings and that were consummated following the Initial Equity Financing), net of any discounts or commissions, of least $10,000,000 from one or more investors (the Triggering Financing ), but in no event less than 25 days prior to the execution of the purchase agreement providing for such Triggering Financing (the Triggering Financing Closing ), Dermira shall notify UCB in writing of such Triggering Financing (including the material terms thereof) (the Triggering Financing Notice ). Following the date of the Triggering Financing Notice, Dermira shall keep UCB reasonably informed of any material changes to the information contained in the Triggering Financing Notice, shall provide UCB with (1) drafts of the applicable Subsequent Financing Documents that it sends to the lead investor in such Triggering Financing promptly following distribution to such lead investor and (2) access to the same diligence materials as provided to the lead investor (in the same format as provided to the lead investor) in the Triggering Financing.
(ii) UCB may, at its sole option, to be exercised, if at all, within 10 days after the date of the Triggering Financing Notice, provide written notice to Dermira stating its desire to purchase the Initial Subsequent Financing Amount of the class of Dermira preferred stock sold in the Triggering Financing at the Triggering Financing Per Share Price (the Triggering Financing Put Notice ). If UCB delivers a Triggering Financing Put Notice, then Dermira shall issue and sell to UCB (or any
of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, concurrently with the Triggering Financing Closing, in a private placement under the Securities Act, the Initial Subsequent Financing Amount of the class of Dermira preferred stock sold in such Financing at the Triggering Financing Per Share Price.
(c) Third Financing.
(i) Following the earlier of the Qualified Equity Financing Closing or the Triggering Financing Closing and until the earliest of (A) the Non-Breach Termination Date, (B) a termination of this Agreement other than a Non-Breach Termination, (C) an IPO, (D) a Change of Control and (E) March 31, 2016, upon such time as Dermira has determined that it is reasonably likely that it will consummate a Financing, pursuant to which Dermira would receive aggregate proceeds, net of any discounts or commissions, of least $10,000,000 from one or more investors (the Third Financing ), but in no event less than 25 days prior to the execution of the purchase agreement providing for such Third Financing (the Third Financing Closing ), Dermira shall notify UCB in writing of such Third Financing (including the material terms thereof) (the Third Financing Notice ). Following the date of the Third Financing Notice, Dermira shall keep UCB reasonably informed of any material changes to the information contained in the Third Financing Notice and shall provide UCB with drafts of the applicable Subsequent Financing Documents promptly following distribution to such lead investor.
(ii) Concurrently with the Third Financing Closing, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Aggregate Investment Amount of the class of Dermira preferred stock sold in the Third Financing at the Third Financing Per Share Price.
(d) Mechanics. The number of shares of preferred stock to be issued and sold by Dermira and purchased by UCB (or any of its designated UCB Subsidiaries) under this Section 2.5 (the Subsequent Equity Financing Shares ) shall be determined by (i) with respect to the Qualified Equity Financing, dividing the Initial Subsequent Financing Amount by the Qualified Equity Financing Per Share Price, (ii) with respect to the Triggering Financing, dividing the Initial Subsequent Financing Amount by the Triggering Financing Per Share Price, and (iii) with respect to the Third Financing, dividing the Aggregate Investment Amount by the Third Financing Per Share Price, in each case, rounded down to the nearest whole share. Payment of the purchase price for the Subsequent Equity Financing Shares (the Financing Purchase Price ) shall be made
concurrently with the closing of the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable, by wire transfer of immediately available funds to the account specified in writing by Dermira to UCB, subject to the satisfaction or waiver of the conditions set forth in the stock purchase agreement for the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable. Payment of the Financing Purchase Price for the Subsequent Equity Financing Shares shall be made against delivery to UCB (or any of its designated UCB Subsidiaries) of the Subsequent Equity Financing Shares, which shares shall be certificated and delivered to UCB (or any of its designated UCB Subsidiaries) promptly following the closing of the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable.
(e) Documentation. The purchase of the Subsequent Equity Financing Shares shall be made pursuant to a stock purchase agreement, investors rights agreement, right of first refusal and co-sale agreement, voting and drag-along agreement and/or other agreements, in each case, in forms negotiated and agreed-to between Dermira and the lead investor in the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable, as identified in the Qualified Financing Notice, Triggering Financing Notice or Third Financing Notice, respectively, which forms shall be entered into by all investors, including UCB, in the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable (the Subsequent Financing Documents ); provided, that (i) such Subsequent Financing Documents shall not contain any material term that is materially less favorable from the perspective of the investors than the material term in the Series B Financing Documents (a Less Favorable Term ) and (ii) UCB shall not be treated less favorably than any other investor in such Subsequent Financing Documents. In the event that the Subsequent Financing Documents contain one or more Less Favorable Terms or UCB is treated less favorably than any other investor in such Subsequent Financing Documents, then UCB and Dermira shall negotiate in good faith regarding such terms, and such Subsequent Financing Documents shall be in a form reasonably acceptable to UCB and, if such Subsequent Financing Documents are not in a form reasonably acceptable to UCB following such good faith efforts then UCB shall have no obligation to purchase any securities of Dermira in the Qualified Financing Closing, Triggering Financing Closing or Third Financing Closing, as applicable, and UCBs obligations pursuant to Section 2.5(a), 2.5(b) or 2.5(c), as applicable, shall be deemed satisfied.
(f) Directorship.
(i) The first voting agreement entered into as part of the Subsequent Financing Documents (the Subsequent Voting Agreement ) shall provide (and each amendment to or restatement of the Subsequent Voting Agreement shall continue to provide) that UCB shall be entitled, subject to the terms and conditions of the Subsequent Voting Agreement, to designate one director to the Dermira Board (the UCB
Designee ) (provided, that UCB shall agree to consult with Dermira in good faith with regard to the selection of the UCB Designee in light of applicable regulatory and stock exchange requirements, with it being understood that the selection of the UCB Designee shall be in UCBs sole discretion following such good faith consultation), and the parties thereto shall be required to vote for the election of the UCB Designee, for so long as (A) UCB owns at least 50% of the shares of Dermira capital stock purchased pursuant to the terms of this Agreement, (B) there has not occurred an IPO, (C) there has not occurred a Change of Control, (D) a UCB Breach Termination has not occurred, (E) the Dermira Breach Termination Date has not occurred and (F) the Non-Breach Termination Date has not occurred. The Subsequent Voting Agreement shall terminate upon an IPO.
(ii) Following an IPO, Dermira agrees not to remove the UCB Designee prior to, and to re-nominate and recommend the UCB Designee for election at each annual meeting of stockholders taking place prior to, the earliest of (A) the date of a UCB Breach Termination, (B) UCB failing to own at least 50% of the shares of Dermira capital stock purchased pursuant to the terms of this Agreement (or such shares of capital stock of Dermira as such shares may be converted into), (C) a Change of Control, (D) the Non-Breach Termination Date, (E) the Dermira Breach Termination Date and (F) the last to occur of (x) the Peak Sales Termination Date and (y) the Expiry Date (any of the foregoing dates in clauses (A) through (F), a Public Designee Termination Date ). If Dermira closes an IPO after a Public Designee Termination Date, then UCB shall thereafter no longer have a right to a UCB Designee upon the closing of the IPO.
(iii) The UCB Designee shall be entitled to serve on committees of the Board where the UCB Designee would be a disinterested director with respect to the subject matter of such committee, provided, that notwithstanding the foregoing, the UCB Designee shall not be entitled to serve on the audit committee, compensation committee or a committee for the pricing of Dermiras securities (capital stock or debt).
(iv) The UCB Designee shall, prior to joining the Dermira Board and for all times during service on the Dermira Board, deliver a non-revocable letter of resignation taking effect one day after any Public Designee Termination Date.
(g) Major Investor Rights. Under the terms of the Subsequent Financing Documents, UCB shall be considered a major investor (or whatever other term(s) are used in the Subsequent Financing Documents to denote the
investor(s) receiving the most favorable rights and privileges) for purposes of receiving any special rights or privileges reserved for certain investors.
2.6 Sale of Common Stock Concurrently with IPO.
(a) IPO Notice. . No later than five days prior to the date that Dermira will file its preliminary (red herring) prospectus with the SEC, Dermira shall deliver to UCB a written notice stating (i) the anticipated date that it will file its preliminary (red herring) prospectus with the SEC and (ii) the Price Range and the aggregate gross proceeds to Dermira based on the low end of the Price Range (the IPO Notice ).
(b) Concurrent Private Placement. If (i) the low end of the Price Range is not less than the Conversion Price (as defined in the Restated Certificate) of the Series B Preferred Stock in effect immediately prior to the closing of the IPO and (ii) the aggregate gross proceeds to Dermira based on the low-end of the Price Range would be equal to or in excess of $50 million (clauses (i) and (ii) together, the IPO Conditions ), then concurrently with the closing of the IPO, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Aggregate Investment Amount of Dermira common stock at the IPO Price.
(c) Put Right. If either of the IPO Conditions are not met, then UCB may, at its sole option, to be exercised, if at all, within five days after the date of the IPO Notice, provide written notice to Dermira stating its desire to purchase the Aggregate Investment Amount of Dermira common stock at the IPO Price (the IPO Put Notice ). If UCB delivers an IPO Put Notice, then, concurrently with the closing of the IPO, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Aggregate Investment Amount of Dermira common stock at the IPO Price.
(d) Mechanics. The number of shares of common stock to be sold by Dermira and purchased by UCB (or any of its designated UCB Subsidiaries) hereunder (the IPO Shares ) shall be determined by dividing the Aggregate Investment Amount by the IPO Price (rounded down to the nearest whole share). Payment of the purchase price (which shall be equal to the total number of IPO Shares to be purchased by UCB (or any of its designated UCB Subsidiaries), as calculated pursuant to the immediately preceding sentence, multiplied by the IPO Price) for the IPO Shares (the IPO Purchase Price ) shall be made concurrently with the closing of the IPO by wire transfer of immediately available funds to the account specified in writing by Dermira to UCB, subject to the concurrent closing of the IPO. Payment of the IPO Purchase Price for the IPO Shares shall be made against delivery to UCB (or any of its designated UCB Subsidiaries) of
the IPO Shares, which IPO Shares shall be uncertificated and shall be registered in the name of UCB (or any of its designated UCB Subsidiaries) by Dermiras stock transfer agent. The purchase of the IPO Shares shall be made pursuant to and contingent upon UCB (or any of its designated UCB Subsidiaries) executing and delivering to Dermira a stock purchase agreement in form reasonably acceptable to Dermira and UCB. The IPO Shares shall be subject to a market stand-off agreement, consistent with the terms set forth in Section 2.9 of the IRA.
(e) Termination. The rights and obligations set forth in this Section 2.6 shall terminate upon the earliest of (i) the Non-Breach Termination Date, (ii) a termination of this Agreement other than a Non-Breach Termination, (iii) the Third Financing Closing, (iv) a Change of Control and (v) March 31, 2016.
(f) Maximum Purchase Amount. For clarity, in no event shall UCB and the UCB Subsidiaries be required to purchase in excess of $20,000,000 of Dermiras securities, in the aggregate, pursuant to the terms of this Section 2.
2.7 Other Covenants,
(a) Competitor Companies. Prior to the IPO or a termination of this Agreement, Dermira covenants and agrees (i) not to sell to any Competitor Company a number of shares of Dermiras capital stock more than the number of shares issued to UCB (or any of its designated UCB Subsidiaries) pursuant to the terms of this Agreement as of the date on which the sale to a Competitor Company would occur, (ii) not to grant any Competitor Company a right to designate a director or a non-voting observer to the Dermira Board and (iii) not to grant any Competitor Company any rights that would materially and adversely undermine the rights expressly granted to UCB under Sections 2.4 through 2.7 and Section 18.1. For illustrative purposes only, granting a Competitor Company a right of last refusal on a Change of Control would be deemed to materially and adversely undermine the rights expressly granted to UCB pursuant to Section 18.1.
(b) Dermira Actions. Prior to a termination of this Agreement, Dermira covenants and agrees that it will not intentionally take any action that has the effect of materially circumventing, or that would materially and adversely undermine, the rights expressly granted to UCB pursuant to Sections 2.4 through 2.7.
2.8 Conditions Precedent. For the avoidance of doubt and notwithstanding anything to the contrary in this Section 2, neither Party shall have any obligations pursuant to Sections 2.5 or 2.6 unless and until the conditions set forth in Section 2.2 have been satisfied and this Agreement has not been terminated on or prior to the Long Stop Date; provided, that, $10 million of UCBs financing obligations hereunder (the Financing Purchase Price plus the minimum Initial Subsequent Financing Amount) shall be included for purposes of determining whether the condition set forth in Section 2.2(a) has been met.
2.9 Dermira acknowledges that the sum referred to in Section 2.2 represents a portion of the total funding requirement that Dermira shall secure in order to undertake and complete the Development of the Product in the Development Indication throughout the Development Territory and Dermira undertakes to UCB that it shall:
(a) secure sufficient funding to fulfil its obligations to Develop the Product in the Development Indication in the Development Territory in accordance with the Development Plan; and
(b) keep UCB appraised of its efforts, activities and progress in securing such funding to comply with Section 2.8(a).
3. SCOPE OF AGREEMENT
3.1 During the Term, Dermira shall be responsible for and shall use Commercially Reasonable Efforts to undertake: (i) the Develop ment of the Product for the Development Indication in the Development Territory in accordance with the Development Plan and the terms of this Agreement for UCB to seek Regulatory Approval for the Product from each of the FDA, Health Canada and the EMA, and shall be responsible for paying all Development Costs incurred in connection therewith, subject to Section 10.1, and (ii) the Dermira Commercial Activities and any Medical Affairs activities for which Dermira is responsible to Dermatologists for the Product in the Development Indication and Promotion Indication (subject to Section 7.1) in the Promotion Territory if, and only if, UCB obtains Regulatory Approval for the Commercialisation of the Product in the Development Indication in the Promotion Territory, subject to Dermiras right to conduct activities under the Pre-Launch Medical Affairs Plan under Section 9.3 . All such activities will be performed under the oversight of, and are subject to governance by, the JSC, JCC, JDC and any other Committees established by the Parties pursuant to this Agreement, all as set forth in more detail in Section 4.
3.2 UCB shall use Commercially Reasonable Efforts to: (a) supply of the Product and Comparator Drugs and Placebo to Dermira or its CRO or its Institutions for the Development activities hereunder; (b) undertake those Development activities assigned to it under the Development Plan; and (c) undertake the Commercial Functions and such other Commercialisation activities that are necessary or, in UCBs reasonable determination, useful to enable and support the Dermira Commercial Activities for (A) the Commercialisation of the Product in the Development Indication and the Promotion Indication as specified in the Commercialisation Plan and (B) the conduct of the Medical Affairs activities for the Product in the Development Indication and the Promotion Indication as specified in the Medical Affairs Plan.
3.3 Except as otherwise expressly set forth in this Agreement, UCB shall retain sole control over and responsibility for all other aspects of the Development, Manufacture and Commercialisation of the Product in all indications throughout the Territory, and except as otherwise expressly set forth in this Agreement, nothing shall be construed as (1) granting, conveying or otherwise creating any rights, interests or entitlements of
Dermira, (2) obligating UCB to disclose or otherwise provide Dermira with access to any non-public information other than to the extent necessary or, in UCBs reasonable judgement, useful in order for Dermira to exercise its rights and/or perform its obligations under this Agreement, or (3) requiring UCB to consult with Dermira or otherwise seek or obtain Dermiras comments or other input, with respect thereto.
3.4 Dermira may perform any specific activities for which it is responsible in connection with the Development and/or the undertaking of Dermira Commercial Activities (and any Medical Affairs activities for which Dermira is responsible) for the Product in accordance with Section 3.1 through subcontracting to an Affiliate or a Third Party sub contractor and through utilisation of its Sales Force, provided, however, that Dermira shall not have the right to enter into any agreement or other arrangement or otherwise use (a) any CRO for the Development of the Product or (b) any Third Party contract sales force or sales representatives to undertake Dermira Commercial Activities and/or Medical Affairs activities for the Product in the Promotion Indication or the Development Indication to Dermatologists in the Promotion Territory, in each case (a) and (b) without first obtaining the prior written consent of UCB to do so . If Dermira engages an Affiliate or a Third Party sub-contractor to perform any of Dermiras obligations under this Agreement, Dermira shall:
(a) ensure that any such Affiliate or Third Party to whom Dermira discloses the Confidential Information of UCB is bound by an appropriate written agreement containing obligations of confidentiality and restrictions on use of UCBs Confidential Information that are no less restrictive than the obligations of confidentiality in this Agreement (provided that Dermira shall use Commercially Reasonable Efforts to seek and include in such Third Party agreement obligations of confidentiality and non-use lasting for a period of [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement and provided that in no event shall the obligations of confidentiality and/or non-use in any such Third Party agreement be of a duration less than [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement);
(b) ensure that any such Affiliate or Third Party is bound in writing to assign to Dermira any Arising IP (other than any improvements to any pre-existing Intellectual Property Rights of such Affiliate or Third Party identified to Dermira at the date of execution of such Third Party agreement) that is generated or otherwise created by such Affiliate or Third Party or their respective employees or agents in performing such services on behalf of Dermira in order for Dermira to give effect to the assignment provisions set out in Section 14 ; and
(c) at all times be responsible for and liable under this Agreement with respect to the performance or non-performance by any such Affiliate or Third Party of any of Dermiras obligations delegated by it to such Affiliate or Third Party and their compliance or non-compliance with Applicable Law .
*Confidential Treatment Requested
4. GOVERNANCE
4.1 Subject to this Section 4 and the terms of this Agreement, the Parties shall establish (a) a Joint Steering Committee (JSC) that will serve as the overall governing body for (i) the Development of the Product in the Development Indication in the Development Territory by Dermira ; (ii) the Dermira Commercial Activities (iii) Medical Affairs activities for the Product in the Promotion Indication and the Development Indication, in the Promotion Territory by Dermira ; and (iv) all other matters relating to the performance of this Agreement referred to it; (b) a Joint Development Committee (JDC) that will oversee the Development and Medical Affairs activities for the Product in the Development Territory in the Development Indication; (c) a Joint Development Team (JDT) that will coordinate the Development of and Medical Affairs activities for the Product in the Development Territory in the Development Indication by Dermira; (d) a Joint Commercialisation Committee (JCC) that will coordinate, oversee and manage the Dermira Commercial Activities of the Product by Dermira in the Promotion Indication and the Development Indication in the Promotion Territory; and (e) a Joint Commercialisation Team (JCT) that will coordinate the Dermira Commercial Activities of the Product by Dermira in the Promotion Territory in the Promotion Indication and the Development Indication. The JDC and the JCC shall be subordinate to the JSC, the JDT shall be subordinate to the JDC, and the JCT shall be subordinate to the JCC. Each such committee and any other committee established by the JSC (collectively, the Committees and each a Committee ) shall have the responsibilities and authority allocated to it in this Section 4 and elsewhere in this Agreement, but shall not have the right to interpret, modify, amend, vary and/or waive compliance of any of the provisions of this Agreement, either as a Committee action or through a Partys exercising of its final decision making authority on such Committee. Each such Committee shall have the membership and shall operate by the procedures set forth in this Section 4, and each Party shall carry out the responsibilities in relation to each Committee to enable a fair, expeditious and efficient process in such Committee. Each such Committee shall also serve as a forum for information exchange, updates, coordination and discussions with respect to the activities to be undertaken by UCB under this Agreement in support of Dermiras conduct of the Development activities and/or Dermira Commercial Activities and/or the Medical Affairs activities for which Dermira is responsible under this Agreement.
4.2 Notwithstanding the Committee structure established pursuant to Section 4.1, each Party shall retain the rights, powers and discretion granted to it under this Agreement, and no such rights, powers, or discretion shall be delegated to or vested in a Committee unless such delegation, vesting of rights or discretion is expressly provided for in this Agreement or the Parties expressly so agree in writing. Notwithstanding the foregoing, neither Party shall be restricted from bringing before any appropriate Committee for discussion any matter relating to the activities to be performed under this Agreement that it believes warrants discussion between the Parties through the Committees, provided that the consideration of any such matter by any Committee shall not infringe or limit the exercise of a Partys right of consent or approval or other decision making
authority granted to it by this Agreement. To the extent any right of consent, approval or other decision making authority is granted to a Party or a Committee under this Agreement, such consent or approval or other decision made in accordance with such decision making authority shall not be subject to any dispute resolution mechanism provided for in Section 23.
4.3 Each Party shall appoint representatives with the requisite authority and seniority to make decisions on behalf of that Party with respect to issues falling within the jurisdiction of the relevant Committee.
4.4 Each Committee shall establish a schedule of times for regular meetings, provided that in no event shall such meetings of: (i) the JSC be held less frequently than once every six (6) months; (ii) the JDC be held less frequently than once every three (3) months; (iii) the JCC be held less frequently than once every six (6) months, in each case (i), (ii) and (iii) in any given Calendar Year; and (iv) any other Committee to be held as frequently as determined by the JSC on formation of such other Committee. Each Committee shall meet alternately at one of UCBs facilities in the United States of America (as determined by UCB) and at one of Dermiras facilities in the United States of America (as determined by Dermira) or at such other locations as the Parties may agree.
4.5 Meetings of any Committee shall be in person, provided that Committee meetings may be held by audio or video teleconference with the consent of the representatives of each Party on such Committee, which consent shall not be unreasonably withheld or delayed, provided that at least one (1) meeting of the Committee every six (6) months shall be held in person. In addition to such scheduled meetings, the chair of a Committee may convene a special meeting of the Committee at either Partys request with two (2) weeks written notice if such meeting is to be conducted in person, and with one (1) weeks written notice if such meeting is to be conducted by teleconference, or such shorter period as the Committee may decide, and the chair shall prepare and circulate to each Committee member an agenda for each meeting not later than one (1) week prior to such meeting, and the representatives of the other Party shall have the right on written notice to the chair given within two (2) Business Days after receipt of the agenda to supplement the agenda, in each case, or such shorter period as the Committee may agree. Notwithstanding the foregoing, (y) notice of any such special meeting or receipt of such agenda may be waived in writing at any time, either before, during or after such meeting, and (z) attendance of any member at a meeting shall constitute a valid waiver of notice of any such special meeting or receipt of such agenda from such member, unless such member attends the meeting for the express purpose of objecting to the failure to provide valid notice or an agenda.
4.6 In addition to Committee members, employees of each Party may, as appropriate, attend meetings of each Committee as non-voting participants, and consultants, representatives or advisors, in each case as appropriate, may attend meetings of each Committee as non-voting observers, provided that such Third Party representatives are under obligations of confidentiality and non-use applicable to the Confidential
Information of each Party that are at least as stringent as those set forth in Section 17 (provided that each Party engaging a Third Party shall use Commercially Reasonable Efforts to seek and include in such Third Party agreement obligations of confidentiality and non-use lasting for a period of [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement and provided that in no event shall the obligations of confidentiality and/or non-use in any such Third Party agreement be of a duration less than [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement), and subject, in the case of non-employees of a Party, to the consent of the other Party, which consent shall not be unreasonably withheld or delayed.
4.7 Each Party shall be responsible for and bear all of its own expenses of attending at or participating in any Committee.
4.8 Each Committee shall keep minutes of its meetings that record in reasonable detail all decisions and all actions recommended or taken. Drafts of the minutes shall be prepared and circulated by the relevant chair to Committee members within ten (10) Business Days of the meeting. Each Committee member shall have the opportunity to provide comments on the draft minutes. The minutes of a Committee meeting shall be approved, disapproved and revised as necessary prior to the end of the next Committee meeting following such Committee meeting, provided that any member of the Committee shall have the right to withhold his or her consent with respect to any issue discussed during the meeting (e.g., in the event the proper expertise or level of information for a decision was not available), and the minutes for such meeting may reflect a lack of consensus on an issue-by-issue basis, the persons responsible for resolving such matter and by what date such matter shall be resolved. Upon approval, final minutes of each meeting shall be circulated by the chair of the Committee to the members of the Committee and, unless that Committee is the JSC, to the JSC Chair for circulation to the other members of the JSC in accordance with Section 4.17.
4.9 No action taken at any meeting of a Committee shall be effective unless at least one representative of each Party is participating.
4.10 Each Partys representatives on each Committee shall collectively have a single vote, irrespective of the number of representatives of a Party actually in attendance at a meeting. Each Committee shall take action by consensus (subject to the final decision making authority of a Party as expressly provided for in this Agreement) at any Committee meeting, or by a written resolution signed by the designated representatives of each of UCB or Dermira.
4.11 If the JDT cannot, or does not, reach consensus on an issue, then the dispute shall be referred to the JDC for resolution by written notice to the members of the JDC, and a special meeting of the JDC may be called for such purpose. If the JCT cannot, or does not, reach consensus on an issue, then the dispute shall be referred to the JCC for resolution by written notice to the members of the JCC, and a special meeting of the JCC may be called for such purpose. If a Committee (other than the JSC ) cannot, or
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does not, reach consensus on an issue (including issues referred to it by any of its subordinate Committees), then the dispute shall be referred to the JSC pursuant to either Section 4.23(i) or 4.31(l) for resolution by written notice to the members of the JSC, and a special meeting of the JSC may be called for such purpose. If the JSC cannot, or does not, reach consensus on an issue within the jurisdiction of the JSC, including any dispute arising in another Committee and referred to it for resolution, within a period of ten (10) Business Days from the date on which such matter is referred to the JSC or such other period as the Parties may agree, then such matter shall be promptly referred to the Senior Executives of the Parties for resolution. If such Senior Executives cannot resolve such matter within a period of ten (10) Business Days from the date on which such matter is referred to such Senior Executives, then: (a) if neither Party has the final decision making authority with respect to the subject matter of such Dispute, then either Party may refer such D ispute for resolution in accordance with the provisions of Section 23; or (b) if subject matter of such Dispute is subject to a Partys final decision making authority as set forth in this Agreement, then the Senior Executive of the Party having the final decision making authority shall, in relation to those issues with respect to which it has final decision making authority in its discretion decide on the matter in dispute, which decision shall be final and binding on the Parties and not subject to resolution pursuant to Section 23, nor shall such decision give rise to any right of the other Party to claim breach of this Agreement provided that such Party, in exercising such final decision authority, shall do so in accordance with the provisions of this Section 4 governing such final decision making . Notwithstanding the foregoing, the Development Matters shall be subject to the expedited decision making process under Section 4.25.
(a) UCB shall have final decision making authority for the following matters:
(i) the overall regulatory, Development and Commercialisation strategy for the Product throughout the Territory; and
(ii) those issues designated as Commercial Functions; and
(iii) the Medical Affairs Plan; and
(iv) market access, gross and/or net pricing, discounting, rebates, tendering and contracting, Pricing and Reimbursement Approval coverage at national, regional or any other sub-national level, regulatory strategy, market access, overall requirement for commercial and legal compliance, statistical analysis, medical writing, data management, safety and pharmacovigilance measures under the Safety Agreement, Recalls, Product life cycle management and Medical Affairs strategy and messaging throughout the Territory
provided that, in exercising such final decision making authority, such final decision shall not (A) with the exception of Section 5.3(b)(i), increase the activities to be undertaken by Dermira under the Development Plan, Medical Affairs Plan or the Commercialisation Plan such that any such increase in activities would increase the total Development Costs payable by Dermira under the JDC-Approved
Development Budget or the total costs and expenses payable by Dermira under the then current budget relating to the Dermira Commercial Activities or Medical Affairs activities; (B) except for in relation to any safety issue identified from the Safety Process, suspend, terminate or delay the Development of the Product in the Development Indication; (C) withhold its approval unreasonably in connection with the JCCs adjustment to Dermiras Commercialisation diligence obligation as set forth in Section 7.9; (D) apply to the level of UCB support under Section 7.4(a) and the UCB Support Budget in relation thereto; or (E) any modification to the Development Responsibilty Matrix and/or the Regulatory Responsibility Matrix shall require the mutual written agreement by the Parties.
(b) Dermira shall have final decision making authority for the following matters:
(i) subject to Dermiras obligation to use Commercially Reasonable Efforts to conduct the Dermira Commercial Activities, (A) the level of the Dermira Commercial Activities undertaken by Dermira under the Commercialisation Plan, including the level of Dermira Commercial Activities set out in the plans contained in the Commercialisation Plan such as the Launch Plan and each Local Dermira Commercial Plan, (B) the level of Medical Affairs activities for which Dermira will be responsible under the Medical Affairs Plan, and (C) the budgets set forth under each such plan for which Dermira will be responsible, including the UCB Support Budget that is subject to the UCB Commercialisation Cost Deductions from Gross Margin; and
(ii) subject to Dermira conforming with and adhering to UCBs policies and procedures relating to the engagement of key opinion leaders to the extent such policies and procedures are provided by UCB to Dermira in writing in advance, the selection and management of dermatology key opinion leaders and conferences and patient advocacy sponsorships within the field of dermatology, provided that Dermira shall not exercise such final decision making authority under this subsection (ii) if UCB should notify Dermira that such exercise would be inconsistent with UCBs overall Commercialisation strategy with respect to the Product
provided that, in exercising such final decision making authority, such final decision shall not (A) increase the activities to be undertaken by UCB on behalf of UCB under the Development Plan, Medical Affairs Plan or the Commercialisation Plan such that any such increase in activities would increase the total Development Costs payable by UCB under the JDC-Approved Development Budget or the total of the UCB Support Budget, or (B) save in relation to any safety issue identified from the Safety Process, suspend, terminate or delay the Development of the Product in the Development Indication.
4.12 The Parties recognize that each Party possesses an internal structure (including various internal committees, teams and review boards) that will be involved in administering such Partys activities under this Agreement. Each Committee shall establish procedures to facilitate communications between such Committee and any project teams established by such Committee and the relevant internal committee, team or board of each of the Parties, as well as joint teams (such as the JDT and JCT), in order to ensure the efficient conduct of the collaboration, including by requiring appropriate members of such Committee to be available at reasonable times and places and upon reasonable prior notice for making appropriate oral reports to, and responding to reasonable inquiries from, the relevant internal committee, team or board, and conducting deliberations and rendering decisions (including exercising any final decision making authority granted to it under this Agreement) on matters referred to it in a fair, efficient and expeditious manner so as to minimize any disruption in the Development of the Product under the Development Plan. The Parties have entered into this Agreement acknowledging that UCB is managing the Cimzia® franchise across a variety of international markets and indications, and that decisions made in respect of branding strategy, pricing policy, regulatory strategy and other customary practices in relation to the Product may have varying effects on each indication in different countries in the Territory. In addition, t he Parties have entered into this Agreement based on the assumption that the interests of the Parties across various indications will be generally aligned having regard to the fact that the Parties acknowledge that the commercial value, potential and stage of development of the various indications for the Product are inherently not the same and are each subject to being adversely affected (often to differing degrees) by many factors which are outside of the control of the Parties. Accordingly , following Launch and provided that Dermira is performing the Dermira Commercial Activities in accordance with the provisions of Section 7 , Dermira may , subject to the following proviso, terminate this agreement pursuant to Section 20.7(b) within six (6) Calendar Months of Dermiras becoming aware of UCBs implementation, if UCB implements one or more business decision(s) specifically aimed and directed exclusively at the Development Indication alone with the intention of materially benefitting the rest of UCBs Cimzia® franchise and that UCB knew or reasonably should have known that such business decision(s) would, and such business decision(s) did , in fact , result in a material decrease in the amount of royalties based on the Royalty Bearing Sales payable to Dermira under this Agreement as determined by comparing: (a) the greater of (i) the then mutually agreed forecast for the Royalty Bearing Sales in the six (6) Calendar Month period immediately following the implementation of such business decision(s) by UCB or (ii) the Royalty-Bearing Sales of the Product in the six (6) Calendar Month period immediately preceding the implementation of such business decision(s) by UCB with (b) the actual Royalty Bearing Sales for the six (6) Calendar Month period immediately after the implementation of such decision by UCB, provided always that Dermira shall have no right to terminate this Agreement pursuant to Section 20.7(b) if UCB (i) initiates corrective action immediately on receipt by it of a notice from Dermira to reverse said material decrease in the amount of royalties based on Royalty Bearing Sales payable to Dermira under this Agreement; and (ii) until such corrective action has taken effect so
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as to reverse such material decrease, UCB has reimbursed Dermira in an amount equivalent to the loss of royalties based on Royalty Bearing Sales under this Agreement from the date of the implementation of such business decision(s) up to the date of such reversal. For clarity, Dermira acknowledges that UCB will need to make business decisions that could adversely affect one indication more or less than another indication and the foregoing shall not be construed as requiring UCB to perform indication by indication analyses to evaluate the potential effect prior to making each business decision(s) in order to predict its effect on any one indication in comparison to any other indication .
4.13 As soon as practicable following the Commencement Date, each Party will appoint an Alliance Manager. Each Alliance Manager will manage and oversee the governance of the Agreement and will serve as the primary contact person concerning on-going interactions between the Parties under this Agreement. The Alliance Managers will coordinate and attend all meetings of the JSC and will be responsible for the preparation and circulation of JSC meeting minutes for approval and will facilitate the scheduling and conduct of JSC meetings. The Alliance Managers may also attend meetings of the JDC, JCC and any other Committee established pursuant to Section 4.4. The Alliance Managers will not also be members of the JSC, the JDC or the JCC, nor will they have any voting rights or decision making authority with respect to matters for which such Committees are responsible.
JOINT STEERING COMMITTEE: JSC
4.14 On or within twenty (20) Business Days after the Effective Date, the Parties shall establish the JSC.
4.15 The JSC shall consist of a total of six (6) members and shall be comprised of three (3) senior employees of each Party being executive level managers, and the composition of each Partys representation on the JSC may be altered by the relevant Party at any time provided that, prior to any such alteration, the Party requiring such alteration shall:
(a) notify the other Party in writing of such alteration, including in such notification the identity of the representative being replaced, and the identity and level of responsibility of the replacement representative; and
(b) ensure that any replacement representative is capable of making decisions in accordance with Section 4.3; and
(c) ensure that at least one (1) representative of the JSC (i) in the case of UCB, a senior executive reporting directly to a member of UCBs Executive Committee and (ii) in the case of Dermira, a senior executive reporting directly to the CEO of Dermira.
Other employee representatives of each Party may attend and participate (but not vote) in meetings of the JSC.
4.16 The initial members of the JSC shall be:
(a) in the case of UCB: [*]; and
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(b) in the case of Dermira: [*].
4.17 As soon as reasonably practicable following the formation of the JSC, the Parties shall appoint a chairperson (the JSC Chair ) responsible for the scheduling and conduct of all JSC meetings as indicated in Section 4.4 and for the production and circulation of JSC, JDC and JCC meeting minutes. The JSC Chair shall promptly accommodate requests by either Party to schedule meetings of the JSC and/or add agenda items to the agenda for JSC meetings.
4.18 The JSC shall have responsibility for the oversight, strategic planning, and decision making, and overall management of the Parties activities relating to the Development of the Product in the Development Indication in the Development Territory as identified in the Development Plan , the Dermira Commercial Activities and Medical Affairs activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication and UCBs activities in support thereof, in each case in accordance with this Agreement, including responsibility for:
(a) the strategic oversight of the Development of the Product in the Development Indication in the Development Territory and the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication, as appropriate;
(b) approving the formation of such other Committee as it should deem necessary to be formed for the performance of the Parties respective obligations pursuant to this Agreement;
(c) approving the Development Plan, the Medial Affairs Plan, and the Commercialisation Plan, including the Launch Plan, and each Local Dermira Commercial Plan;
(d) resolution of disputes referred to it by the JDC or the JCC;
(e) reviewing any referral made by the JDC pursuant to Section 4.23(c);
(f) approval of the adoption and use of alternative sources of Market Information pursuant to Section 10.8 ;
(g) performing such other functions as are allocated to it under the other provisions of this Agreement or as appropriate to further the purposes of this Agreement as agreed by the Parties from time to time in writing.
4.19 Each JSC Chair shall serve as chairperson for a period of twelve (12) Calendar Months and shall rotate as between the Parties. The first JSC Chair shall be a UCB member of the JSC.
JOINT DEVELOPMENT COMMITTEE: JDC
4.20 On or within twenty (20) Business Days after the Effective Date, the Parties shall establish the JDC.
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4.21 The JDC shall consist of a total of six (6) members and shall be comprised of three (3) senior employees of each Party having the requisite experience seniority to be able to make decisions of the JDC on behalf of the relevant Party, and the composition of each Partys representation on the JDC may be altered by the relevant Party at any time provided that, prior to any such alteration, the Party requiring such alteration shall:
(a) notify the other Party in writing of such alteration, including in such notification the identity of the representative being replaced, and the identity and level of responsibility of the replacement representative; and
(b) ensure that any replacement representative is capable of making decisions in accordance with Section 4.3; and
(c) ensure that at least one (1) representative of the JDC is a member of (i) in the case of UCB, a Vice President having responsibility for clinical research and (i) in the case of Dermira, a Vice President having responsibility for product development.
Other employee representatives of each Party may attend and participate (but not vote) in meetings of the JDC.
4.22 As soon as reasonably practicable following the formation of the JDC, Dermira shall appoint a chairperson (the JDC Chair ) responsible for the scheduling and conduct of all JDC meetings as indicated in Section 4.4 and for the production and circulation of JDC meeting minutes. Meetings of the JDC shall take place during the Development Term until at least the date on which Regulatory Approval for the Product in the Development Indication has been granted by the FDA. The JDC Chair shall promptly accommodate requests by either Party to schedule meetings of the JDC and/or add agenda items to the agenda for JDC meetings.
4.23 The JDC shall have responsibility for the oversight, strategic planning, decision making and overall management and coordination of activities relating to Development and the Development Plan, including responsibility for:
(a) reviewing of and commenting on the Development Plan and any Medical Affairs Plan prepared by the JDT and, if acceptable, recommending such Development Plan or Medical Affairs Plan for approval by the JSC;
(b) reviewing and commenting on the amendments to the Initial Development Plan following the FDA Development Meeting and the EMA Development Meeting, and if acceptable, recommending such amendments for approval by the JSC;
(c) if unresolved, refer ring any notification of anticipated delay in meeting any timelines or target completion dates set forth in the Development Plan provided by the JDT pursuant to Section 5.16 to the JSC;
(d) review ing and approv ing the Development Plan and the JDC-Approved Development Budget and discussin g and consider ing proposed changes to the same (including amendments to the JDC-Approved Development Budget );
(e) reviewing and approving the Medical Affairs Plans and the Medical Affairs Budgets and discussin g and consider ing proposed changes to the same (including amendments to any approved Medical Affairs Budget ) ;
(f) the formation and oversight of the JDT to oversee the performance of the day-to-day activities set out in the Development Plan;
(g) subject to the provisions of Section 5.6, coordinating and establishing strategies for obtaining Regulatory Approvals and strategies for communications and interactions with Regulatory Authorities in relation to the Development of the Product in the Development Indication in the Development Territory;
(h) considering and attempting to resolve disputes arising within the JDT;
(i) referring disagreements arising in the JDC to the JSC;
(j) approving Post-Approval Studies and Post-Approval Study Protocols, in each case, in the Development Indication;
(k) developing and approving the Development Transition Plan within sixty (60) Business Days of the Commencement Date;
(l) performing such other functions as are allocated to it under the other provisions of this Agreement or as appropriate to further the purposes of this Agreement as agreed by the Parties from time to time in writing.
4.24 Each J D C Chair shall serve as chairperson for a period of twelve (12) Calendar Months and shall rotate as between the Parties. The first J D C Chair shall be a Dermira member of the J D C.
4.25 The overall operational compliance with and execution of the Development Plan, including but not limited to the following matters, shall be subject to the day-to-day management at the JDT, and the JDT shall endeavour to resolve such matters in a fair, expeditious and efficient manner. The JDT may seek the JDCs guidance on such matters, and the JDC shall, upon the request of the JDT, make decisions on such matters without referring such matters to the JSC (each, a Development Matter ). In the event the JDC cannot agree on any such Development Matter, such matter shall be referred to the JSC for determination, and if the JSC cannot reach agreement on such matter within five (5) Business Days after such matter has been referred to it for resolution, then [*] such Development Matter, having regard for the terms and conditions of this Agreement and the [*]:
(a) the [*] and [*] of [*];
(b) reporting obligations in the [*] with respect to [*] and [*];
(c) quality assurance, including auditing of [*] and [*];
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(d) the [*] for the Product if the same has not already been produced by UCB prior to the Effective Date, and each issuance of a new version of such [*];
(e) the [*] and any other information to be provided to potential [*] to [*] to participate in [*], and any [*] in the Development Indication;
(f) the form of [*] to be used for [*], and each [*] in the Development Indication; and
(g) each amendment to any such [*], provided that the initial form of each such [*] shall be approved prior to the FDA Development Meeting, and in the case of this Section 4.25(g), Dermira may request expedited approval within fifteen (15) Business Days from UCB via UCBs relevant Contact (in lieu of JDC approval), and UCB shall use reasonable efforts to expedite its review and give such approval (or communicate any comments or concerns to Dermiras Contacts, as applicable) within such period of time.
4.26 Other than as expressly set out in Section 4.25 as being subject to the expedited dispute resolution process, any other unresolved disputes of the JDC shall be referred to the JSC for resolution as set forth in Section 4.11.
JOINT DEVELOPMENT TEAM: JDT.
4.27 The Parties shall establish a Joint Development Team consisting of such number of representatives from each Party as the Parties may decide (the JDT ) as soon as practicable after the Effective Date. The JDT shall meet on an as-needed basis, either in person or by teleconference, and shall serve as a working group that coordinates between the Parties in the conduct of the day-to-day Development activities under the Development Plan and Medical Affairs activities under the Medical Affairs Plan , including UCBs regulatory responsibilities and UCBs supply of Product and Comparator Drugs and Placebo in connection therewith. The JDT shall endeavo u r to resolve any operational issues that arise from the conduct of the Development of the Product in the Development Indication in the Development Territory in accordance with the Development Plan , the conduct of the Medical Affairs activities under the Medical Affairs Plan, and the provisions of this Agreement in a fair, efficient and expeditious manner, and shall refer any unresolved issues to the JDC for resolution. Each Party shall designate a member of the JDT as the primary contact (the Development Contact ) for such Party to coordinate the Development activities between the Parties. If at any time prior to the first Regulatory Approval of the Product in the Development Indication in the Promotion Territory, UCB commences a safety signal assessment report ( SSAR ) in accordance with UCBs Safety Process for the Product, then UCB shall notify Dermira in writing within five (5) Business Days of completing such SSAR that a validated safety signal has been detected, if the safety
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signal relates to the Development Indication, UCB and shall provide Dermira the data and other information upon which such assessment is based. UCB shall keep Dermira informed of the status, progress and outcome of such safety assessment, and shall provide ongoing updates to Dermira, through the JDT, and UCB shall take into consideration Dermiras comments and feedback with respect to such assessment. Final approval of all signal assessment reports shall rest with UCB benefit risk team. If such validated safety signal is of sufficient concern, UCB shall notify Dermira and may terminate this Agreement pursuant to Section 20.6(d).
JOINT COMMERCIALISATION COMMITTEE: JCC
4.28 At either Partys request during the Term but in any event no earlier than six (6) months after the Commencement Date and no later than twelve (12) months prior to the first anticipated Regulatory Approval of the Product in the Development Indication in the Promotion Territory, the Parties shall establish the JCC.
4.29 The JCC shall consist of a total of six (6) members and shall be comprised of three (3) senior employees of each Party having the requisite experience seniority to be able to make decisions of the JCC on behalf of the relevant Party, and the composition of each Partys representation on the JCC may be altered by the relevant Party at any time provided that, prior to any such alteration, the Party requiring such alteration shall:
(a) notify the other Party in writing of such alteration, including in such notification the identity of the representative being replaced, and the identity and level of responsibility of the replacement representative; and
(b) ensure that any replacement representative is capable of making decisions in accordance with Section 4.3; and
(c) ensure that at least one (1) representative of the JCC is a member of (i) in the case of UCB, a Vice President having responsibility for Commercialisation of the Product in the United States of America and (i) in the case of Dermira a Vice President having responsibility for Commercialisation of the Product in the US.
Other employee representatives of each Party may attend and participate (but not vote) in meetings of the JCC.
4.30 As soon as reasonably practicable following the formation of the JCC, UCB shall appoint a chairperson (the JCC Chair ) responsible for the scheduling and conduct of all JCC meetings as indicated in Section 4.4 and for the production and circulation of JCC meeting minutes. Meetings of the JCC shall take place during the Term until at least the date on which Regulatory Approval for the Product in the Development Indication has been obtained. The JCC Chair shall promptly accommodate requests by either Party to schedule meetings of the JCC and/or add agenda items to the agenda for JCC meetings.
4.31 The JCC shall have responsibility for the oversight, strategic planning, decision making and overall management and coordination of activities relating to the Dermira
Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication in accordance with the Commercialisation Plan and the terms of this Agreement, as well as UCBs Commercialisation activities under the Commercialisation Plan , including responsibility for:
(a) reviewing and commenting on the Commercialisation Plan (including long-term and peak-year sales forecasts) and recommending such Commercialisation Plan for approval by the JSC;
(b) overs eeing the implementation of the Commercialisation Plan, including the Dermira Commercial Activities, for the Product in the Promotion Indication and the Development Indication to Dermatologists in the Promotion Territory ;
(c) reviewing, considering, commenting on and making suggestions in relation to the reports presented to the JCC by the JCT pursuant to Section 7.5;
(d) managing issues relating to the timelines, resources, and budget as detailed in the relevant Local Dermira Commercial Plans, including reviewing UCBs supply of the Product based on the forecast of sales attributable to Dermatologists;
(e) reviewing Local Dermira Commercial Plans;
(f) reviewing and monitoring the Market Information for accuracy, reliability and suitability;
(g) overseeing the formation of the JCT to undertake the day-to-day activities set out in each Local Dermira Commercial Plan;
(h) discussing Medical Affairs activities undertaken by the Parties and communications by UCB with Regulatory Authorities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication;
(i) exchanging information with respect to UCBs Commercialisation activities with respect to the Product in accordance with the Commercialisation Plan so as to inform Dermiras plan and conduct of Dermira Commercial Activities;
(j) discussing any New Presentation proposed by Dermira for use in the Development Indication and/or Promotion Indication and, provided that the JCC agrees to consider the same, a plan to supply the Product in such New Presentation to accommodate any new dosing regimen for the Development Indication and/or Promotion Indication;
(k) considering and resolving disputes arising between the Parties respective project teams;
(l) referring disagreements arising in the JCC to the JSC;
(m) developing and approving the Commercial Transition Plan within sixty (60) Business Days of the Commencement Date;
(n) performing such other functions as are allocated to it under the other provisions of this Agreement or as appropriate to further the purposes of this Agreement as agreed by the Parties from time to time in writing.
4.32 Each JCC Chair shall serve as chairperson for a period of twelve (12) Calendar Months and shall rotate as between the Parties. The first JCC Chair shall be a UCB member of the JCC. A JCC member from either Party may be a member of the JDC.
JOINT COMMERCIALISATION TEAM: JCT.
4.33 The Parties shall establish a Joint Commercialisation Team consisting of such number of representatives from each Party as the Parties may decide (the JCT ) at the same time the Parties establish the JCC. The JCT shall meet on an as-needed basis but no less frequently than once every three (3) Calendar Months during the period that begins twelve (12) Calendar Months prior to the first anticipated Launch of the Product in the Development Indication in the Promotion Territory, and ending on the day that is the first anniversary of such Launch, either in person or by teleconference, and shall serve as a working group that coordinates between the Parties in the conduct of the day-to-day Commercialisation activities under the Commercialisation Plan, the Launch Plan and each Local Dermira Commercial Plan, including UCBs Commercialisation activities in support of the Dermira Commercial Activities. The JCT shall endeavor to resolve any operational issues that arise in connection with the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication, in accordance with the Commercialisation Plan (including Launch Plan and each Local Dermira Commercial Plan) and the provisions of this Agreement in a fair, efficient and expeditors manner, and shall refer any unresolved issues to the JCC for resolution. Each Party shall designate a member of the JCT as the primary contact (the Commercial Contact and together with the Development Contacts, the Contacts ) for such Party to coordinate each Parties respective activities as contemplated by this Section 4.
5. DEVELOPMENT
5.1 Initial Development Plan. The Parties have agreed upon an Initial Development Plan setting forth the design, costs, protocols, roles and responsibilities, and timelines of the Development activities to be undertaken with the objective of obtaining Regulatory Approval for the Product in the Development Indication by the FDA, Health Canada and EMA, as further set forth in this Section 5.1. The clinical and regulatory strategy contemplated by the agreed Initial Development Plan will be submitted to the FDA in advance of the FDA Development Meeting, which meeting will be held as soon as practicable after the Effective Date but in any event the Parties shall endeavor to schedule such FDA Development Meeting to occur within [*] Calendar Months after the Effective Date. Following the FDA Development Meeting:
(a) If no material changes or alterations of the Initial Development Plan (including the JDC-Approved Development Budget) are required, then it shall be deemed a
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JSC approved Development Plan, and, subject to the satisfaction of the conditions set out in Section 2.2, the Parties shall commence Development of the Product in the Development Indication in the Development Territory in accordance with such Development Plan as soon as practicable thereafter;
(b) If either Party believes that a ny decision, recommendation or other feedback from the FDA requires amendment of the Initial Development Plan, the JDT shall promptly meet and decide how to implement such amendment. Except as otherwise set forth in Section 5.1(c), if the JDC approves such proposed amendment by the JDT, then the Initial Development Plan (including the JDC-Approved Development Budget contained in such Development Plan, which shall be amended accordingly in a manner that minimizes any increase in such JDC-Approved Development Budget whilst still giving effect to such JDC approved amendment) shall be amended accordingly and shall, subject to JSC approval, be deemed to be the Development Plan and the new JDC-Approved Development Budget, and, subject to the satisfaction of the conditions set out in Section 2.2, the Parties shall commence Development of the Product in the Development Indication in the Development Territory in accordance with such Development Plan as soon as practicable thereafter;
(c) If any a mendment to the Initial Development Plan (including the JDC-Approved Development Budget therein) required to address such FDA feedback will (i) significantly increase the costs of Development , and/or (ii) extend the projected timeline for completion of Development , and/or (iii) otherwise require material modifications to the Initial Development Plan, then either Party may object if it reasonably determines that such amendment will adversely affect the medical and scientific basis and/or commercial objectives for undertaking the Development of the Product in the Development Indication in the Development Territory . The objecting Party shall inform the JDC which shall promptly meet to discuss the factual basis for such determination;
(d) Any amendment to the Development Plan (including the JDC-Approved Development Budget) under Section 5.1(b) or (c) shall be finalized and approved by JSC within [*] days after the FDA Development Meeting. Following any such amendment over a Partys objection under Section 5.1(c), such Party may terminate this Agreement pursuant to Section 20.3 on [*] Business Days written notice to the other Party and the consequences set out in Section 21.1 shall apply, provided that: such Party shall provide such notice within [*] Business Days after the approval of such Development Plan (including the JDC-Approved Development Budget).
5.2 EMA Development Meeting. In addition to the FDA Development Meeting, t he Parties anticipate that the clinical and regulatory strategy contemplated in the Development Plan as referred to in Section 5.1(b) will also be submitted to the EMA for review and comment by the EMA (the EMA Development Meeting ), which review will be held as soon as practicable. After such EMA Development Meeting, the JDT will review and amend, if appropriate, the Development Plan (including the
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JDC-Approved Development Budget therein) for the recommendation by the JDC to seek approval from the JSC to reflect any requirement from the EMA for the Regulatory Approval by the EMA for the Product in the Development Indication. If any a mendment to the Development Plan (including the JDC-Approved Development Budget therein) required to address such EMA feedback will (i) increase the JDC-Approved Development Budget to [*] dollars ($ [*] or more , and/or (ii) extend the projected timeline in the Development Plan for the submission to the FDA of a Drug Approval Application for the Product for the Development Indication to [*] then within [*] Business Days after the approval of such amended Development Plan by the JSC, Dermira may terminate this Agreement pursuant to Section 20.3 on [*] Business Days written notice to UCB and the consequences set out in Section 21.1 shall apply .
5.3 Amendments to Development Plan and JDC-Approved Development Budget.
(a) The Initial Development Plan (including the JDC-Approved Development Budget as of the Effective Date) is set forth in Schedule 8 .
(b) After the Effective Date, the Development Plan (including the JDC-Approved Development Budget therein) may only be amended as follows:
(i) Following each of the FDA Development Meeting and the EMA Development Meeting, until the expiration of the termination rights under Sections 5.1 and 5.2, respectively, the Development Plan (including the JDC-Approved Development Budget therein) may be amended pursuant to Section 5.1 or 5.2 above;
(ii) Following expiry of the termination rights referred to in Section 5.3(b)(i), the Development Plan (including the JDC-Approved Development Budget therein) may only be amended as necessary to meet the requirement of the FDA or the EMA or Health Canada for the Regulatory Approval for the Product in the Development Indication . Any such amendment(s) (including any amendment that would result in the termination of the Development of the Product in the Development Indication) shall be prepared by the JDT and reviewed and recommended by the JDC for JSCs approval, and any such amendments shall attempt to minimize any disruption to the Development of the Product in the Development Indication and minimise any increase in the JDC-Approved Development Budget. Such amendment in the Development Plan (including the JDC-Approved Development Budget therein) shall become effective only upon the approval of the JSC, and neither Party shall have the final decision making authority with respect to such approval. Notwithstanding the foregoing, neither Party shall withhold its approval on the JSC for such amendment to the extent such amendment is required by the FDA, Health Canada, or the EMA for the Regulatory Approval by the FDA, Health Canada, and/or the EMA for the Product in the Development Indication.
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5.4 Post-Approval Studies.
(a) UCB agrees to [*] for the Product in the Development Indication from the FDA so that the FDA [*] the Product in the Development Indication [*] of the Product for use in the Development Indication. To the extent the FDA requires a Paediatric Plan to be undertaken as a condition for the Regulatory Approval of the Product in the Development Indication, such Paediatric Plan shall be included within the Development Plan.
(b) If the EMA requires a Paediatric Plan to be undertaken as a condition for Regulatory Approval of the Product for the Development Indication by the EMA, such Paediatric Plan shall be included within the Development Plan.
(c) If the Development activities to be conducted under the Development Plan to satisfy the requirements of the FDA and EMA for the Regulatory Approval of the Product in the Development Indication, including any Paediatric Plan and/or other Post-Approval Studies, are not sufficient to satisfy the requirements of Health Canada for the Regulatory Approval of the Product in the Development Indication (the Health Canada Additional Requirement ), Dermira shall have the right to terminate its rights and obligations under this Agreement with respect to Canada by providing written notification to UCB within sixty (60) Business Days after learning about such Health Canada Additional Requirement, whereupon: (A) Canada shall no longer be included in the Promotion Territory, (B) all of Dermiras obligations with respect to the Product in Canada shall terminate, and (C) any costs and expenses incurred in connection with any Development activities to be conducted by or on behalf of UCB thereafter for the purpose of obtaining Regulatory Approval from Health Canada shall be solely borne by UCB. In the event there exists no Health Canada Additional Requirement, or if Dermira does not provide UCB with such written notification of termination as set forth in the preceding sentence, then: (X) Canada shall remain included in the Promotion Territory, (Y) to the extent there exists any Health Canada Additional Requirement, the Development Plan (together with the JDC-Approved Development Budget therein) shall be modified to include the Development activities that would satisfy such Health Canada Additional Requirement; and (Z) the Development Costs in connection therewith shall be deemed to be included in the FDA/EMA Development Costs, provided that Dermiras share of such Development Costs, as incurred, shall be counted towards the Cap.
(d) The Parties anticipate [*] to consist of [*] the requirements of [*] with respect to [*]. The Parties shall share the Development Costs in connection with [*] Paediatric Plan equally through the reimbursement mechanism set forth in Section 10.13, such Development Costs shall be included in the JDC-Approved Development Budget and Dermiras share of such Development Costs shall be counted towards the Cap.
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(e) For clarity, other than the Paediatric Plans requested by the EMA relating to the use of the Product in the Development Indication as set forth in Section 5.4(b) , Dermira shall not be responsible for the conduct or the costs of any Post-Approval Studies that are only required by the EMA but not for Regulatory Approval in the Promotion Territory (an EMA-Specific Post-Approval Study ). Such EMA-Specific Post-Approval Study shall be the sole responsibility , and shall be conducted solely by and at the cost , of UCB and the costs and expenses incurred in connection with such Clinical Studies shall not be included in the Development Costs.
(f) Notwithstanding anything to the contrary herein: (i) while the Parties recognize that any Post - Approval Studies, if necessary, need to be adequate and sufficient to satisfy the requirement for Regulatory Approval(s) by the FDA, EMA and/or Health Canada (to the extent Dermira does not elect to terminate its rights in Canada under Section 5.4(c)), UCB shall endeavo u r to limit the number and scope of the Post-Approval Studies, including any Paediatric Plan, for the Product in the Development Indication; and (ii) any and all of Dermiras obligations under this Agreement with respect to Post-Approval Studies shall be subject to the responsibility and costs allocation described in this Section 5.4.
5.5 Development Diligence. Under the supervision of the JDC and during the Development Term, Dermira shall use Commercially Reasonable Efforts to perform all activities assigned to it in the Development Plan and UCB shall use Commercially Reasonable Efforts to undertake such of the activities under the Development Plan subcontracted to it by Dermira . In addition, except as otherwise set forth in Section 5.1, Dermira shall be responsible for the payment of all Development Costs incurred under the Development Plan, including the Cost of Goods for of Product and Comparator Drugs and Placebo ordered in connection with such Development activities, all as set out in the JDC-Approved Development Budget. For clarity, Dermira shall not be required to reimburse UCB for any Development Costs incurred by UCB except to the extent set forth in the Development Plan, as identified in the JDC-Approved Development Budget as being subject to reimbursement by Dermira. Each Party shall use Commercially Reasonable Efforts to perform such activities assigned to it under the Development Plan and/or as set forth in the Development Responsibility Matrix and/or Regulatory Responsibility Matrix (in the case of UCB, including its supply responsibilities) in good scientific manner, in accordance with Applicable Law, GMP (except in relation to Comparator Drug and Comparator Placebo), GCP and ICH Guidelines, as applicable, as well as the terms of this Agreement and the Safety Agreement. The JDT shall coordinate the Parties performance of such activities in a fair, efficient and expeditious manner. Each Party shall allocate appropriate resources, effort, equipment and personnel for the effective implementation and performance of its specified responsibilities set out in Development Plan, including in the case of UCB, its regulatory and supply responsibilities as set forth in this Agreement, so as to complete such activities fully and promptly, and in accordance with the Development Plan and the timelines set out therein. If either Party suspects that there may be a delay
in meeting any timelines set out in the Development Plan, it shall promptly raise such issue with the JDT.
5.6 Regulatory Interactions. In relation to the Product, UCB shall, at its sole cost and expense, have overall responsibility for the strategy, and communication and interactions with Regulatory Authorities and shall prepare and submit all Regulatory Documentation relating to the Development of the Product in the Development Indication throughout the Development Territory, except that Dermira shall carry out such specific activities delegated to Dermira under the Regulatory Responsibility Matrix, and the Parties respective roles and responsibilities shall be further set forth in the Regulatory Responsibility Matrix. During the Development Term, UCB shall communicate and interact with Regulatory Authorities in a manner that is consistent with such overall strategy, and shall consult with Dermira prior to any such communications and shall keep Dermira informed, through the JDT, of the progress, strategy and updates with respect to the regulatory activities for the Product in the Development Indication in the Development Territory. UCB shall provide Dermira with drafts of material Regulatory Documentation and material correspondence with the Regulatory Authorities with respect to the Development Indication and/or the Promotion Indication for Dermiras review and comment. In addition, UCB shall, to the extent practicable, provide Dermira with advance notification of any and all meetings with the FDA, EMA and Health Canada with respect to the Development Indication and/or the Promotion Indication, and allow Dermira to participate in such meetings as agreed by the JDC prior to such meetings.
5.7 Reports.
(a) No less than once during each Calendar Quarter, the JDT shall provide to the JDC detailed reports of the progress of the Development of the Product in the Development Indication and the activities undertaken under by it, and outcomes of the Development work conducted pursuant to, the Development Plan.
(b) After obtaining the necessary data to do so, Dermira shall provide UCB with the interim clinical study report after each Clinical Study conducted by Dermira under the Development Plan, in the form and containing the detail set forth in Schedule 16 (the Interim Clinical Study Report ).
(c) UCB shall have the right to comment as to whether the level of detail of such Interim Clinical Study Report is sufficient for submission of the Interim Clinical Study Report to the FDA, EMA and Health Canada, and Dermira shall revise such Interim Clinical Study Report based on such comments received from UCB.
(d) After Dermiras completion of such Interim Clinical Study Report based on UCBs comments and provided the Interim Clinical Study Report meets the criteria in Section 5.7(b), or after UCBs first submission of such Interim Clinical Study Report to a Regulatory Authority, whichever is earlier, UCB shall pay to Dermira Development milestone number 3 in Section 10.2. UCB shall submit to the FDA a Drug Approval Application for the Product for the
Development Indication, and shall seek Regulatory Approval for the Product for the Development Indication, as soon as practicable after Dermiras completion of the Interim Clinical Study Report but in any event by the later of: (i) [*] Calendar Months after Dermiras completion of the Interim Clinical Study Report; and (ii) [*] Calendar Months after the database lock for the Clinical Study identified in the Development Plan as [*].
5.8 Review Board Approvals. Following approval by the JDC, UCB shall delegate the responsibility for obtaining required Review Board approvals to Dermira and Dermira shall communicate all such approvals of the Phase 3 Protocol, or any Post-Approval Study Protocol , each in the Development Indication, and the associated IB , CRF and template ICF, including amendments to any of the foregoing, to the JDT, and no such protocol, IB , CRF and ICF, or amendment to any of the foregoing shall become effective or be used (as applicable) until required Review Board approval thereof, if applicable, has been obtained. In addition, Dermira shall be responsible for seeking required Review Board approvals of any Phase 3 Study or any Post-Approval Study , each in the Development Indication .
5.9 Maintenance of Authorisation to Conduct Clinical Studies. UCB shall be the sponsor of all Phase 3 Studies and all Post-Approval Studies and UCB shall be [*] responsible for preparing, submitting and maintaining all authorizations of, and filings with, Regulatory Authorities (including INDs and Drug Approval Applications) required for the initiation and conduct of any Phase 3 Study and any Post-Approval Study, and for all communications with any Regulatory Authority in relation to any Phase 3 Study, any Post-Approval Study, or any Product or Comparator Drugs and Placebo , except for certain responsibilities delegated to Dermira as set forth in the Regulatory Responsibility Matrix and/or Development Responsibility Matrix, and subject to Dermiras information and participation rights set forth in Section 5.6. In the protocols for such Phase 3 Studies and Post-Approval Studies, UCB shall identify Dermira as a collaborator for such Clinical Studies and shall provide Dermiras contact information on the contact page of the Phase 3 Protocols and/or the Post-Approval Study Protocols. Notwithstanding the foregoing, Dermira acknowledges that, as sponsor, UCB may delegate to Dermira certain of its responsibilities, as set forth in the Regulatory Responsibility Matrix. Without limiting the generality of the foregoing, in relation to the Development of the Product in the Development Indication in the Development Territory, UCB shall be [*] responsible for the filing of the Phase 3 Protocol, IB (if filing is required), template ICF, form of CRF (if required), and amendment to any of the foregoing with the applicable Regulatory Authorities, except for certain responsibilities delegated to Dermira as set forth in the Regulatory Responsibility Matrix and/or Development Responsibility Matrix, subject to Dermiras information and participation rights set forth in Section 5.6. Each Party shall cooperate with the other Party, and provide such assistance as such other Party may reasonably request, in the preparation of the aforesaid regulatory submissions and responses to any request, inquiry or other communication from any Regulatory Authority in relation to a Phase 3 Study, any Post-Approval Study or the Product .
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5.10 Appointment of CROs and other Third Party Subcontractors.
(a) CROs
(i) Subject to the terms and conditions of this Agreement, Dermira shall, in relation to the Development of the Product in the Development Indication in the Development Territory, have primary responsibility for selection and appointment of (i) the CROs that will manage any Phase 3 Study, or any Post-Approval Study in the Development Indication, (ii) the institutions at which a Phase 3 Study, and any Post-Approval Study in the Development Indication, will be performed ( Institutions ), and (iii) the principal investigator at each Institution designated to supervise the work of all persons who assist in performing a Phase 3 Study, or any Post-Approval Study in the Development Indication, at such Institution (each, an Investigator ), including replacement Investigators.
(ii) Dermiras selection, removal and/or replacement of the CROs for the Phase 3 Study, and any Post-Approval Study in the Development Indication shall be subject to discussion at the JDT and the approval by the JDC and the JSC, if applicable, and as the case may be, as a Development Matter under Section 4.25, provided that Dermira may not remove and/or replace [*] CROs at any one time.
(iii) The form of any agreement with either CRO entered into hereunder (a CRO Agreement ) shall, in the case of a CRO Agreement to be entered into by or on behalf of Dermira, be subject to approval by UCB. Each CRO Agreement entered into by Dermira, as it may be amended from time to time, shall contain provisions that comply, or permit Dermira to comply (as applicable), with its obligations under this Section 5.10 and the Safety Agreement and that are otherwise consistent with this Agreement. Dermira shall provide a copy of each UCB approved fully-executed CRO Agreement entered into by Dermira and amendments thereto to the JDT promptly following the execution thereof, and shall ensure that no CRO shall commence any activities (other than preliminary feasibility work in order to provide a quote) with respect to any Phase 3 Study or any Post-Approval Study unless and until the JDC has received a fully-executed CRO Agreement.
(iv) If either or both CROs is or are unable or unwilling to continue in such role, Dermiras Contact shall promptly notify UCBs Contact thereof, and Dermira shall use Commercially Reasonable Efforts to find a suitable replacement, subject to Section 5.10(a)(ii).
(b) Investigators. Subject to Section 5.10(a), Dermira shall use Commercially Reasonable Efforts to engage such number of Investigators and Institutions in order to satisfy the patient enrolment anticipated by and set forth in the Development Plan or the Phase 3 Protocol, or the Post-Approval Study Protocol
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in order to undertake the Development of the Product in the Development Indication in the Development Territory in accordance with the timelines set out in the Development Plan. In selecting Investigators, Dermira shall, and shall ensure any Third Party subcontractor (including either CRO) shall, comply with Applicable Law as it applies to the selection of investigators, including 21 C.F.R. §312.53 (or the equivalent regulation in the case of Investigators located outside of the U.S.). Dermira shall ensure that no Investigators are selected to participate in any Phase 3 Study, and any Post-Approval Study in the Development Indication, as an inducement to, or in return for, past, present, or future prescribing, purchasing, recommending, using, dispensing or granting preferential formulary status for any other product or service. Dermira may remove and/or replace any Investigator for non-performance or non-compliance with, as applicable, the Phase 3 Protocol or Post-Approval Study Protocol at any time.
(c) Clinical Site Agreements. Dermira shall provide to the JDT a draft of the form of Clinical Site Agreement that Dermira proposes to use in connection with the Development of the Product in the Development Indication in the Development Territory through the conduct of a Phase 3 Study, or a Post-Approval Study, which draft form shall be approved by the JDC as a Development Matter prior to the date on which Dermira first expects to use such form. UCBs representatives on the JDT shall provide to Dermira within ten (10) Business Days any comments or questions that UCB may have, and the Parties respective representatives on the JDT, acting reasonably and in good faith, shall negotiate and use Commercially Reasonable Efforts to agree on, within a further three (3) Business Days, such form to be used by Dermira. Following agreement by the JDT as to such form of Clinical Site Agreement, Dermira shall be free to use such Clinical Site Agreement for a Phase 3 Study, or a Post-Approval Study in the Development Indication, and to negotiate such changes to the terms of such Clinical Site Agreement with individual Institutions as are reasonably acceptable to Dermira, provided, however, that: (i) each such negotiated Clinical Site Agreement shall contain provisions that comply, or permit Dermira to comply (as applicable), with its obligations under this Section 5.10(c), the Safety Agreement and this Agreement; and (ii) Dermira shall not agree to substantive changes to the [*] provisions that are less favourable to, and protective of, Dermira than [*], without, in each case, first obtaining the prior approval of UCB. Dermira shall also have the right to negotiate and enter into amendments to such Clinical Site Agreements, subject to the proviso in the preceding sentence. Except where prohibited by Applicable Law or Institution policy, the applicable Investigator at each such Institution shall acknowledge, by his or her signature of the Clinical Site Agreement between Dermira (or the CRO) and such Institution, that he or she has read and understands his or her obligations under the Clinical Site Agreement and the Phase 3 Protocol, or Post-Approval Study Protocol in the
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Development Indication, as applicable. Dermira shall provide a copy of each fully-executed Clinical Site Agreement entered into by Dermira and any amendment thereto to UCBs Contact promptly following the execution thereof.
(d) CRO, Investigator and Institution Payments. In accordance with all Applicable Law, Dermira shall be solely responsible for the payment of all amounts due to CROs, Institutions and Investigators under CRO Agreements and Clinical Site Agreements entered into by Dermira for the performance of any Phase 3 Study, and any Post-Approval Study in the Development Indication.
(e) Visitation, inspection, examination and copying rights. Without prejudice to any other obligation of Dermira hereunder, Dermira shall procure that:
(i) its CRO Agreements include commercially reasonable and customary visitation, inspection, examination and copying rights with respect to the Development Plan activities for the Development of the Product in the Development Indication in the Development Territory conducted by or on behalf of either CRO that are parties thereto and the books and records of such CRO with respect to such activities;
(ii) its Clinical Site Agreements either (i) include commercially reasonable and customary visitation, inspection, examination and copying rights with respect to the Development Plan activities conducted at Institutions and the books and records of such Institutions with respect to such activities or (ii) are on UCB standard site agreement terms; and
(iii) the applicable provisions of such CRO Agreements and Clinical Site Agreements permit UCBs representatives (which may include Third Party contractors of UCB) to exercise the rights described in Sections 5.10(e)(i) and 5.10(e)(ii), respectively, provided that UCB notifies Dermira in writing and coordinates with Dermira prior to the exercise of any such rights, and permits Dermira to participate in UCBs exercise of any such rights to the extent requested by Dermira in writing.
(f) Investigator Documentation. Dermira shall ensure that no Investigator enrols any subject in any Phase 3 Study, or any Post-Approval Study in the Development Indication, unless and until Dermira has received: (a) from such Investigator the information and documentation required by Applicable Law as it applies to the selection of investigators, including 21 C.F.R. §§312.53 and 312.64 (or the equivalent regulations in the case of Investigators located outside of the United States); and (b) from the applicable Review Board written confirmation that the required Review Board approvals for a Phase 3 Study and any Post-Approval Study for the Development of the Product in the Development Indication in the Development Territory described in Section 5.8 have been received. Upon the completion or earlier termination of a Phase 3
Study, or a Post-Approval Study in the Development Indication, Dermira shall provide UCB with the original documents described in this Section 5.10(f).
(g) Communication with Investigators. Dermira shall be responsible for all communications with the Investigators with respect to a Phase 3 Study, and any Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory. Without limiting either Partys obligations under the Safety Agreement, prior to the commencement of a Phase 3 Study, or any Post-Approval Study in the Development Indication, Dermira shall provide each Investigator with the applicable Phase 3 Protocol, and Post-Approval Study Protocol in the Development Indication, and corresponding I B s and ICFs. Thereafter, Dermira shall provide each Investigator with any amendments to any of the foregoing, provided that such amendments have received all required approvals set forth in Section 5.8.
(h) Monitoring. Dermira (or the applicable CRO acting on Dermiras behalf) shall monitor each Institution and any other site at which a Phase 3 Study, or any Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory is performed and collect Product Data therefrom, including CRFs, in compliance with Applicable Law, the Safety Agreement, and the applicable CRO Agreement. If Dermira is conducting on-site visits, Dermira shall prepare and maintain reports of site visits in accordance with the Safety Agreement and shall promptly provide UCBs Contacts with a copy of each such report in accordance with the Safety Agreement.
(i) Disclosure of Study Documentation. Upon UCBs written request, Dermira shall provide, or cause to be provided, to the relevant UCB Contact a copy of all Study Documentation and such other Information necessary or useful for UCBs preparation of Regulatory Documentation, and any supplemental application or variation generated by or on behalf of Dermira during the Development Term or during the duration of any Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory. Dermira shall diligently, in good scientific manner and in accordance with prevailing industry practices concerning the conduct of Clinical Studies, GCP, ICH Guidelines and Applicable Law, attempt to identify, or cause to be identified, and to resolve expeditiously, inconsistencies and deficiencies in Product Data from any Phase 3 Study, or any Post-Approval Study in the Development Indication, conducted by or on behalf of Dermira.
(j) Transfer of Obligations. The appropriate Contacts of the Parties shall work together through the JDT in good faith to finalize and mutually agree to the Transfer of Obligations Checklist, which shall be consistent with the allocation of responsibilities between the Parties set forth in the Agreement. Dermira shall be responsible for the obligations transferred or delegated under the Transfer of Obligations Checklist in relation to the Development of the Product in the Development Indication in the Development Territory, and such responsibilities shall be deemed transferred or delegated as described in 21
C.F.R. §312.52 and any analogous a pplicable l aw or regulation outside of the United States. UCB shall cooperate with Dermira to permit Dermira to comply with the regulatory obligations that have been transferred or delegated by UCB to Dermira. Notwithstanding the foregoing, subject to the Parties mutual written agreement, UCB may re-assume through written notice any such obligation transferred or delegated to Dermira at any time, or may issue specific written instructions to Dermira with respect to any such obligation, subject to Applicable Law . Any responsibilities not specifically transferred in the Transfer of Obligations Checklist shall remain, as between the Parties, the regulatory responsibility of UCB. If any amendment hereto affects the scope of the regulatory obligations that have been transferred or delegated to Dermira, the Parties shall execute a corresponding amendment to the Transfer of Obligations Checklist, and the Parties shall cooperate to ensure an orderly transition of any such obligation. UCB shall be responsible for any required filing of the Transfer of Obligations Checklist or amendment thereto with the FDA and any other relevant Regulatory Authorities.
(k) SOP Approval. For the purposes of this Section 5.10, in conducting the activities with respect to the Clinical Studies hereunder, each Party shall do so in compliance with its SOPs, provided that, prior to working under any such SOP, each Party has agreed that the other Partys relevant SOP is acceptable for use in connection with such activities .
5.11 Supply of Product for Clinical Studies.
(a) Supply Obligations. Subject to the terms and conditions of this Agreement, UCB (or its designee) shall supply, in a timely manner in quantities and timing as agreed by the JDT to satisfy the Development activities set forth in the Development Plan in the manner set forth in the Development Responsibility Matrix, with required quantities of the Product in final packaged form , and Comparator Drugs and Placebo, to be used in a Phase 3 Study, and any Post-Approval Study in the Development Indication . UCB represents and warrants that: (a) all Product and Product Placebo shall have been manufactured in accordance with Applicable Law, including GMP; and (b) any Product and Product Placebo supplied to an Investigator or Institution will, at the time of delivery to such Investigator or Institution, conform to the applicable specifications for the Product or Product Placebo, as applicable, in effect at the date of delivery and shall not be adulterated or misbranded within the meaning of the PHSA ((a) and (b) collectively, the Product Warranty ). Dermira shall, in accordance with Section 10.13, pay the costs and expenses for the supply of Product and Comparator Drugs and Placebo , which shall be UCBs Cost of Goods for the Product and Comparator Drugs and Placebo for activities undertaken by or on behalf of Dermira under the Development Plan (and including those activities undertaken by or on behalf of Dermira in relation to any Post-Approval Studies in the Development Indication to the extent and in the same ratio Dermira is responsible for the Development Costs for such Post-Approval Studies as set forth in Section 5.4) all in relation to the
Development of the Product in the Development Indication in the Development Territory. Dermira shall be solely responsible for ensuring that all Investigators engaged by Dermira under the Development Plan meet all applicable requirements of 21 C.F.R. Part 312, including the record-keeping requirements specified in Section 5.12(b). UCB acknowledges that Institutions may require Dermira to include in Clinical Site Agreements representations and warranties regarding Product and/or Product Placebo supplied to Institutions or Investigators for use in a Phase 3 Study, or any Post-Approval Study in the Development Indication, and will require Dermira to include in such Clinical Site Agreements standard indemnities regarding the Product and/or Product Placebo. UCB further acknowledges and agrees that: (A) Dermira will be entitled to, and will, rely exclusively on the Product Warranty in making any such representation, warranty or statement that is consistent with, and does not exceed the scope of, the Product Warranty; and (B) as between Dermira and UCB, UCB shall be solely responsible for the failure of the Product and/or Product Placebo to conform to the Product Warranty provided that the Product and/or Product Placebo is handled and stored in accordance with the instructions provided with the same at the time of delivery to the Institution. UCB shall purchase Comparator Drug and Comparator Drug Placebo from Third Parties in accordance with its customary practices and shall supply such Materials for use in the Phase 3 Study and any Post-Approval Studies as set forth in the Development Plan. UCB does not provide a product warranty with respect to such Comparator Drug and Comparator Drug Placebo, but in the event of any alleged defect in any such Comparator Drug or Comparator Drug Placebo, UCB shall assign , to the extent permitted by the applicable sale and purchase agreement for such Comparator Drug or Comparator Placebo or Applicable Law, to Dermira all warranties, express and implied, and other rights and causes of action it obtains from or against the suppliers of such materials (if any) ( Comparator Drug Rights ). In the event Dermira instructs UCB to enforce such Comparator Drug Rights, Dermira shall reimburse all costs and expenses reasonably incurred by UCB in connection with such enforcement. In the event UCB experiences any supply shortfall with respect to the Product or the Comparator Drugs and Placebo, UCB shall immediately notify Dermira and the Parties shall discuss in good faith measures to be taken to minimize the impact of such shortfall for the Development of the Product in the Development Indication.
(b) Ownership and Use. All Product and Comparator Drugs and Placebo supplied to Investigators or Institutions shall remain the exclusive property of UCB unless and until administered or dispensed to subjects during a Phase 3 Study, or a Post-Approval Study in the Development Indication in relation to the Development of the Product in the Development Indication in the Development Territory. In no event shall any Product or Comparator Drugs or Placebos supplied for use in such Phase 3 Study, or a Post-Approval Study in the Development Indication, be used by or on behalf of Dermira for any purpose other than as contemplated by the Development Plan in relation to the
Development of the Product in the Development Indication in the Development Territory.
(c) Supply Records and Other Obligations.
(i) UCB shall maintain and retain, as required by Applicable Law regarding the control and disposition of investigational drugs and by GCP, including 21 C.F.R. §312.57, complete and accurate records relating to the disposition of all Product supplied in connection with a Phase 3 Study and each Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory. In accordance with 21 C.F.R. § 312.52, the Transfer of Obligations Checklist will provide for the transfer to Dermira of the responsibility to maintain and retain as required by Applicable Law regarding the control and disposition of investigational drugs and by GCP, including 21 C.F.R. §312.57, complete and accurate records regarding the control and disposition of all such supplied Product, Comparator Drugs and Placebo from and after delivery to Institutions or Investigators. On request, UCB shall provide Dermira with copies of certificates of analysis for the Product and Product Placebo supplied by UCB for use in connection with the Development activities under the Development Plan.
(ii) Dermira shall procure that each Institution and Investigator engaged in the performance of any Phase 3 Study or any Post Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory shall take such measures as are necessary to permit UCB to comply with Applicable Law regarding the control and disposition of investigational drugs, the ICH Guidelines and GCP, including 21 C.F.R. §§312.59 through 312.62 inclusive. Without prejudice to the preceding sentence, Dermira shall maintain and retain, or shall cause to be maintained and retained, complete and accurate records relating to the disposition of all Product and Comparator Drugs and Placebo supplied to any Institution or Investigator engaged in the performance of the Development of the Product in the Development Indication in the Development Territory, which records (i) shall include the quantity and batch code of such Product, Comparator Drugs and Placebo; and (ii) shall identify all Product, Comparator Drugs and Placebo (A) received from or on behalf of UCB; (B) delivered to each Investigator; (C) dispensed by each Investigator; (D) spilled or otherwise lost (by whom and with appropriate documentation thereof); (E) returned to UCB or disposed of at the written request of UCB and in accordance with UCBs written instructions (with appropriate documentation thereof and with respective dates for each such event).
(d) Disclaimer. EXCEPT FOR THE PRODUCT WARRANTY EXPRESSLY PROVIDED UNDER SECTION 5.11(a), UCB HEREBY DISCLAIMS TO
THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW ALL REPRESENTATIONS AND WARRANTIES, WHETHER WRITTEN OR ORAL OR EXPRESSED OR IMPLIED, WITH RESPECT TO PRODUCT SUPPLIED IN CONNECTION WITH SECTION 5.11, INCLUDING ANY REPRESENTATION OR WARRANTY OF QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR USE OR PURPOSE, OR THAT THE USE OF ANY PRODUCT FOR PURPOSES OTHER THAN THOSE SPECIFIED IN THIS AGREEMENT WILL NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. DERMIRA ACKNOWLEDGES AND AGREES THAT THE PRODUCT HAS NOT BEEN APPROVED BY ANY REGULATORY AUTHORITY FOR THE USES SET FORTH IN THE PHASE 3 PROTOCOL OR A POST-APPROVAL STUDY PROTOCOL IN THE DEVELOPMENT INDICATION (OTHER THAN FOR INVESTIGATIONAL USE IN ACCORDANCE THEREWITH) AND THAT A PHASE 3 STUDY AND ANY POST-APPROVAL STUDY IN THE DEVELOPMENT INDICATION IS BEING CONDUCTED, INTER ALIA, TO DETERMINE WHETHER THE PRODUCT IS SAFE AND EFFICACIOUS FOR SUCH USE. NOTHING CONTAINED IN THIS SECTION 5.11(d) ALTERS UCBS INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION 16.2 OF THE AGREEMENT.
5.12 Records.
(a) Record Keeping. Dermira shall collect, or cause to be collected, prepared and maintained complete, current, accurate, organized and legible records of Product Data from each Phase 3 Study, or each Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory, in sufficient detail and in a manner suitable for submission to, or review by, applicable Regulatory Authorities and in compliance with the applicable Phase 3 Protocol, or Post-Approval Study Protocol in the Development Indication and Applicable Law, including 21 C.F.R. §312.62. All right, title and interest in and to all Product Data and all Intellectual Property Rights therein shall be owned by UCB.
(b) Record Retention. Dermira shall retain, or cause to be retained, all Study Documentation generated by, or by a Third Party on behalf of, Dermira during the Development Term and, except as expressly set forth below, thereafter until (i) the second anniversary of the date upon which Regulatory Approval is received for the Product for the Development Indication throughout the Development Territory or, if no Drug Approval Application is to be filed or if Regulatory Approval is not received for the Product in the Development Indication in the Development Territory, the second anniversary of the date upon which the relevant Regulatory Authority is notified that shipment and delivery of the Product has been discontinued in relation to the Development of the Product in the Development Indication in the Development Territory or (ii) such later date as may be required by Applicable Law (the Retention
Period ). All such Study Documentation shall be retained in a secure area reasonably protected from fire, theft and destruction and with the same degree of protection as Dermira would use with its own ma terials and data. Any additional methods of storage and back-up provisions shall be agreed upon in writing by the Parties. Dermira shall, upon UCBs request, make, or direct the applicable CRO to make, all such Study Documentation available at its or the CROs offices, or the Institutions or other sites at which the Development of the Product in the Development Indication in the Development Territory is performed, if applicable, for review, copying and audit pursuant to Section 5.10(e) of this Agreement. At the end of the applicable Retention Period or earlier as requested by UCB, all such Study Documentation generated by or on behalf of Dermira shall, at UCBs option, be (x) delivered to UCB or its designee, in accordance with UCBs written direction and at UCBs cost, (y) retained by or on behalf of Dermira for an agreed period of time or otherwise in accordance with Applicable Law , or (z) destroyed at UCBs cost, unless such material is otherwise required to be stored or maintained by or on behalf of Dermira pursuant to Applicable Law, in which case Dermira shall have the right to retain, but not use or disclose (except as required by Applicable Law), an archival copy of such Study Documentation at its own expense. For clarity, Dermira shall not discard or destroy any Study Documentation without the prior written approval of UCB.
(c) Clinical Study Data. At the reasonable request of UCB, Dermira shall provide to UCB the complete Trial Master File, the original CRFs and, if applicable, laboratory data transfer files for each subject participating in the Development of the Product in the Development Indication in the Development Territory, and such other subject data reports and other Information as are required by the applicable Phase 3 Protocol, or Post-Approval Study Protocol for the Development of the Product in the Development Indication in the Development Territory, the ICH Guidelines or GCP, including 21 C.F.R. §312.64. Dermira shall provide to the JDT the final data and reports as set forth in the Development Plan , including the original CRFs for each subject, when and as set forth in the Development Plan or on such other date(s) as the JDT may determine.
5.13 Qualifications and Absence of Conflicts.
(a) All personnel of a Party assigned to perform such Partys obligations under this Agreement, including this Section 5.13, shall at all material times be qualified by training, experience, and appropriate expertise to perform such obligations.
(b) Each Party represents, warrants and covenants to the other Party that such Party and its employees and representatives have, and at all material times shall have, all appropriate licenses, approvals and certifications necessary to lawfully perform its obligations hereunder.
5.14 Regulatory Assistance; Response to Regulatory Actions and Audits.
(a) Notification of Regulatory Actions. Each Party shall notify the other Partys relevant Contact within twenty four (24) hours if any Regulatory Authority (i) contacts such Party regarding the Development of the Product in the Development Indication in the Development Territory or the supply of the Product supplied for use therein (or if either Party becomes aware that any Regulatory Authority has contacted any Affiliate or any Third Party subcontractor of such Party regarding any of the foregoing ) , (ii) conducts, or gives notice of its intent to conduct, an inspection at the facilities of such Party, any of i ts Affiliates, or any of its Third Party subcontractors where any Development or supply of the Product in the Development Indication in the Development Territory is conducted or the Product or stored, or (iii) takes, or gives notice of its intent to take, any other regulatory action alleging any failure of such Party, any of i ts Affiliates, or any of i ts Third Party subcontractors to comply with Applicable Law in connection with the Development of the Product in the Development Indication in the Development Territory or the supply of the Product supplied for use therein. Each Party shall provide the other Partys Contact with copies of such notice(s) and related correspondence within three (3) Business Days of receipt (or as otherwise expressly set forth in the Safety Agreement). In the event Dermira is the Party subject to such audit or inspection, to the extent practicable under the circumstances and permitted by Applicable Law, Dermira shall provide any such notice or correspondence received by it to UCBs Contacts in sufficient time for UCBs representatives to be, and shall permit UCBs representatives to be, present at, or otherwise participate in, such inspections or regulatory actions, and Dermira shall supply UCB with all documentation and information in Dermiras possession or control that is pertinent thereto. In the event Dermira is the Party subject to such audit or inspection, Dermira shall also, to the extent practicable under the circumstances and permitted by Applicable Law, provide to UCB any proposed response which Dermira would suggest to be made by UCB to any Regulatory Authority. For the avoidance of doubt, UCB, not Dermira, shall be responsible for all interactions, responses and communications with any Regulatory Authority, except when Dermira is required by Applicable Law or any Regulatory Authority to do so . In the event Dermira is the Party subject to such audit or inspection and it does not receive prior notice of such a regulatory inspection or regulatory action, Dermira shall notify UCB as soon as practicable after such inspection or regulatory action, and shall provide UCB with copies of all m aterials, correspondence, statements, forms and records received or generated pursuant to any such inspection or regulatory action. No admission or communication made by either Party to any Regulatory Authority in the absence of the other Party shall include any false or misleading information relating to the Development of the Product in the Development Indication in the Development Territory, the Product or the other Party.
(b) Adverse Drug Experience Reports and Safety Information. The Parties shall enter into a Safety Agreement governing the procedure and timeline of the
Parties exchange of Adverse Drug Experience and/of safety information, consistent with the outline set forth in Schedule 5 . Each Party shall comply with its obligations under the Safety Agreement in respect of Adverse Drug Experience reporting and other drug safety and pharmacovigilance matters in connection with the Development of the Product in the Development Indication in the Development Territory or the Product supplied for use therein, and shall provide the other Party with such information as the other Party may reasonably require and request with respect to such matters, all in accordance with the timelines and procedures set forth in the Safety Agreement. Notwithstanding the above, Dermira shall ensure that the CRO shall include in the provisions in each Clinical Site Agreement for the notification of any Serious Adverse Event (as defined in 21CFR 312.32) by any Institution or any Investigator to the CRO within twenty four (24) hours of such Institution or Investigator becoming aware of such Serious Adverse Event.
5.15 Materials. UCB shall own and retain all right, title and interest in and to all UCB Materials (including Product, Comparator Drugs and Placebo, equipment, documentation) and UCB Information. Dermira shall (i) use the UCB Materials and UCB Information only for the purposes described in the Development Plan in order to Develop the Product in the Development Indication in the Development Territory, (ii) restrict access to and use of the UCB Materials and UCB Information to those of its employees and Third Party subcontractors as are required to conduct a Phase 3 Study, or a Post-Approval Study in the Development of the Product in the Development Indication in the Development Territory, (iii) take all actions reasonably necessary to preserve, protect and maintain the UCB Materials and the UCB Information in accordance with accepted industry standards; and (iv) deliver the UCB Materials and the UCB Information in its possession to UCB or its designee on the termination of this Agreement, or as otherwise requested or directed by UCB. For purposes of this Section 5.15, UCB shall include any Affiliate of UCB.
5.16 [*] Dermira will notify the JDC in the event it becomes aware of any facts or circumstances related to or managed by [*] which may have delayed , or may delay , in a material respect [*] in relation to the Development of the Product in the Development Indication in the Development Territory. If Dermira should so notify the JDC of any such facts or circumstances, the JDC shall promptly meet to discuss the situation and use good faith efforts to agree upon and promptly [*] a mutually acceptable [*] to address them. If the JDC reasonably determines that the Development of the Development Indication would [*] then Dermira will request UCB to [*] Without prejudice to any other rights and remedies available under this Agreement or at law, if [*] provided for in this [*] such [*] shall be
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addressed, at UCBs option, at the level of the JDC or the JSC, but such failure shall not be deemed to be a breach of this Agreement.
5.17 If , following the receipt by UCB of the request for [*] under Section 5.16, UCB should notify Dermira in writing that [*] the Parties, through the JDC, shall promptly arrange to [*] as soon as possible , provided that the Parties, acting through the JDC, have agreed [*] until such time as [*] and has requested the JDC to [*] such [*]. Pursuant to Section 5.16 and 5.17, t he Parties will work through the JDC to determine the best course of action for the Development of the Development Indication. If the JDC determines the Parties should [*] the Parties will work together as expeditiously as possible to [*]. Notwithstanding the foregoing, Dermira shall remain responsible for [*] associated with [*] and has provided such [*] pursuant to Sections 5.16 and 5.17 , to the extent provided for in such mutually-agreed, JDC-Approved Development Budget, and [*] to be provided to Dermira by UCB. For the avoidance of doubt, and provided that Dermira has [*] in undertaking such [*] up to the date of grant of Regulatory Approval for the Product in the Development Indication, shall not (i) preclude Dermira from undertaking the Dermira Commercial Activities and Medical Affairs activities for which Dermira is responsible in accordance with the provisions of this Agreement nor (ii) [*] the Development of the Product in the Development Indication. [*] pursuant to this Section 5.17 shall be [*].
5.18 UCB shall have responsibility for all Development activities which are necessary to obtain and maintain Regulatory Approval for the Product in the Territory for the Promotion Indication and, for the avoidance of doubt, neither Dermira nor the JDC n or any other Committee shall have any jurisdiction or decision making power or any other authority over such Development activities.
6. INFORMATION TRANSFER AND TECHNICAL ASSISTANCE
6.1 In order for Dermira to commence the planning and implementation of the Development of the Product in the Development Territory in the Development Indication, including, without limitation, the conduct of any Phase 3 Study, or any Post-Approval Study in the Development Indication, UCB shall provide such Regulatory Documentation and other data and records in electronic form or, where electronic copies are not available, in paper form (or such other media as may be agreed
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between the Parties) which are necessary, or in UCBs reasonable discretion, useful for Dermira to have access to in order to carry out its obligations under this Agreement.
6.2 The provision of the information referred to in Section 6.1 shall , to the extent not already provide to Dermira by UCB prior to the Effective Date, occur within [*] Business Days of the Effective Date.
6.3 For the avoidance of doubt, all materials and information transferred by UCB to Dermira pursuant to this Section 6 shall remain the Confidential Information of UCB and shall be subject to the provisions of Section 17, and nothing in this Section 6 shall be construed or interpreted as being an obligation on UCB to provide Dermira with any materials, information or documentation relating to the Product other than those that are necessary, or in UCBs reasonable discretion, useful for Dermira to exercise its rights or carry out its obligations pursuant to this Agreement or as otherwise set forth in the Safety Agreement.
7. COMMERCIALISATION
7.1 Except for the activities to be conducted by Dermira under the Pre-Launch Medical Affiairs Plan as set forth in Section 9.3, Dermira shall have no right to undertake Dermira Commercial Activities for the Product in the Promotion Indication in any country within the Territory unless and until UCB has been granted Regulatory Approval to Commercialise the Product in the Development Indication, unless such Dermira Commercial Activities are identified in the Commercialisation Plan as to be conducted prior to such Regulatory Approval. Notwithstanding anything to the contrary in this Agreement, Dermira shall have no diligence obligations with respect to the Promotion Indication but shall have those rights with respect to the Promotion Indication as set forth in this Agreement.
7.2 Subject to the restriction on the Dermira Commercial Activities for the Product in the Promotion Indication and Development Indication in the Promotion Territory referred to in this Agreement, each Party will use Commercially Reasonable Efforts to conduct assigned Marketing and Corporate Functions and activities assigned to it under the Commercialisation Plan and to Commercialise the Product in the Promotion Territory for the Promotion Indication and the Development Indication, through the coordination of the JCT and under the oversight of the JCC and the JSC. All other aspects of the Commercialisation of the Product in the Territory are outside of the scope of this Agreement and shall remain under the responsibility and control of UCB .
7.3 It is the Parties intent for Dermira to be the Party primarily responsible for the Dermira Commercial A ctivities in connection within the Promotion Indication and the Development Indication and solely to Dermatologists in the Promotion Territory , subject to the JCC approving all activities and UCB approving all Promotional Materials developed by Dermira. In addition, Dermira shall have the right to perform the Medical Affairs activities under the approved Medical Affairs Plan or otherwise permitted under Section 9 . All other aspects of the Commercialisation of the Product in
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the Territory, including the Commercial Functions, shall remain under the sole responsibility and control of UCB, except for activities delegated to Dermira under the Commercialisation Plan and/or Medical Affairs Plan (including the right to engage Third Party contractors in connection with such activities in accordance with Section 3.4).
7.4 Commercialisation Plan and Information Transfer
(a) At a time determined by the JCT, UCBs representatives on the JCT shall provide Dermira with all information reasonably necessary or, in UCBs reasonable discretion, useful for Dermira to prepare an initial draft of the Commercialisation Plan that is consistent with UCBs overall strategy for the Commercialisation of the Product in the Promotion Territory, including information about UCBs resources and activities in support of the Dermira Commercial Activities and the Branding Strategy. Using such information, Dermira shall prepare such draft Commercialisation Plan and JCC approved amendments thereto in order to tailor the commercial strategy, messaging, field support and promotional plan to optimize the commercial opportunity for the Product among Dermatologists in a manner that is consistent with UCBs overall strategy for Commercialisation of the Product. Dermira shall include in such plan the activities to be conducted by Dermira and the Commercialisation support that Dermira requests from UCB, UCB Hub Services and any other proposed commercial support, together with a proposed budget for all such requested support for review by UCB. To the extent UCB agrees to provide such requested support, Dermira will include the activities to be conducted by UCB as part of such Commercialisation Plan, along with a proposed budget for all such activities (the UCB Support Budget ) for approval by the JCC. To the extent that UCB declines to provide such requested support, Dermira shall have the right, following JCC approval to conduct such support activities and such activities shall be deemed delegated to Dermira by UCB under this Agreement, except to the extent such activities are otherwise expressly prohibited under this Agreement.
(b) The JCT shall review and modify as needed drafts of the Commercialisation Plan and any amendment thereof prepared by Dermira, and shall submit such plan for review by the JCC and recommendation by the JCC for the JSCs approval, provided that UCBs representatives on the JCT and JCC shall ensure and confirm that all such plans are consistent with UCBs overall strategy for the Commercialisation of the Product in the Promotion Territory prior to submitting such plans for the JSCs approval. The JCT shall revise such drafts based on any comments provided by the JCC or JSC, subject to Dermiras final decision making authority under Section 4.11(b) .
(c) On an ongoing basis during the Term, the JCT will coordinate the activities of the Parties under the Commercialisation Plan and communication between the Parties to ensure each Party remains aware of relevant information pertaining to the other Party s activities under the Commercialisation Plan.
7.5 Each Party shall provide written reports to the JCT, for review and submission to the JCC, every Calendar Quarter describing the activities undertaken by such Party in the preceding Calendar Quarter in relation to the Commercialisation of the Product in the Promotion Indication and the Development Indication, in the Promotion Territory.
7.6 From the Commencement Date and throughout the Term, Dermira, whether acting directly or through its Affiliates, shall use Commercially Reasonable Efforts to undertake the Dermira Commercial Activities for the Product under the Cimzia® Trademark in the Promotion Territory for (i) the Promotion Indication and (ii) the Development Indication, in each case (i) and (ii) through undertaking the Dermira Commercial Activities for the Product solely to Dermatologists and to no other Healthcare Professionals, and in accordance with each JCC approved Commercialisation Plan (including the applicable Local Dermira Commercial Plan) and the Branding Strategy.
7.7 Except as provided in Section 9, Dermira shall be solely responsible for all costs and expenses incurred by it in connection with the conduct of all Dermira Commercial Activities and Medical Affairs activities undertaken by it pursuant to and in accordance with this Agreement . In addition, as provided in the definition of Gross Margin, UCB shall have the right to deduct from the Royalty Bearing Sales any and all out-of-pocket costs incurred by UCB (including any payments made by UCB to its Third Party contractors and consultants) in connection with its Medical Affairs activities and any market access activities (in each case to the extent any such activities result in any incremental, additional costs to UCB as compared with UCBs commercialisation activities not directed to the Development Indication and/or Promotion Indication in the Promotion Territory) assigned to UCB by the JCC, to the extent incurred by UCB on behalf of Dermira in accordance with the Medical Affairs Plan, and the UCB Hub Services in accordance with the Local Dermira Commercial Plan, in each case [*] (the UCB Commercialisation Cost Deductions ).
7.8 Dermira shall, at its election, on a Sales Year-by-Sales Year basis and in any given Sales Year, either
(a) undertake not less than [*] Details in the Development Indication in the United States of America during the F irst Sales Year and thereafter [*] Details in each Subsequent Sales Year until the Expiry Date (with the number of required Details for the last Subsequent Sales Year being prorated as at the Expiry Date ); or
(b) structure the Incentive Compensation so that: (i) for the [*], the percentage of the total achieved Incentive Compensation that is attributable to the sales of the Product to Dermatologists for at least [*] Dermira Sales Representatives in the United States is not less than [*] percent ( [*] %); and (ii) thereafter until [*], the percentatge of the total achieved Incentive Compensation that is attributable to the sales of the Product in the United States
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to Dermatologists for at least [*] Dermira Sales Representatives is not less than [*] percent ( [*] %).
7.9 At any time, Dermira shall have the right to propose to the JCC to adjust the minimum requirements for the number of Details under Section 7.8(a), and/or the number of Dermira Sales Representatives whose Incentive Compensation would be subject to the requirement under Section 7.8(b), and JCC shall not unreasonably withhold its approval for such adjustment to the extent such proposed adjustment reflects the then-current market condition.
7.10 If, in the Development Indication, Dermira does not undertake any Dermira Commercial A ctivities for which it is responsible in relation to Launch the Product in the Development Indication in Canada within [*] of the date of grant of Regulatory Approval for the Product in Canada UCB shall have the right, but not the obligation, to terminate the right for Dermira to undertake the Dermira Commercial Activities in relation to the Product in the Development Indication in Canada, and, if UCB should exercise such right of termination, Dermiras right to undertake Dermira Commercial Activities for the Product in the Development Indication in Canada shall terminate and the rights and licences granted to Dermira pursuant to this Agreement shall terminate in relation to the Dermira Commercial Activities for the Product in the Development Indication in Canada .
7.11 In accordance with Section 7.4, Dermira shall prepare as part of the Commercialisation Plan for the JCTs review and JCCs recommendation for JSC approval, each Local Dermira Commercial Plan for each Calendar Year including the budget thereof, provided that Dermira shall have the final decision making authority for each such Local Dermira Commercial Plan as set forth in and in accordance with Section 4.11. Each Local Dermira Commercial Plan shall include: (i) strategies for marketing and undertaking of the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication, including identification of targeted and agreed Dermatologists for such activities; (ii) market research activities; (iii) reimbursement field support activities; (iv) procedures for UCBs provision of sales analytics, subject to Section 7.20; (v) anticipated marketing and sales efforts for undertaking Dermira Commercial Activities for the relevant Calendar Year, including any pre-Launch activities and any field support activities directed to Dermatologists, including training and reimbursement support in accordance with the provisions of Section 13 ; (vi) Dermiras estimates of annual market and sales forecasts; and (vii) advertising, public relations and other programs relating to Dermira Commercial Activities and Sampling (if applicable). Each Local Dermira Commercial Plan shall be designed to optimize the commercial potential of the Product in the Promotion Territory in the Promotion Indication and the Development Indication. Each Local Dermira Commercial Plan for each subsequent Calendar Year shall be prepared and submitted to the JCC for approval at least [*] Calendar Months prior to end of the then current Calendar Year or at such other times as may be agreed by the JCC.
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7.12 UCB shall be solely responsible for the gross and/or net pricing and market access strategy for the Commercialisation of the Product in the Territory in the Promotion Indication and the Development Indication, subject to Dermiras right to be informed, to be consulted at least once every [*] Calendar [*], and to provide comments as the same relates to such activities within the Promotion Territory. UCB shall be responsible for all terms and conditions of sale for the Product in the Promotion Territory in the Promotion Indication and the Development Indication including without limitation all negotiations and other interactions with Third Party purchasers and payors (including government purchasers) and/or with Regulatory Authorities with respect to obtaining or maintaining Pricing and Reimbursement Approvals. Notwithstanding the foregoing, UCB shall provide Dermira with an opportunity to discuss and comment on market access activities to the extent that such activities relate to Dermiras interests in relation to the Dermira Commercial Activities. At the beginning of each Calendar Year, UCB shall provide Dermira with an updated gross-to-net percentage forecast for each of the Calendar Quarters within such Calendar Year.
7.13 Following grant of Regulatory Approval for the Product in the Development Indication in the Promotion Territory, and, as applicable, Pricing and Reimbursement Approval:
(a) Dermira will, whether acting directly or through its Affiliates, undertake the Launch activities for the Product in each country in the Promotion Territory in accordance with the Launch Plan and the Dermira Commercial Activities for the Product under the Cimzia® Trademark s in the Development Indication in the Promotion Territory through the undertaking of Dermira Commercial Activities for the Product to Dermatologists only; and
(b) UCB, whether acting directly or through its Affiliates, shall have the right but not the obligation to Commercialise the Product under the Cimzia® Trademark s in the Development Indication (i) in the Promotion Territory through the Commercialisation of the Product to all Healthcare Professionals but excluding Dermatologists and (ii) in the Reserved Territory through the Commercialisation of the Product to all Healthcare Professionals including Dermatologists.
7.14 In connection with Dermiras preparation of the Commercialisation Plan under Section 7.4, UCB shall prepare and provide Dermira with its branding strategy to govern use of the Cimzia® Trademark s and trade dress, as well as the OXO GOOD GRIPS Trademarks, in connection with the Commercialisation of the Product in the Promotion Indication, and, if applicable, the Development Indication, in the Promotion Territory (the Branding Strategy ), subject to Dermiras right to be informed, be consulted and provide comments. UCB shall remain responsible for and control the overall Branding Strategy and any amendments for the Product, with each Party being responsible for the proper implementation and compliance therewith when performing its obligations in respect to Commercialisation of the Product hereunder. UCB shall be responsible for enforcing and protecting the branding of the Product in the Promotion Territory in accordance with the UCB approved Branding Strategy, which shall include, without
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limitation responsibility and control over the registration, maintenance, enforcement and defense of the Cimzia® Trademark s in the Promotion Territory. This shall include UCB having responsibility for the registration and the maintenance of the INN and Cimzia® Trademark s throughout the Territory consistent with the Branding Strategy. The Cimzia® Trademark s and trade dress used in connection with the Development and Commercialisation of the Product in the Territory shall be owned by UCB (or its designated Affiliates). At Dermiras request from time to time, the Parties shall discuss opportunities to present the Dermira name and logo to Dermatologists in the Promotion Territory.
7.15 UCB or its designated Affiliate shall be responsible for and shall carry out all sales and distribution activities in accordance with the Commercialisation Plan, including but not limited to all pricing and rebating activities, related to the Product in each country within the Promotion Territory. Such responsibilities shall include undertaking and performing the receiving and processing of orders, pick, pack and ship operations, order delivery, invoicing and collection activities, inventory control and any other sales or distribution activities. If Dermira or its Affiliate receives orders for the Product within the Promotion Territory or the Reserved Territory directly from Dermatologists, it shall transmit said orders to UCB within [*] Business Days of receipt. UCB shall be responsible for all pricing, Pricing and Reimbursement Approvals, discounting, market access, invoicing and booking of sales.
7.16 The supplies of Samples of the Product intended for use in the Promotion Territory will be allocated among the countries within the Promotion Territory in accordance with the then current Commercialisation Plan. For clarity, the supply of Samples allocated for the United States market in the Commercialisation Plan shall be consistent and in accordance with the then current UCB, Inc. sample policy and procedures. If there is any shortfall in the supplies of Samples, UCB shall determine the allocation of available supplies of Samples. In considering the allocation of supplies of Samples within each country within the Promotion Territory, UCB will take into account Dermiras Detailing activities under each approved Local Dermira Commercial Plan. The Samples will be used and distributed strictly in accordance with the then applicable, approved Local Dermira Commercial Plan and shall be stored and distributed in full compliance with all Applicable Law, including the requirements of the U.S. Prescription Drug Marketing Act ( PDMA ). Dermira (and its local Affiliates) will maintain appropriate Sample accountability procedures and policies, will generate and maintain all records required by the PDMA and/or other Applicable Law, and shall allow representatives of UCB a reasonable opportunity to inspect such records for the Samples on request. With respect to the United States of America, UCB shall be responsible for the timely filing with the FDA of any necessary reports it is obligated to file in connection with the PDMA, and Dermira undertakes to UCB to assist UCB in such timely filing. At Dermiras request, the Parties shall cooperate in good faith to add the Dermira name and logo to the packaging for all Samples supplied on behalf of Dermira, subject to UCBs approval as to (i) the design and placement of Dermiras name and logo on such packaging and (ii) regulatory compliance.
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7.17 Dermira and its Affiliates shall only use UCB-approved Promotional Materials that are created in accordance with the terms of this Section 7.17, and shall only conduct Dermira Commercial A ctivities for the Product in the Promotion Indication and the Development Indication that are ascribed to it in the approved Commercialisation Plan (including each applicable Local Dermira Commercial Plan) and this Section 7. Dermira shall: (a) have the right to prepare all local Promotional Materials intended for use with respect to the Product in the Development Indication in each country within the Promotion Territory; and (b) shall have the right to either prepare new Promotional Materials directed to the Promotion Indication and/or the Development Indication or use existing UCB Promotional Materials for use with respect to the Product in the Promotion Indication and the Development Indication in each country within the Promotion Territory; provided that in each case Dermira shall have the right to include the Dermira name and logo on the Promotional Materials used in connection with the Dermira Commercial Activities and in connection with its conduct of Medical Affairs Activities, provided that UCB shall have the right to review and approve any such inclusion in Promotion Materials intended for use in Dermiras Medical Affairs Activities to ensure compliance with Section 13. All Promotional Materials shall be (i) consistent with each approved Local Dermira Commercial Plan, (ii) in compliance with Applicable Law, and (iii) approved by UCB prior to use or distribution. UCBs representatives on the JCT shall ensure that such Promotional Materials are consistent with UCBs Branding Strategy and meet UCBs compliance standards for such purpose. Once any Promotional Materials developed and produced by Dermira have been approved by UCB, Dermira may not alter or otherwise amend any such Promotional Materials without first obtaining the written approval of UCB to do so, provided that UCB shall not unreasonably withhold or delay such approval if such alteration or amendment is required by Applicable Law or any applicable Regulatory Authority. For clarity, except for the Dermira name and logo, UCB shall own all copyrights and other rights throughout the Territory with respect to all Promotional Materials for the Product. Until such time as all Promotional Materials have been reviewed and approved by UCB, Dermira shall maintain in confidence and shall not use, disclose or distribute to any Third Party any Promotional Materials.
7.18 Dermira agrees that it will comply in all material respects with UCB policies relating to the performance of Dermira Commercial Activities and Medical Affairs activities for the Product to the extent such policies are provided to Dermira in writing in advance. UCB shall be responsible for , according to the then current UCB country-specific Review Committee policies and procedures (a) reviewing all Promotional Materials intended for use by Dermira in connection with the Dermira Commercial Activities for the Product to Dermatologists only in the Promotion Indication and, if applicable, the Development Indication in the Promotion Territory, and (b) all Medical Affairs materials intended for use by Dermira in connection with the Dermira Medical Affairs a ctivities for the Product to Dermatologists in the Development Indication and the Promotion Indication , as applicable , in the Promotion Territory, and (c) ensuring that all such Promotional Materials and Medical Affairs materials comply with Applicable Law and with the Regulatory Approval for the Product in the Promotion Indication and
the Development Indication, including making any necessary submissions to and/or obtaining review or approval by Regulatory Authorities in countries within the Promotion Territory of any Promotional Materials intended for use in connection with any Commercialisation activities for the Product. UCB will provide Dermira with written documentation of approvals for Promotional Materials for use by Dermira to undertake Dermira Commercial Activities to Dermatologists of the Product in the Promotion Indication and, if applicable, the Development Indication. Dermira acknowledges and agrees that it will rely upon such approvals by UCB as the basis for authorization to use such Promotional Materials in the Promotion Territory in relation to the Promotion Indication and, if applicable, the Development Indication to undertake Dermira Commercial Activities for the Product to Dermatologists and in accordance with Applicable Law. UCB shall provide Dermira with the form of the approved Promotional Materials for the Product, and Dermira shall have the right to duplicate but not modify such Promotional Materials for use in connection with the Dermira Commercial Activities for the Product in the Promotion Indication and the Development Indication in the Promotion Territory.
7.19 Dermira shall, and shall cause its Affiliates to, perform its field-based obligations in respect of the Dermira Commercial Activities for the Product in the Territory using Sales Representatives who are qualified pharmaceutical sales representatives who have been properly trained, and shall ensure that all such Sales Representatives conduct those activities in accordance with the terms of Section 13. Dermira shall establish, and throughout the Term maintain and implement, appropriate policies and procedures to ensure such compliance that are at least as stringent as those referred to in Section 13. Through the JDT, the Parties shall coordinate to make available to Dermira those of UCBs training materials and services necessary for Dermira to train its sales representatives with respect to the Dermira Commercial Activities for the Product by Dermira in the Promotion Territory.
7.20 UCB Hub Services. Through the coordination of the JCT, UCB shall support the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication by Dermira by providing the UCB HUB Services in a manner agreed to be sufficient to support Dermira Commercial Activities, all in accordance with each Local Dermira Commercial Plan. Dermira shall not otherwise be permitted to offer or provide any analogous services for the Product, whether itself or through use of any Third Party contractors, without the prior written consent of UCB . Through the JCT, UCB shall provide Dermira with sales analytics data, data from the UCB Hub Services, patient assistance program and distribution network for the Product in the Development Indication and the Promotion Indication in the Promotion Territory, at a level of detail, amount and frequency agreed and comparable to that UCB provides for other indications for the Product, for Dermiras use in connection with the Dermira Commercial Activities, subject to the agreement between the Parties as to any costs incurred by UCB to obtain sales analytics data under such Local Dermira Commercial Plan that would otherwise not be obtained by UCB, and the agreement by Dermira to reimburse any such costs .
8. MANUFACTURE AND SUPPLY
8.1 UCB shall be responsible for and control all aspects of the Manufacture, distribution and supply of Product (including Samples) relating to the Commercialisation of the Product in the Territory.
8.2 UCB shall have operational responsibility for the planning and oversight of the supply chain for Product, including periodic risk assessments and risk mitigation planning.
8.3 UCB shall use Commercially Reasonably Efforts to supply Product requirements for the Development of the Product in the Development Territory and the Commercialisation of the Product in the Promotion Territory. In the event UCB experiences any supply shortfall with respect to the Product, UCB shall immediately notify Dermira and the Parties shall discuss in good faith measures to be taken to correct such shortfall.
8.4 Subject to Sections 8.1 and 8.2, the JCC will review and approve the forecasts and production plans prepared by UCB for supplies of the Product for use in Development of the Product by Dermira in the Development Indication in the Development Territory and the anticipated Commercial requirements of Product for distribution and sale in the Promotion Territory attributable to Dermatologists based on Dermiras anticipated Dermira Commercial Activities. Dermira shall prepare a rolling [*] month forecast of Dermiras requirements for Product attributable to Dermatologists in the Promotion Territory, such rolling forecast to be provided each Calendar Quarter to the JCT, commencing [*] Calendar Months following the date of Launch, and UCB shall be responsible for ensuring that the agreed production plans for Product will be consistent with such forecasts. UCB shall be responsible for updating and/or revising the forecasts and production plans prepared by UCB from time to time during the Term, and shall consult with Dermira in connection therewith, and UCB shall reasonably consider and appropriately address comments provided by Dermira with respect to such forecasts and production plans.
9. MEDICAL AFFAIRS, PHARMACOVIGILANCE AND OTHER REGULATORY MATTERS
9.1 During the Term, each Party whether acting directly or through its Affiliates, shall, at its own cost and expense except as set forth in Section 7.7 with respect to the UCB Commercialisation Costs Deductions, undertake and perform Medical Affairs activities for the Product in the Promotion Territory for the Promotion Indication and, if applicable, the Development Indication in accordance with the Medical Affairs Plan and the provisions of this Section 9. All Medical Affairs activities for the Product for the Promotion Indication and, if applicable, the Development Indication in the Promotion Territory shall be coordinated through the J D T and subject to the oversight of the J D C. For the avoidance of doubt, UCB shall be responsible for all Medical Affairs activities for the Product in the Promotion Indication and, if applicable, the
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Development Indication, in each case in the Reserved Territory, which activities shall not be subject to the oversight of the JSC or the terms of this Agreement.
9.2 In accordance with Section 7.4, as part of the Commercialisation Plan Dermira shall prepare for the JDTs review and JDCs recommendation for JSC approval, a Medical Affairs Plan for each Calendar Year including budget thereof, provided that Dermira shall have the final decision making authority for its level of activities under and the budget under such Medical Affairs Plans as set forth in and in accordance with Section 4.11(b). Each Medical Affairs Plan shall be consistent with UCB Medical Affairs and MSL activity related SOPs and include: (i) Medical Affairs programs, including professional symposia and other educational activities, grants, and guidelines and budgets for the support of investigator initiated interventional or observational (prospective and retrospective) clinical or health economics/outcomes studies and (ii) any post-approval Clinical Studies (other than Post-Approval Studies) in the Promotion Indication and Development Indication. The Medical Affairs Plan will include a n agreed budget for the current Calendar Year, as well as outline of the projected plan and an estimated budget for the next Calendar Year ( Medical Affairs Budget ). The initial Medical Affairs Plan for the Product in the Development Indication and the Promotion Indication will be prepared by Dermira and submitted to the JDC for recommendation for approval by the JSC at least [*] before the anticipated first Launch of the Product in the Development Indication in the Promotion Territory. The Medical Affairs Plan for the Product for each subsequent Calendar Year shall be prepared by Dermira and submitted to the JSC for endorsement at least [*] prior to commencement of activities agreed and contemplated thereunder.
9.3 The Parties acknowledge (i) UCB engages MSLs in relation to the Product and that Dermira may, during the term of this Agreement, want to engage its own MSLs and further that (ii) prior to any such engagement by Dermira and subject to agreement by the JCC, the Parties shall mutually agree the terms pursuant to which such engagement shall be made, having consideration for, amongst other things, co-ordination of the efforts and the scope, manner and involvement of each Parties MSLs. As such, from the Commencement Date and throughout the Term (even before the first Launch of the Product in the Development Indication) and subject to this Section 9.3 , Dermira shall have the right to conduct Medical Affairs activities (including engaging MSLs) for the Product in the Development Indication and in the Promotion Indication in the Promotion Territory. Prior to conducting any such activities, Dermira shall provide a plan describing such activities to the J D T for review and approval, including training and reimbursement support in accordance with the provisions of Section 13 (the Pre-Launch Medical Affairs Plan ). The J D T shall present such plan to the J D C for review and submission to the JSC for approval. Dermira shall conduct such activities in accordance with such Pre-Launch Medical Affairs Plan, and UCB shall reimburse Dermira, pursuant to Section 10.13, for portions of the external costs and expenses incurred by Dermira in connection with the activities under the Pre-Launch Medical
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Affairs Plan to the extent agreed by the Parties in such Pre-Launch Medical Affairs Plan
9.4 As soon as practicable after the Effective Date and in any event before the FDA Development Meeting, the Parties shall enter into the Safety Agreement governing the Parties respective responsibilities with respect to Adverse Drug Experiences, complaints and other safety-related matters relating to the Product. UCB shall designate a drug safety physician who shall be responsible for pharmacovigilance matters and UCB shall notify Dermira of the identity of the person so designated. Each Party will ensure it has in place and shall maintain during the Term such drug safety and pharmacovigilance systems, procedures, training programs and documentation in order adequately to comply with its drug safety and pharmacovigilance obligations under this Agreement, the Safety Agreement and Applicable Law. UCB shall own and maintain the global safety database with respect to the Product. Any Adverse Drug Experience known by a Party or its Affiliates or Third Party subcontractors must be reported to the other Party in writing in accordance with the timelines and procedures set forth in the Safety Agreement. Dermira shall cooperate with UCB to ensure the collection, reporting and follow-up of any safety data. UCB shall have the final decision on any drug safety or pharmacovigilance matters. Dermira shall not , and shall ensure that each of its Affiliates, agents or T hird Party subcontractors shall not, make any public statement or give any public opinion on drug safety or pharmacovigilance matters, whether orally or in writing, without first having received UCBs express written consent to do so, provided that UCB shall not withhold, delay or condition such consent in a manner that would result in Dermiras non-compliance with Applicable Law or the requirements of any Regulatory Authority or any other governmental authority .
9.5 Each Party shall maintain a record of all non-medical and medical Product-related complaints it receives with respect to the Product. Each Party shall promptly notify the other Party of any such complaint received by it in sufficient detail and in accordance with UCBs timeframes and procedures to ensure timely reporting by UCB. UCB shall investigate and respond to all such complaints with respect to the Product as soon as reasonably practicable and provide a copy of all such responses to Dermira. For clarity, to the extent that a Product-related complaint received by Dermira may also constitute an Adverse Drug Experience, Dermira shall comply with the obligations set out in Section 9.4 , or, if entered into by the Parties, the Safety Agreement, in reporting such information to UCB.
9.6 During the Term, UCB shall promptly consult with Dermira in good faith as to all decisions concerning any potential market recall, market withdrawal, correction, removal or seizure of a Product from the market in either country in the Promotion Territory in either the Promotion Indication or the Development Indication (each such event, a Recall ), including, but not limited to, determining whether or not to implement any such Recall, the timing and scope of such Recall, and the means of conducting such Recall. For the avoidance of doubt, UCB shall in its sole discretion determine whether any Recall should be implemented, and the timing and extent of any such Recall. Without limiting the foregoing, each Party shall keep the other Party
promptly and fully informed of any notification or other information, whether received directly or indirectly, which might affect the marketability, safety or effectiveness of the Product and/or which might result in a Recall. If UCB elects to conduct any Recall, it shall have sole discretion and control with respect to conducting such Recall provided that UCB shall immediately notify Dermira of any potential, anticipated or planned Recall, and Dermira shall cooperate and assist UCB in relation to the same. UCB shall bear all costs of Recall to the extent such Recall results from the non-conformity of the Product to the Product Warranty or from UCBs activities with respect to the Product outside the Development of the Product in the Development Indication or the Commercialisation of the Product by UCB in the Promotion Indication or the Development Indication. In all other cases, UCB shall have the right to deduct costs of Recall from the Gross Margin calculation to the extent such Recall results from the Development of the Product in the Development Indication, or the Dermira Commercial Activities for the Product in the Promotion Indication or the Development Indication.
10. FINANCIAL PROVISIONS
10.1 Development Costs Allocation.
(a) (i) Dermira shall bear its and (ii) UCB shall, in connection any activities assigned to it under the Development Plan (such activities shall be deemed subcontracted to it by Dermira), bear its, internal costs and expenses incurred in carrying out its obligations under the Development Plan or otherwise in connection with the Development of the Product in the Development Indication in the Development Territory, except as expressly set forth in the JDC-Approved Development Budget as to be reimbursed by a Party to the other Party.
(b) Except as expressly set forth in Sections 5.4(c)(C), 5.4(d) and 5.4(e), Dermira shall bear one hundred percent (100%) of the Development Costs incurred by: (i) Dermira, and/or (ii) by UCB to the extent any Development activity is subcontracted to it by Dermira and specified in the Development Plan as to be reimbursed by Dermira, in each case under the Development Plan for Development activities that are necessary for obtaining Regulatory Approval by the FDA, the EMA and Health Canada, up to a cap of [*] dollars ($ [*]) (the Cap ). The Development Costs which will be incurred in order to conduct any EMA-Specific Post-Approval Studies shall be borne solely by UCB and shall not count towards the Cap.
(c) The Parties shall share equally any and all Development Costs in excess of the Cap, to the extent incurred in accordance with the Development Plan. I f an amendment to the JDC-Approved Development Budget is made under Section 5.3(b) that increases the JDC-Approved Development Budget above the Cap , or if the Development Costs otherwise exceed the Cap, each such amendment shall be documented and the provisions of Section 10.3 shall apply.
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(d) If the JDC is unable to agree to the mechanism for such cost sharing, it shall refer such matter to the escalation procedure to Senior Executives as set out in Section 4.11, except that neither Party shall have final decision making authority on such matter, and if the Senior Executives of the Parties cannot agree on such mechanism, then the Parties shall share such excess Development Costs above the Cap equally through quarterly reimbursement as set forth in Section 10.13.
(e) Dermira shall be responsible for the payment of one hundred percent (100%) of the Development Costs. If UCB has an obligation to share such costs incurred in excess of the Cap in accordance with Sections 10.1(c) or 10.1(d), then Dermira shall have the right to receive the amount of such Development Costs owed by UCB: (i) for any such Development Costs incurred prior to the achievement of Milestone Number 4, through the milestone adjustment mechanism set forth in Section 10.3; and (ii) for any such Development Costs incurred on or after the achievement of Milestone Number 4, through the quarterly reimbursement mechanism set forth in Section 10.13.
(f) Unless otherwise set forth herein or as otherwise agreed by the Parties in writing, each Party shall bear the costs and expenses incurred by or on account of such Party in connection with the Development of the Product in the Development Indication to the extent such costs and expenses are not included in the Development Costs .
10.2 Development Milestones. UCB shall pay to Dermira the following one-time development milestone payments within [*] Business Days from the date of receipt of a valid invoice provided by Dermira and relating to the successful achievement of the corresponding milestone event. UCB shall notify Dermira promptly after, and in any event within [*] Business Days after, each of (1) receipt of Pricing and Reimbursement Approval and (2) first commercial sale, in each case (1) and (2) in each of the countries listed below.
Milestone
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Milestone Event |
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Milestone Payment in US$ |
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1 |
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[*] for the Development Indication in accordance with the Development Plan |
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[*] |
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2 |
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[*] for the Development Indication in accordance with the Development Plan |
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[*] |
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3 |
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[*] for the |
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[*] |
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Development Indication in accordance with the Development Plan |
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[*] |
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4 |
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[*] for the Development Indication or [*] months after the completion of the event described milestone 3, whichever is earlier. ( Milestone Number 4 ) |
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[*] |
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5 |
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Grant of a Regulatory Approval* for the Product in the Development Indication in each of the following countries: |
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[*] |
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5a |
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[*] |
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[*] |
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5b |
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[*] |
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[*] |
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5c |
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[*] |
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[*] |
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5d |
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[*] |
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[*] |
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5e |
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[*] |
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[*] |
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*including Pricing and Reimbursement Approvals for each such country in accordance with the criteria as follows:
[*]: either the date of European marketing authorization in case the indication extension would not be subject to [*] of Cimzia® by [*] or the successful conclusion of [*] in case the indication extension in the Development Indication would result in [*];
[*]: the earliest of (1) [*] by the [*] in the Development Indication; (2) [*] on use of Cimzia® in the Development Indication; and (3) addition of Cimzia® onto formularies of [*] percent ([*] %) of [*] groups or equivalent bodies in [*] at the [*];
[*]: publication in the [*] of the price and extension of reimbursement of Cimzia® in the Development Indication;
[*]: addition of Cimzia® in the Development Indication to the [*] percent ([*] %) of the [*] ;
[*]: addition of Cimzia® in the Development Indication to the [*] percent ([*] %) of the [*] .
For the avoidance of doubt, the milestone payment corresponding to each milestone event set out in the table in this Section 10.2 shall be payable only once, regardless of how many times the corresponding milestone event is achieved.
10.3 Milestone Amendment. If the Parties agree pursuant to Section 10.1(c) or 10.1(d) to amend the Development Milestone Number 4 payment in the table set out in Section
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10.2, then the Development Milestone Number 4 payment of [*] United States dollars (US$[*]) shall be increased by an amount equal to [*] of the amount by which the Development Costs have exceeded the Cap referred to in Section 10.1(b). Upon achievement of the milestone event for which the payment of Development Milestone Number 4 relates, the invoice submitted by Dermira shall reflect all amounts by which the Development Costs exceed the Cap. Any Development Costs incurred in excess of the Cap after achievement of the Development Milestone Number 4 will be [*] on a Calendar Quarterly basis pursuant to Section 10.13. In addition, if the Parties have agreed to a Milestone Number 4 amendment and the JDC determines that Development of the Product in the Development Indication will be terminated such that Development Milestone Number 4 is unlikely to be achieved, UCB shall pay the amount by which such milestone payment would have been increased under this Section 10.3 had such termination not occurred within [*] Business Days after such actual termination.
10.4 The Parties acknowledge, agree and accept that Development milestone number [*] in the table set out in Section 10.2 will not be paid by UCB to Dermira prior to [*], notwithstanding the date on which such Development milestone number [*] is achieved, but such milestone payment number [*], if so deferred pursuant to this Section 10.4, shall become immediately due on [*] and payable within [*] Business Days thereafter.
10.5 Royalties on Sales. In addition to the payments referred to in Section 10.2 , UCB shall make the following quarterly royalty payments to Dermira within [*] Business Days after the end of each Calendar Quarter during the Term, and shall provide Dermira with such information as needed for Dermira to meet its audit or financial reporting obligations in a timely manner. The amount of each such payment shall, subject to Section 10.6, be calculated as an amount equal to the applicable percentage of Gross Margin. UCB shall accompany each such payment with a statement setting forth the calculation for such payment, including the amount of Extended Unit Sales, WAC, deductions included in the definition of Net Sales, Royalty Bearing Sales and deductions from Royalty Bearing Sales included in the definition of Gross Margin. The applicable percentage of Gross Margin shall be determined as follows:
Royalty Bearing Sales in the Promotion Territory |
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% of Gross
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The portion of Annual Net Sales on or after the Trigger Date of up to US$ [*] in a given Calendar Year |
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[*] |
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The portion of Annual Net Sales on or after the Trigger Date in a given Calendar Year over US$[*] and up to US$ 150,000,000 |
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[*] |
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The portion of Annual Net Sales on or after the Trigger Date in a given Calendar Year of over US$ 150,000,000 |
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50 |
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10.6 Calculation of Payments due Dermira on Royalty Bearing Sales . The calculation of royalty payments referred to in Section 10.5 shall be made on a Calendar Quarter basis and shall be calculated as the applicable percentage (%) of the Gross Margin on Royalty Bearing Sales during such Calendar Quarter [*].
10.7 In addition to the payments referred to in Section 10.2 and Section 10.5, UCB shall pay to Dermira the following sales-based milestones within [*] Business Days of the first successful occurrence of the level of Annual Net Sales in a single Calendar Year:
Royalty Bearing Sales in the Promotion Territory in a given
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Milestone
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Annual Net Sales over US$ [*] |
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[*] |
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Annual Net Sales over US$ [*] |
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[*] |
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Annual Net Sales over US$ [*] |
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[*] |
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Annual Net Sales over US$ [*] |
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[*] |
|
For the avoidance of doubt, the milestone payment corresponding to each milestone event set out in the table in this Section 10.7 shall be payable only once, regardless of how many times the corresponding milestone event is achieved, and if more than one milestone payments are triggered within a single Calendar Year, each and every of such milestone payments shall become due at the end of such Calendar Year.
10.8 [*] The Parties have structured the terms of this Agreement to provide an economic return to Dermira from the sales of the Product attributable to Dermatologists in the Promotion Territory, and in the United States, from sales that [*] using data from the [*]. The Parties recognize that the [*] certain [*] sales of Product, for which Dermira may receive [*],
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but the payment terms of this Section 10 have been negotiated by the Parties to take such sales into consideration. If , due to market change s or the form and substance of [*] sales of Product using data from such report with substantially the same [*] the Parties shall make [*] for purposes of determining Extended Unit Sales as set forth in this Section 10.8. No inference shall be drawn that an adjustment shall be made under this Section 10.8 simply because data is presented, and no adjustment shall be effective until approved by the JCC or a resolution has been reached pursuant to Section 23.2.
(a) General. Either Party may at any time bring data to the J C C that [*] sales of Product in the United States with [*] and such Party may request an adjustment in the method used to calculate Extended Unit Sales (an Adjustment Request ). In such event, the Parties through the J C C shall in good faith review such data and seek to agree on [*] with the purpose of restoring the economic terms of the Agreement to reflect the Parties agreement as narrated in the preamble to this Section 10.8 . With the sole exception of the adjustment provided for in Section 10.8(c), any such change in the method of measurement and calculation shall have prospective effect only and shall not change the amounts due with respect to previous reporting periods. If the Parties cannot reach agreement within [*] Business D ays following the date on which a Party submits an Adjustment Request to the JCC , then either Party may [*] under Section [*] to either confirm the validity of the existing method of measuring and calculating Extended Unit Sales or to establish a new method of measurement and calculation.
(b) Information Sharing. UCB shall provide Dermira with [*] and any other information that UCB has used in its determination of Extended Unit Sales and to calculate the [*] subject to Dermiras reimbursing UCB for any incremental payment made to any [*] provider to the extent such payment obligation directly results from UCBs sharing such information with Dermira and subject to Dermiras entering into any written agreement to comply with such Third Partys requirement prior to receiving such information from UCB. UCB shall provide such information it has used in its determination of Extended Unit Sales no less often than [*] per Calendar [*] and such information it has used to calculate the [*] no less often than [*] per Calendar [*].
(c) Retail Channel Accounting. The Parties agree that the [*] of the retail sales of Cimzia® in the United States [*] the comparison of [*] which shows this calculation. By [*] in each Calendar [*] UCB shall prepare and deliver to Dermira an updated
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analysis of the [*] for such recently-ended calendar [*]. If the [*] then as part of the [*] adjustment for the most recently ended Calendar [*] the number of Extended Unit Sales for such Calendar [*] otherwise calculated from [*] shall be multiplied by the [*].
(d) [*] The Parties acknowledge that [*] Accordingly, in the course of negotiating and agreeing the terms of this Agreement, the Parties agreed to exclude [*] from the calculation of Extended Unit Sales. The Parties have agreed that t his is based on the understanding that on average approximately [*] percent ( [*] % ) of Cimzia® retail prescriptions [*]. If the percentage of Cimzia® prescriptions in the [*] exceeds on average [*] percent ( [*] %) of the total of such Cimzia® prescriptions, then the Parties shall make an appropriate adjustment to the calculation of Extended Unit Sales to increase the number of Extended Unit Sales to reflect such change . The Parties acknowledge that the data to support such assertion shall be provided by Dermira, and may be from sources other than [*] but in such event, such data shall be obtained from [*] and in either case such data shall be procured by Dermira at its own expense. For example, if Dermira demonstrates that the percentage of Cimzia prescriptions in [*] represents [*] % of the total, then the number of Extended Unit Sales derived from [*] would be increased by [*]
(e) [*] The Parties acknowledge that as of the Effective Date, there are [*] sales of Cimzia® to dermatology practices . So long as the [*] of Cimzia® sales to dermatology practices in the United States remains [*] percent ( [*] % ) of the unit volume attributable to dermatology practices in the [*] (as adjusted pursuant to Section 10.8(c) and 10.8(d) , if applicable), the Parties agree to make no adjustment [*]. If the unit volume of [*] Cimzia® sales to dermatology practices in the United States exceeds [*] percent ( [*] % ) of the unit volume attributable to Dermatologists in the [*], the Parties shall in future reporting periods increase the number of Extended Unit Sales by a percentage which is designed to capture [*]. For example, if the data demonstrate that in a particular C alendar [*] sales of Cimzi a ® to dermatology practices was [*] percent ( [*] % ) of the total, then the number of Extended Unit Sales derived from the [*] in the following C alendar [*] would be increased by [*].
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(f) [*] If [*] ceases to be available, the Parties shall meet to identify and discuss the use of [*] and shall agree on a new method of calculating Extended Unit Sales using [*]. Pending agreement on such new method of calculation, UCB shall continue to make payments to Dermira under this Agreement based on the assum ption that [*] immediately prior to the [*]. If the Parties cannot reach agreement within [*] Business D ays following written notice by either Party to the other that the [*] then either Party may [*] to establish a new method of calculation.
(g) [*] To determine sales attributable to Dermatologists [*] the Parties will agree on a mechanism for [*], to be conducted every [*], managed by the JCC and paid for equally by the Parties, to determine the percentage of total Product Net Sales [*] attributable to Dermatologists. For the first [*] Calendar Quarters commencing with the Calendar Quarter during which Launch of the Product occurs [*] the Parties will agree , acting reasonably and in good faith, on a percentage and apply it for the purpose of determining Royalty-Bearing Sales [*]. Such percentage will be adjusted by [*] and the adjusted percentage will be applied to the calculation of future Royalty-Bearing Sales until any further adjustment based on [*]. If such data is not readily determinable in the form of Extended Unit Sales, the Parties will make reasonable assumptions using the available data to determine Royalty-Bearing Sales [*].
10.9 Gross Sales. During the Term, the following shall be used for the calculation of gross sales:
(a) Subject to Section 10.8, the [*] will be used as the source to calculate the number of extended units attributable to Dermatologists in a given Calendar Year Extended Unit Sales ; and
(b) the Extended Unit Sales shall be multiplied by the [*] price for the Product the mechanism set out sequentially in Sections 10.9(a) and 10.9(b) together providing the calculation of gross sales ( Gross Sales ).
10.10 Prior to February 14 in any given Calendar Year, UCB shall make one (1) reconciliation to account for any adjustments to the [*] made throughout the previous Calendar Year. Any difference in the amount actually paid by UCB during the previous Calendar Year and the amount determined following such reconciliation shall be added to or deducted from the royalty payment on Royalty Bearing Sales to be made by UCB during the second Calendar Quarter for the first Calendar Quarter .
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10.11 For the avoidance of doubt, other than as set out in this Section 10 or otherwise in Section 21, Dermira will not receive, and UCB shall be under no obligation to make, any payment of any kind based on any and all Net Sales of the Product (i) prior to the Effective Date, (ii) during the Term in the Promotion Territory and which are not Royalty Bearing Sales or (iii) during the Term in the Reserved Territory (collectively, the Excluded Sales ). The Excluded Sales shall be expressly excluded from any calculation of Annual Net Sales for any given time period.
10.12 Branded Prescription Drug Tax. At the same time as the reconciliation referred to in Section 10.10 is undertaken, UCB will provide Dermira with a statement of the amount (in United States dollars) of tax which UCB is liable to pay under the Branded Prescription Drug Fee Program as promulgated by Section 9008 of the Affordable Care Act reasonably attributable to the Royalty Bearing Sales based on the [*] for the period during which such liability to tax has accrued, which amount shall be deducted from Royalty Bearing Sales in the current Calendar Quarter to arrive at Gross Margin for such Calendar Quarter.
10.13 Reimbursement of Costs. To the extent a Party is entitled to be reimbursed by the other Party for any costs and expenses under this Agreement, including Cost of Goods, Development Costs, costs and expenses relating to Commercialisation activities, and the like, such Party shall, within [*] Business Days after the end of each Calendar Quarter, prepare an invoice itemising such costs and expenses incurred by or on account of such Party during such Calendar Quarter and submit such invoice to the other Party. Each Party shall pay the undisputed portion of the invoice received from the other Party within [*] Business Days after the date of receipt of such invoice.
10.14 Payment. UCB shall make payments under this Agreement when such payments become due and payable in immediately available funds to the bank account designated by Dermira from time to time, in accordance with Dermiras instructions. In addition, Dermira shall have the right to request that royalty payments made for Royalty Bearing Sales made in the United States of America and Canada be made to separate accounts designated by Dermira, and UCB shall promptly implement such request after receipt of the relevant information from Dermira.
10.15 Interest. Any uncontested amount required to be paid by UCB to Dermira pursuant to this Section 10 which is not paid on the date due shall bear interest calculated and accrued at [*] from the date such payment was due. Such interest shall be accrued daily.
10.16 Exchange Rate. All amounts payable and calculations under this Agreement shall be in United States dollars. Where amounts payable or calculated under this Agreement are in a currency other than United States dollars, conversion of such amounts to United States dollars will be performed in a manner consistent with the average applicable exchange rate for converting such currency to United States dollars as published by the Wall Street Journal for the duration of the Calendar Quarter. If the Wall Street Journal
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does not publish a particular exchange rate for such period, the Parties shall use the rate published by the Financial Times during such period.
10.17 New Third Party Licences. If, during the Term and following the Effective Date, UCB enters into an agreement with a Third Party in order to obtain a license under an y Intellectual Property Right s of one or more Third Parties that is, in UCBs reasonable judgement, necessary or desirable for UCB or its Affiliates to research, Develop and/or Commercialise the Product (a New Third Party Licence ), then, upon entering into any such New Third Party Licence and for the remainder of the period during which UCB is obliged to make payments to Dermira based on Gross Margin, the [*] actually paid by UCB pursuant to the terms of any such New Third Party Licence to the extent attributable to the Development of the Product for the Development Indication in the Development Territory, or the Commercialisation of the Product in the Development Indication or Promotion Indication in the Promotion Territory, shall, for the purposes of the calculation of Cost of Goods, be Third Party Royalties. For clarity, any such New Third Party Licence shall be included in the UCB Background IP.
11. REPORTING
11.1 During the Term and for a period of three (3) Calendar Y ears thereafter, Dermira shall maintain, and shall cause its Affiliates to maintain, detailed and accurate records of all costs and expenses relating to the Development of the Product the Development Indication in the Development Territory in accordance with United States of America generally accepted accounting principles, consistently applied and all Dermira Commercial A ctivities and Medical Affairs activities , and shall also record the number of Details made by Sales Representatives of Dermira to Dermatologists in the Promotion Territory relating to the Promotion Indication and the Development Indication.
11.2 During the Term and for a period of three (3) Calendar Y ears thereafter, UCB shall maintain, and shall cause its Affiliates to maintain, detailed and accurate records in order for Dermira to verify any payments owed to or by Dermira under this Agreement, in accordance with IFRS consistently applied, and all [*] relied on for the basis of determining [*] and/or [*] hereunder.
11.3 Any and all payments made by UCB under or with respect to this Agreement to or for the account of Dermira shall [*] for or on account of any present or future [*] directly or indirectly [*] by or for the account of any [*] to the extent [*] required by Applicable Law. If any tax is required by Applicable Law to be [*] the full amount [*]. Dermira agrees to cooperate with UCB to enable UCB to [*].
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If UCB is so required to [*] UCB shall (i) promptly notify Dermira of such requirement, (ii) [*], and (iii) promptly forward to Dermira [*]. As of the Effective Date, the Parties acknowledge the [*].
11.4 Each Party shall have the right to examine and audit the other Partys relevant books and records to verify the accuracy of any reports and and/or payments prepared and/or delivered by such Party pursuant to this Agreement, including any information related to calculations under Section 10.8 and any calculation of the Cost of Goods for the Product or Comparator Drugs and Placebo supplied by UCB (each and Audit ). Any such Audit shall be on at least [*] Business D ays prior written notice. A Partys rights to perform an Audit under this Section 11.4 shall be limited to not more than [*] in any Calendar Year and shall be limited to the pertinent books and records for any Calendar Year ending not more than [*] Calendar M onths before the date of the request. In the absence of fraud, negligence, wilful misconduct or manifest error, any Audit shall be performed at the auditing Partys sole expense by an independent certified public accounting firm of internationally recognized standing that is selected by the auditing Party and reasonably acceptable to the audited Party. The accounting firm may be required to enter into a reasonable and customary confidentiality agreement with the audited Party to protect the confidentiality of its books and records. The audited Party shall make the relevant books and records reasonably available during normal business hours for examination by the accounting firm. Except as may otherwise be agreed, the accounting firm shall be provided access to such books and records at the audited Partys and/or its Affiliates facilities where such books and records are normally kept. Upon completion of the audit, the accounting firm shall provide both Parties a written report disclosing whether or not the relevant reports and/or payments are correct, and the specific details concerning any discrepancies. The accounting firm shall not provide the auditing Party with any additional information or access to the audited Partys confidential information .
11.5 If an Audit pursuant to Section 11.4 correctly concludes as a result of such Audit that any additional amounts were due and payable to Dermira, such additional amounts shall be paid to Dermira within [*] Business Days of the date that the audited Party receives a statement therefor, plus all interest accrued on such late payment in accordance with Section 10.15. In the event that the total amount of any underpayments
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by one Party to the other Party for the audited period exceeds [*] of the aggregate total amount that was properly due and payable to relevant Party for such period, then the Party responsible for such underpayment shall also reimburse the other Party for the documented, reasonable out-of-pocket expenses incurred in conducting the Audit, except to the extent that such underpayment was due to any fraud, negligence, wilful misconduct or manifest error on the part of the Party subject to such Audit or any inaccurate or incomplete information provided to the Party undertaking such Audit .
12. EXCLUSIVITY AND NON-COMPETE
12.1 During the Term, Dermira undertakes to UCB that it shall not, and it shall ensure that each of its Affiliates shall not, whether alone or in collaboration with a Third Party:
(a) undertake activities or actions outside those contemplated by this Agreement with respect to the clinical development or Commercialisation of a pharmaceutical product which is a Competing Product; or
(b) file an application with any Regulatory Authority in the Territory seeking Regulatory Approval for any pharmaceutical product which is a Competing Product ; or
(c) promote a Competing Product to any Dermatologist in the Promotion Territory.
12.2 During the Term, UCB undertakes to Dermira that it shall not, and it shall ensure that each of its Affiliates shall not, whether alone or in collaboration with a Third Party:
(a) undertake activities or actions outside those contemplated by this Agreement with respect to the clinical development or Commercialisation of a pharmaceutical product which is a Competing Product for the Promotion Indication or the Development Indication in the Promotion Territory; or
(b) file an application with any Regulatory Authority in the Promotion Territory seeking Regulatory Approval for any pharmaceutical product which is a Competing Product for the Promotion Indication or the Development Indication in the Promotion Territory; or
(c) promote a Competing Product to any Dermatologist in the Promotion Territory.
12.3 If, during the Term, Dermira acquires or is acquired by, a Third Party that is clinically Developing or Commercialising a Competing Product, Dermira shall, notwithstanding the terms of Section 12.1, not be deemed to be in breach of Section 12.1 provided that Dermira either (i) within [*] of such acquisition, ceases clinically Developing or Commercialising such Competing Product; or (ii) Divests such Competing Product within [*] of the close of such transaction . If neither of the events referred to in sub-Sections (i) and (ii) above occur, UCB may terminate this A greement in accordance with Section 20.6(c); provided that if UCB does not exercise such termination right, Dermira will not be deemed to be in breach of Section 12.1.
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12.4 If, during the Term, UCB acquires or is acquired by, a Third Party on that is clinically Developing or Commercialising a Competing Product (a) targeting Dermatologists in the Promotion Indication or (b) in the Development Indication, in each case (a) and (b) in the Promotion Territory , either alone or with a Third Party, UCB shall, notwithstanding the terms of Section 12.2, not be deemed to be in breach of Section 12.2 provided that UCB either (i) within [*] of such acquisition, ceases clinically Developing or Commercialising such Competing Product (A) targeting Dermatologists in the Promotion Indication, or (B) in the Development Indication in the Promotion Territory; or (ii) Divest s such Competing Product within [*] of the close of such transaction . If neither of the events referred to in sub-Sections (i) and (ii) above occur, Dermira may terminate this A greement in accordance with Section; provided that if Dermira does not exercise such termination right, UCB will not be deemed to be in breach of Section 12.2.
12.5 For the purposes of this Section 12 and for those purposes only, references to Product in the definitions Commercialise, Detail, Development, Dermira Commercial Activities , Regulatory Approval and Regulatory Authority shall be deemed to include Competing Product and be read as Product and/or Competing Product.
12.6 During the Term, UCB agrees that it shall not, and shall ensure that each of its Affiliates shall not, grant to any Third Party any rights or licenses to engage in any activities with respect to the Product that are inconsistent with the licences granted by UCB to Dermira pursuant to Section 14.
12.7 During the Term, if UCB intends to Develop or Commercialise a Combination Product for use in the Promotion Indication or the Development Indication in the Promotion Territory, either alone or in collaboration with a Third Party, UCB shall not promote such Combination Product to any Dermatologist in the Promotion Territory, without first entering into good faith negotiations with Dermira to undertake activities similar to the Dermira Commercial Activities and Medical Affairs activities on behalf of UCB in relation to such Combination Product. If the Parties are unable to reach agreement on the terms and conditions pursuant to which Dermira will conduct such activities similar to the Dermira Commercial Activities and Medical Affairs activities for such Combination Product to Dermatologists in the Promotion Territory within [*] Business Days of the commencement of such negotiations, UCB shall have no further obligation to Dermira in relation to such Combination Product and shall be able to undertake any and all promotion or other commercialisation activities in the Promotion Territory, provided that the Royalty Bearing Sales for such Combination Product shall be deemed included in the Royalty Bearing Sales for the Product for the purpose of calculating UCBs obligation to make royalty payments to Dermira under Section 10.5, taking into account the adjustment for the calculation of Net Sales for such Combination Product as set forth in the Net Sales definition.
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13. COMPLIANCE
13.1 During the Term of this Agreement, each Party will perform its obligations and exercise its rights under this Agreement in accordance with Applicable Law and shall maintain in full force and effect all necessary licenses, permits and other authorizations required by Applicable Law throughout the Territory in order to comply with the provisions of this Agreement, including this Section 13.
13.2 In addition, each Party shall be responsible for ensuring that all activities for which it is responsible under this Agreement are performed in accordance with all Applicable Law. In furtherance of the foregoing, Dermira shall m aintain in place appropriate policies, standard operating procedures and business practices for the Development, Medical Affairs and Dermira Commercial Activities conducted under this Agreement, which are consistent with UCBs pertinent policies and procedures provided to Dermira in writing in advance and UCBs Code of Conduct and Principles of Ethical Business Practices attached to this Agreement as Schedule 18 and Dermira shall use Commercially Reasonable Efforts to ensure its, and ensure its Affiliates and its Third Party subcontractors, compliance with all Applicable Law in connection with the Development of the Product in the Development Indication in the Development Territory and the conduct of the Dermira Commercial Activities and Medical Affairs activities for the Product in the Promotion Indication and the Development Indication in the Promotion Territory. Neither Party, nor any of its Affiliates, shall undertake or shall be required to undertake any activity pursuant to or in connection with this Agreement which it believes, in good faith, may violate any Applicable Law.
13.3 Neither Party shall, and each Party shall ensure that its Affiliates and Third Party subcontractors shall not, make any medical or promotional claims for the Product or do any act or thing that is or are outside the scope of or inconsistent with: (i) the relevant Regulatory Approval then in effect for the Product in the Promotion Indication or the Development Indication, including an absolute prohibition on any Off-Label Promotion; or (ii) in the case of Dermira, the approved and applicable Local Dermira Commercial Plans and UCB approved Promotional Materials. When distributing information related to the Product or its use (including information contained in scientific articles, reference publications and publicly available healthcare economic information) or in conducting any of their respective Commercialisation a ctivities related to the Product, each Party shall, and shall ensure that its Affiliates and its Third Party subcontractors shall, comply with all Applicable Law, and act in good faith consistent with current industry standards in the relevant country within the Development Territory and the Promotion Territory. The foregoing shall include, without limitation, (i) with respect to the United States of America, compliance with the FFDCA, the PDMA, the Federal Health Care Programs Anti-Kickback Law, 42 U.S.C. 1320a-7b(b), the Pharmaceutical Research and Manufacturers of America Code of Pharmaceutical Marketing Practices, the American Medical Association Guidelines on Gifts to Physicians from Industry; the IFPMA Code of Pharmaceutical Marketing Practices; the Public Health Service Act, as amended; the Health Insurance Portability and Accountability Act of 1996, the FDA Guidance for Industry-Supported Scientific
and Educational Activities; and all federal, state and local fraud and abuse, consumer protection and false claims statutes and regulations, including the Medicare and State Health Programs Anti-Fraud and Abuse Amendments of the Social Security Act and the Safe Harbor Regulations found at 42 C.F.R. §1001.952 et seq, the Office of the Inspector Generals Compliance Guidance Program, and the standards set forth by the Accreditation Council for Continuing Medical Education relating to educating the medical community in the United States with respect to the Product including in each case as they may be amended, and (ii) in all other countries in the Development Territory or the Promotion Territory, compliance with all similar Applicable Law applicable to the Product or such activities as are in effect throughout the Territory from time to time. Each Party shall, and shall ensure that its Affiliates and Third Party subcontractors shall, in all material respects, conform its practices and procedures relating to educating the medical community throughout the Development Territory and the Promotion Territory with respect to the Product to the Accreditation Council for Continuing Medical Education Standards for Commercial Support of Continuing Medical Education and any applicable regulations or guidelines established by Regulatory Authorities throughout the Development Territory and the Promotion Territory, including as they may be amended. Dermira shall promptly notify UCB of any correspondence or other reports submitted to or received by it, its Affiliates or any of its Third Party subcontractors from the FDA, Health Canada, EMA or other Regulatory Authorities in the Promotion Territory or the Development Territory with respect to the Product, which notice shall include a copy of such correspondence. Without limitation of the foregoing, each Party shall, and shall ensure that its Affiliates and Third Party subcontractors shall, establish and maintain a reasonable compliance program that, at a minimum meets the standards set forth in the Compliance Program Guideline for Pharmaceutical Manufacturers issued by the Office of Inspector General of the Department of Health and Human Services.
13.4 Dermira acknowledges that UCBs US Affiliate, UCB, Inc., entered into a Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services, with an effective date of June 20, 2011 and a duration of five (5) Calendar Years, ending June 19, 2016 (the CIA ). The Parties shall cooperate with each other to ensure that Dermiras personnel who are preforming Medical Affairs activities, Dermira Commercial Activities and Promotional and Product Services Related Functions pursuant to this Agreement shall complete, on an annual basis, CIA-related training as determined and directed by UCB on behalf of UCB, Inc., which trainings will be conducted at Dermiras facilities and/or via computer-based training and at UCBs sole expense, and shall comply with the reasonable requests of UCB to provide records related to such training and to perform policy reviews (including, in particular, a review of UCBs Code of Conduct) and provide such other information necessary for UCB to comply with its obligations relating to the CIA as outlined in this Section 13.4, at UCBs sole expense. To the extent that it has not done so prior to the Effective Date, Dermira undertakes that it shall, prior to permitting any employee of Dermira to undertake any such activities,
ensure that each of its employees undertakes and successfully completes all necessary trainings referred to in this Section 13.
13.5 Each Party shall, and shall ensure that its Affiliates and Third Party subcontractors shall, comply as applicable with the U.S. Foreign Corrupt Practices Act, the United Kingdom Anti-Bribery Act, and any other analogous Applicable Law existing in any other country or region in the Territory, in connection with its performance under this Agreement. Each Party shall not, and shall ensure that its Affiliates and Third Party subcontractors shall not, make any payment, either directly or indirectly, of money or other assets to any government or political party officials, officials of international public organizations, candidates for public office, or representatives of other businesses or persons acting on behalf of any of the foregoing, that would constitute a violation of any Applicable Law.
13.6 Each Party shall ensure that none of its, nor any of its Affiliates or its Third Party subcontractors (including any and all Investigators engaged by such Party), employees has been debarred or is subject to debarment and neither such Party nor any of its employees, nor its Affiliates, its Third Party subcontractors nor any of their respective employees shall use in any capacity, in connection with the performance of any obligations of such Party under this Agreement, any Person who has been debarred pursuant to Section 306 of the FFDCA, as amended, or who is the subject of a conviction described in such section. A Party will inform the other Party in writing immediately if it or any Person or any such Persons employees who is or are performing any obligations of Dermira under the Agreement is or are debarred or is or are the subject of a conviction described in Section 306, or if any action, suit, claim, investigation or legal or administrative proceeding is pending or, to Dermiras knowledge, is threatened, relating to the debarment or conviction of such Party or any Person or any such Persons employees performing any obligations of such Party under this Agreement.
14. INTELLECTUAL PROPERTY RIGHTS AND GRANT OF RIGHTS
14.1 UCB Controls the UCB Background IP and the Cimzia® Trademark s .
14.2 UCB hereby grants Dermira during the Term:
(a) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP, the Cimzia® Trademarks and (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to conduct the activities assigned to Dermira under the Pre-Launch Medical Affairs Plan;
(b) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP, the Cimzia® Trademarks and (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to conduct Dermira Commercial Activities and Medical Affairs activities assigned to
Dermira for the Product in the Promotion Indication to Dermatologists and as provided herein in the Promotion Territory, subject, however, to UCB receiving Regulatory Approval for the Product in the Development Indication in the Promotion Territory; and
(c) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP,the Cimzia® Trademarks and (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to Develop the Product in the Development Indication in the Development Territory pursuant to this Agreement, provided that UCB reserves the right to conduct Development activities in the Development Indication in the Development Territory to the extent such activities are subcontracted to UCB by Dermira under the Development Plan, and
(d) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP, the Cimzia® Trademarks and (ii) (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to conduct Dermira Commercial Activities and Medical Affairs activities assigned to Dermira for the Product in the Development Indication to Dermatologists as provided herein in the Promotion Territory, subject, however, to UCB receiving Regulatory Approval for the Product in the Development Indication in the Promotion Territory.
UCB shall retain all other rights, title and interests in and to the UCB Background IP, its interest in the Arising IP, Regulatory Approvals, Drug Approvals and the Cimzia® Trademark s .
14.3 For the avoidance of doubt, Dermira shall have no right to grant any sublicences of any of the rights or licences granted to it by UCB pursuant to Section 14.2 to any Third Party, except that Dermira shall have the right to grant sublicences under the rights granted pursuant to Section 14.2(c) to the extent required to engage Third Party subcontractors (including consultants) in accordance with Section 3.4. Dermira shall have the right to grant sublicenses of such rights and licences under Section 14.2 to its Affiliates, and to exercise its rights and conduct its obligations under and in accordance with this Agreement through its Affiliates, in each case without the prior written consent of UCB.
14.4 Dermira hereby grants UCB during the Term:
(a) an exclusive licence under the Dermira Background IP and its interest in the Arising IP to Commercialise the Product in the Promotion Territory in the Promotion Indication through Commercialisation of the Product to Healthcare Professionals (excluding Dermatologists);
(b) an exclusive licence under the Dermira Background IP and its interest in the Arising IP to Commercialise the Product in the Reserved Territory in the
Promotion Indication to all Healthcare Professionals (including Dermatologists);
(c) if Regulatory Approval for the Product in the Development Indication is successfully obtained in the Promotion Territory, an exclusive licence of the Dermira Background IP and its interest in Arising IP to (i) Commercialise the Product in the Development Indication in the Promotion Territory through the Commercialisation of the Product to Healthcare Professionals (excluding Dermatologists) and (ii) to Commercialise the Product in the Reserved Territory in the Development Indication through the Promotion of the Product to all Healthcare Professionals (including Dermatologists).
14.5 For clarity, UCB shall have the right to grant sublicences through multiple tiers of the licences granted to it by Dermira pursuant to Section 14.4 solely in connection with the Development and Commercialisation of the Product, provided, however, that UCB shall not grant any sublicense to any Third Party in a manner that would permit such Third Party to conduct activities during the Term that, if conducted by UCB, would constitute a violation of UCBs exclusivity obligations under Section 12.
14.6 Other than as set out in this Agreement, no other rights or licences are or shall be created or granted pursuant to this Agreement by implication, estoppel or otherwise.
14.7 All right, title and interest in and to all Arising IP pertaining to the composition of matter or formulation of, or to any method of making or using Cimzia® or any Product, including with regard to dosage, administration, combination (but excluding any component in a Combination Product that is proprietary to Dermira, if any), patient (sub)group, biomarkers, (the Product Arising IP ) shall vest in UCB and Dermira acknowledges and agrees that all Product Arising IP and all Intellectual Property Rights subsisting in the same, shall be or if necessary shall be deemed to be the sole and exclusive property of UCB.
14.8 All Arising IP other than Product Arising IP shall be owned (a) by UCB if generated solely by UCB and/or its Affiliates or Third Party contractors (the UCB Arising IP ), (b) by Dermira if generated by solely by Dermira and/or its Affiliates or Third Party contractors (the Dermira Arising IP ), and (c) jointly by the Parties if generated by the Parties jointly (the Joint Arising IP ). Each Party shall own an undivided half interest in such Joint Arising IP, with the right to practice and exploit and license such Joint Arising IP without the duty of accounting or seeking consent from the other Party, provided, however, that neither Party shall grant any license under the Arising IP to any Third Party: (i) to conduct clinical development of and/or commercialise any product that is a Competing Product; or (ii) to conduct clinical development of and/or commercialise any other product in the Development Indication.
14.9 Dermira shall, and shall cause its Affiliates to, require that any and all of its employees, agents, consultants and Third Party subcontractors performing any activities under or contemplated by this Agreement are obligated in writing to assign all of his/her rights,
title and interests in and to any Product Arising IP conceived or generated by Dermira and/or its Affiliates or Third Party contractors to Dermira so that Dermira may in turn assign such rights to UCB under Section 14.10 (the Dermira Product Arising IP ).
14.10 Dermira hereby assigns to UCB (or as UCB shall direct, UCBs designee) upon creation, by way of a present assignment its entire right, title and interest in and to all Dermira Product Arising IP, which may be so assigned, free from any security interests, Third Party interests or other encumbrances. Where a present assignment of future rights is not legally permissible or competent, Dermira hereby undertakes to assign such Dermira Product Arising IP to UCB within a reasonable period following creation and in any event upon the written request of UCB.
14.11 Dermira shall at UCBs request and cost (and notwithstanding the termination or expiry of this Agreement) execute all such documents and perform all such acts, including without limitation executing declarations, assignments and other documents, as UCB or its designee may reasonably require to give effect to Section 14.10 and to vest the legal title in all Dermira Product Arising IP in UCB (or its Affiliates or designee) and to enable UCB (or its Affiliates or designee) to apply for, obtain and maintain in force in the sole name of UCB (or as it shall direct) all Patent Rights and other Intellectual Property Rights or statutory protection of any nature whatsoever in respect of such Arising IP in all countries of the Territory.
14.12 UCB shall, at its sole cost and expense, be solely responsible for the Prosecution and defence of all Patent Rights within the UCB Background IP and any UCB Arising IP and Product Arising IP.
14.13 For any Patent Right within the Joint Arising IP the Parties shall consult and co-operate in good faith in order to determine and execute the most efficient strategy for the Prosecution of such Patent Right (including which Party shall be responsible for implementing such strategy; and how the costs of the Prosecution are to be borne).
14.14 Dermira agrees and undertakes to UCB that during the Term it shall not take steps (directly or indirectly) to challenge the validity of any of the Patent Rights licensed to Dermira under this Agreement within the UCB Background IP, the Product Arising IP, the UCB Arising IP or any Patent Right that is subject to a Third Party Licence or any counterpart of any of the foregoing anywhere in the world, nor assist or support (directly or indirectly) any Third Party in such a challenge, in each case other than as a defense against any infringement action instituted by UCB or its licensee, either in an infringement proceeding or in the form of declaratory judgment. The Parties acknowledge that the restriction in this Section 14.14 is reasonable and proportionate for the proper protection of the Patent Rights relating to the Product and proprietary and Confidential Information of UCB which Dermira shall receive and use pursuant to this Agreement. Dermira further acknowledges that damages may not be an adequate remedy for a breach of this undertaking and UCB shall be entitled to seek interim and/or equitable relief in respect of any breach or anticipated breach of this undertaking.
14.15 If, in relation to the UCB Background IP or the Product Arising IP, either Party (i) becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights or (ii) if any such Patent Rights is or are challenged or in any other way involved in any action or proceeding, in each case (i) and (ii) anywhere in the Territory, the relevant Party shall promptly notify the other Party. UCB shall have the right (but not the obligation) in its sole discretion to undertake and control, at its own expense, any actions, claims or proceedings related to the suspected or threatened infringement of the applicable Patent Rights in the Territory. Dermira shall reasonably cooperate with UCB and, at UCBs request and cost and expense, reasonably assist UCB in any such actions, claims or proceedings in the Development Territory or the Promotion Territory, including if and to the extent necessary by joining or lending its name to such actions or proceedings, executing appropriate legal documents, and securing the cooperation of inventors or other witnesses for the benefit of UCB. If any such action, claim or proceeding is successful and a monetary award is received by UCB from such action, claim or proceeding, such award shall be applied in the first instance to reimburse the Parties for their documented costs and expenses actually incurred in connection with such action, claim or proceeding, and the remainder of such award attributable to the infringement activities in the Promotion Territory in the Promotion Indication or the Development Indication shall be deemed to be Royalty Bearing Sales for which UCB will make the appropriate proportional royalty payment to Dermira. If an award for damages and costs is made against UCB as a result of such action, claim or proceeding, to the extent that such damages and costs are attributable to the alleged infringement activities in the Promotion Territory in the Promotion Indication or the Development Indication, UCB shall be entitled to deduct an appropriate proportion of such damages and costs from Royalty Bearing Sales.
14.16 If, in relation to the Dermira Background IP, either Party (i) becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights or (ii) if any such Patent Rights is or are challenged or in any other way involved in any action or proceeding, in each case (i) and (ii) anywhere in the Territory, the relevant Party shall promptly notify the other Party. Dermira shall have the sole right (but not the obligation) in its sole discretion and at its sole expense to undertake and control, at its own expense, any actions, claims or proceedings related to the suspected or threatened infringement of the applicable Patent Rights in the Territory.
14.17 If, in relation to the Joint Arising IP, either Party becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights in the Territory, the relevant Party shall promptly notify the other Party. Where such suspected or threatened infringement involves a product of a Third Party that competes with or would be reasonably considered to have the potential to compete with any UCB product sold or marketed in the Territory or in clinical development in the Territory, UCB shall have the sole right but not the obligation to take action, file suit and enforce the Joint Arising IP against such infringing Third Party at its own expense, in its own name and under its own direction and control (with Dermira having the right to participate in any such action and be represented at its own expense, if it so desires, by counsel of its own
selection therein to the extent legally permissible), save that UCB shall consult with Dermira with regard to any material aspect of defence or enforcement, shall have due regard to any representations made by Dermira and shall not settle any infringement action, proceeding or dispute without Dermiras prior written consent (such consent not to be unreasonably withheld or delayed). Dermira shall in any case assist, and join in any action to the extent necessary if so requested (such as in order to ensure standing), subject to being indemnified and secured in a reasonable manner as to any costs, damages, expenses or other liability and shall have the right to be separately represented by its own counsel at its own expense. If any damages or other sums are received by UCB (whether awarded by a court or paid by the infringing third party in an out-of-court settlement) as a result of any action UCB may take, suit it may file or other enforcement activities, Dermira shall be entitled to reimbursement from such damages or other sums an amount equal to its actual and documented out-of-pocket costs and expenses which it has reasonably incurred in assisting or joining such action, suit or enforcement activities. Any remaining sum shall be retained by UCB.
14.18 If, in relation to the Joint Arising IP, either Party becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights in the Territory, the relevant Party shall promptly notify the other Party. Where such suspected or threatened infringement involves a product of a Third Party that competes with or would be reasonably considered to have the potential to compete with any Dermira product sold or marketed in the Territory or in clinical development in the Territory, Dermira shall have the sole right but not the obligation to take action, file suit and enforce the Joint Arising IP against such infringing Third Party at its own expense, in its own name and under its own direction and control (with UCB having the right to participate in any such action and be represented at its own expense, if it so desires, by counsel of its own selection therein to the extent legally permissible), save that Dermira shall consult with UCB with regard to any material aspect of defence or enforcement, shall have due regard to any representations made by UCB and shall not settle any infringement action, proceeding or dispute without UCBs prior written consent (such consent not to be unreasonably withheld or delayed). UCB shall in any case assist, and join in any action to the extent necessary if so requested (such as in order to ensure standing), subject to being indemnified and secured in a reasonable manner as to any costs, damages, expenses or other liability and shall have the right to be separately represented by its own counsel at its own expense. If any damages or other sums are received by Dermira (whether awarded by a court or paid by the infringing third party in an out-of-court settlement) as a result of any action Dermira may take, suit it may file or other enforcement activities, UCB shall be entitled to reimbursement from such damages or other sums an amount equal to its out-of-pocket costs and expenses which it has incurred in assisting or joining such action, suit or enforcement activities. Any remaining sum shall be retained by Dermira.
14.19 For any other suspected or threatened infringement of Joint Arising IP the Parties shall consult in order to determine the most efficient strategy (including which Party shall be responsible for implementing such strategy; how the costs of any action are to be borne;
and how any damages or other sums received as a result of any action are to be distributed), and the Parties shall co-operate to implement said strategy.
14.20 If, in relation to the Cimzia® Trademark s , either Party (i) becomes aware of a suspected or threatened infringement by a Third Party of any of the Cimzia® Trademark s or (ii) if the Cimzia® Trademark s is challenged or in any other way involved in any action or proceeding, in each case (i) and (ii) anywhere in the Territory, the relevant Party shall promptly notify the other Party. UCB shall have the right (but not the obligation) in its sole discretion to undertake and control, at its own expense, any actions, claims or proceedings related to the suspected or threatened infringement of the Cimzia® Trademark s in the Territory. Dermira shall reasonably cooperate with UCB and, at UCBs request and cost and expense, reasonably assist UCB in any such actions, claims or proceedings, including if and to the extent necessary by joining or lending its name to such actions or proceedings, executing appropriate legal documents, and securing the cooperation of inventors or other witnesses for the benefit of UCB.
14.21 UCB shall in its sole discretion seek to obtain patent term extensions (including without limitation, any p a ediatric exclusivity extensions as may be available) or supplemental protection certificates or their equivalents in the Promotion Territory with respect to Patent Rights covering the Product or its use in the Promotion Indication and/or, if applicable, the Development Indication in Promotion Territory.
14.22 Each Party shall promptly notify and provide the other Party with copies of any allegations of patent invalidity, unenforceability or non-infringement of any Patent Rights in the UCB Background IP, or the Product Arising IP, in each case which relates to any Third Partys clinical development, application for approval, distribution or sale of a biosimilar version of the Product. Any such notification (and provision of copies) required under this Section 14.22 shall be provided to the other Party within [*] Business Days after the relevant Party receives notice or otherwise becomes aware of such certification, application or procedure. UCB shall be primarily responsible for, and have control over, the conduct of any actions undertaken to enforce or defend, as applicable, the relevant Patent Rights.
14.23 Each Party shall promptly notify and provide the other Party with copies of any allegations from any Third Party that an activity pursuant to this Agreement would infringe an Intellectual Property Right of such Third Party. UCB shall have the first right to defend both Parties against such allegation using counsel of its choice and reasonably acceptable to Dermira, at UCBs sole cost and expense. Dermira shall have the right, but not the obligation, to engage its own counsel at its sole cost and expense, but UCBs counsel shall at all times be the lead counsel in, and shall control, the defense of such allegation. UCB shall not, without Dermiras written consent, settle any such allegations in a manner that would admit fault on behalf of Dermira, result in any prohibition or injunction of Dermiras activities hereunder, or impose any payment obligation (either as damages or payments based on future development and/or commercailisation activities) on Dermira as compared to UCB in a manner that is disproportionate to the Parties financial interests under this Agreement.
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15. WARRANTIES
15.1 Each Party represents and warrants to the other Party as of the Effective Date:
(a) it has all requisite corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement;
(b) the execution of this Agreement and the performance by such Party of its obligations hereunder have been duly authorized by all necessary corporate action on the part of such Party;
(c) this Agreement is legally binding and enforceable on such Party in accordance with its terms, subject to all limitations of bankruptcy, liquidation, reorganization, insolvency, moratorium and enforcement of creditors rights generally, general principles of equity (including without limitation those relating to specific performance, injunctions and other remedies);
(d) the performance of this Agreement by it does not create a breach or default under any other agreement to which it is a party;
(e) all necessary consents, approvals, and authorizations of all government authorities, Regulatory Authorities and other persons required to be obtained by such Party as of the Effective Date in connection with the execution, delivery and performance of this Agreement have been obtained;
(f) no broker, finder or similar agent has been employed by or on behalf of such Party and no Third Party with which such Party has had any dealings or communications of any kind is entitled to any brokerage commission, finders fee or any similar compensation, in connection with this Agreement;
(g) there are no pending or, to the best of such Partys knowledge, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the Effective Date against such Party which, either individually or together with any other, will have a material adverse effect on the ability of such Party to perform its obligations under this Agreement or any agreement or instrument contemplated hereby.
15.2 UCB represents and warrants to Dermira as at the Effective Date:
(a) UCB or its Affiliates owns all right, title and interest in the Patent Rights listed in Schedule 14 and has not granted to any Third Party a right which is still in force to Develop the Product in the Development Indication, or to undertake any Dermira Commercial Activities or Medical Affairs activities to be undertaken by Dermira for the Product in the Promotion Indication or Development Indication in the Promotion Territory;
(b) UCB has not granted to any Third Party any rights or licenses which are still in force under the Patent Rights listed in Schedule 14 or licensed under the Third Party Licenses, or under the Cimzia® Trademark s , or with respect to the Product and/or the UCB Background IP, that would conflict with the licenses
granted to Dermira under this Agreement or rights of Dermira under Section 12, or constitute a grant of present or future right to such Third Party to Develop the Product in the Development Indication in the Development Territory, or to conduct the Dermira Commercial Activities or Medical Affairs activities in the Promotion Territory;
(c) there is no judgment by a court of competent jurisdiction against UCB with respect to patent infringement of the Patent Rights licensed by UCB to Dermira pursuant to Section 14 or misappropiration of a trade secret relating to the Product that would affect the Development of the Product in the Current Presentation in the Development Indication in the Development Territory, or the Commercialisation of the Product in the Current Presentation in the Promotion Indication or the Development Indication in the Promotion Territory;
(d) without any regard to US 6,090,923, [*] there are no existing or threatened claims or litigation with respect to patent infringement or misappropriation of a trade secret that would affect the Development of the Product in the Current Presentation in the Development Indication in the Development Territory, or the Commercialisation of the Product in the Promotion Indication or the Development Indication in the Promotion Territory. For the avoidance of doubt, Dermira is aware of US 6,090,923 and has received a copy of the letter from Yeda Research and Development Co., Ltd. to UCB S.A. dated 23 February 2014 regarding said patent;
(e) without any regard to US 6,090,923 and [*] the Development of the Product in the Current Presentation in the Development Indication, and the sale and promotion of the Product in the Current Presentation in the Promotion Territory in the Development Indication and in the Promotion Indication, will not infringe an issued and unexpired Patent, which has not been held invalid or unenforceable, of any Third Party. For the avoidance of doubt, Dermira is aware of US 6,090,923 and has received a copy of the letter from Yeda Research and Development Co., Ltd. to UCB S.A. dated 23 February 2014 regarding said patent;
(f) [*], UCB has not failed to disclose or otherwise make available to Dermira any available information concerning the quality, toxicity, safety and/or efficacy of the Product in the Current Presentation which would materially impair the utility and/or safety of the Product;
(g) UCB (i) has not received notice of breach of any the Third Party Licenses;(ii) is not aware of any fact or circumstance that would prohibit the grant of sublicenses to Dermira under the Third Party Licenses as required for Dermira to perform its activities contemplated under this Agreement; and (iii) in each instance in which the license granted by UCB to Dermira under this Agreement constitutes a sublicense under any Third Party Licence, has complied and/or
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will comply with its obligations under such Third Party Licence in connection with the grant of such sublicence; and
(h) there is no Third Party claim or demand, litigation or proceeding which is pending or, to the knowledge of UCB, threatened, that challenges the validity, patentability or enforceability of any Patent Rights listed in Schedule 14 .
15.3 Dermira represents and warrants to UCB as at the Effective Date that:
(a) neither Dermira nor any of its Affiliates is Developing or Commercialising a Competing Product in the Promotion Territory or the Development Territory;
(b) Dermira has not granted to any Third Party any rights or licenses which are still in force under the Dermira Background IP that would conflict with the licenses granted to UCB under this Agreement or rights of UCB under Section 12, or constitute a grant of present or future right to such Third Party inconsistent with such rights granted by Dermira to UCB; and
(c) there are no pending or threatened judicial, administrative or arbitral actions, claims, suits or proceedings which, either individually or together with any other, would adversely affect Dermiras ability to perform its Development or Commercialisation obligations or any other obligation of Dermira under this Agreement, or any agreement entered into pursuant to this Agreement ; and
(d) Dermira makes no representation or warranty that the Dermira Background IP is valid, or that any Patent Rights within the Dermira Background IP that are patent applications will result in granted Patent Rights.
15.4 For the sake of clarity, except as expressly set forth in Section 15.2, UCB makes no representation or warranty that:
(a) the Product is safe or efficacious;
(b) [*];
(c) the UCB Background IP is valid;
(d) any Patent Rights within the UCB Background IP that are patent applications will result in granted Patent Rights; or
(e) in relation to the Product, any particular Product Labeling for the Product in the Promotion Indication or any Product Labeling or Regulatory Approval in Development Indication will be obtained anywhere in the Territory.
15.5 DISCLAIMER: EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF SAFETY, EFFICACY, MERCHANTABILITY, SATISFACTORY QUALITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY MATTER ARISING IN CONNECTION WITH THIS
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AGREEMENT (INCLUDING ANY ACTIVITIES CONDUCTED HEREUNDER), OR THE PRODUCT.
16. INDEMNITY, LIABILITY AND INSURANCE
16.1 Dermira shall indemnify, defend and hold harmless UCB, its Affiliates, and its and their respective officers, directors, employees, and agents, and their respective successors, heirs and assigns and representatives (individually and collectively, the UCB Indemnified Parties ), from and against any and all Third Party liability, loss, damage, claim, injury, costs or expenses (including reasonable attorneys fees and expenses of litigation) of any kind (collectively, Damages ) that are directly or indirectly caused by, or arise out of or in connection with: (i) any breach of any covenant, obligation or undertaking of Dermira under this Agreement, (ii) any breach or inaccuracy of any representation or warranty made by Dermira hereunder, (ii) any breach or violation of any Applicable Law by any of Dermira, its Affiliates, or Third Party subcontractors, or any of their respective officers, directors, Sales Representatives, employees, or agents (collectively, Dermira Responsible Parties ) in connection with the activities contemplated by this Agreement or any negligent act or omission of any Dermira Responsible Party (iv) any unauthorized use by any Dermira Responsible Parties of any Product Literature, or (v) any Medical Affairs activity, Dermira Commercial Activity or other application of the Product by any Dermira Responsible Party of the Product in each case that constitutes Off-Label Promotion. The foregoing notwithstanding, Dermira shall under no circumstances be obligated to indemnify any UCB Indemnified Party if and to the extent that the relevant Damages are directly or indirectly caused by or arise out of any UCB Responsible Partys negligence, willful misconduct, breach of this Agreement, or breach of Applicable Law relating to any Manufacture or Commercialisation of the Product by UCB Responsible Parties.
16.2 UCB shall indemnify, defend and hold harmless Dermira, its Affiliates, and its and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives (individually and collectively, the Dermira Indemnified Parties ), from and against any and all Damages that are directly or indirectly caused by, or arise out of or in connection with: (i) any breach of any covenant, obligation or undertaking of UCB under this Agreement, (ii) any breach or inaccuracy of any representation or warranty made by UCB hereunder, (iii) any non-conformity of Product to the Product Warranty; (iv) any Product supplied under Section 8 that is not Manufactured in accordance with GMP or did not conform with the then current specification for the Product; (v) at the time of receipt of the same by or on behalf of Dermira, any Sample supplied by UCB for use by Dermira in accordance with the terms of this Agreement was not Manufactured in accordance with GMP or did not conform with then current specification for such Sample, (vi) any breach or violation of any Applicable Law by any of UCB or its Affiliates, or any of their respective officers, directors, Sales Representatives, employees, or agents; or (vii) UCBs development or commercialisation of the Product outside the scope of the collaboration between the
Parties under this Agreement (collectively, UCB Responsible Parties ) in connection with the activities contemplated by this Agreement or any negligent act or omission of any UCB Responsible Party. The foregoing notwithstanding, UCB shall under no circumstances be obligated to indemnify, defend or hold harmless any Dermira Indemnified Party if and to the extent that the relevant Damages are directly or indirectly caused by or arise out of the negligence, wilful misconduct, breach of this Agreement, or breach of any Law applicable to any Commercialisation or Development of the Product by Dermira Responsible Parties.
16.3 Promptly after receipt by a Party of notice, or such Party otherwise becoming aware, of any actual or potential claim by a Third Party which could give rise to a right to indemnification pursuant to Section 16.1 or Section 16.2 (each, a Third Party Claim ), such Party shall promptly give the other Party written notice describing the Third Party Claim in reasonable detail. The indemnified Party shall not take any action that impairs the defence of any Third Party Claim by the indemnifying Party. The failure or delay of a Party to give notice in the manner provided herein shall not relieve the indemnifying Party of its obligations under this Section 16 , except to the extent that such failure or delay to give notice materially prejudices the indemnifying Partys ability to defend such Third Party Claim.
(a) The indemnifying Party shall have the right, exercisable by written notice to the indemnified Party within [*] Business Days of receipt of notice of the commencement of or assertion of any Third Party Claim, to assume the defence of such Third Party Claim. Following such notice, the indemnifying Party shall, at its sole cost and expense, assume and conduct such defence, with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party. However, if no such notice is given then the indemnified Party shall be entitled to retain control of the defence of such Third Party Claim at its own expense.
(b) If the indemnifying Party undertakes to defend any Third Party Claim as provided in Section 16.3(a) above, the indemnified Party agrees to reasonably cooperate with the indemnifying Party and its counsel in the defence of such Third Party Claim, including by furnishing such records, information and testimony and attending such conferences, discovery proceedings, hearings, trials or appeals as may reasonably be requested by the indemnifying Party. All reasonable costs and expenses incurred in connection with such cooperation shall be borne by the indemnifying Party. The indemnified Party shall have the right to participate in (but not control) and be represented by its own counsel (at the indemnified Partys own expense) in connection with such Third Party Claim.
(c) If the indemnifying Party does not defend the Third Party Claim, or fails to notify the indemnified Party of its election to defend as herein provided, the indemnified Party shall have the right, at its option, to defend such Third Party Claim by counsel of its choice and its reasonable costs and expenses for such
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Third Party Claim shall be included as part of the indemnification obligation of the indemnifying Party hereunder.
(d) Notwithstanding the foregoing, neither Party may settle or compromise any Third Party Claim without the other Partys prior written consent which would: (i) commit the other Party to take, or to forbear to take, any action; (ii) subject the other Party to an injunction; (iii) constitute an admission of guilt or liability by the other Party; or (iv) impose any financial liability on the other Party.
(e) The Parties shall in all cases reasonably cooperate in the defence of any Third Party Claims and each Party shall make reasonably available to the other Party any books, records or other documents within its control that are reasonably necessary or appropriate for such defence. Notwithstanding anything to the contrary in this Section 16.3, the Party conducting the defence of a Third Party Claim shall (i) keep the other party informed on a reasonable and timely basis as to the status of the defence of such Third Party Claim, and (ii) conduct the defence of such Third Party Claim in a prudent manner.
(f) The amount of any Damages for which indemnification is provided under Section 16.1 or Section 16.2 shall be reduced by any insurance proceeds received or other amounts actually recovered, if any, by the indemnified Party with respect to such Damages, provided , however, that the indemnified Party shall not be subject to an obligation to pursue an insurance claim relating to any Damages for which indemnification is sought hereunder.
16.4 LIMITATION ON LIABILITY: IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR ANY DAMAGES CONSTITUTING LOST PROFITS UNDER THIS AGREEMENT OR ANY OTHER AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, EXCEPT TO THE EXTENT OF ANY SUCH DAMAGES PAID TO A THIRD PARTY AS PART OF AN INDEMNIFICATION CLAIM HEREUNDER.
16.5 Nothing in this Agreement shall have the effect of excluding or limiting any liability for death or personal injury caused by negligence, or for fraud.
16.6 During the Term, the Parties will, each for its respective responsibility, secure and maintain a comprehensive general liability insurance policy providing sufficient coverage for personal injury (including as a result of product liability) and property damage at a level as is usual and customary in the pharmaceutical industry to procure. A certificate with regard to said policies will be delivered to the other Party on request.
17. CONFIDENTIALITY
17.1 Except as set forth in this Section 17, for the Term of this Agreement and for a period of [*] years following expiry or termination of this Agreement, each Party shall and shall cause its officers, directors, employees and agents to, keep completely
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confidential and not publish or otherwise disclose, nor use except as is reasonably necessary for the performance of its obligations or the exercise of its rights under this Agreement, any Information, Materials or UCB Materials provided or deemed to be provided by one Party (the Disclosing Party ) to the other Party (the Receiving Party ) under or in connection with this Agreement ( Confidential Information ).
17.2 Notwithstanding Section 17.1, Information shall not include any Information which the Receiving Party can establish:
(a) is already lawfully possessed by the Receiving Party without any obligations of confidentiality or restrictions on use prior to receiving it from the Disclosing Party, as documented by prior written records; or
(b) is or becomes public knowledge or is in the public domain other than by breach of this Section 17 by the Receiving Party; or
(c) is obtained subsequently by the Receiving Party from a Third Party without any obligations of confidentiality with respect to such information and such Third Party is in lawful possession of such information and not in violation of any contractual or legal obligation to maintain the confidentiality of such information; or
(d) has been developed by the Receiving Party independently of any access to or use of any Confidential Information disclosed hereunder, as documented by the Receiving Partys written records.
17.3 The Receiving Party may disclose any part of the Confidential Information of the Disclosing Party (including the terms of this Agreement) to the extent such Confidential Information is disclosed:
(a) in the case of both Parties:
(i) subject to Section 17.4, to comply with Applicable Law (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities or stock exchange) and with judicial process, if, in the reasonable opinion of the Receiving Partys counsel, such disclosure is necessary for such compliance; provided that the Receiving Party shall promptly notify the Disclosing Party of any intended disclosure and shall provide the Disclosing Party with a copy of the Confidential Information which the Receiving Party intends to disclose not less than [*] Business Days (or such shorter period of time as may be required, under the circumstances, to comply with Applicable Law, but in no event less than [*] Business Days) prior to such disclosure and provided that the Receiving Party shall, prior to such disclosure, use commercially reasonable efforts to obtain confidential treatment of such of the Confidential Information that the Disclosing Party requests be kept confidential; or
(ii) solely on a need to know basis, to its Affiliates, to its (actual or potential) Third Party acquirers or assignees under Section 19, to
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licensors of UCB or its Affiliates with respect to the Product, to Third Party subcontractors (and their advisors), to Third Party subcontractors involved in Development, Medical Affairs activities assigned to Dermira under the Medical Affairs Plan or Dermira Commercial Activities, and to accountants and legal advisors and each of the Parties respective directors, employees, contractors and agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Section 17 (potentially with a shorter duration provided that the Receiving Party shall use Commercially Reasonable Efforts to seek and include in the relevant confidentiality agreement obligations of confidentiality and non-use lasting for a period of [*] Calendar Years after the termination and/or expiration of the applicable confidentiality agreement and provided that in no event shall the obligations of confidentiality and/or non-use in any such confidentiality agreement be of a duration less than [*] Calendar Years after the termination and/or expiration of the applicable confidentiality agreement ), provided , however, that the Receiving Party shall remain responsible for any failure by any Third Party who receives Confidential Information pursuant to this Section 17.3(a)(ii) to treat such Confidential Information as required under this Section 17, and provided further that no such disclosure shall be made to any Third Party involved in the Development or Commercialisation of any Competing Products; and
(b) solely in the case of UCB:
(i) to any relevant patent office in preparing, filing, prosecuting and maintaining patents in accordance with the provisions of Section 14;
(ii) to Regulatory Authorities in order (i) to obtain authorizations to conduct any Clinical Studies in relation to the Product, or (ii) to file, obtain and maintain Regulatory Approvals in respect of the Product, or (iii) to Develop, Commercialise or Manufacture the Product, in each case in accordance with this Agreement; or
(iii) for prosecuting or defending litigation or in establishing rights (whether through declaratory actions or other legal proceedings) or enforcing obligations under this Agreement; and
(c) Solely in the case of Dermira:
(i) with respect to the terms of this Agreement, to actual or potential investors, other sources of financing, investment bankers and/or other financial advisors in connection with any actual or proposed financing and/or public offering of Dermira or any of its Affiliates, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use substantially similar to the obligations set forth in this Section 17 (but with a duration of confidentiality and
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non-use obligation no less than [*] years after the date of the applicable confidentiality agreement) ;
(ii) if applicable, to Regulatory Authorities as set forth in the Regulatory Responsibilities Matrix or otherwise as required to conduct Dermiras activities under this Agreement; or
(iii) for prosecuting or defending litigation or in establishing rights (whether through declaratory actions or other legal proceedings) or enforcing obligations under this Agreement.
17.4 If and whenever any Confidential Information is disclosed in accordance with Section 17.3, such disclosure shall not cause any such Information to cease to be Confidential Information, except to the extent that such disclosure results in a public disclosure of such Information (otherwise than by breach of this Agreement). Where reasonably possible and subject to Section 17.6 and other than pursuant to Section 17.3(a)(ii) and (c)(i), the Receiving Party shall:
(a) give the Disclosing Party reasonable advance notice of the Receiving Partys intent to make such disclosure pursuant to Section 17.3, to the extent practicable; and
(b) provide reasonable co-operation to the Disclosing Party regarding the timing and content of such disclosure and regarding any action which the Disclosing Party may deem appropriate to protect the confidentiality of the information by appropriate legal means, to the extent practicable.
17.5 Subject to Section 17.3, the Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties.
17.6 If either Party determines that it is required to file with the securities regulators of any country or jurisdiction in the Territory a registration statement or any other required disclosure document which describes any of the terms and conditions of this Agreement, such Party shall promptly notify the other Party of such intention. The Party required to file shall provide such other Party with a copy of relevant portions of the proposed filing not less than [*] Business Days (or such shorter period of time as may be required, under the circumstances, to comply with Applicable Law, but in no event less than [*] Business Days) prior to such filing (and, for any revisions to such portions of the proposed filing, a reasonable time prior to the filing thereof), including any exhibits thereto relating to the terms and conditions of this Agreement. The Party required to file shall use commercially reasonable efforts to obtain confidential treatment of the terms and conditions of this Agreement that such other Party requests be kept confidential, and shall only disclose Confidential Information which it is advised by legal counsel is legally required to be disclosed in order to comply. No such notice shall be required under this Section 17.6 if and to the extent that the specific information contained in the proposed filing has previously been included in any previous filing or disclosure made by either Party hereunder pursuant to this Section 17, or is otherwise approved in advance in writing by the other Party.
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17.7 This Agreement supersedes the Confidentiality Agreement, provided that any and all Confidential Information (as defined in the Confidentiality Agreement) that was disclosed or received by the Parties prior to the Effective Date shall be deemed to be Confidential Information that was disclosed pursuant to this Agreement and shall be subject to the terms and conditions of this Agreement.
17.8 Upon the expiration or termination of this Agreement, and upon written notice by the Disclosing Party, the Receiving Party shall, at the discretion of the Disclosing Party, either: (a) return to the Disclosing Party; or (b) destroy (or permanently delete in the case of Confidential Information held electronically to the extent technically feasible or practicable) and provide evidence of such destruction, all originals, copies, summaries and other tangible manifestations of Confidential Information of the Disclosing Party in the possession of the Receiving Party; provided that, the Receiving Party may maintain one (1) copy of Confidential Information in its legal files to monitor any continuing rights or obligations under this Agreement.
17.9 Save for the licence granted to Dermira pursuant to Section 14.2, neither Party shall make use of the other Partys name, Trademarks, logos or any information acquired through its dealings with the other Party for publicity or marketing purposes without the prior written consent of the other Party (such consent not to be unreasonably withheld or delayed).
17.10 Neither Party shall issue any press release, including the Press Release, or other similar public communication relating to this Agreement, its subject matter or the transactions covered by it, or the activities of the Parties under or in connection with this Agreement, without the prior written approval of the other Party, except (a) for communications required by Applicable Law as reasonably advised by the issuing Partys counsel (provided that the other Party is given a reasonable opportunity to review and comment on any such press release or public communication in advance thereof to the extent legally permitted and the issuing Party shall act in good faith to incorporate any comments provided by the other Party on such press release or public communication), (b) for information that has been previously disclosed publicly or (c) as otherwise set forth in this Agreement. The Parties have agreed to issue a joint press release promptly after the Commencement Date, in the form to be mutually agreed by the Parties in writing.
18. CHANGE OF CONTROL
18.1 First Right of Negotiation. Promptly after (a) Dermira receives a term sheet from a Non-Competitor Company proposing a Change of Control for which Dermiras board of directors desires to pursue negotiations, or (b) if Dermiras board of directors intends to initiate a process for the purpose of soliciting proposals for a Change of Control, Dermira shall notify UCB in writing (the M&A Notice ). In the case of sub-Section (a), the M&A Notice shall not be required to identify the party from whom Dermira received the term sheet nor any of its proposed terms, nor in the case of sub-Section (b) shall the M&A Notice specify the Third Parties who Dermira intends to contact nor any
proposed terms or processes with respect to such a solicitation or transaction. In the event UCB has a bona fide interest to consummate a Change of Control of Dermira, then UCB may provide Dermira with written notice of such interest within five (5) Business D ays of receiving the M&A Notice, in which event Dermira and UCB will negotiate in good faith potential terms and conditions for such a potential transaction, and for a period of twenty (20) Business D ays after receiving UCBs notice of interest, Dermira will not enter into any binding agreement with a Third Party that would prevent Dermira from entering into a definitive agreement providing for a Change of Control with UCB during such period. Following such initial twenty (20 ) Business D ay period, Dermira shall have no further obligations to UCB pursuant to this Section 18.1 with respect to such transaction. This Section 18.1 shall terminate upon the first to occur of (i) the closing of a public offering of Dermiras common stock under the Securities Act of 1933, as amended, (ii) the registration of any of Dermiras securities under the Securities Exchange Act of 1934, as amended, (iii) immediately prior to the consummation of a Change of Control of Dermira and (iv) the termination of this Agreement for any reason.
18.2 Qualified Non-Compet itor Company. If Dermira consummates a Change of Control with a Qualified Non- Competi tor Company, then one of the following shall apply:
(a) if such Change of Control occurs prior to the date of the grant of first Regulatory Approval for the Product in the Development Indication in the Development Territory and provided Dermira (or the successor entity after such Change of Control transaction, as applicable) provides written confirmation within [*] after the closing of such Change of Control transaction, that Dermira (or the successor entity after such Change of Control transaction, as applicable) undertakes to continue , and to continue to pay for the costs and expenses of, Development in accordance with the terms of this Agreement, then this Agreement shall remain in full force and effect on its original terms;
(b) if such Change of Control occurs prior to the date of the grant of first Regulatory Approval for the Product in the Development Indication in the Development Territory and Dermira (or the successor entity after such Change of Control transaction, as applicable) does not provide written confirmation within [*] after the closing of such Change of Control transaction that Dermira (or the successor entity after such Change of Control transaction, as applicable) undertakes to continue , and continue to pay for the costs and expenses of, Development in accordance with the terms of this Agreement then UCB shall have the right to terminate this Agreement pursuant to Section 20.6(b) .
if such Change of Control occurs after the date of grant of first Regulatory Approval for the Product in the Development Indication in the Development Territory, this Agreement will, subject to the continued performance of this Agreement by Dermira (or the successor entity after such Change of Control transaction, as applicable), remain in full force and effect in accordance with its terms.
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18.3 Change of Control - Competi tor Company or Non-Qualified Non-Competitor Company. If Dermira consummates a Change of Control with a Third Party which is Competitor Company or a Non-Qualified Non-Competitor Company, then UCB shall have the right to terminate this Agreement pursuant to Section 20.6(a).
19. ASSIGNMENT
19.1 This Agreement will inure to the benefit of and be binding upon the Parties and their respective lawful successors and permitted assigns.
19.2 Dermira shall not, without the prior written consent of UCB, assign, transfer, mortgage, charge or declare a trust of any of its rights or obligations under this Agreement; provided that Dermira may assign this Agreement without any requirement for consent by UCB: (i) to an Affiliate; (ii) to a Qualified Non-Competitor Company, if Dermira provides the written confirmation pursuant to Section 18.2(a); or (iii) to a Non-Qualified Non-Competitor Company or to a Competitor Company in the event UCB does not exercise its termination right under Section 18.3, provided that Dermira shall remain liable for the performance or non-performance of its obligations under this Agreement by such Affiliate or such permitted assignee, as applicable .
19.3 UCB may assign this Agreement without any requirement for consent by Dermira to (i) an Affiliate or (ii) its successor in interest as a result of any merger, consolidation, or sale of all or substantially all of its assets or that portion of its business pertaining to the subject matter of this Agreement provided that in each case, UCB shall remain liable for the performance or non-performance of its obligations under this Agreement by such Affiliate or such permitted assignee, as applicable.
20. TERM AND TERMINATION
20.1 Subject to Section 2, t his Agreement shall come into force on the Effective Date and, unless terminated earlier in accordance with this Section 20, shall remain in force until six (6) Calendar Months following th e twelfth (12 th ) anniversary of first Launch , after which date this Agreement shall terminate (the Term ).
20.2 Neither Party shall have the right to terminate this Agreement for non-material breach of any right or obligation set out herein or breach that can be substantially remedied by the award of monetary damages to the non-breaching Party (collectively, the Non-Material Breaches ), and any such claim for Non-Material Breach by a Party, if not remedied within [*] of receipt by the Party allegedly in default of the written notice given by the Party claiming default (such notice specifying the Non-Material Breach and requiring its remedy), such claim for Non-Material Breach shall be settled in the first instance pursuant to the escalation procedures between the Parties up to the level of Senior Executives as set out in this Agreement, and, in the absence of resolution of such dispute by such Senior Executives, shall be referred for final determination though arbitration pursuant to Section 23 as a Dispute,
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where the arbitrator shall not award the right of termination to the Party alleging such Non-Material Breach regardless of the outcome of such Dispute resolution.
20.3 If, prior to the Long-Stop Date, the conditions precedent set out in Section 2.2 are not met or otherwise satisfied in full by the Long-Stop Date, or if either Party terminates this Agreement pursuant to Section 5.1(d), or if Dermira terminates this Agreement pursuant to Section 5.2, this Agreement shall terminate with immediate effect and otherwise cease to have any further force and the provisions of Section 21.1 shall apply.
20.4 Either Party may terminate this Agreement for breach of this Agreement by the other Party other than a Non-Material Breach, immediately on written notice to the other Party if the other Party is in material breach and such material breach is not remedied within [*] of such Party receiving notice specifying the material breach and requiring its remedy, and the consequences of termination as set out in Section 21.2 (in the case of termination by UCB) and Section 21.4 (in the case of termination by Dermira) shall apply; provided that (a) the Senior Executive of the Party intending to provide such written notice for breach (the Notifying Party ) shall first contact the Senior Executive of the other Party (the Notified Party ), so that such Senior Executives will have the opportunity to discuss orally and attempt to resolve such matter, further provided that the Notifying Party shall have the right to provide to the Notified Party such written breach notice by the end of the [*] after the first discussion between such Senior Executives under this subsection (a) if such Senior Executives have not resolved the matter to the satisfaction of the Notifying Party; and (b) in the event the alleged breaching Party in good faith disputes the basis for such alleged breach, then such termination shall not become effective unless and until the dispute is resolved pursuant to Section 23 in favour of the Party alleging such breach. The Parties acknowledge that the termination of this Agreement for a Partys material breach of its material obligations shall be a remedy of last resort, and neither Party shall invoke such termination right if remedies other than termination may be obtained. Notwithstanding the foregoing, in the event: (i) Dermira is [*] under Section [*] in connection with the [*] Dermira Commercial Activities and/or Medical Affairs activities; and (ii) Dermira [*] constituting [*] after it receives a written notice of [*] as the reason for such [*] the Dermira Commercial Activities and/or Medical Affairs activities by written notification to Dermira and [*] shall be effective for [*] or until Dermira [*], whichever is shorter.
20.5 Either Party may terminate this Agreement for insolvency of the other Party immediately on written notice to the other if the other Party files for protection under bankruptcy or insolvency laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver, administrator, manager, trustee or like official over its property that is not discharged within [*] Business Days, proposes or is a party to any dissolution, winding-up or liquidation, files a petition
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under any bankruptcy or insolvency act or has any such petition filed against it which involuntary petition is not discharged within [*] Business Days of the filing thereof or undergoes or suffers any analogous event or process in any jurisdiction, and the consequences of termination as set out in Section 21.2 (in the case of termination by UCB) and Section 21.4 (in the case of termination by Dermira) shall apply.
20.6 UCB may terminate this Agreement at any time on [*] Business Days notice to Dermira if:
(a) Dermira should complete a Change of Control transaction with a Competi tor Company or Non-Qualified Non-Competitor Company as set out in Section 18.3; or
(b) Dermira should complete a Change of Control transaction with a Qualified Non- Competi tor Company and the provisions of Section 18.2(b) should apply; or
(c) Dermira is in breach of Sections 12.1 or 12.3; or
(d) as outlined in Section 4.27, UCB should determine that, having conducted a n SSAR in accordance with UCBs Safety Process, a validated safety signal has been established the magnitude of which UCB determines constitut es a significant patient risk so that the Development or Commercialisation of the Product should cease, in which case the provisions of Section 21.3 shall apply.
20.7 Dermira may terminate this Agreement at any time on [*] Business Days notice to UCB if :
(a) UCB is in breach of Sections 12.2 or 12.4; or
(b) Dermira has the right to terminate this Agreement for the reasons set out in Section 4.12.
20.8 Dermira may terminate this Agreement at any time after both Parties have received the complete data set used to assess the primary efficacy endpoint of the first Phase 3 Clinical Study , such termination being effective [*] Business Days following the receipt by UCB of Dermiras written notice of its intention so to terminate.
20.9 A Partys right of termination under this Agreement, and the exercise of any such right, shall be without prejudice to any other right or remedy (including any right to claim damages) that such Party may have under this Agreement.
21. EFFECT OF TERMINATION
21.1 If this Agreement should terminate pursuant to Section 20.3, any and all rights and obligations that entered into force pursuant to Section 2.1 shall terminate immediately, neither Party shall have any further rights or obligations under this Agreement, each Party shall be responsible for its own costs and expenses incurred in relation to the transaction contemplated by this Agreement up to the date of such termination, and
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termination of this Agreement shall not entitle either Party to make any claim or demand of any nature on the other Party. Upon such termination, each Party shall return to the other Party, or, at the other Partys election, destroy, the other Partys Confidential Information, and Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Regulatory Documentation, data and records, Materials, Study Documentation Product Literature provided by UCB pursuant to Section 6 or otherwise prior to the Long-Stop Date.
21.2 On termination of this Agreement by UCB pursuant to Section s 20.4, 20.5, 20.6(a), 20.6(b), or 20.6(c) :
(a) the rights and licences granted by UCB to Dermira pursuant to Section 14 shall terminate immediately; and
(b) Dermira shall cease, and shall cause its Third Party subcontractors to cease, all Development , Medical Affairs activities and/or Dermira Commercial A ctivities and the use of all documentation relating to the same; and
(c) Dermira shall, at Dermiras sole cost and expense, assist UCB in accordance with UCBs reasonable instructions, in the implementation of the Development Transition Plan and/or the Commercial Transition Plan, in order to effectuate a smooth, orderly, successful and complete transition by Dermira of the Development of the Product in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating t o the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory, such completion to have occurred within [*] Business Days of the date of receipt by Dermira of UCBs notice to terminate subject to UCBs cooperation to do so, and thereafter Dermira shall cease, and shall ensure that its Third Party subcontractors shall cease, all activities relating to the Development of the Development Product in the Development Territory , Medical Affairs activities and/or the Dermira Commercial Activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory; and
(d) if such termination occurs prior to the grant of Regulatory Approval for the Development Indication and subject to the transition of the Development of the Development Indication to UCB in accordance with Section 21.2(c), Dermira shall continue to pay all the external costs and expenses (as well as any internal costs and expenses to the extent set forth in the JDC-Approved Development Budget existing as of the date of such termination as to be incurred by UCB and reimbursed by Dermira) incurred by or on behalf of UCB in accordance with the Development Plan included in the JDC-Approved Development Budget up to completion, or the date of termination by UCB, of such Development, provided that (i) UCB shall remain responsible for its share of the Paediatric Plan under Section 5.4(d), its sole responsibility to fund any EMA-Specific Post-Approval Studies under Section 5.4(e) and its share of the Development Costs above the Cap, and (ii) at any time UCB (by itself of through its Affiliates or licensees) achieves a milestone event that, if achieved by or on behalf of Dermira would
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have triggered a milestone payment from UCB to Dermira under Section 10.2 if this Agreement had not been terminated, UCB shall deduct the amount of such milestone payment from the amount of Development Costs invoiced by UCB to Dermira for reimbursement in accordance with Section 10.13, for the Calendar Month during which such milestone is achieved and for any subsequent Calendar Months until the total amount of such milestone payment has been fully deducted from such invoiced Development Costs; and
(e) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Study Documentation Product Literature, Promotional Materials; and
(f) Dermira shall cease to use and shall return to UCB , or, at UCB s election, destroy, UCBs Confidential Information; and
(g) solely to the extent necessary or useful to UCB in its continued Development and Commercialisation of the Product in the Development Indication and/or the Promotion Indication throughout the Territory, UCB shall have the right, subject to Section 17, to use any Confidential Information of Dermira disclosed to UCB pursuant to this Agreement; and
(h) all rights and licences granted by Dermira to UCB pursuant to Section 14 shall continue in full force and effect; and
(i) from the date of termination and provided always that Dermira has complied in all material respects with its obligations pursuant to this Section 21.2 , UCB shall:
(i) if such termination occurred prior to the grant of Regulatory Approval, reimburse Dermira for its documented costs and expenses actually incurred in accordance with and as set out in the JDC-Approved Development Budget which are properly incurred in connection with the Development of the Development Indication (undertaken by Dermira as at the date of termination or paid by Dermira post-termination under subsection (d) above) by making to Dermira a payment of [*] percent ( [*] %) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such costs and expenses have been reimbursed, provided always that UCB shall have the right to first deduct from the total amount of such costs and expenses payable to Dermira an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2; or
(ii) if such termination occurred following the grant of Regulatory Approval and UCB has, prior to the date of termination, made payments to Dermira pursuant to Sections 10.5 and 10.7, UCB shall make a payment to Dermira of the difference between (A) its documented costs and expenses actually incurred in accordance with and as set out in the JDC-Approved Development Budget which are
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properly incurred in connection with the Development of the Development Indication (undertaken by Dermira as at the date of termination or paid by Dermira post-termination under subsection (d) above) minus the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2, and (B) the payments already made by UCB to Dermira pursuant to Sections 10.5 and 10.7 to the extent and only to the extent that total of the payments made in (B) is less than the amount in (A); such payment to be made to Dermira at a rate of [*] percent ([*] %) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such payment has been made in full.
21.3 On termination of this Agreement by UCB pursuant to Section 20.6(d):
(a) the rights and licences granted by each Party to the other Party pursuant to Section 14 shall terminate immediately; and
(b) Dermira shall cease, and shall cause its Third Party subcontractors to cease, all Development , Medical Affairs activities and/or Dermira Commercial A ctivities and the use of all documentation relating to the same, and thereafter Dermira shall have no obligation to incur any Development and Commercial Transition Costs whatsoever; and
(c) UCB shall reimburse Dermira for (i) its documented costs and expenses which were properly incurred in connection with the Development in accordance with the JDC-Approved Development Budget and its documented external costs and expenses actually incurred or to be incurred due to any committed and uncancellable Third Party agreements entered into by Dermira prior to the date of notification of such termination and which directly relate solely to the Development of the Development Indication, as accounted for in the JDC-Approved Development Budget, already undertaken or, but for such termination, would have been undertaken by Dermira , and (ii) its documented external costs and expenses directly and actually incurred in connection with the JCC-approved Dermira Commercial Activities and Medical Affairs activities, in each case (i) and (ii) by making to Dermira a payment of [*] percent ([*] %) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such costs and expenses have been reimbursed, provided always that UCB shall have first deducted from the total amount of such costs and expenses payable to Dermira an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2 ; and
(d) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Study Documentation, Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Product Literature, Promotional Materials; and
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(e) each Party shall return to the other Party, or, at the Partys election, destroy, the relevant Partys Confidential Information; and
(f) UCB shall no longer Develop or Commercialise, itself, or through a Third Party, the Product in the Development Indication in any country within the Territory; and
(g) from the date of termination and subject to Section 21.3(c) , Dermira shall receive no further payments of any kind, whether pursuant to Section 10 or otherwise from UCB.
21.4 On termination of this Agreement by Dermira pursuant to Section s 20.4, 20.5 or 20.7 :
(a) the rights and licences granted by each Party to the other Party pursuant to Section 14 shall terminate immediately; and
(b) UCB shall pay to Dermira an amount equal to the greater of (A) the Fair Market Value or (B) if such termination is effective prior to the Parties receipt of the complete data set used to assess the primary efficacy endpoint of the first Phase 3 Clinical Study, [*] per cent ([*]%) of (i) Dermiras documented external costs and expenses in accordance with the JDC-Approved Development Budget and internal and out of pocket costs and expenses which are actually incurred or to be incurred due to any committed and uncancellable costs under Third Party agreements entered into by Dermira prior to the date of notification of such termination and which costs directly relate to the Development of the Development Indication, (ii) Dermiras documented external costs and expenses directly and actually incurred in connection with the JCC-approved Dermira Commercial Activities and Medical Affairs activities included in the Commercialisation Plan and endorsed by the JCC or the Medical Affairs Plan, (iii) Dermiras documented internal costs directly and actually incurred in connection with Dermiras performance of the Development Transition Plan and/or the Commercial Transition Plan, and (iv) the documented Disruption and Transition Costs (to the extent not already accounted for in or otherwise paid by UCB) the aggregate amount under such clause (B), the Floor ) , and in either case of (A) or (B), increased by the Tax Gross-Up Payment, such payment being made by UCB within [*] Business Days of the determination of the greater amount in subsection (A) or (B) above, and provided always that UCB shall have the right to first deduct from such payment to Dermira under subsection (B) above (but not subsection (A) above) an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2; and
(c) Dermira shall cease, and shall cause its Third Party subcontractors to cease, all Development and the use of all documentation relating to the same; and
(d) Dermira shall, at UCB s sole cost and expense, assist UCB in accordance with UCBs reasonable instructions, subject to UCBs reasonable cooperation, in the implementation of the Development Transition Plan and/or the Commercial Transition Plan, in order to effectuate a smooth, orderly, successful and
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complete transition by Dermira of the Development of the Product in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating t o the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory, such completion to have occurred within [*] Business Days of the date of receipt by UCB of Dermira s notice to terminate, and thereafter Dermira shall cease, and shall ensure that its Third Party subcontractors shall cease, all activities relating to the Development of the Development Product in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory; and
(e) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Study Documentation, Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Study Documentation Product Literature, Promotional Materials; and
(f) Each Party shall cease to use and shall return to the other Party , or, at the other Party s election, destroy, the other Partys Confidential Information .
21.5 On termination of this Agreement by Dermira pursuant to Section 20.8:
(a) the rights and licences granted by UCB to Dermira pursuant to Section 14 shall terminate immediately; and
(b) Dermira shall, at UCBs election and at Dermiras sole cost and expense:
(i) pay all costs and expenses associated with the wind down of all Clinical Studies related to the Product in the Development Indication in the Development Territory which are on-going at the date of receipt by UCB of Dermiras notice of termination pursuant to Section 20.8; or
(ii) if UCB elects to continue to Develop and/or Commercialise the Product in the Development Indication:
(A) assist UCB in accordance with UCBs reasonable instructions, in the implementation of the Development Transition Plan and/or the Commercial Transition Plan, in order to effectuate a smooth, orderly , successful and complete transition by Dermira of the Development of the Product in the Development Territory and/or the Dermira Commercial Activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory, such completion to have occurred within [*] Business Days of the date of receipt by UCB of Dermiras notice to terminate subject to UCBs cooperation to do so , and thereafter Dermira shall cease, and shall ensure that its Third Party subcontractors shall cease, all activities relating to the Development of the Development Product in the Development Territory and/or the Dermira Commercial Activities relating to the Product in the
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Development Indication and/or the Promotion Indication in the Promotion Territory; and
(B) continue to pay all the external costs and expenses (as well as any internal costs and expenses to the extent set forth in the JDC-Approved Development Budget existing as of the date of such termination as to be incurred by UCB and reimbursed by Dermira) incurred by or on behalf of UCBin accordance with the Development Plan up to the JDC-Approved Development Budget up to completion, or the date of termination by UCB, of all Clinical Studies of the Product for the Development Indication in the Promotion Territory that are ongoing on the date of termination, in accordance with the cost reimbursement procedure set forth in Section 10.13, provided that (i) UCB shall remain responsible for its share of the Paediatric Plan under Section 5.4(d), its sole responsibility to fund any EMA-Specific Post-Approval Studies under Section 5.4(e) and its share of the Development Costs above the Cap, and (ii) at any time UCB (by itself of through its Affiliates or licensees) achieves a milestone event that, if achieved by or on behalf of Dermira would have triggered a milestone payment from UCB to Dermira under Section 10.2 if this Agreement had not been terminated, UCB shall deduct the amount of such milestone payment from the amount of Development Costs invoiced by UCB to Dermira for reimbursement, for the Calendar Month during which such milestone is achieved and for any subsequent Calendar Months until the total amount of such milestone payment has been fully deducted from such invoiced Development Costs; and
(c) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Study Documentation, Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Study Documentation Product Literature, Promotional Materials; and
(d) Dermira shall cease to use and shall return to UCB , or, at UCB s election, destroy, UCBs Confidential Information; and
(e) solely to the extent necessary or useful to UCB in its continued Development and Commercialisation of the Product in the Development Indication and/or the Promotion Indication throughout the Territory, UCB shall have the right, subject to Section 17, to use any Confidential Information of Dermira disclosed to UCB pursuant to this Agreement; and
(f) all rights and licences granted by Dermira to UCB pursuant to Section 14 continue in full force and effect; and
(g) provided that Dermira has complied in all material respects with its obligations pursuant to this Section 21.5 , in the event UCB (by itself or through any of its Affiliates or licensees) obtains Regulatory Approval for the Product for use in
the Development Indication, UCB shall reimburse Dermira for (i) its documented external costs and expenses in accordance with the JDC-Approved Development Budget which are actually incurred or to be incurred due to any committed and uncancellable costs under Third Party agreements entered into by Dermira prior to the date of notification of such termination and which costs directly relate to the Development of the Development Indication, (ii) the costs and expenses referred to in Section 21.5(b)(ii)(B) , in each case of (i) and (ii) by making to Dermira a payment of [*] percent ([*]%) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such costs and expenses have been reimbursed, provided always that UCB shall have the right to first deduct from the total amount of such costs and expenses payable to Dermira an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2. For the avoidance of doubt, UCB shall have no obligation whatsoever to make any of the Development milestone payments to Dermira identified in the table in Section 10.2 as Milestone Numbers 5a, 5b, 5c, 5d and 5e.
21.6 Study Subject Information. Notwithstanding the termination of this Agreement, each Party shall maintain the confidentiality of each study subjects medical or other personal information in accordance with the obligations of non-disclosure and non-use set forth in Section 17 of this Agreement and shall, in addition, comply with all Applicable Laws with respect to the collection, use, transfer, storage, deletion, processing (both by computer and manually), combination or other use of subject or other personal data as contemplated by applicable data protection or privacy laws of all data relating to any participant in, or applicant wishing to participate in, a Clinical Study, including with Health Insurance Portability and Accountability Act of 1996, Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations and any applicable state or foreign data privacy laws (collectively, Privacy Laws ). Each Party agrees to take all such steps as the other Party may reasonably request from time to time in order to permit the other Party to comply with any notification obligation applicable to the other Party or its Affiliates under Privacy Laws relevant to activities undertaken hereunder.
21.7 Fair Market Value.
(a) If UCB is required to make payment to Dermira under Section 21.4(b) , Fair Market Value shall be determined as the amount that a willing buyer would pay to a willing seller in an arms length transaction for all of Dermiras rights under this Agreement, plus an amount which equals the documented D isruption and T ransition C osts incurred and subsequent adjustments for documented future costs up to [*] Calendar Year after the determination of Fair Market Value for additional costs incurred and reimbursed when paid , by Dermira by reason of the termination of its rights to Develop and undertake Dermira Commercial Activities and Medical Affairs activities in relation to the Product, in each case in accordance with its obligations under this Agreement .
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(b) When determining Fair Market Value, (x) the Parties, acting reasonably and in good faith, shall attempt to reach agreement on values for, and (y) if such dermination is subject to the dispute resolution mechanism set forth in Section 23.2, the arbitrator shall be required to utilize:
(i) the then-current net present value of all rights of Dermira under this Agreement (assuming no termination of this Agreement during the Term, no discount for UCBs rights of termination hereunder, no un-remedied non-material breaches of the Agreement by Dermira and, in the case of termination by Dermira arising in accordance with Section 20.4 or 20.7, based on the assumption that UCB had never, in the case of Section 20.4 or 20.7(a), breached this Agreement, or in the case of Section 20.7(b), [*]) and assuming:
(A) one hundred percent (100%) likelihood of Regulatory Approval in the Development Indication in the Promotion Territory being obtained (unless the FDA has already commenced its review of the Drug Approval Application for the Product in the Development Indication in the Promotion Territory and has provided sufficient written feedback which would suggest that a one hundred percent (100%) likelihood of success is doubtful, in which case, the Parties shall agree or the arbitrator shall determine the percentage likelihood of Regulatory Approval in the Development Indication in the Promotion Territory being obtained); and
(B) a discount rate equal to [*]; and
(ii) subject to Dermiras duty to mitigate any such costs, Dermiras reasonable documented internal (including, without limitation, administration, overhead, personnel and facilities costs reasonably allocated by Dermira to its obligations pursuant to this Agreement not already accounted for in the Disruption and Transition Costs or not otherwise already paid by UCB) and external costs, in each case, incurred and subsequent adjustments for documented future costs up to [*] after the determination of Fair Market Value for additional costs incurred and reimbursed when paid, of transitioning the Development of the Product in the Development Indication in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory (in each case, if not already paid by UCB) to UCB. In determining the Fair Market Value, each Partys sales projections regarding the future Royalty-Bearing Sales of the Product shall be given due consideration.
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(iii) The Tax Gross-Up Payment shall be computed as described below and in a manner to minimize the income taxes incurred by Dermira, and thus the amount of the Tax Gross Up Payment, taking into account all reasonable tax mitigation strategies. The Tax Gross-Up Payment shall be an amount equal to (A) the aggregate federal, state and any other applicable income taxes or other taxes actually incurred by Dermira with respect to the receipt of Fair Market Value or the Floor, in each case, plus the Disruption and Transition Costs (after taking into account use by Dermira of available losses, usable net operating loss carryforwards and tax credits that actually offset income and taxes arising from such payment but after first applying such losses and credits to offset other net income and resulting taxes for the year(s) of payment, taking into account deductibility of certain of such taxes against federal income, taking into account any costs specifically related to this Agreement (and therefore deductible by Dermira for tax purposes), including project related capitalized costs that would reasonably result in tax deductions for Dermira in future years (e.g., capitalized research & development expenditures, etc.), and applying Dermiras actual marginal tax rates applicable to such income), and (B) such additional amount as is necessary to fully gross up Dermira for such income and other taxes as are incurred in respect of the receipt of the payments under both clause (A) and clause (B) of this sentence, so that Dermira receives a net amount under Section 21.4, after payment of such income and other taxes, that equals the amount of the payment that would have been received had no such income taxes or other taxes been incurred by Dermira in respect of such payments. The Parties agree to cooperate reasonably and consistent with the purposes of this Section 21.7 to minimize the income taxes incurred by Dermira, including providing UCB and/or its advisors reasonable access to relevant Dermira information in order for UCB to collaborate with Dermira and agree on reasonable tax mitigation strategies, and therefore the amount of the Tax Gross-Up Payment, as a result of the payments provided for under Section 21.4, provided, however, that if such cooperation of the Parties results in a transaction (such as a spin-off or corporate reorganization) which itself results in taxation either to Dermira, an Affiliate of Dermira, or the stockholders of Dermira, then the Tax Gross-Up Payment shall also include an amount to be paid to such Persons sufficient to cause the net tax costs to such Persons to be no greater than the taxes they would have paid had any consideration received by such Persons in such transaction been taxed (net of basis) at the long-term capital gains rate. Dermira shall prepare and furnish to UCB its calculation of the Tax Gross-Up Payment, together with supporting workpapers and other documentation. If UCB disagrees with such calculation, and the Parties are unable to resolve their disagreement after good faith discussions, then the
calculation of the Tax Gross-Up Payment shall be determined by an independent nationally recognized accounting firm mutually agreeable to Dermira and UCB, whose determination shall be final and binding on the Parties, and whose fees will be shared equally by them. In performing such determination, such accounting firm shall use the principles set forth in this Section 21.7 and such information regarding Dermiras tax circumstances as it may deem appropriate and request from Dermira. Further, such accounting firm shall take into account all reasonable tax mitigation strategies and opportunities to mitigate the amount of the Tax Gross-Up Payment.
(c) If the Parties are unable to agree on the Fair Market Value, the Floor, and/or the Disruption and Transition Costs (the Unresolved Amount ) within [*] Business Days following termination of this Agreement by Dermira pursuant to Sections 20.4, 20.5 or 20.7, then upon the written request of either Party the Parties shall refer the determination of such Unresolved Amount for final resolution using the baseball arbitration mechanism set forth in Section 23.2, using as the arbitrator an independent third party selected by the Parties in accordance with Section 23.2.
21.8 In the event that any payments required to be made by one Party to another pursuant to this Section 21 are not paid when due hereunder, interest not paid on the date due shall bear interest calculated and accrued at [*] from the date of payment was due. Such interest shall be accrued daily.
21.9 Sections 5.11(a), 5.11(c), 5.11(d), 5.12(b), 10.8(c)-(g), 10.10, 10.12, 10.15, 10.16, 11, 14.7, 14.8, 14.10, 14.11, 15.5, 16, 17, 21, 22, 23, 25, 26, 28, 29, 32 and 33 shall survive the expiry or termination of this Agreement.
22. WAIVER
No failure or delay by a Party to exercise any right or remedy provided under this Agreement or by law shall constitute a waiver of that or any other right or remedy, nor shall it preclude or restrict the further exercise of that or any other right or remedy. No single or partial exercise of such right or remedy by a Party shall preclude or restrict the further exercise by that Party of that or any other right or remedy.
23. DISPUTE RESOLUTION
23.1 Either Party may submit any unresolved Dispute (and any Related Claim) arising hereunder for final resolution and determination through binding arbitration in accordance with the terms set forth in this Section 23.1, which binding arbitration shall be the sole and exclusive manner of resolving any such Dispute and Related Claims. For clarity, this shall exclude any decisions made by either Party in the exercise
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pursuant to Sections 4.11 or 4.25 of its final decision making authority with respect to any matter arising hereunder, and any matters subject to resolution under Section 23.2.
(a) A Party may submit a Dispute to arbitration by notifying the other Party in writing to that effect. Any such notice shall clearly describe the specific subject matter of the Dispute as well as any Related Claims such Party wishes to raise in connection with said Dispute. Within [*] Business Days after receipt of such notice, the Parties shall designate in writing a single mutually acceptable arbitrator to resolve the Dispute and any Related Claims. If the Parties cannot agree on an arbitrator within such [*] Business Day period, the arbitrator shall be selected by the London Court of International Arbitration (the LCIA ). The arbitrator shall, in any event, be a lawyer knowledgeable and experienced in the Applicable Law concerning the subject matter of the Dispute, and shall not be a current or former employee, consultant, officer or director, nor a current stockholder, of either Party (or their respective Affiliates), or otherwise have any current or previous relationship with either Party or their respective Affiliates. The proceedings shall be conducted in accordance with the then current procedures of the LCIA and the terms of this Section 23.1, provided that in the event of any conflict between such LCIA procedures and the terms of this Section 23.1, the terms of this Section shall prevail.
(b) Within [*] Business Days after the designation of the arbitrator, the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of (i) all issues within the scope of the Dispute and any Related Claims; (ii) such Partys position on each such issue; and (iii) such Partys proposed ruling on the merits of each such issue.
(c) The arbitrator shall set a date for a hearing, which shall be no later than [*] Business Days after the designation of the arbitrator, for the presentation of evidence and legal arguments concerning each of the issues identified by the Parties. Each Party shall have the right to be represented (at its own expense) by legal counsel at the hearing. Except as otherwise provided in this Section 23.1, the arbitration shall be governed by the commercial arbitration rules of the LCIA as are in effect as of the date of notice of arbitration pursuant to Section 23.1(a). For clarity, in the event of any conflict between such LCIA rules and the terms of this Section 23.1, the terms of Section 23.1 shall prevail.
(d) The arbitrator shall use his or her best efforts to rule on each disputed issue within [*] Business Days after the completion of the hearing described in Section 23.1(c). In making such rulings, the arbitrator shall be required to choose between the respective proposed rulings submitted by each of the Parties pursuant to Section 23.1(b) and shall not have the authority to modify such proposed rulings or to impose any alternative remedies.
(e) The determination of the arbitrator as to the resolution of any and all issues raised by the Parties in the Dispute and any Related Claims shall be final,
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binding and conclusive upon all Parties. All rulings of the arbitrator shall be in writing and shall be delivered to the Parties except to the extent that the rules of the LCIA expressly provide otherwise. Nothing contained in this Section 23 shall be construed to permit the arbitrator to: (i) award any indirect, punitive, special, consequential, exemplary or any other similar damages; or (ii) to decide or rule on any issue or other matter that is not clearly with the scope of the Dispute and any Related Claims.
(f) Each Party shall be responsible for all of its attorneys and/or experts fees that are incurred by or on its behalf in connection with any arbitration pursuant to this Section 23.1. The fees of the arbitrator and the costs and expenses of the arbitration shall be shared equally by the Parties. In any arbitration arising out of or related to this Agreement, each Party may take [*] discovery depositions. [*]. Additional depositions may be scheduled only with the permission of the arbitrator, and for good cause shown. Each Party also shall have the right to serve reasonable document requests.
(g) Any arbitration proceedings pursuant to this Section 23.1 shall take place in London, England at such place and times (consistent with the timelines set forth in this Section 23) as are agreed to by the Parties and acceptable to the arbitrator. The arbitration shall be conducted in English.
(h) The arbitration proceedings, and the facts and circumstances surrounding the underlying dispute, shall be kept confidential by the Parties, and the Parties shall work with the arbitrator to take such steps as are reasonably necessary to preserve the confidentiality thereof, except to the extent otherwise required by Applicable Law.
(i) Notwithstanding anything in this Section 23, each Party shall have the right to seek injunctive or other equitable relief from any court of competent jurisdiction that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration.
(j) Notwithstanding anything in this Section 23, any dispute relating to the determination of validity or infringement of a Partys Patent Rights or other issues relating solely to the validity or infringement of a Partys Intellectual Property Rights (but excluding, in any event, disputes relating to royalties or other amounts payable pursuant to the terms of this Agreement, whether or not involving questions of infringement or validity) shall be submitted to the courts in accordance with the provisions of Section 33.
23.2 All disagreements at the JSC with respect to the matters described in Section 10.8 or (b) the Parties disagreement on the calculation of Fair Market Value under Section 21.7, shall be resolved under this Section 23.2. Upon referral of any such matter for resolution under this Section 23.2, the Parties shall promptly designate in writing a single mutually acceptable arbitrator experienced in the licensing, development and commercialization of pharmaceutical products, who is not a current or former
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employee, consultant, officer or director, nor a current stockholder, of either Party (or their respective Affiliates), and who does not otherwise have any current or previous relationship with either Party or their respective Affiliates. If the Parties cannot agree on an arbitrator within [*] Business D ays after referral of such matter, the arbitrator shall be selected by the LCIA. The arbitration shall be conducted in accordance with the then-current procedures of the LCIA, to the extent consistent with this Section 23.2. Within [*] Business D ays of the arbitrators appointment, each Party will prepare and deliver to both the arbitrator and the other Party its last, best offer for the applicable unresolved terms (the Proposal ) and a memorandum (the Support Memorandum ) in support thereof. The arbitrator will also be provided with a copy of the relevant provisions of this Agreement. Within [*] Business D ays after receipt of the other Partys Support Memorandum, each Party may submit to the arbitrator (with a copy to the other Party) a rebuttal to the other Partys Support Memorandum and will at such time have the opportunity to amend its Proposal based on any new information contained in the other Partys Support Memorandum. Neither Party may have communications (either written or oral) with the arbitrator other than for the sole purpose of engaging the arbitrator or as expressly permitted in this Section 23.2. Within [*] Business D ays after the arbitrators appointment, the arbitrator will select from the two Proposals provided by the Parties the Proposal that he or she believes is most consistent with the intent of the Parties when this Agreement was entered into (the Selected Proposal ). The decision of the arbitrator shall be final and binding.
23.3 Sole Remedy. Save in relation to the matters referred to in this Agreement for which a Party has sole and final decision making authority, the provisions of this Section 23 shall be each Partys sole remedy for the resolution of all Disputes or all Related Claims.
24. ENTIRE AGREEMENT
24.1 This Agreement constitutes the entire agreement between the Parties and supersedes and extinguishes all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to its subject matter. Each Party acknowledges that in entering into this Agreement it does not rely on, and shall have no remedies in respect of, any representation or warranty (whether made innocently or negligently) that is not set out in this Agreement. No Party shall have any claim for innocent or negligent misrepresentation based upon any statement in this Agreement. Nothing in this Section 24 shall limit or exclude any liability for fraud.
25. VARIATION
25.1 No variation of this Agreement shall be effective unless it is in writing and signed by a duly authorised representative of the Parties.
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26. SEVERANCE
26.1 If any provision or part-provision of this Agreement shall be held to be illegal, void, invalid or unenforceable under the law of any jurisdiction:
(a) that provision or part-provision shall, to the extent required, be deemed to be deleted, and the validity and enforceability of the other provisions of this Agreement shall not be affected; and
(b) the legality, validity and enforceability of the whole of this Agreement in any other jurisdiction shall not be affected.
27. COUNTERPARTS
27.1 This Agreement may be executed in any number of counterparts and all the counterparts when taken together will constitute one agreement. Each Party may enter into this Agreement by executing a counterpart. Transmission of the executed signature page of a counterpart of this agreement (a) by fax or (b) by e-mail (in PDF, JPEG or other agreed format) shall take effect as delivery of an executed counterpart of this Agreement. If either such method of delivery is adopted, without prejudice to the validity of the agreement, each Party shall provide the others with the original of such counterpart as soon as reasonably possible thereafter.
28. THIRD PARTY RIGHTS
28.1 No Person other than a Party to this Agreement, and their respective successors and permitted assigns, shall have any rights to enforce any term of this Agreement.
29. NO PARTNERSHIP OR AGENCY
29.1 Nothing in this Agreement is intended to, or shall be deemed to, establish any partnership or joint venture between the Parties, constitute either Party the agent of the other Party, nor authorise either Party to make or enter into any commitments for or on behalf of the other Party.
30. NON-SOLICITATION OF EMPLOYEES
30.1 During the Term, each Party agrees that it shall not and shall ensure that is Affiliates do not directly solicit the employment of or otherwise entice away the employees of the other Party who are engaged in the performance of this Agreement, provided nothing in this Section 30.1 shall be construed as preventing a Party or its Affiliates from employing an employee of the other Party as a result of a bone fide unsolicited approach by such employee.
31. FORCE MAJEURE
31.1 A Party shall not be liable for a failure to perform any of its obligations under this Agreement during the period and to the extent that that Party is prevented or hindered from complying with them by any cause beyond its reasonable control including (insofar as beyond such control but without prejudice to the generality of the foregoing expression) strikes, lock-outs, labour disputes, act of God, war, riot, civil commotion, terrorism, epidemic disease, malicious damage, compliance with any law or governmental order, rule, regulation or direction, accident, breakdown of plant or machinery, fire, flood, storm, earthquake (each a Force Majeure Event ). The affected Party shall give notice to the other Party of the Force Majeure Event and its effect on its ability to perform its obligations. If the notice is not given by the affected Party within a reasonable period after that Party knew or ought to have known of the Force Majeure Event, it shall remain liable to the other Party for the consequences of its failure to perform. The foregoing notwithstanding, nothing herein shall require a Party to settle on terms unsatisfactory to such Party any strike, lock-out or other labo u r difficulty, or any investigation or proceeding by any public authority, or any litigation by any Third Party.
32. NOTICES
32.1 Any notice or other communication required or permitted to be given by a Party under this Agreement shall be effective when delivered, if delivered by hand or by electronic facsimile, or five (5) Business Days after mailing if mailed by registered or certified mail (postage prepaid and return receipt requested), or two (2) Business Days after deposit with a courier if sent by an internationally recognised courier, and shall be addressed to a Party at the addresses and to the representatives set out below in Section 32.2.
32.2 The Parties respective representatives for the receipt of notices are, until changed by notice given in accordance with this Section 32, as follows:
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1070 Brussels, Belgium |
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Redwood City, CA 94061 |
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32.3 The provisions of this Section 32 shall not apply to the service of any proceedings or other documents in any legal action.
33. GOVERNING LAW AND JURISDICTION
33.1 Subject to the provisions of Section 23, this Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by, construed and enforced in accordance with the law of the State of New York without regard to its conflict of laws principles.
33.2 The Parties expressly disclaim the application of the United Nations Convention on the International Sales of Goods to this Agreement.
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This Agreement has been entered into on the date stated at the beginning of it.
Signed for and on behalf of |
/s/ Thomas Wiggans |
DERMIRA, INC. |
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/s/ Detlef Thielgen |
UCB PHARMA S.A. |
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Detlef Thielgen |
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/s/ Mark McDade |
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Mark McDade |
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[Signature Page to Development and Commercialisation Agreement]
List of Schedules
Schedule 1 Cimzia® Trademarks
Schedule 2 Commercial Functions
Schedule 3 Development and Commercial Transition Checklist
Schedule 4 Cost of Goods
Schedule 5 Outline of Safety Reporting Timelines
Schedule 6 Development Responsibility Matrix
Schedule 7 Gross Margin Calculation
Schedule 8 Initial Development Plan
Schedule 9 [*]
Schedule 10 Synopses of Phase 3 Protocols
Schedule 11 Regulatory Responsibility Matrix
Schedule 12 UCB Safety Process
Schedule 13 Third Party Licenses
Schedule 14 Certain Patent Rights under the UCB Background IP
Schedule 15 UCB Hub Services
Schedule 16 Interim Clinical Study Report
Schedule 17 [*]
Schedule 18 UCB Code of Conduct and Principles of Ethical Business Practice
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SCHEDULE 1
CIMZIA® TRADEMARKS
PART A
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PART B
OXO Trademarks Sublicense Agreement
This Agreement is entered into
BETWEEN
UCB PHARMA S.A. , a corporation incorporated under the laws of Belgium, having its registered offices at Allée de la Recherche 60, 1070 Bruxelles, Belgium, hereinafter referred to as UCB PHARMA , and
AND DERMIRA, INC., a corporation organised under the laws of the State of Delaware, with its principal offices located at 2055 Woodside Road, Suite 270, Redwood City, California 94061, the United States of America, hereafter referred to as DERMIRA ;
Individually a Party and together the Parties.
WHEREAS , UCB PHARMA is a bio-pharmaceutical company which has developed and/or owns rights to manufacture distribute, promote, market and sell the Product;
WHEREAS , UCB PHARMA holds exclusive right and license to use the OXO and GOOD GRIPS trademarks and to sublicense the rights under the license to UCB PHARMA affiliates;
WHEREAS , the Parties desire and intend that Dermira be permitted to use the OXO Trademarks throughout the Territory, on and in connection with the Development and Collaboration Agreement (the DCA) and subject to the terms and conditions of this OXO Trademarks Sublicense Agreement.
Now therefore, it has been agreed as follows:
SECTION 1 DEFINITIONS
1.1 Confidential Information shall have the meaning ascribed to it in the DCA.
1.2 OXO Designed Features shall have the meaning set forth in Schedule B.
1.3 OXO Trademarks shall have the meaning specified in Schedule A and which UCB PHARMA has the exclusive right to use and sublicense in the Territory.
1.4 OXO Trademarks Licensor shall mean HELEN OF TROY LIMITED, a Barbados limited company, with offices at 13 8 th Avenue, Belleville, P.O. 836E, St. Michael, Barbados.
1.5 OXO Trademarks Sublicense shall have the meaning set forth in Section 2.
1.6 OXO Trademarks Sublicense Contact Persons shall be the person(s) identified in Schedule C.
1.7 OXO Trademarks Sublicense Term shall have the meaning set forth in Section 4.1.
1.8 Product shall mean the Product as defined in the DCA.
1.9 Territory shall have the same meaning as the Development Territory as defined in the DCA.
1.10 Use of OXO Trademarks Quality Standards shall have the meaning set forth in Section 3.5.
Other capitalized terms used in this OXO Trademarks Sublicense Agreement not defined herein shall have the meanings ascribed to them in the DCA.
SECTION 2 OBJECT OF THE AGREEMENT
Grant of OXO Trademarks sublicense
UCB PHARMA hereby grants Dermira which hereby accepts, a royalty-free, non-exclusive sublicense and, subject to Section 6, non-transferable right and sublicense to use the OXO Trademarks in the Territory during the OXO Trademarks Sublicense Term on and in connection with the Product (the OXO Trademarks Sublicense).
SECTION 3 CONDITIONS OF THE OXO TRADEMARKS SUBLICENSE
3.1 Approval procedures
UCB PHARMA shall furnish to the OXO Trademarks Licensor for review and approval by the OXO Trademarks Licensor a reasonable number of pre-Development samples of any labels, tags, containers, packaging or wrappings to use with Product in Development and bearing any of the OXO Trademarks.
Each Party shall appoint an OXO Trademarks Sublicense Contact Person. All requests for approval should be sent by the Dermira OXO Trademarks Sublicense Contact Person to the UCB OXO Trademarks Sublicense Contact Person. UCB PHARMA shall use commercially reasonable efforts to submit the request to the OXO Trademarks Licensor and inform Dermira whether the OXO Trademarks Licensor approved, objected or failed to reply to the submission. UCB PHARMA will provide Dermira with a written explanation of the reasons for OXO Trademarks Licensor objection when applicable. Any information or language mandated by the Regulatory Authority competent within the Territory shall be deemed automatically authorized for use within the Territory; however, the placement or the location of such mandated material or language requires OXO Trademarks
Licensor approval unless the placement or the location of such material or language is also mandated by a Regulatory Authority.
3.2 Reporting
Dermira and UCB shall, through the JDC no more than twice in a Calendar Year, upon request, a reasonable number of representative samples of Product that bear any of the OXO Trademarks and other printed material bearing any of the OXO Trademarks that Dermira may desire to disseminate publically .
3.3 Ownership of the OXO Trademarks
Dermira acknowledges that all use of the OXO Trademarks does not create in Dermira any right, title or interest in or to the OXO Trademarks, except pursuant to the license grants expressly provided herein. Dermira shall not represent in any manner to any Third Party that it has ownership rights in or to the OXO Trademarks or any rights other than those specific rights conferred by the OXO Trademarks Sublicense.
3.4 Use of the OXO Trademarks
Dermira shall include the following statements or such alternative statements as may be dictated by the Applicable Law, with all uses of any of the OXO Trademarks on any label, tag, container or packaging associated with any of the Products, and in any advertisement, marketing or promotional materials or other printed materials relating to such Products, provided that UCB does not prevent Dermira to do so under the DCA:
(i) For any OXO Trademark registered for the Product in a country within the Territory, Dermira shall ensure on any material associated with the Product used in that country (but not on the Product itself), the following legend, to the extent such Product or associated materials bear any of the OXO Trademarks:
OXO, Good Grips and the associated logos are registered trademarks of Helen of Troy Limited and are used under sublicense.
(ii) For any OXO Trademark that has not yet been registered for such Products in a country within the Territory, Dermira shall include on any material associated with the Product used in that country (but not on the Product itself), the following legend, to the extent such Product or associated materials bear any of the OXO Trademarks:
OXO, Good Grips and the associated logos are trademarks of Helen of Troy Limited and are used under sublicense.
When using any of the OXO Trademarks on Products or any associated materials in a particular country within the Territory, Dermira shall use commercially reasonable efforts to comply with all Applicable Law in force in that country with respect to the use of trademarks.
3.5 Use of OXO Trademarks Quality Standards
UCB should maintain the nature and quality of the Product bearing any of the OXO Trademarks and ensure printed material bearing any of the OXO Trademarks shall be of high standards and of such style, appearance and quality as to be adequate and suited to the exploitation to the best advantage and to the protection and enhancement of the OXO Trademarks (Quality Standards).
Each of UCB and Dermira shall notify promptly each other in writing of any instance of non-compliance with the Quality Standards or any material change in quality of any previously approved Products, materials or uses, of which it may become aware. UCB shall use Commercially Reasonable Efforts to correct any non-compliance, including by recalling the Product.
3.6 Infringement by Third Parties
The provisions of Section 14.20 of the DCA apply to the OXO Trademarks mutatis mutandis.
3.7 Confidentiality
The confidentiality obligations set in Section 17 of the DCA apply fully to this OXO Trademarks Sublicense Agreement.
SECTION 4 TERM AND TERMINATION OF THE OXO TRADEMARKS SUBLICENSE
4.1 OXO Trademarks Sublicense Term
The term of the OXO Trademarks Sublicense shall have the same term as the Term. If the DCA is terminated for any reason this OXO Trademarks Sublicense Agreement shall automatically terminate.
4.2 Termination by UCB PHARMA
In addition to the termination rights in Section 20 of the DCA, UCB PHARMA may terminate the OXO Trademarks Sublicense Agreement in its entirety if Dermira is in material breach or default if any of its obligations under Section 3 of this OXO Trademarks Sublicense Agreement.
4.3 Automatic Termination
Without prejudice to Section 4.1 and in addition to the termination rights in Section 20 of the DCA, UCB PHARMA shall have the right in its sole discretion to terminate the OXO Trademarks
Sublicense if the OXO Trademarks Licensor terminates the OXO Trademarks License granted to UCB PHARMA.
4.4 Survival
Expiration or termination of this OXO Trademarks Sublicense Agreement in whole or in part shall not relieve the Parties of the obligation to pay any amounts owing between them, nor shall it relieve the Parties of their obligations under Section 3.7 and any other Section providing for its survival, which shall survive such expiration or termination, in accordance with their terms.
4.5 Effects of Termination
On expiration or termination of this OXO Trademarks Sublicense Agreement for any reason whatsoever, Dermira:
(i) shall cease using the OXO Trademarks and shall at no time adopt or use any word or mark which is confusingly similar to the OXO Trademarks;
(ii) shall cease to represent that it is a sub-licensee of the OXO Trademarks Licensor;
(iii) shall cease to have any further rights to, and shall promptly cease using and return to UCB PHARMA any and all UCB PHARMA Confidential Information or destroy the same as instructed in writing by UCB PHARMA;
(iv) shall establish, upon a request from UCB PHARMA, an inventory of all remaining Product bearing any of the OXO Trademarks and/or incorporating an OXO Designed Feature in its or its CROs or its Third Party subcontractors possession and inform UCB PHARMA accordingly no later than 30 days after the receipt of such request;
(v) shall return or ensure the return to UCB PHARMA, upon a written request from UCB PHARMA, the inventory of all remaining Product bearing any of the OXO Trademarks and/or incorporating an OXO Designed Feature in its possession no later than 40 days after the receipt of such request;
If the specific automatic termination under section 4.2 occurs, UCB PHARMA may at its sole discretion consider appropriate remedies.
SECTION 5 WARRANTIES
The provisions of Section 15.1 of the DCA apply to this OXO Trademarks Sublicense Agreement as applicable.
SECTION 6 SUBLICENSING
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SECTION 7 GOVERNING LAW AND DISPUTE RESOLUTION
The provisions of Section 33 of the DCA apply fully in this OXO Trademarks Sublicense Agreement.
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Done in two (2) originals, each Party having received its original.
Signed for and on behalf of |
/s/ Thomas Wiggans |
DERMIRA, INC. |
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Thomas Wiggans |
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Signed for and on behalf of |
/s/ Detlef Thielgen |
UCB PHARMA S.A. |
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Detlef Thielgen |
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Name (print) |
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/s/ Mark McDade |
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Mark McDade |
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LIST OF SCHEDULES
To the OXO Trademarks Sublicense Agreement between UCB PHARMA and Dermira
SCHEDULE |
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CONTENT |
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OXO Trademarks |
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B |
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OXO Design Features |
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C |
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OXO Trademarks Sublicense Contact Persons |
SCHEDULE A
TO THE OXO TRADEMARKS SUBLICENSE AGREEMENT BETWEEN UCB PHARMA AND DERMIRA
OXO Trademarks
1.
OXO® and
(OXO logo)
2.
GOOD GRIPS® and
(GOOD GRIPS logo)
SCHEDULE B
TO THE OXO TRADEMARKS SUBLICENSE AGREEMENT BETWEEN UCB PHARMA AND DERMIRA
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SCHEDULE C
TO THE OXO TRADEMARKS SUBLICENSE AGREEMENT BETWEEN UCB PHARMA AND DERMIRA
OXO Trademarks Sublicense Contact Persons
UCB OXO Trademarks Sublicense Contact Person shall be [*]
Dermira OXO Trademarks Sublicense Contact Person shall be [*]
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SCHEDULE 2
COMMERCIAL FUNCTIONS
Regulatory Matters :
1 Implementing local regulatory strategy and labelling for the Product for the Promotion Indication and the Development Indication in the Promotion Territory in accordance with the applicable UCB approved Commercialisation Plans, Medical Affairs Plans and Local Dermira Commercial Plans.
2 As sponsor and marketing authorisation holder and, within the Development Territory as the case may be, IND holder/CTA applicant or equivalent, obtaining and maintaining any and all Regulatory Approvals for the Product in the Development Indication and the Promotion Indication in the Territory, including assembling the registration dossier, obtaining any foreign language translations, and making such submissions to such Regulatory Authorities as are needed to obtain such Regulatory Approval.
3 Complying with all regulatory requirements and reporting obligations to Regulatory Authorities relating to the Regulatory Approvals for the Product in the Territory for both the Promotion Indication and the Development Indication.
4 To the extent required under Applicable Law, filing any necessary reports with relevant Regulatory Authority in the Promotion Territory regarding distribution and use of Samples.
5 Interactions with all Regulatory Authorities in the Promotion Territory in relation to the Product, including but not limited to with respect to Promotional Materials, advertising, and the like for the Product in the Promotion Indication and the Development Indication.
Other Matters :
1 Carrying out Post-Approval Studies (if any) for the Product in the Promotion Territory for the Promotion Indication and in the Reserved Territory for the Promotion Indication and the Development Indication.
2 All market access activities and activities related to pricing, discounting, reimbursement and formulary access, tenders and contracting with public and private customers and purchasers, including without limitation: (i) determining the local terms and conditions of sale for the Product in each country within the Promotion Territory (including, without limitation, discounts, rebates and managed market matters), (ii) if applicable, negotiating gross and net Pricing and Reimbursement Approvals for the Product including any adjustments thereto, with the relevant
governmental authority in each country or private payors and other purchasing organisations within the Promotion Territory, and (iii) negotiating gross and net pricing, and maintaining and enforcing contracts, with managed care companies and governmental authorities with respect to the Product in each country within the Promotion Territory. All such activities will be performed in accordance with the terms of the Agreement, commercially acceptable business practices, Applicable Law, and the applicable general pricing strategies and guidelines of UCB.
3 All matters and activities relating to Medical Affairs.
4 Negotiating and entering into agreements with Third Parties, such as advertising agencies, related to the Commercialization of the Product in each country within the Promotion Territory, in each case in accordance with commercially acceptable business practices, Applicable Law, and the applicable Commercialisation Plans and Local Dermira Commercial Plans.
5 UCB approval of all Promotional Materials to be used and distributed by Dermiras Sales Representatives (or those of their respective designated Affiliates) in each country within the Promotion Territory for the Promotion Indication and, if applicable, the Development Indication. All such Promotional Materials shall be prepared, distributed and used in accordance with the corresponding Regulatory Approvals, the applicable Commercialisation Plans, Applicable Law, and applicable local health authority guidelines.
6 Manufacturing or having manufactured supplies of the Product for distribution and sale in the Promotion Territory, in accordance with the applicable supply pricing recommendations agreed by UCB, and attending to all related activities, such as (i) import administration, (ii) administration and financing of import-related taxes, (iii) transport insurance and freight, (iv) physical warehouse management, (v) planning, accounting and information technology-related management, and (vi) inventory safeguarding and insurance.
7 Distribution, invoicing and booking of sales of the Product in the Promotion Territory in the Promotion Indication and the Development Indication, interfacing with wholesale, hospital and governmental authority customers in connection therewith, determining payment terms and policies with such customers, and all other customer service functions for invoicing sales of the Product in the Promotion Territory.
8 Cash management, debt collection and accounting for sales of the Product in the Promotion Territory.
9 Sourcing and providing supplies of Samples of the Product in accordance with the applicable Commercialisation Plans and Local Dermira Commercial Plans, and the distribution of those Samples to a facility designated by Dermira (or its designated Affiliates) for distribution to and use by Dermiras Sales Representatives in the Promotion Territory.
10 Initiating any Recall or other withdrawal of the Product for the Promotion Indication or the Development Indication in the Territory within the global strategic guidelines for Recalls or withdrawals defined by UCB.
SCHEDULE 3
DEVELOPMENT AND COMMERCIAL TRANSITION CHECKLIST
The following is a checklist of information, materials and support relating to the Development of the Product in the Development Indication in the Development Territory and Dermira Commercial Activities relating to the Product in the Promotion Territory based on which the Parties shall (without prejudice to the more general obligations set out in Section [to be inserted]) set out more precisely what shall be provided to UCB by Dermira either prior to or on termination of the Agreement as provided in Section [to be inserted], to the extent that information or material corresponding thereto exists and is in the possession or control of Dermira or any of its Affiliates (or any of its or their Third Party subcontractors to the extent Dermira or any of its Affiliates can obtain such information or materials from their subcontractors using all best efforts) at the time of termination and to the extent that Dermira has not already provided such information or material during the Term. Reference to Dermira in this Schedule shall be deemed to include reference to Dermira or any of its Affiliates or any of its or their Third Party subcontractors. Such information or material shall be fully up to date and accurate at the date of termination save where historical information is required. The timetable for delivery of agreed-upon information, materials and assistance will be a reasonable timetable having regard to the obligations set out in Section [to be inserted].
DEVELOPMENT RELATED
Category |
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Delivery Item |
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[*] |
* Confidential Treatment Requested
DERMIRA COMMERCIAL ACTIVITIES RELATED
Category |
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Delivery Item |
[*] |
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[*] |
* Confidential Treatment Requested
SCHEDULE 4
COST OF GOODS
[*]
* Confidential Treatment Requested
SCHEDULE 5
OUTLINE SAFETY REPORTING TIMELINES
[*]
* Confidential Treatment Requested
SCHEDULE 6
DEVELOPMENT RESPONSIBILITY MATRIX
Development Activities and Assignment
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UCB |
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Dermira |
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Comments |
[*] |
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* Confidential Treatment Requested
SCHEDULE 7
GROSS MARGIN CALCULATION
[*]
*Confidential Treatment Requested
SCHEDULE 8
INITIAL DEVELOPMENT PLAN
[*]
*Confidential Treatment Requested
SCHEDULE 9
[*]
*Confidential Treatment Requested
SCHEDULE 10
SYNOPSES OF PHASE 3 PROTOCOLS
[*]
*Confidential Treatment Requested
SCHEDULE 11
REGULATORY RESPONSIBILITY MATRIX
[*]
* Confidential Treatment Requested
SCHEDULE 12
UCB SAFETY PROCESS
[*]
*Confidential Treatment Requested
SCHEDULE 13
THIRD PARTY LICENCES
[*]
*Confidential Treatment Requested
SCHEDULE 14
CERTAIN PATENT RIGHTS UNDER THE UCB BACKGROUND IP
[*]
*Confidential Treatment Requested
SCHEDULE 15
UCB HUB SERVICES
Cimzia® Hub Services - [*]
[*]
*Confidential Treatment Requested
SCHEDULE 16
CLINICAL STUDY REPORT
CLINICAL STUDY REPORT {STUDYNUMBER}
[*]
*Confidential Treatment Requested
SCHEDULE 17
[*]
*Confidential Treatment Requested
SCHEDULE 18
UCB CODE OF CONDUCT AND PRINCIPLES OF ETHICAL BUSINESS PRACTICE
http://www.ucb.com/_up/ucb_com_ir/documents/Code_of_conduct.pdf
**Document to be added once document is in PDF format
PRINCIPLES OF ETHICAL BUSINESS PRACTICES
UCB requires any business partner, collaborator, supplier or contractor of UCB (Partner) to conduct their business with due regard to the highest ethical standards and to comply with the following principles of ethical business practices (the Principles):
1. Compliance with Laws.
The Partner shall at all times be bound by and strictly comply with all applicable laws and regulations concerning corrupt practices or which in any manner prohibit the giving of any financial or other advantage, or anything of value to any official, agent or employee of any government, political party or public international organisation, or to any candidate for public office, or to any Healthcare Professional, or to any officer, employee, agent, or representative of another company or organisation, including but not limited to the US Foreign Corrupt Practices Act and the UK Bribery Act. The Partner shall comply with any applicable industry codes when performing its responsibilities under its agreement with UCB.
2. Specific Obligations
In performing its obligations under its agreement with UCB, neither the Partner, nor any of its equity holders, partners, officers, directors, employees, representatives, or agents, shall:
(a) directly or indirectly, offer, give, promise to give or authorise the giving of any financial or other advantage, or anything of value, to (i) any official or employee of any government, or any department, agency, or instrumentality thereof, (ii) any political party or official thereof, or to any candidate for political office, (iii) any official or employee of any public international organisation, or (iv) any person acting in an official capacity on behalf of any of the foregoing (i) - (iii), in each case for the purpose of (1) influencing or rewarding any act or decision of such official, employee, party or candidate, or (2) inducing such official, employee, party or candidate to do or omit to do any act in violation of the lawful duty of such official, employee, party or candidate, or (3) inducing such party, official, or candidate to use its or his or her influence with a government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, or (4) securing an improper advantage for the Partner or UCB; or
(b) directly or indirectly, offer, give, promise to give or authorise the giving of any financial or other advantage, or anything of value, on behalf of UCB, to
an officer, employee, agent, or representative of another company or organisation, without that companys or organisations knowledge and consent, with the intent to influence or reward the recipients action(s) with respect to his or her companys or organisations business, or to induce the recipient to violate a duty of loyalty to his employer, or to gain a commercial benefit to the detriment of the recipients company or organisation, or to induce or reward the improper performance of the persons duties.
During the term of the Partners agreement with UCB, no official or employee of any government, or of any agency or instrumentality of any government, or of any political party, or of any public international organisation, and no candidate for public office, shall own, directly or indirectly, any shares or other beneficial interest in the Partner.
When it enters into its Agreement with UCB, the Partner must not have received any notice, subpoena, demand or other communication (whether oral or written) from any governmental authority at any time in the previous five (5) years regarding the Partners actual, alleged, possible or potential violation of, or failure to comply with, any laws, regulations or industry codes governing bribery, money laundering, or other corrupt payments and, to its best knowledge, the Partner must not be, and must not have been at any time in the previous five (5) years, the subject of any governmental investigation, audit, suit or proceeding (whether civil, criminal or administrative) regarding its violation of, or failure to comply with, any such laws, regulations or industry codes.
None of the Partners officers, directors, employees, representatives, or agents shall be or become, without prior written notice to UCB, an official or employee of any government, or of any department, agency or instrumentality of any government, or of any political party, or of any public international organisation; or a candidate for public office.
3. Notice
The Partner shall promptly notify UCB of (a) the occurrence of any fact or event that the Partner suspects could put it in breach of Section 2 of these Principles, (b) any notice, subpoena, demand or other communication (whether oral or written) from any governmental authority regarding the Partners actual, alleged, possible or potential violation of, or failure to comply with, any laws, regulations or industry codes governing bribery, money laundering, or other corrupt payments, and (c) any governmental investigation, audit, suit or proceeding (whether civil, criminal or administrative) regarding the Partners violation of, or failure to comply with, any such laws, regulations or industry codes.
4. Certification
Annually or at such other times as may be reasonably requested by UCB, the Partner shall cause one of its authorised officers to execute and deliver to UCB a Certificate of Compliance with Ethical Business Practices that confirms the Partners continued compliance with the provisions of these Principles.
5. Implementation of Policies and Procedures
The Partner shall maintain policies and procedures designed to ensure continued compliance with these Principles by all officers, directors, employees, representatives, and agents of the Partner.
6. Record Keeping
The Partner shall maintain true, accurate and complete books and records with respect to all payments made to third parties pursuant to its agreement with UCB or in furtherance of the services provided to UCB under the agreement.
Exhibit 10.10
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[*] 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. |
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement ( Agreement ) is entered into as of April 26 2013 ( Effective Date ), by and between Rose U LLC, a California limited liability company ( Licensor ), and Dermira, Inc., a Delaware corporation ( Dermira ) (collectively, the Parties and individually, a Party ).
RECITALS
A. Licensor is the owner of the Patent Rights and Technology (as defined below), and has also licensed the Stiefel Data (as defined below) and obtained certain other rights from Stiefel Laboratories, Inc. ( Stiefel ) pursuant to a License and Post-Termination Agreement dated April 26 2013 (the Stiefel Agreement ), a copy of which is attached as Appendix B ;
B. Licensor desires to license the Patent Rights and Technology and sublicense the Stiefel Data, to Dermira, and Dermira desires to obtain such license and sublicense, all upon the terms and conditions and as further set forth in this Agreement.
C. Concurrently with the execution of this Agreement, Dermira and Stiefel are entering into a letter agreement (the Stiefel Side Letter ), a copy of which is attached as Appendix C , pursuant to which, among other things, Dermira agrees to pay license fees arising from the use of the Stiefel Data directly to Stiefel and indemnify Stiefel.
NOW, THEREFORE, Licensor and Dermira agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Affiliate means, with respect to a person, any corporation, partnership, business joint venture or other entity that directly or indirectly controls, is controlled by or is under common control of such person. For purposes of this section, control means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the entity in question (whether through ownership of securities or other ownership interests, by contract or otherwise).
Section 1.2 Combination Product means a product that is a combination of a Licensed Product with one or more other products that contain an active pharmaceutical ingredient that is not a Licensed Product (such other products, NLPs ).
Section 1.3 Commercially Reasonable Efforts means efforts that, taken together, would constitute a reasonable level of effort by [*] to develop and commercialize in a [*] manner, one of such companys [*] giving full consideration to all [*].
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Section 1.4 [*] Payment has the meaning given to it in the Stiefel Agreement.
Section 1.5 FDA means the United States Food and Drug Administration.
Section 1.6 Field means the use of topical products containing [*] or other compounds identified in the patents listed in Appendix A , for any indications, including without limitation, for the treatment and prevention of hyperhidrosis, [*], or excessive sweating, provided that the indications included in the Field as it applies to the use of Stiefel Data shall be limited to the treatment and prevention of hyperhidrosis [*], or excessive sweating. For clarity, the Field, in all cases, includes such products sold [*].
Section 1.7 Generic Product means, with respect to a Licensed Product, a product that (1) (a) contains as an active ingredient, active moiety, or molecular entity which is the same active ingredient, active moiety, or molecular entity as such Licensed Product; (b) is approved by the Regulatory Authority in such country for use in such country for the same human indication within the Field as such Licensed Product; and (c) is substitutable or interchangeable for such Licensed Product by healthcare practitioners or pharmacists in the applicable country; or (2) obtains marketing approval pursuant to an abbreviated regulatory approval process relying in whole or in part on marketing approvals for the Licensed Product or data submitted to a Regulatory Authority by or on behalf of Dermira or a Dermira Affiliate or a Sublicensee for a Licensed Product; or (3) otherwise references the Licensed Product to obtain such marketing approval based on a demonstration of bioequivalence or biosimilarity to a Licensed Product.
Section 1.8 Improvement means, with respect to Dermira or Licensor, as applicable, any and all new or useful know-how, discoveries, inventions, contributions, findings, improvements, and enhancements to a Licensed Product for use in the Field, including, without limitation, any enhancements of its use, dosage, form, presentation (including packaging, applicators and the like) and/or formulation, whether or not patented or patentable, conceived, reduced to practice or otherwise developed by or for such Party, either solely or jointly, as the case may be. Improvement also means the change in regulatory classification or status of a Licensed Product (e.g. from prescription pharmaceutical to over-the-counter pharmaceutical).
Section 1.9 Know-How Royalty Term means the period calculated on a [*] basis commencing on the first commercial sale of the first Licensed Product in the [*] and ending ten (10) years thereafter; provided that in no event shall the Know-How Royalty Term for any [*] extend beyond the date that is fifteen (15) years following the commencement of the first Know-How Royalty Term.
Section 1.10 Licensed Product means any product, process or service in the Field which incorporates in whole or in part, or the use or sale of which absent this license would otherwise infringe, the Patent Rights and Technology or the Stiefel Data.
Section 1.11 Liquidity Event means (i) an initial public offering of Dermiras common stock on any nationally recognized stock exchange (including without limitation NASDAQ, NYSE, TSE, London Stock Exchange, or equivalents in other countries) at a price
*Confidential Treatment Requested
per share representing an enterprise value for Dermira equal to at least [*] times the aggregate amount of invested capital (including all equity and unrepaid debt investments) received by Dermira prior to such offering; or (ii) a merger, acquisition, or the sale of all or substantially all of Dermiras assets or of the assets of a division or product line that includes the Licensed Product.
Section 1.12 Net Sales means the gross amount invoiced or otherwise received by Dermira or a Dermira Affiliate or a Sublicensee from sales of Licensed Product, whether or not assembled (and, except as provided below with respect to Combination Products, without excluding any components or subassemblies thereof), less the following items but only insofar as they actually pertain to the disposition of such Licensed Product by Dermira or an Affiliate of Dermira or a Sublicensee: (a) any import, export, sale, use, or excise taxes (including value added taxes to the extent that such value added tax is incurred and not reimbursed, refunded, or credited under a tax authority); (b) costs of transportation, packing, and insurance from the place of manufacture to the customers premises or point of sale; (c) credits for returns, allowances, or trades, or allowances for uncollectable accounts; or (d) discounts for prompt payment or volume purchases, or other discounts or rebates paid or credited to promote the inclusion of Licensed Product in applicable formulary programs. Sales among Dermira, Affiliates of Dermira and Sublicensees shall be excluded from the computation of Net Sales.
In the event a Licensed Product is sold in a country as part of a Combination Product, then for purposes of determining payments due to Licensor under this Agreement, Net Sales shall be calculated by multiplying the Net Sales of the Combination Product by the fraction A over A+B, in which:
A is the Gross Selling Price of the Licensed Product when such Licensed Product is sold in the relevant country in substantial quantities where the Licensed Product is the sole active pharmaceutical ingredient, and
B is the Gross Selling Price of the NLPs contained in the Combination Product sold separately in the relevant country in substantial quantities.
All Gross Selling Prices of the Licensed Product and NLPs shall be calculated as the average Gross Selling Prices of such products in the relevant country during the applicable accounting period for which the Net Sales are being calculated. In the event that no separate sale of either the Licensed Product as the sole active pharmaceutical ingredient or the NLPs are made in the relevant country during the accounting period in which the sale was made, or if the Gross Selling Price for a Licensed Product or NLP cannot be determined for an accounting period, Net Sales allocable to the Licensed Product and NLPs shall be determined by mutual agreement reached in good faith by the Parties prior to the end of the accounting period in question based on an equitable method of determining same that takes into account the relative contribution of each active pharmaceutical ingredient in the Combination Product, and relative value to the end user of each active pharmaceutical ingredient. For purposes of this definition, Gross Selling Price means the gross price at which a product containing the active pharmaceutical ingredient in question is sold to a third party, before discounts, deductions, credits, taxes or allowances.
*Confidential Treatment Requested
Section 1.13 Patent Rights and Technology means: (a) Licensors rights under all patents, and patent applications listed on Appendix A , as well as all foreign counterpart patents and patent applications (including future foreign counterparts to the patents and patent applications listed in Appendix A or described in (b) and (c) below); (b) all reissues, reexaminations, renewals, extensions, divisionals, continuations, and continuations-in-part of the patents and patent applications listed in Appendix A and/or described in (c) below, and any patents which issue on the foregoing; (c) unless Dermira elects otherwise with respect to a given patent or patent application, all patent applications that are owned by Licensor or an Affiliate of Licensor during the Term, or to which Licensor or an Affiliate of Licensor otherwise acquires rights during the Term, which are Improvements or enhancements of the patents or patent applications listed in Appendix A and/or described in (b) above; and (d) any know-how or other enabling information relating to the use of [*] ( or other compounds identified in the patents listed in Appendix A ) in the Field that is or comes into the possession and control of Licensor or its Affiliates (other than the Stiefel Data) during the Term.
Section 1.14 Program Inventory and Supplies has the meaning given to it in the Stiefel Agreement.
Section 1.15 Quarter means each period of three (3) consecutive months during the Term ending on a Quarter Date provided that the period from the: (a) Effective Date until the first Quarter Date is deemed to be a Quarter; and (b) last Quarter Date prior to termination, through the termination date, of this Agreement is deemed to be a Quarter.
Section 1.16 Quarter Date means one of March 31, June 30, September 30, or December 31.
Section 1.17 Region means each of [*].
Section 1.18 Regulatory Authority means the FDA and/or its equivalent in other countries of the Territory, or any successor entity thereto.
Section 1.19 Regulatory Materials means the regulatory applications, submissions, notifications, registrations, regulatory approvals or other submissions or correspondence assigned to Licensor under the Stiefel Agreement, or that relate to the use of [*] ( or other compounds identified in the patents or patent applications listed in Appendix A ) in the Field and are in or during the Term come into the possession and control of Licensor. For clarity, the Regulatory Materials include [*] .
Section 1.21 Rose U Patents means the issued patents identified as the Rose U Patents in Appendix A ; and Non-Rose U Patents means all patent rights included in the Patent Rights and Technology, other than the Rose U Patents.
Section 1.23 Stiefel Data has the meaning given to it in the Stiefel Agreement.
*Confidential Treatment Requested
Section 1.25 Sublicense Agreement means a written agreement under which Dermira or a Dermira Affiliate grants a sublicense of the rights granted under Section 2.1 or 2.2 to a Sublicensee which rights include the right to commercialize Licensed Product .
Section 1.27 Sublicensing Revenue means amounts received by Dermira or an Affiliate of Dermira under a Sublicense Agreement in the form of [*], in each case to the extent attributable to the grant of sublicenses of the Patent Rights and Technology or Stiefel Data. For clarity, Sublicensing Revenue shall not include (without limitation): (i) payments in return for research services or activities, including costs of materials, equipment or clinical testing; (ii) payments for the manufacturing and supply of Licensed Product, (iii) bona-fide equity or debt investments, or amounts received by Dermira in respect of any sale or assignment of assets; or (iv) reimbursements of patent prosecution costs and patent maintenance expenses.
Section 1.28 Term has the meaning given to it in Article 13.
Section 1.29 Territory means all countries, states and territories worldwide .
Section 1.30 Valid Claim means either: (a) a claim of an issued and unexpired patent included within the Patents Rights and Technology, which has not been permanently revoked or declared unenforceable or invalid by an unreversed and unappealable or unreversed and unappealed decision of a court or other appropriate body of competent jurisdiction, and that has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, or (b) a claim of a pending patent application included within the Patents Rights and Technology, which claim (i) was filed in good faith and has not been irretrievably cancelled, withdrawn or abandoned or finally disallowed without the possibility of appeal or refiling of such application, and (ii) has not been pending for more than [*] from the earliest priority date of the pending application reciting such claim.
ARTICLE 2
GRANT OF RIGHTS; TECHNOLOGY TRANSFER
Section 2.1 License to Patent Rights and Technology . Subject to the terms of this Agreement, Licensor hereby grants Dermira and its Affiliates an exclusive (even as to Licensor), worldwide, perpetual license under the Patent Rights and Technology to research, develop, have developed, make, have made, promote, have promoted, import, have imported, distribute, have distributed, use, have used, sell, have sold, offer for sale, have offered for sale, sublicense through multiple tiers and otherwise fully exploit any and all products, processes and services whatsoever, throughout the Territory in the Field.
Section 2.2 Sublicense to Stiefel Data . Subject to the terms of this Agreement, Licensor hereby grants Dermira and its Affiliates a worldwide, exclusive (except as to Stiefel and its Affiliates) license (including the right to grant sublicenses through multiple tiers pursuant
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to the provisions of Section 2.3) to use the Stiefel Data in the Field. Stiefel and its Affiliates are intended third party beneficiaries of this Agreement.
Section 2.3 Sublicenses . Dermira and its Affiliates shall have the right to grant sublicenses (through multiple tiers) to third parties (each such third party, a Sublicensee ) of the rights licensed under Sections 2.1 and 2.2. Sublicenses of the rights granted to Dermira and its Affiliates under Section 2.2 may only be granted to a third party to which Dermira, an Affiliate of Dermira or a Sublicensee grants the right to research, develop or commercialize products in the Field using Stiefel Data. However, notwithstanding the grant of sublicenses by Dermira and/or its Affiliates hereunder, Dermira shall remain obligated to pay all milestone payments under Section 4.1 that become due as a result of activities by Affiliates of Dermira or Sublicensees, and all royalties due to Licensor with respect to Net Sales of Licensed Products by Affiliates of Dermira and Sublicensees. Any sublicense agreement, whether by Dermira or an Affiliate of Dermira or a Sublicensee, shall not be inconsistent with the terms of this Agreement nor exceed the scope of the license granted to Dermira under this Agreement and shall include (i) an obligation of the Sublicensee to indemnify Licensor and its Affiliates as provided in Section 11.1 and Stiefel and its Affiliates as provided in the Stiefel Side Letter, subject to conditions and procedures substantially equivalent to those contained in Section 11.2 and the Stiefel Side Letter, (ii) confidentiality obligations of the Sublicensee no less protective of the Stiefel Data than those contained in Article 9, and (iii) an express statement that Stiefel and its Affiliates are intended third party beneficiaries of such sublicense agreement. Dermira shall promptly thereafter provide Licensor a true and correct copy of each such sublicense, provided that Dermira or the Sublicensee may redact confidential provisions of the sublicense agreement that are not reasonably required for Licensor to confirm compliance with this Agreement (but not the identity of the Sublicensee). Licensor agrees that the obligations in (i) and (iii) above and the obligation to provide copies of sublicenses shall not apply to sublicense agreements entered into by Dermira or its Affiliates or a Sublicensee with contract research organizations, contract manufacturing organizations and similar third parties performing services for the benefit of Dermira or its Affiliates or a Sublicensee which sublicense does not include any right to commercialize Licensed Product.
Section 2.4 Technology Transfer Obligations .
(a) Patent Rights and Technology . Promptly following the Effective Date, Licensor shall provide Dermira with copies of all documents (whether in written or electronic form) in Licensors possession or control which embody any know-how or information included in the Patent Rights and Technology.
(b) Stiefel Data . Promptly following the Effective Date, Licensor shall (or shall cause Stiefel to) provide Dermira with copies of all documents (whether in written or electronic form) listed on Exhibit A-1 to the Stiefel Agreement or that otherwise come into the possession or control of Licensor and describe or contain any Stiefel Data, and shall cause Stiefel to provide Dermira with such technical assistance and access to and cooperation of Stiefel personnel as Dermira may reasonably request in connection with the delivery to Dermira of factual knowledge and information relating to the Stiefel Data, Regulatory Materials and Program Inventory and Supplies, subject to the terms and condition of Section 3.3 of the Stiefel Agreement. Dermira shall reimburse Licensor for any out-of-pocket expenses of Stiefel for
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which Licensor becomes liable under Section 3.3 of the Stiefel Agreement to the extent such expenses have been approved in advance by Dermira in writing.
(c) Regulatory Materials . Licensor hereby assigns to Dermira all of its right, title and interest in and to the Regulatory Materials, and promptly following the Effective Date shall (or shall cause Stiefel to) promptly deliver the Regulatory Materials (whether in written or electronic form) to Dermira and take (and cause under the Stiefel Agreement Stiefel to take) such additional steps and execute such additional documents as Dermira may reasonably request in order to effect such assignment and delivery, including the transfer of any regulatory applications into the name of Dermira.
Section 2.5 Program Inventory and Supplies . Promptly following the Effective Date, to the extent the Program Inventory and Supplies still exists and to the extent it is able to under the terms of the Stiefel Agreement, Licensor shall (or shall cause Stiefel to) assign, transfer and deliver the Program Inventory and Supplies to Dermira, and shall cause Stiefel to take such additional steps and execute such additional documents as Dermira may reasonably request in order to effect such assignment, transfer and delivery. In addition, Licensor will cause Stiefel to use commercially reasonable efforts subject to the provisions of Section 3.4.2 of the Stiefel Agreement to (i) introduce Dermira to the contract manufacturing organization ( CMO ) that provided the Program Inventory and Supplies to Stiefel, and (ii) facilitate the transition of manufacturing to a CMO designated by Dermira, provided that Stiefel shall not be obligated to place any orders from a CMO on behalf of Dermira nor to provide any other assistance with respect to a CMO except as specifically set forth in Section 3.4.2 of the Stiefel Agreement. Upon the request of Dermira, Licensor will cause Stiefel to provide such Stiefel consent as is reasonably necessary to allow Dermira to work with service providers who have provided services to Stiefel in connection with the [*] Program (as defined in the Stiefel Agreement), including consenting to the use by such contractors of any Stiefel Data in the possession or control of such contractors to provide services to Dermira, its Affiliates or any Sublicensees.
Section 2.6 Amendment or Termination of Stiefel Agreement . Licensor acknowledges that the rights and obligations arising under the Stiefel Agreement are fundamental to Dermiras willingness to agree to the terms and conditions of this Agreement, and therefore Licensor agrees that it shall (i) promptly notify Dermira of any notices or other communications received by Licensor from Stiefel that relate to alleged breaches or violations of the Stiefel Agreement and (ii) shall not agree to any amendment, modification or termination of the Stiefel Agreement without Dermiras prior written consent. If the Stiefel Agreement is terminated prior to its expiration, the provisions of Section 8.3 of the Stiefel Agreement and Paragraph 4 of the Stiefel Side Letter shall apply such that the sublicense to the Stiefel Data granted by Licensor to Dermira under this Agreement shall be automatically assigned to and assumed by Stiefel and this Agreement shall be deemed amended to provide for such assignment in part of the rights and obligations of Dermira relating to the Stiefel Data under this Agreement. Such assignment and assumption of the sublicense to the Stiefel Data shall not affect the other provisions of this Agreement, including without limitation, the license of the Patent Rights and Technology to Dermira and the milestone, royalty and other payment obligations of Dermira to Licensor under Article 4.
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ARTICLE 3
DILIGENCE
Section 3.1 Diligence Obligation . As an inducement to Licensor to enter into this Agreement, Dermira agrees to use Commercially Reasonable Efforts to proceed with the development, manufacture, sale, and lease of Licensed Products in [*], and the development of markets for such Licensed Products in applicable [*] countries. The foregoing obligations shall include, where consistent with the Commercially Reasonable Efforts standard, an obligation to select commercially capable Sublicensees and to monitor and enforce the terms of sublicense agreements between Dermira and such Sublicensees.
Section 3.2 Progress Reports . In connection with this obligation, Dermira shall provide annual progress reports on September 1 of each year detailing its progress through the year ending June 30 toward commercialization of the Licensed Products. Such report shall include, at a minimum, a summary of work completed, key scientific discoveries, summary of work in progress, current schedule of anticipated events or milestones, and market plans for introduction of Licensed Product.
Section 3.3 Disputes as to Diligence . If Licensor believes that Dermira is out of compliance with its diligence obligations (including the obligation to use Commercially Reasonable Efforts as specified in Section 3.1), Licensor shall notify Dermira of such belief and Licensors grounds for such belief, including a reasonably detailed written statement of the minimum steps that Licensor believes Dermira would have to take during the ensuing [*] to bring itself into compliance with such obligations. If Dermira believes in good faith that it is in compliance with such diligence obligations, or that such steps are more than would be required in order to bring Dermira into such compliance during such ensuing [*], then Dermira may seek to resolve the matter with Licensor, either through good faith negotiations or pursuant to arbitration in accordance with Section 15.2. In the event that Licensor seeks to resolve such matter through arbitration, the following additional provisions shall apply: (i) the arbitrator(s) selected pursuant to the procedure described in Section 15.2 shall have, as part of their relevant industry expertise, experience with pharmaceutical development and commercialization, (ii) the purpose of the arbitration shall be initially to determine if Dermira was, as asserted by Licensor, failing to comply with the applicable diligence obligations and if such non-compliance was material, (iii) if the arbitrator determines that Dermira was materially failing to comply with such diligence obligations, then Dermira and Licensor shall each submit to the arbitrator a written proposal that sets forth a commercially reasonable (using the standard established under the definition of Commercially Reasonable Efforts) set of tasks, and a reasonable timeline that includes specific dates for completing such tasks (such timeline not to exceed [*]), that Dermira shall undertake in order to satisfy the specific diligence obligations for such period. The arbitrator(s) shall review the written proposals submitted by Dermira and Licensor, and shall determine which of the written proposals shall be adopted as the plan for complying with the applicable diligence obligations (the Cure Plan ). If Dermira then materially fails to perform the tasks set forth in the Cure Plan within the timeline established by such Cure Plan, and fails to cure such noncompliance within [*] after written notice by Licensor, then Licensor shall be entitled, as Licensors sole remedy, to terminate the licenses granted in Section 2.1 and 2.2, solely with respect to the specific territories
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and/or applications for which Dermira has failed to exercise the level of diligence required by Section 3.1.
ARTICLE 4
MILESTONE PAYMENT, ROYALTIES AND PAYMENT TERMS
In consideration for the licenses granted pursuant to this Agreement, Dermira shall pay Licensor or Stiefel (as set out below) the onetime milestone payments and shall pay Licensor the royalties identified below.
Section 4.1 Milestone Payments . Dermira shall pay Licensor the following noncreditable, nonrefundable milestone payments in accordance with the milestone events listed below:
Milestone Event |
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Amount Due
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Upon [*] |
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[*] |
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Upon [*]for a Licensed Product [*] |
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[*] |
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Upon Dermiras [*] of a Licensed Product |
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[*] |
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Upon [*] for a Licensed Product [*] |
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[*] |
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Upon [*] of a Licensed Product in the [*] |
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[*] |
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Upon [*] of a Licensed Product in the [*] |
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[*] |
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In the event of [*] for Licensed Product [*] |
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[*] |
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[*]
For avoidance of doubt, each milestone payment above will be payable once regardless of whether milestones are achieved with respect to multiple products.
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[*]
In addition, Dermira shall pay Stiefel the [*] Payment as and if it becomes payable under the terms of the Stiefel Side Letter.
Section 4.2 Royalty Payments . Dermira shall pay Licensor the following royalties and other amounts:
(a) Net Sales .
(i) Dermira shall pay Licensor a royalty on Net Sales as follows:
(A) [*]% of Net Sales in the Territory until the last to expire Valid Claim of the Rose U Patents (the Rose U Patent Royalty Term ),
(B) Following the Rose U Patent Royalty Term:
a. For Licensed Product which at the time of sale are [*]% of Net Sales in the country of sale;
b. Until the expiration of the applicable Know-How Royalty Term, for Licensed Product which at the time of sale are [*]% of Net Sales in the country of sale;
c. Following the expiration of the applicable Know-How Royalty Term, the licenses granted hereunder for Licensed Product which at the time of sale are [*] shall be considered fully paid up, and Dermira shall have no obligation to pay royalties on any Net Sales on such Licensed Products occurring after such date in such countries; and
d. Following the expiration of the last to occur of (i) the last Know-How Royalty Term, and (ii) the last Valid Claim of the Non-Rose U Patents, the licenses granted hereunder for all Licensed Products shall be considered fully paid up and Dermira shall have no obligation to pay royalties on any Net Sales of any Licensed Products occurring after such date.
(ii) This Section 4.2(a)(ii) applies only after the expiration of the Rose U Patent Royalty Term and only to adjust the royalty rate under Section 4.2(a)(i)(B)a above. If at any time one or more third parties launches, sells or otherwise distributes a Generic Product in any country and such Generic Product(s) account for [*] percent [*] or more of aggregate prescriptions of Licensed Product and all Generic Products in the given country in any given
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Quarter according to [*] (or any similar third party mutually agreed by the Parties), then the royalty rate under Section 4.2(a)(i)(B)a, from and after the date such Generic Product(s) account for [*] percent [*] or more of aggregate prescriptions of Licensed Product and all Generic Products in the given country in any given Quarter as determined above, shall be [*]%.
(iii) If Dermira is required or otherwise determines it necessary to pay additional royalties or other amounts to third parties in respect of intellectual property rights included in a Licensed Product (other than the [*] Payment), then the royalties for such Licensed Product that are due pursuant to Section 4.2(a)(i)(A) and Section 4.2(a)(i)(B) (as may be revised by the application of Section 4.2(a)(ii)) shall be reduced by [*] percent [*] of the amount of royalties or other amounts paid to such third parties, provided that in no event will the royalties payable to Licensor be reduced to less than [*] percent [*] of the amounts specified in Section 4.2(a)(i)(A) and 4.2(a)(i)(B) (as may be revised by the application of Section 4.2(a)(ii)).
(b) Sublicensing Revenue Payments . In addition, until the expiration of the last Valid Claim included in the applicable sublicensing agreement, Dermira shall pay Licensor a royalty equal to a percentage of the Sublicensing Revenue received by Dermira from a Sublicensee, determined based on the date that the applicable sublicensing agreement is entered into by Dermira and the Sublicensee in accordance with the following schedule:
Effective Date of Sublicensing Agreement |
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Applicable Percentage |
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Within [*] after Effective Date |
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[*]% |
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More than [*] after Effective Date |
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[*]% |
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In the event the Sublicensing Revenue is nonmonetary (including without limitation a cross-license), it shall be assigned a fair market value in good faith and the specified percentage of that fair market value shall be paid to Licensor.
(c) Crediting of [*] Payment . Dermira shall be entitled to deduct from amounts payable to Licensor under this Section 4.2 an amount equal to the [*] Payment paid by Dermira to Stiefel under the Stiefel Side Letter as follows: after Dermira has paid the [*] Payment to Stiefel, Dermira shall be entitled to reduce royalties on Net Sales or Sublicensing Revenue otherwise payable under this Section 4.2 by [*] percent [*]%) until the full amount of the [*] Payment has been credited against such portion of royalties on Net Sales or Sublicensing Revenue payable by Dermira under this Section 4.2 after Dermiras payment of the [*] Payment.
(d) Liquidity Events . In the event that Dermira undergoes a Liquidity Event during the Rose U Patent Royalty Term, it shall pay Licensor a royalty of $[*]. For avoidance of doubt, the Liquidity Event payment will be payable once regardless of whether Dermira or its successors undergo multiple Liquidity Events.
(e) Worldwide Scope . The parties acknowledge that Licensed Products, and components incorporated with or into Licensed Products, are mobile and may be transported from country to country across the world. Accordingly, for ease of accounting and the
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convenience of the parties in calculating payments due Licensor, the royalties and other amounts due under this Agreement are based on worldwide sales of Licensed Products regardless of whether a particular Licensed Product is covered by a current patent claim in the country of manufacture, sale, use, or importation, and the parties acknowledge that the amounts due Licensor under this Agreement have been reduced to account for this.
Section 4.3 Payment Terms . All payments made pursuant to this Agreement shall be in U.S. dollars.
(a) Milestone Payments . Milestone payments payable to Licensor pursuant to Section 4.1 that become payable during the Term shall be paid by Dermira to Licensor within [*] of the completion of the milestone event giving rise to such payment as set forth in Section 4.1. [*] Payment arising under the Stiefel Side Letter shall be paid by Dermira in accordance with the terms of the Stiefel Side Letter.
(b) Royalties . Any payments pursuant to Section 4.2 that become due and payable during the Term shall be paid by Dermira to Licensor within [*] after the end of the Quarter in which the Net Sales occurred or Sublicensing Revenue is received by Dermira.
(c) Service Fees . Any payments due to Licensor that are not paid within the time provided in this Agreement shall be subject to a service charge of [*] percent per month, calculated on the number of days such payment is delinquent, or, if lower, the maximum charge permitted under applicable law. This Section 4.3(c) shall in no way limit any other remedies available to Licensor.
Section 4.4 Royalty Reports . No later than [*] after each Quarter Date commencing after the earlier of (i) first commercial sale of a Licensed Product, and (ii) the first Sublicense Agreement entered into by Dermira or an Affiliate of Dermira, Dermira shall provide Licensor with a written statement that identifies the: (a) Net Sales (including without limitation information broken out by country, product name, entity making sale, and details of amounts deducted from the proceeds invoiced for the purpose of calculating Net Sales) received during the Quarter in question; (b) Sublicensing Revenue received during the Quarter in question; and (c) any royalties due and payable to Licensor pursuant to this Agreement. Each report shall also identify any Sublicense Agreements entered into with a Sublicensee during the Quarter and a report detailing the compensation received from each such Sublicensee that quarter broken out in the same way as the reports described above.
Section 4.5 Right to Audit .
(a) Dermira shall keep and maintain records for a period of [*] showing the manufacture, sale, use, sublicensing, and other disposition of Licensed Products sold or otherwise disposed of under this Agreement in sufficient detail to enable an outside accountant to determine the amounts due under this Agreement. Dermira will permit an accountant from a nationally-recognized accounting firm designated by Licensor, and who has entered into a confidentiality agreement in a form reasonably requested by Dermira, to review Dermiras records related to Licensed Products, milestone payments and royalties payable
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pursuant to this Agreement. The designated accountant will have access to such records during regular business hours and upon at least [*] prior written notice, for the purpose of verifying the accuracy of any royalty paid or payable under this Agreement for the [*] preceding such an audit. Licensor may not exercise this right more than once in any calendar year. Licensor will provide Dermira with a copy of any report prepared as a result of the audit. Licensor shall bear the full cost of such audit unless such audit discloses an underpayment by Dermira to Licensor of more than [*] of the amount due in any Quarter examined, in which case, Dermira shall bear the full cost of the audit.
(b) Except for purposes of enforcing this Agreement, or as otherwise required by law, Licensor agrees to hold confidential all non-public, confidential information learned in the course of any examination of Dermiras books and records under this Agreement.
Section 4.6 Payment Adjustments . Any adjustment to royalty or milestone payments made by Dermira to Licensor (whether payment or reimbursement, as the case may be) required as a result of an audit conducted pursuant to Section 4.5 shall be made within [*] after the date on which the accountant conducting the audit issues a written report to Licensor and Dermira containing the results of the audit.
Section 4.7 Audit Conditions . Dermira will supply all records to Licensor and its accountant in the English language and such records will be collated, indexed or otherwise mapped and made available for review in a well-lighted, climate-controlled location at Dermiras facilities. Dermira agrees that all records relating to this Agreement subject to audit will be maintained and presented by English speaking personnel within Dermiras organization who have authority and responsibility for such records.
ARTICLE 5
LICENSED PRODUCT DEVELOPMENT AND RIGHTS
Section 5.1 Dermira Future Development and Inventions . Dermira shall be responsible, at its sole cost and expense and in accordance with its obligations under Article 3, for the formulation, preclinical, clinical development and registration work to develop and market Licensed Products ( Development Work ).
Section 5.2 Intellectual Property Ownership . As between Licensor and Dermira, Dermira will have and retain ownership of all right, title and interest to technology and intellectual property developed by Dermira, its Affiliates and their personnel, whether or not relating to the Patent Rights and Technology. Without limiting the generality of the foregoing, Dermira shall be the owner of any Improvements to the Licensed Product developed by Dermira, its Affiliates or their personnel as part of the Development Work under Section 5.1.
ARTICLE 6
PATENT PROSECUTION
Section 6.1 Responsibility for Prosecution of Patent Rights and Technology . Dermira shall be responsible for (and shall use Commercially Reasonable Efforts toward) the
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prosecution and maintenance of the U.S. and foreign patents and patent applications included in the Patent Rights and Technology, using counsel of its choice, and shall bear all expenses incurred in connection with such prosecution or maintenance. Dermira shall provide Licensor with copies of relevant documentation so that Licensor may be informed and apprised of the continuing prosecution of such patent applications. Dermira shall provide Licensor with an opportunity to review and comment on the text of each patent application and material responses to office actions before filing, and shall take Licensors comments and suggestions into consideration when framing responses and submissions to patent offices. At Dermiras sole expense, Licensor agrees to reasonably cooperate with Dermira in preparing, filing, prosecuting and maintaining any such patent applications and patents (including without limitation by using reasonable efforts to make the applicable inventor(s) available to Dermira as a liaison and resource during patent prosecution), and Licensor agrees to execute any documents as shall be necessary for such purpose.
Section 6.2 Abandoned Patents . Notwithstanding Section 6.1, if Dermira elects to abandon prosecution of a patent or patent application included in the Patent Rights and Technology, then Dermira shall notify Licensor in writing and if Licensor so elects by written notice to Dermira within [*] thereafter, then (a) such patent or patent application shall no longer be part of the Patent Rights and Technology and (b) Licensor shall be entitled (at its own expense) to assume and continue the prosecution and maintenance of such abandoned patent or patent application.
ARTICLE 7
INFRINGEMENT
Section 7.1 Notification of Infringement . Each Party agrees to provide written notice to the other Party promptly after becoming aware of any suspected infringement or alleged infringement of the Patent Rights and Technology. Such notifying Party shall provide the other Party with any available evidence of such suspected infringement or alleged infringement.
Section 7.2 Right to Pursue Infringers .
(a) In the event of suspected infringement of the Patent Rights and Technology by a third party, Dermira shall have the first right to enforce the Patent Rights and Technology, and shall be entitled to (in consultation with counsel of its choice) control all aspects of any enforcement action, including without limitation the degree, timing, object, and methods of enforcement (such methods including but not limited to licensing, litigating for damages and injunctive relief, and settling disputes). If requested by Dermira (and at Dermiras expense) Licensor (i) shall join in (or if necessary, initiate) a suit against alleged infringers of the Patent Rights and Technology, and (ii) provide (at Dermiras expense) all assistance, information and authority reasonably requested by Dermira in connection with any enforcement action initiated or requested by Dermira. In the event of an enforcement action initiated or requested by Dermira pursuant to this Section 7.2(a), Dermira shall be entitled to retain any amounts awarded or received by way of judgment or settlement, except that any amounts received by Dermira in excess of Dermiras costs and expenses associated with such enforcement action shall be treated
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as Sublicensing Revenue and shall be subject to the payment obligations contained in Section 4.2(b).
(b) Notwithstanding Section 7.2(a), if Licensor has provided Dermira with written notice of suspected infringement or alleged infringement of the Patent Rights and Technology, and Dermira does not within [*] after such notice (the Dermira First Right Period ) elect to initiate settlement discussions or an enforcement action with respect to such infringement, then Licensor shall have the right, exercisable at any time within [*] after the expiration of the Dermira First Right Period to notify Dermira in writing that it wishes to initiate an enforcement action against the alleged infringers, in which case:
(i) If Dermira so elects within [*] after receiving such notice from Licensor, then (A) Dermira and Licensor shall be entitled to jointly control all aspects of such enforcement action (it being understood that unless Dermira in its sole discretion agrees in writing, the Parties shall not be entitled to enter into any settlement that provides the alleged infringer with any rights or license to the Patent Rights and Technology), (B) the expenses of such enforcement shall be shared equally by Dermira and Licensor, and each Party shall provide any assistance, information and authority reasonably requested by the other in connection with such enforcement action, and (C) all recoveries awarded or received by way of judgment or settlement will first be allocated to each Party [*] to reimburse all attorneys costs, fees, and other related expenses incurred by such Party, with any remaining amount shared [*] between the Parties.
(ii) If Dermira declines to participate in such enforcement action or fails to respond within [*] after receiving such notice, then (A) Licensor shall be entitled to control all aspects of such enforcement action, provided that unless Dermira in its sole discretion agrees in writing, Licensor shall not be entitled to enter into any settlement that provides the alleged infringer with any rights or license to the Patent Rights and Technology, and (B) such enforcement action shall be at Licensors sole cost and expense, provided that Dermira shall (at Licensors expense) provide any assistance, information and authority reasonably requested by Licensor in connection with such enforcement action, and (C) Licensor shall be entitled to retain [*] awarded or received by way of judgment or settlement.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Section 8.1 Licensor Representations and Warranties . Licensor represents and warrants to Dermira that: (a) Licensor has full power to make the assignments and transfers and grant the rights, licenses and privileges granted in this Agreement; (b) Licensor has not licensed, pledged, granted a security interest in, encumbered or assigned any of the Patent Rights and Technology, Stiefel Data, Regulatory Materials, or Program Inventory and Supplies to any third party, other than Stiefels retention of certain rights to Stiefel Data under the Stiefel Agreement, and the license of certain Patent Rights and Technology pursuant to a prior license described in Recital A of the Stiefel Agreement which was terminated by Stiefel (with no remaining rights to Patent Rights (as defined therein) held by the former licensee) pursuant to a termination notice
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issued by Stiefel on [*]; (c) the Stiefel Agreement has been executed and delivered by Licensor and Stiefel and remains in full force and effect; (d) there no patents or patent applications in the name of [*] in existence as of the Effective Date related to the Field which have not been assigned to Licensor, and (e) Licensor will ensure that any inventions or discoveries made by [*] during the Term which would be included in Patent Rights and Technology if assigned to Licensor are assigned by [*] to Licensor.
Section 8.2 Dermira Representations and Warranties . Dermira represents and warrants that: (a) it has full power and authority to enter into this Agreement; and (b) in exercising its rights under this Agreement, it shall fully comply with the requirements of any and all applicable laws, regulations, rules, and orders of any governmental body having jurisdiction over the exercise of the rights hereunder.
Section 8.3 Disclaimer; Negation of Warranties by Licensor .
EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 8, LICENSOR MAKES NO WARRANTIES OR REPRESENTATION (EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE) WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES AND REPRESENTATIONS OF NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
Nothing contained in this Agreement shall be construed as:
(a) a warranty or representation by Licensor as to the validity, enforceability, or scope of any of the Patent Rights and Technology;
(b) a warranty or representation by Licensor that the manufacture, sale, offer for sale, lease, import, use, or other exploitation of the Licensed Products will be free from infringement of intellectual property rights of third parties;
(c) conferring any rights to use in advertising, publicity, or other marketing activities any name, trademark, or other designation of either party, except as otherwise expressly set forth herein;
(d) granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of Licensor or other persons other than the Patent Rights and Technology and the Stiefel Data; or
(e) an obligation to furnish any technical information or know-how except as expressly provided.
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ARTICLE 9
CONFIDENTIALITY
Section 9.1 Treatment of Confidential Information . Each Party agrees that all inventions, processes, materials, chemicals, know-how and ideas, and all other business, technical and financial information, it obtains from the other Party (which includes disclosures by Stiefel in the case of disclosures by Licensor) is the confidential property of the disclosing Party ( Confidential Information of the disclosing Party). Except as expressly allowed in this Agreement, the receiving Party will hold in confidence and not use or disclose any Confidential Information of the disclosing Party; provided , however , that Dermira, its Affiliates and Sublicensees may disclose information relating to the Patent Rights and Technology and the Stiefel Data (a) to actual or potential Sublicensees, investors or acquirers provided that each such actual or potential Sublicensee, investor or acquirer agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, (b) to consultants, contractors, suppliers and Affiliates, provided that each such consultant, contractor, supplier and Affiliate agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, and (c) to legal, financial, and tax advisors of Dermira or its Affiliates or of a Sublicensee, provided that such advisors are subject to confidentiality obligations with respect to any Confidential Information. No provision of this paragraph shall be interpreted to prevent Dermira, its Affiliates or a Sublicensee from making disclosures of Confidential Information to Regulatory Authorities as necessary: (i) for the research and development of Licensed Products; or (ii) to seek or obtain patents. Furthermore, Licensor agrees (without limitation on Licensors obligations under Article 2) that during the Term, Licensor shall treat the Patent Rights and Technology as Confidential Information of Dermira. Dermira acknowledges that, pursuant to Section 9.1 of the Stiefel Agreement, if Stiefel reasonably believes that a potential sublicensee of Dermira of rights to commercialize Licensed Product may be using any of the Stiefel Data in breach of any confidentiality or non-use obligation to Dermira or sublicense or other authorization provided by Dermira, Stiefel may request in writing of Licensor whether Dermira disclosed the Stiefel Data to such third party or an Affiliate or representative thereof, and Dermira shall provide Licensor with the information for Licensor to answer Stiefels request, provided that answering such request does not constitute a breach of any legal obligation of Dermira to such third party, including representing to Licensor whether Dermira made such a disclosure. Dermira will ensure that any non-disclosure or other agreement with such a third party under which Stiefel Data is disclosed, does not prevent Dermira from making such a disclosure in response to a court order.
Section 9.2 Release from Restrictions . The provisions of Section 9.1 shall not apply to any Confidential Information disclosed hereunder which:
(a) was known or used by the receiving Party prior to its date of disclosure to the receiving Party, as evidenced by the prior written records of the receiving Party; or
(b) either before or after the date of the disclosure to the receiving Party is lawfully disclosed to the receiving Party by sources other than the disclosing Party rightfully in possession of such information, and such source was not under a duty of confidentiality with respect to such information; or
(c) either before or after the date of the disclosure to the receiving Party becomes published or generally known to the public, through no fault or omission on the part of the receiving Party or an affiliated party; or
(d) is independently developed by or for the receiving Party without reference to or reliance upon the Confidential Information; or
(e) is required to be disclosed by the receiving Party to comply with applicable laws, court order, or governmental regulations, provided that the receiving Party (i) provides (A) prior written notice of such disclosure requirement to the other Party and (B) an adequate opportunity to seek appropriate legal relief to prevent such disclosure or limit use and further disclosure of the Confidential Information and (ii) takes reasonable and lawful actions to avoid and/or minimize the degree of such disclosure, and provided, further, that the receiving Party shall furnish only such portion of the Confidential Information that is legally required to be disclosed and shall promptly inform the disclosing Party in writing of which portion of the Confidential Information was so disclosed.
Notwithstanding the foregoing or anything set forth herein or otherwise, and for the avoidance of doubt, [*] shall be considered to be Confidential Information.
ARTICLE 10
MARKING
Prior to their expiration, Dermira, its Affiliates, and its Sublicensees shall mark, or shall cause to be marked, each Licensed Product with a notice that the Licensed Product is Licensed under one or more of U.S. Patents Nos. [*] and/or all such additional patents covered by this Agreement as they issue and shall otherwise so mark Licensed Products in accordance with applicable patent laws and practices of the country in which the Licensed Product is sold. To the extent permitted and effective pursuant to applicable law, however, and if marking the Licensed Product is not practicable, then the Licensed Product will be considered marked if the above notice is included in a manual or literature accompanying the Licensed Product.
ARTICLE 11
INDEMNIFICATION
Section 11.1 By Dermira . Dermira shall indemnify, defend, and hold Licensor, its members, employees, directors, officers, successors and assigns and [*] (individually and collectively Licensor Indemnitees ) harmless from and against any and all third party claims, actions, suits, proceedings, demands, costs, expenses (including
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reasonable attorneys fees), liabilities and/or losses (collectively, Losses ) arising out of or in connection with third party claims based on the exercise or practice by Dermira, its Affiliates and/or its Sublicensees of the rights and licenses granted under this Agreement by Licensor, including without limitation (i) the development, manufacture, use, sale or other disposition of Licensed Products by Dermira, or its Affiliates and Sublicensees and (ii) the use by any person of Licensed Products made, used, sold or otherwise distributed by Dermira, or its Affiliates and Sublicensees; provided , however , that the foregoing indemnification obligations shall not apply to any claim arising out of the gross negligence or willful misconduct of a Licensor Indemnitee or any breach of Licensors representations and warranties under Article 8. Notwithstanding the foregoing, Dermiras indemnification and defense obligations under this Section 11.1 shall not apply to the extent that the act of such indemnification itself would constitute a violation of California Civil Code Section 2773.
Section 11.2 Indemnification and Defense Procedure . A Licensor Indemnitee (each, an Indemnified Person ) shall reasonably promptly notify Dermira (the Indemnifying Party ) in writing, of any claim for which indemnification may be sought under Section 11.1; provided , however , that any delay in notification shall not nullify any indemnification obligation except to the extent of actual and substantial prejudice. The Indemnifying Party shall control the investigation, trial, defense and settlement of such lawsuit or action (including all negotiations to effect a settlement) and any appeal arising therefrom. The Indemnified Person may, at its own cost, participate in such investigation, trial and defense of such lawsuit or action and any resulting appeal. At the Indemnifying Partys expense, the Indemnified Person shall reasonably cooperate in good faith with the Indemnifying Party at all times during the pendency of the claim or lawsuit including, without limitation, promptly providing the Indemnifying Party with all available information and documents concerning the claim that are in the Indemnified Persons possession. Notwithstanding the foregoing, an Indemnified Persons consent, which shall not be unreasonably withheld, shall be obtained in the event any compromise or settlement under this Article 11 that includes a finding or admission of any violation of any law by such Indemnified Person, or requires the payment of any money by the Indemnified Person.
Section 11.3 Indemnification and Personal Liability Disclaimer . Licensor shall have no obligation of defense, contribution, or indemnity with respect to any actual or alleged intellectual property infringement, product liability, personal injury, or otherwise with respect to the Patent Rights and Technology or otherwise arising from this Agreement. Licensor shall have no liability arising out of any such actual or alleged intellectual property infringements, product liability, or personal injury. However, the foregoing provisions of this Section 11.3 shall not limit Licensors obligations or liability with respect to any breach of Licensors representations and warranties under Article 8.
Section 11.4 Indemnification of Stiefel. Dermira, its Affiliates and Sublicensees shall indemnify Stiefel and its Affiliates, and other related indemnified persons as set out in the Stiefel Side Letter.
ARTICLE 12
LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO THE LOSS OF OPPORTUNITY, OR LOSS OF REVENUE OR PROFIT HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 13
TERM
Unless terminated earlier, as provided in this Agreement, the term of this Agreement shall commence on the Effective Date and continue in full force and effect until the later of (i) the expiry of the last Valid Claim, or (ii) expiration of the last Know-How Royalty Term (the Term ), provided that upon expiration of the Term, the licenses granted to Dermira and its Affiliates pursuant to Section 2.1, 2.2 and 2.3 shall become nonexclusive, irrevocable and royalty-free and remain in full force and effect in perpetuity. Notwithstanding the foregoing, the sublicense to Stiefel Data shall not become irrevocable before the date that is [*] following the Effective Date.
ARTICLE 14
TERMINATION
This Agreement may be terminated as follows:
Section 14.1 By Licensor . During the Term, Licensor shall be permitted to immediately terminate this Agreement in the event Dermira c ommits a material breach of this Agreement (other than Article 3) and fails to cure such breach within [*] (or in the event of a breach of Dermiras payment obligations that is not being disputed in good faith, within [*]) after Dermira receives written notice from Licensor identifying this Agreement and the action giving rise to the claimed material breach. Any actual or alleged breach by Dermira of its obligations under Article 3 shall be governed by, and Licensors remedies for such breach shall be as set forth in, Article 3. In addition, Licensor shall be permitted to immediately terminate the sublicense to the Stiefel Data in the event Dermira commits a material breach of this Agreement or the Stiefel Side Letter which causes Licensor to be in material breach of the Stiefel Agreement and Dermira fails to cure such breach within [*] after Dermira receives written notice from Licensor or Stiefel identifying this Agreement and the action giving rise to the material breach. In addition, in the event that Stiefel and Dermira become involved in an arbitration under Paragraph 10 of the Stiefel Side Letter, to avoid having two dispute proceedings being conducted at the same time, if Licensor wishes to issue a written notice of material breach of this Agreement to Dermira prior to the completion of the Stiefel - Dermira arbitration proceedings, in addition to Licensors other rights under this Section 14.1, Licensor may elect to issue such notice but specify that the notice will become
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effective only simultaneously with the arbitrator issuing its decision in the Stiefel - Dermira arbitration.
Section 14.2 By Dermira . During the Term, Dermira shall be permitted to immediately terminate this Agreement in the event:
(a) Licensor c ommits a material breach of this Agreement and fails to cure such breach within [*] after Licensor receives written notice from Dermira identifying this Agreement and the action giving rise to the claimed material breach; or
(b) In Dermiras sole and reasonable opinion, the data generated by Dermira, its Affiliates and/or any third parties during any stage of development of Licensed Products is insufficient to justify development of a commercially viable Licensed Product or, before or after approval of Licensed Products for sale, market dynamics do not justify further development and commercialization of Licensed Products. Upon any termination pursuant to this Section 14.2(b), (x) all rights to the Patent Rights and Technology shall revert to Licensor, and (y) Dermira agrees, subject to Licensors agreement to a release of claims against Dermira and its Affiliates in a form reasonably requested by Dermira, to (1) grant Licensor a perpetual nonexclusive license within the Field to any Improvements owned by Dermira that have been applied to or used with the Licensed Products, at a royalty rate to be mutually agreed through good faith negotiation, and (2) for a period of one hundred and twenty (120) days after such termination to provide Licensor (at Licensors expense) with such technical assistance and access to and cooperation of Dermira personnel as Licensor may reasonably request in connection with the license of such Improvements to Licensor.
Section 14.3 Termination for Insolvency . Either Party may terminate this Agreement immediately upon delivery of written notice to the other Party: (i) upon the institution by or against the other Party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of the other Partys debts, and provided in the case of an involuntary proceeding initiated against a Party that such proceeding is not stayed or dismissed within [*] after its initiation; (ii) upon the other Partys making an assignment for the benefit of creditors; (iii) upon the other Partys dissolution or ceasing to do business; or (iv) upon the appointment of a receiver or receiver and manager, trustee, administrator or official manager or agent of a secured or unsecured creditor to any of the other Partys property. For clarity, in the event of a dissolution of Licensor, unless this Agreement is affirmatively terminated by Dermira by written notice as permitted under this Section 14.3, it shall remain in full force and effect and be binding upon Licensors successors and assigns resulting from such dissolution, as provided in Article 18.
Section 14.4 Effect of Insolvency or Bankruptcy of Licensor . The Parties acknowledge and agree that all rights and licenses to intellectual property granted to Dermira and its Affiliates and Sublicensees pursuant to this Agreement are, for all purposes of Section 365(n) of the United Stated Bankruptcy Code, as amended (the Bankruptcy Code), licenses of rights to intellectual property as defined in the Bankruptcy Code, and that in the event Licensor becomes a debtor in bankruptcy, the provisions of Section 365(n) of the Bankruptcy Code shall apply and each of Dermira and each Sublicensee shall continue to have rights under such
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licenses as long as such party continues to fulfill all of its obligations, including its obligations to pay royalties, under this Agreement, as and to the extent provided in Section 365(n).
Section 14.5 Effect of Termination . Expiration or termination of this Agreement for any reason shall not release the other Party from any liability that at the time of such termination or expiration has already accrued to the other Party. Upon the expiration or termination of this Agreement, (a) the license granted to Dermira and its Affiliates shall terminate, and (b) any sublicense of the rights granted to Dermira and its Affiliates hereunder shall automatically be assigned to and assumed by Licensor, and shall remain in full force and effect with Licensor as the licensor instead of Dermira or its Affiliate (provided that, unless Licensor agrees in writing otherwise, the obligations of Licensor under the assigned sublicenses will not be greater than the obligations of Licensor under this Agreement). Within [*] after any expiration or termination, Dermira shall pay any and all amounts owing to Licensor, and all royalties accrued, as of the date of such expiration or termination.
ARTICLE 15
DISPUTE RESOLUTION
Section 15.1 Mandatory Procedures . The Parties agree that any dispute arising out of or relating to this Agreement shall be resolved solely by means of the procedures set forth in this Article, and that such procedures constitute legally binding obligations that are an essential provision of this Agreement. If either Party fails to observe the procedures of this Article, as may be modified by their written agreement, the other Party may bring an action for specific performance of these procedures in any court of competent jurisdiction.
Section 15.2 Arbitration . The Parties shall endeavor to resolve in good faith any disputes or conflicts arising from or relating to the subject matter of this Agreement, failing which either Party shall submit such conflict for resolution to an executive officer of Dermira and Licensor. If the executive officers of Dermira and Licensor are unable to resolve such conflict within [*] after such conflict is submitted to them for resolution, such conflict may be submitted to binding arbitration in accordance with the rules of arbitration of the American Arbitration Association (in accordance with its Commercial Arbitration Rules then in effect and this Agreement) and heard before a arbitrator or panel of arbitrators selected as follows: (i) for a period of [*] after submission of a dispute to arbitration, the Parties shall confer in good faith to attempt to mutually agree as to the selection of a single arbitrator with relevant industry expertise, and if they so agree then the dispute will be heard before the single arbitrator so selected, and (ii) if after such [*] period, the Parties have failed to reach mutual agreement, then each Party shall select an arbitrator with relevant industry expertise, the two arbitrators so selected shall select a third arbitrator with relevant industry expertise, and the dispute shall be heard before the three arbitrator panel so selected. Such arbitration will be held in Palo Alto, California and conducted in English. The arbitrator(s) will apply California law, without regard to its conflict of laws rules or principles. The arbitrator(s) will allow such discovery as is appropriate for the purpose of arbitration in accomplishing a fair, speedy and cost-effective resolution of the dispute. The arbitrator(s) will have the authority to award compensatory damages only. Any award by the arbitrator(s) will be accompanied by a written opinion setting forth the findings of fact and conclusions of law relied
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upon in reaching the decision. The award rendered by the arbitrator(s) will be final, binding and, except as permitted by applicable law, non-appealable.
ARTICLE 16
GOVERNING LAW; JURISDICTION
This Agreement and all disputes arising out of or related to this Agreement shall be governed by the laws of the state of California, without regard to conflict of laws principles. The Parties hereby agree that any dispute arising out of this Agreement that is not subject to arbitration pursuant to Article 15 shall be subject to the exclusive jurisdiction of and venue in the federal and state courts within Santa Clara County, California. Each Party hereby irrevocably consents to the personal and exclusive jurisdiction and venue of such courts.
ARTICLE 17
NOTICE
Any notices required or permitted under this Agreement shall be in writing, in English, specifically refer to this Agreement, and shall be sent by prepaid registered or certified mail, return receipt requested; by recognized overnight courier; or by personal delivery, in each case addressed to the other Party as follows:
If to Dermira: |
If to Licensor: |
Dermira, Inc. 2055 Woodside Road, Ste. #270 Redwood City, California 9406 |
Rose U LLC [*] Palo Alto, CA 94303 |
Attention: Chief Executive Officer Fax: (650) 365-3410 |
Attention: [*] |
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With a copy to: |
With a copy to: |
Fenwick & West LLP Silicon Valley Center 555 California Street 12th Floor San Francisco, CA 94104 Attention: Douglas Cogen Fax: (415) 281-1350 |
[*] |
Either Party may designate a different address, telephone number and/or facsimile number by giving notice, pursuant to this Article, to the other Party. Any notice given pursuant to this Article shall be deemed to have been given: (a) three (3) business days after sent by prepaid registered or certified mail; (b) two (2) business days after sent by recognized overnight courier and (c) when received if by personal delivery.
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ARTICLE 18
ASSIGNMENT
Neither Party may assign or transfer this Agreement or any rights or obligations under this Agreement, whether voluntary or by operation of law, without the prior written consent of the other Party; provided , however , that a Party may (without requirement to obtain the other Partys consent) assign or transfer this Agreement to any successor or third party in connection with a merger, acquisition or sale of all or substantially all of the assets of such Party that relate to the business activities conducted pursuant to this Agreement (and, for clarity, in the case of an assignment by Dermira in connection with a Liquidity Event, Dermira shall timely make any payment required under Section 4.2(c) above). In addition, in the event of an assignment or transfer of this Agreement by Dermira to a third party in connection with a sale of all or substantially all of the assets of Dermira that relate to the business activities conducted pursuant to this Agreement, Dermira shall make any payments arising from such assignment to Stiefel that are required to be made under the Stiefel Side Letter. Any assignment or transfer or attempted assignment or transfer of this Agreement made in contravention of the terms of this Article shall be null, void and without effect. Subject to the foregoing, this Agreement shall be binding on and inure to the benefit of the Parties respective successors and permitted assigns.
ARTICLE 19
WAIVER
No failure or delay on the part of a Party in exercising any right under this Agreement will operate as a waiver of, or impair, any such right, unless a waiver is made in writing signed by the waiving Party. No single or partial exercise of any such right will preclude any other or further exercise thereof or the exercise of any other right. No waiver of any such right will be deemed a waiver of any other right under this Agreement.
ARTICLE 20
PARTIAL INVALIDITY
If any provision of this Agreement is held to be invalid, illegal, or unenforceable by a court of competent jurisdiction: (a) such provision will be deemed amended to conform to applicable laws of such jurisdiction so as to be valid and enforceable, or, if it cannot be so amended without materially altering the intention of the Parties, it will be stricken; (b) the remaining provisions shall remain in full force and effect; (c) the validity, legality and enforceability of such provision will not in any way be affected or impaired in any other jurisdiction and (d) the remainder of this Agreement will remain in full force and effect. The Parties agree to renegotiate in good faith any term of this Agreement held to be invalid, illegal or unenforceable and agree to be bound by the mutually agreed substitute provision in order to give the most approximate effect intended by the Parties.
ARTICLE 21
HEADINGS
All headings are for convenience only and shall not affect the meaning of any provision of this Agreement.
ARTICLE 22
FORCE MAJEURE
A Party shall be excused from (and not liable to the other Party for) any failure or delay in performance of any obligation under this Agreement (other than obligations to make payment) to the extent such failure or delay is due to an event or circumstance beyond the reasonable control of such Party, including, without limitation, war, rebellion, civil commotion, strikes, lock-outs or industrial disputes; fire, explosion, earthquake, acts of God, flood, drought or bad weather; acts of terror or the requisitioning or other act or order by any government department, council or other constituted body (a Force Majeure ). In the event of a Force Majeure, the non-performing Party will promptly notify the other Party thereof and use its best efforts to resume performance as soon as practicable.
ARTICLE 23
NO PUBLICITY
Neither Party shall make any public or press announcement about this Agreement, its terms or its business relationship with the other Party, without the prior written consent of the other Party. The form and content of any such announcement shall be subject to the prior approval of each Party.
ARTICLE 24
USE OF NAME, SYMBOLS AND MARKS
Licensor and Dermira shall not use the name, symbols and/or marks of the other Party in any form of publicity without the prior written authorization of the other Party. However, each Party has the right to use the other Partys name on governmental filings and elsewhere as required by law.
ARTICLE 25
SURVIVAL
The terms and provisions of Articles 1, 5, 8, 9, 11, 12, 13, 14.5 and 15 through 30 shall survive any expiration or termination of this Agreement.
ARTICLE 26
INDEPENDENT CONTRACTOR
Licensors status and relationship with Dermira shall be that of an independent contractor, and Licensor shall not state or imply, directly or indirectly, that it is empowered or authorized to commit or bind Dermira or to incur any liabilities or expenses on behalf of Dermira or to enter into any oral or written agreement in the name of or on behalf of Dermira. Nothing in this Agreement shall create, expressly or by implication, a partnership, joint venture, agency or other association of the Parties.
ARTICLE 27
MULTIPLE COUNTERPARTS
This Agreement may be executed in two (2) identical counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
ARTICLE 28
AMENDMENT
This Agreement may be amended, supplemented or otherwise modified only by means of a written instrument signed by both Parties.
ARTICLE 29
ENTIRE AGREEMENT
This Agreement including the Appendices hereto, constitutes the entire agreement between the Parties with respect to its subject matter and supersedes all prior agreements or understandings, oral or written, between the Parties relating to the subject matter of this Agreement.
ARTICLE 30
[*]
[*] shall have no liability or obligation to Dermira or any other parties arising out of this Agreement and shall be direct and intended third-party beneficiaries of Article 11 (Indemnification) and this Article, entitled to enforce the same directly against Dermira.
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IN WITNESS WHEREOF, the Parties have caused their duly authorized officers to execute and deliver this Exclusive License Agreement as of the Effective Date.
LICENSOR |
DERMIRA |
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ROSE U LLC |
DERMIRA, INC. |
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Signature: |
/s/ Jeffrey D. Urman |
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Signature: |
/s/ Thomas Wiggans |
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Print: |
Jeffrey D. Urman |
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Print: |
Thomas Wiggans |
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Title: |
Secretary Treasurer |
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Title: |
Chief Executive Officer |
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Date: |
April 2, 2013 |
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Date: |
April 26, 2013 |
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[SIGNATURE PAGE TO EXCLUSIVE LICENSE AGREEMENT]
APPENDIX A
LIST OF PATENT APPLICATIONS AND PATENTS
ROSE U PATENTS
[*]
NON-ROSE U PATENTS
[*]
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APPENDIX B
STIEFEL AGREEMENT
(ATTACHED)
LICENSE AND POST-TERMINATION AGREEMENT
This License and Post-Termination Agreement (this Agreement ) is entered into as of April 26, 2013 ( Effective Date ), by and between Stiefel Laboratories, Inc. ( Stiefel ), a Delaware corporation with a place of business at 20 T.W. Alexander Drive, Research Triangle Park, NC 27709 and Rose U LLC, ( Rose U ) a California limited liability company with a place of business at [*], Palo Alto, CA 94303. Each of Rose U and Stiefel may be referred to herein as a Party and collectively as the Parties .
RECITALS
A. Rose U and Connetics Corporation ( Connetics ) entered into an Exclusive Patent License Agreement dated [*] , which agreement was amended on [*] (the Prior License Agreement ). Stiefel acquired Connetics on December 29, 2006, and as a result of such acquisition, Stiefel became the successor in interest to, and assumed the rights and obligations of, Connetics under the Prior License Agreement.
B. On [*], Stiefel notified Rose U in writing that Stiefel had terminated the Prior License Agreement pursuant to Section [*] of the Prior License Agreement effectively immediately as of the date of the letter.
C. Pursuant to Section [*] of the Prior License Agreement, upon the termination of such agreement, the Parties are required to negotiate in good faith the licensing of the data generated by Connetics/Stiefel supporting the development work under such agreement to Rose U at a mutually agreed upon compensation. The Parties have engaged in such negotiations.
D. Rose U and Stiefel now wish to enter into this Agreement in order to document certain agreements and understandings relating to the termination of the Prior License Agreement, and to provide Rose U with certain rights to such data developed by Connetics/Stiefel, and other matters, in connection with the Prior License Agreement, all upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1. DEFINITIONS
Affiliate means, with respect to a person, any corporation, partnership, business joint venture or other entity that directly or indirectly controls, is controlled by or is under common control with such person. For purposes of this definition, control means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the entity in question (whether through ownership of securities or other ownership interests, by contract or otherwise).
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Control or Controlled means, with respect to any item of Stiefel Data, patent rights, or other intellectual property right, the possession (whether by ownership or license) by a Party of the ability to grant to the other Party access, a license or a sublicense (as applicable), or to extend other rights as provided in this Agreement, to such intellectual property right, without violating the terms of any agreement or other arrangements with any third party.
Dermira means Dermira, Inc. and any successor or assign of Dermira, Inc. through merger, reorganization, consolidation or sale of all or substantially all of the assets of Dermira, Inc. to which the sublicense of the rights granted under this Agreement relates. Dermira shall also be considered to be a Designated Sublicensee where such defined term is used throughout this Agreement.
Designated Sublicensee is defined in Section 3.5.
Field shall mean the use of topical products containing [*] or other compounds identified in the Rose U Patents for the treatment and prevention of hyperhidrosis, [*], or excessive sweating. For clarity, the Field includes such products sold [*].
[*] Program means the programs of research and development conducted by Connetics, Stiefel, or any combination of the foregoing directly and through their Affiliates and contractors relating to applications of [*] or other compounds identified in the Rose U Patents, including as undertaken in relation to [*] and any similar registrations with regulatory authorities.
Licensed Product means any product, process or service (i) that incorporates in whole or in part Stiefel Data, or (ii) in the Field that incorporates [*], provided that Licensed Product does not include a Pre-Existing Product, where a Pre-Existing Product means a product, process or service in the Field that (a) incorporates [*], (b) does not incorporate, in whole or in part, any Stiefel Data and (c) was in clinical development by a Designated Sublicensee or an Affiliate or permitted sublicensee of a Designated Sublicensee or an Affiliate of any such sublicensee prior to any access to Stiefel Data by the relevant entity; provided , that such entity shall promptly provide Stiefel proof of such development prior to the date of access to Stiefel Data upon the request of Stiefel. Rose U represents and warrants that neither Rose U, Dermira, Inc. nor any of their Affiliates has any product, process or service in the Field that incorporates [*] in clinical development as of the Effective Date.
Program Inventory and Supplies means the drug substance, drug product and inventory relating to the [*] Program owned or Controlled by Stiefel or its Affiliates that is specified on Exhibit A-2 .
Regulatory Materials means regulatory applications, submissions, notifications, registrations, regulatory approvals or other submissions or correspondence made to, with or from a regulatory authority prior to the Effective Date in connection with the [*] Program. Regulatory Materials include Investigational New Drug applications, drug approval applications, or any similar applications with regulatory authorities anywhere in the world, amendments and supplements for any of the foregoing, and applications for pricing approvals. For clarity, the
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Regulatory Materials include [*].
Rose U Patents means U.S. Patents [*].
Stiefel Data means the documentation, reports and data relating to the [*] Program that is specified on Exhibit A-1 that is owned or Controlled by Stiefel or its Affiliates and was developed or used in connection with the [*] Program, together with any additional information delivered by Stiefel pursuant to Section 3.3.
Stiefels Knowledge means the actual knowledge of [*] with no further investigation.
ARTICLE 2. TERMINATION OF PRIOR LICENSE AGREEMENT; RELEASE
Section 2.1 Termination . Rose U and Stiefel acknowledge and agree that the Prior License Agreement was terminated.
Section 2.2 Release . Rose U and Stiefel (each, a Releasor ), on behalf of themselves and their heirs, executors, administrators, predecessors, subsidiaries, affiliates, successors, and assigns, knowingly and voluntarily release and discharge the other and the others respective officers, directors, stockholders, members, employees, agents and affiliates (collectively, the Released Parties ), from any and all claims, liabilities, damages and obligations that each Party may have against any such Released Party, through the Effective Date based upon any matter, cause or thing whatsoever related to or arising out of the Prior License Agreement and the resulting relationship between the parties (collectively, the Released Matters ). This release shall not extend to the Parties rights to enforce the terms and conditions of this Agreement, all of which rights shall be preserved. Releasor hereby covenants and agrees not to bring suit in any forum, or prosecute in any fashion, any suit or other legal proceeding of any sort at any time, now or in the future, against any Released Party with respect to any of the Released Matters.
ARTICLE 3. TRANSFER OF [*] PROGRAM
Section 3.1 Assignment of Patent Rights . In connection with this Agreement, Stiefel has assigned and transferred all of its and its Affiliates right, title and interest in and to certain patent rights to Rose U. Such assignment was formalized by the execution and delivery by Stiefel to Rose U of an assignment in the form attached as Exhibit A-3 (the patents, applications and rights assigned pursuant thereto, the Assigned Patent Applications ).
Section 3.2 License to Stiefel Data . Subject to the terms of this Agreement (including but not limited to Section 3.5.4 hereof), Stiefel hereby grants Rose U a worldwide, exclusive (except as to Stiefel and its Affiliates) license (including the right to grant sublicenses through multiple tiers pursuant to the provisions of Section 3.5 hereof) to use the Stiefel Data in the Field.
Section 3.3 Delivery of Stiefel Data . Promptly following the Effective Date, Stiefel shall transfer and assign to Rose U copies of all documents (whether in written or electronic
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form) listed on Exhibit A-1 . Additionally, for a period of [*] after the Effective Date, Stiefel shall provide Rose U or Dermira at no cost to Rose U (other than reimbursement of Stiefels actual out-of-pocket expenses, which shall be paid by Rose U to Stiefel) with such technical assistance and access to and cooperation of Stiefel personnel as Rose U or Dermira may reasonably request in connection with the delivery to Rose U of factual knowledge and information relating to the Stiefel Data, Regulatory Materials and Program Inventory and Supplies, provided that in no event shall Stiefel be required to provide more than [*] of employee time for such purpose (the Technical Assistance ).
Section 3.4 Regulatory Materials and Program Inventory and Supplies .
3.4.1 Stiefel hereby assigns to Rose U all of its right, title and interest in and to the Regulatory Materials. At the request of Rose U, Stiefel shall promptly deliver the Regulatory Materials to Rose U and shall take such additional steps and execute such additional documents as Rose U may reasonably request in order to effect such assignment and delivery, including the transfer of any regulatory applications into the name of Rose U.
3.4.2 Upon Rose Us request within [*] of the Effective Date, Stiefel shall, to the extent it is able to do so in compliance with its internal policies and to the extent such Program Inventory and Supplies still exists, assign, transfer and deliver the Program Inventory and Supplies to Rose U and shall take such additional steps and execute such additional documents as Rose U may reasonably request in order to effect such assignment, transfer and delivery. In addition, if requested by Rose U or Dermira, Stiefel shall use commercially reasonable efforts, but only during such [*] period (such time spent by Stiefel to count toward the [*] cap on Technical Assistance), to (i) introduce Rose U and/or Dermira to the contract manufacturing organization ( CMO ) that provided the Program Inventory and Supplies to Stiefel, and (ii) facilitate the transition of manufacturing to a CMO designated by Rose U or Dermira, provided that Stiefel shall not be obligated to place any orders from a CMO on behalf of Rose U or Dermira nor to provide any other assistance with respect to a CMO except as specifically set forth in this Section 3.4.2. If Rose U does not request delivery of the Program Inventory and Supplies within [*] of the Effective Date or if Stiefel determines that its internal policies prevent Stiefel from transferring any or all of the Program Inventory and Supplies to Rose U or that such Program Inventory and Supplies no longer exist, Stiefel may destroy such materials at its sole discretion without notice to Rose U. Upon the request of Rose U or Dermira, Stiefel will provide such Stiefel consent as is reasonably necessary to allow Rose U or Designated Sublicensees to work with service providers who have provided services to Stiefel in connection with the [*] Program, including consenting to the use by such contractors of any Stiefel Data in the possession or control of such contractors to provide services to Rose U or Designated Sublicensees.
Section 3.5 Sublicenses .
3.5.1 The license granted to Rose U pursuant to Section 3.2 includes the right to grant sublicenses of such rights through multiple layers of sublicenses to third parties or Affiliates (each such sublicensee, a Designated Sublicensee ) to which Rose U or a Designated Sublicensee is granting the right to research, develop or commercialize products in the Field using Stiefel Data.
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3.5.2 Any sublicense agreement, whether by Rose U or a Designated Sublicensee, shall not be inconsistent with the terms of this Agreement nor exceed the scope of the license granted to Rose U under this Agreement and shall include (i) an obligation of the Designated Sublicensee to indemnify Stiefel and its Affiliates as provided in Section 6.1 hereof, subject to conditions and procedures substantially equivalent to those contained in Section 6.2 and Article 7, (ii) confidentiality obligations of the Designated Sublicensee no less protective of the Stiefel Data than those contained in Article 9 of this Agreement, and (iii) an express statement that Stiefel and its Affiliates are intended third party beneficiaries of such sublicense agreement. Rose U shall promptly thereafter provide Stiefel a true and correct copy of each such sublicense, provided that Rose U or the Designated Sublicensee may redact confidential provisions of the sublicense agreement that are not reasonably required for Stiefel to confirm compliance with this Agreement (but not the identity of the Designated Sublicensee).
3.5.3 Rose U represents and warrants that the copy it has provided to Stiefel of the sublicense it is entering into with Dermira simultaneously with this Agreement is a true and correct copy thereof (the Rose U-Dermira Sublicense ), except that the financial terms regarding the amounts to be paid by Dermira to Rose U have been redacted from the copy provided to Stiefel.
3.5.4 Simultaneous with Dermira and Rose U entering into the Rose U-Dermira Sublicense, Dermira and Stiefel are entering into a letter agreement in the form attached as Exhibit B (the Side Letter Agreement ). If the Rose U-Dermira Sublicense is terminated for any reason, then in the event that Rose U seeks to engage a subsequent Designated Sublicensee to replace Dermira, Rose U may request such subsequent Designated Sublicensee to enter into a letter agreement with Stiefel substantially in the form of Exhibit B (a Subsequent Side Letter Agreement ), with any changes made thereto only as Stiefel finds acceptable. Stiefel may, in its sole discretion, agree or decline to enter into a Subsequent Side Letter Agreement. In the event that Stiefel declines to enter into the Subsequent Side Letter Agreement, Rose U may still elect to sublicense to such subsequent Designated Sublicensee but the provisions of Section 4.3 herein shall not apply and Rose U shall be liable to Stiefel to make the [*] Payment. If Stiefel does elect to enter into a Subsequent Side Letter Agreement with such Designated Sublicensee, then the provisions of Section 4.3 herein shall continue to apply with the subsequent Designated Sublicensee replacing Dermira in such section of this Agreement. Rose U acknowledges the possibility of the license grant in Section 3.2 hereof (the License Grant ) being converted to a non-exclusive grant pursuant to Paragraph 10 of the Side Letter Agreement. Notwithstanding the foregoing, in the event that Rose U sends a notice to Dermira to terminate the Rose U-Dermira Sublicense for material breach prior to or simultaneously with an arbitrator decision to order such a conversion of the License Grant (such that the Side Letter Agreement would be terminated pursuant to Paragraph 11 thereof if the Rose U-Dermira Sublicense were terminated), then the License Grant shall remain as exclusive (except as to Stiefel and its Affiliates).
3.5.5 For clarity, the definition of Designated Sublicensee shall include any permitted subsequent sublicensees permitted in accordance with this Section 3.5.
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ARTICLE 4. PAYMENTS, AND PAYMENT TERMS
Section 4.1 Payments . Subject to Section 4.3 (and, as applicable in the event the Rose U-Dermira Sublicense is terminated, Section 3.5.4), Rose U shall pay Stiefel [*] US dollars (US $[*]) upon [*] (the [*] Payment ), at which point no further royalties or other amounts shall be due and payable and the license granted hereunder shall be deemed fully paid-up and royalty-free.
Section 4.2 Payment Terms. Subject to Section 4.3, the [*] Payment shall be made directly by Rose U to Stiefel in US dollars, by wire transfer of immediately available funds to an account designated by Stiefel in writing, as Stiefel may update from time to time. The [*] Payment shall be made within [*] following [*]. In no event shall Rose U have any right to reclaim the [*] Payment or any part thereof.
Section 4.3 Payment by Dermira or Subsequent Designated Sublicensee Directly to Stiefel . The Parties acknowledge and agree that, through the Side Letter Agreement, Dermira has assumed Rose Us obligation to pay the [*] Payment that arises from [*]. For clarity, no other obligations of Rose U, including any indemnity obligations hereunder, are being transferred to Dermira. Accordingly, as long as the Side Letter Agreement remains in place, Stiefel will not seek payment of any such [*] Payment from Rose U, and will instead seek payment from Dermira pursuant to the terms of the Side Letter Agreement. Similarly if the Rose U-Dermira Sublicense is terminated, and Rose U requests a subsequent Designated Sublicensee to replace Dermira and to enter into a Subsequent Side Letter Agreement with Stiefel, and Stiefel at its sole discretion elects to enter into such Subsequent Side Letter Agreement (all in accordance with Section 3.5.4 hereof), then such Designated Sublicensee would assume Rose Us obligation to pay the [*] Payment that arises from [*] of a Licensed Product [*] by such Designated Sublicensee or its sublicensees. Accordingly, in such case Stiefel would not seek payment of any such [*] Payment from Rose U, and would instead seek payment from the subsequent Designated Sublicensee pursuant to the terms of the Subsequent Side Letter Agreement.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
Section 5.1 Stiefel Representations and Warranties . Stiefel represents and warrants to Rose U as follows:
(a) Stiefel has the full corporate right, power and authority to enter into and perform its obligations under this Agreement;
(b) this Agreement is legally binding upon Stiefel and enforceable in accordance with its terms, and the execution, delivery, and performance of this Agreement by
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Stiefel does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound;
(c) to Stiefels Knowledge, neither Stiefel nor any of its employees or any of its contractors involved in the [*] Program or their personnel, have been debarred by the FDA, or subject to a similar sanction from another regulatory, or convicted of a felony under the laws of the United States for conduct relating to regulations under the FDCA; and
(d) other than as may be set forth in the Stiefel Data, to Stiefels Knowledge, it is not aware of any materially adverse regulatory action that has been taken or determination that has been made with respect to the [*] Program, nor to Stiefels Knowledge is it aware of any materially adverse safety or toxicology data relating to the use of topical products containing [*].
Section 5.2 Rose U Representations and Warranties . Rose U represents and warrants to Stiefel as follows:
(a) Rose U has the full limited liability company right, power and authority to enter into and perform its obligations under this Agreement; and
(b) this Agreement is legally binding upon Rose U and enforceable in accordance with its terms, and the execution, delivery, and performance of this Agreement by Rose U does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound.
Section 5.3 DISCLAIMER; NEGATION OF WARRANTIES . EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 5, NEITHER STIEFEL NOR ROSE U MAKES ANY WARRANTIES OR REPRESENTATIONS (EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE) WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES AND REPRESENTATIONS OF NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
ARTICLE 6. INDEMNIFICATION
Section 6.1 Subject to the limitations set forth in Article 7 hereof, and notwithstanding any transfer to Dermira or a subsequent Designated Sublicensee of Rose Us obligation to make the [*] Payment, Rose U shall indemnify, defend, and hold Stiefel and its Affiliates, and their stockholders, employees, directors, officers, successors and assigns (individually and collectively Indemnified Persons ) harmless from and against any claims, actions, suits, proceedings, demands, costs, expenses (including reasonable attorneys fees), liabilities and/or losses (collectively, Losses ) arising out of or in connection with third party claims based on (a) the development, manufacture, use, sale or other disposition of Licensed Products by Rose U or any Designated Sublicensee, or (b) the use by any person of Licensed Products made, used, sold or otherwise distributed by Rose U or any Designated Sublicensee.
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Rose U shall contractually require Dermira to, and shall contractually require each subsequent Designated Sublicensee to, provide the same indemnity in favor of the Indemnified Persons as to each such Designated Sublicensee and its subsequent sublicensees.
Section 6.2 Indemnification and Defense Procedure . An Indemnified Person shall reasonably promptly notify Rose U and any relevant Designated Sublicensee from which the Indemnified Person elects to seek indemnification under this Article 6 (each such Party, the Indemnifying Party ) in writing, of any claim for which indemnification may be sought under this Article 6; provided however that any delay in notification shall not nullify any indemnification obligation except to the extent of actual prejudice. The Indemnifying Party shall have the right, using counsel acceptable to the Indemnified Person, to control the investigation, trial, defense and settlement of such lawsuit or action (including all negotiations to effect a settlement) and any appeal arising therefrom, provided (a) that such claim involves (and continues to involve) solely monetary damages, (b) that the Indemnifying Party has notified the Indemnified Persons in writing of its intention to do so within [*] of receiving notice of a claim from the Indemnified Persons, and (c) that the Indemnifying Party shall diligently contest the claim (clauses a, b and c hereof, the Litigation Conditions ). The Indemnified Person may, at its own cost, participate in such investigation, trial and defense of such lawsuit or action and any resulting appeal. At the Indemnifying Partys expense, the Indemnified Person shall reasonably cooperate in good faith with it at all times during the pendency of the claim or lawsuit including, without limitation, promptly providing all available information and documents concerning the claim that are in the Indemnified Persons possession. The Indemnifying Party shall not have, or shall lose, as applicable, the right to control the investigation, trial, defense and settlement of such lawsuit or action in the event that any of the Litigation Conditions are not, or are no longer, met, as applicable. An Indemnified Persons consent shall be required in the event that any proposed compromise or settlement under this Article 6 (i) includes a finding or admission of any violation of any law by such Indemnified Person, or (ii) requires the payment of any money by the Indemnified Person, or (iii) requires the Indemnified Person to take, or to forebear taking, any action, or (iv) does not provide for a complete release by such third party claimant of the Indemnified Person.
ARTICLE 7. LIMITATION OF LIABILITY
Section 7.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO THE LOSS OF OPPORTUNITY, OR LOSS OF REVENUE OR PROFIT HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 8. TERM; TERMINATION
Section 8.1 Term . Unless terminated earlier as provided in this Agreement, the term of this Agreement shall commence on the Effective Date and continue in full force and effect until fifteen (15) years from the Effective Date. Upon expiration of the term, Rose Us license to the Stiefel Data shall become an irrevocable, royalty free, sublicensable, non-exclusive license to
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the Stiefel Data. Expiration of the term pursuant to this Section 8.1 shall not affect the assignment of rights pursuant to Section 3.1 herein.
Section 8.2 Termination for Breach . Each Party shall be entitled to terminate this Agreement by written notice to the other Party in the event that the other Party commits a material breach of this Agreement and does not cure such breach within [*] after written notice from the non-breaching Party; provided, however, that the Release set forth in Section 2.2 is irrevocable.
Section 8.3 Effect of Termination. Upon the termination of this Agreement other than pursuant to Section 8.1: (i) the licenses granted to Rose U under Section 3.2 (and the obligations to pay fees under Article 4) shall terminate; and (ii) any sublicense of the rights granted to Rose U hereunder shall automatically be assigned to and assumed by Stiefel, and shall remain in full force and effect with Stiefel as the licensor instead of Rose U (provided that, unless Stiefel agrees in writing otherwise, the obligations of Stiefel under the assigned sublicenses will not be greater than the obligations of Stiefel under this Agreement). Expiration or termination of this Agreement for any reason shall not release the other Party hereto from any liability that at the time of such termination or expiration has already accrued to such other Party.
ARTICLE 9. CONFIDENTIALITY
Section 9.1 Treatment of Confidential Information . Each Party agrees (and Rose U agrees on behalf of each Designated Sublicensee) that all inventions, processes, materials, chemicals, know-how and ideas and all other business, technical and financial information it obtains from the other Party under this Agreement are the confidential property of the disclosing Party ( Confidential Information of the disclosing Party). Except as expressly allowed in this Agreement, the receiving Party will hold in confidence and not use or disclose any Confidential Information of the disclosing Party; provided , however , that Rose U and the Designated Sublicensees may disclose information relating to the Stiefel Data (a) to actual or potential Designated Sublicensees (including, for the avoidance of doubt, disclosure by Rose U to Dermira and disclosure by the Designated Sublicensees to each of its or their actual or potential Designated Sublicensees), investors or acquirers, provided that each such actual or potential Designated Sublicensee (including, for the avoidance of doubt, Dermira), investor or acquirer agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, and (b) to consultants, contractors, suppliers and Affiliates, provided that each such consultant, contractor, supplier and Affiliate agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, and (c) to legal, financial, and tax advisors of Rose U or Designated Sublicensees, provided that such advisors are subject to confidentiality obligations with respect to any Confidential Information. No provision of this paragraph shall be interpreted to prevent Rose U or a Designated Sublicensee from making disclosures of Confidential Information to regulatory authorities as necessary: (i) for the research and development of Licensed Products; or (ii) to seek or obtain patents. Notwithstanding anything to the contrary herein, in recognition of Dermiras concerns with respect to disclosing to Stiefel the identities of its potential sublicensees of rights to commercialize Licensed Product except in the case that it actually enters into a sublicense with one (in which case a copy of the sublicense must be delivered to Stiefel in accordance with Section 3.5.2 hereof), the Parties agree that if Stiefel reasonably believes that such a third party may be using any of the Stiefel Data in
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breach of any confidentiality or non-use obligation to Rose U or Dermira or sublicense or other authorization provided by Rose U or Dermira, Stiefel may request in writing of Rose U whether Rose U or Dermira disclosed the Stiefel Data to such third party or an Affiliate or representative thereof, and Rose U shall answer Stiefels request, provided that answering such request does not constitute a breach of any legal obligation of Rose U or Dermira to such third party including representing to Stiefel whether Dermira made such a disclosure. Rose U and Dermira will ensure that any non-disclosure or other agreement with such a third party under which Stiefel Data is disclosed, does not prevent Rose U or Dermira from making such a disclosure in response to a court order.
Section 9.2 Release from Restrictions . The provisions of Section 9.1 shall not apply to any Confidential Information disclosed under this Agreement that:
(a) was known or used by the receiving Party prior to its date of disclosure to the receiving Party, as evidenced by the prior written records of the receiving Party; or
(b) either before or after the date of the disclosure to the receiving Party is lawfully disclosed to the receiving Party by sources other than the disclosing Party rightfully in possession of such information, and such source was not under a duty of confidentiality with respect to such information; or
(c) either before or after the date of the disclosure to the receiving Party becomes published or generally known to the public, through no fault or omission on the part of the receiving Party or an affiliated party; or
(d) is independently developed by or for the receiving Party without reference to or reliance upon the Confidential Information; or
(e) is required to be disclosed by the receiving Party to comply with applicable laws, court order, or governmental regulations, provided that the receiving Party (i) provides (A) prior written notice of such disclosure requirement to the other Party and (B) an adequate opportunity to seek appropriate legal relief to prevent such disclosure or limit use and further disclosure of the Confidential Information and (ii) takes reasonable and lawful actions to avoid and/or minimize the degree of such disclosure, and provided, further, that the receiving Party shall furnish only such portion of the Confidential Information that is legally required to be disclosed and shall promptly inform the disclosing Party in writing of which portion of the Confidential Information was so disclosed.
Notwithstanding the foregoing or anything set forth herein or otherwise, and for the avoidance of doubt, [*] shall be considered to be Confidential Information.
ARTICLE 10. DISPUTE RESOLUTION AND JURISDICTION
Section 10.1 Mandatory Procedures . The Parties agree that any dispute arising out of or relating to this Agreement shall be resolved solely by means of the procedures set forth in this Article, and that such procedures constitute legally binding obligations that are an essential
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provision of this Agreement. If either Party fails to observe the procedures of this Article, as may be modified by their written agreement, the other Party may bring an action for specific performance of these procedures in any court of competent jurisdiction.
Section 10.2 Negotiation. The Parties shall endeavor to resolve in good faith any disputes or conflict arising from or relating to the subject matter of this Agreement, failing which either Party may submit such dispute for resolution to appropriate senior management of Rose U and Stiefel. If such senior management representatives are unable to resolve such dispute within [*] after such conflict is submitted to them for resolution, either Party may refer the dispute for mediation as set forth in Section 10.3.
Section 10.3 Mediation . If the Parties are unable to resolve a dispute arising out of or relating to this Agreement through the negotiation procedures set forth in Section 10.2, the Parties agree that they shall submit such dispute for confidential mediation under the CPR Mediation Procedure then in effect at the start of mediation with the International Institute for Conflict Prevention & Resolution (www.cpradr.org) (the CPR ). Unless otherwise agreed, the Parties shall select a mediator from the CPR Panels of Distinguished Neutrals. If the Parties cannot agree, they will defer to the CPR to select a mediator. The cost of the mediator shall be borne equally by the Parties. Any dispute not resolved within [*] (or within such other time period as may be agreed to by the Parties in writing) after appointment of a mediator shall be finally resolved by arbitration pursuant to Section 10.4.
Section 10.4 Arbitration . If the Parties are unable to resolve a dispute arising out of or relating to this Agreement through the negotiation procedures set forth in Section 10.2 and the mediation procedures set forth in Section 10.3, the Parties agree that they shall submit such dispute for final settlement via binding arbitration. The arbitration shall be conducted under the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the Parties, and heard before a single arbitrator as selected in accordance with the Commercial Arbitration Rules. Such arbitration will be held in [*] and shall be conducted in English. Each Party shall be responsible for its own expenses in connection therewith. The Parties hereby submit to the non-exclusive jurisdiction of the United States District Court for the [*] for the limited purpose of enforcing this Agreement to arbitrate. The arbitration award shall be final and binding, and judgment over the award may be entered by any court having jurisdiction thereof or having jurisdiction over the relevant Party and its assets.
ARTICLE 11. GOVERNING LAW
Section 11.1 This Agreement and all disputes arising out of or related to this Agreement shall be governed by the laws of the state of Delaware, without regard to conflict of laws principles.
ARTICLE 12. NOTICE
Section 12.1 Any notices required or permitted under this Agreement shall be in writing, in English, specifically refer to this Agreement, and shall be sent by prepaid registered
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or certified mail, return receipt requested; by recognized overnight courier; or by personal delivery, in each case addressed to the other Party as follows:
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Rose U LLC [*] Palo Alto, CA 94303 Attention: [*] |
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Stiefel Laboratories, Inc. 20 TW Alexander Drive PO Box 14910 Research Triangle Park, N.C. 19102 Attention: Alliance Management |
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GlaxoSmithKline, LLC 2301 Renaissance Boulevard Mail Code RN0220 King of Prussia, PA 19406 Attn: V.P. and Associate General Counsel Legal Operations Business Development Transactions |
Either Party may designate a different address, telephone number, or facsimile number by giving notice, pursuant to this Article, to the other Party. Any notice given pursuant to this Article shall be deemed to have been given: (a) [*] after sent by prepaid registered or certified mail; (b) [*] after sent by recognized overnight courier and (c) when received if by personal delivery.
ARTICLE 13. ASSIGNMENT
Section 13.1 Neither Party may assign or transfer this Agreement or any rights or obligations under this Agreement, whether voluntary or by operation of law, without the prior written consent of the other Party, provided that (a) Stiefel shall be permitted to assign this Agreement in connection with the sale or disposition of all or substantially all of the assets or business to which this Agreement pertains, and (b) Rose U shall be permitted to assign this Agreement in connection with the sale or disposition of all or substantially all of the assets or business to which this Agreement pertains provided that, prior to Stiefels receipt of the [*] Payment and except in the case of a sale or disposition to Dermira or an Affiliate of Dermira (provided that in no event will Dermira or the Affiliate of Dermira be relieved of its liability to make the [*] Payment to Stiefel under the terms of the Side Letter Agreement), the assignee may not be a party to which the Stiefel Data has been sublicensed or any Affiliate thereof. Any assignment or transfer or attempted assignment or transfer of this Agreement made in contravention of the terms of this Article shall be null, void
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and without effect. Subject to the foregoing, this Agreement shall be binding on and inure to the benefit of the Parties respective successors and permitted assigns.
ARTICLE 14. WAIVER
Section 14.1 No failure or delay on the part of a Party in exercising any right under this Agreement will operate as a waiver of, or impair, any such right, unless a waiver is made in writing signed by the waiving Party. No single or partial exercise of any such right will preclude any other or further exercise thereof or the exercise of any other right. No waiver of any such right will be deemed a waiver of any other right under this Agreement.
ARTICLE 15. PARTIAL INVALIDITY
Section 15.1 If any provision of this Agreement is held to be invalid, illegal, or unenforceable by a court of competent jurisdiction: (a) such provision will be deemed amended to conform to applicable laws of such jurisdiction so as to be valid and enforceable, or, if it cannot be so amended without materially altering the intention of the Parties, it will be stricken; (b) the remaining provisions shall remain in full force and effect; (c) the validity, legality and enforceability of such provision will not in any way be affected or impaired in any other jurisdiction and (d) the remainder of this Agreement will remain in full force and effect. The Parties agree to renegotiate in good faith any term of this Agreement held to be invalid, illegal or unenforceable and agree to be bound by the mutually agreed substitute provision in order to give the most approximate effect intended by the Parties.
ARTICLE 16. HEADINGS
Section 16.1 All headings are for convenience only and shall not affect the meaning of any provision of this Agreement.
ARTICLE 17. NO PUBLICITY
Section 17.1 Neither Party shall make any public or press announcement or other disclosure to any third party about this Agreement, its terms or its business relationship with the other Party, without the prior written consent of the other Party; provided, that Rose U may disclose and may permit Dermira to disclose this agreement to a third party that is subject to confidentiality restrictions substantially similar to the proviso in Section 9.1 hereof in connection with a possible sublicense or other transaction relating to its rights hereunder to such third party. The form and content of any such announcement shall be subject to the prior approval of each Party.
ARTICLE 18. USE OF NAME, SYMBOLS AND MARKS
Section 18.1 Stiefel and Rose U shall not use the name, symbols and/or marks of the other Party in any form of publicity without the prior written authorization of the other Party. However, each Party has the right to use the other Partys name on governmental filings and elsewhere as required by law.
ARTICLE 19. INDEPENDENT CONTRACTOR
Section 19.1 Each Partys status and relationship with the other Party shall be that of an independent contractor, and neither Party shall state or imply, directly or indirectly, that it is empowered or authorized to commit or bind the other Party or to incur any liabilities or expenses on behalf of the other Party or to enter into any oral or written agreement in the name of or on behalf of the other Party. Nothing in this Agreement shall create, expressly or by implication, a partnership, joint venture, agency or other association of the Parties.
ARTICLE 20. MULTIPLE COUNTERPARTS
Section 20.1 This Agreement may be executed in two (2) identical counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
ARTICLE 21. AMENDMENT
Section 21.1 This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by both Parties.
ARTICLE 22. ENTIRE AGREEMENT
Section 22.1 This Agreement including the Exhibits hereto constitutes the entire agreement between the Parties with respect to its subject matter and supersedes all prior agreements or understandings, oral or written, between the Parties relating to the subject matter of this Agreement.
ARTICLE 23. NO THIRD PARTY BENEFICIARIES AND NO LIABILITY OF LLC MEMBERS
Section 23.1 Nothing express or implied in this Agreement is intended to confer, nor shall anything herein confer, upon any person other than the Parties and their permitted successors or assigns any rights, remedies, obligations or liabilities whatsoever. For the avoidance of doubt, [*] in their individual capacities shall have no personal liability or obligation to Stiefel or any other parties arising out of this Agreement and Stiefel will not bring a claim directly against [*] in their individual capacities relating to this Agreement; provided, that nothing in this Section shall limit any claims against Rose U.
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IN WITNESS WHEREOF, the Parties have caused their duly authorized officers to execute and deliver this License and Post-Termination Agreement as of the Effective Date.
STIEFEL |
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ROSE U |
STIEFEL LABORATORIES, INC. |
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ROSE U, LLC |
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Signature: |
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/s/ Justin T. Huang |
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/s/ Jeffrey D. Urman |
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Print: |
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Print: |
Justin T. Huang |
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Jeffrey D. Urman |
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Title: |
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Assistant Secretary |
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Secretary / Treasurer |
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4/26/13 |
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April 2, 2013 |
[SIGNATURE PAGE TO LICENSE AND POST-TERMINATION AGREEMENT]
Exhibit A-1
Stiefel Data
To the extent existing:
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Exhibit A-2
Program Inventory and Supplies
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Exhibit A-3
ASSIGNMENT
WHEREAS, [*], incorporated in [*], having an address of [*], a [*] of [*], a [*] corporation, having an address at [*], (collectively, hereinafter the ASSIGNOR), are the owner of the invention listed in Schedule I attached herewith (hereinafter the Patents), and
WHEREAS, Rose U, a limited liability corporation (hereinafter ASSIGNEE), having an address at [*] , Palo Alto, California, 94303, is desirous of acquiring ASSIGNORs entire right, title and interest in and to said Patents, and in and to any application for or issued Letters Patent therefore, and any and all Letters Patent continuations, divisions, continuations in part, extensions, substitutions, reissues and reexaminations therefore;
NOW, THEREFORE, TO ALL WHOM IT MAY CONCERN, BE IT KNOWN, that the said ASSIGNORs, for and in consideration of the payment by ASSIGNEE of one dollar ($1.00) and other good and valuable consideration, hereby sells, assigns, transfers and conveys all right title and interest in and to the Patents to ASSIGNEE, its successors and assigns, ASSIGNORs entire right, title and interest in and to said Patents and any application for or issued Letters Patent therefore, including any extensions or adjustments in term thereof and any continuations, divisions, continuations-in-part, extensions, substitutions, reissues and reexaminations thereof, TO HAVE AND TO HOLD THE SAME;
AND the said ASSIGNOR, for the considerations aforesaid, does hereby covenant and agree to and with the said ASSIGNEE, its successors and assigns, that it has the full power to make this assignment and that the rights assigned are not encumbered by any grant, license or right heretofore given, and that said ASSIGNOR, it successors and assigns, shall and will use commercially reasonable efforts to procure or make, execute, and deliver any and all other instruments, and any and all further application papers; affidavits, assignments or other documents which may be required or necessary to secure to and vest in said ASSIGNEE, its successors and assigns, the whole right, title and interest in and to said Patents, Letters Patent, applications for Letters Patent, rights, title, benefits, privileges and advantages hereby sold, assigned, transferred and conveyed or intended so to be.
[Signature page follows]
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IN WITNESS WHEREOF, this agreement is executed below by an authorized representative of [*]:
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Schedule I to ASSIGNMENT
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EXHIBIT B
DERMIRA STIEFEL LETTER AGREEMENT
April 26, 2013
[*]
VP, Global Business Development & Licensing
Stiefel Laboratories, Inc.
20 TW Alexander Drive
PO Box 14910
Research Triangle Park, NC 19102
Re: Sublicense to Dermira, Inc. ( Dermira ) under the License and Post-Termination Agreement between Stiefel Laboratories, Inc. ( Stiefel ) and Rose U LLC ( Rose U ) effective April 26, 2013 (the License and Post-Termination Agreement )
Dear [*] :
1) As you know, Dermira is in the process of negotiating a license agreement with Rose U (the Rose U-Dermira License Agreement ) which includes a sublicense of certain development data and related information which were licensed, in the first instance, by Rose U from Stiefel under the License and Post-Termination Agreement (the Sublicense ). Defined terms used in this letter agreement shall have the meaning given to them in the License and Post-Termination Agreement.
2) Dermira now seeks certain agreements from Stiefel regarding the rights sublicensed by Rose U to Dermira which have as their source the License and Post-Termination Agreement and in return Stiefel requires Dermira to confirm certain obligations to Stiefel arising from such sublicense.
3) Without in any way diminishing Dermiras obligation to indemnify Stiefel set out below, Stiefel agrees that the obligation in Sections 3.5.2(i) and (iii) of the License and Post-Termination Agreement to include certain terms in sublicense agreements and the obligation to provide Stiefel with copies of sublicense agreements shall not apply to sublicense agreements entered into by Dermira or its Designated Sublicensees with contract research organizations, contract manufacturing organizations and similar third parties performing services for the benefit of Dermira or its Affiliates or Designated Sublicensees which sublicense does not include any right to commercialize Licensed Product.
4) Consistent with Section 8.3 of the License and Post-Termination Agreement, in the event of a termination of the License and Post-Termination Agreement, the Sublicense granted by Rose U to Dermira under the Rose U-Dermira License Agreement shall survive such termination subject to the terms of the Rose U-Dermira License Agreement and this letter agreement and shall automatically be assigned to and assumed by Stiefel and remain in full force and effect with Stiefel as the licensor instead of Rose U, provided that, unless Stiefel agrees in writing otherwise, the obligations of Stiefel under the assigned Sublicense will not be greater than the obligations of Stiefel under this Agreement, and further provided that a default by Dermira was not the cause of such termination and at the time of such termination Dermira is not in material breach of the Rose U-Dermira License Agreement or this letter agreement.
5) Dermira shall directly pay Stiefel the [*] Payment upon [*] (the [*] ). Dermira shall pay the [*] Payment directly to Stiefel in accordance with Section 4.2 of the License and Post-Termination Agreement. Stiefel shall be entitled to terminate this letter agreement and the Sublicense to Dermira by written notice to
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Dermira in the event that Dermira fails to pay Stiefel the [*] Payment when due and does not cure such breach within [*] after written notice from Stiefel to Dermira.
6) Dermira shall indemnify, defend, and hold Stiefel and its Affiliates, and their stockholders, employees, directors, officers, successors and assigns (individually and collectively Indemnified Persons ) harmless from and against any claims, actions, suits, proceedings, demands, costs, expenses (including reasonable attorneys fees), liabilities and/or losses (collectively, Losses ) arising out of or in connection with third party claims based on (a) the development, manufacture, use, sale or other disposition of Licensed Products (as such term is defined in the License and Post-Termination Agreement) by Dermira, any Dermira sublicensee or any subsequent sublicensee, or (b) the use by any person of Licensed Products made, used, sold or otherwise distributed by Dermira, any Dermira sublicensee or any subsequent sublicensee. Dermira shall contractually require each of its sublicensees (other than contract research organizations, contract manufacturing organizations and similar third parties performing services for the benefit of Dermira or its Affiliates or Designated Sublicensees who do not receive any right to commercialize Licensed Product) to provide the same indemnity in favor of the Indemnified Persons as to such sublicensee and its subsequent sublicensees (subject to conditions and procedures substantially equivalent to those contained in paragraphs numbered 7 and 8 below).
7) An Indemnified Person shall reasonably promptly notify Dermira and any relevant Designated Sublicensee from which the Indemnified Person elects to seek indemnification hereunder (each such person, the Indemnifying Party ) in writing, of any claim for which indemnification may be sought under this indemnification; provided however that any delay in notification shall not nullify any indemnification obligation except to the extent of actual prejudice. The Indemnifying Party shall have the right, using counsel acceptable to the Indemnified Person, to control the investigation, trial, defense and settlement of such lawsuit or action (including all negotiations to effect a settlement) and any appeal arising therefrom, provided (a) that such claim involves (and continues to involve) solely monetary damages, (b) that the Indemnifying Party has notified the Indemnified Persons in writing of its intention to do so within [*] of receiving notice of a claim from the Indemnified Persons, and (c) that the Indemnifying Party shall diligently contest the claim (clauses a, b and c hereof, the Litigation Conditions ). The Indemnified Person may, at its own cost, participate in such investigation, trial and defense of such lawsuit or action and any resulting appeal. At the Indemnifying Partys expense, the Indemnified Person shall reasonably cooperate in good faith with it at all times during the pendency of the claim or lawsuit including, without limitation, promptly providing all available information and documents concerning the claim that are in the Indemnified Persons possession. The Indemnifying Party shall not have, or shall lose, as applicable, the right to control the investigation, trial, defense and settlement of such lawsuit or action in the event that any of the Litigation Conditions are not, or are no longer, met, as applicable. An Indemnified Persons consent shall be required in the event that any proposed compromise or settlement under this indemnification (i) includes a finding or admission of any violation of any law by such Indemnified Person, or (ii) requires the payment of any money by the Indemnified Person, or (iii) requires the Indemnified Person to take, or to forebear taking, any action, or (iv) does not provide for a complete release by such third party claimant of the Indemnified Person.
8) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO THE LOSS OF OPPORTUNITY, OR LOSS OF REVENUE OR PROFIT HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9) Subject to Paragraph 10 hereof, Dermira shall only have the right to assign this letter agreement to a third party in connection with an assignment of the Rose U-Dermira License Agreement arising from (a) a merger, consolidation or reorganization of Dermira or a sale of all or substantially all of the assets of Dermira (an Acquisition Transaction ), or (b) a sale of all or substantially all of the assets of Dermira to which the Rose U-Dermira License Agreement relates (an Assignment Transaction ), and Dermira agrees that it shall so assign this letter agreement in any such scenario where the Rose U-Dermira License Agreement has been assigned, provided that, in the case of an Assignment Transaction, (i) Dermira shall
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not be relieved of its obligations under this letter agreement but shall be jointly and severally liable with the assignee hereunder, and (ii) [*] . Any further assignments from Dermira or a subsequent assignee to a different third party assignee shall only be made in accordance with Paragraph 9 hereof, and, following an Assignment Transaction, Dermira shall continue not to be relieved of its obligations under this letter agreement but shall be jointly and severally liable with its assignee and any such further assignees hereunder. Any assignment or transfer or attempted assignment or transfer of this letter agreement made in contravention of the terms of this Paragraph shall be null, void and without effect. Subject to the foregoing, this letter agreement shall be binding on and inure to the benefit of Dermiras respective successors and permitted assigns.
10) Providing that the [*] Payment has not yet been made, until the [*] anniversary of the date hereof, Dermira shall use Commercially Reasonable Efforts to develop and commercialize a Licensed Product, whether by itself, through an Affiliate, or a through a Designated Sublicensee. In the event that Stiefel reasonably believes Dermira is not using such Commercially Reasonable Efforts, Dermira and Stiefel shall meet to discuss the issue. In the event that Dermira and Stiefel cannot reach resolution on such matter, Dermira and Stiefel agree to engage in a dispute resolution process equivalent to that set forth Article 10 of the License and Post-Termination Agreement. Dermira and Stiefel agree that the result of such dispute resolution process by binding arbitration (but not pursuant to the negotiation in Section 10.2 or the non-binding mediation in Section 10.3, through which resolution Dermira and Stiefel may mutually agree as they choose) shall be limited to a finding by the arbitrator that either (a) Dermira owes Stiefel (i) none, (ii) all or (iii) some portion to be decided by the arbitrator of the [*] Payment, or that (b) the license grant to Rose U in the License and Post-Termination Agreement shall (i) be converted into a non-exclusive license such that Stiefel may license the Stiefel Data to other parties of its choice or (ii) shall remain in place with no change. In the License and Post-Termination Agreement executed as the date hereof, Rose U is agreeing to such possibility of the conversion of the license grant to Rose U from exclusive (except as to Stiefel and its Affiliates) to non-exclusive as set forth in this Paragraph 10. For the purposes of this Paragraph 10, Commercially Reasonable Efforts means efforts that, taken together, would constitute a reasonable level of effort by [*] to develop and commercialize in a [*] manner, one of such companys [*] giving full consideration to all [*] .
11) This letter agreement shall terminate upon any termination of the Rose U-Dermira License Agreement, unless such termination was effected by the acquisition of Rose U by Dermira or an Affiliate thereof, or unless, in a series of related transactions, Dermiras [*] program related to the Rose U-Dermira License Agreement has been substantially divested and this letter agreement is terminated and not assigned in conjunction therewith and a new license agreement has been entered into by and between the assignee of Dermiras [*] program related to the Rose U-Dermira License Agreement and Rose U, in either of which case this letter agreement shall not terminate. Notwithstanding the foregoing, paragraphs numbered 6, 7, 8, and this Paragraph 11 shall survive any termination of this letter agreement, and provided that Dermiras obligations under Paragraph 5, 9 and 10 shall survive any termination of this letter agreement but only if the [*] Payment or payment obligation in Paragraph 9 or 10 accrued prior to termination but was not received by Stiefel prior to termination.
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If you are in agreement with the foregoing, kindly sign and date this letter where indicated below and return an executed copy to me at your convenience.
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Very truly yours, |
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/s/ Tom Wiggans |
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Tom Wiggans |
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Chief Executive Officer |
The foregoing is hereby agreed to
Stiefel Laboratories, Inc.
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/s/ Justin T. Huang |
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Name: |
Justin T. Huang |
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Assistant Secretary |
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4/26/13 |
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[SIGNATURE PAGE TO DERMIRA STIEFEL LETTER AGREEMENT]
APPENDIX C
STIEFEL SIDE LETTER
(ATTACHED)
Exhibit 10.12
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[*] 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. |
RIGHT OF FIRST NEGOTIATION AGREEMENT
This Right of First Negotiation Agreement (this Agreement ) dated March 28, 2013 is made by and between Dermira, Inc., a Delaware corporation with a principal address at 2055 Woodside Road, Ste. #270, Redwood City, California 94061 ( Dermira ) and Maruho Co. , Ltd., a Japanese corporation with a principal address at 1-5-22 Nakatsu, Kitaku, Osaka, 531-0071, Japan ( Maruho ). Dermira and Maruho may individually be referred to as a Party and collectively, as the Parties .
WHEREAS , on even date herewith, Maruho has, alongside certain other investors, entered into that certain Securities Purchase Agreement (the SPA ) by and among Dermira and the investors party thereto (the Investors ) and related agreements by and among Dermira and the Investors (together, the Securities Purchase Agreements ).
WHEREAS , the transactions contemplated by the Securities Purchase Agreements are expected to close on or about March 28, 2013 (the actual date of such closing hereinafter referred to as the Effective Date ).
WHEREAS , in addition to Maruhos investment, Maruho is willing to make certain payments to Dermira and Dermira is willing to grant Maruho as of the Effective Date certain rights with respect to certain Dermira development products.
NOW, THEREFORE , intending to be legally bound hereby, the Parties hereby agree as follows:
1. Definitions .
The following terms shall have the following meanings:
Change of Control Transaction means: (1) the sale of all or substantially all of the assets of Dermira including all rights and obligations under this Agreement to an unrelated person or entity, (2) a merger, reorganization, consolidation or similar transaction pursuant to which the holders of Dermiras then-outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, or (3) the sale of all of the then-outstanding capital stock of Dermira to an unrelated person or entity.
Dermira Products means the topical pharmaceutical products within the Dermira product portfolio as of the Effective Date known as [*].
Phase 2a Clinical Trial means a study of a pharmaceutical product the goal of which is to demonstrate the proof of the concept in human patients to evaluate safety and initial pharmacologic activity and/or efficacy in healthy volunteers and/or individuals who have a certain disease or condition before embarking on a Phase 2b Clinical Trial.
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Phase 2b Clinical Trial means a study of a pharmaceutical product in human patients to determine efficacy and statistical trends prior to initiation of Phase 3 pivotal studies. These studies will also evaluate potential doses and dosing regimens to optimize the therapy under investigation.
Specified Territories means [*].
2. Information Rights .
2.1 Formation of Development Committee . Within thirty (30) days following the Effective Date, the Parties shall form a committee (the Development Committee ) which shall serve as the vehicle for Dermira to provide Maruho with periodic updates on Dermiras development activities involving the Dermira Products. The Development Committee shall have three (3) representatives from each of Dermira and Maruho. Dermira and Maruho shall inform the other Party of their names before the first Development Committee is held. Each Party shall have the right to replace one or more of their representatives with the equivalent number of full time employees of such Party at any time upon written notice to the other Party.
2.2 Meetings of the Development Committee . The Development Committee shall meet once every six (6) month period, provided that Maruho shall have the right to request one (1) additional meeting per six (6) month period. Development Committee meetings may be conducted in person or via teleconference and/or videoconference. Each Party shall bear its own expenses in connection with attending meetings of the Development Committee.
2.3 Termination of Development Committee . The Development Committee shall terminate and Maruhos rights under this Section 2 shall terminate at such time when all of the ROFN Rights (defined below) in respect of the Dermira Products have been exercised or have expired or terminated as set out below. In addition, the Development Committee meetings shall not include discussion of any Dermira Product for which all of the ROFN Rights have expired or terminated as set out below.
2.4 Change of Control . Dermira shall provide Maruho with at least [*] days advance written notice of a Change of Control Transaction.
3. Fees and Credits .
3.1 Payment . In consideration of the rights granted to Maruho under this Agreement, Maruho will pay Dermira the sum of ten million USD ($10,000,000) within thirty (30) days following the Effective Date (the Maruho Payment ).
3.2 Credits . The Maruho Payment, and any portion thereof, until the entire Maruho payments has been so credited, will be creditable by Maruho against any up-front or milestone payments payable by Maruho under any license agreement entered into between Maruho and Dermira (or its successors) following negotiation under Section 4.1 or 4.3. Notwithstanding the foregoing, the Maruho Payment is non-refundable even in the event that Mauho and Dermira (or its successors) do not enter into a license agreement.
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3.3 Tax form . Dermira shall provide Maruho with residential certificates, tax forms and other tax related documents previously requested by Maruho (the Tax Forms ). If Dermira fails to provide the Tax Forms ten (10) days prior to the due date of the Maruho Payment, Maruho may postpone the Maruho Payment until ten (10) days after Maruho receives the Tax Forms from Dermira.
4. Rights of First Negotiation .
4.1 Dermira Products . Dermira shall grant Maruho the rights set out in this Section 4.1 (each, an ROFN Right ) to negotiate with Dermira for an exclusive license to develop and commercialize the Dermira Products in the Specified Territories.
(a) Phase 2b Program Completion . If Dermira conducts and completes a Phase 2b Clinical Trial for a Dermira Product, Dermira shall notify Maruho upon completion of the Phase 2b Clinical Trial (the Phase 2b Completion Notice ) and Maruho will have a first right to negotiate with Dermira for an exclusive license to develop and commercialize such Dermira Product in one or more of the Specified Territories as set forth in this Section 4.1(a) if the ROFN Rights in respect of such Dermira Product have not previously expired or been exercised or terminated in accordance with this Section 4. At the time it issues the Phase 2b Completion Notice, Dermira will also physically or electronically deliver to Maruho, or provide Maruho access via secure electronic data room (any such delivery method, make available , and made available shall have a corresponding meaning) all material data related to Dermiras development of such Dermira Product, including from such Phase 2b Clinical Trial, that Dermira then possesses (the Phase 2b Data Package ). Maruho will be entitled to exercise its right of first negotiation with respect to such Dermira Product by written notice to Dermira (the Phase 2b Exercise Notice) within [*] days after Maruhos receipt of the Phase 2b Completion Notice and the Phase 2b Data Package being made available by Dermira (the Phase 2b Evaluation Period ). If Maruho so exercises its right of first negotiation, Dermira and Maruho will negotiate with respect to such a license during an exclusive negotiation period of [*] days following Maruhos issuance of the Phase 2b Exercise Notice (the Phase 2b Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the Phase 2b Completion Notice will terminate for all countries of the Specified Territories effective upon the earlier of (i) Maruhos failure to issue a Phase 2b Exercise Notice prior to the expiration of the Phase 2b Evaluation Period, and (ii) the expiration of the Phase 2b Negotiation Period.
(b) Prior to 3rd Party License or Sale . If, prior to the ROFN Rights for a Dermira Product expiring or being exercised or terminated in accordance with this Section 4, Dermira intends to license or sell the intellectual property related to such Dermira Product for all or part of the Specified Territories (other than in connection with a Change of Control Transaction) Dermira will provide Maruho with written notice of such intention (the 3rd Party Transaction Notice ) and Maruho will have a first right to negotiate with Dermira for an exclusive license to develop and commercialize such Dermira Product or purchasing the rights to such Dermira Product in the Specified
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Territories as set forth in this Section 4.1(b). At the time it issues the 3rd Party Transaction Notice, Dermira will also make available to Maruho all material data related to Dermiras development of such Dermira Product that Dermira then possesses (the 3rd Party Transaction Data Package ). Maruho will be entitled to exercise its right of first negotiation with respect to such Dermira Product by written notice to Dermira (the 3rd Party Transaction Exercise Notice ) within [*] days after Maruhos receipt of the 3rd Party Transaction Notice and the 3rd Party Transaction Data Package being made available by Dermira (the 3rd Party Transaction Evaluation Period). If Maruho so exercises its right of first negotiation, Dermira and Maruho will negotiate with respect to such a license or sale during an exclusive negotiation period of [*] days following Maruhos issuance of the 3rd Party Transaction Exercise Notice (the 3rd Party Transaction Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the 3rd Party Transaction Notice will terminate for all countries of the Specified Territories effective upon the earlier of (i) Maruhos failure to issue a 3rd Party Transaction Exercise Notice prior to the expiration of the 3rd Party Transaction Evaluation Period, and (ii) the expiration of the 3rd Party Transaction Negotiation Period, provided that, if the right of first negotiation arose from Dermiras intention to sell or license the intellectual property related to the Dermira Product for part but not all of the Specified Territories, then the ROFN Rights in respect of such Dermira Product in such other parts of the Specified Territories shall continue until exercised, terminated or expired in accordance with this Section 4.
(c) Effect of Dermira Ceasing Development . Maruho acknowledges that Dermira will have the sole discretion regarding the development of the Dermira Products inside and outside of the Specified Territories and that Dermira may cease development of a Dermira Product at any time if Dermira so determines. In the event that Dermira determines to cease development of a Dermira Product prior to the exercise, expiration or termination of the ROFN Rights in respect of such Dermira Product, Dermira will so notify Maruho in writing (the Development Termination Notice ). At the time it issues the Development Termination Notice, Dermira will also make available to Maruho all material data related to Dermiras development of the Dermira Product that Dermira then possesses (the Development Termination Data Package ). Maruho will be entitled to exercise its right of first negotiation with respect to such Dermira Product by written notice to Dermira (the Development Termination Exercise Notice ) within [*] days after Maruhos receipt of the Development Termination Notice and the Development Termination Data Package being made available by Dermira (the Development Termination Evaluation Period ). If Maruho so exercises its right of first negotiation, Dermira and Maruho will negotiate with respect to such a license during an exclusive negotiation period of [*] days following Maruhos issuance of the Development Termination Exercise Notice (the Development Termination Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the Development Termination Notice will terminate for all countries of the Specified Territories effective upon the earlier of (i) Maruhos failure to issue a Development Termination Exercise Notice prior to the
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expiration of the Development Termination Evaluation Period, and (ii) the expiration of the Development Termination Negotiation Period.
(d) Maruho Initiated Negotiation . If Dermira has not completed a Phase 2b Clinical Trial for a Dermira Product, Maruho will have the right to offer Dermira the negotiation with respect to the license of such Dermira Product in the Specified Territories at any time prior to the exercise, expiration or termination of the ROFN Rights for such Dermira Product. Maruho shall exercise this right of first negotiation by providing written notice to Dermira (the Maruho Negotiation Notice ). Promptly following receipt of a Maruho Negotiation Notice, Dermira will make available to Maruho all material data related to Dermiras development of such Dermira Product that Dermira then possesses (the Maruho Negotiation Data Package ) and Dermira and Maruho will negotiate with respect to such a license during an exclusive negotiation period of [*] days following the Maruho Negotiation Data Package being made available by Dermira (the Maruho Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the Maruho Negotiation Notice will terminate for all countries of the Specified Territories effective upon the expiration of the Maruho Negotiation Period. Notwithstanding the foregoing if Maruho exercises its ROFN Rights under this Section 4.1(d) for [*] in [*], and Dermira and Maruho enter into a license agreement for [*] in [*] (an [*] License ), the ROFN Rights for [*] in the Specified Territories other than [*] and for Dermira Product other than [*] shall continue to the extent not previously exercised, expired or terminated.
4.2 Termination of ROFN Rights . If Dermira undergoes a Change of Control Transaction, Dermiras successor will have the right to terminate all ROFN Rights upon written notice to Maruho. In addition, if not exercised, expired or terminated earlier, all of the ROFN Rights will expire upon the later to occur of (a) when Dermira has notified Maruho in writing that Dermira has completed Phase 2a Clinical Trials for all Dermira Products, or (b) three (3) years after Maruho and Dermira have entered into a license agreement (except for an [*] License) for one or more Dermira Products in one or more of the Specified Territories against which all or a portion of the Maruho Payment is applied. Subject only to the ROFN Rights with respect to the Dermira Products prior to their exercise, expiration or termination in accordance with this Agreement (including subject to the proviso in the last sentence of Section 4.1(b)), Dermira and its successors shall be free to commercialize, license, sell or take any other actions with respect to the Dermira Products and the intellectual property rights related thereto, in Dermiras sole discretion. In addition, nothing in this Agreement shall restrict Dermira and its successors rights to commercialize, license, sell or take any other actions with respect to Dermira Products and the intellectual property rights related thereto outside of the Specified Territories and other products and their related intellectual property rights in any territory of the world.
4.3 Additional Right to Credit the Maruho Payment . If as of the date that all ROFN Rights expire or have been exercised or terminated (the ROFN Termination Date ), the Parties have not entered into any license, sale or other commercialization agreement involving a Dermira Product, Maruho will have the right to credit the Maruho Payment (including portions thereof, until the entire Maruho Payment has been so credited) against up-front and milestone payments payable by Maruho under any license agreement entered into between Dermira or its successor
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and Maruho after the ROFN Termination Date for: (a) any Dermira Product for which the ROFN Rights were terminated following a Change of Control Transaction, or (b) any other pharmaceutical product developed by Dermira, provided that such other Dermira-developed products will not be subject to any ROFN Rights. This right to credit the Maruho Payment under license agreements for other Dermira-developed pharmaceutical products shall continue to apply following a Change of Control Transaction of Dermira but shall be thereafter limited to Dermira-developed products which were under development by Dermira at the time of the Change of Control Transaction and not to other products of the acquirer or any of its affiliates.
5. Confidentiality .
5.1 Confidential Information . For purposes of this Agreement, Confidential Information means and will include any information, materials or knowledge regarding Dermira and Maruho and their business, financial condition, products, development programs, licensors, suppliers, technology, clinical or other data, or research and development that is disclosed or made available to the other Party (the Receiving Party ) or to which the Receiving Party has access in connection with this Agreement or the Development Committee meetings. Confidential Information will not include any information that: (a) is or becomes part of the public domain through no fault of the Receiving Party; (b) was rightfully in the Receiving Partys possession at the time of disclosure, without restriction as to use or disclosure as demonstrated by contemporaneous written records; or (c) the Receiving Party rightfully receives from a third party who has the right to disclose it and who provides it without restriction as to use or disclosure. Dermira and Maruho agree to only use the Confidential Information of the other Party for the purposes of this Agreement and in no other manner and for no other purpose, including but not limited to the research, development or commercialization of any other product. Dermira and Maruho agree to hold all Confidential Information of the other Party in strict confidence and not to disclose it to others, except to full time employees and medical advisors of the Receiving Party and its affiliates who have a need to know and are bound by written agreements of confidentiality no less protective of the Confidential Information than the terms of this Section 5. The Receiving Party shall be liable to the other Party for any failure of such employees or medical advisors to comply with the non-use and non-disclosure obligations under this Section 5, and shall provide prompt notice to the other Party of any failure to comply of which the Receiving Party becomes aware. Dermira and Maruho further agrees to take all actions reasonably necessary to protect the confidentiality of all Confidential Information of the other Party including, without limitation, implementing and enforcing procedures to minimize the possibility of unauthorized use or disclosure of Confidential Information of the other Party.
5.2 Terms of the Agreement . The terms and conditions of this Agreement will be considered the confidential information of both Parties and will not be disclosed by either Party except: (a) pursuant to the order or requirement of a court, administrative agency, or other governmental body; provided that the Party required to make such a disclosure gives reasonable notice to the other party to enable it to contest such order or requirement; (b) on a confidential basis to its legal or professional financial advisors; (c) as required under applicable securities regulations; or (d) on a confidential basis to Dermiras present or potential future providers of financing or potential acquirers or strategic partners. Following the Effective Date, the Parties shall mutually agree in writing on the form and content of a press release announcing the Maruho investment and the relationship formed by this Agreement. Any other public announcement regarding this Agreement is subject to the prior written approval of the Parties.
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6. General .
6.1 Notices . Any and all notices required or permitted to be given to a Party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such Party sufficient notice under this Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) at the time of transmission by facsimile, addressed to the other Party at its facsimile number specified herein (or hereafter modified by subsequent notice to the Parties hereto), with confirmation of receipt made by either telephone or printed confirmation sheet verifying successful transmission of the facsimile; (c) one (1) business day after deposit with an express overnight courier for United States deliveries, or three (3) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (d) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by facsimile or by express courier. Notices by facsimile shall be machine verified as received. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the Party to be notified at the address or facsimile number as follows, or at such other address or facsimile number as such other Party may designate by one of the indicated means of notice herein to the other Parties hereto as follows:
if to Maruho, marked Attention: General Manager, Strategies & Licensing, at 1-5-22 Nakatsu, Kitaku, Osaka,531-0071, Japan, or facsimile number: [*]
With a copy (which shall not constitute notice) to:
General Manager, Legal Department at 1-5-22 Nakatsu, Kitaku, Osaka, 531-0071,
Japan, or facsimile number: [*]
if to Dermira, marked Attention: Chief Executive Officer, at 2055 Woodside Road, Suite 270, Redwood City, California 94061, or facsimile number: [*]
With a copy (which shall not constitute notice) to:
Fenwick & West LLP
Silicon Valley Center
555 California Street
12th Floor
San Francisco, CA 94104
Facsimile: [*]
Attention: Douglas Cogen
6.2 Entire Agreement . This Agreement and the Securities Purchase Agreements constitute the entire agreement, and supersede all prior written agreements, arrangements, communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings between the Parties with respect to the subject matter hereof and thereof.
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6.3 Governing Law . This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws. The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of California and the Federal courts of the United States of America located within the County of San Francisco, State of California, in respect of the interpretation and enforcement of the provisions of this Agreement, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the Parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a California State or Federal court.
6.4 No Assignment . Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by any Party without the prior written consent of the other Party, and any such assignment without such prior written consent shall be null and void. Notwithstanding the foregoing, this Agreement may be assigned by Dermira without the consent of Maruho in connection with a merger, reorganization, consolidation involving, or sale of all or substantially all of the assets of, Dermira provided that, in connection with any such assignment, Dermira shall assign all of Dermiras obligations under this Agreement to its successor and Maruho shall continue to have all of its rights under this Agreement after such assignment.
6.5 Severability . Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
6.6 Counterparts . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. This Agreement may be executed by facsimile or emailed pdf signature and a facsimile or pdf signature shall constitute an original for all purposes.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
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DERMIRA, INC. |
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By: |
/s/ Thomas Wiggans |
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Name: |
Thomas Wiggans |
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Title: |
Chief Executive Officer |
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Date: |
March 28, 2013 |
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MARUHO CO., LTD. |
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By: |
/s/ Koichi Takagi |
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Name: |
Koichi Takagi |
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Title: |
President and Chief Executive Officer |
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March 28, 2013 |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated June 26, 2014, except for Note 16, as to which the date is September 19, 2014, in Amendment No. 3 to the Registration Statement (Form S-1 No. 333-198410) and related Prospectus of Dermira, Inc. for the registration of its common stock.
/s/ Ernst & Young LLP
Redwood City, California
September 29, 2014