UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
Form 10-Q
____________________________
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended:
September 30, 2013
or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from to
Commission file number: 000-51967
____________________________
TRANSCEPT PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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33-0960223
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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____________________________
1003 W. Cutting Blvd., Suite #110
Point Richmond, California 94804
(510) 215-3500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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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.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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As of
November 5, 2013
there were
18,842,388
shares of the registrant’s common stock outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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Transcept Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
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September 30,
2013
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December 31,
2012
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(Unaudited)
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(Note 1)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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13,642
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$
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39,368
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Marketable securities
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62,123
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45,907
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Prepaid advertising
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244
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8,571
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Prepaid and other current assets
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3,089
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920
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Restricted cash
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200
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200
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Total current assets
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79,298
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94,966
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Property and equipment, net
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51
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128
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Goodwill
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—
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2,962
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Total assets
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$
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79,349
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$
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98,056
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Liabilities and stockholders’ equity
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Current liabilities:
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Accounts payable
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$
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1,895
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$
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1,001
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Accrued liabilities
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1,165
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1,639
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Other liabilities, short-term portion
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—
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23
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Total current liabilities
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3,060
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2,663
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Commitments and contingencies
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Stockholders’ equity:
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Common stock
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19
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19
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Additional paid-in capital
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210,260
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207,477
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Accumulated deficit
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(134,021
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)
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(112,110
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)
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Accumulated other comprehensive income
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31
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7
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Total stockholders’ equity
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76,289
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95,393
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Total liabilities and stockholders’ equity
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$
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79,349
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$
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98,056
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See accompanying notes.
Transcept Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(in thousands, except per share amounts)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2013
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2012
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2013
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2012
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Revenue:
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Gross royalty revenue
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$
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418
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$
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190
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$
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1,381
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$
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683
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Gross milestone revenue
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—
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10,000
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—
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10,000
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Gross other revenue
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50
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250
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50
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250
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Advertising expense - Purdue Pharma
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(86
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—
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(6,681
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—
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Net revenue
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382
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10,440
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(5,250
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)
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10,933
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Operating expenses:
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Research and development
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2,410
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3,057
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5,151
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8,273
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General and administrative
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2,658
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2,483
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8,490
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7,998
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Goodwill impairment
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—
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—
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2,962
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—
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Total operating expenses
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5,068
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5,540
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16,603
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16,271
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(Loss) income from operations
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(4,686
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4,900
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(21,853
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(5,338
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Interest and other income (expense), net
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(17
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(45
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(58
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(124
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Net (loss) income
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$
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(4,703
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$
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4,855
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$
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(21,911
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$
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(5,462
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Net (loss) income per share:
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Basic
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$
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(0.25
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$
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0.26
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$
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(1.17
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$
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(0.33
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Diluted
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$
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(0.25
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$
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0.25
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$
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(1.17
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$
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(0.33
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Weighted average common shares outstanding:
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Basic
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18,782
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18,568
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18,748
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16,523
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Diluted
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18,782
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19,232
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18,748
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16,523
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Other comprehensive (loss) income:
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Changes in unrealized gain (loss) on marketable securities
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40
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7
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24
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(23
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Comprehensive (loss) income
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$
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(4,663
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$
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4,862
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$
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(21,887
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$
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(5,485
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See accompanying notes.
Transcept Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Nine Months Ended September 30,
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2013
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2012
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Operating activities
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Net loss
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$
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(21,911
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$
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(5,462
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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82
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182
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Stock-based compensation
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2,339
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2,199
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Amortization of lease liability
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—
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(186
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Gain on disposals of fixed assets
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(25
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—
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Amortization of premium on available for sale securities
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641
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466
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Impairment of goodwill
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2,962
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—
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Changes in operating assets and liabilities:
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Prepaid and other current assets
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6,158
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927
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Other assets
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—
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38
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Accounts payable
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894
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113
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Accrued and other liabilities
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(497
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44
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Net cash used in operating activities
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(9,357
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(1,679
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Investing activities
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Purchases of property and equipment, net
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20
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(34
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Purchases of marketable securities
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(63,813
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(12,421
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Maturities of marketable securities
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46,980
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35,000
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Net cash (used in) provided by investing activities
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(16,813
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22,545
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Financing activities
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Proceeds from issuance of common stock, net
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444
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38,512
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Net cash provided by financing activities
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444
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38,512
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Net (decrease) increase in cash and cash equivalents
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(25,726
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59,378
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Cash and cash equivalents at beginning of period
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39,368
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10,659
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Cash and cash equivalents at end of period
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$
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13,642
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$
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70,037
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See accompanying notes.
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
Transcept Pharmaceuticals, Inc. (the “Company”) is a specialty pharmaceutical company focused on the development and commercialization of proprietary products that address important therapeutic needs in the field of neuroscience. Intermezzo
®
(zolpidem tartrate) sublingual tablet C-IV is the first U.S. Food and Drug Administration, or FDA, approved Transcept product. Purdue Pharmaceutical Products L.P. (“Purdue Pharma”) holds commercialization and development rights for Intermezzo in the United States. The Company's lead development candidate is TO-2070, a novel, rapidly absorbed treatment for acute migraine incorporating dihydroergotamine (DHE) as the active drug. The Company operates in
one
business segment.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required for complete consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's interim financial information. The accompanying condensed consolidated balance sheet at
December 31, 2012
has been derived from our audited financial statements at that date, but does not include all the disclosures required for complete financial statements. The results for the
three and nine
months ended
September 30, 2013
are not necessarily indicative of the results to be expected for the full year ending
December 31, 2013
or for any other interim period or any other future year.
The accompanying unaudited condensed consolidated financial statements and notes to condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements in its Annual Report on Form 10-K for the year ended
December 31, 2012
, as filed with the United States Securities and Exchange Commission on March 12, 2013.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates. Management makes estimates when preparing the financial statements including those relating to revenue recognition, clinical trials expense, advertising expense, and stock-based compensation.
Concentration of Risk
The Company is dependent on Purdue Pharma to market and sell Intermezzo from which all of its royalty and milestone revenue to date has been derived.
Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the results of operations of Transcept Pharmaceuticals, Inc. and its wholly-owned subsidiary, Transcept Pharma, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Goodwill
Goodwill is not subject to amortization, but is tested for impairment on an annual basis during the third quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Goodwill impairment testing is a two-step process and performed on a reporting unit level. In the first step, the Company conducts an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, it then conducts the second step, a two-part test for impairment of goodwill. The Company first compares the fair value of its reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
reporting unit's net assets, goodwill is not considered impaired and no further analysis is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, then the second part of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value, then an impairment loss equal to the difference would be recorded. For 2012, the Company performed its annual goodwill impairment analysis as of September 30, 2012 and concluded that goodwill was not impaired. The Company operates in
one
reporting unit and believes that its market capitalization is indicative of the fair value of the Company.
During the second quarter of 2013, several events occurred that indicated that the carrying amount of goodwill exceeded the fair value of the reporting unit, including:
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the approximately
30%
decline in Intermezzo prescriptions at June 30, 2013 from the peak of the direct to consumer ("DTC") advertising campaign, which was substantially completed in April 2013; and
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•
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the May 2013 termination by Purdue of
90
contract sales representatives dedicated exclusively to promoting Intermezzo, resulting in reliance solely on Purdue's existing analgesics sales force of approximately
525
sales representatives.
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As a result of these factors, the Company experienced a
37%
decline in its stock price during the quarter ended June 30, 2013. The decline in stock price resulted in a market capitalization of approximately
$56.7 million
at June 30, 2013 which, when compared to the Company's stockholders' equity of
$79.9 million
, and in consideration of the early nature of ongoing internal research and development, the progress of new product search and evaluation efforts and the declining sales of Intermezzo, was an indication of impairment under step one of the goodwill impairment testing accounting guidance.
Step two of the goodwill test consisted of comparing the fair value of the Company to its carrying value at June 30, 2013. If the carrying value exceeds fair value, then a hypothetical purchase price exercise is to be performed to determine the amount, if any, of goodwill impairment. In determining the fair value of the Company, management considered the Company's market capitalization, including any premium that would be necessary for an acquirer to obtain control of the Company, as well as net cash and investments on hand at June 30, 2013. In each of these scenarios, the carrying value of the Company exceeded its fair value in excess of the carrying value of goodwill.
The impairment analysis indicated that the entire goodwill balance of
$3.0 million
was impaired, which was recognized during the three-months ended June 30, 2013. No previous impairments of goodwill had been recognized by the Company.
Revenue Recognition
The Company applies the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104,
Revenue Recognition in Financial Statements
, and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605
Revenue Recognition,
sub-topic 25
Multiple-Element Arrangements.
Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their relative fair values or if fair value is not determinable, based on the Company’s best estimate of selling price. Applicable revenue recognition criteria are then applied to each of the units.
Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) transfer of technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured.
For each source of revenue, the Company complies with the above revenue recognition criteria in the following manner:
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Up-front license payments are assessed to determine whether or not the licensee is able to obtain any stand-alone value from the license. Where this is not the case, the Company does not consider the license deliverable to be a separate unit of accounting, and the revenue is deferred with revenue recognition for the license fee assessed in conjunction with the other deliverables that constitute the combined unit of accounting. When the period of deferral cannot be specifically identified from the agreement, management estimates the period based upon provisions contained within the related agreements and other relevant facts. The Company periodically reviews the estimated involvement period, which could impact the deferral period and, therefore, the timing and the amount of revenue recognized. It is possible that future adjustments will be made if actual conditions differ from the Company’s current plan and involvement assumptions;
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Payments received that are related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone or event specified in the underlying contracts, which represents the
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Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
culmination of the earnings process. Amounts received in advance, if any, are recorded as deferred revenue until the milestone is reached; and
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•
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Royalty revenue from sales of the Company’s licensed product is recognized as earned in accordance with the contract terms when royalties from licensees can be estimated and collectability is reasonably assured.
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Advertising
The Company expenses non-direct response advertising as incurred. Advertising expense consists of the Company's December 2012
$10.0 million
contribution to Purdue Pharma's national direct-to-consumer ("DTC") advertising campaign, including digital, print and television advertising to support Intermezzo commercialization. The Company initially recorded the
$10.0 million
payment to Purdue Pharma as a prepaid expense. This payment is being recognized as the advertising costs are incurred. As this payment was made directly to Purdue Pharma, recognition of the expense is recorded as an offset to revenue. At September 30, 2013, Purdue Pharma estimates that approximately
$1.6 million
of the Company's original contribution will be returned due to reduced overall DTC campaign spending. Accordingly,
$1.6 million
is recorded as a receivable and included in prepaid and other current assets at
September 30, 2013
.
For the
three and nine
months ended
September 30, 2013
, the offset to revenue totaled
$0.1 million
and
$6.7 million
, respectively. Prepaid advertising costs were
$0.2 million
at
September 30, 2013
. There was
no
advertising offset to revenue in the first nine months of 2012.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC Topic 718
Compensation - Stock Compensation
(“ASC Topic 718”) (formerly Statement of Financial Accounting Standards (“SFAS”) No. 123(R),
Share-Based Payment
). ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of grant and to recognize the cost over the period during which the employee is required to provide service in exchange for the award. Additionally, the Company is required to include an estimate of the number of awards that will be forfeited in calculating compensation costs, which are recognized over the requisite service period of the awards on a straight-line basis.
The Company recognized employee stock-based compensation costs of
$0.8 million
and
$2.3 million
during the
three and nine
months ended
September 30, 2013
, respectively and
$0.7 million
and
$2.0 million
during the
three and nine
months ended
September 30, 2012
, respectively, in accordance with the provisions of ASC Topic 718. No related tax benefits of stock-based compensation costs have been recognized since the Company's inception. The Company issued
82,500
and
162,133
shares of common stock for the three and
nine months ended
September 30, 2013
, upon stock option exercises.
During the
nine months ended September 30, 2013
, the Company modified the terms of stock options previously granted to
six
of its employees in connection with a reduction in force. The modifications included accelerated vesting of certain options and extension of the exercise period after termination with respect to certain of the options. These modifications resulted in additional compensation expense of
$23,000
. During the nine months ended
September 30, 2012
, the Company modified the terms of stock options previously granted to a member of its Board of Directors to accelerate vesting of the option upon the director's anticipated end of service to the Company in April 2012. These modifications resulted in additional compensation expense of
$28,000
during the nine months ended
September 30, 2012
. The Company accounted for the modification of these stock option awards in accordance with the provisions of ASC Topic 718.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 505, subtopic 50,
Equity-Based Payments to Non-Employees
(formerly Emerging Issues Task Force No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services
), using a fair-value approach. The equity instruments, consisting of stock options and warrants granted to lenders and consultants, are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the term of the related financing or the period over which services are received. The Company recorded non-employee stock-based compensation costs of
$12,000
and
$69,000
during the three and nine months ended
September 30, 2013
, respectively and
$33,000
and
$166,000
during the three and nine months ended
September 30, 2012
, respectively.
Clinical Trials
The Company accrues and expenses costs for clinical trial activities performed by third parties, including clinical research organizations and clinical investigators, based upon estimates made of the work completed as of each reporting date, in accordance with agreements established with contract research organizations and clinical trial sites and the agreed upon fee
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
to be paid for the services. The Company determines these estimates through discussion with internal personnel and outside service providers as to the progress or stage of completion of the trials or services. Costs of setting up clinical trial sites for participation in the trials are expensed immediately as research and development expenses. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trial and reduced by any initial payment made to the clinical trial site when the first patient is enrolled.
2. Results of Operations
Net (Loss) Income Per Share
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of vested shares outstanding during the period. Diluted net (loss) income per share is computed by giving effect to all potential dilutive common securities, including options, warrants and common stock subject to repurchase.
Potentially dilutive common shares include the dilutive effect of the common stock underlying in-the-money stock options and is calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option and the average amount of compensation cost, if any, for future service that the Company has not yet recognized when the option is exercised, are assumed to be used to repurchase shares in the current period.
For the three and nine months ended September 30, 2013, and the nine months ended September 30, 2012, diluted net loss per share was identical to basic earnings per share ("EPS") since potential common shares were excluded from the calculation, as their effect was anti-dilutive.
The following table presents the calculation of basic and diluted net (loss) income per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(4,703
|
)
|
|
$
|
4,855
|
|
|
$
|
(21,911
|
)
|
|
$
|
(5,462
|
)
|
|
Denominator for basic and diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
18,782
|
|
|
18,568
|
|
|
18,748
|
|
|
16,523
|
|
|
Effect of dilutive equity incentive plans
|
—
|
|
|
664
|
|
|
—
|
|
|
—
|
|
|
Weighted average common shares outstanding - diluted
|
18,782
|
|
|
19,232
|
|
|
18,748
|
|
|
16,523
|
|
Weighted average anti-dilutive securities
The following common equivalent shares were not included in the computation of diluted net (loss) income per share because their effect was anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Shares subject to options to purchase common stock
|
4,456
|
|
|
1,958
|
|
|
4,064
|
|
|
3,147
|
|
|
Shares subject to warrants to purchase common stock
|
61
|
|
|
156
|
|
|
61
|
|
|
156
|
|
|
Total
|
4,517
|
|
|
2,114
|
|
|
4,125
|
|
|
3,303
|
|
At September 30, 2013, there were
4,454,000
shares subject to options to purchase common stock outstanding and
61,000
shares subject to warrants to purchase common stock outstanding.
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
3. Available-for-sale Securities
The following is a summary of available-for-sale debt securities recognized as cash and cash equivalents, marketable securities, or restricted cash in the Company's condensed consolidated balance sheets. Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Certificates of deposit
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
200
|
|
|
Money market funds
|
30
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
Commercial paper
|
10,000
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
|
Corporate notes
|
19,777
|
|
|
10
|
|
|
—
|
|
|
19,787
|
|
|
Government sponsored enterprise issues
|
42,059
|
|
|
17
|
|
|
—
|
|
|
42,076
|
|
|
U.S. Treasury securities
|
3,257
|
|
|
4
|
|
|
—
|
|
|
3,261
|
|
|
|
$
|
75,323
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
75,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Certificates of deposit
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
200
|
|
|
Money market funds
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
Commercial paper
|
23,932
|
|
|
—
|
|
|
—
|
|
|
23,932
|
|
|
Corporate notes
|
6,294
|
|
|
—
|
|
|
—
|
|
|
6,294
|
|
|
Government sponsored enterprise issues
|
36,575
|
|
|
2
|
|
|
—
|
|
|
36,577
|
|
|
U.S. Treasury securities
|
17,308
|
|
|
5
|
|
|
—
|
|
|
17,313
|
|
|
|
$
|
84,336
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
84,343
|
|
The following table summarizes the classification of the available-for-sale securities on the Company's condensed consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Cash and cash equivalents
|
|
$
|
13,031
|
|
|
$
|
38,236
|
|
|
Marketable securities
|
|
62,123
|
|
|
45,907
|
|
|
Restricted cash
|
|
200
|
|
|
200
|
|
|
|
|
$
|
75,354
|
|
|
$
|
84,343
|
|
|
|
|
|
|
|
There were no sales of available-for-sale marketable securities during 2013 or 2012.
Based on the fair value of the Company’s marketable securities at
September 30, 2013
,
$16.1 million
had a maturity of between one and two years, and the remaining
$46.0 million
had maturities of one year or less.
4. Fair Value
The Company defines fair value 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.
The Company's valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company's market assumptions. The Company classifies these inputs into the following hierarchy:
|
|
|
|
•
|
Level 1—Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs;
|
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
|
|
|
|
•
|
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, 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 assets or liabilities; and
|
|
|
|
|
•
|
Level 3—Unobservable inputs (i.e. inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in estimating the fair value of an asset or liability) are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|
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. Where quoted prices are available in an active market, securities are classified as Level 1 of the valuation hierarchy. Level 1 securities include highly liquid money market funds. If quoted market prices are not available for the specific security, then the Company estimates fair value by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 instruments include commercial paper, U.S. corporate debt, and U.S. government sponsored enterprise issues. There are no Level 3 assets in the periods presented.
The estimated fair values of the Company's financial assets (cash equivalents and marketable securities) as of
September 30, 2013
(in thousands) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
September 30,
2013
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
200
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market funds
|
30
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
Commercial paper
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
|
Corporate notes
|
19,787
|
|
|
—
|
|
|
19,787
|
|
|
—
|
|
|
Government sponsored enterprise issues
|
42,076
|
|
|
—
|
|
|
42,076
|
|
|
—
|
|
|
U.S. Treasury securities
|
3,261
|
|
|
—
|
|
|
3,261
|
|
|
—
|
|
|
|
$
|
75,354
|
|
|
$
|
230
|
|
|
$
|
75,124
|
|
|
$
|
—
|
|
The estimated fair values of the Company's financial assets (cash equivalents and marketable securities) as of
December 31, 2012
(in thousands) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
December 31,
2012
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
200
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market funds
|
27
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
Commercial paper
|
23,932
|
|
|
—
|
|
|
23,932
|
|
|
—
|
|
|
Corporate notes
|
6,294
|
|
|
—
|
|
|
6,294
|
|
|
—
|
|
|
Government sponsored enterprise issues
|
36,577
|
|
|
—
|
|
|
36,577
|
|
|
—
|
|
|
U.S. Treasury securities
|
17,313
|
|
|
—
|
|
|
17,313
|
|
|
—
|
|
|
|
$
|
84,343
|
|
|
$
|
227
|
|
|
$
|
84,116
|
|
|
$
|
—
|
|
During the three and nine months ended
September 30, 2013
and the year ended
December 31, 2012
, there were no significant changes to the valuation models used for purposes of determining the fair value of Level 2 assets. No other assets and liabilities were carried at fair value as of
September 30, 2013
and
December 31, 2012
.
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
Level 2 securities are priced using quoted market prices for similar instruments, nonbinding market prices that are corroborated by observable market data, or discounted cash flow techniques. There were no transfers of assets between different fair-value levels during the periods presented.
5. Collaboration Agreements
Intermezzo
In July 2009, the Company entered into the Collaboration Agreement with Purdue Pharma that grants an exclusive license to Purdue Pharma to commercialize Intermezzo in the United States and pursuant to which:
|
|
|
|
◦
|
Purdue Pharma paid a
$25.0 million
non-refundable license fee in August 2009;
|
|
|
|
|
◦
|
Purdue Pharma paid a
$10.0 million
non-refundable intellectual property milestone in December 2011 when the first of two issued formulation patents was listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book;
|
|
|
|
|
◦
|
Purdue Pharma paid a
$10.0 million
non-refundable intellectual property milestone in August 2012 when the first of two issued method of use patents was listed in the FDA's Orange Book;
|
|
|
|
|
◦
|
The Company transferred the Intermezzo
New Drug Application (NDA) to Purdue Pharma, and Purdue Pharma is obligated to assume the expense associated with maintaining the NDA and further development of Intermezzo in the United States, including any expense associated with post-approval studies;
|
|
|
|
|
◦
|
Purdue Pharma is obligated to commercialize Intermezzo in the United States at its expense using commercially reasonable efforts;
|
|
|
|
|
◦
|
Purdue Pharma is obligated to pay the Company tiered base royalties on net sales of Intermezzo in the United States ranging
from the mid-teens up to the mid-20%
level
. The base royalty is tiered depending upon the achievement of certain fixed net sales thresholds by Purdue Pharma, which net sales levels reset each year for the purpose of calculating the royalty
; and
|
|
|
|
|
◦
|
Purdue Pharma is obligated to pay the Company up to an additional
$70.0 million
upon the achievement of certain net sales targets for Intermezzo in the United States.
|
The Company has retained an option to co-promote Intermezzo to psychiatrists in the United States. The option can be exercised as late as August 2015
.
The Company may begin promotion to psychiatrists
8
to
15
months after option exercise. The exact timing of when the Company begins promoting to psychiatrists is determined by the calendar month in which the option exercise notice is delivered to Purdue Pharma.
If the Company exercises the co-promote option and enters the marketplace, it is entitled to receive an additional co-promote royalty from Purdue Pharma on net sales that are generated by psychiatrist prescriptions. Had the Company chosen to exercise the option as soon as it was eligible, it could have begun promoting to psychiatrists in May 2013 and received a co-promote royalty of
40%
. The co-promote royalty rate declines on a straight-line basis to approximately
22%
if the Company does not begin promoting to psychiatrists until November 2016, at which time the right to co-promote expires. Net sales qualifying for this additional co-promote royalty are limited by an annual cap of
15%
of total Intermezzo annual net sales in the United States. The
co-promote option cannot be transferred to a third
party, except under a limited circumstance at the discretion of Purdue Pharma.
Purdue Pharma has the right to terminate the Collaboration Agreement at any time upon advance notice of
180
days. The Company's co-promote option may also be terminated by Purdue Pharma upon the Company's acquisition by a third party or in the event of entry of generic competition to Intermezzo. The royalty payments discussed above are subject to reduction in connection with, among other things, the entry of generic competition to Intermezzo. The Collaboration Agreement expires on the later of
15
years from the date of first commercial sale in the United States or the expiration of patent claims related to Intermezzo. The Collaboration Agreement is also subject to termination by Purdue Pharma in the event of FDA or governmental action that materially impairs Purdue Pharma's ability to commercialize Intermezzo or the occurrence of a serious event with respect to the safety of Intermezzo. The Collaboration Agreement may also be terminated by the Company upon Purdue Pharma commencing an action that challenges the validity of Intermezzo related patents. The Company also has the right to terminate the Collaboration Agreement immediately if Purdue Pharma is excluded from participation in federal healthcare programs. The Collaboration Agreement may also be terminated by either party in the event of a material breach by or insolvency of the other party.
The Company began earning royalty revenue upon commercial launch of Intermezzo in April 2012. Royalty revenue earned during the three and
nine months ended September 30, 2013
was
$0.4 million
and
$1.4 million
, respectively. Royalty revenue earned during the three and
nine months ended September 30, 2012
was
$0.2 million
and
$0.7 million
, respectively.
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
The Company recorded as revenue the
$10.0 million
milestone payment received in August 2012. The patent-related milestone was substantive and at-risk given the inherent uncertainty and risks associated with obtaining patent approval from the U.S. Patent and Trademark Office and subsequent listing in the FDA's Orange Book. The Company had no additional performance obligations under the Collaboration Agreement related to this milestone.
During the three and nine months ended September 30, 2013, the Company granted Purdue Pharma the right to negotiate for the commercialization of Intermezzo in Mexico, and retained rights to commercialize Intermezzo in the rest of the world. During the three and nine months ended September 30, 2012, the Company granted Purdue Pharma and an associated company the right to negotiate for the commercialization of Intermezzo in Mexico and Canada, and retained rights to commercialize Intermezzo in the rest of the world. During the three months ended September 30, 2013 and 2012, the Company recorded revenue of
$0.1 million
and
$0.2 million
in Other Revenue associated with these rights.
On November 21, 2012, the Company agreed to contribute
$10.0 million
to Purdue Pharma's
$29.0 million
national DTC advertising campaign, including digital, print and television advertising to support Intermezzo commercialization. The Company initially recorded the
$10.0 million
payment to Purdue as a prepaid expense. The Company is recognizing this payment as an offset to revenue as the advertising costs are incurred. At
September 30, 2013
, Purdue Pharma estimated that approximately
$1.6 million
of the Company's original contribution will be returned due to reduced overall DTC campaign spending. Accordingly,
$1.6 million
is recorded as a receivable included in prepaid and other current assets at
September 30, 2013
.
For the three and
nine months ended September 30, 2013
, the offset to revenue totaled
$0.1 million
and
$6.7 million
. Prepaid advertising costs were
$0.2 million
at
September 30, 2013
. There was
no
advertising offset to revenue during the three and
nine months ended September 30, 2012
.
TO-2070: a developmental product candidate for migraine treatment
In September 2013, the Company entered into the License Agreement with Shin Nippon Biomedical Laboratories Ltd. ("SNBL") pursuant to which SNBL granted the Company an exclusive worldwide license to commercialize SNBL's proprietary nasal drug delivery technology to develop TO-2070. The Company is developing TO-2070 as a treatment for acute migraine using SNBL’s proprietary nasal powder drug delivery system. Under the License Agreement, the Company is required to fund, lead and be responsible for product development, preparing and submitting regulatory filings and obtaining and maintaining regulatory approval with respect to TO-2070. Pursuant to the License Agreement, the Company has incurred an upfront nonrefundable technology license fee of
$1.0 million
, and is also obligated to pay:
|
|
|
|
•
|
up to
$6.5 million
upon the occurrence of certain development milestones, including NDA approval of TO-2070 by the FDA,
|
|
|
|
|
•
|
up to
$35.0 million
in commercialization milestone payments tied to the achievement of specified annual sales levels of TO-2070, and
|
|
|
|
|
•
|
tiered, low double-digit royalties
on annual net sales of TO-2070.
|
Under the License Agreement, the Company is responsible for the clinical and commercial manufacture, supply, and distribution of TO-2070 products. SNBL has agreed to supply its nasal drug delivery device to the Company to conduct development activities for non-registration studies, and has the right of first negotiation to be the Company's exclusive supplier for devices for any registration studies and for incorporation into commercial TO-2070 products under the License Agreement thereafter.
The License Agreement terminates on a country-by-country basis upon the later of (i) the expiration of the last patent licensed under the License Agreement in such country and (ii)
15
years from the first commercial sale in such country. The License Agreement may also be terminated (i) by either party upon
90
days' written notice in connection with an uncured material breach of the License Agreement, (ii) by either party upon insolvency of the other party, (iii) immediately by SNBL if the Company challenges the validity of the patents licensed under the License Agreement, or (iv) by the Company at its convenience upon
90
days' prior notice.
The
$1.0 million
license fee was recorded as research and development expense during the three and nine month period ended September 30, 2013 because the licensed technology was incomplete and has no alternative future use. Payments to SNBL that relate to pre-approval development milestones will be recognized as research and development expense when incurred.
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
6. Commitments and Contingencies
Leases
On March 6, 2013, the Company extended its lease agreement for
11,600
square feet of space in its current facility in Point Richmond, California by
one
year through May 31, 2014.
Legal Proceedings
ANDA Litigation - Intermezzo
In July 2012, the Company received notifications from three companies, Actavis Elizabeth LLC (Actavis), Watson Laboratories, Inc. - Florida (Watson), and Novel Laboratories, Inc. (Novel), in September 2012, from each of Par Pharmaceutical, Inc. and Par Formulations Private Ltd. (together, the Par Entities), in February 2013 from Dr. Reddy's Laboratories, Inc. and Dr. Reddy's Laboratories, Ltd. (together, Dr. Reddy's), and in July 2013 from TWi Pharmaceuticals, Inc. (TWi) stating that each has filed with the FDA an Abbreviated New Drug Application, or ANDA, that references Intermezzo.
|
|
|
|
•
|
Actavis & Watson: In the July 2012 notifications, Actavis and Watson indicated that each company's ANDA includes Paragraph IV patent certifications to our U.S. Patent Nos. 7,658,945 (expiring April 15, 2027) and 7,682,628 (expiring February 16, 2025) (together, the “'945 and '628 Patents”). On November 28, 2012, Watson withdrew its ANDA, and, as a result of such withdrawal, on December 18, 2012, the Company and Purdue agreed to voluntarily dismiss the action without prejudice and on December 20, 2012 a court order was entered to such effect. The dismissal of Watson's ANDA had no effect on the ANDA filed by Actavis, a wholly owned subsidiary of Watson Pharmaceuticals, Inc. On January 24, 2013, Actavis notified the Company that it has included Paragraph IV patent certifications to Transcept's U.S. Patent Nos. 8,242,131 (expiring August 20, 2029) and 8,252,809 (expiring February 16, 2025) (together, the “'131 and '809 Patents”).
|
|
|
|
|
•
|
Novel: In the July 2012 notifications, Novel indicated that its ANDA includes Paragraph IV patent certifications to the '945 and '628 Patents. On December 10, 2012, Novel notified the Company that it has included Paragraph IV patent certifications to the '131 and '809 Patents.
|
|
|
|
|
•
|
Par Entities: The ANDAs submitted by the Par Entities each include Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
|
|
|
|
|
•
|
Dr. Reddy's: The ANDA submitted by Dr. Reddy's includes Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
|
|
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•
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TWi: The ANDA submitted by TWi includes Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
|
In August 2012, August 2012, September 2012, and October 2012, respectively, the Company joined Purdue Pharma in filing actions against Actavis, Watson and certain of their affiliates, Novel, and the Par Entities, in the U.S. District Court for the District of New Jersey, in each action alleging patent infringement and seeking injunctive and other relief. In December 2012, the Company and Purdue Pharma agreed to voluntarily dismiss the action against Watson following its withdrawal of its ANDA. After receiving the supplemental notifications referenced above, the Company and Purdue Pharma amended their pending complaints against Actavis and Novel to also allege infringement of the '131 and '809 patents, as well as the '628 patent previously asserted against those companies. The actions against the Par Entities alleged infringement of the '131 and '809 patents. In September 2013, the Company and Purdue Pharma agreed to voluntarily dismiss the action against one of the two Par Entities, Par Formulations Private Ltd., following that Par Entity’s withdrawal of its ANDA. The action against the other Par Entity, Par Pharmaceutical, Inc., remains pending and continues to allege infringement of the ‘131 and ‘809 patents. In April 2013, the Company joined Purdue Pharma in filing an action in the U.S. District Court for the District of New Jersey against Dr. Reddy's, alleging patent infringement of the '628, '131 and '809 patents, and seeking injunctive and other relief.
In August 2013, the Company joined Purdue Pharma in filing two actions against TWi. The first action against TWi was filed on August 20, 2013 in the U.S. District Court for the District of New Jersey, and the second action against TWi was filed on August 22, 2013 in the U.S. District Court for the Northern District of Illinois. Each action alleges patent infringement of the ‘131 and ‘809 patents, and seeks injunctive and other relief. On October 17, 2013, TWi filed answers and counterclaims in both New Jersey and Illinois, in both cases seeking declarations of non-infringement and invalidity as to the ‘945, ‘628, ‘131, and ‘809 patents, as well as other relief.
Transcept Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued) (Unaudited)
Patent Term Adjustment Suit
In January 2013, the Company and Purdue Pharma filed suit in the Eastern District of Virginia against the United States Patent and Trademark Office, or USPTO, in connection with certain changes to the Leahy-Smith America Invents Act. The Company and Purdue Pharma are seeking a recalculation of the patent term adjustment of the '131 Patent. Purdue Pharma has agreed to bear the costs and expenses associated with this litigation. In June of 2013, the judge granted a joint motion to stay the proceedings pending a final decision on appeal by the Federal Circuit in
Exelixis, Inc. v. Rea,
No. 2013-11 75 (Fed. Cir.)
,
and
Exelixis, Inc. v. Rea,
No. 20 13-11 98 (Fed. Cir.)
.
Derivative Suit
In October 2013, one of the Company’s stockholders, Retrophin, Inc., filed a purported derivative suit against the Company’s Board of Directors in the Court of Chancery of the State of Delaware purporting to assert claims on behalf of the Company, and alleging that the Board of Directors approved and paid excessive compensation to its directors. The complaint seeks, among other things, a declaration that the compensation paid to the directors is excessive and the approval of such compensation is a breach of the directors’ fiduciary duties, as well as a return of any excessive compensation and payment of Retrophin’s costs and attorney’s fees. The Company's directors believe the suit is without merit and intend to defend themselves vigorously.
From time to time the Company is involved in legal proceedings arising in the ordinary course of business. The Company believes there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on its results of operations or financial condition.
7. Restructuring
On
January 2, 2013, the Company implemented a reduction of
29%
of its workforce, which resulted in
$0.3 million
of expenses which primarily consisted of severance charges. The severance was paid during the quarter ended March 31, 2013 and no additional charges are expected to be incurred under this reduction in force.
8. Preferred Stock Purchase Rights
On September 13, 2013, the Company's Board of Directors adopted a tax benefit preservation plan to help preserve the value of certain deferred tax benefits, including those generated by net operating losses and net unrealized built-in losses. the Company’s ability to use these tax benefits would be substantially limited if it were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code. Holders of the Company’s common stock of record on September 27, 2013 received preferred stock purchase rights ("Rights") that initially trade together with the Company’s common stock and are not exercisable. As long as the Rights are attached to the common stock, the Company will issue one Right (subject to adjustment) with each new share of the common stock so that all such shares will have attached Rights. When exercisable, each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value
$0.001
per share (the “Series A Preferred”), of the Company at a price of
$14.24
per one one-hundredth of a share of Series A Preferred, subject to adjustment (the “Purchase Price”).
The plan, subject to limited exceptions, provides that any stockholder or group that acquires beneficial ownership of
4.99
percent or more of the Company’s securities without the approval of the Company's Board of Directors would be subject to significant dilution of its holdings. In addition, subject to limited exceptions, any existing
4.99
percent or greater stockholder that acquires beneficial ownership of any additional shares of the Company’s securities without the approval of the Board of Directors would also be subject to dilution. In both cases, such person would be deemed to be an “acquiring person” for purposes of the tax plan.
In the event that a person becomes an "Acquiring Person" under the plan, then, subject to certain exceptions, the Rights, other than Rights that are or were acquired or beneficially owned by the Acquiring Person (which Rights will thereafter be null and void), will become exercisable for the Company’s common stock having a market value equal to twice the exercise price of the Right. The Board of Directors has established procedures to consider requests to exempt certain acquisitions of the Company’s securities from the plan if the Board of Directors determines that doing so would not limit or impair the availability of the tax benefits or is otherwise in the best interests of the Company.
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements that are not strictly historical and are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a high degree of risk and uncertainty. Actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties. All forward-looking statements included in this section are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statement, except as required by law.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are based upon current expectations within the meaning of the Private Securities Litigation Reform Act of 1995. Transcept Pharmaceuticals, Inc., or Transcept, intends that such statements be protected by the safe harbor created thereby. Forward-looking statements involve risks and uncertainties and actual Transcept results and the timing of events may differ significantly from those results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to, statements about or relating to:
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•
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expected activities and responsibilities of us and Purdue Pharmaceuticals L.P., or Purdue Pharma, under our United States License and Collaboration Agreement, or the Collaboration Agreement;
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•
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expectations for the commercial potential of Intermezzo and TO-2070 and our respective collaboration partners’ commitments to collaborate with us;
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•
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the future satisfaction of conditions required for continued commercialization of Intermezzo under the Collaboration Agreement, and the fulfillment of Purdue Pharma's obligations under the Collaboration Agreement;
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•
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our potential receipt of revenue under the Collaboration Agreement, including milestone and royalty revenue;
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•
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expectations regarding our TO-2070 development program, including the nature of our relationship with Shin Nippon Biomedical Laboratories Ltd., or SNBL, under our License Agreement regarding TO-2070, or the License Agreement;
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•
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expectations regarding potential payments by us to SNBL under the License Agreement, including milestone and royalty payments;
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•
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our expectations regarding suits that Purdue Pharma or we have filed or may file in regards to Abbreviated New Drug Application, or ANDA, proceedings, and the timing, costs and results of such actions and ANDA proceedings;
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•
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expectations regarding reimbursement for Intermezzo
in the United States;
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•
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expectations with respect to our ability to successfully and profitably carry out plans to co-promote Intermezzo to psychiatrists in the United States through our co-promotion option under the Collaboration Agreement;
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•
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expectations regarding our ability to develop internally, acquire or in-license future products
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•
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the potential benefits of, and markets for, Intermezzo, TO-2070, and any future products or product candidates;
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•
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expectations regarding our ability to enter into commercial and development supply agreements relating to TO-2070;
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•
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potential competitors and competitive products, including generic manufacturers;
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•
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expectations with respect to our intent and ability to successfully enter into other collaboration or co-promotion arrangements;
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•
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expectations regarding our ability to obtain regulatory approval of Intermezzo outside of the United States and TO-2070;
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•
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the adequacy of our current cash, cash equivalents and marketable securities to fund our operations for at least the next twelve months;
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•
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our beliefs regarding the merits of pending litigation and our expectations regarding our response to such litigation;
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•
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expectations regarding the value of our net operating loss carry forwards, or NOLs, and the preservation of such NOLs by our tax benefit preservation plan adopted in September 2013, or Tax Benefit Preservation Plan;
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•
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capital requirements and our need for additional financing;
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•
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expectations regarding future losses, costs, expenses, expenditures and cash flows;
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•
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the timing and outcome of our recently announced special meeting of stockholders to be held in December 2013;
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•
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the ability and degree to which we may obtain and maintain market exclusivity from the U.S. Food and Drug Administration, or FDA, for Intermezzo, TO-2070 and any future product candidates under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FFDCA;
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•
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our ability to maintain and obtain additional patent protection for Intermezzo and TO-2070 without violating the intellectual property rights of others;
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•
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the period over which we expect to offset against revenue the $10.0 million contribution related to the direct-to-consumer advertising campaign led by Purdue Pharma;
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•
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our expectations regarding issuances of patents from any currently pending or future patent applications; and
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•
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expected future sources of revenue and capital.
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Forward-looking statements do not reflect the potential impact of any future in-licensing, collaborations, acquisitions, mergers, dispositions, joint ventures, or investments we may enter into or make. Except as required by law, we undertake no obligation to, and expressly disclaim any obligation to, revise or update the forward‑looking statements made herein or the risk factors whether as a result of new information, future events or otherwise. Forward‑looking statements involve risks and uncertainties, which are more fully discussed in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q, including, but not limited to, those risks and uncertainties relating to:
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•
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potential termination of the Collaboration Agreement by Purdue Pharma
;
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•
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actual and potential decreases in Purdue Pharma's commercialization efforts with respect to Intermezzo;
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•
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physician or patient reluctance to use Intermezzo;
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•
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the potential for delays in or the inability to complete commercial partnership relationships, including additional marketing alliances for Intermezzo outside the United States and any future partnerships with SNBL for TO-2070;
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•
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unexpected results from and/or additional costs related to ANDA proceedings;
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•
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disruptive actions by activist stockholders, including costs incurred in responding to such actions;
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•
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changing standards of care and the introduction of products by competitors that could reduce our royalty rates under the Collaboration Agreement, or alternative therapies for the treatment of indications we target;
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•
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generic equivalents to Intermezzo whose introduction would reduce royalty rates under the Collaboration Agreement;
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•
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our inability to obtain additional financing, if available, under favorable terms, if necessary;
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•
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the ability of our
Tax
Benefit Preservation Plan adopted in September 2013 to protect the value of our net operating loss carryforwards;
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•
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difficulties or delays in building, or our inability to operate, a sales and marketing organization in connection with any reacquisition of full U.S. rights to Intermezzo or exercise of our co-promote option to psychiatrists under the Collaboration Agreement;
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•
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unexpected adverse side effects or inadequate therapeutic efficacy of our product candidates that could slow or prevent product approval or approval for particular indications;
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•
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other difficulties or delays in development, testing, obtaining regulatory approvals for, and undertaking production and marketing of Intermezzo, TO-2070 and any other product candidates;
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•
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our ability to identify and finance additional products for in-licensing or acquisition, and the ability of those products to be accretive to our earnings;
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•
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the uncertainty of protection for our intellectual property, through patents, trade secrets or otherwise; and
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•
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potential infringement of the intellectual property rights or trade secrets of third parties.
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Transcept Pharmaceuticals, Inc.
TM
is a registered and unregistered trademark of ours in the United States and other jurisdictions. Intermezzo
®
is a registered
and unregistered trademark of Purdue Pharma and associated companies in the United
States and other jurisdictions and is a registered and unregistered trademark of ours in certain other jurisdictions. Other trademarks and trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.
Company Overview
We are a specialty pharmaceutical company focused on the development and commercialization of proprietary products that address important therapeutic needs in the field of neuroscience.
Recent Development
In September 2013, we entered into a License Agreement, or the License Agreement, with Shin Nippon Biomedical Laboratories, Ltd., or SNBL, pursuant to which SNBL granted us an exclusive worldwide license to commercialize SNBL's proprietary nasal drug delivery technology to develop a novel, rapidly absorbed treatment for acute migraine incorporating dihydroergotamine (DHE) as the active drug. The agreement grants Transcept the global development and commercialization rights to the product candidate, designated TO-2070. See “
TO-2070: a developmental product candidate for migraine treatment”
for additional information.
Intermezzo
®
(
zolpidem tartrate) sublingual tablet C-IV
Our first approved product, Intermezzo (zolpidem tartrate) sublingual tablet, is a sublingual formulation of zolpidem approved for use as needed for the treatment of insomnia when a middle-of-the-night awakening is followed by difficulty returning to sleep. Intermezzo is the first and only sleep aid approved by the FDA for this indication.
According to IMS Health, an independent market research firm, the number of prescriptions filled in the United States to treat insomnia grew to approximately 83 million for the twelve months ended December 31, 2012. Data from a major study conducted by the Stanford Sleep Epidemiology Center and published in 2009 indicate that middle-of-the-night awakening is the most common form of insomnia in the United States and affects approximately one-third of the population at least three times each week. Data from a study published in
Population Health Management
in 2010, based on information from the United States National Health and Wellness Survey to evaluate the economic and humanistic burden of chronic insomnia characterized by nighttime awakenings, indicate that this condition was associated with a significant negative impact in health care utilization, health-related quality of life and work productivity.
In July 2009, we entered into the Collaboration Agreement with Purdue Pharma that grants an exclusive license to Purdue Pharma to commercialize Intermezzo in the United States and pursuant to which:
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◦
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Purdue Pharma paid us a $25.0 million non-refundable license fee in August 2009;
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◦
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Purdue Pharma paid us a
$10.0 million
non-refundable intellectual property milestone in December 2011 when the first of two issued formulation patents was listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book;
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◦
|
Purdue Pharma paid us a
$10.0 million
non-refundable intellectual property milestone in August 2012 when the first of two issued method-of-use patents was listed in the FDA's Orange Book;
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◦
|
We transferred the Intermezzo
New Drug Application (NDA) to Purdue Pharma, and Purdue Pharma is obligated to assume the expense associated with maintaining the NDA and further development of Intermezzo in the United States, including any expense associated with post-approval studies;
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◦
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Purdue Pharma is obligated to commercialize Intermezzo in the United States at its expense using commercially reasonable efforts;
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◦
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Purdue Pharma is obligated to pay us tiered base royalties on net sales of Intermezzo in the United States ranging from the mid-teens up to the mid-20% level
. The base royalty is tiered depending upon the achievement of certain fixed net sales thresholds by Purdue Pharma, which net sales levels reset each year for the purpose of calculating the royalty
; and
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◦
|
Purdue Pharma is obligated to pay us up to an additional $70.0 million upon the achievement of certain net sales targets for Intermezzo in the United States.
|
We have retained an option to co-promote Intermezzo to psychiatrists in the United States. The option can be exercised as late as August 2015
. We
may begin promotion to psychiatrists 8 to 15 months after option exercise. The exact timing of when we begin promoting to psychiatrists is determined by the calendar month in which the option exercise notice is delivered to Purdue Pharma.
If we exercise the co-promote option and enter the marketplace, we are entitled to receive an additional co-promote royalty from
Purdue Pharma on net sales that are generated by psychiatrist prescriptions. Had we chosen to exercise the option as soon as we were eligible, we could have begun promoting to psychiatrists in May 2013 and received a co-promote royalty of 40%. The co-promote royalty rate declines on a straight-line basis to approximately 22% if we do not begin promoting to psychiatrists until November 2016, at which time the right to co-promote expires. Net sales qualifying for this additional co-promote royalty are limited by an annual cap of 15% of total Intermezzo annual net sales in the United States. The
co-promote option cannot be transferred to a third
party, except under a limited circumstance at the discretion of Purdue Pharma.
Purdue Pharma has the right to terminate the Collaboration Agreement at any time upon advance notice of 180 days. Our co-promote option may also be terminated by Purdue Pharma upon our acquisition by a third party or in the event of entry of generic competition to Intermezzo. The royalty payments discussed above are subject to reduction in connection with, among other things, the entry of generic competition to Intermezzo. The Collaboration Agreement expires on the later of 15 years from the date of first commercial sale in the United States or the expiration of patent claims related to Intermezzo. The Collaboration Agreement is also subject to termination by Purdue Pharma in the event of FDA or governmental action that materially impairs Purdue Pharma's ability to commercialize Intermezzo or the occurrence of a serious event with respect to the safety of Intermezzo. The Collaboration Agreement may also be terminated by us upon Purdue Pharma commencing an action that challenges the validity of Intermezzo related patents. We also have the right to terminate the Collaboration Agreement immediately if Purdue Pharma is excluded from participation in federal healthcare programs. The Collaboration Agreement may also be terminated by either party in the event of a material breach by or insolvency of the other party.
Purdue Pharma holds the right to negotiate for the commercialization of Intermezzo in Mexico and we have retained rights to commercialize Intermezzo in the rest of the world.
On November 21, 2012, we agreed to contribute $10.0 million to Purdue Pharma's $29.0 million national direct-to-consumer advertising campaign, including digital, print and television advertising to support Intermezzo commercialization. We initially recorded the $10.0 million payment to Purdue Pharma as a prepaid expense. We are recognizing this payment as an offset against revenue as the advertising costs are incurred. At September 30, 2013, Purdue Pharma estimates that approximately $1.6 million of the Company's original contribution will be returned due to reduced overall DTC campaign spending. Accordingly, $1.6 million is recorded as a receivable at September 30, 2013.
For the three and
nine months ended September 30, 2013
, this revenue offset totaled
$0.1 million
and
$6.7 million
, respectively. Prepaid advertising costs were
$0.2 million
at
September 30, 2013
. There was no advertising offset to revenue in the three and
nine months ended September 30, 2012
.
TO-2070: a developmental product candidate for migraine treatment
In September 2013, we entered into the License Agreement with SNBL, pursuant to which SNBL granted us an exclusive worldwide license to commercialize SNBL's proprietary nasal drug delivery technology to develop TO-2070. We are developing TO-2070 as a treatment for acute migraine using SNBL’s proprietary nasal powder drug delivery system. Under the License Agreement, we are required to fund, lead and be responsible for product development, preparing and submitting regulatory filings and obtaining and maintaining regulatory approval with respect to TO-2070. Pursuant to the License Agreement, we have incurred an upfront nonrefundable technology license fee of $1.0 million, and we are also obligated to pay:
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•
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up to $6.5 million upon the occurrence of certain development milestones, including NDA approval of TO-2070 by the FDA,
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•
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up to $3
5.0 million in commercialization milestone payments tied to the achievement of specified annual sales levels of TO-2070, and
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•
|
tiered, low
double
-digit royalties on annual net sales of TO-2070.
|
Under the License Agreement, we are responsible for the clinical and commercial manufacture, supply, and distribution of TO-2070 products. SNBL has agreed to supply its nasal drug delivery device to us to conduct development activities for non-registration studies, and has the right of first negotiation to be our exclusive supplier for devices for any registration studies and for incorporation into commercial TO-2070 products under the License Agreement thereafter.
The License Agreement terminates on a country-by-country basis upon the later of (i) the expiration of the last patent licensed under the License Agreement in such country and (ii) 15 years from the first commercial sale in such country. The License Agreement may also be terminated (i) by either party upon 90 days' written notice in connection with an uncured material breach of the License Agreement, (ii) by either party upon insolvency of the other party, (iii) immediately by SNBL if we challenge the validity of the patents licensed under the License Agreement, or (iv) by us at our convenience upon 90 days' prior notice.
TO-2061: an investigational product for adjunctive therapy in patients with obsessive compulsive disorder
In March 2011, we announced that we had started a Phase 2 clinical trial of TO-2061, an investigational product for adjunctive therapy in patients with obsessive compulsive disorder and our only product candidate in active clinical development. In December 2012, we announced that this trial did not meet its primary endpoint. Based on this result, we discontinued the clinical development of TO-2061.
Net Loss and Profitability
We have incurred net losses since inception as we have devoted substantially all of our resources to research and development, including contract manufacturing and clinical trials. As of
September 30, 2013
, we had an accumulated deficit of
$134.0 million
. Our net loss for the
nine months ended September 30, 2013
and
2012
was
$21.9 million
and
$5.5 million
, respectively. Our net loss for the years ended
December 31, 2012
,
2011
, and
2010
was
$12.0 million
,
$3.9 million
, and
$9.3 million
, respectively. As of
September 30, 2013
, we had cash, cash equivalents, and marketable securities of
$75.8 million
and working capital of
$76.2 million
.
Prior to the fourth quarter of 2011, our only source of revenue has been the receipt in August 2009 of a $25.0 million non-refundable license fee received pursuant to our Collaboration Agreement with Purdue Pharma. During each of 2011 and 2012, we received $10.0 million in intellectual property milestone payments and during 2012, we began receiving royalty revenue pursuant to our Collaboration Agreement with Purdue Pharma.
Our ability to generate additional near term revenue is dependent upon our ability to license the development and commercialization of Intermezzo outside the United States and the receipt of milestone and royalty payments under our Collaboration Agreement with Purdue Pharma.
Intermezzo and any other product candidates, if approved for commercial use, may never achieve market acceptance and may face competition from both generic and branded pharmaceutical products.
Financial Operations Overview
Net revenue
In December 2012, we contributed $10.0 million to Purdue Pharma's Intermezzo direct-to-consumer advertising campaign. We are recognizing this contribution as an offset against revenue as the advertising costs are incurred.
This treatment resulted in
$0.1 million
and
$6.7 million
offset to revenue during the three and nine months ended
September 30, 2013
. There was no advertising offset to revenue during the three and
nine months ended September 30, 2012
.
We began earning royalty revenue upon commercial launch of Intermezzo in April 2012. Royalty revenue earned during the three and
nine months ended September 30, 2013
was
$0.4 million
and
$1.4 million
, respectively. Royalty revenue earned during the three and
nine months ended September 30, 2012
each was
$0.2 million
and
$0.7 million
, respectively. Royalty revenue is derived from net sales of Intermezzo generated by Purdue Pharma to wholesalers.
Revenue during the third quarter of 2013 also included a $0.1 million non-refundable payment from Purdue Pharma for the right to negotiate for the commercialization of Intermezzo in Mexico. During the third quarter of 2012, we received a $10.0 million milestone payment under our Collaboration Agreement with Purdue Pharma for the listing of our method of use patent in the FDA's Orange Book. Revenue during the third quarter of 2012 also included a $0.2 million non-refundable payment from Purdue Pharma and an associated company for the right to negotiate for the commercialization of Intermezzo in Mexico and Canada.
Research and Development Expense
Research and development expense represented approximately
48%
and
55%
of total operating expenses for the
three months ended September 30, 2013
and
2012
, respectively and
31%
and
51%
of total operating expenses for the
nine months ended September 30, 2013
and
2012
, respectively. Research and development costs are expensed as incurred. Research and development expense consists of expenses incurred in identifying, researching, developing and testing product candidates. These expenses primarily consist of the following:
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salaries, benefits, travel and related expense for personnel associated with research and development activities;
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•
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fees paid to professional service providers for services related to the conduct and analysis of pre-clinical and clinical trials;
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•
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contract manufacturing costs for formulations used in clinical trials and pre-commercial manufacturing and packaging costs;
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•
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fees paid to consultants to evaluate product in-licensing or acquisition opportunities, to advise us on the development of internally generated new product concepts, to development of TO-2070 and the wind down of TO-2061;
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•
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laboratory supplies and materials;
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•
|
depreciation of equipment; and
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•
|
allocated costs of facilities and infrastructure.
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General and Administrative Expense
General and administrative expense consists primarily of salaries and related expense for personnel in executive, marketing, finance and accounting, information technology and human resource functions. Other costs include facility costs not otherwise included in research and development expense and professional fees for legal and accounting services.
Results of Operations
Comparison of the Three Months Ended
September 30, 2013
and
2012
The following table summarizes results of operations with respect to the items set forth below for the three months ended
September 30, 2013
and
2012
, in thousands, together with the percentage change in those items.
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Three months ended September 30,
|
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Favorable
|
|
%
|
|
|
|
2013
|
|
2012
|
|
(Unfavorable)
|
|
Change
|
|
Net revenue
|
|
$
|
382
|
|
|
$
|
10,440
|
|
|
$
|
(10,058
|
)
|
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(96
|
)%
|
|
Research and development expense
|
|
2,410
|
|
|
3,057
|
|
|
647
|
|
|
21
|
%
|
|
General and administrative expense
|
|
2,658
|
|
|
2,483
|
|
|
(175
|
)
|
|
(7
|
)%
|
Net revenue
Net revenue of
$0.4 million
for the three months ended
September 30, 2013
consisted of
$0.4 million
in royalty revenue and $0.1 million representing a non-refundable payment from Purdue Pharma for the right to negotiate for the commercialization of Intermezzo in Mexico ("Option Revenue") offset by
$0.1 million
of advertising expense paid to Purdue Pharma that has been recognized as a revenue offset. In December 2012, we contributed $10.0 million to Purdue Pharma's Intermezzo direct-to-consumer advertising campaign. This contribution is being recognized as an offset against revenue as the advertising costs are incurred. Revenue recorded for the
three months ended September 30, 2012
consisted of a $10.0 million milestone payment under our Collaboration Agreement with Purdue Pharma for the listing of our method of use patent in the FDA's Orange Book; $0.2 million of Intermezzo royalty revenue; and $0.2 million representing a non-refundable payment from Purdue Pharma and an associated company for the right to negotiate for the commercialization of Intermezzo in Mexico and Canada.
Research and Development Expense
Research and development expense decreased
21%
to
$2.4 million
for the three months ended
September 30, 2013
from
$3.1 million
for the comparable period in
2012
. The decrease of approximately
$0.6 million
is primarily attributable to winding down the TO-2061 development program which was terminated in December 2012, partially offset by approximately $1.4 million of expense associated with our TO-2070 project.
General and Administrative Expense
General and administrative expense increased slightly between periods. The increase is primarily due to increased professional fees.
Comparison of the Nine Months Ended
September 30, 2013
and
2012
The following table summarizes results of operations with respect to the items set forth below for the nine months ended
September 30, 2013
and
2012
, in thousands, together with the percentage change in those items.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
Favorable
|
|
%
|
|
|
|
2013
|
|
2012
|
|
(Unfavorable)
|
|
Change
|
|
Net revenue
|
|
$
|
(5,250
|
)
|
|
$
|
10,933
|
|
|
$
|
(16,183
|
)
|
|
(148
|
)%
|
|
Research and development expense
|
|
5,151
|
|
|
8,273
|
|
|
3,122
|
|
|
38
|
%
|
|
General and administrative expense
|
|
8,490
|
|
|
7,998
|
|
|
(492
|
)
|
|
(6
|
)%
|
|
Goodwill impairment
|
|
2,962
|
|
|
—
|
|
|
(2,962
|
)
|
|
—
|
%
|
Net revenue
Negative net revenue of
$5.3 million
for the nine months ended
September 30, 2013
consisted of
$1.4 million
in royalty revenue and $0.1 million of Option Revenue offset by
$6.7 million
of advertising expense paid to Purdue Pharma recorded as a revenue offset. In December 2012, we contributed $10.0 million to Purdue Pharma's Intermezzo direct-to-consumer advertising campaign. This contribution is being recognized as an offset against revenue as the advertising costs are incurred. Revenue recorded for the nine months ended September 30, 2012 consisted of a $10.0 million milestone payment under our Collaboration Agreement with Purdue Pharma for the listing of our method of use patent in the FDA's Orange Book;
$0.7 million
of Intermezzo royalty revenue; and $0.2 million representing a non-refundable payment from Purdue Pharma and an associated company for the right to negotiate for the commercialization of Intermezzo in Mexico and Canada.
Research and Development Expense
Research and development expense decreased
38%
to
$5.2 million
for the nine months ended
September 30, 2013
from
$8.3 million
for the comparable period in
2012
. The decrease of approximately
$3.1 million
is primarily attributable to winding down the TO-2061 development program, which was terminated in December 2012, partially offset by approximately $1.6 million of expense associated with our TO-2070 project.
General and Administrative Expense
General and administrative expense increased slightly between periods primarily attributable to an increase in professional fees.
Goodwill impairment
We recorded a goodwill impairment charge of
$3.0 million
during the nine months ended September 30, 2013. During the second quarter of 2013, several events occurred which indicated that the carrying amount of goodwill exceeded the fair value of the reporting unit, including:
|
|
|
|
•
|
the approximately 30% decline in Intermezzo prescriptions at June 30, 2013 from the peak of the direct to consumer ("DTC") advertising campaign, which was substantially completed in April 2013; and
|
|
|
|
|
•
|
the May 2013 termination by Purdue of 90 contract sales representatives dedicated exclusively to promoting Intermezzo, resulting in reliance solely on Purdue's existing analgesics sales force of approximately 525 sales representatives.
|
As a result of these factors, we experienced a 37% decline in our stock price during the quarter ended June 30, 2013. The decline in stock price resulted in a market capitalization of approximately $56.7 million at June 30, 2013 which, when compared to our stockholders' equity of $79.9 million, and in consideration of the early nature of ongoing internal research and development, the progress of new product search and evaluation efforts and the declining sales of Intermezzo, was an indication of impairment under step one of the goodwill impairment testing accounting guidance.
The impairment analysis indicated that the entire goodwill balance of $3.0 million was impaired, which was recognized during the three-months ended June 30, 2013. We have not previously recognized any impairment of goodwill.
Liquidity and Capital Resources
At
September 30, 2013
, we had cash, cash equivalents and marketable securities of
$75.8 million
.
Sources of Liquidity
Purdue Pharma launched Intermezzo in April 2012 and we began recognizing royalty revenue during the second quarter of 2012.
On May 1, 2012 we completed a public offering of 4.5 million shares of our common stock at a public offering price of $9.00 per share. Net proceeds to us from the public offering were approximately $37.7 million after deducting underwriting discounts and commissions and offering expenses.
In August 2012, we received an additional $10.0 million milestone payment from Purdue Pharma in connection with the Collaboration Agreement.
On April 26, 2013, we entered into a Controlled Equity Offering
SM
sales agreement with Cantor Fitzgerald & Co. The sales agreement provides us with the ability to conduct an at-the-market (ATM) public offering for up to a total of $20.0 million of shares of our common stock at prices to be determined at the time or times of sale. As of the date of filing of this report, we have not sold any shares of common stock pursuant to the ATM facility.
The following table summarizes our cash provided by (used in) operating, investing and financing activities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(9,357
|
)
|
|
$
|
(1,679
|
)
|
|
Net cash (used in) provided by investing activities
|
|
(16,813
|
)
|
|
22,545
|
|
|
Net cash provided by financing activities
|
|
444
|
|
|
38,512
|
|
Net Cash Used in Operating Activities
Net cash used in operating activities for the
nine months ended September 30, 2013
and
2012
was
$9.4 million
and
$1.7 million
, respectively. Net cash used in operating activities during each of these years consisted primarily of our net loss adjusted for noncash items such as depreciation, amortization, stock-based compensation charges, goodwill impairment and noncash interest expense, as well as net changes in working capital. Net change in working capital during 2013 included
$6.7 million
of revenue offset related to Purdue advertising, resulting in a decrease of prepaid and other current assets.
Net Cash Used by Investing Activities
Net cash used by investing activities was
$16.8 million
for the
nine months ended September 30, 2013
. Net cash provided by investing activities was
$22.5 million
for the
nine months ended September 30, 2012
. Net cash used by investing activities during 2013 was primarily attributable to the purchase of marketable securities, net of maturities. Net cash provided by investing activities during 2012 was primarily attributable to the maturity of marketable securities, net of purchases. Uses of cash in investing activities in all periods included net purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities during the
nine months ended September 30, 2013
and
2012
was
$0.4 million
and
$38.5 million
, respectively. Net cash provided by financing activities during each of the periods consisted of common stock issuances in connection with stock option exercises. Net cash provided by financing activities for 2012 included net proceeds of $37.7 million from our public offering completed on May 1, 2012.
Capital Resources
We expect our cash, cash equivalents, and marketable securities of
$75.8 million
at
September 30, 2013
, will be sufficient to satisfy our liquidity requirements for at least the next twelve months. We believe our investments in cash equivalents and marketable securities are highly rated and highly liquid.
Our future capital requirements will depend on, and could increase significantly as a result of, numerous forward-looking factors, including:
|
|
|
|
•
|
the ability of Purdue Pharma to successfully commercialize Intermezzo in the United States;
|
|
|
|
|
•
|
the level of Purdue Pharma's commercialization efforts with respect to Intermezzo;
|
|
|
|
|
•
|
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including in connection with ANDA proceedings relating to Intermezzo;
|
|
|
|
|
•
|
the cost of establishing or contracting for sales and marketing capabilities if we exercise our option to co-promote Intermezzo in the United States;
|
|
|
|
|
•
|
the extent to which we develop internally, acquire or in-license new products, technologies or businesses;
|
|
|
|
|
•
|
whether we choose to share the cost of future marketing and selling efforts with Purdue Pharma, related to the commercialization of Intermezzo in the United States;
|
|
|
|
|
•
|
the potential costs associated with Intermezzo if our existing Collaboration Agreement with Purdue is terminated, including the cost to replace Purdue Pharma's sales and marketing capabilities, the costs associated with the conduct of Phase IV clinical trials required by the FDA, and the increased costs to us of litigation expense in connection with ANDA proceedings related to Intermezzo;
|
|
|
|
|
•
|
milestone, royalty and other payments to SNBL under our License Agreement for TO-2070;
|
|
|
|
|
•
|
the costs of funding product development of, preparing and submitting regulatory filings for, obtaining and maintaining regulatory approval for, manufacturing, supplying, and distributing TO-2070;
|
|
|
|
|
•
|
the cost of conducting pre-clinical and clinical trials and other development activities;
|
|
|
|
|
•
|
the receipt of milestone and other payments, if any, from Purdue Pharma under the Collaboration Agreement;
|
|
|
|
|
•
|
the prospect, cost and timing for the development of Intermezzo to obtain regulatory approval for Intermezzo outside the United States;
|
|
|
|
|
•
|
the ability to license Intermezzo outside the United States and the terms and timing of any such licensing arrangements;
|
|
|
|
|
•
|
the effect of competing technological and market developments; and
|
|
|
|
|
•
|
the cost incurred in responding to disruptive actions by activist stockholders.
|
In addition, we may seek to raise additional funds to, among other activities:
|
|
|
|
•
|
develop internally, acquire or in-license new products, technologies or businesses or to otherwise fund our operations; and
|
|
|
|
|
•
|
establish or contract for sales and marketing capabilities if we exercise our option to co-promote Intermezzo, or to build our own sales force if Purdue Pharma does not continue with our collaboration to commercialize Intermezzo in the United States.
|
If our Collaboration Agreement with Purdue Pharma is terminated or other factors arise, our cash, cash equivalents and marketable securities may prove insufficient to fund our operations through the successful commercialization of Intermezzo. Also, the development and potential regulatory approval of any additional product candidates will likely require additional funding, which may not be available at the time needed on commercially reasonable terms, if at all.
Critical Accounting Policies
There were no changes to our critical accounting policies since we filed our 2012 Annual Report on Form 10-K for the year ended December 31, 2012 with the Securities and Exchange Commission, or SEC. For a description of our critical accounting policies, please refer to our 2012 Annual Report.
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing activities, including the use of structured finance, special purpose entities or variable interest entities.
|
|
|
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Our exposure to market risk is confined to cash, cash equivalents and marketable securities which have contractual maturities of eighteen months or less, bear interest rates at fixed rates and are denominated in, and pay interest in, U.S. dollars. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs, maximization of investment performance and fiduciary control of cash and investments. Investments are classified as available-for-sale. We do not use derivative financial instruments in our investment portfolio. To achieve our goals, we invest excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying investments among a variety of high credit-quality issuers, including U.S. government agencies, corporate debt obligations, taxable and tax-exempt pre-refunded municipal debt obligations and money market funds. There is no limit to the percentage of investments that may be maintained in U.S. Treasury debt obligations, U.S. agency debt obligations, or SEC-registered money market funds. The portfolio includes marketable securities with active secondary or resale markets to ensure portfolio liquidity, and we regularly review our portfolio against our policy. A hypothetical 100 basis point increase in interest rates would result in a decrease of approximately
$463,300
in the fair value of our marketable securities at
September 30, 2013
.
|
|
|
|
|
|
Item 4.
|
Controls and Procedures
|
Disclosure Controls and Procedures
Our management evaluated, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission, or SEC, rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal controls over financial reporting (as such item is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Inherent Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met.
PART II
|
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
ANDA Litigation - Intermezzo
In July 2012, we received notifications from three companies, Actavis Elizabeth LLC (Actavis), Watson Laboratories, Inc. - Florida (Watson), and Novel Laboratories, Inc. (Novel), in September 2012 from each of Par Pharmaceutical, Inc. and Par Formulations Private Ltd. (together, the Par Entities), in February 2013 from Dr. Reddy's Laboratories, Inc. and Dr. Reddy's Laboratories, Ltd. (together, Dr. Reddy's), and in July 2013 from TWi Pharmaceuticals, Inc. (TWi) stating that each has filed with the FDA an Abbreviated New Drug Application, or ANDA, that references Intermezzo.
|
|
|
|
•
|
Actavis & Watson: In the July 2012 notifications, Actavis and Watson indicated that each company's ANDA includes Paragraph IV patent certifications to our U.S. Patent Nos. 7,658,945 (expiring April 15, 2027) and 7,682,628 (expiring February 16, 2025) (together, the “'945 and '628 Patents”). On November 28, 2012, Watson withdrew its ANDA, and, as a result of such withdrawal, on December 18, 2012, we and Purdue agreed to voluntarily dismiss the action without prejudice and on December 20, 2012 a court order was entered to such effect. The dismissal of Watson's ANDA had no effect on the ANDA filed by Actavis, a wholly owned subsidiary of Watson Pharmaceuticals, Inc. On January 24, 2013, Actavis notified us that it has included Paragraph IV patent certifications to our U.S. Patent Nos. 8,242,131 (expiring August 20, 2029) and 8,252,809 (expiring February 16, 2025) (together, the “'131 and '809 Patents”).
|
|
|
|
|
•
|
Novel: In the July 2012 notifications, Novel indicated that its ANDA includes Paragraph IV patent certifications to the '945 and '628 Patents. On December 10, 2012, Novel notified us that it has included Paragraph IV patent certifications to the '131 and '809 Patents.
|
|
|
|
|
•
|
Par Entities: The ANDAs submitted by the Par Entities each include Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
|
|
|
|
|
•
|
Dr. Reddy's: The ANDA submitted by Dr. Reddy's includes Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
|
|
|
|
|
•
|
TWi: The ANDA submitted by TWi includes Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
|
In August 2012, August 2012, September 2012, and October 2012, respectively, we joined Purdue Pharma in filing actions against Actavis, Watson and certain of their affiliates, Novel, and the Par Entities, in each action alleging patent infringement and seeking injunctive and other relief. In December 2012, we and Purdue Pharma agreed to voluntarily dismiss the action against Watson without prejudice following its withdrawal of its ANDA application on November 28, 2012. On December 20, 2012, a court order was entered to such effect. The dismissal of Watson's ANDA had no effect on the ANDA filed by Actavis, a wholly owned subsidiary of Watson Pharmaceuticals, Inc. After receiving the supplemental notifications referenced above, we and Purdue Pharma amended our pending complaints against Actavis and Novel to also allege infringement of the '131 and '809 patents, as well as the '628 patent previously asserted against those companies. The actions against the Par Entities alleged infringement of the '131 and '809 patents. In September 2013, we and Purdue Pharma agreed to voluntarily dismiss the action against one of the two Par Entities, Par Formulations Private Ltd., following that Par Entity’s withdrawal of its ANDA. The action against the other Par Entity, Par Pharmaceutical, Inc., remains pending and continues to allege infringement of the ‘131 and ‘809 patents.
In April 2013, we joined Purdue Pharma in filing an action against Dr. Reddy's, alleging patent infringement of the '628, '131, and '809 patents, and seeking injunctive and other relief.
In August 2013, we joined Purdue Pharma in filing two actions against TWi. The first action against TWi was filed on August 20, 2013 in the U.S. District Court for the District of New Jersey, and the second action against TWi was filed on August 22, 2013 in the U.S. District Court for the Northern District of Illinois. Each action alleges patent infringement of the ‘131 and ‘809 patents, and seeks injunctive and other relief. On October 17, 2013, TWi filed answers and counterclaims in both New Jersey and Illinois, in both cases seeking declarations of non-infringement and invalidity as to the ‘945, ‘628, ‘131, and ‘809 patents, as well as other relief.
Patent Term Adjustment Suit
In January 2013, we and Purdue Pharma filed suit in the Eastern District of Virginia against the USPTO in connection with certain changes to the Leahy-Smith America Invents Act. We and Purdue Pharma are seeking recalculation of the patent term adjustment of the '131 Patent. Purdue Pharma has agreed to bear the costs and expenses associated with this litigation. In June of 2013, the judge granted a joint motion to stay the proceedings pending a final decision on appeal by the Federal Circuit in
Exelixis, Inc. v. Rea,
No. 2013-11 75 (Fed. Cir.)
,
and
Exelixis, Inc. v. Rea,
No. 20 13-11 98 (Fed. Cir.)
.
Derivative Suit
In October 2013, one of our stockholders, Retrophin, Inc., filed a purported derivative suit against our Board of Directors in the Court of Chancery of the State of Delaware purporting to assert claims on behalf of Transcept, and alleging that our Board of Directors approved and paid excessive compensation to our directors. The complaint seeks, among other things, a declaration that the compensation paid to our directors is excessive and the approval of such compensation is a breach of our directors’ fiduciary duties, as well as a return of any excessive compensation and payment of Retrophin’s costs and attorney’s fees. Our directors believe the suit is without merit and intend to defend themselves vigorously.
From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations or financial condition.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this report before you decide to purchase our common stock. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of the events described below, and you may lose all or part of your investment.
We have had a limited operating history that may make it difficult for you to evaluate the potential success of our business and we have a history of incurring losses.
We were founded in January 2001 under our former name, Novacea, Inc., and in January 2009 underwent a merger with Transcept Pharmaceuticals, Inc., a privately held company, or TPI, founded in 2002, which is the primary business we currently conduct. Our operations to date have been limited to organizing and staffing, acquiring, developing and securing technology and undertaking preclinical studies and clinical trials. Furthermore, our business is not profitable and has incurred losses in each year since the inception of TPI in 2002. Our net loss for the years ended
December 31, 2012
,
2011
and
2010
was
$12.0 million
,
$3.9 million
and
$9.3 million
, respectively. Our net loss for the
nine months ended September 30, 2013
was
$21.9 million
. We had an accumulated deficit at
September 30, 2013
of
$134.0 million
.
In November 2011, we obtained regulatory approval for the commercial sale of our lead product, Intermezzo, from the FDA. In April 2012, our U.S. marketing partner, Purdue Pharma, launched Intermezzo. We have not demonstrated over a substantial period of time the ability to meet and adhere to other regulatory standards applicable to an FDA approved product, to conduct sales and marketing activities or to co-promote a product with a collaboration partner, including Purdue Pharma. In September 2013, we licensed our new lead product candidate, TO-2070 for the treatment of acute migraines, which is currently in the early stages of development. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict whether we will be able to successfully develop TO-2070, obtain regulatory approval, and commercialize TO-2070. Consequently, any predictions you make about our future success or viability may not be as accurate as they would be if we had a longer operating history.
We expect to continue to incur losses for the foreseeable future until such time, if ever, that Intermezzo is successfully commercialized by Purdue Pharma, or that TO-2070 is successfully commercialized by us or any future collaborators, and that we receive milestone and royalty revenue from our collaborations that exceeds our expenses. For the foreseeable future, we expect our accumulated deficit to increase as we continue our development, regulatory, and collaboration efforts with respect to Intermezzo (both in support of Purdue Pharma and potential collaboration partners outside North America), TO-2070, and research and development activities for potential future product candidates. If Purdue Pharma does not successfully commercialize Intermezzo, or TO-2070 or future product candidates, if any, do not gain regulatory approval and are not commercialized or do not achieve market acceptance, we may not be able to generate any revenue. We cannot assure you that we will ever be profitable or that we can sustain profitability, even if achieved. If we fail to achieve and maintain profitability, or if we are unable to fund our continuing losses, you could lose all or part of your investment.
We are currently dependent on the commercial success of Intermezzo in the United States for the treatment of middle-of-the-night awakening, which became commercially available in April 2012.
In July 2009, we entered into a Collaboration Agreement with Purdue Pharma, which provided Purdue Pharma with the option to commercialize Intermezzo in the United States at its expense. In November 2011, the FDA granted marketing approval for the commercial sale of Intermezzo in the United States for use as-needed for the treatment of insomnia when a middle-of-the-night awakening is followed by difficulty returning to sleep. On November 30, 2011, Purdue Pharma notified us
that it exercised its option to commercialize Intermezzo and subsequently launched commercial sales of Intermezzo in the United States in April 2012.
In December 2012, we announced that a Phase 2 clinical trial of TO-2061, an investigational product for adjunctive therapy in patients with obsessive compulsive disorder and our only product candidate in active clinical development did not meet its primary endpoint. Based on these negative results, we have discontinued the clinical development of TO-2061.
In addition, our new lead product candidate, TO-2070 is currently in early stages of development. Because we do not have a product candidate that has advanced into a pivotal trial or received regulatory approval for commercial sale, our future success is currently dependent on the successful commercialization of Intermezzo in the United States by Purdue Pharma. If Purdue Pharma does not successfully commercialize Intermezzo
in the United States, our ability to generate revenue will be jeopardized and, consequently, our business will be seriously harmed.
We are substantially dependent upon the efforts of Purdue Pharma to commercialize Intermezzo in the United States and will be dependent on the efforts of other collaboration partners if we enter into future strategic collaborations.
The success of sales of Intermezzo in the United States is dependent on the ability of Purdue Pharma to successfully commercialize Intermezzo pursuant to the Collaboration Agreement. The terms of the Collaboration Agreement provide that Purdue Pharma can terminate the agreement for any reason at any time upon advance notice of 180 days. For example, Purdue Pharma may find that the commercial potential of Intermezzo is not sufficient to continue pursuing. If the Collaboration Agreement is terminated, our business and our ability to generate revenue from sales of Intermezzo will be substantially harmed and we will be required to develop our own sales and marketing organization, fund any future clinical studies and other required regulatory activities (including any post-approval studies), and bear increased litigation expenses due to ANDA proceedings. Alternatively, we may enter into another strategic collaboration in order to commercialize Intermezzo in the United States. We do not currently have the infrastructure in place or adequate resources to launch a commercial product and implementing such infrastructure would require substantial time and resources and such efforts may not be successful.
The manner in which Purdue Pharma commercializes Intermezzo, including the amount and timing of Purdue Pharma's investment in commercial activities and pricing of Intermezzo, will have a significant impact on the ultimate success of Intermezzo in the United States, and the success of the overall commercial arrangement with Purdue Pharma. If Purdue Pharma deems Intermezzo to have insufficient market potential, they may decrease their commercialization efforts, which would likely result in decreased sales of Intermezzo and negatively impact our business and operating results. For example, in May 2013, Purdue notified us that they would no longer be utilizing the 90 contract sales representatives dedicated exclusively to promoting Intermezzo.
If Purdue Pharma is not successful in increasing sales of Intermezzo our stock price may decline. The outcome of Purdue Pharma's efforts to increase sales of Intermezzo could also have an effect on investors' perception of potential sales of Intermezzo outside the United States, which could also cause a decline in our stock price and may make it more difficult for us to enter into strategic collaborations outside the United States.
Assuming the Collaboration Agreement remains effective, Purdue Pharma is responsible for conducting post-approval studies of Intermezzo and bears the cost associated with such studies. The planning and execution of these studies, if any, will be primarily the responsibility of Purdue Pharma, and may not be carried out in accordance with our preferences, or could yield results that are detrimental to Purdue Pharma's sales of Intermezzo in the United States or detrimental to our efforts to develop or commercialize Intermezzo outside the United States.
While we plan to enter into one or more additional strategic collaborations for the development and commercialization of Intermezzo outside the United States, we may not be able to enter into these collaborations on acceptable terms, if at all. Our collaboration with Purdue Pharma as our commercial partner for Intermezzo in the United States could also limit the potential collaboration options we have with respect to Intermezzo outside the United States or could render potential collaborators less inclined to enter into an agreement with us because of such relationship. Further, Purdue Pharma has an option to negotiate with us for a license to commercialize Intermezzo in Mexico. While this option and subsequent negotiation periods continue, we are prevented from negotiating with and being able to enter into commercialization agreements with other potential strategic partners for the development or commercialization of Intermezzo in Mexico.
If we decide to enter into a strategic collaboration covering TO-2070 or any future product candidates, our ability to receive any significant revenue under such arrangements will be dependent on the efforts of the collaboration partner and may result in lower levels of income than if we marketed or developed our product candidates entirely on our own. Our collaboration partner may not fulfill its obligations or carry out marketing activities for the product candidates as diligently as we would like. We could also become involved in disputes with our collaboration partner, which could lead to delays in or termination of commercialization programs and time-consuming and expensive litigation or arbitration. If a collaboration partner terminates or breaches its agreement, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or marketing our product candidates would be materially and adversely affected.
Our future clinical trials may fail to demonstrate adequately the safety and efficacy of TO-2070 or any future product candidates, which could prevent or delay regulatory approval and commercialization.
Before obtaining regulatory approvals for the commercial sale of TO-2070 or any future product candidates, we must demonstrate through lengthy, complex and expensive pre-clinical testing and clinical trials that the product candidate is both safe and effective for use in each target indication. Our trial results may be negatively affected by factors that had not been fully anticipated prior to commencement of the trial. Such trials may fail to demonstrate efficacy in the treatment of the intended disorder or may fail to demonstrate that a product candidate is safe when used as directed or even when misused. The results obtained in completed clinical trials and non-clinical studies may not be predictive of results from ongoing or future trials. Actual results of any future studies may differ materially from past studies due to various risks and uncertainties, including, but not limited to, the following:
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identical study designs evaluating identical endpoints may produce different study results;
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different study designs intended to measure the same or similar endpoints may produce different results;
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different studies in different or progressively larger patient populations could reveal more frequent, more severe or additional side effects that were not seen in earlier studies; and
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the unpredictable nature of clinical trials generally.
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Although we seek to design our clinical trial protocols to address known factors that may negatively affect results, there can be no assurance that protocol designs will be adequate or that factors that we may or may not be aware of or anticipate will not have a negative effect on the results of our clinical trials. Once a study has commenced, we may voluntarily suspend or terminate the study if at any time we believe that there is an unacceptable safety risk to patients.
Further, side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities stopping further development of or denying approval of our product candidates. Based on results at any stage of pre-clinical or clinical trials, we may decide to repeat or redesign a trial, modify our regulatory strategy or even discontinue development of one or more of our product candidates. In addition, from time to time the FDA will review the safety of an approved product, molecule or therapeutic class. These types of safety reviews by the FDA, or new clinical findings generated by the scientific community, could cause us to modify our clinical study plans for DHE and other programs, or abandon such programs altogether.
If our product candidates are not shown to be both safe and effective in clinical trials, the resulting delays in developing other compounds and conducting associated non-clinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Before obtaining regulatory approvals for the commercial sale of TO-2070 and any future product candidates, we must demonstrate through lengthy, complex and expensive pre-clinical testing and clinical trials that the product candidate is both safe and effective for use in each target indication. Clinical trial results may be negatively affected by factors that had not been fully anticipated prior to commencement of the trial. Such trials may fail to demonstrate efficacy in the treatment of the intended disorder or may fail to demonstrate that a product candidate is safe when used as directed or even when misused. The results obtained in completed clinical trials and non-clinical studies may not be predictive of results from ongoing or future trials. Actual results of any future studies may differ materially from past studies due to various risks and uncertainties, including, but not limited to, the following:
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identical study designs evaluating identical endpoints may produce different study results;
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different study designs intended to measure the same or similar endpoints may produce different results;
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different studies in different or progressively larger patient populations could reveal more frequent, more severe or additional side effects that were not seen in earlier studies; and
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the unpredictable nature of clinical trials generally.
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Although we seek to design our clinical trial protocols to address known factors that may negatively affect results, there can be no assurance that protocol designs will be adequate or that factors that we may or may not be aware of or anticipate will not have a negative effect on the results of our clinical trials. Once a study has commenced, we may voluntarily suspend or terminate the study if at any time we believe that there is an unacceptable safety risk to patients.
Further, side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities stopping further development of or denying approval of our product candidates. Based on results at
any stage of clinical trials, we may decide to repeat or redesign a trial, modify our regulatory strategy or even discontinue development of one or more of our product candidates. In addition, from time to time the FDA will review the safety of an approved product, molecule or therapeutic class. These types of safety reviews by the FDA, or new clinical findings generated by the scientific community, could cause us to modify our clinical study plans, or abandon such programs altogether.
If our product candidates are not shown to be both safe and effective in clinical trials, the resulting delays in developing other compounds and conducting associated non-clinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.
Delays in the commencement or completion of clinical testing could result in increased costs to us and delay our ability to generate revenue.
We do not know whether future clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be disrupted for a variety of reasons, including difficulties in:
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recruiting and enrolling patients to participate in a clinical trial;
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addressing issues raised by the FDA or other regulatory authorities regarding safety, design, scope and objectives of clinical studies;
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regulatory approval to commence a clinical trial;
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agreement on acceptable terms with prospective clinical research organizations and trial sites;
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sufficient quantities of a product candidate; and
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institutional review board approval to conduct a clinical trial at a prospective site.
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A clinical trial may also be suspended or terminated by us or the FDA or other regulatory authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or in accordance with our clinical protocols;
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inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues; and
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inadequate patient enrollment or lack of adequate funding to continue the clinical trial.
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In addition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes, which could impact the cost, timing or successful completion of a clinical trial. Further, conducting clinical trials in foreign countries, which we may conduct with respect to TO-2070, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries. If we experience delays in the commencement or completion of our clinical trials, the commercial prospects for our product candidates and our ability to generate product revenue will be harmed. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also lead to the denial of regulatory approval of a product candidate.
Intermezzo, despite obtaining FDA approval, may never achieve market acceptance, nor may TO-2070 or future product candidates, if any, even if regulatory approval for such product candidates is obtained.
Despite obtaining FDA regulatory approval for the commercial sale of Intermezzo, the commercial success of Intermezzo and/or TO-2070 and future product candidates, if any, even if regulatory approval is obtained for such candidates, will depend upon, among other things, acceptance by physicians, patients and managed care payers. Market acceptance of, and demand for, any products that we develop and that are commercialized by us or our collaboration partner will depend on many factors, including:
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the ability to provide acceptable evidence of safety and efficacy of Intermezzo, TO-2070 or future products for their respective indications;
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the effectiveness of our or a collaboration partner's sales, marketing and distribution strategies;
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the availability, relative cost and relative efficacy and safety of alternative and competing treatments including the existence of generic or branded competition;
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the ability to obtain adequate pricing and sufficient insurance coverage and reimbursement;
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motivating physicians to identify middle-of-the-night awakenings as an important manifestation of insomnia;
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building awareness among physicians and patients of Intermezzo, TO-2070 or future products as the right treatment option;
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the ease of administration of Intermezzo, TO-2070 or future products; and
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the ability to produce commercial quantities sufficient to meet demand.
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If Intermezzo, TO-2070 and/or future products fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business.
We are engaged in litigation to protect our intellectual property from potential generic manufacturers of Intermezzo and any future products, and an unsuccessful outcome could harm our business.
The Hatch-Waxman Act permits the FDA to approve Abbreviated New Drug Applications, or ANDAs, for generic versions of brand name drugs like Intermezzo. We refer to this process as the “ANDA process.” The ANDA process permits competitor companies to obtain marketing approval for a drug product with the same active ingredient, dosage form, strength, route of administration, and labeling as the approved brand name drug, but without having to conduct and submit clinical studies to establish the safety and efficacy of the proposed generic product. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product is bioequivalent to the brand name product, usually based on pharmacokinetic studies. Following the commercial launch of Intermezzo in April 2012, companies are able to submit an ANDA application for a generic version of Intermezzo at any time pursuant to the Hatch-Waxman Act.
The Hatch-Waxman Act requires an applicant for a drug product that relies, in whole or in part, on the FDA's prior approval of Intermezzo, to notify us of its application if the applicant is seeking to market its product prior to the expiration of the patents that claim Intermezzo. This notice is required to contain a detailed factual and legal statement explaining the basis for the applicant's opinion that the proposed product does not infringe our patents, that our patents are invalid, or both. Pursuant to the Collaboration Agreement, Purdue Pharma then has the option of bringing a patent infringement suit in federal district court against each company seeking approval for its product within 45 days from the date of receipt of each notice. Pursuant to the Collaboration Agreement, if Purdue Pharma chooses to file a patent infringement suit, we may decide whether to join Purdue Pharma as a named party in such lawsuit, or if Purdue Pharma chooses not to file patent infringement claims within the required 45 days, we may choose to do so on our own behalf. If such a suit is commenced within this 45 day period, we will be entitled to receive a 30 month stay on FDA's ability to give final approval to any of the proposed products that reference Intermezzo. The stay may be shortened or lengthened if either party fails to cooperate in the litigation and it may be terminated if the court decides the case in less than 30 months. If the litigation is resolved in favor of the applicant before the expiration of the 30 month period, the stay will be immediately lifted and the FDA's review of the application may be completed. Such litigation is often time-consuming and costly, and may result in generic competition if such patent(s) are not upheld or if the generic competitor is found not to infringe such patent(s).
In July 2012, we received notifications from three companies, Actavis Elizabeth LLC (Actavis), Watson Laboratories, Inc. - Florida (Watson), and Novel Laboratories, Inc. (Novel), in September 2012 from each of Par Pharmaceutical, Inc. and Par Formulations Private Ltd. (together, the Par Entities), in February 2013 from Dr. Reddy's Laboratories, Inc. and Dr. Reddy's Laboratories, Ltd. (together, Dr. Reddy's) and in July 2013 from TWi Pharmaceuticals (TWi) stating that each has filed with the FDA an ANDA, that references Intermezzo.
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Actavis & Watson: In the July 2012 notifications, Actavis and Watson indicated that each company's ANDA includes Paragraph IV patent certifications to our U.S. Patent Nos. 7,658,945 (expiring April 15, 2027) and 7,682,628 (expiring February 16, 2025) (together, the "'945 and '628 Patents"). On November 28, 2012, Watson withdrew its ANDA, and, as a result of such withdrawal, on December 18, 2012 we and Purdue agreed to voluntarily dismiss the action without prejudice and on December 20, 2012 a court order was entered to such effect. The dismissal of Watson's ANDA had no effect on the ANDA filed by Actavis, a wholly owned subsidiary of Watson Pharmaceuticals, Inc. On January 24, 2013, Actavis notified us that it has included Paragraph IV patent certifications to our U.S. Patent Nos. 8,242,131 (expiring August 20, 2029) and 8,252,809 (expiring February 16, 2025)(together, the "'131 and '809 Patents").
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Novel: In the July 2012 notifications, Novel indicated that its ANDA includes Paragraph IV patent certifications to the '945 and '628 Patents. On December 10, 2012, Novel notified us that it has included Paragraph IV patent certifications to the '131 and '809 Patents.
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Par Entities: The ANDAs submitted by the Par Entities each include Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
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Dr. Reddy's: The ANDA submitted by Dr. Reddy's includes Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
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TWi: The ANDA submitted by TWi includes Paragraph IV patent certifications to the '945, '628, '131 and '809 Patents.
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In August 2012, August 2012, September 2012, and October 2012, respectively, we joined Purdue Pharma in filing actions against Actavis, Watson and certain of their affiliates, Novel, and the Par Entities, in each action alleging patent infringement and seeking injunctive and other relief. In December 2012, we and Purdue Pharma agreed to voluntarily dismiss the action against Watson without prejudice following its withdrawal of its ANDA application on November 28, 2012. On December 20, 2012, a court order was entered to such effect. The dismissal of Watson's ANDA had no effect on the ANDA filed by Actavis, a wholly owned subsidiary of Watson Pharmaceuticals, Inc. After receiving the supplemental notifications referenced above, we and Purdue Pharma amended our pending complaints against Actavis and Novel to also allege infringement of the '131 and '809 patents, as well as the '628 patent previously asserted against those companies. The actions against the Par Entities alleged infringement of the '131 and '809 patents. In September 2013, the Company and Purdue Pharma agreed to voluntarily dismiss the action against one of the two Par Entities, Par Formulations Private Ltd., following that Par Entity’s withdrawal of its ANDA. The action against the other Par Entity, Par Pharmaceutical, Inc., remains pending and continues to allege infringement of the ‘131 and ‘809 patents.
In April 2013, we joined Purdue Pharma in filing an action against Dr. Reddy's, alleging patent infringement of the '628, '131, and '809 patents, and seeking injunctive and other relief.
In August 2013, the Company joined Purdue Pharma in filing two actions against TWi. The first action against TWi was filed on August 20, 2013 in the U.S. District Court for the District of New Jersey, and the second action against TWi was filed on August 22, 2013 in the U.S. District Court for the Northern District of Illinois. Each action alleges patent infringement of the ‘131 and ‘809 patents, and seeks injunctive and other relief. On October 17, 2013, TWi filed answers and counterclaims in both New Jersey and Illinois, in both cases seeking declarations of non-infringement and invalidity as to the ‘945, ‘628, ‘131, and ‘809 patents, as well as other relief.
The filing of the Actavis, Novel, each of the Par Entities', Dr. Reddy's, TWi, and any future ANDA applications referencing Intermezzo could have an adverse impact on our stock price, and litigation, if any, to enforce our patents is likely to require significant management attention and may require substantial capital resources. If the patents covering Intermezzo are not upheld in litigation or if the generic competitor is found to not infringe these patents, the resulting generic competition for Intermezzo would have a material adverse effect on our revenue and results of operations.
Our business could be negatively affected as a result of the actions of activist stockholders.
We recently received a request from certain of our stockholders for a special meeting of our stockholders to eliminate the Tax Benefits Preservation Plan we implemented in September 2013 and to remove certain members from our board of directors. As a result, we have called a special meeting of our stockholders to vote on these matters, which is scheduled to take place on December 19, 2013. If faced with a proxy contest, we may not be able to respond successfully to the contest, which would be disruptive to our business.
Furthermore, stockholders have taken or may take additional actions related to these matters. For example, one of our stockholders recently took the following actions:
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demanded access to certain of our books, records and other documentation regarding the Tax Benefit Preservation Plan;
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demanded an exemption under the Tax Benefit Preservation Plan to allow them to acquire additional shares of our common stock; and
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filed a purported derivative suit against our Board of Directors claiming that our Board paid excessive compensation to our directors in breach of our directors’ fiduciary duties.
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Even if we are successful in a proxy contest or responding to activist stockholder actions, our business could be adversely affected by such matters because:
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responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, disrupting operations and diverting the attention of management and employees, and can lead to uncertainty;
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perceived uncertainties as to future direction may result in the loss of potential acquisitions, collaborations or in-licensing opportunities, and may make it more difficult to attract and retain qualified personnel and business partners;
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if the stockholder proposals for the upcoming special meeting are successful, we may lose the benefits of our NOLs and lose certain members from our board of directors; and
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if individuals are elected to our board with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our shareholders.
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Furthermore, certain plaintiff’s lawyers have announced investigations relating to the adoption of the Tax Benefit Preservation Plan.
The above actions could divert the attention of our management and board of directors and cause the market price of our common stock to experience periods of volatility.
Intermezzo and TO-2070 face substantial competition from companies with established products.
Intermezzo has been approved for use as-needed for the treatment of insomnia when a middle-of-the-night awakening is followed by difficulty returning to sleep, an indication that we believe represents an opportunity within the broader insomnia therapeutic market. The insomnia market is large, deeply commercialized and characterized by intense competition among generic products and large, established pharmaceutical companies with well-funded, well-staffed and experienced sales and marketing organizations, as well as far greater name recognition than we or Purdue Pharma have.
Intermezzo competes in this large market against well-established branded products with a history of deep market penetration and significant advertising support, as well as with new market entrants and generic competitors selling zolpidem and other sleep aids at a fraction of the price at which Purdue Pharma sells Intermezzo.
Intermezzo is the first sleep aid approved by the FDA specifically for use as needed for the treatment of insomnia when a middle-of-the-night awakening is followed by difficulty returning to sleep. We are not aware of any product candidate that has successfully completed the clinical trials required for approval for such indication. However, currently approved and marketed seven- to eight-hour therapeutics may be prescribed by doctors and used by patients to treat this condition when used to deliver a prophylactic dose of a sleep aid at the beginning of the night.
In 2010, we sponsored an epidemiology study conducted by Dr. Ronald Kessler that sought to quantify the extent of the off-label middle-of-the-night use of seven- to eight-hour sleep aids. The study suggested that approximately 11% of all hypnotic users sometimes take their sleep aid in the middle of the night in order to return to sleep, and that approximately 50% of those hypnotic users who reported middle-of-the-night awakening as their most bothersome insomnia symptom sometimes take their bedtime sleep aid in the middle of the night. Despite the fact that currently available sleep aids are not approved to be taken in the middle of the night, these findings suggest the possibility that some patients may use, or continue to use, these products, or their low cost generic versions, rather than Intermezzo. In addition, anecdotal evidence suggests that some patients currently split low cost generic tablets for off-label use in the middle of the night, despite the fact that these patients have no instruction as to the proper dose or how long they should stay in bed and refrain from driving.
The most widely prescribed prescription sleep aids in the United States are generic forms of Ambien
®
and Ambien CR
®
, which were originally developed by sanofi-aventis, and are available from multiple generic manufacturers. Edluar
TM
, a sublingual tablet containing zolpidem, was launched in the U.S. market by Meda Pharmaceuticals, Inc. in September 2009. Zolpimist
TM
, an orally administered spray containing zolpidem, was launched by ECR Pharmaceuticals Company, Inc., a wholly-owned subsidiary of Hi-Tech Pharmacal Co., Inc., in February 2011. Edluar
TM
and Zolpimist
TM
employ the same 10 mg and 5 mg zolpidem doses as generic Ambien
®
and are designed to be used in the same manner at bedtime to promote sleep onset.
Lunesta
®
(eszopiclone), marketed by Sunovion Pharmaceuticals Inc., a subsidiary of Dainippon-Sumitomo Pharma Co. Ltd., and Rozerem
®
(ramelteon), marketed by Takeda Pharmaceuticals Company Limited, can similarly treat middle-of-the-night awakenings by providing a prophylactic dose at bedtime in order to avoid a middle-of-the-night awakening. Also, short duration products such as Sonata
®
, which uses the active ingredient zaleplon and is marketed by Pfizer, Inc., have been used off-label for the as-needed treatment of middle-of-the-night awakenings. In September 2010, Silenor
®
became commercially available in the United States. Silenor
®
is a low dose version of doxepin intended for use at bedtime for the treatment of both transient (short term) and chronic (long term) insomnia characterized by difficulty with sleep maintenance in both adults and elderly patients. Silenor
®
is marketed by Pernix Therapeutics, Inc. Other drugs, such as the antidepressant generic trazodone, are also widely prescribed off-label for the treatment of insomnia.
In addition, TO-2070 is our lead product candidate for the treatment of acute migraine. Even if we successfully develop and achieve regulatory approval for TO-2070, we will face a large and differentiated market for the treatment of migraine, which includes generic drugs such as ibuprofen and acetaminophen, triptans and ergots.
If Purdue Pharma is unsuccessful in achieving market acceptance for Intermezzo with physicians and patients due to competing products, it would likely have a material adverse effect on our business, results of operations, financial condition and prospects.
Other companies may develop new products to compete with Intermezzo or TO-2070.
We are aware of several companies that have stated that they intend to develop new products for the treatment of middle-of-the-night awakenings. NovaDel Pharma, Inc. has indicated that it has commenced development of a low-dose version of Zolpimist™ for the treatment of middle-of-the-night awakenings with the intent to enter such product candidate into clinical trials, and Somnus Therapeutics Inc. has indicated that it is similarly targeting treatment of middle-of-the-night awakenings with development of its controlled-release zaleplon formulation that would be dosed at bedtime, SKP-1041.
There are many other companies working to develop new products and other therapies to treat insomnia. Several of these products are in late stage clinical trials. In June 2012, Merck and Co., Inc. announced positive Phase 3 data from two pivotal trials of an investigational new drug. Merck filed an NDA with the U.S. Food and Drug Administration in 2012. In January 2010, Vanda Pharmaceuticals Inc. received an orphan drug designation from the FDA for VEC-162 (tasimelteon), a melatonin agonist, for treatment of non-24 hour sleep/wake disorder in blind individuals without light perception. Vanda may seek approval for additional, broader insomnia indications for this product candidate. On May 31, 2013, Vanda announced that it submitted an NDA for tasimelteon to the FDA.
Additionally, if approved for the acute treatment of migraine, we anticipate that TO-2070 would compete against other marketed migraine therapies and may compete with products currently under development by both large and small companies.
The majority of marketed prescription products for treatment of acute migraine in the United States are in the triptan class in tablet, orally-disintegrating tablet, nasal spray and injectable formulations. The largest selling triptan in units is sumatriptan, which goes by the brand name Imitrex. There are at least six other branded triptan therapies being sold by pharmaceutical and biotechnology companies.
TO-2070 will face intense competition from inexpensive generic versions of sumatriptan and generic versions of other branded products of competitors that have lost or will lose their patent exclusivity. In addition, we expect other triptan patents to expire between 2013 and 2017. Many of these products are manufactured and marketed by large pharmaceutical companies and are well accepted by physicians, patients and third party payors. Because of the low cost, health insurers likely would require or encourage use of, a generic triptan prior to TO-2070.
In July 2009, Zogenix, Inc.’s Sumavel DosePro needle-free sumatriptan was approved by the FDA for the acute treatment of migraine and cluster headache. Alternative formulations of DHE include Migranal, which is nasally delivered, and which may become generically available prior to any commercial introduction of TO-2070. In addition to marketed migraine medications, both large and small companies have migraine product candidates in various stages of clinical development. These include Levadex from Allergan, Inc., an inhaled formulation of DHE, and an intranasal powder formulation of sumatriptan from Optinose, both for the treatment of acute migraine. It is believed that Allergan, Inc. is working with the FDA to resolve manufacturing issues prior to an anticipated approval in 2014. Allergan also markets Botox, which is marketed for the treatment of chronic migraine. OptiNose US Inc. announced positive results from a 200 patient Phase III trial in November 2012 and has partnered their product with Avanir Pharmaceuticals, Inc.
Furthermore, new developments, including the development of other drug technologies and methods of treating conditions, occur in the biopharmaceutical industry at a rapid pace, and may negatively affect the commercial prospects of Intermezzo and TO-2070.
Many potential competitors, either alone or together with their partners, have substantially greater financial resources, research and development programs, clinical trial and regulatory experience, expertise in prosecution of intellectual property rights, and manufacturing, distribution and sales and marketing capabilities than us and our collaboration partner. As a result of such factors, our competitors may:
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develop product candidates and market products that are less expensive, safer, more effective or easier to use than Intermezzo and/or TO-2070;
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commercialize competing products, including generic versions of Intermezzo or any future products derived from TO-2070;
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initiate or withstand substantial price competition more successfully than we can;
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have greater success in recruiting skilled scientific workers and experienced sales and marketing personnel from the limited pool of available talent;
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more effectively negotiate third party licenses and strategic collaborations; and
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take advantage of acquisition or other opportunities more readily than us or our collaboration partner.
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We may require substantial additional funding and may need to curtail operations if we are unable to raise capital when needed.
We had cash, cash equivalents and marketable securities of
$75.8 million
at September 30, 2013. We expect our negative cash flows from operations to continue for the foreseeable future as we develop TO-2070 and seek additional products and product candidates through business development efforts. We will need to generate significant revenue to achieve profitability. We do not know whether or when we will become profitable because of the significant uncertainties with respect to Purdue Pharma's ability to successfully commercialize Intermezzo and, as a result, our ability to generate revenue from sales of Intermezzo and from our existing and potential future collaborations, if any.
If our Collaboration Agreement with Purdue Pharma is terminated or other factors arise, our cash, cash equivalents and marketable securities may prove insufficient to fund our operations through the successful commercialization of Intermezzo. Also, the development and potential regulatory approval of TO-2070 and any additional product candidates will likely require additional funding, which may not be available at the time needed on commercially reasonable terms, if at all.
Developing biopharmaceutical products, including conducting pre-clinical studies and clinical trials, and establishing manufacturing capabilities and an effective sales and marketing infrastructure, is expensive. We expect to incur significant pre-clinical and clinical expenses in connection with our ongoing activities with respect to TO-2070.
We currently believe that our available cash, cash equivalents and marketable securities and interest income will be sufficient to fund our anticipated levels of operations for at least the next twelve months. However, our future capital requirements will depend on many factors, including:
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the ability of Purdue Pharma to successfully commercialize Intermezzo in the United States;
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the level of Purdue Pharma's commercialization efforts with respect to Intermezzo;
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whether, as a result of our strategic and financial review with Leerink Swann LLC, we enter into a partnership or business combination, return capital to our stockholders, or reacquire full U.S. rights to Intermezzo from Purdue Pharma;
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the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including in connection with ANDA proceedings relating to Intermezzo;
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the cost of conducting pre-clinical and clinical trials and other development activities with respect to TO-2070;
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the timing and amount of milestone and royalty payments to SNBL under the License Agreement;
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the cost of establishing or contracting for sales and marketing capabilities if we exercise our option to co-promote Intermezzo in the United States;
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the extent to which we develop internally, acquire or in-license new products, technologies or businesses;
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whether we choose to share the cost of future marketing and selling efforts with Purdue Pharma, related to the commercialization of Intermezzo in the United States;
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the potential costs associated with Intermezzo if our existing Collaboration Agreement with Purdue is terminated, including the cost to replace Purdue Pharma's sales and marketing capabilities, the costs associated with the conduct of Phase IV clinical trials required by the FDA, and the increased costs to us of litigation expense in connection with ANDA proceedings related to Intermezzo; the receipt of milestone and other payments, if any, from Purdue Pharma under the Collaboration Agreement;
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milestone, royalty and other payments to SNBL under our License Agreement for TO-2070;
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the costs of funding product development of, preparing and submitting regulatory filings for, obtaining and maintaining regulatory approval for, manufacturing, supplying, and distributing TO-2070;
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the prospect, cost and timing for the development of Intermezzo to obtain regulatory approval for Intermezzo outside the United States;
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the ability to license Intermezzo outside the United States and the terms and timing of any such licensing arrangements; and
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the effect of competing technological and market developments;
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the cost incurred in responding to disruptive actions by activist stockholders.
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In addition, we may seek to raise additional funds to, among other activities:
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develop internally, acquire or in-license new products, technologies or businesses or to otherwise fund our operations; and
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establish or contract for sales and marketing capabilities if we exercise our option to co-promote Intermezzo, or to build our own sales force if Purdue Pharma does not continue with our collaboration to commercialize Intermezzo in the United States; and
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establish and pursue development programs for other product candidates utilizing SNBL’s proprietary nasal drug delivery technology.
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There can be no assurance that additional funding, if needed, will be available on attractive terms, or at all. Our failure to raise capital as and when needed may require us to significantly curtail one or more of our development, licensing or acquisition programs, which could have a negative impact on our financial condition and our ability to successfully pursue our business strategy.
We may be unable to utilize our net operating loss carry forwards to reduce future possible tax payments.
We have substantial federal and state net operating losses, or NOLs, for income tax purposes. Subject to certain requirements, we may “carry forward” our federal NOLs, for up to 20 years to offset future taxable income and reduce our income tax liability. For state income tax purposes, the NOL period ranges from five to 20 years. Our ability to utilize these NOLs will depend upon the availability of future taxable income during the carryforward period and, as such, there is no assurance we will be able to realize such tax savings. As of December 31, 2012, we had cumulative federal NOLs of approximately $78 million.
Our ability to utilize NOLs could be further limited if we were to experience an “ownership change,” as defined under Section 382 of the Internal Revenue Code and similar state provisions. In general, an ownership change would occur if stockholders that own (or are deemed to own) at least five percent or more of our outstanding common stock increased their cumulative ownership in us by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Subject to certain adjustments, the occurrence of such a change in our ownership would generally limit the amount of NOLs we could utilize in a given year to the aggregate fair market value of our common stock immediately prior to the ownership change, multiplied by the long-term tax-exempt interest rate in effect for the month of the ownership change.
The determination of whether an ownership change has occurred for purposes of Section 382 is complex and requires significant judgment. The occurrence of such an ownership change would accelerate cash tax payments we could be required to make and would likely result in a substantial portion of our NOLs expiring before we could fully utilize them. As a result, any restriction on our ability to utilize these NOLs could have a material adverse impact on our business, financial condition and future cash flows.
In September 2013, our Board of Directors adopted a tax benefit preservation plan, or the Tax Benefit Preservation Plan, to help preserve the value of our net operating losses and other deferred tax benefits. The Tax Benefit Preservation Plan is triggered by acquisitions of our common stock that would result in a stockholder owning 4.99% or more of our common stock, or any existing holder of 4.99% or more of our common stock acquiring additional shares, by substantially diluting the ownership interest of any such stockholder unless the stockholder obtains an exemption from our Board of Directors.
Although the Tax Benefit Preservation Plan is intended to reduce the likelihood of an adverse ownership change under Section 382, the Tax Benefit Preservation Plan may not prevent such an ownership change from occurring and does not protect against all transactions that could cause an ownership change, such as sales of our common stock by certain greater than 5% stockholders or transactions that occurred prior to the adoption of the Tax Benefit Preservation Plan. For example, in September 2013, Retrophin, Inc. stated that it owned 4.9% of our outstanding common stock and sought an exemption under the Tax Benefit Preservation Plan to increase its ownership stake up to 15%. While our Board evaluated and rejected this request, Retrophin or other stockholders may still choose to exceed the 4.99% threshold under the plan and could seriously compromise the value of our NOLs. Accordingly, we cannot assure you that an ownership change under Section 382 will not occur and significantly limit the use of our NOLs.
Furthermore, the Tax Benefit Preservation Plan will terminate in September 2014 unless our stockholders approve the plan prior to such date. If the value of our NOLs is compromised or we are otherwise unable to utilize our NOLs, our results of operations could be harmed.
If we choose to reacquire full U.S. rights to Intermezzo or exercise our co-promotion option and are unable to establish an effective and profitable sales and marketing infrastructure in the United States, our financial performance could be substantially harmed.
In order to commercialize Intermezzo, TO-2070 or any other product candidates successfully, we must enter into and maintain strategic collaborations to perform, and/or acquire or internally develop a sales and marketing infrastructure. We have entered into a strategic collaboration for commercialization of Intermezzo in the United States with Purdue Pharma. If we reacquire full U.S. rights to Intermezzo, or exercise our right to co-promote Intermezzo to psychiatrists in the United States, we may need to develop our own sales force and marketing infrastructure. If we assume the responsibility to commercialize Intermezzo and are unable to develop an effective sales and marketing structure, our ability to generate additional revenue from potential sales of Intermezzo would be substantially harmed. Even if we develop an effective sales and marketing organization, we may not be able to generate sufficient revenue from our commercial activities to make that operation profitable during the first several years of operation, or at all.
The development of sales and marketing infrastructure is difficult and time consuming, and requires substantial financial and other resources. Factors that may hinder our efforts to develop an internal sales and marketing infrastructure include:
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the inability to recruit, retain and effectively manage adequate numbers of effective sales and marketing personnel;
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the inability of sales representatives to obtain access to or convince adequate numbers of physicians to prescribe Intermezzo
or future products, if approved;
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the lack of complementary products to be offered by sales representatives, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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the abundance of well branded, competing products sold and distributed by large established organizations; and
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unforeseen delays, costs and expenses associated with creating a sales and marketing organization.
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We cannot transfer or assign to a third party our option to co-promote Intermezzo to psychiatrists in the United States, except in a limited circumstance at the discretion of Purdue Pharma.
The Collaboration Agreement prohibits the transfer or assignment of our co-promotion option to third parties, except in a limited circumstance at the discretion of Purdue Pharma. The Collaboration Agreement provides that if we have not exercised the co-promote option prior to an acquisition of us or a change in control, the co-promote option will terminate. In the event that we have exercised our co-promote option and have met certain sales criteria, Purdue Pharma maintains full discretion over our ability to transfer or assign the co-promote option to a third party in the event of an acquisition of us or change in control. The Collaboration Agreement also prohibits any transfer or assignment of our co-promote option to a third party, except in the limited circumstance described in the foregoing sentence. The inability to transfer or assign our co-promote option to a third party reduces our flexibility in monetizing the option and may decrease the value of Transcept to potential acquirors.
If we delay exercising our co-promotion option for Intermezzo or commencing co-promotion activities after exercise, the royalties for net sales of Intermezzo that we may receive under the co-promotion option are reduced.
The Collaboration Agreement provides that we can exercise our co-promotion option at any point before or on the last day of the fortieth calendar month (e.g. on or before August 31, 2015) after commercial launch of Intermezzo in the United States, which occurred in early April 2012. The Collaboration Agreement also provides that we cannot begin co-promoting Intermezzo until at least 12 months following the commercial launch of Intermezzo in the United States. In the event that we exercise our co-promotion option in the first four months of a calendar year, we cannot commence co-promotion activities until the first month of the next calendar year. In the event that we exercise our option after the fourth calendar month of the year, we cannot commence co-promotion activities until 15 months from the date we exercise our option.
Had we chosen to exercise the option as soon as we were eligible, we could have begun promoting to psychiatrists in May 2013 and received a co-promote royalty of 40%. The
co-promote royalty rate declines on a straight-line basis to approximately 22% if we do not begin promoting to psychiatrists until November 2016, at which point our right to co-promote expires. A delay in the exercise of our co-promote option or the commencement of co-promotion activities following exercise of our option will adversely affect the revenue we can generate pursuant to our co-promotion right.
Governmental and third party payors may impose restrictions on reimbursement or pricing controls that could limit product revenue.
The continuing efforts of government and third party payors to contain or reduce the costs of health care through various means may reduce potential revenue we may receive from sales of Intermezzo or TO-2070. In particular, third party insurance coverage may not be available to patients for Intermezzo or other future products, including those derived from TO-2070, if any, especially in light of the availability of low-cost generic zolpidem and analgesic therapeutics, regardless of the fact that such products are not specifically designed or indicated to specifically treat middle-of-the-night awakening or acute migraine, respectively. Government and third party payors could also impose conditions on reimbursement, price controls and other conditions that must be met by patients prior to providing coverage for use of our products. For example, insurers may establish a “step-edit” system that requires a patient to utilize a lower price alternative product prior to becoming eligible for reimbursement of a higher price product. If government and third party payors do not provide adequate coverage and reimbursement levels for our products, or if price controls, prior authorization or step-edit systems are enacted, our royalties and/or product revenue will suffer. Also, potential revenue based on sales to Federal government customers, including the Departments of Veterans Affairs and Defense, will be limited given that Intermezzo will be subject to statutory price constraints that apply to innovator products (those approved by the FDA under NDAs). In addition, we are subject to the requirements of the Medicaid Drug Rebate Program, the Public Health Service's 340B drug pricing discount program, the Medicare Part D Coverage Gap Discount Program, and other regulatory requirements including an Affordable Care Act requirement that manufacturers of branded prescription drugs pay an annual fee to the Federal government. Each manufacturer's fee is calculated based on the dollar value of its sales to certain federal programs and the aggregate dollar value of all branded prescription drug sales by covered manufacturers. A manufacturer's fee will be its prorated share of the industry's total fee obligation (approximately $2.8 billion in 2013 and set to increase in following years), based on the ratio of its sales to the total sales by manufacturers to these same programs. We cannot predict our share of this fee because it will be determined in part on other entities' sales to the relevant programs.
Negative publicity and documented side effects concerning products used to treat patients in the insomnia market may harm commercialization of Intermezzo.
Products containing zolpidem, the active ingredient in Intermezzo, are widely marketed. Zolpidem use has been linked to negative effects, such as sleepwalking and amnesia, and has the potential to cause physical or psychological dependence. Furthermore, zolpidem is classified as a Schedule IV controlled substance under the Controlled Substances Act, and is subject to certain packaging, prescription and purchase volume limitations. There can be no assurance that additional negative publicity or increased governmental controls on the use of zolpidem or other compounds used in products for the insomnia market would not inhibit or prevent commercialization of Intermezzo. Furthermore, negative information arising out of clinical trials, post-market adverse event reporting or publicity concerning zolpidem and other hypnotic pharmaceuticals could cause the FDA to make approval or marketing of new products for the insomnia market more difficult by requiring additional pre- or post-market studies or different non-clinical or clinical studies or taking other actions, out of safety or other concerns, or could lead to reduced consumer usage of sleep aids, including zolpidem products and Intermezzo. For example, in January 2013, the FDA took steps to ensure that patients are warned that the use of zolpidem products intended to be taken at bedtime may negatively affect patient driving ability the morning after dosing.
Intermezzo, and any other future product candidate for which we may receive regulatory approval from the FDA, including TO-2070, will be subject to ongoing regulatory requirements and may face regulatory or enforcement action.
Intermezzo, as well as any other product candidate for which we receive regulatory approval, including TO-2070, together with related third party manufacturing facilities and processes, post-approval clinical data, and advertising and promotional activities for the product, will be subject to significant review, oversight and ongoing and changing regulation by the FDA. Failure to comply with regulatory requirements may subject us, or Purdue Pharma or other collaborators, to administrative and judicially-imposed sanctions. These may include warning letters, adverse publicity, civil and criminal penalties, injunctions, product seizures or detention, product recalls, total or partial suspension of production, refusal to approve pending product marketing applications, import alerts placing a hold on the importation of drug products and drug substances, and withdrawal of product approvals. Even if we receive regulatory approval to market a particular product candidate, the approval could be conditioned on our conducting additional costly post-approval studies or could limit the indicated uses included in our labeling. The FDA has the authority to require certain post-market studies, including post-market studies to further evaluate the safety of the drug and the use of the drug in certain patient populations, including pediatric and geriatric populations. For example, as part of the approval of Intermezzo, the FDA required us to conduct a post-market study of the ability of patients to comply with our dosing instructions in an actual-use setting. Moreover, the product may later be found to cause adverse effects that limit or prevent its widespread use, force us or our marketing partner to withdraw it from the market or impede or delay the ability to obtain regulatory approvals in additional countries. The FDA also requested that all manufacturers of sedative-hypnotic pharmaceutical products modify their product labeling to include strong language
concerning potential risks. These risks include severe allergic reactions and complex sleep-related behaviors, which include sleep-driving. The FDA also recommended that pharmaceutical manufacturers of sedative-hypnotics conduct clinical studies to investigate the frequency with which sleep-driving and other complex behaviors occur in association with individual drug products, and to deliver to the FDA information related to the effect, if any, their drug products may have on next day driving safety. Our ongoing regulatory requirements may also change from time to time, potentially harming or making costlier our commercialization efforts. For example, in January 2013, the FDA required the manufacturers of certain zolpidem-based prescription sleep aids other than Intermezzo to reduce the recommended dose for such products. Although we were not subject to such mandatory dose reduction, we cannot guarantee that our existing regulatory requirements will not change and consequently harm our business.
If manufacturers supplying Intermezzo, TO-2070 or any other product candidate fail to produce in the volumes and quality that are required on a timely basis, or to comply with stringent regulations applicable to pharmaceutical manufacturers, there may be delays in the commercialization of or an inability to meet demand for Intermezzo or delays in the development of future product candidates, if any, and we may lose potential revenue.
Neither we nor Purdue Pharma manufacture Intermezzo and we do not currently have plans to develop the capacity to manufacture any product or product candidates, including TO-2070. We have a primary manufacturing and supply agreement with Patheon, Inc. to manufacture a supply of Intermezzo for use outside the United States, and Purdue Pharma has entered into an agreement with Patheon to manufacture and supply Intermezzo for use in the United States. We and Purdue Pharma currently have arrangements to use Sharp Corporation as a primary packager of Intermezzo. Purdue Pharma relies upon SPI Pharma, Inc. as a supplier for certain key excipients contained within Intermezzo and as the sole supplier for one such excipient, Pharmaburst
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. If we obtain approval to sell Intermezzo outside the U.S. territory, we would likely also rely on SPI Pharma as a supplier for the same excipients. In addition, Purdue Pharma relies upon Teva Pharmaceutical Industries Ltd., API Division (formerly Plantex USA, Inc.) as the sole source for a special form of zolpidem tartrate, which is the active pharmaceutical ingredient of Intermezzo. Purdue Pharma is dependent upon these manufacturers for the commercial supply of Intermezzo in the United States.
SNBL has agreed pursuant to the License Agreement to supply its nasal drug delivery device to us to conduct development activities for non-registration studies. However, under the License Agreement we are responsible for all clinical and commercial manufacture and supply of products derived from TO-2070. We do not own or operate manufacturing facilities for clinical or commercial manufacture of TO-2070, which includes drug substance and drug packaging, including the components of the SNBL nasal drug delivery device. We have limited personnel with experience in drug manufacturing and we lack the capabilities to manufacture TO-2070 on a clinical or commercial scale. We expect to outsource all manufacturing and packaging of TO-2070 to third parties, including SNBL. In addition, we do not currently have the necessary agreements with third-party manufacturers for the long-term commercial supply of TO-2070. We may be unable to enter into agreements for commercial supply with such third-party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements or, for those agreements that we have already entered into, the various manufacturers of TO-2070 will likely be single source suppliers to us for a significant period of time. We may not be able to establish additional sources of supply for our products prior to commercialization. Such suppliers are subject to regulatory requirements covering manufacturing, testing, quality control and record keeping relating to our product candidates, and are subject to pre-approval and ongoing inspections by the regulatory agencies. Failure by any of our suppliers to comply with applicable regulations may result in long delays and interruptions to our manufacturing capacity while we seek to secure another supplier that meets all regulatory requirements.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured TO-2070 ourselves, including:
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reliance on the third parties for regulatory compliance, quality assurance and hazardous materials handling;
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the possible breach of the manufacturing and quality agreements by the third parties because of factors beyond our control; and
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the possibility of termination or nonrenewal of the agreements by the third parties because of our breach of the manufacturing agreement or based on their own business priorities.
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The realization of any of the risks described here would have a significant impact on Purdue Pharma's commercialization efforts for Intermezzo, our ability to generate revenue under the Collaboration Agreement, and our ability to pursue development of TO-2070. In the event we commercialize Intermezzo outside the U.S. territory, we would likely also rely on the same key manufacturers and suppliers as Purdue Pharma intends to use to commercialize Intermezzo in the U.S. territory.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages
of qualified personnel, and compliance with strictly enforced federal, state and foreign regulations. Third-party manufacturers and key suppliers may not perform as agreed, may terminate their agreements, or may experience manufacturing difficulties due to resource constraints or as a result of labor disputes, unstable political environments at foreign facilities or financial difficulties. For example, Purdue Pharma's supplier of zolpidem tartrate with its manufacturing facility in Israel may face geopolitical risk that could prevent it from providing supplies from such facility. Additionally, third-party manufacturers and key suppliers may become subject to claims of infringement of intellectual property rights of others, which could cause them to incur substantial expenses, and, if such claims were successful, could cause them to incur substantial damages or cease production of our products or product components. In addition, several of the suppliers of Intermezzo have only one facility qualified to supply key components of Intermezzo, and transferring such supply to an alternate site could take substantial time and resources. Any interruption of supply from such facilities could materially impair the ability to manufacture Intermezzo, which may harm Purdue Pharma's ability to commercialize Intermezzo in the United States and impair our ability to generate revenue from Intermezzo through our collaboration with Purdue Pharma. Furthermore, as noted above, in the event we commercialize Intermezzo outside the U.S. territory, we would likely also rely on the same key manufacturers and suppliers as Purdue Pharma intends to use to commercialize Intermezzo in the U.S. territory. These manufacturers and suppliers may also choose, or be required, to seek licenses from the claimant, which may not be available on acceptable terms or at all. If these manufacturers or key suppliers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to launch Intermezzo in the United States through our collaboration with Purdue Pharma or, if we choose to commercialize Intermezzo accordingly, outside of the United States, or any other product candidate, if approved, would be jeopardized. Even if we were able to launch a product, these difficulties could cause increases in the prices we or our collaborators pay for supply of such product and its components which could substantially hinder or prevent commercialization efforts.
In addition, all manufacturers and suppliers of pharmaceutical products must comply with current good manufacturing practice, or cGMP, requirements enforced by the FDA through its facilities inspection program. The FDA is likely to conduct inspections of third-party manufacturer and key supplier facilities as part of its review of any of our NDAs. If third-party manufacturers and key suppliers are not in compliance with cGMP requirements, it may result in a delay of approval, particularly if these sites are supplying single source ingredients required for the manufacture of Intermezzo. These cGMP requirements include quality control, quality assurance and the maintenance of records and documentation. Furthermore, regulatory qualifications of manufacturing facilities are applied on the basis of the specific facility being used to produce supplies. As a result, if one of these manufacturers shifts production from one facility to another, the new facility must go through a complete regulatory qualification process and be approved by regulatory authorities prior to being used for commercial supply. Manufacturers may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to a third-party manufacturer or key supplier failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for our product candidates and, even if such approval is obtained, any resulting products may not be successfully commercialized.
There are no alternate manufacturers qualified at this time with respect to the commercial supply of Intermezzo, nor are there alternate manufacturers identified or qualified with respect to the commercial supply of several of the key ingredients and packaging materials used in Intermezzo. If manufacturers are required to be changed, prior approval by the FDA and comparable foreign regulators would be required and Purdue Pharma would likely incur significant costs and expend significant efforts to educate the new manufacturer with respect to, or to help the new manufacturer independently develop, the processes necessary for production. If we exercise our right to co-promote Intermezzo to psychiatrists, we may also incur such costs and expend such efforts to ensure commercial supply of Intermezzo. Manufacturing and supply switching costs in the pharmaceutical industry can be very high, and switching manufacturers or key suppliers can frequently take 12 to 18 months to complete, although in certain circumstances such a switch may be significantly delayed or prevented by regulatory and other factors.
Any of these factors could cause the delay or suspension of commercialization of Intermezzo, TO-2070 or any other product candidate that we may develop, hinder or delay future regulatory submissions and/or required regulatory approvals, or entail higher costs or result in an inability to effectively commercialize our products. Furthermore, if manufacturers fail to deliver the required commercial quantities of raw materials, including the active pharmaceutical ingredient, key excipients or finished product on a timely basis and at commercially reasonable prices, we or our strategic partners, including Purdue Pharma, would be unable to meet demand for our products and we would lose potential revenue.
The commercial success of Intermezzo and TO-2070 depends, in part, on meeting the conditions for market exclusivity under Section 505 of the Federal Food, Drug and Cosmetic Act, or FFDCA.
We have been granted approval of a NDA for Intermezzo submitted under Section 505(b)(2) of the FFDCA, enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act.
Section 505(b)(2) permits applicants to rely in part on clinical and non-clinical studies conducted by third parties. Specifically, with respect to Intermezzo, we relied in part on third party data concerning zolpidem, which is the active ingredient in Intermezzo and in the previously approved insomnia products Ambien
®
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®
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In connection with the approval of the Intermezzo NDA, the FDA has granted three years of Hatch-Waxman marketing exclusivity for Intermezzo. Under this form of exclusivity, the FDA is precluded from approving an abbreviated new drug application (ANDA) for a generic of Intermezzo, i.e., a product candidate that the FDA views as a therapeutically equivalent drug product having the same conditions of use as Intermezzo (for example, the same labeling, the same dosage form and route of administration, the same strength and the same bioavailability as Intermezzo). Marketing exclusivity for Intermezzo also precludes the FDA from approving 505(b)(2) applications for proposed drug products having the same or similar conditions of use as Intermezzo, including applications that rely on Intermezzo as the reference product. The exclusivity lasts for a period of three years from the date of Intermezzo approval, or until November 2014, though the FDA may accept and commence review of ANDAs and 505(b)(2) NDAs during the three-year period. However, the three-year exclusivity period may not prevent FDA from approving an original NDA that relies only on its own data to support the approval. In addition, we received notifications in July 2012, September 2012, December 2012, January 2013, February 2013 and July 2013, respectively, that Actavis, Watson, Novel, each of the Par Entities, Dr. Reddy's and TWi has filed with the FDA one or more ANDAs, including Paragraph IV certifications, for generic versions of Intermezzo. An ANDA with a Paragraph IV certification indicates that the ANDA applicant is seeking approval for a generic version of Intermezzo and is challenging the enforceability of one or more of the drug product or method of use patents that claim Intermezzo.
We have not yet sought nor been approved for market exclusivity under the FFDCA for TO-2070. If we are unable to attain such approval, we would become solely reliant upon Transcept and SNBL patents and patent applications to maintain market exclusivity. If Intermezzo does not maintain market exclusivity under the FFDCA, including due to existing or future ANDAs, it would likely have a material adverse effect on our business, results of operations, financial condition and prospects.
We rely on third parties to conduct our non-clinical and clinical trials. If these third parties do not perform as contractually required or as otherwise expected, we may not be able to obtain regulatory approval for our current and future product candidates, if any.
We do not currently conduct non-clinical and clinical trials on our own and instead rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to assist us with our non-clinical and clinical trials. We, and our third parties, are also required to comply with regulations and standards, commonly referred to as Good Clinical Practice, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. If these third parties do not successfully carry out their duties with regard to our products in development or fail to successfully carry out their duties to us as they relate to meeting future regulatory obligations or expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data these third parties obtained during the development of a product candidate is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our non-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for a product candidate.
We or any future partners may never receive regulatory approval to market or commercialize Intermezzo outside of the United States.
In order to market and commercialize Intermezzo
outside of the United States, we and any future partners must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional pre-clinical studies and clinical trials and additional administrative review periods. For example, European regulatory authorities generally require clinical testing comparing the efficacy of the new drug to an existing drug prior to granting approval. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed in this “Risk Factor” section regarding FDA approval in the United States, as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
We may face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for TO-2070 or future product candidates and may have to limit such candidates’ commercialization.
The use of a product candidate, including TO-2070, in clinical trials and the sale of any products for which we obtain marketing approval, including Intermezzo, exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. We are also obligated under certain
circumstances to indemnify suppliers and others with whom we have contractual relationships for product liability claims such entities might incur with respect to our products and product candidates. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for Intermezzo, TO-2070 or future products, if any;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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the inability to commercialize future product candidates.
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Under our Collaboration Agreement with Purdue Pharma, we remain liable for 50% of the cost of defending against any product liability or personal or economic injury claims. In addition, we and Purdue Pharma have agreed to allocate any losses for such claims on a comparative fault basis but in the absence of such determination have agreed to split such losses equally. Although we currently have product liability insurance coverage for our clinical trials with limits that we believe are customary and adequate to provide us with coverage for foreseeable risks associated with our development efforts, this insurance coverage may not reimburse us or may be insufficient to reimburse us for the actual 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 or in sufficient amounts to protect us against losses due to liability. We have product liability insurance covering the sale of Intermezzo in the United States.
If we fail to develop, acquire and commercialize additional product candidates or approved products, we may be unable to grow our business.
An integral component of our growth strategy is the expansion of our product pipeline through a combination of internally developed programs and by exploring the in-licensing and/or acquisition of new product candidates. As a result of the failure of TO-2061 to meet the primary endpoint in our Phase 2 study, we do not currently have a product candidate in clinical development, and we currently have only one product candidate, TO-2070, which is in preclinical development.
Because our internal research and development capabilities are limited, and because new product approvals can take many years, we may be unsuccessful in developing new products or product candidates internally, including TO-2070, and therefore be dependent upon pharmaceutical and biotechnology 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 product candidates and approved products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements, including via collaboration and development arrangements with third parties. In addition, substantial capital is required to discover and develop product candidates through pre-clinical testing and clinical trials. Additional funds are also required to manufacture and market any products that are approved for commercial sale. Because the successful development of any future product candidates is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. We compete for acquisition and license agreements with pharmaceutical and biotechnology companies and academic research institutions, including those with substantially greater financial, marketing, sales and other resources. 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 or approved products on terms that we find acceptable, or at all. In addition, even if we generate interest in an acquisition or in-license of a product candidate or approved product, other companies may have stronger relationships with third parties with whom we are interested in collaborating and/or may have more established histories of developing and commercializing products. As a result, they may have a competitive advantage in entering into collaboration and development arrangements with such third parties.
Further, any product candidate that we acquire will most likely require additional development efforts prior to commercial sale, including pre-clinical 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 products that we develop or approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.
If we are unable to internally develop new product candidates, or acquire or in-license additional product candidates or approved products and successfully develop and commercialize them, it would likely have a material adverse effect on our business, results of operations, financial condition and prospects.
We depend on key personnel and if we are not able to retain them, our business will suffer.
We are highly dependent on the principal members of our management and scientific staff, including but not limited to Glenn A. Oclassen, our President and Chief Executive Officer, and Nikhilesh N. Singh, Ph.D., our Senior Vice President and Chief Scientific Officer. The competition for skilled personnel among biopharmaceutical companies in the San Francisco Bay Area is intense and the employment services of our scientific, management and other executive officers may be terminated at-will. If we lose one or more of these key employees, our ability to implement and execute our business strategy successfully could be seriously harmed. Replacing key employees may be difficult and may take an extended period of time because of the limited number of individuals in the biopharmaceutical industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
The commercial success, if any, of Intermezzo and TO-2070 depends, in part, on certain patent rights and rights we are seeking or may seek through certain patent applications.
The potential commercial success of Intermezzo depends in part on patents that have been issued to us from the U.S. Patent and Trademark Office, or USPTO, covering the formulation and use of Intermezzo that expire no earlier than February 2025. In addition, we have pending certain foreign equivalent patent applications. We may also seek patents related to TO-2070.
The
strength
of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in foreign countries. Even if patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. For example, the
active, and many of the inactive, ingredients in Intermezzo, including generically manufactured zolpidem, has been known in the pharmaceutical art for many years. The zolpidem composition of matter is no longer subject to patent protection. Accordingly, certain of our patents for Intermezzo are directed to particular formulations for delivering zolpidem. Although we believe our formulation and the use of Intermezzo are patentable, and such patents have the potential to provide a competitive advantage, these patents may not prevent others from marketing formulations using the same active and inactive ingredients in similar but different formulations. Additionally, from time to time, we may become aware of one or more third party patents that relate to our product candidates. For example, we are aware of a third party patent that relates to methods and devices for delivering DHE to migraine patients. Should a license to such a third party patent become necessary, we cannot predict whether we or our partner(s) would be able to obtain a license, or if a license were available, whether it would be available on commercially reasonable terms. While there can be no certainty as to the outcome of any litigation, we believe if such patent is asserted against us, we have valid defenses to such a claim. However, if such patent has, or other third party patents that we may become aware of have a valid claim relating to our use of TO-2070, or a future product candidate, and a license under the applicable patent is unavailable on commercially reasonable terms, or at all, our ability to commercialize TO-2070, or such future product candidate, may be impaired or delayed, which could in turn significantly harm our business.
Moreover, if our patents are successfully challenged and ruled to be invalid and/or unenforceable, we would be exposed to direct competition from low-priced generic products.
There can be no assurance that our pending patent applications and applications we may file in the future, or those applications we may license from third parties, will result in patents being issued in a timely manner, or at all. Even if patents are issued, the claims in such patents may not issue in a form that will be advantageous to us, may not cover our product candidates and their unique features, and may not provide us with proprietary protection or competitive advantages. For instance, with Intermezzo, competitors may be able to engineer around our formulation patents and applications with alternate formulations that deliver therapeutic effects sufficiently similar to Intermezzo to warrant approval under existing FDA standards for generic product approvals. Accordingly, other drug companies may be able to develop generic versions of our products even if we are able to maintain our current proprietary rights.
Alternatively, other drug companies can challenge the validity of our patents and seek to gain marketing approval for generic versions of our products. For example, drug makers may attempt to introduce low-dose zolpidem products similar to Intermezzo immediately after the expiration of Hatch-Waxman marketing exclusivity and prior to the expiration of patents that may be issued relating to our respective products by challenging the validity of our patents or certifying that their competitive products do not infringe our patents.
Generic drug manufacturers routinely initiate challenges during the Hatch-Waxman marketing exclusivity period. We received notifications in July 2012, September 2012, December 2012, January 2013, February 2013 and July 2013,
respectively, that Actavis, Watson, Novel, each of the Par Entities, Dr. Reddy's and TWi has filed with the FDA one or more ANDAs, including Paragraph IV certifications, for generic versions of Intermezzo. If we or Purdue Pharma initiate timely patent litigation against a generic or 505(b)(2) sponsor who seeks to challenge one or more of the patents that claim Intermezzo, we would be entitled to a regulatory stay that prohibits final approval of the generic or 505(b)(2) product for 30 months from the date we receive notice of the challenge to our patents. That stay may be terminated if we or Purdue Pharma do not succeed in maintaining litigation against the generic or 505(b)(2) applicant. In addition, if a generic or 505(b)(2) applicant formulates around our patents, we may not be able to initiate Hatch-Waxman patent litigation and, as a result, there would be no 30 month regulatory stay on FDA's ability to give final approval to the generic or 505(b)(2) application. In August 2012, September 2012, and October 2012, respectively, we joined Purdue Pharma in filing actions against Actavis, Watson, Novel, the Par Entities, and certain of their affiliates, alleging patent infringement and seeking injunctive and other relief. In December 2012, we and Purdue Pharma agreed to voluntary dismiss the action against Watson following its withdrawal of its ANDA application. In September 2013, we and Purdue Pharma agreed to voluntarily dismiss the action against one of the two Par Entities, Par Formulations Private Ltd., following that Par Entity’s withdrawal of its ANDA. The action against the other Par Entity, Par Pharmaceutical, Inc., remains pending. In April 2013, we joined Purdue Pharma in filing an action against Dr. Reddy's, alleging patent infringement and seeking injunctive and other relief. In August 2013, we joined Purdue Pharma in filing two actions against TWi. The first action against TWi was filed on August 20, 2013 in the U.S. District Court for the District of New Jersey, and the second action against TWi was filed on August 22, 2013 in the U.S. District Court for the Northern District of Illinois. Each action alleges patent infringement and seeks injunctive and other relief. On October 17, 2013, TWi filed answers and counterclaims in both New Jersey and Illinois, in both cases seeking declarations of non-infringement and invalidity, as well as other relief.
In addition, among other limitations, certain of our patents that protect Intermezzo are limited in scope to certain uses and formulations of the active ingredient zolpidem, so potential competitors could develop similar products using active pharmaceutical ingredients other than zolpidem. Any patents that have been allowed, that we have obtained or that we do obtain may be challenged by re-examination, opposition, or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid and/or unenforceable.
Failure to obtain effective patent protection for Intermezzo, TO-2070 or future product candidates, if any, would allow for products to be marketed by competitors that would undermine sales, marketing and collaboration efforts for our product candidates, and reduce or eliminate our revenue. In addition, both the patent application process and the process of managing patent disputes can be time consuming and expensive.
If we are unable to maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.
Our commercial success will depend, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of our proprietary technology and information as well as successfully defending against third party challenges to our proprietary technology and information. We will be able to protect our proprietary technology and information from use by third parties only to the extent that we have valid and enforceable patents, trade secrets or regulatory protection to cover them and we have exclusive rights to utilize them.
Our commercial success will continue to depend in part on the patent rights we own, the patent rights we have licensed, the patent rights of our suppliers and the patent rights we plan to obtain related to future products we may market. Our success also depends on our and our licensors' and suppliers' ability to maintain these patent rights against third party challenges to their validity, scope or enforceability. Further, if we were to in-license intellectual property, we may not fully control the patent prosecution of the patents and patent applications we have licensed. There is a risk that licensors to us will not devote the same resources or attention to the prosecution of the licensed patent applications as we would if we controlled the prosecution of the patent applications, and the resulting patent protection, if any, may not be as strong or comprehensive as if we had prosecuted the applications ourselves. The patent positions of biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies' patents has emerged to date in the United States. The patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or 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. For example:
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we or our licensors might not have been the first to make the inventions covered by pending patent applications and issued patents;
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we or our licensors might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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it is possible that none of our pending patent applications or any pending patent applications of our licensors will result in issued patents;
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our patents, if issued, and the issued patents of our licensors may not provide a basis for commercially viable products, or may not provide us with any competitive advantages, or may be challenged and invalidated by third parties;
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we may not develop additional proprietary technologies or product candidates that are patentable; or
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the patents of others may have an adverse effect on our business.
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We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, by confidentiality agreements with our employees, consultants, contractors, or scientific and other advisors, they may unintentionally or willfully disclose our information to competitors. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.
If we are not able to defend the patent or trade secret protection position of our technologies and product candidates, then we will not be able to exclude competitors from developing or marketing competing products, and we may not generate enough revenue from product sales, if any, to justify the cost of development of our product candidates and to achieve or maintain profitability.
If we are sued for infringing intellectual property rights of other parties, such litigation will be costly and time consuming, and an unfavorable outcome would have a significant adverse effect on our business.
Although we believe that we would have valid defenses to allegations that our current product and product candidate, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties of which we are aware, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights that might be infringed by our products or other activities, or other parties may claim that their patent rights are infringed by excipients manufactured by others and contained in our products. There has been, and we believe that there will continue to be, significant litigation and demands for licenses in the life sciences industry regarding patent and other intellectual property rights. Competitors or other patent holders may assert that our products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages or possibly prevent us from commercializing our product candidates. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.
As a result of patent infringement claims, or in order to avoid potential claims, we may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which would give competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.
These risks of intellectual property infringement are similarly faced by our suppliers and collaborators, which could hinder or prevent them from manufacturing or commercializing our products.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
In the event a competitor infringes upon one of our patents or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from management. Under the Collaboration Agreement, Purdue Pharma has the right, but not the obligation, to bring action against a party engaged in infringement of our patents covering Intermezzo, and we are required to share 40% of the costs related to all such actions up to an aggregate cap of $1.0 million per calendar year and $4.0 million over the term of the agreement. Additionally, in August 2012, August 2012, September 2012 and October 2012, we joined Purdue Pharma in filing actions against Actavis, Watson and certain of their affiliates, Novel, the Par Entities, in each action alleging patent infringement and seeking injunctive and other relief. In December 2012, we and Purdue Pharma agreed to voluntary dismiss the action against Watson following its withdrawal of its ANDA application. In September 2013, we and Purdue Pharma agreed to voluntarily dismiss the action against one of the two Par Entities, Par Formulations Private Ltd., following that Par Entity’s withdrawal of its ANDA. The action against the other Par Entity, Par Pharmaceutical,
Inc., remains pending. In April 2013, we joined Purdue Pharma in filing an action against Dr. Reddy's, alleging patent infringement and seeking injunctive and other relief. In August 2013, we joined Purdue Pharma in filing two actions against TWi. The first action against TWi was filed on August 20, 2013 in the U.S. District Court for the District of New Jersey, and the second action against TWi was filed on August 22, 2013 in the U.S. District Court for the Northern District of Illinois. Each action alleges patent infringement and seeks injunctive and other relief. On October 17, 2013, TWi filed answers and counterclaims in both New Jersey and Illinois, in both cases seeking declarations of non-infringement and invalidity as well as other relief. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against challenges from others.
The pharmaceutical industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. We could therefore become subject to litigation that could be costly, result in the diversion of management's time and efforts, and require us to pay damages. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Our competitors may assert that they own U.S. or foreign patents containing claims that cover our products, components of our products, or the methods we employ in making or using our products. In addition, we may become a party to an interference proceeding declared by the USPTO to determine the priority of inventions. Because patent applications can take many years to issue, there may be pending applications of which we are unaware, which may later result in issued patents that contain claims that cover our products. There could also be existing patents, of which we are unaware, that contain claims that cover one or more components of our products. As the number of participants in our industry increases, the possibility of patent infringement claims against us also increases.
Any interference proceeding, litigation, or other assertion of claims against us may cause us to incur substantial costs, place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation. If the relevant patents were upheld as valid and enforceable and we were found to infringe, we could be required to pay substantial damages and/or royalties and could be prevented from selling our products unless we could obtain a license or were able to redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at all. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we may be unable to make, use, sell, or otherwise commercialize one or more of our products. In addition, if we were found to willfully infringe, we could be required to pay treble damages, among other penalties.
If we fail to comply with our obligations in the agreements under which we license rights to products or technology from third parties, we could lose license rights that are important to our business.
We are a party to a number of agreements that include technology licenses that are important to our business and expect to enter into additional licenses in the future. For example, we have a License Agreement with SNBL relating to TO-2070 and hold licenses from SPI relating to key excipients used in the manufacture of Intermezzo. If we fail to comply with these agreements, the licensor may have the right to terminate the license, in which event we and our collaboration partners would not be able to market products covered by the license, including Intermezzo and any products derived from TO-2070.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.
Certain of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we ourselves have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our or a collaboration partner's ability to develop or commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
If our agreements with employees, consultants, advisors and corporate partners fail to protect our intellectual property, proprietary information or trade secrets, it could have a significant adverse effect on us.
We have taken steps to protect our intellectual property and proprietary technology by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, advisors and corporate partners. However, such agreements may not be enforceable or may not provide meaningful protection for all of our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.
Our operations involve hazardous materials, which could subject us to significant liabilities.
Our research and development processes involve the controlled use of hazardous materials, including chemicals. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge or injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals, including employees, to hazardous materials. In addition, claimants may sue us for injury or contamination that results from our use of these materials and our liability may exceed our total assets. We maintain limited insurance for the use of hazardous materials which may not be adequate to cover any claims. Compliance with environmental and other laws and regulations may be expensive and current or future regulations may impair our research, development or production efforts.
Risks Related to Our Common Stock
We may fail to meet publicly announced financial guidance or other expectations about our business, which would cause our stock to decline in value.
There are a number of reasons why we might fail to meet financial guidance or other expectations about our business, including, but not limited to, the following:
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the effectiveness of the sales, marketing and distribution efforts by Purdue Pharma in the United States and overall success of Purdue Pharma's commercialization efforts in the United States;
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delays or unexpected changes in Purdue Pharma's plan to invest in and support the sales and marketing of Intermezzo;
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unexpected difficulties in Purdue Pharma's efforts to commercialize Intermezzo
in the United States;
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whether we choose to share the cost of future advertising or other marketing efforts with Purdue Pharma related to the commercialization of Intermezzo in the United States;
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lower than expected pricing and reimbursement levels, or no reimbursement at all, for Intermezzo
in the United States;
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the use of currently available sleep aids that are not approved to be taken in the middle of the night;
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our failure to develop internally, in-license or acquire future product candidates on a timely basis or at all;
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negative developments or setbacks in our efforts to seek marketing approval for Intermezzo
outside of the United States;
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FDA approval of generic versions of Intermezzo or negative developments in any ongoing ANDA proceedings;
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current and future competitive products that have or obtain greater acceptance in the market than Intermezzo;
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if only a subset of or no affected patients respond to therapy with Intermezzo
or future products, if any;
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negative publicity about the results of our clinical studies, or those of others with similar or related products may reduce demand for Intermezzo or future products, if any;
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the inability to sell a product at the price we expect; or
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the inability to supply enough product to meet demand.
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If we fail to meet our revenue and/or expense projections and/or other financial guidance for any reason, our stock could decline in value.
Our stock price is volatile.
The market price of our common stock is subject to significant fluctuations. During the 12-month period ended
September 30, 2013
, the sales price of our common stock on The NASDAQ Global Market ranged from a high of $6.77 in February 2013 to a low of $2.52 in August 2013. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. The volatility of the market price of our common stock is exacerbated by the low trading volume of our common stock and the high proportion of our shares held by insiders. Some of the factors that may cause the market price of our common stock to fluctuate include:
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the perception of our prospects for successful commercialization of Intermezzo
by Purdue Pharma, and successful development and commercialization of TO-2070, including the costs associated with development and commercialization;
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announcements by us or Purdue Pharma regarding the commercialization and/or marketing efforts of Intermezzo or by us regarding the development efforts of TO-2070;
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the termination by Purdue Pharma of the Collaboration Agreement, the termination by SNBL of the License Agreement, or the termination of other future collaboration, partnering or license agreements;
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the failure of any product candidates, including TO-2070, if approved, to achieve commercial success, including due to competition from generic versions of Intermezzo, or the perception by investors that commercial success may not be achieved;
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issues in manufacturing Intermezzo, or other approved products, if any, or TO-2070 or other product candidates, if any;
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the entry into any in-licensing agreements securing licenses, patents or development rights;
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the results of any future clinical trials of TO-2070 or future product candidates;
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the entry into, or termination of, key agreements, including additional commercial partner agreements;
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the initiation of, material developments in, or conclusion of litigation to enforce or defend our intellectual property rights or defend against the intellectual property rights of others;
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announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;
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adverse publicity relating to the insomnia or migraine market, including with respect to other products and potential products in such markets;
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the introduction of technological innovations or new therapies that compete with our potential products;
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the loss of key employees;
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changes in estimates or recommendations by securities analysts, if any, who cover our common stock;
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future sales of our common stock;
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general and industry-specific economic conditions that may affect our research and development expenditures;
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changes in the structure of health care payment systems, including changes to prescription drug reimbursement levels; and
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period-to-period fluctuations in financial results.
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Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.
In the past, following periods of volatility in the market price of a company's securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.
If securities or industry analysts do not publish research or reports or publish inaccurate or unfavorable research about us, our business or our stock, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us, our business and our stock. As of September 30, 2013, we had research coverage by six securities analysts. If
any of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research regarding us or our business model, technology or stock performance, 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, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, the unpredictability of our financial results likely reduces the certainty, and therefore reliability, of the forecasts by securities or industry analysts of our future financial results, adding to the potential volatility of our stock price.
Future sales of our common stock may cause our stock price to decline and impede our ability to raise capital.
Our executive officers and directors beneficially own or control approximately 13.1% of our approximately 18.8 million outstanding shares of common stock as of
September 30, 2013
and an additional 11.1% is beneficially owned by a venture capital firm in which one of our directors is a partner.
Sales into the public market by our officers, directors and their affiliates, or other major stockholders, of a substantial number of shares, or the expectation that such sales may occur, could significantly reduce the market price of our common stock. In addition, certain of our executive officers may establish predetermined selling plans under Rule 10b5-1 of the Securities Exchange Act of 1934, or the Exchange Act, for the purpose of effecting sales of common stock.
If any such sales occur, are expected to occur or a large number of our shares are sold in the public market, the trading price of our common stock could decline. Further, any such decline or expectation could impede our ability to raise capital in the future through the sale of equity securities under terms that are favorable to us.
Raising additional funds by issuing securities or through licensing arrangements may cause dilution to existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Additional financing may not be available to us when we need it or may not be available on favorable terms. To the extent that we raise additional capital by issuing equity securities, our existing stockholders' ownership will be diluted and the terms of any new equity securities may have preferences over our common stock. Any debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. In addition, if we raise additional funds through licensing arrangements, it may be necessary to relinquish potentially valuable rights to potential products or proprietary technologies, or grant licenses on terms that are not favorable to us.
Failure to maintain effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse
effect on our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require an annual management assessment of the effectiveness of our internal control over financial reporting and, based on our public float, a report by our independent registered public accounting firm attesting to the effectiveness of our internal control over financial reporting at the end of the fiscal year. If we fail to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If we cannot in the future favorably assess, or, if required, our independent registered public accounting firm is unable to provide an unqualified attestation report on, the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.
Anti-takeover provisions in the Collaboration Agreement with Purdue Pharma, in our charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by stockholders to replace or remove management.
Provisions in the Collaboration Agreement with Purdue Pharma, our certificate of incorporation and our bylaws may delay or prevent an acquisition or a change in management. The provisions in the Collaboration Agreement include an agreement with Purdue Pharma that prevents Purdue Pharma from acquiring above a certain percentage of our stock and engaging in certain other activities for a limited period of time following the commercial launch of Intermezzo
that may lead to an acquisition of our company without our consent. In addition, our co-promote option pursuant to the Collaboration Agreement cannot be transferred to a third party, except under a limited circumstance at the discretion of Purdue Pharma, which may significantly reduce the value of our shares to a potential acquirer. Such provisions in our charter documents include a classified board of directors, a prohibition on actions by written consent of stockholders and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us unless certain conditions are met. Although we believe most of these provisions collectively will provide for an opportunity to receive higher bids by requiring
potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by stockholders to replace or remove the then-current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
Furthermore, in September 2013, our board of directors adopted the Tax Benefit Preservation Plan to help preserve the value of our net operating losses and other deferred tax benefits. At December 31, 2012, we had cumulative NOLs of approximately $78 million, which NOLs can be utilized in certain circumstances to offset future U.S. taxable income. The Tax Benefit Preservation Plan is intended to act as a deterrent to any person acquiring sufficient shares of our common stock to jeopardize the value of the NOLs; however, it was not adopted as an anti-takeover measure, and once the deferred tax assets have been fully used, our board of directors intends to terminate the Tax Benefit Preservation Plan.
We have never paid dividends on our capital stock, and do not currently anticipate that we will pay any cash dividends in the near future.
We have not paid cash dividends on any of our classes of capital stock to date. While we do not currently expect to pay any cash dividends in the future, we have engaged a financial and strategic advisor to explore a range of strategic alternatives to enhance stockholder value, which may include a return of capital to our stockholders. Otherwise, capital appreciation, if any, of our common stock will likely be the sole source of gain, if any, as a result of holding shares of our common stock, for the foreseeable future.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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None.
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Item 3.
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Defaults Upon Senior Securities
|
Not applicable.
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Item 4.
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Mine Safety Disclosures
|
Not applicable.
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Item 5.
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Other Information
|
None.
(a) Exhibits:
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Exhibit No.
|
|
Description of Exhibit
|
|
|
|
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3.1(1)
|
|
Amended and Restated Certificate of Incorporation of Transcept Pharmaceuticals, Inc.
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3.2(1)
|
|
Bylaws of Transcept Pharmaceuticals, Inc., as amended.
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|
3.3(2)
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|
Certificate of Designations of Series A Junior Participating Preferred Stock of Transcept Pharmaceuticals, Inc.
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4.1(3)
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|
Specimen Common Stock certificate of Transcept Pharmaceuticals, Inc.
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4.2(3)
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|
Form of Preferred Stock Purchase Warrant issued to certain TPI investors as of March 21, 2005.
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4.3(3)
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|
Preferred Stock Purchase Warrant issued by TPI to Hercules Technology Growth Capital, Inc., dated as of April 13, 2006.
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|
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4.4(4)
|
|
2005 Amended and Restated Investor Rights Agreement, dated as of December 21, 2005, by and between Novacea and purchasers of Novacea Series A, Series B and Series C Preferred Stock.
|
|
|
|
|
|
4.5(5)
|
|
Amended and Restated Investor Rights Agreement, dated as of February 27, 2007, by and between TPI and purchasers of TPI Series A, Series B, Series C and Series D Preferred Stock.
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|
|
|
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4.6(5)
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|
Termination Agreement, dated as of January 26, 2009, by and between TPI and purchasers of TPI Series A, Series B, Series C and Series D Preferred Stock.
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|
|
|
|
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4.7(2)
|
|
Tax Benefit Preservation Plan, dated as of September 13, 2013, between Transcept Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, LLC, which includes the Form of Certificate of Designations of Series A Junior Participating Preferred Stock as Exhibit A, the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C
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|
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|
10.1#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Glenn A. Oclassen effective July 15, 2013.
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10.2#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Thomas P. Soloway effective July 15, 2013.
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10.3#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Nikhilesh Singh, Ph.D. effective July 15, 2013.
|
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|
10.4#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and John A. Kollins effective July 15, 2013.
|
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10.5#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Leone D. Patterson effective July 15, 2013.
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10.6†
|
|
License Agreement by and between Transcept Pharmaceuticals, Inc. and Shin Nippon Biomedical Laboratories, Ltd. effective September 24, 2013.
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31.1
|
|
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
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31.2
|
|
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
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|
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32.1*
|
|
Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
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|
101**
|
|
The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2013 and 2012, (iii) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 and (iv) Notes to Condensed Consolidated Financial Statements.
|
_____________________________
|
|
|
|
(1)
|
Incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.
|
|
|
|
|
(2)
|
Incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 13, 2013.
|
|
|
|
|
(3)
|
Incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.
|
|
|
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|
(4)
|
Incorporated by reference from the Registration Statement on Form S-1, Securities and Exchange Commission file number 333-131741, filed on February 10, 2006.
|
|
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|
|
(5)
|
Incorporated by reference from the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2010.
|
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*
|
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Transcept Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
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**
|
XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
|
|
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†
|
Pursuant to a request for confidential treatment, portions of this exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
|
|
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#
|
Indicates management contract or compensatory plan, contract or arrangement.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 7
th
day of November, 2013.
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Transcept Pharmaceuticals, Inc.
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By:
|
|
/s/ Leone D. Patterson
|
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Leone D. Patterson
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Exhibit Index
|
|
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
|
|
3.1(1)
|
|
Amended and Restated Certificate of Incorporation of Transcept Pharmaceuticals, Inc.
|
|
|
|
|
|
3.2(1)
|
|
Bylaws of Transcept Pharmaceuticals, Inc., as amended.
|
|
|
|
|
|
3.3(2)
|
|
Certificate of Designations of Series A Junior Participating Preferred Stock of Transcept Pharmaceuticals, Inc.
|
|
|
|
|
|
4.1(3)
|
|
Specimen Common Stock certificate of Transcept Pharmaceuticals, Inc.
|
|
|
|
|
|
4.2(3)
|
|
Form of Preferred Stock Purchase Warrant issued to certain TPI investors as of March 21, 2005.
|
|
|
|
|
|
4.3(3)
|
|
Preferred Stock Purchase Warrant issued by TPI to Hercules Technology Growth Capital, Inc., dated as of April 13, 2006.
|
|
|
|
|
|
4.4(4)
|
|
2005 Amended and Restated Investor Rights Agreement, dated as of December 21, 2005, by and between Novacea and purchasers of Novacea Series A, Series B and Series C Preferred Stock.
|
|
|
|
|
|
4.5(5)
|
|
Amended and Restated Investor Rights Agreement, dated as of February 27, 2007, by and between TPI and purchasers of TPI Series A, Series B, Series C and Series D Preferred Stock.
|
|
|
|
|
|
4.6(5)
|
|
Termination Agreement, dated as of January 26, 2009, by and between TPI and purchasers of TPI Series A, Series B, Series C and Series D Preferred Stock.
|
|
|
|
|
|
4.7(2)
|
|
Tax Benefit Preservation Plan, dated as of September 13, 2013, between Transcept Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, LLC, which includes the Form of Certificate of Designations of Series A Junior Participating Preferred Stock as Exhibit A, the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C
|
|
|
|
|
|
10.1#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Glenn A. Oclassen effective July 15, 2013.
|
|
|
|
|
|
10.2#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Thomas P. Soloway effective July 15, 2013.
|
|
|
|
|
|
10.3#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Nikhilesh Singh, Ph.D. effective July 15, 2013.
|
|
|
|
|
|
10.4#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and John A. Kollins effective July 15, 2013.
|
|
|
|
|
|
10.5#
|
|
Amended and Restated Change of Control and Severance Benefits Agreement by and between Transcept Pharmaceuticals, Inc. and Leone D. Patterson effective July 15, 2013.
|
|
|
|
|
|
10.6†
|
|
License Agreement by and between Transcept Pharmaceuticals, Inc. and Shin Nippon Biomedical Laboratories, Ltd. effective September 24, 2013.
|
|
|
|
|
|
31.1
|
|
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1*
|
|
Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
101**
|
|
The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2013 and 2012, (iii) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 and (iv) Notes to Condensed Consolidated Financial Statements.
|
|
|
|
|
_____________________________
|
|
|
|
(1)
|
Incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.
|
|
|
|
|
(2)
|
Incorporated by reference from the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2013.
|
|
|
|
|
(3)
|
Incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.
|
|
|
|
|
(4)
|
Incorporated by reference from the Registration Statement on Form S-1, Securities and Exchange Commission file number 333-131741, filed on February 10, 2006.
|
|
|
|
|
(5)
|
Incorporated by reference from the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2010.
|
|
|
|
|
|
|
*
|
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Transcept Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
|
|
|
|
|
|
|
**
|
XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
|
|
|
|
|
†
|
Pursuant to a request for confidential treatment, portions of this exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
#
|
Indicates management contract or compensatory plan, contract or arrangement.
|
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
This
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
(the
“Agreement”
) is effective the fifteenth day of July 2013 (the
“Effective Date”
), between
TRANSCEPT PHARMACEUTICALS, INC.
(the
“Company”
) and Glenn A. Oclassen (
“Executive”
). This Agreement amends and restates in its entirety that certain Change of Control and Severance Benefits Agreement by and between the Executive and the Company dated as of April 30, 2009 as amended (the “
Prior Agreement
”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.
WHEREAS
, Executive is currently employed by the Company; and
WHEREAS
, the Company believes it is imperative to provide Executive with certain severance benefits in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) in circumstances unrelated to a Change of Control (as defined herein);
WHEREAS
, the Company believes it is imperative to provide Executive with certain change of control severance benefits, including certain equity acceleration, in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) or by Executive with Good Reason (as defined herein) in connection with a Change of Control (as defined herein); and
WHEREAS
, the Company believes it is in the best interests of the Company to amend and restate the Prior Agreement in its entirety, such that the Prior Agreement shall be of no further force or effect as of the Effective Date.
NOW, THEREFORE
, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:
1.
TERM OF AGREEMENT.
The term of this Agreement shall commence on the Effective Date and shall continue through April 30, 2017 (the
“Expiration Date”
), and if not amended or renewed by the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”
) prior to the Expiration Date, this Agreement shall terminate automatically on such Expiration Date. Notwithstanding the foregoing, the Company agrees that during the one-year period before the Expiration Date, the Compensation Committee shall undertake to review this Agreement and the severance benefits and change of control severance benefits provided herein in good faith, with the assistance of the Company’s outside advisors and compensation consultants, in order to determine, based upon the then current market conditions or any other factors deemed relevant by the Compensation Committee,
the appropriateness of continuing this Agreement after the Expiration Date, or whether it would be more appropriate for the Company to amend or terminate this Agreement as of the Expiration Date.
2.
TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a)
At-Will Employment.
Executive’s employment is at-will, which means that the Company may terminate Executive’s employment at any time, with or without advance notice, and with or without Cause (as defined herein). Similarly, Executive may resign Executive’s employment
at any time, with or without advance notice, and with or without reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits or change of control severance benefits, following Executive’s last day of employment with the Company (the
“Termination Date”
), except as expressly provided for by this Agreement, applicable law, and/or any plan documents governing the compensatory equity awards that have been or may be granted to Executive from time to time in the sole discretion of the Company.
(b)
Termination Without Cause Unrelated to a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability) at any time (except for the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control),
(ii)
Executive signs and allows to become effective a general release of all known and unknown claims in the form provided by the Company, which form shall be substantially in the form attached hereto as
Exhibit A
) (the “
Release
”) within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if Executive has not, unless such non-compliance is not capable of being cured); then the Company shall provide Executive with the following severance benefits (the “
Severance Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
eighteen (18) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Severance Payment
”). The Severance Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (together with any state or local laws of similar effect,
“COBRA”
) within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the Termination Date (including coverage for Executive’s eligible dependents) for a maximum period of
eighteen (18) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(c)
Termination Without Cause or Resignation for Good Reason Within Twelve Months After a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability), or if Executive resigns for Good Reason, during the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control,
(ii)
Executive signs and allows to become effective the Release within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if he or she has not, unless such non-compliance is not reasonably capable of being cured); then the Company
shall provide Executive with the following change of control severance benefits (the “
Change of Control Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
twenty-four (24) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Change of Control Payment
”). The Change of Control Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under COBRA within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the termination date of Executive’s employment (including coverage for Executive’s eligible dependents) for a maximum period of
twenty-four (24) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(iii)
After taking into account any additional acceleration of vesting Executive may be entitled to receive under any other plan or agreement, the Company shall cause all outstanding equity awards then held by Executive (including, without limitation, stock options, stock appreciation rights, restricted stock or similar awards) to become
fully vested
and, if applicable, exercisable with respect to all the shares subject thereto effective immediately prior to the Termination Date. After giving effect to any acceleration of vesting of Executive’s outstanding equity awards, all outstanding options to purchase Company common stock then held by Executive that are (x) vested and exercisable as of the Termination Date and (y) designated by the Board or the Board’s compensation committee on the date of grant of such option or anytime thereafter as being eligible for extended exercisability (such option, an “
Extension Eligible Option
”) shall remain exercisable until the earlier of (A) the
third (3
rd
) anniversary of Executive’s Termination Date
or (B) the original expiration date of the applicable Extension Eligible Option. If Executive has not exercised the Extension Eligible Options in accordance with the procedures set forth in Executive’s option agreements by such date, such Extension Eligible Options shall terminate and be of no further effect. In all other respects, Executive’s equity awards shall continue to be governed by the terms of the applicable award agreements and equity incentive plan documents and any applicable agreements between the Company and Executive.
(d)
Deemed Resignation; No Requirement to Mitigate; Survival
. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its affiliates, and, at the Company’s request, Executive shall execute such documents as are necessary or desirable to effectuate such resignations. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. Notwithstanding anything to the contrary in this Agreement, the termination of Executive’s employment shall not impair the rights or obligations of any party.
3.
DEFINITIONS.
(a)
Definition of Base Annual Salary.
For purposes of this Agreement, “
Base Annual Salary
” shall mean Executive’s annualized base salary in effect immediately prior to the Termination Date. Base Annual Salary does not include variable forms of compensation such as but not limited to bonuses, incentive compensation, commissions, benefits, equity, expenses, or expense allowances.
(b)
Definition of Cause.
For the purposes of this Agreement, “
Cause
” shall mean any one or more of the following:
(iv)
Executive is convicted of (or pleads guilty or no contest to) any felony or any crime involving moral turpitude;
(v)
Executive participates in any material fraud, material act of dishonesty, or other act of intentional and material misconduct against the Company;
(vi)
Executive intentionally damages or willfully misappropriates any property of the Company that in any case has a material adverse effect on the Company;
(vii)
Executive materially breaches any fiduciary, statutory, or contractual duty Executive owes to the Company (including, but not limited to, any breach of the Company’s Confidentiality Agreement);
(viii)
Executive regularly and materially fails to diligently and successfully perform Executive’s assigned duties;
(ix)
Executive fails to cooperate with the Company in any investigation or proceeding by any governmental or similar authority or as otherwise authorized by the Board of Directors or a committee thereof; or
(x)
Executive is found liable in an SEC action and/or is disqualified by the SEC from serving in an executive role.
The determination that a termination is for Cause shall be made by the Company in its sole discretion;
provided, however,
that in the event that any of the foregoing events occurs, the Company shall provide written notice to Executive making reference to this Section describing the nature of such event and Executive shall thereafter have thirty (30) days to cure such event if such event is capable of being cured.
(c)
Definition of Good Reason
. For purposes of this Agreement, “Good Reason” means that Executive resigns Executive’s employment with the Company (or any successor thereto) if and only if:
(i)
One of the following actions has been taken without Executive’s express written consent:
(1)
There is a material reduction in Executive’s Base Annual Salary from the Base Annual Salary in effect immediately preceding the Change of Control;
(2)
There is a material change in Executive’s position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive’s position or responsibilities from those in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter;
provided
,
however
, that a Change of Control which results in the subsequent conversion of the Company to a division or unit of the acquiring corporation will not by itself result in a material reduction in Executive’s level of responsibility;
(3)
Executive is required to relocate Executive’s principal place of employment to a facility or location that would increase Executive’s one way commute distance by more than thirty-five (35) miles;
(4)
The Company (or any successor thereto) materially breaches its obligations under this Agreement or any other then-effective employment agreement with Executive; or
(5)
Any acquirer, successor or assignee of the Company fails to assume and perform, in any material respect, the obligations of the Company hereunder; and
(ii)
Executive provides written notice to the Company’s Board within the thirty (30) day period immediately following such action; and
(iii)
Such action is not remedied by the Company within thirty (30) days following the Company’s receipt of such written notice; and
(iv)
Executive’s resignation is effective not later than sixty (60) days after the expiration of such thirty (30) day cure period.
The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Good Reason.
(d)
Definition of Change of Control.
For purposes of this Agreement, “Change of Control” shall mean:
(i)
A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “
Exchange Act
”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(ii)
During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the “
Board
”) together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 3(c)(i) or Section 3(c)
(ii)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii)
The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(1)
Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the
“Successor Entity”
)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(2)
After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity;
provided, however,
that no person or group shall be treated for purposes of this Section 3(c)(iii)(2) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv)
The Company’s stockholders approve a liquidation or dissolution of the Company.
The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.
4.
COMPLIANCE WITH SECTION 409A.
(a)
It is intended that each installment of the payments and benefits provided for in this Agreement is a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is also intended that payments of the amounts set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”
) (Section 409A of the Code, together, with any state law of similar effect,
“Section 409A”
) provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9).
(b)
Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that constitutes “nonqualified deferred compensation” (“
Deferred Compensation
”) within the meaning of Section 409A, and which is designated under this Agreement as payable upon Executive’s termination of employment shall be payable only upon Executive’s “separation from service” with the Company within the meaning of
Section 409A (a “
separation from service
”) and, except as provided under Section 4(c) of this Agreement, any such compensation or benefits shall not be paid or commence until the sixtieth (60th) day following Executive’s separation from service.
(c)
Notwithstanding the foregoing, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Payment, the Change of Control Payment and/or other benefits provided under this Agreement (the
“Agreement Payments”
) constitute “deferred compensation” under Section 409A and Executive is, on the Termination Date, a “specified employee” of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Agreement Payments shall be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after Executive’s “separation from service” (as defined above) or (ii) the date of Executive’s death (such earlier date, the
“Delayed Initial Payment Date”
), the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Agreement Payments that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Agreement Payments had not been so delayed pursuant to this Section 4(b) and (B) commence paying the balance of the Agreement Payments in accordance with the applicable payment schedules set forth in this Agreement.
5.
To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred;
provided
, that Executive submits his or her reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executive’s right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit. INTERNAL REVENUE CODE SECTION 280G.
(a)
If the payments and benefits (including but not limited to payments and benefits pursuant to this Agreement) that Executive would receive in connection with a change of control of the Company, whether from the Company or otherwise (a
“Transaction Payment”
) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”
), then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to Executive, which of the following two alternative forms of payment would result in Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that all or some portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction Payment (a
“Full Payment”
), or (2) payment of only a part of the Transaction Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a
“Reduced Payment”
).
(b)
For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) Executive shall have no rights to any additional payments and/or benefits constituting the Transaction Payment, and (ii) reduction in
payments and/or benefits shall occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits (if any) paid to Executive. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant.
(c)
The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the Termination Date shall make all determinations required to be made under this Section 5. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder.
(d)
The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Transaction Payment is triggered or such other time as reasonably requested by the Company or Executive. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to the Transaction Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with detailed supporting calculations of its determinations that no Excise Tax will be imposed with respect to such Transaction Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.
6.
DISPUTE RESOLUTION
. Any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract or statute, or concerning the interpretation, performance, or execution of this Agreement (including any determination of Cause or Good Reason hereunder) shall be resolved by confidential, final and binding arbitration administered by Judicial Arbitration and Mediation Services, Inc. (
“JAMS”
), in San Francisco, California, before a single arbitrator, in accordance with JAMS’ then applicable arbitration rules.
Executive
acknowledges that by agreeing to this arbitration procedure, Executive and the Company waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding.
Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. Company shall bear all JAMS fees for the arbitration. Nothing in this Agreement shall prevent any of the parties from obtaining injunctive relief in court if necessary to prevent irreparable harm pending the conclusion of any arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in any court of competent jurisdiction.
7.
GENERAL PROVISIONS.
(a)
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between Company and Executive with regard to the payments and benefits described herein, and it supersedes and replaces any and all other agreements (whether written or unwritten) Executive may have with the Company concerning severance benefits or change of control benefits (including but not limited to the Prior Agreement, any letter agreements issued regarding the Prior Agreement, and the provisions of Executive’s employment agreement or offer letter concerning severance benefits or change of control benefits);
provided
,
however
, that nothing herein shall affect any plan document or agreements governing any compensatory equity awards that have been or may be granted to Executive, which shall remain in full force and effect. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. This Agreement may not be modified or amended except in a written agreement approved by the Compensation Committee and signed by Executive and a duly authorized officer of the Company.
(b)
Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
(c)
Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(d)
This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
(e)
This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California.
(f)
Any ambiguity in this Agreement shall not be construed against either party as the drafter.
[Signature Page Follows]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date written below.
/s/ Glenn A. Oclassen
GLENN A. OCLASSEN
TRANSCEPT PHARMACEUTICALS, INC.
/s/ Thomas P. Soloway
Name: Thomas P. Soloway
Title: Executive Vice President and Chief Operating Officer
EXHIBIT A
FORM OF RELEASE AGREEMENT
As provided in the
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
dated August 5, 2013 (the “
Agreement
”) between me and Transcept Pharmaceuticals, Inc. (the “
Company
”), I will be eligible for certain Severance Benefits or Change of Control Benefits if I enter into this Release Agreement (the “
Release
”). I am not relying on any promise or representation by the Company that is not expressly stated in the Agreement. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby acknowledge and reaffirm my obligations under my Confidentiality Agreement with the Company.
In consideration of the Severance Benefits or Change of Control Benefits, and other consideration, provided to me under the Agreement that I am not otherwise entitled to receive, and except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “
Released Parties
”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “
Released Claims
”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment; (2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“
ADEA
”), the federal Employee Retirement Income Security Act of 1974 (as amended), the California Fair Employment and Housing Act (as amended), and the California Labor Code.
Notwithstanding the foregoing, the following are not included in the Released Claims (the “
Excluded Claims
”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; or (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (1) the Released Claims do not apply to any rights or claims that arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily sign it sooner)
[
for those Executive terminated as part of a group termination, substitute the following language – I have forty-five (45) days to consider this Release (although I may choose to voluntarily sign it sooner)
]
; (4) I have seven (7) days following the date I sign this Release to revoke the Release by providing written notice to the Company; and (5) the Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release.
[
For those Executives terminated as part of a group termination, add the following language —I have received with this Release all of the information required by the ADEA, including without limitation a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated, along with information on the eligibility factors used to select employees for the group termination and any time limits applicable to this group termination program
]
.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I acknowledge that to become effective, I must: (1) sign and return this Release to the Company within twenty-one (21) days for those Executives terminated as part of a group termination, substitute the following – forty-five (45) days after I am requested to sign it by the Company or its successor (as applicable); and (2) I must not revoke it thereafter.
GLENN A. OCLASSEN
Date:
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
This
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
(the
“Agreement”
) is effective the fifteenth day of July 2013 (the
“Effective Date”
), between
TRANSCEPT PHARMACEUTICALS, INC.
(the
“Company”
) and Thomas P. Soloway (
“Executive”
). This Agreement amends and restates in its entirety that certain Change of Control and Severance Benefits Agreement by and between the Executive and the Company dated as of April 30, 2009, as amended (the “
Prior Agreement
”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.
WHEREAS
, Executive is currently employed by the Company; and
WHEREAS
, the Company believes it is imperative to provide Executive with certain severance benefits in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) in circumstances unrelated to a Change of Control (as defined herein);
WHEREAS
, the Company believes it is imperative to provide Executive with certain change of control severance benefits, including certain equity acceleration, in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) or by Executive with Good Reason (as defined herein) in connection with a Change of Control (as defined herein); and
WHEREAS
, the Company believes it is in the best interests of the Company to amend and restate the Prior Agreement in its entirety, such that the Prior Agreement shall be of no further force or effect as of the Effective Date.
NOW, THEREFORE
, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:
1.
TERM OF AGREEMENT.
The term of this Agreement shall commence on the Effective Date and shall continue through April 30, 2017 (the
“Expiration Date”
), and if not amended or renewed by the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”
) prior to the Expiration Date, this Agreement shall terminate automatically on such Expiration Date. Notwithstanding the foregoing, the Company agrees that during the one-year period before the Expiration Date, the Compensation Committee shall undertake to review this Agreement and the severance benefits and change of control severance benefits provided herein in good faith, with the assistance of the Company’s outside advisors and compensation consultants, in order to determine, based upon the then current market conditions or any other factors deemed relevant by the Compensation Committee,
the appropriateness of continuing this Agreement after the Expiration Date, or whether it would be more appropriate for the Company to amend or terminate this Agreement as of the Expiration Date.
2.
TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a)
At-Will Employment.
Executive’s employment is at-will, which means that the Company may terminate Executive’s employment at any time, with or without advance notice, and with or without Cause (as defined herein). Similarly, Executive may resign Executive’s employment
at any time, with or without advance notice, and with or without reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits or change of control severance benefits, following Executive’s last day of employment with the Company (the
“Termination Date”
), except as expressly provided for by this Agreement, applicable law, and/or any plan documents governing the compensatory equity awards that have been or may be granted to Executive from time to time in the sole discretion of the Company.
(b)
Termination Without Cause Unrelated to a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability) at any time (except for the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control),
(ii)
Executive signs and allows to become effective a general release of all known and unknown claims in the form provided by the Company, which form shall be substantially in the form attached hereto as
Exhibit A
) (the “
Release
”) within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if Executive has not, unless such non-compliance is not capable of being cured); then the Company shall provide Executive with the following severance benefits (the “
Severance Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
twelve (12) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Severance Payment
”). The Severance Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (together with any state or local laws of similar effect,
“COBRA”
) within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the Termination Date (including coverage for Executive’s eligible dependents) for a maximum period of
twelve (12) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(c)
Termination Without Cause or Resignation for Good Reason Within Twelve Months After a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability), or if Executive resigns for Good Reason, during the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control,
(ii)
Executive signs and allows to become effective the Release within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if he or she has not, unless such non-compliance is not reasonably capable of being cured); then the Company
shall provide Executive with the following change of control severance benefits (the “
Change of Control Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
eighteen (18) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Change of Control Payment
”). The Change of Control Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under COBRA within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the termination date of Executive’s employment (including coverage for Executive’s eligible dependents) for a maximum period of
eighteen (18) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(iii)
After taking into account any additional acceleration of vesting Executive may be entitled to receive under any other plan or agreement, the Company shall cause all outstanding equity awards then held by Executive (including, without limitation, stock options, stock appreciation rights, restricted stock or similar awards) to become
fully vested
and, if applicable, exercisable with respect to all the shares subject thereto effective immediately prior to the Termination Date. After giving effect to any acceleration of vesting of Executive’s outstanding equity awards, all outstanding options to purchase Company common stock then held by Executive that are (x) vested and exercisable as of the Termination Date and (y) designated by the Board or the Board’s compensation committee on the date of grant of such option or anytime thereafter as being eligible for extended exercisability (such option, an “
Extension Eligible Option
”) shall remain exercisable until the earlier of (A) the
third (3
rd
) anniversary of Executive’s Termination Date
or (B) the original expiration date of the applicable Extension Eligible Option. If Executive has not exercised the Extension Eligible Options in accordance with the procedures set forth in Executive’s option agreements by such date, such Extension Eligible Options shall terminate and be of no further effect. In all other respects, Executive’s equity awards shall continue to be governed by the terms of the applicable award agreements and equity incentive plan documents and any applicable agreements between the Company and Executive.
(d)
Deemed Resignation; No Requirement to Mitigate; Survival
. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its affiliates, and, at the Company’s request, Executive shall execute such documents as are necessary or desirable to effectuate such resignations. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. Notwithstanding anything to the contrary in this Agreement, the termination of Executive’s employment shall not impair the rights or obligations of any party.
3.
DEFINITIONS.
(a)
Definition of Base Annual Salary.
For purposes of this Agreement, “
Base Annual Salary
” shall mean Executive’s annualized base salary in effect immediately prior to the Termination Date. Base Annual Salary does not include variable forms of compensation such as but not limited to bonuses, incentive compensation, commissions, benefits, equity, expenses, or expense allowances.
(b)
Definition of Cause.
For the purposes of this Agreement, “
Cause
” shall mean any one or more of the following:
(iv)
Executive is convicted of (or pleads guilty or no contest to) any felony or any crime involving moral turpitude;
(v)
Executive participates in any material fraud, material act of dishonesty, or other act of intentional and material misconduct against the Company;
(vi)
Executive intentionally damages or willfully misappropriates any property of the Company that in any case has a material adverse effect on the Company;
(vii)
Executive materially breaches any fiduciary, statutory, or contractual duty Executive owes to the Company (including, but not limited to, any breach of the Company’s Confidentiality Agreement);
(viii)
Executive regularly and materially fails to diligently and successfully perform Executive’s assigned duties;
(ix)
Executive fails to cooperate with the Company in any investigation or proceeding by any governmental or similar authority or as otherwise authorized by the Board of Directors or a committee thereof; or
(x)
Executive is found liable in an SEC action and/or is disqualified by the SEC from serving in an executive role.
The determination that a termination is for Cause shall be made by the Company in its sole discretion;
provided, however,
that in the event that any of the foregoing events occurs, the Company shall provide written notice to Executive making reference to this Section describing the nature of such event and Executive shall thereafter have thirty (30) days to cure such event if such event is capable of being cured.
(c)
Definition of Good Reason
. For purposes of this Agreement, “Good Reason” means that Executive resigns Executive’s employment with the Company (or any successor thereto) if and only if:
(i)
One of the following actions has been taken without Executive’s express written consent:
(1)
There is a material reduction in Executive’s Base Annual Salary from the Base Annual Salary in effect immediately preceding the Change of Control;
(2)
There is a material change in Executive’s position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive’s position or responsibilities from those in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter;
provided
,
however
, that a Change of Control which results in the subsequent conversion of the Company to a division or unit of the acquiring corporation will not by itself result in a material reduction in Executive’s level of responsibility;
(3)
Executive is required to relocate Executive’s principal place of employment to a facility or location that would increase Executive’s one way commute distance by more than thirty-five (35) miles;
(4)
The Company (or any successor thereto) materially breaches its obligations under this Agreement or any other then-effective employment agreement with Executive; or
(5)
Any acquirer, successor or assignee of the Company fails to assume and perform, in any material respect, the obligations of the Company hereunder; and
(ii)
Executive provides written notice to the Company’s Board within the thirty (30) day period immediately following such action; and
(iii)
Such action is not remedied by the Company within thirty (30) days following the Company’s receipt of such written notice; and
(iv)
Executive’s resignation is effective not later than sixty (60) days after the expiration of such thirty (30) day cure period.
The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Good Reason.
(d)
Definition of Change of Control.
For purposes of this Agreement, “Change of Control” shall mean:
(i)
A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “
Exchange Act
”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(ii)
During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the “
Board
”) together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 3(c)(i) or Section 3(c)
(ii)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii)
The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(1)
Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the
“Successor Entity”
)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(2)
After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity;
provided, however,
that no person or group shall be treated for purposes of this Section 3(c)(iii)(2) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv)
The Company’s stockholders approve a liquidation or dissolution of the Company.
The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.
4.
COMPLIANCE WITH SECTION 409A.
(a)
It is intended that each installment of the payments and benefits provided for in this Agreement is a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is also intended that payments of the amounts set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”
) (Section 409A of the Code, together, with any state law of similar effect,
“Section 409A”
) provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9).
(b)
Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that constitutes “nonqualified deferred compensation” (“
Deferred Compensation
”) within the meaning of Section 409A, and which is designated under this Agreement as payable upon Executive’s termination of employment shall be payable only upon Executive’s “separation from service” with the Company within the meaning of
Section 409A (a “
separation from service
”) and, except as provided under Section 4(c) of this Agreement, any such compensation or benefits shall not be paid or commence until the sixtieth (60th) day following Executive’s separation from service.
(c)
Notwithstanding the foregoing, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Payment, the Change of Control Payment and/or other benefits provided under this Agreement (the
“Agreement Payments”
) constitute “deferred compensation” under Section 409A and Executive is, on the Termination Date, a “specified employee” of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Agreement Payments shall be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after Executive’s “separation from service” (as defined above) or (ii) the date of Executive’s death (such earlier date, the
“Delayed Initial Payment Date”
), the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Agreement Payments that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Agreement Payments had not been so delayed pursuant to this Section 4(b) and (B) commence paying the balance of the Agreement Payments in accordance with the applicable payment schedules set forth in this Agreement.
5.
To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred;
provided
, that Executive submits his or her reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executive’s right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit. INTERNAL REVENUE CODE SECTION 280G.
(a)
If the payments and benefits (including but not limited to payments and benefits pursuant to this Agreement) that Executive would receive in connection with a change of control of the Company, whether from the Company or otherwise (a
“Transaction Payment”
) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”
), then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to Executive, which of the following two alternative forms of payment would result in Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that all or some portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction Payment (a
“Full Payment”
), or (2) payment of only a part of the Transaction Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a
“Reduced Payment”
).
(b)
For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) Executive shall have no rights to any additional payments and/or benefits constituting the Transaction Payment, and (ii) reduction in
payments and/or benefits shall occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits (if any) paid to Executive. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant.
(c)
The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the Termination Date shall make all determinations required to be made under this Section 5. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder.
(d)
The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Transaction Payment is triggered or such other time as reasonably requested by the Company or Executive. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to the Transaction Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with detailed supporting calculations of its determinations that no Excise Tax will be imposed with respect to such Transaction Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.
6.
DISPUTE RESOLUTION
. Any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract or statute, or concerning the interpretation, performance, or execution of this Agreement (including any determination of Cause or Good Reason hereunder) shall be resolved by confidential, final and binding arbitration administered by Judicial Arbitration and Mediation Services, Inc. (
“JAMS”
), in San Francisco, California, before a single arbitrator, in accordance with JAMS’ then applicable arbitration rules.
Executive
acknowledges that by agreeing to this arbitration procedure, Executive and the Company waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding.
Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. Company shall bear all JAMS fees for the arbitration. Nothing in this Agreement shall prevent any of the parties from obtaining injunctive relief in court if necessary to prevent irreparable harm pending the conclusion of any arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in any court of competent jurisdiction.
7.
GENERAL PROVISIONS.
(a)
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between Company and Executive with regard to the payments and benefits described herein, and it supersedes and replaces any and all other agreements (whether written or unwritten) Executive may have with the Company concerning severance benefits or change of control benefits (including but not limited to the Prior Agreement, any letter agreements issued regarding the Prior Agreement, and the provisions of Executive’s employment agreement or offer letter concerning severance benefits or change of control benefits);
provided
,
however
, that nothing herein shall affect any plan document or agreements governing any compensatory equity awards that have been or may be granted to Executive, which shall remain in full force and effect. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. This Agreement may not be modified or amended except in a written agreement approved by the Compensation Committee and signed by Executive and a duly authorized officer of the Company.
(b)
Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
(c)
Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(d)
This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
(e)
This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California.
(f)
Any ambiguity in this Agreement shall not be construed against either party as the drafter.
[Signature Page Follows]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date written below.
/s/ Thomas P. Soloway
THOMAS P. SOLOWAY
TRANSCEPT PHARMACEUTICALS, INC.
/s/ Glenn A. Oclassen
Name: Glenn A. Oclassen
Title: President and Chief Executive Officer
EXHIBIT A
FORM OF RELEASE AGREEMENT
As provided in the
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
dated August 5, 2013 (the “
Agreement
”) between me and Transcept Pharmaceuticals, Inc. (the “
Company
”), I will be eligible for certain Severance Benefits or Change of Control Benefits if I enter into this Release Agreement (the “
Release
”). I am not relying on any promise or representation by the Company that is not expressly stated in the Agreement. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby acknowledge and reaffirm my obligations under my Confidentiality Agreement with the Company.
In consideration of the Severance Benefits or Change of Control Benefits, and other consideration, provided to me under the Agreement that I am not otherwise entitled to receive, and except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “
Released Parties
”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “
Released Claims
”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment; (2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“
ADEA
”), the federal Employee Retirement Income Security Act of 1974 (as amended), the California Fair Employment and Housing Act (as amended), and the California Labor Code.
Notwithstanding the foregoing, the following are not included in the Released Claims (the “
Excluded Claims
”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; or (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (1) the Released Claims do not apply to any rights or claims that arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily sign it sooner)
[
for those Executive terminated as part of a group termination, substitute the following language – I have forty-five (45) days to consider this Release (although I may choose to voluntarily sign it sooner)
]
; (4) I have seven (7) days following the date I sign this Release to revoke the Release by providing written notice to the Company; and (5) the Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release.
[
For those Executives terminated as part of a group termination, add the following language —I have received with this Release all of the information required by the ADEA, including without limitation a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated, along with information on the eligibility factors used to select employees for the group termination and any time limits applicable to this group termination program
]
.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I acknowledge that to become effective, I must: (1) sign and return this Release to the Company within twenty-one (21) days
[
for those Executives terminated as part of a group termination, substitute the following – forty-five (45) days
]
after I am requested to sign it by the Company or its successor (as applicable); and (2) I must not revoke it thereafter.
THOMAS P. SOLOWAY
Date:
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
This
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
(the
“Agreement”
) is effective the fifteenth day of July 2013 (the
“Effective Date”
), between
TRANSCEPT PHARMACEUTICALS, INC.
(the
“Company”
) and Nikhilesh Singh, Ph.D., (
“Executive”
). This Agreement amends and restates in its entirety that certain Change of Control and Severance Benefits Agreement by and between the Executive and the Company dated as of April 30, 2009, as amended (the “
Prior Agreement
”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.
WHEREAS
, Executive is currently employed by the Company; and
WHEREAS
, the Company believes it is imperative to provide Executive with certain severance benefits in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) in circumstances unrelated to a Change of Control (as defined herein);
WHEREAS
, the Company believes it is imperative to provide Executive with certain change of control severance benefits, including certain equity acceleration, in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) or by Executive with Good Reason (as defined herein) in connection with a Change of Control (as defined herein); and
WHEREAS
, the Company believes it is in the best interests of the Company to amend and restate the Prior Agreement in its entirety, such that the Prior Agreement shall be of no further force or effect as of the Effective Date.
NOW, THEREFORE
, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:
1.
TERM OF AGREEMENT.
The term of this Agreement shall commence on the Effective Date and shall continue through April 30, 2017 (the
“Expiration Date”
), and if not amended or renewed by the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”
) prior to the Expiration Date, this Agreement shall terminate automatically on such Expiration Date. Notwithstanding the foregoing, the Company agrees that during the one-year period before the Expiration Date, the Compensation Committee shall undertake to review this Agreement and the severance benefits and change of control severance benefits provided herein in good faith, with the assistance of the Company’s outside advisors and compensation consultants, in order to determine, based upon the then current market conditions or any other factors deemed relevant by the Compensation Committee,
the appropriateness of continuing this Agreement after the Expiration Date, or whether it would be more appropriate for the Company to amend or terminate this Agreement as of the Expiration Date.
2.
TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a)
At-Will Employment.
Executive’s employment is at-will, which means that the Company may terminate Executive’s employment at any time, with or without advance notice, and with or without Cause (as defined herein). Similarly, Executive may resign Executive’s employment
at any time, with or without advance notice, and with or without reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits or change of control severance benefits, following Executive’s last day of employment with the Company (the
“Termination Date”
), except as expressly provided for by this Agreement, applicable law, and/or any plan documents governing the compensatory equity awards that have been or may be granted to Executive from time to time in the sole discretion of the Company.
(b)
Termination Without Cause Unrelated to a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability) at any time (except for the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control),
(ii)
Executive signs and allows to become effective a general release of all known and unknown claims in the form provided by the Company, which form shall be substantially in the form attached hereto as
Exhibit A
) (the “
Release
”) within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if Executive has not, unless such non-compliance is not capable of being cured); then the Company shall provide Executive with the following severance benefits (the “
Severance Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
twelve (12) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Severance Payment
”). The Severance Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (together with any state or local laws of similar effect,
“COBRA”
) within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the Termination Date (including coverage for Executive’s eligible dependents) for a maximum period of
twelve (12) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(c)
Termination Without Cause or Resignation for Good Reason Within Twelve Months After a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability), or if Executive resigns for Good Reason, during the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control,
(ii)
Executive signs and allows to become effective the Release within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if he or she has not, unless such non-compliance is not reasonably capable of being cured); then the Company
shall provide Executive with the following change of control severance benefits (the “
Change of Control Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
eighteen (18) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Change of Control Payment
”). The Change of Control Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under COBRA within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the termination date of Executive’s employment (including coverage for Executive’s eligible dependents) for a maximum period of
eighteen (18) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(iii)
After taking into account any additional acceleration of vesting Executive may be entitled to receive under any other plan or agreement, the Company shall cause all outstanding equity awards then held by Executive (including, without limitation, stock options, stock appreciation rights, restricted stock or similar awards) to become
fully vested
and, if applicable, exercisable with respect to all the shares subject thereto effective immediately prior to the Termination Date. After giving effect to any acceleration of vesting of Executive’s outstanding equity awards, all outstanding options to purchase Company common stock then held by Executive that are (x) vested and exercisable as of the Termination Date and (y) designated by the Board or the Board’s compensation committee on the date of grant of such option or anytime thereafter as being eligible for extended exercisability (such option, an “
Extension Eligible Option
”) shall remain exercisable until the earlier of (A) the
third (3
rd
) anniversary of Executive’s Termination Date
or (B) the original expiration date of the applicable Extension Eligible Option. If Executive has not exercised the Extension Eligible Options in accordance with the procedures set forth in Executive’s option agreements by such date, such Extension Eligible Options shall terminate and be of no further effect. In all other respects, Executive’s equity awards shall continue to be governed by the terms of the applicable award agreements and equity incentive plan documents and any applicable agreements between the Company and Executive.
(d)
Deemed Resignation; No Requirement to Mitigate; Survival
. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its affiliates, and, at the Company’s request, Executive shall execute such documents as are necessary or desirable to effectuate such resignations. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. Notwithstanding anything to the contrary in this Agreement, the termination of Executive’s employment shall not impair the rights or obligations of any party.
3.
DEFINITIONS.
(a)
Definition of Base Annual Salary.
For purposes of this Agreement, “
Base Annual Salary
” shall mean Executive’s annualized base salary in effect immediately prior to the Termination Date. Base Annual Salary does not include variable forms of compensation such as but not limited to bonuses, incentive compensation, commissions, benefits, equity, expenses, or expense allowances.
(b)
Definition of Cause.
For the purposes of this Agreement, “
Cause
” shall mean any one or more of the following:
(iv)
Executive is convicted of (or pleads guilty or no contest to) any felony or any crime involving moral turpitude;
(v)
Executive participates in any material fraud, material act of dishonesty, or other act of intentional and material misconduct against the Company;
(vi)
Executive intentionally damages or willfully misappropriates any property of the Company that in any case has a material adverse effect on the Company;
(vii)
Executive materially breaches any fiduciary, statutory, or contractual duty Executive owes to the Company (including, but not limited to, any breach of the Company’s Confidentiality Agreement);
(viii)
Executive regularly and materially fails to diligently and successfully perform Executive’s assigned duties;
(ix)
Executive fails to cooperate with the Company in any investigation or proceeding by any governmental or similar authority or as otherwise authorized by the Board of Directors or a committee thereof; or
(x)
Executive is found liable in an SEC action and/or is disqualified by the SEC from serving in an executive role.
The determination that a termination is for Cause shall be made by the Company in its sole discretion;
provided, however,
that in the event that any of the foregoing events occurs, the Company shall provide written notice to Executive making reference to this Section describing the nature of such event and Executive shall thereafter have thirty (30) days to cure such event if such event is capable of being cured.
(c)
Definition of Good Reason
. For purposes of this Agreement, “Good Reason” means that Executive resigns Executive’s employment with the Company (or any successor thereto) if and only if:
(i)
One of the following actions has been taken without Executive’s express written consent:
(1)
There is a material reduction in Executive’s Base Annual Salary from the Base Annual Salary in effect immediately preceding the Change of Control;
(2)
There is a material change in Executive’s position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive’s position or responsibilities from those in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter;
provided
,
however
, that a Change of Control which results in the subsequent conversion of the Company to a division or unit of the acquiring corporation will not by itself result in a material reduction in Executive’s level of responsibility;
(3)
Executive is required to relocate Executive’s principal place of employment to a facility or location that would increase Executive’s one way commute distance by more than thirty-five (35) miles;
(4)
The Company (or any successor thereto) materially breaches its obligations under this Agreement or any other then-effective employment agreement with Executive; or
(5)
Any acquirer, successor or assignee of the Company fails to assume and perform, in any material respect, the obligations of the Company hereunder; and
(ii)
Executive provides written notice to the Company’s Board within the thirty (30) day period immediately following such action; and
(iii)
Such action is not remedied by the Company within thirty (30) days following the Company’s receipt of such written notice; and
(iv)
Executive’s resignation is effective not later than sixty (60) days after the expiration of such thirty (30) day cure period.
The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Good Reason.
(d)
Definition of Change of Control.
For purposes of this Agreement, “Change of Control” shall mean:
(i)
A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “
Exchange Act
”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(ii)
During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the “
Board
”) together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 3(c)(i) or Section 3(c)
(ii)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii)
The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(1)
Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the
“Successor Entity”
)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(2)
After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity;
provided, however,
that no person or group shall be treated for purposes of this Section 3(c)(iii)(2) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv)
The Company’s stockholders approve a liquidation or dissolution of the Company.
The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.
4.
COMPLIANCE WITH SECTION 409A.
(a)
It is intended that each installment of the payments and benefits provided for in this Agreement is a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is also intended that payments of the amounts set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”
) (Section 409A of the Code, together, with any state law of similar effect,
“Section 409A”
) provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9).
(b)
Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that constitutes “nonqualified deferred compensation” (“
Deferred Compensation
”) within the meaning of Section 409A, and which is designated under this Agreement as payable upon Executive’s termination of employment shall be payable only upon Executive’s “separation from service” with the Company within the meaning of
Section 409A (a “
separation from service
”) and, except as provided under Section 4(c) of this Agreement, any such compensation or benefits shall not be paid or commence until the sixtieth (60th) day following Executive’s separation from service.
(c)
Notwithstanding the foregoing, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Payment, the Change of Control Payment and/or other benefits provided under this Agreement (the
“Agreement Payments”
) constitute “deferred compensation” under Section 409A and Executive is, on the Termination Date, a “specified employee” of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Agreement Payments shall be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after Executive’s “separation from service” (as defined above) or (ii) the date of Executive’s death (such earlier date, the
“Delayed Initial Payment Date”
), the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Agreement Payments that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Agreement Payments had not been so delayed pursuant to this Section 4(b) and (B) commence paying the balance of the Agreement Payments in accordance with the applicable payment schedules set forth in this Agreement.
5.
To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred;
provided
, that Executive submits his or her reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executive’s right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit. INTERNAL REVENUE CODE SECTION 280G.
(a)
If the payments and benefits (including but not limited to payments and benefits pursuant to this Agreement) that Executive would receive in connection with a change of control of the Company, whether from the Company or otherwise (a
“Transaction Payment”
) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”
), then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to Executive, which of the following two alternative forms of payment would result in Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that all or some portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction Payment (a
“Full Payment”
), or (2) payment of only a part of the Transaction Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a
“Reduced Payment”
).
(b)
For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) Executive shall have no rights to any additional payments and/or benefits constituting the Transaction Payment, and (ii) reduction in
payments and/or benefits shall occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits (if any) paid to Executive. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant.
(c)
The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the Termination Date shall make all determinations required to be made under this Section 5. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder.
(d)
The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Transaction Payment is triggered or such other time as reasonably requested by the Company or Executive. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to the Transaction Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with detailed supporting calculations of its determinations that no Excise Tax will be imposed with respect to such Transaction Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.
6.
DISPUTE RESOLUTION
. Any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract or statute, or concerning the interpretation, performance, or execution of this Agreement (including any determination of Cause or Good Reason hereunder) shall be resolved by confidential, final and binding arbitration administered by Judicial Arbitration and Mediation Services, Inc. (
“JAMS”
), in San Francisco, California, before a single arbitrator, in accordance with JAMS’ then applicable arbitration rules.
Executive
acknowledges that by agreeing to this arbitration procedure, Executive and the Company waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding.
Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. Company shall bear all JAMS fees for the arbitration. Nothing in this Agreement shall prevent any of the parties from obtaining injunctive relief in court if necessary to prevent irreparable harm pending the conclusion of any arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in any court of competent jurisdiction.
7.
GENERAL PROVISIONS.
(a)
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between Company and Executive with regard to the payments and benefits described herein, and it supersedes and replaces any and all other agreements (whether written or unwritten) Executive may have with the Company concerning severance benefits or change of control benefits (including but not limited to the Prior Agreement, any letter agreements issued regarding the Prior Agreement, and the provisions of Executive’s employment agreement or offer letter concerning severance benefits or change of control benefits);
provided
,
however
, that nothing herein shall affect any plan document or agreements governing any compensatory equity awards that have been or may be granted to Executive, which shall remain in full force and effect. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. This Agreement may not be modified or amended except in a written agreement approved by the Compensation Committee and signed by Executive and a duly authorized officer of the Company.
(b)
Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
(c)
Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(d)
This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
(e)
This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California.
(f)
Any ambiguity in this Agreement shall not be construed against either party as the drafter.
[Signature Page Follows]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date written below.
/s/ Nikhilesh Singh
NIKHILESH SINGH, PH.D.
TRANSCEPT PHARMACEUTICALS, INC.
/s/ Glenn A. Oclassen
Name: Glenn A. Oclassen
Title: President and Chief Executive Officer
EXHIBIT A
FORM OF RELEASE AGREEMENT
As provided in the
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
dated August 5, 2013 (the “
Agreement
”) between me and Transcept Pharmaceuticals, Inc. (the “
Company
”), I will be eligible for certain Severance Benefits or Change of Control Benefits if I enter into this Release Agreement (the “
Release
”). I am not relying on any promise or representation by the Company that is not expressly stated in the Agreement. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby acknowledge and reaffirm my obligations under my Confidentiality Agreement with the Company.
In consideration of the Severance Benefits or Change of Control Benefits, and other consideration, provided to me under the Agreement that I am not otherwise entitled to receive, and except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “
Released Parties
”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “
Released Claims
”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment; (2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“
ADEA
”), the federal Employee Retirement Income Security Act of 1974 (as amended), the California Fair Employment and Housing Act (as amended), and the California Labor Code.
Notwithstanding the foregoing, the following are not included in the Released Claims (the “
Excluded Claims
”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; or (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (1) the Released Claims do not apply to any rights or claims that arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily sign it sooner)
[
for those Executive terminated as part of a group termination, substitute the following language – I have forty-five (45) days to consider this Release (although I may choose to voluntarily sign it sooner)
]
; (4) I have seven (7) days following the date I sign this Release to revoke the Release by providing written notice to the Company; and (5) the Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release.
[
For those Executives terminated as part of a group termination, add the following language —I have received with this Release all of the information required by the ADEA, including without limitation a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated, along with information on the eligibility factors used to select employees for the group termination and any time limits applicable to this group termination program
]
.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I acknowledge that to become effective, I must: (1) sign and return this Release to the Company within twenty-one (21) days
[
for those Executives terminated as part of a group termination, substitute the following – forty-five (45) days
]
after I am requested to sign it by the Company or its successor (as applicable); and (2) I must not revoke it thereafter.
NIKHILESH SINGH, PH.D.
Date:
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
This
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
(the
“Agreement”
) is effective the fifteenth day of July 2013 (the
“Effective Date”
), between
TRANSCEPT PHARMACEUTICALS, INC.
(the
“Company”
) and John A. Kollins (
“Executive”
). This Agreement amends and restates in its entirety that certain Change of Control and Severance Benefits Agreement by and between the Executive and the Company dated as of May 31, 2012, as amended (the “
Prior Agreement
”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.
WHEREAS
, Executive is currently employed by the Company pursuant to the terms of Executive’s offer letter with the Company, dated May 29, 2012 (the
“Offer Letter”
); and
WHEREAS
, the Company believes it is imperative to provide Executive with certain severance benefits in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) in circumstances unrelated to a Change of Control (as defined herein);
WHEREAS
, the Company believes it is imperative to provide Executive with certain change of control severance benefits, including certain equity acceleration, in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) or by Executive with Good Reason (as defined herein) in connection with a Change of Control (as defined herein); and
WHEREAS
, the Company believes it is in the best interests of the Company to amend and restate the Prior Agreement in its entirety, such that the Prior Agreement shall be of no further force or effect as of the Effective Date.
NOW, THEREFORE
, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:
1.
TERM OF AGREEMENT.
The term of this Agreement shall commence on the Effective Date and shall continue through May 31, 2017 (the
“Expiration Date”
), and if not amended or renewed by the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”
) prior to the Expiration Date, this Agreement shall terminate automatically on such Expiration Date. Notwithstanding the foregoing, the Company agrees that during the one-year period before the Expiration Date, the Compensation Committee shall undertake to review this Agreement and the severance benefits and change of control severance benefits provided herein in good faith, with the assistance of the Company’s outside advisors and compensation consultants, in order to determine, based upon the then current market conditions or any other factors deemed relevant by the Compensation Committee,
the appropriateness of continuing this Agreement after the Expiration Date, or whether it would be more appropriate for the Company to amend or terminate this Agreement as of the Expiration Date.
2.
TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a)
At-Will Employment.
Executive’s employment is at-will, which means that the Company may terminate Executive’s employment at any time, with or without advance notice, and
with or without Cause (as defined herein). Similarly, Executive may resign Executive’s employment at any time, with or without advance notice, and with or without reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits or change of control severance benefits, following Executive’s last day of employment with the Company (the
“Termination Date”
), except as expressly provided for by this Agreement, applicable law, and/or any plan documents governing the compensatory equity awards that have been or may be granted to Executive from time to time in the sole discretion of the Company.
(b)
Termination Without Cause Unrelated to a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability) at any time (except for the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control),
(ii)
Executive signs and allows to become effective a general release of all known and unknown claims in the form provided by the Company, which form shall be substantially in the form attached hereto as
Exhibit A
) (the “
Release
”) within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if Executive has not, unless such non-compliance is not capable of being cured); then the Company shall provide Executive with the following severance benefits (the “
Severance Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
twelve (12) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Severance Payment
”). The Severance Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (together with any state or local laws of similar effect,
“COBRA”
) within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the Termination Date (including coverage for Executive’s eligible dependents) for a maximum period of
twelve (12) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(c)
Termination Without Cause or Resignation for Good Reason Within Twelve Months After a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability), or if Executive resigns for Good Reason, during the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control,
(ii)
Executive signs and allows to become effective the Release within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if he or
she has not, unless such non-compliance is not reasonably capable of being cured); then the Company shall provide Executive with the following change of control severance benefits (the “
Change of Control Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
eighteen (18) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Change of Control Payment
”). The Change of Control Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under COBRA within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the termination date of Executive’s employment (including coverage for Executive’s eligible dependents) for a maximum period of
eighteen (18) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(iii)
After taking into account any additional acceleration of vesting Executive may be entitled to receive under any other plan or agreement, the Company shall cause all outstanding equity awards then held by Executive (including, without limitation, stock options, stock appreciation rights, restricted stock or similar awards) to become
fully vested
and, if applicable, exercisable with respect to all the shares subject thereto effective immediately prior to the Termination Date. After giving effect to any acceleration of vesting of Executive’s outstanding equity awards, all outstanding options to purchase Company common stock then held by Executive that are (x) vested and exercisable as of the Termination Date and (y) designated by the Board or the Board’s compensation committee on the date of grant of such option or anytime thereafter as being eligible for extended exercisability (such option, an “
Extension Eligible Option
”) shall remain exercisable until the earlier of (A) the
third (3
rd
) anniversary of Executive’s Termination Date
or (B) the original expiration date of the applicable Extension Eligible Option. If Executive has not exercised the Extension Eligible Options in accordance with the procedures set forth in Executive’s option agreements by such date, such Extension Eligible Options shall terminate and be of no further effect. In all other respects, Executive’s equity awards shall continue to be governed by the terms of the applicable award agreements and equity incentive plan documents and any applicable agreements between the Company and Executive.
(d)
Deemed Resignation; No Requirement to Mitigate; Survival
. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its affiliates, and, at the Company’s request, Executive shall execute such documents as are necessary or desirable to effectuate such resignations. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. Notwithstanding
anything to the contrary in this Agreement, the termination of Executive’s employment shall not impair the rights or obligations of any party.
3.
DEFINITIONS.
(a)
Definition of Base Annual Salary.
For purposes of this Agreement, “
Base Annual Salary
” shall mean Executive’s annualized base salary in effect immediately prior to the Termination Date. Base Annual Salary does not include variable forms of compensation such as but not limited to bonuses, incentive compensation, commissions, benefits, equity, expenses, or expense allowances.
(b)
Definition of Cause.
For the purposes of this Agreement, “
Cause
” shall mean any one or more of the following:
(iv)
Executive is convicted of (or pleads guilty or no contest to) any felony or any crime involving moral turpitude;
(v)
Executive participates in any material fraud, material act of dishonesty, or other act of intentional and material misconduct against the Company;
(vi)
Executive intentionally damages or willfully misappropriates any property of the Company that in any case has a material adverse effect on the Company;
(vii)
Executive materially breaches any fiduciary, statutory, or contractual duty Executive owes to the Company (including, but not limited to, any breach of the Company’s Confidentiality Agreement);
(viii)
Executive regularly and materially fails to diligently and successfully perform Executive’s assigned duties;
(ix)
Executive fails to cooperate with the Company in any investigation or proceeding by any governmental or similar authority or as otherwise authorized by the Board of Directors or a committee thereof; or
(x)
Executive is found liable in an SEC action and/or is disqualified by the SEC from serving in an executive role.
The determination that a termination is for Cause shall be made by the Company in its sole discretion;
provided, however,
that in the event that any of the foregoing events occurs, the Company shall provide written notice to Executive making reference to this Section describing the nature of such event and Executive shall thereafter have thirty (30) days to cure such event if such event is capable of being cured.
(c)
Definition of Good Reason
. For purposes of this Agreement, “Good Reason” means that Executive resigns Executive’s employment with the Company (or any successor thereto) if and only if:
(i)
One of the following actions has been taken without Executive’s express written consent:
(1)
There is a material reduction in Executive’s Base Annual Salary from the Base Annual Salary in effect immediately preceding the Change of Control;
(2)
There is a material change in Executive’s position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive’s position or responsibilities from those in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter;
provided
,
however
, that a Change of Control which results in the subsequent conversion of the Company to a division or unit of the acquiring corporation will not by itself result in a material reduction in Executive’s level of responsibility;
(3)
Executive is required to relocate Executive’s principal place of employment to a facility or location that would increase Executive’s one way commute distance by more than thirty-five (35) miles;
(4)
The Company (or any successor thereto) materially breaches its obligations under this Agreement or any other then-effective employment agreement with Executive; or
(5)
Any acquirer, successor or assignee of the Company fails to assume and perform, in any material respect, the obligations of the Company hereunder; and
(ii)
Executive provides written notice to the Company’s Board within the thirty (30) day period immediately following such action; and
(iii)
Such action is not remedied by the Company within thirty (30) days following the Company’s receipt of such written notice; and
(iv)
Executive’s resignation is effective not later than sixty (60) days after the expiration of such thirty (30) day cure period.
The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Good Reason.
(d)
Definition of Change of Control.
For purposes of this Agreement, “Change of Control” shall mean:
(i)
A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “
Exchange Act
”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(ii)
During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the “
Board
”) together with any new director(s) (other than a director designated by a person who shall have entered into
an agreement with the Company to effect a transaction described in Section 3(c)(i) or Section 3(c)(ii)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii)
The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(1)
Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the
“Successor Entity”
)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(2)
After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity;
provided, however,
that no person or group shall be treated for purposes of this Section 3(c)(iii)(2) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv)
The Company’s stockholders approve a liquidation or dissolution of the Company.
The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.
4.
COMPLIANCE WITH SECTION 409A.
(a)
It is intended that each installment of the payments and benefits provided for in this Agreement is a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is also intended that payments of the amounts set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”
) (Section 409A of the Code, together, with any state law of similar effect,
“Section 409A”
) provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9).
(b)
Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that constitutes “nonqualified deferred compensation” (“
Deferred Compensation
”) within the meaning of Section 409A, and which is designated under this Agreement as payable upon Executive’s termination of employment shall be
payable only upon Executive’s “separation from service” with the Company within the meaning of Section 409A (a “
separation from service
”) and, except as provided under Section 4(c) of this Agreement, any such compensation or benefits shall not be paid or commence until the sixtieth (60th) day following Executive’s separation from service.
(c)
Notwithstanding the foregoing, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Payment, the Change of Control Payment and/or other benefits provided under this Agreement (the
“Agreement Payments”
) constitute “deferred compensation” under Section 409A and Executive is, on the Termination Date, a “specified employee” of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Agreement Payments shall be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after Executive’s “separation from service” (as defined above) or (ii) the date of Executive’s death (such earlier date, the
“Delayed Initial Payment Date”
), the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Agreement Payments that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Agreement Payments had not been so delayed pursuant to this Section 4(b) and (B) commence paying the balance of the Agreement Payments in accordance with the applicable payment schedules set forth in this Agreement.
5.
To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred;
provided
, that Executive submits his or her reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executive’s right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit. INTERNAL REVENUE CODE SECTION 280G.
(a)
If the payments and benefits (including but not limited to payments and benefits pursuant to this Agreement) that Executive would receive in connection with a change of control of the Company, whether from the Company or otherwise (a
“Transaction Payment”
) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”
), then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to Executive, which of the following two alternative forms of payment would result in Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that all or some portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction Payment (a
“Full Payment”
), or (2) payment of only a part of the Transaction Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a
“Reduced Payment”
).
(b)
For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) Executive shall have no rights to any
additional payments and/or benefits constituting the Transaction Payment, and (ii) reduction in payments and/or benefits shall occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits (if any) paid to Executive. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant.
(c)
The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the Termination Date shall make all determinations required to be made under this Section 5. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder.
(d)
The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Transaction Payment is triggered or such other time as reasonably requested by the Company or Executive. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to the Transaction Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with detailed supporting calculations of its determinations that no Excise Tax will be imposed with respect to such Transaction Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.
6.
DISPUTE RESOLUTION
. Any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract or statute, or concerning the interpretation, performance, or execution of this Agreement (including any determination of Cause or Good Reason hereunder) shall be resolved by confidential, final and binding arbitration administered by Judicial Arbitration and Mediation Services, Inc. (
“JAMS”
), in San Francisco, California, before a single arbitrator, in accordance with JAMS’ then applicable arbitration rules.
Executive
acknowledges that by agreeing to this arbitration procedure, Executive and the Company waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding.
Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. Company shall bear all JAMS fees for the arbitration. Nothing in this Agreement shall prevent any of the parties from obtaining injunctive relief in court if necessary to prevent irreparable harm pending the conclusion of any arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in any court of competent jurisdiction.
7.
GENERAL PROVISIONS.
(a)
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between Company and Executive with regard to the payments and benefits described herein, and it supersedes and replaces any and all other agreements (whether written or unwritten) Executive may have with the Company concerning severance benefits or change of control benefits (including but not limited to the Prior Agreement, any letter agreements issued regarding the Prior Agreement, and the provisions of Executive’s Offer Letter concerning severance benefits or change of control benefits);
provided
,
however
, that nothing herein shall affect any plan document or agreements governing any compensatory equity awards that have been or may be granted to Executive, which shall remain in full force and effect. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. This Agreement may not be modified or amended except in a written agreement approved by the Compensation Committee and signed by Executive and a duly authorized officer of the Company.
(b)
Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
(c)
Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(d)
This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
(e)
This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California.
(f)
Any ambiguity in this Agreement shall not be construed against either party as the drafter.
[Signature Page Follows]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date written below.
/s/ John A. Kollins
JOHN A. KOLLINS
TRANSCEPT PHARMACEUTICALS, INC.
/s/ Glenn A. Oclassen
Name: Glenn A. Oclassen
Title: President and Chief Executive Officer
EXHIBIT A
FORM OF RELEASE AGREEMENT
As provided in the
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
dated August 5, 2013 (the “
Agreement
”) between me and Transcept Pharmaceuticals, Inc. (the “
Company
”), I will be eligible for certain Severance Benefits or Change of Control Benefits if I enter into this Release Agreement (the “
Release
”). I am not relying on any promise or representation by the Company that is not expressly stated in the Agreement. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby acknowledge and reaffirm my obligations under my Confidentiality Agreement with the Company.
In consideration of the Severance Benefits or Change of Control Benefits, and other consideration, provided to me under the Agreement that I am not otherwise entitled to receive, and except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “
Released Parties
”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “
Released Claims
”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment; (2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“
ADEA
”), the federal Employee Retirement Income Security Act of 1974 (as amended), the California Fair Employment and Housing Act (as amended), and the California Labor Code.
Notwithstanding the foregoing, the following are not included in the Released Claims (the “
Excluded Claims
”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; or (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (1) the Released Claims do not apply to any rights or claims that arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily sign it sooner)
[
for those Executive terminated as part of a group termination, substitute the following language – I have forty-five (45) days to consider this Release (although I may choose to voluntarily sign it sooner)
]
; (4) I have seven (7) days following the date I sign this Release to revoke the Release by providing written notice to the Company; and (5) the Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release.
[
For those Executives terminated as part of a group termination, add the following language —I have received with this Release all of the information required by the ADEA, including without limitation a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated, along with information on the eligibility factors used to select employees for the group termination and any time limits applicable to this group termination program
]
.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I acknowledge that to become effective, I must: (1) sign and return this Release to the Company within twenty-one (21) days
[
for those Executives terminated as part of a group termination, substitute the following – forty-five (45) days
]
after I am requested to sign it by the Company or its successor (as applicable); and (2) I must not revoke it thereafter.
JOHN A. KOLLINS
Date:
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
This
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
(the
“Agreement”
) is effective the fifteenth day of July 2013 (the
“Effective Date”
), between
TRANSCEPT PHARMACEUTICALS, INC.
(the
“Company”
) and Leone Patterson (
“Executive”
). This Agreement amends and restates in its entirety that certain Change of Control and Severance Benefits Agreement by and between the Executive and the Company dated as of May 22, 2012, as amended (the “
Prior Agreement
”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.
WHEREAS
, Executive is currently employed by the Company pursuant to the terms of Executive’s offer letter with the Company, dated May 22, 2012 (the
“Offer Letter”
); and
WHEREAS
, the Company believes it is imperative to provide Executive with certain severance benefits in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) in circumstances unrelated to a Change of Control (as defined herein);
WHEREAS
, the Company believes it is imperative to provide Executive with certain change of control severance benefits, including certain equity acceleration, in the event that Executive’s employment is terminated by the Company without Cause (as defined herein) or by Executive with Good Reason (as defined herein) in connection with a Change of Control (as defined herein); and
WHEREAS
, the Company believes it is in the best interests of the Company to amend and restate the Prior Agreement in its entirety, such that the Prior Agreement shall be of no further force or effect as of the Effective Date.
NOW, THEREFORE
, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:
1.
TERM OF AGREEMENT.
The term of this Agreement shall commence on the Effective Date and shall continue through May 22, 2017 (the
“Expiration Date”
), and if not amended or renewed by the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”
) prior to the Expiration Date, this Agreement shall terminate automatically on such Expiration Date. Notwithstanding the foregoing, the Company agrees that during the one-year period before the Expiration Date, the Compensation Committee shall undertake to review this Agreement and the severance benefits and change of control severance benefits provided herein in good faith, with the assistance of the Company’s outside advisors and compensation consultants, in order to determine, based upon the then current market conditions or any other factors deemed relevant by the Compensation Committee,
the appropriateness of continuing this Agreement after the Expiration Date, or whether it would be more appropriate for the Company to amend or terminate this Agreement as of the Expiration Date.
2.
TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a)
At-Will Employment.
Executive’s employment is at-will, which means that the Company may terminate Executive’s employment at any time, with or without advance notice, and
with or without Cause (as defined herein). Similarly, Executive may resign Executive’s employment at any time, with or without advance notice, and with or without reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits or change of control severance benefits, following Executive’s last day of employment with the Company (the
“Termination Date”
), except as expressly provided for by this Agreement, applicable law, and/or any plan documents governing the compensatory equity awards that have been or may be granted to Executive from time to time in the sole discretion of the Company.
(b)
Termination Without Cause Unrelated to a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability) at any time (except for the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control),
(ii)
Executive signs and allows to become effective a general release of all known and unknown claims in the form provided by the Company, which form shall be substantially in the form attached hereto as
Exhibit A
) (the “
Release
”) within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if Executive has not, unless such non-compliance is not capable of being cured); then the Company shall provide Executive with the following severance benefits (the “
Severance Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
twelve (12) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Severance Payment
”). The Severance Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (together with any state or local laws of similar effect,
“COBRA”
) within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the Termination Date (including coverage for Executive’s eligible dependents) for a maximum period of
twelve (12) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(c)
Termination Without Cause or Resignation for Good Reason Within Twelve Months After a Change of Control.
If:
(i)
Executive’s employment is terminated without Cause (and other than as a result of Executive’s death or disability), or if Executive resigns for Good Reason, during the time period commencing on the date of the consummation of a Change of Control and ending twelve (12) months after a Change of Control,
(ii)
Executive signs and allows to become effective the Release within sixty (60) days after the Termination Date, and
(iii)
Executive fully complies with Executive’s continuing fiduciary, statutory and material contractual obligations to the Company (with a 30-day opportunity to cure after notice of any such non-compliance if he or
she has not, unless such non-compliance is not reasonably capable of being cured); then the Company shall provide Executive with the following change of control severance benefits (the “
Change of Control Benefits
”):
(i)
The Company shall make a single lump sum severance payment to Executive in an amount equal to
fifteen (15) months of Executive’s Base Annual Salary
, less required tax withholdings and deductions (the “
Change of Control Payment
”). The Change of Control Payment will be paid within sixty (60) days after the Termination Date, but in no event later than March 15 of the year following the year of the Termination Date.
(ii)
Provided that Executive elects continued coverage under COBRA within the time period provided for under COBRA, the Company will pay directly or, at its election, reimburse Executive the amount of the premiums necessary to continue Executive’s group health (including dental and vision) insurance coverage in effect as of the termination date of Executive’s employment (including coverage for Executive’s eligible dependents) for a maximum period of
fifteen (15) months
following the Termination Date;
provided
,
however
, that no premium payments will be made by the Company pursuant to this paragraph following the effective date of Executive’s coverage by a health (including dental and vision) insurance plan of a subsequent employer or such other date on which Executive (and Executive’s dependents, as applicable) cease to be eligible for COBRA coverage. Executive agrees that Executive shall notify the Company in writing as soon as practical, but no later than 15 days after Executive receives coverage under a health insurance plan of a subsequent employer.
(iii)
After taking into account any additional acceleration of vesting Executive may be entitled to receive under any other plan or agreement, the Company shall cause all outstanding equity awards then held by Executive (including, without limitation, stock options, stock appreciation rights, restricted stock or similar awards) to become
fully vested
and, if applicable, exercisable with respect to all the shares subject thereto effective immediately prior to the Termination Date. After giving effect to any acceleration of vesting of Executive’s outstanding equity awards, all outstanding options to purchase Company common stock then held by Executive that are (x) vested and exercisable as of the Termination Date and (y) designated by the Board or the Board’s compensation committee on the date of grant of such option or anytime thereafter as being eligible for extended exercisability (such option, an “
Extension Eligible Option
”) shall remain exercisable until the earlier of (A) the
third (3
rd
) anniversary of Executive’s Termination Date
or (B) the original expiration date of the applicable Extension Eligible Option. If Executive has not exercised the Extension Eligible Options in accordance with the procedures set forth in Executive’s option agreements by such date, such Extension Eligible Options shall terminate and be of no further effect. In all other respects, Executive’s equity awards shall continue to be governed by the terms of the applicable award agreements and equity incentive plan documents and any applicable agreements between the Company and Executive.
(d)
Deemed Resignation; No Requirement to Mitigate; Survival
. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its affiliates, and, at the Company’s request, Executive shall execute such documents as are necessary or desirable to effectuate such resignations. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. Notwithstanding
anything to the contrary in this Agreement, the termination of Executive’s employment shall not impair the rights or obligations of any party.
3.
DEFINITIONS.
(a)
Definition of Base Annual Salary.
For purposes of this Agreement, “
Base Annual Salary
” shall mean Executive’s annualized base salary in effect immediately prior to the Termination Date. Base Annual Salary does not include variable forms of compensation such as but not limited to bonuses, incentive compensation, commissions, benefits, equity, expenses, or expense allowances.
(b)
Definition of Cause.
For the purposes of this Agreement, “
Cause
” shall mean any one or more of the following:
(iv)
Executive is convicted of (or pleads guilty or no contest to) any felony or any crime involving moral turpitude;
(v)
Executive participates in any material fraud, material act of dishonesty, or other act of intentional and material misconduct against the Company;
(vi)
Executive intentionally damages or willfully misappropriates any property of the Company that in any case has a material adverse effect on the Company;
(vii)
Executive materially breaches any fiduciary, statutory, or contractual duty Executive owes to the Company (including, but not limited to, any breach of the Company’s Confidentiality Agreement);
(viii)
Executive regularly and materially fails to diligently and successfully perform Executive’s assigned duties;
(ix)
Executive fails to cooperate with the Company in any investigation or proceeding by any governmental or similar authority or as otherwise authorized by the Board of Directors or a committee thereof; or
(x)
Executive is found liable in an SEC action and/or is disqualified by the SEC from serving in an executive role.
The determination that a termination is for Cause shall be made by the Company in its sole discretion;
provided, however,
that in the event that any of the foregoing events occurs, the Company shall provide written notice to Executive making reference to this Section describing the nature of such event and Executive shall thereafter have thirty (30) days to cure such event if such event is capable of being cured.
(c)
Definition of Good Reason
. For purposes of this Agreement, “Good Reason” means that Executive resigns Executive’s employment with the Company (or any successor thereto) if and only if:
(i)
One of the following actions has been taken without Executive’s express written consent:
(1)
There is a material reduction in Executive’s Base Annual Salary from the Base Annual Salary in effect immediately preceding the Change of Control;
(2)
There is a material change in Executive’s position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive’s position or responsibilities from those in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter;
provided
,
however
, that a Change of Control which results in the subsequent conversion of the Company to a division or unit of the acquiring corporation will not by itself result in a material reduction in Executive’s level of responsibility;
(3)
Executive is required to relocate Executive’s principal place of employment to a facility or location that would increase Executive’s one way commute distance by more than thirty-five (35) miles;
(4)
The Company (or any successor thereto) materially breaches its obligations under this Agreement or any other then-effective employment agreement with Executive; or
(5)
Any acquirer, successor or assignee of the Company fails to assume and perform, in any material respect, the obligations of the Company hereunder; and
(ii)
Executive provides written notice to the Company’s Board within the thirty (30) day period immediately following such action; and
(iii)
Such action is not remedied by the Company within thirty (30) days following the Company’s receipt of such written notice; and
(iv)
Executive’s resignation is effective not later than sixty (60) days after the expiration of such thirty (30) day cure period.
The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Good Reason.
(d)
Definition of Change of Control.
For purposes of this Agreement, “Change of Control” shall mean:
(i)
A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “
Exchange Act
”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(ii)
During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the “
Board
”) together with any new director(s) (other than a director designated by a person who shall have entered into
an agreement with the Company to effect a transaction described in Section 3(c)(i) or Section 3(c)(ii)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii)
The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(1)
Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the
“Successor Entity”
)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(2)
After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity;
provided, however,
that no person or group shall be treated for purposes of this Section 3(c)(iii)(2) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv)
The Company’s stockholders approve a liquidation or dissolution of the Company.
The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.
4.
COMPLIANCE WITH SECTION 409A.
(a)
It is intended that each installment of the payments and benefits provided for in this Agreement is a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is also intended that payments of the amounts set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”
) (Section 409A of the Code, together, with any state law of similar effect,
“Section 409A”
) provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9).
(b)
Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that constitutes “nonqualified deferred compensation” (“
Deferred Compensation
”) within the meaning of Section 409A, and which is designated under this Agreement as payable upon Executive’s termination of employment shall be
payable only upon Executive’s “separation from service” with the Company within the meaning of Section 409A (a “
separation from service
”) and, except as provided under Section 4(c) of this Agreement, any such compensation or benefits shall not be paid or commence until the sixtieth (60th) day following Executive’s separation from service.
(c)
Notwithstanding the foregoing, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Payment, the Change of Control Payment and/or other benefits provided under this Agreement (the
“Agreement Payments”
) constitute “deferred compensation” under Section 409A and Executive is, on the Termination Date, a “specified employee” of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Agreement Payments shall be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after Executive’s “separation from service” (as defined above) or (ii) the date of Executive’s death (such earlier date, the
“Delayed Initial Payment Date”
), the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Agreement Payments that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Agreement Payments had not been so delayed pursuant to this Section 4(b) and (B) commence paying the balance of the Agreement Payments in accordance with the applicable payment schedules set forth in this Agreement.
5.
To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred;
provided
, that Executive submits his or her reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executive’s right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit. INTERNAL REVENUE CODE SECTION 280G.
(a)
If the payments and benefits (including but not limited to payments and benefits pursuant to this Agreement) that Executive would receive in connection with a change of control of the Company, whether from the Company or otherwise (a
“Transaction Payment”
) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”
), then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to Executive, which of the following two alternative forms of payment would result in Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that all or some portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction Payment (a
“Full Payment”
), or (2) payment of only a part of the Transaction Payment so that Executive receives the largest payment possible without the imposition of the Excise Tax (a
“Reduced Payment”
).
(b)
For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, (i) Executive shall have no rights to any
additional payments and/or benefits constituting the Transaction Payment, and (ii) reduction in payments and/or benefits shall occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits (if any) paid to Executive. In the event that acceleration of compensation from Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant.
(c)
The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the Termination Date shall make all determinations required to be made under this Section 5. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder.
(d)
The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Transaction Payment is triggered or such other time as reasonably requested by the Company or Executive. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to the Transaction Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with detailed supporting calculations of its determinations that no Excise Tax will be imposed with respect to such Transaction Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.
6.
DISPUTE RESOLUTION
. Any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract or statute, or concerning the interpretation, performance, or execution of this Agreement (including any determination of Cause or Good Reason hereunder) shall be resolved by confidential, final and binding arbitration administered by Judicial Arbitration and Mediation Services, Inc. (
“JAMS”
), in San Francisco, California, before a single arbitrator, in accordance with JAMS’ then applicable arbitration rules.
Executive
acknowledges that by agreeing to this arbitration procedure, Executive and the Company waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding.
Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. Company shall bear all JAMS fees for the arbitration. Nothing in this Agreement shall prevent any of the parties from obtaining injunctive relief in court if necessary to prevent irreparable harm pending the conclusion of any arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in any court of competent jurisdiction.
7.
GENERAL PROVISIONS.
(a)
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between Company and Executive with regard to the payments and benefits described herein, and it supersedes and replaces any and all other agreements (whether written or unwritten) Executive may have with the Company concerning severance benefits or change of control benefits (including but not limited to the Prior Agreement, any letter agreements issued regarding the Prior Agreement, and the provisions of Executive’s Offer Letter concerning severance benefits or change of control benefits);
provided
,
however
, that nothing herein shall affect any plan document or agreements governing any compensatory equity awards that have been or may be granted to Executive, which shall remain in full force and effect. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. This Agreement may not be modified or amended except in a written agreement approved by the Compensation Committee and signed by Executive and a duly authorized officer of the Company.
(b)
Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
(c)
Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(d)
This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
(e)
This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California.
(f)
Any ambiguity in this Agreement shall not be construed against either party as the drafter.
[Signature Page Follows]
IN WITNESS WHEREOF
, the parties have executed this Agreement as of the date written below.
/s/ Leone Patterson
LEONE PATTERSON
TRANSCEPT PHARMACEUTICALS, INC.
/s/ Glenn A, Oclassen
Name: Glenn A. Oclassen
Title: President and Chief Executive Officer
EXHIBIT A
FORM OF RELEASE AGREEMENT
As provided in the
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE BENEFITS AGREEMENT
dated August 5, 2013 (the “
Agreement
”) between me and Transcept Pharmaceuticals, Inc. (the “
Company
”), I will be eligible for certain Severance Benefits or Change of Control Benefits if I enter into this Release Agreement (the “
Release
”). I am not relying on any promise or representation by the Company that is not expressly stated in the Agreement. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby acknowledge and reaffirm my obligations under my Confidentiality Agreement with the Company.
In consideration of the Severance Benefits or Change of Control Benefits, and other consideration, provided to me under the Agreement that I am not otherwise entitled to receive, and except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “
Released Parties
”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “
Released Claims
”). The Released Claims include, but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment; (2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“
ADEA
”), the federal Employee Retirement Income Security Act of 1974 (as amended), the California Fair Employment and Housing Act (as amended), and the California Labor Code.
Notwithstanding the foregoing, the following are not included in the Released Claims (the “
Excluded Claims
”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; or (2) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (1) the Released Claims do not apply to any rights or claims that arise after the date I sign this Release; (2) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily sign it sooner)
[
for those Executive terminated as part of a group termination, substitute the following language – I have forty-five (45) days to consider this Release (although I may choose to voluntarily sign it sooner)
]
; (4) I have seven (7) days following the date I sign this Release to revoke the Release by providing written notice to the Company; and (5) the Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release.
[
For those Executives terminated as part of a group termination, add the following language —I have received with this Release all of the information required by the ADEA, including without limitation a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated, along with information on the eligibility factors used to select employees for the group termination and any time limits applicable to this group termination program
]
.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I acknowledge that to become effective, I must: (1) sign and return this Release to the Company within twenty-one (21) days
[
for those Executives terminated as part of a group termination, substitute the following – forty-five (45) days
]
after I am requested to sign it by the Company or its successor (as applicable); and (2) I must not revoke it thereafter.
LEONE PATTERSON
Date:
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this “
Agreement
”) is made as of September 24, 2013 (the “
Effective Date
”) by and between Shin Nippon Biomedical Laboratories, Ltd., a Japanese corporation with a principal place of business at 2438 Miyanoura, Kagoshima-shi, Kagoshima-ken 891-1394, Japan (“
SNBL
”), and Transcept Pharmaceuticals, Inc. a Delaware company with a principal place of business at 1003 West Cutting Boulevard, Point Richmond, California 94804, U.S.A. (“
TRANSCEPT
”). In this Agreement, either SNBL or TRANSCEPT may be referred to individually as a “
Party
”, or collectively as the “
Parties
”.
BACKGROUND
A.
SNBL owns or controls certain proprietary nasal drug delivery technology currently known as the [***] technology comprising a nasal powder formulation delivered by a specialized nasal drug delivery device;
B.
TRANSCEPT is developing the Compound (as defined in Section 1.5);
C.
SNBL and TRANSCEPT have entered into that certain Feasibility Study and Option-for-License Agreement dated May 20, 2013 (the “
Feasibility Agreement
”);
D.
TRANSCEPT desires to exercise its option under the Feasibility Agreement to obtain a license to develop and commercialize products that combine SNBL’s proprietary nasal drug delivery technology with the Compound, and SNBL desires to grant TRANSCEPT such a license, all as set forth in more detail and on the terms and conditions set forth herein below.
NOW, THEREFORE
, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the Parties agree as follows:
ARTICLE 1
DEFINITIONS / INTERPRETATION
1.1
“
Accounting Standards
” means (a) with respect to TRANSCEPT and calculations to be performed by TRANSCEPT, the generally accepted accounting principles (“
GAAP
”) of the United States, and (b) with respect to SNBL and calculations to be performed by SNBL, the generally accepted accounting principles in Japan or the International Financial Reporting Standards, in each case (a) and (b) as consistently applied by such Party throughout its enterprise.
1.2
“
Acquiring Entity
” means a Third Party (a) that merges or consolidates with or acquires a Party or an Affiliate of a Party, or (b) to which a Party or an Affiliate of a Party transfers all or substantially all of its assets to which this Agreement pertains.
1.3
“Affiliate
” means, with respect to a Person, any other Person that, directly or indirectly, through one or more intermediaries, owns or controls, is owned or controlled by or is under common control with the first Person, in each case only for so long as such control exists.
For purposes of this definition, “control” means (a) direct or indirect ownership of more than fifty percent (50%) (or, if less than or equal to fifty percent (50%), the maximum ownership interest permitted by applicable Laws) of the stock or shares having the right to vote for the election of directors of such corporate entity or (b) the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of such entity, whether through the ownership of voting securities, by contract or otherwise.
1.4
“
Commercially Reasonable Efforts
” means, with respect to the development, manufacture and/or commercialization of a Product and any other activities conducted under the Agreement with respect to a Product, the level of efforts and resources commonly used in the pharmaceutical or biotechnology industry by a similarly situated company of similar size and resources in the exercise of its reasonable business discretion with respect to a product at a similar stage in its development or product life, that is of similar commercial potential, taking into account actual or potential issues including, but not limited to, issues relating to efficacy, safety, manufacturing, quality, supply, regulatory or market exclusivity, patents and intellectual property protection, product profile, labeling, pricing, reimbursement, distribution, market potential, competitive conditions, the regulatory environment, and any other technical, legal, scientific, medical, operational or commercial factors that could reasonably be expected to affect profitability of the product.
1.5
“
Compound
”
means the compound known as Dihydroergotamine or DHE, [***].
1.6
“
Control
” means, with respect to particular Know-How or a particular Patent, possession by the Party granting the applicable right, license or sublicense to the other Party as provided herein of the power and authority, whether arising by ownership, license, or other authorization, to disclose and deliver the particular Know-How to the other Party, and to grant and authorize under such Know-How or Patent the right, license or sublicense, as applicable, of the scope granted to such other Party in this Agreement without giving rise to a violation of the terms of any written agreement with any Third Party; provided, however, that for rights acquired or licensed from Third Parties after the Effective Date, no additional payment is due to such Third Parties as a result of the grant or exercise of such right, license or sublicense, or otherwise such other Party agrees to pay such additional payment due to such Third Parties for such right, license or sublicense. “
Controlled
” and “
Controlling
” have their correlative meanings. Notwithstanding anything to the contrary in this Agreement, the following shall not be deemed to be Controlled by a Party or its Affiliates: (i) any technology owned or controlled by any Acquiring Entity immediately prior to the effective date of merger, consolidation, acquisition or transfer with such Party or its Affiliate, and (ii) any technology that any Acquiring Entity subsequently (x) develops without accessing or practicing the subject matter within the Licensed Technology or (y) licenses or otherwise obtains or acquires from a Third Party, in each case (x) and (y) after the effective date of merger, consolidation, acquisition or transfer with such Party or its Affiliate.
1.7
“
Cover
” means, with respect to any subject matter, that the manufacture, use, sale, offering for sale, importation, exportation or other exploitation of such subject matter would infringe a claim of a Patent at the time thereof. For clarity, with respect to a claim within a patent application,
2
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
“Cover” includes infringing a claim in such patent application if it was issued as then prosecuted. “
Covered
” or “
Covering
” shall have their correlative meanings.
1.8
“
Device
” means the single-use version of SNBL’s proprietary nasal delivery device [***] as further described in
Exhibit 1.8
.
1.9
“
Device Master File
” means a master file as defined in 21 CFR §814.3, or a comparable submission of manufacturing or other information with respect to any medical device product (or any component thereof) to a Regulatory Authority made in accordance with applicable Laws by a Person who intends to authorize other Persons to rely on the information to support a submission to such Regulatory Authority without the holder of such master file having to disclose the information to the other Person(s).
1.10
“
Device Specifications
” means those specifications for the Device set forth on
Exhibit 1.8
, as modified by mutual agreement of the Parties (such agreement not to be withheld if such modification is reasonably necessary to support a Regulatory Approval Application).
1.11
“
EU
” shall mean all member states of the European Union as may be updated from time to time.
1.12
“
FDA
” means the United States Food and Drug Administration and any successor agency thereto performing similar functions.
1.13
“
Field
” means the treatment of any disease or other condition in humans.
1.14
“
First Commercial Sale
” means the first sale for consideration to a Third Party of the Product to be used for commercial purposes in a given regulatory jurisdiction of the Territory after all applicable Regulatory Approvals required prior to commercial sale of the Product in such jurisdiction has been obtained. Sales or other transfers for clinical studies, compassionate use, named patient programs, sales under a treatment IND, test marketing or any non-registration studies where the Product is supplied by or under the authority of TRANSCEPT shall not constitute a First Commercial Sale.
1.15
“
Formulation Technology
” means SNBL’s proprietary nasal drug delivery formulation technology as further described on
Exhibit 1.15
, including its powdery drug carrier [***].
1.16
“
Generic Product
” means, with respect to a Product, any pharmaceutical product that [***].
1.17
“
Invention
” means any discovery, finding, invention, technology or any improvement thereof, whether patentable or not, that is conceived or reduced to practice during the performance of this Agreement, individually or jointly, by or on behalf of the Parties.
1.18
“
Know-How
” means any data, results, technology, business information and other information of any type whatsoever, in any tangible or intangible form, including know-how, trade secrets, practices, techniques, methods, processes, inventions, developments, specifications,
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
formulations, formulae, materials or compositions of matter of any type or kind (patentable or otherwise), software, algorithms, marketing reports, expertise, technology, test data (including pharmacological, biological, chemical, biochemical, toxicological, research, preclinical and clinical test data (including original patient report forms, investigator reports, clinical protocols, statistical analyses, expert opinions and reports)), manufacturing data (including, analytical and quality control data, stability data, other study data and procedures and other chemistry, manufacturing and control (CMC) data), safety or other adverse reaction files and complaint files, presentations and papers from academic meetings or market research, in each case, together with all supporting data and raw source data therefor; provided, however, Know-How shall exclude any and all patient‑specific and other similar data to the extent such exclusion is required by Laws. Know-How excludes any and all Patents.
1.19
“
Law
” means, individually and collectively, any and all laws, ordinances, orders, rules, rulings, directives and regulations of any kind whatsoever of any Regulatory Authority, other governmental authority or court of competent jurisdiction within the applicable jurisdiction .
1.20
“
Licensed Technology
” means the Licensed Know-How and Licensed Patents.
1.20.1
“
Licensed Know-How
” means any and all Know-How Controlled by SNBL and its Affiliates during the Term, including all Know-How developed by or on behalf of SNBL (solely or jointly with TRANSCEPT) in the performance of activities under this Agreement, including any SNBL Technology Improvements and Joint Inventions, that is reasonably necessary for the development, manufacture, sale, use, offer for sale or importation of the Product; provided that Licensed Know-How shall exclude such Know-How, if and to the extent such items (i) are specifically directed to, and do not have general applicability apart from, the delivery of [***] other than the Compound; or (ii) relate to SNBL’s proprietary [***] testing methods.
1.20.2
“
Licensed Patents
” means (i) the Patents listed on
Exhibit 1.20.2
and (ii) any other Patents Controlled by SNBL or its Affiliates during the Term (solely or jointly with TRANSCEPT), including Patents claiming any SNBL Technology Improvements or Joint Inventions, which claim (specifically or generically) (a) composition of the Product, or (b) methods for the manufacture or use of the Product.
1.21
“
NDA
” means a New Drug Application, as described in the FDA regulations, 21 CFR §314.50, including all amendments and supplements thereto, or similar applications filed with a Regulatory Authority in any other jurisdiction.
1.22
“
Net Sales
” means the total amount invoiced or otherwise billed by TRANSCEPT and its sublicensees for sales or other commercial dispositions of the Product less the following (collectively, “
Net Sales Deductions
”): (a) transportation charges, freight, postage, shipping and insurance (but only insurance related to protecting the particular shipment against physical loss or damage); (b) taxes (other than taxes based on income), tariffs, customs duty, surcharges, excise or other duty and any other governmental charges, all to the extent imposed upon the sale, transportation or delivery of the Product and paid by the seller; (c) trade discounts, quantity discounts, cash discounts, rebates, allowances, credits or charge backs; (d) other adjustments, allowances or credits (calculated on a per unit basis) to customers relating to the Product; (e) provisions for bad debts
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
(net of any bad debts later recovered); and (f) provision for product returns, including for recalls or damaged goods. Net Sales and Net Sales Deductions in territories outside the US will be calculated as described in Section 7.6 for the given royalty calculation period. Net Sales and Net Sales Deductions shall be calculated in accordance with Accounting Standards (as applied to TRANSCEPT) in a manner consistent with TRANSCEPT’s existing accounting policies as applied to similar transactions and will be denominated in US dollars. Sales of the Product between TRANSCEPT and its sublicensees shall be excluded from the computation of Net Sales if such sales are not intended for end use, but Net Sales shall include the subsequent final sales to Third Party customers by TRANSCEPT or any such sublicensees. If a sale, transfer or other disposition with respect to the Product involves consideration other than cash or is not at arm’s length, then the Net Sales from such sale, transfer or other disposition shall be the arm’s length fair market value, which generally will mean the selling party’s average sales price (excluding Net Sales that are not at arm’s length) for the calendar quarter in the country where such sale took place. A sale or other commercial disposition of Product is deemed to occur upon the invoicing or billing therefor by TRANSCEPT or its sublicensee, as applicable. Any Products used (but not sold for more than nominal consideration) for sample, promotional, advertising or humanitarian purposes or used (but not sold for more than nominal consideration) for clinical or other research purposes shall not be considered in determining Net Sales hereunder.
1.23
“
Non-Product-Specific Patent
” means any Licensed Patent that is not a Product-Specific Patent.
1.24
“
Patent
” means any of the following, whether existing now or in the future anywhere in the world: (a) any issued patent, including inventor's certificates, substitutions, extensions, confirmations, reissues, reexamination, renewal or any like governmental grant for protection of inventions; and (b) any pending application for any of the foregoing, including any continuation, divisional, substitution, continuations-in-part, provisional and converted provisional applications. Patents exclude any and all Know-How.
1.25
“
Person
” means any individual, partnership, joint venture, limited liability company, corporation, firm, trust, association, unincorporated organization, Regulatory Authority, or any other entity not specifically listed herein.
1.26
“
Phase III Clinical Trial
” means a human clinical trial, the principal purpose of which is to establish safety and efficacy in patients with the condition being studied, as further described in 21 CFR §312.21(c), or which is designed and intended to be of a size and statistical power sufficient to serve as a pivotal study to support the filing of a Regulatory Approval Application for the condition being studied (including in either case any such clinical study in any country other than the United States).
1.27
“
Product
” means the product consisting of (i) a pharmaceutical product containing the Compound, as the only active pharmaceutical ingredient, formulated using the Formulation Technology and (ii) the Device that contains such pharmaceutical product.
1.28
“
Product-Specific Claim
” means any Patent claim that recites specifically the Product. For clarity, Product-Specific Claims [***].
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
1.29
“
Product-Specific Patent
” means any Licensed Patent that only contains Product-Specific Claims.
1.30
“
Prosecution and Maintenance
” means, with respect to a Patent, the preparing, filing, prosecuting and maintenance of such Patent, as well as reexaminations, reissues, requests for Patent term extensions and the like with respect to such Patent, together with the conduct of interferences, the defense of oppositions, inter partes review, supplemental examination, and other similar proceedings with respect to the particular Patent; and “
Prosecute and Maintain
” shall have the correlative meaning.
1.31
“
Regulatory Approval
” means all approvals or clearances (including, where applicable, pricing and reimbursement approval and schedule classifications), product or establishment licenses, registrations or authorizations of any Regulatory Authority, necessary for the manufacture, use, storage, import, export, transport, offer for sale, sale and marketing of a pharmaceutical product or medical device or combination thereof, as applicable, in a regulatory jurisdiction.
1.32
“
Regulatory Approval Application
” an application for Regulatory Approval (including NDA) filed with or submitted to any Regulatory Authority to obtain permission to initiate marketing and sales of the Product for the Field within the applicable regulatory jurisdiction.
1.33
“
Regulatory Authority
” means any governmental regulatory authority (whether regional, federal, state or local) that regulates the development, manufacture, market approval, sale, distribution, packaging or use of any pharmaceutical product or medical device or combination thereof for the Field, including the FDA.
1.34
“
Regulatory Material
” means regulatory applications, submissions, notifications, communications, correspondence, registrations, Regulatory Approvals or other filings made to, received from or otherwise conducted with any Regulatory Authorities responsible for the acceptance, review or approval thereof (including minutes of meeting with such Regulatory Authorities) that are reasonably necessary for the development, manufacture, marketing, sale or other commercialization of the Product in a particular country or regulatory jurisdiction. Regulatory Materials include Regulatory Approval Applications.
1.35
“
SNBL Competitor
” means any Person [***].
1.36
“
Territory
” means the entire world.
1.37
“
Third Party
” means any Person other than SNBL or TRANSCEPT or any Affiliate of either Party.
1.38
“
Valid Claim
” means a claim within an issued patent or pending patent application that has not expired, lapsed, or been cancelled or abandoned, and that has not been dedicated to the public, disclaimed, or held unenforceable, invalid, or been cancelled by a court or administrative agency of competent jurisdiction in an order or decision from which no appeal has been or can be taken, including through opposition, re-examination, reissue or disclaimer; provided that, on a
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
country-by-country basis, a claim in a patent application pending for more than [***], after the earliest filing date to which such claim is entitled, shall not be considered a Valid Claim for purposes of this Agreement unless and until a patent issues with such claim.
1.39
Additional Definitions.
Each of the following terms shall have the meaning described in the corresponding Section of this Agreement indicated below:
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Term
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Section
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Indemnitee
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11.2
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Adverse Drug Experience
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5.3
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Infringing Product
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9.4.1
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Adverse Drug Reaction
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5.3
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[***]
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[***]
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Annual Net Sales
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7.3
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JAMS
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13.2.2
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Backup CMO
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6.3.3
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JAMS Rules
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13.2.2
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cGMP
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6.2.9
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JDC
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3.1.1
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Commercial Milestone Event
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7.3
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Joint Invention
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9.1.2
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Commercial Milestone Payment
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7.3
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Material Supply Delay
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6.2.4
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Commercialization Plan
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4.2.2
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Net Sales Deductions
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1.22
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Competing Activities
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2.2
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Non-Conforming Devices
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6.2.10
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Competing Product
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2.2
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Prior CDA
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8.1.6
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Confidential Information
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9.1.1
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Product Development Plan
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4.1.1
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Controlling Party
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9.4.4
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Product Trademarks
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4.1.1
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Cooperating Party
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9.4.4
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Progress Report
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4.3
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Defending Party
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9.3
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Purchase Order
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6.2.3
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Development Milestone Event
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7.2
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Receiving Party
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8.1.1
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Development Milestone Payment
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7.2
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Royalty Term
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7.4.2
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Device Development Plan
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4.1.2
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SNBL CMO
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6.2.1
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Disclosing Party
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8.1.1
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SNBL Technology Improvement
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9.1.1
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Dispute
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13.1
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Supply Agreement
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6.3.2
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Enforcement Action
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9.4.2(a)
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Technology Transfer Plan
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5.1
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Feasibility Agreement
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Background, C
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Term
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12.1
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GAAP
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1.1
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Third Party Claim
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11.1.1
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Indemnifying Party
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11.2
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Third Party Supplier
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6.3.3
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1.40
Interpretation
. Unless specified to the contrary, references to Articles, Sections or Exhibits mean the particular Articles, Sections or Exhibits to this Agreement and references to this Agreement include all Exhibits hereto. Unless the context clearly requires otherwise, whenever used in this Agreement: (a) the words “include” or “including” shall be construed as incorporating, also, “but not limited to” or “without limitation,” whether or not such additional words are written; (b) the word “or” shall have its inclusive meaning of “and/or” except when paired as “either/or”; (c) the word “day” or “quarter” or “year” means a calendar day or quarter or calendar year unless otherwise specified; (d) the word “notice” shall require notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other communications contemplated under this Agreement; (e) the words “hereof,” “herein,” “hereunder,” “hereby” and derivative or similar words refer to this Agreement (including the Exhibits hereto); (f) provisions that require that a Party, the Parties or a committee hereunder “agree,” “consent” or “approve” or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter or otherwise; (g) words of any gender include the other gender; (h) words using the singular or
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
plural number also include the plural or singular number, respectively; (i) references to any specific Law, article, section or other division thereof, shall be deemed to include the then‑current amendments thereto or any replacement thereof; and (j) neither Party not its Affiliates shall be deemed to be acting “on behalf of” or “under the authority of” the other Party hereunder.
ARTICLE 2
LICENSES
2.1
License to TRANSCEPT
.
2.1.1
General
. Subject to the terms and conditions of this Agreement, SNBL hereby grants to TRANSCEPT an exclusive, royalty-bearing license (with the right to sublicense in accordance with Section 2.2), under the Licensed Technology to (i) develop, use, sell, offer for sale, import or otherwise commercialize the Product, and (ii) subject to Article 6, make or have made the Product (using the Device supplied by SNBL or a Third Party permitted under this Agreement); in each case of (i) and (ii) solely for the Field within the Territory. For the avoidance of doubt, TRANSCEPT’s Affiliate may not exercise any right granted by SNBL to TRANSCEPT hereunder unless and until TRANSCEPT has granted a sublicense to such Affiliate pursuant to Section 2.1.2 below.
2.1.2
Sublicensing
.
(a)
Subject to Section 2.1.2(c) below, TRANSCEPT has the right to grant sublicenses under the license granted to it under Section 2.1.1 to any Affiliate or Third Party, other than a SNBL Competitor, to commercialize the Product in EU, Japan, Australia, New Zealand, Canada, the United States and/or the Territory in its entirety without SNBL’s prior written approval.
(b)
Subject to Section 2.1.2(c) below, TRANSCEPT has the right to grant sublicenses under the license granted to it under Section 2.1.1 to any Affiliate or Third Party, other than a SNBL Competitor, to commercialize the Product in any territory in the Territory other than as set forth in Section 2.1.2(a) above; provided that TRANSCEPT shall obtain SNBL’s prior written approval prior to granting any such sublicense to any Third Party (but not Affiliate), which consent shall not be unreasonably withheld, conditioned or delayed.
(c)
With respect to any sublicense granted under Section 2.1.2(a) or Section 2.1.2(b) above, (i) TRANSCEPT shall have entered into a written agreement with its sublicensee that shall be consistent and not conflict with, and shall be subordinate to, the terms and conditions of this Agreement (including for clarity, Section 2.2); and (ii) TRANSCEPT shall remain responsible to SNBL for any violations by such sublicensee of the terms and conditions of this Agreement. Within [***] days after the execution by TRANSCEPT of a sublicense agreement of the rights granted to TRANSCEPT by SNBL under the terms of this Agreement, TRANSCEPT shall provide SNBL with a copy of such sublicense agreement, which copy may be redacted to remove any and all information not applicable to the obligations of TRANSCEPT under this Agreement. Without limiting the foregoing, if a sublicensee is in breach of the applicable sublicense agreement and such breach, if committed by TRANSCEPT, would be a material breach of TRANSCEPT’s obligations to SNBL under this Agreement, TRANSCEPT shall, at its own expense,
8
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
enforce the applicable terms of such sublicense agreement against the sublicensee, including termination thereof in accordance with the terms of such sublicense agreement. For clarity, TRANSCEPT shall be and remain responsible to SNBL for any breach of this Agreement or any sublicense by any of its sublicensees, including all damages due to SNBL as a result of such breach. The entry by TRANSCEPT into a sublicense shall not relieve TRANSCEPT of its obligations under this Agreement, including the obligation to report the Net Sales of such sublicensee and ensure payment of royalties to SNBL in accordance with the terms and conditions of this Agreement.
2.2
Exclusivity of Efforts
. During the Term, neither TRANSCEPT (or any of its Affiliates) nor SNBL (or any of its Affiliates) shall, outside of their activities under this Agreement, (i) conduct, participate in or sponsor, directly or indirectly, any activities directed toward the development or commercialization of any Competing Product within the Territory (collectively, such activities “
Competing Activities
”) or (ii) appoint, license or otherwise authorize any Third Party to perform any Competing Activities. For purposes of the foregoing, “
Competing Product
” means [***]. For clarity, [***], subject to the terms and conditions of this Agreement, including without limitation the confidentiality and non-use provisions set forth in Article 8 relating to TRANSCEPT’s Confidential Information.
2.3
No Implied Licenses
. Each Party acknowledges that the rights and licenses granted under this Article 2 and elsewhere in this Agreement are limited to the scope expressly granted. Accordingly, except as expressly provided in this Agreement, neither Party grants to the other Party any right or license in any intellectual property right, whether by implication, estoppel or otherwise. All rights with respect to Patents or other intellectual property rights that are not specifically granted herein are reserved to the owner thereof, and no implied licenses are granted under this Agreement.
ARTICLE 3
GOVERNANCE
3.1
Joint Development Committee.
3.1.1
Establishment.
Promptly after the Effective Date, TRANSCEPT and SNBL shall establish a joint development committee (the “
JDC
”) to oversee, review and coordinate the activities of the Parties under this Agreement with respect to the development of the Product for the Field within the Territory.
3.1.2
Responsibilities.
The JDC shall be responsible for: (i) overseeing, reviewing and monitoring the Parties’ performance of development activities with respect to the Product and the Device under this Agreement; (ii) facilitating access to and the exchange of information between the Parties related to the development of the Product; (iii) reviewing the Device Development Plan and the Product Development Plan and any amendment to either of the foregoing; and (iv) undertaking such other matters as are specifically provided for the JDC under this Agreement.
3.1.3
Membership.
The JDC shall be comprised of an equal number of representatives from each of SNBL and TRANSCEPT and unless otherwise agreed such number shall be three (3) employees from each of SNBL and TRANSCEPT. Either Party may replace its respective JDC representatives at any time with prior notice to the other Party, provided that such
9
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
replacement is of comparable authority and scope of functional responsibility within that Party’s organization as the person he or she is replacing. Unless otherwise agreed by the Parties, the JDC shall have at least one representative with relevant decision-making authority from each Party such that the JDC is able to effectuate all of its decisions within the scope of its responsibilities. Each Party shall appoint one lead JDC representative who will be responsible for coordinating with each other for calling meetings, preparing and circulating an agenda in advance of each meeting (which agenda will include every matter requested by either Party), and preparing and issuing minutes of each meeting within thirty (30) days thereafter.
3.1.4
Term of JDC.
The Parties shall maintain the JDC in accordance with this Article 3 until the later of (i) filing of the first NDA for the Product by or on behalf of TRANSCEPT or its sublicensee and (ii) notice by a Party to the other Party referencing this Section 3.1.4 terminating the JDC.
3.2
Meetings.
The JDC shall hold meetings (either in person or by teleconference) at such times and places as the Parties may mutually agree, provided that, unless the Parties agree otherwise, the JDC shall meet at least quarterly. Each Party shall bear its own costs associated with attending such meetings. As appropriate, other employees of the Parties may attend JDC meetings as nonvoting observers, but no Third Party personnel may attend unless otherwise agreed by the Parties; provided that all such employees or Third Party personnel are bound by obligations of confidentiality and non-use with respect to the Confidential Information of each Party that are no less stringent as those set forth in Article 8. Each Party may also call for special meetings to resolve particular matters requested by such Party.
3.3
Decision Making.
Decisions of the JDC shall be made by consensus of the members present in person or by other means (e.g., teleconference) at any meeting, with at least one (1) representative from each Party participating in such vote and with all JDC representatives from each Party, collectively, having one (1) vote. The members of the JDC shall at all times use good faith efforts to reach consensus on matters properly referred to the JDC. In the event the JDC is unable to reach consensus with respect to a particular matter despite such good faith efforts, then such matter shall be resolved in accordance with the procedures set forth in Article 13; provided that subject to Section 4.1.2, with respect to matters pertaining to how any particular activities should be conducted pursuant to the Product Development Plan, TRANSCEPT shall have the final decision-making authority. Notwithstanding anything herein to the contrary, the JDC shall not have any authority to amend, modify or waive compliance with any term or condition of this Agreement or require either Party to incur any expense or perform any activity not specifically provided in this Agreement. For clarity, any material change to the Product Development Plan that would change the obligations or rights of SNBL under this Agreement would require the prior written consent of SNBL.
3.4
Day-to-Day Responsibilities.
Each Party shall: (i) be responsible for day-to-day implementation and operation of the activities hereunder for which it has or is otherwise assigned responsibility under this Agreement, provided that such implementation is not inconsistent with the express terms of this Agreement or the decisions of the JDC within the scope of their authority
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
specified herein; and (ii) keep the other Party informed as to the progress of such activities as reasonably requested by the other Party and as otherwise determined by the JDC.
ARTICLE 4
DEVELOPMENT AND COMMERCIALIZATION OF THE PRODUCT
4.1
Development
.
4.1.1
Product Development
. Subject to Section 4.1.2 below, TRANSCEPT (directly or through its sublicensees) shall fund, lead and be responsible for the development of the Product in accordance with the development plan prepared by TRANSCEPT (the “
Product
Development Plan
”). An initial Product Development Plan is attached hereto as
Exhibit 4.1.1
. From time to time during the Term, but not less frequently than [***], TRANSCEPT will prepare an updated Product Development Plan and will submit such updated Product Development Plan to the JDC during the term of the JDC, or to SNBL after the term of the JDC, for review. TRANSCEPT shall use Commercially Reasonable Efforts to conduct such development activities, including conducting clinical trials, as may be reasonably necessary or desirable to obtain Regulatory Approvals for the Product for the Field initially to support and maintain Regulatory Approval for the United States and thereafter in other [***] markets in the Territory (if any) in accordance with the Product Development Plan, including the timelines set forth therein. With respect to TRANSCEPT’s obligation to use Commercially Reasonable Efforts to develop the Product under this Agreement, TRANSCEPT shall be deemed to have satisfied such obligation if [***]. It is understood and agreed that, except as otherwise expressly provided herein, all development efforts for the Product for the Field within the Territory shall be at the sole expense of TRANSCEPT. Notwithstanding anything to the contrary, in the event that SNBL fails to develop the Device pursuant to Section 4.1.2 or to timely supply Devices ordered by TRANSCEPT in accordance with Article 6, TRANSCEPT shall not be liable for any failure to comply with any of its diligence obligations under this Section 4.1.1 to the extent such failure results from SNBL’s failure to develop the Device pursuant to Section 4.1.2 or timely supply Devices ordered by TRANSCEPT in accordance with Article 6, and any such non-compliance by TRANSCEPT shall not constitute a breach of this Agreement.
4.1.2
Device Development
. SNBL shall use Commercially Reasonable Efforts to develop, at SNBL’s expense, the Device to be supplied by SNBL to TRANSCEPT and incorporated into the Product under this Agreement pursuant to a device development plan prepared by SNBL (the “
Device Development Plan
”). An initial Device Development Plan is attached hereto as
Exhibit 4.1.2
. From time to time during the Term, but not less frequently than [***], SNBL will prepare an updated Device Development Plan and will submit such updated Device Development Plan to the JDC for review. For the avoidance of doubt, SNBL shall have the sole right to control in all aspects the development of the Device; provided that SNBL shall, (i) conduct such development in compliance with Laws in all material aspects; (ii) through the JDC, keep TRANSCEPT reasonably informed on the progress of the development of the Device, and (iii) make available to TRANSCEPT Regulatory Materials generated from the development of the Device applicable to the Product as further set forth in Section 5.2.
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4.2
Commercialization.
4.2.1
General
. TRANSCEPT shall use Commercially Reasonable Efforts to commercialize the Product for the Field, initially in the United States and thereafter in other [***] markets in the Territory (if any). Without limiting the foregoing, TRANSCEPT agrees to, directly or through one or more of its sublicensees, use Commercially Reasonable Efforts to launch the Product for the Field in those territories in the Territory set forth in the Commercialization Plan, and to market, promote and sell the Product for the Field throughout such territories. It is understood and agreed that, as between the Parties, all commercialization efforts for the Product for the Field within the Territory shall be at the sole expense of TRANSCEPT and TRANSCEPT shall have the sole right to control in all aspects the commercialization of the Product subject to its obligations hereunder.
4.2.2
Commercialization Plan
. At least [***] months in advance of [***], TRANSCEPT shall submit to SNBL an initial plan for the commercialization of the Product for the Field within the Territory (the “
Commercialization Plan
”), which Commercialization Plan shall be updated at least [***]. Commercialization Plan shall reflect the relevant aspects of the marketing, reimbursement, formulary access, sales force incentive and sales strategy for the Product in the Territory. TRANSCEPT shall provide each such Commercialization Plan and any material modification or addition thereto to SNBL for its review and comment, and TRANSCEPT shall consider in good faith the comments of SNBL with respect thereto.
4.3
Reporting
. Without limiting any other provisions of this Agreement, TRANSCEPT shall keep SNBL reasonably informed directly or through the JDC (during the term of the JDC) as to the progress of its activities with respect to the development and commercialization of the Product, and SNBL shall keep TRANSCEPT reasonably informed directly or, during the term of the JDC, through the JDC as to the progress of its activities with respect to the development of the Device. Without limiting the foregoing, [***], TRANSCEPT shall provide SNBL a written report (each, a “
Progress Report
”) describing in reasonable detail: [***]. All contents of all Progress Reports shall constitute the Confidential Information of TRANSCEPT and shall be subject to the confidentiality and non-use provisions set forth in Article 8. In addition, each Party shall promptly notify the other Party if such Party anticipates or there are material deviations from the then-current Device Development Plan, Product Development Plan or Commercialization Plan, as applicable, and such Party shall discuss in good faith and keep such other Party informed as to any corrective actions that it intends or is taking to address such deviations.
4.4
Trademarks.
4.4.1
Product Trademarks
. TRANSCEPT shall have the right to select names and all trademarks used in connection with the commercialization of the Product including special promotional or advertising taglines, in each case in the Territory (all such trademarks specific to the Product and including all goodwill associated therewith, and all applications, registrations, extensions and renewals relating thereto, shall be referred to as “
Product Trademarks
”). As between the Parties, TRANSCEPT shall be the exclusive owner of the Product Trademarks.
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4.4.2
Licensor Status of SNBL
. To the extent permitted by applicable Laws, at SNBL’s election, the labels and packaging of the Product and all promotional materials and scientific publications for the Product shall include text identifying SNBL as the licensor of the Formulation Technology used in the Product in a manner consistent with standard industry practice.
ARTICLE 5
TECHNOLOGY TRANSFER / REGULATORY MATTERS
5.1
Technology Transfer
. Promptly after the execution of this Agreement, SNBL shall transfer to TRANSCEPT the information and materials set forth in the technology transfer plan attached hereto as
Exhibit 5.1
(the “
Technology Transfer Plan
”). TRANSCEPT shall reimburse the reasonable out-of-pocket expenses incurred by SNBL in connection with its performance of the Technology Transfer Plan. It is understood that except as expressly set forth in the Technology Transfer Plan or as set forth in Section 6.3.3, SNBL is not obligated to perform any other technology transfer unless otherwise mutually agreed by the Parties. The Parties acknowledge and agree that all Licensed Know-How disclosed to TRANSCEPT under this Agreement and the Feasibility Agreement shall be deemed Confidential Information of SNBL. Accordingly, TRANSCEPT may use and disclose such Licensed Know-How solely in the exercise of the license granted to TRANSCEPT under Article 2 and subject to the terms and conditions set forth in Article 8.
5.2
Regulatory Filings and Regulatory Approvals
.
5.2.1
Except as expressly provided herein, as between the Parties, TRANSCEPT (itself or through its sublicensees) shall have the sole right to and be responsible for preparing and submitting to applicable Regulatory Authorities any and all Regulatory Materials for the Product and obtaining and maintaining any and all Regulatory Approvals for the Product for the Field within the Territory.
TRANSCEPT shall keep SNBL reasonably and regularly informed of the preparation and submission of all Regulatory Materials, Regulatory Authority communications and review of Regulatory Materials, and Regulatory Approvals for the Product for the Field within Territory. SNBL agrees, at TRANSCEPT’s request and expense, to make available as described in the following sentence information in SNBL’s Control or otherwise execute, acknowledge and deliver further instruments, as reasonably necessary to assist TRANSCEPT in preparing or submitting Regulatory Materials and obtaining or maintaining Regulatory Approvals for the Product for the Field within the Territory. SNBL may, at its election, either (i) provide directly to TRANSCEPT such data, results and other information generated from the development or manufacturing of the Device hereunder that are Controlled by SNBL, or (ii) submit and maintain a Device Master File and other similar confidential Regulatory Materials with the FDA and other Regulatory Authorities for the Device, in those regulatory jurisdictions where the Regulatory Authority allow such filings and provide TRANSCEPT and its sublicensees the right to reference such Device Master Files or such other Regulatory Materials; in each case (i) and (ii), to the extent reasonably necessary to support any Regulatory Approval Application for the Product for the Field within the Territory. It is understood that SNBL shall own the Device Master File and such other similar confidential Regulatory Materials and reserves the right to grant Third Parties the right to reference its Device Master Files and other similar confidential Regulatory Materials for purposes other than obtaining Regulatory Approval for the Product for the Field within the Territory. Except as expressly set forth
13
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
in this Agreement or otherwise mutually agreed by the Parties in writing, SNBL shall not be obligated to undertake any development activities or otherwise generate any new information, document or materials in connection with its obligations under this Section 5.2.
5.2.2
To the extent that SNBL has not filed a Device Master File as of the Effective Date and elects to prepare, and then submit and maintain, a Device Master File and other similar confidential Regulatory Materials, SNBL shall provide TRANSCEPT an opportunity to review and provide comments; provided that, to the extent that any portion of the Device Master File or other similar confidential Regulatory Materials is confidential, SNBL shall provide to TRANSCEPT a general summary of such portion. SNBL shall consider in good faith any comments and suggestions provided by TRANSCEPT and, if such comments and suggestions are reasonably necessary for obtaining Regulatory Approval for the Product, incorporate such comments and suggestions into the Device Master File or other similar confidential Regulatory Materials. In the event that the Parties disagree with respect to any comment or suggestion provided by TRANSCEPT, the Parties agree to submit such disagreement to a Third Party that is mutually acceptable to each of SNBL and TRANSCEPT to consider whether such comment or suggestion should be adopted under this Section 5.2.2.
5.3
Information Sharing
.
5.3.1
By TRANSCEPT. TRANSCEPT shall provide or make available to SNBL (i) data and information generated from the development of the Product described on
Exhibit 5.3
, and (ii) all Regulatory Materials and Regulatory Approvals that are Controlled by TRANSCEPT related to the Product; provided that such information and materials shall be deemed TRANSCEPT’s Confidential Information. TRANSCEPT shall use Commercially Reasonable Efforts to obtain Control of all Regulatory Materials and Regulatory Approvals of its sublicensees related to the Product. TRANSCEPT hereby grants to SNBL, its Affiliates and licensees the right to use such data and information and reference such Regulatory Materials for research and development purposes, including obtaining Regulatory Approvals, with respect to any product that does not contain the Compound. SNBL shall use reasonable efforts to obtain and retain similar rights of use and reference from its other licensees of the Licensed Technology, it shall make such information (subject to similar limitations provided herein) available for use by TRANSCEPT for the purpose of obtaining Regulatory Approval with respect to the Product. Notwithstanding anything to the contrary, TRANSCEPT may redact competitively sensitive information from such data and information, and from such Regulatory Materials and Regulatory Approvals.
5.3.2
By SNBL. To the extent required by TRANSCEPT for the purpose of obtaining Regulatory Approval for the Product, SNBL shall provide or make available to TRANSCEPT information Controlled by SNBL not included within the information made available to TRANSCEPT (directly or through referencing a Device Master File or other similar confidential Regulatory Materials) under Section 5.2 that is reasonably necessary to support Product development and any Regulatory Approval Application; provided that SNBL shall have the right to redact from information provided or made available to TRANSCEPT any information that is not specifically directed towards [***] and to designate any information provided or made available to
14
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
TRANSCEPT as Confidential Information. TRANSCEPT shall have the right to use such information solely for the purpose of obtaining Regulatory Approval for the Product.
5.4
Adverse Events
. As between the Parties, TRANSCEPT shall have all regulatory responsibilities as the manufacturer and distributor of finished Product. Accordingly, TRANSCEPT shall be solely responsible for (a) reporting all Adverse Drug Reactions to the applicable Regulatory Authority in the Territory; (b) handling medical and technical complaints and disputes with the applicable Regulatory Authority, patients and physicians in the Territory; and (c) dealing with Product recalls; provided that TRANSCEPT shall keep SNBL reasonably informed thereof and coordinate with SNBL in communications with any Regulatory Authority with respect thereto. TRANSCEPT and its sublicensees shall also enter into safety exchange and pharmacovigilance agreement(s), which shall: (i) provide detailed procedures regarding the maintenance of core safety information; (ii) require the exchange of safety information and reports of Adverse Drug Reactions for ensuring compliance with the reporting requirements of all applicable Regulatory Authorities; and (iii) provide procedures for the preparation, and periodic review of, a common technical document for use in connection with any filing with a Regulatory Authority relating to the Product. For purposes of the foregoing, “
Adverse Drug Reaction
” shall have the meaning as defined in the then-current guidelines and regulations promulgated by the ICH (International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use) and shall include any “
Adverse Drug Experience
” as defined in the then-current 21 CFR §§ 312.32 and 314.80.
ARTICLE 6
SUPPLY
6.1
General
. Except as otherwise set forth in this Article 6, TRANSCEPT will be responsible for the manufacture, supply, and distribution of the Product for clinical and commercial purposes. SNBL shall use Commercially Reasonable Efforts to assist TRANSCEPT, at TRANSCEPT’s reasonable request and expense, in securing supply of the Product including without limitation by facilitating direct interactions between TRANSCEPT and suppliers known to SNBL (including SNBL’s supplier of [***]) to the extent necessary for TRANSCEPT to manufacture the Product.
6.2
Development Supply of the Device.
6.2.1
General
. SNBL shall, itself or through one or more Third Party contract manufacturers (each, an “
SNBL CMO
”), use Commercially Reasonable Efforts to supply to TRANSCEPT, pursuant to the terms and conditions of this Article 6, quantities of the Device required and ordered by TRANSCEPT to conduct development activities with respect to the Product prior to the initiation of the first Phase III Clinical Trial for the Product.
6.2.2
Price.
The price for the clinical or other development supply of Device pursuant to this Section 6.2 shall be the sum of a fixed price in the amount of [***]. By way of example, the price for [***].
15
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
6.2.3
Purchase Order
. TRANSCEPT shall place one or more purchase orders with SNBL for its requirements of clinical or other development supply of the Device (each, a “
Purchase Order
”) in accordance with SNBL’s or the applicable SNBL CMO’s reasonable lead times therefor. After the execution of this Agreement, as soon as practicable, the Parties will agree on a reasonable lead time, taking into consideration the relevant factors, including order volume and lead time required by applicable material or component suppliers. Each Purchase Order shall specify the requested delivery dates(s), delivery location(s), quantity of Device to be delivered, and shipping requirements. ANY TERMS OR CONDITIONS OF ANY PURCHASE ORDER, ACKNOWLEDGMENT, OR SIMILAR STANDARDIZED FORM GIVEN OR RECEIVED PURSUANT TO THIS AGREEMENT THAT ARE ADDITIONAL TO OR INCONSISTENT WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT SHALL HAVE NO EFFECT AND SUCH TERMS AND CONDITIONS ARE HEREBY EXCLUDED.
6.2.4
Acceptance.
No Purchase Orders placed by TRANSCEPT pursuant to this Section 6.2 shall be binding upon SNBL unless accepted by SNBL in writing; provided that SNBL shall accept any reasonable Purchase Order placed by TRANSCEPT, in its entirety. SNBL shall provide TRANSCEPT with a written acknowledgement of that portion of each Purchase Order it accepts or rejects in accordance with this Section 6.2.4 within [***] business days of receipt thereof. Any accepted portion of a Purchase Order shall constitute a binding commitment between the Parties for the supply and purchase of the Device.
6.2.5
Notice of Inability to Supply
. SNBL shall promptly notify TRANSCEPT of any occurrence of which it becomes aware that it reasonably expects will prevent SNBL or its Third Party contract manufacturers from providing on-time delivery of amounts of the Device specified in any Purchase Order submitted to and accepted by SNBL in accordance with the terms and conditions of this Section 6.2.
6.2.6
Consequences of Delay
. In the case of any material failure or anticipated material failure of SNBL to supply TRANSCEPT in accordance with the terms and conditions of this Section 6.2 in the quantities and within the time periods specified in any Purchase Order submitted to and accepted by SNBL in accordance with the terms and conditions of this Section 6.2 (each, a “
Material Supply Delay
”), SNBL shall use Commercially Reasonable Efforts to remedy the Material Supply Delay and resume supplying the Device meeting the requirements of this Section 6.2 to TRANSCEPT as soon as possible, and upon TRANSCEPT’s request, secure adequate supplies of the Device from alternative sources reasonably acceptable to TRANSCEPT.
6.2.7
Allocation
. If despite the measures described in Section 6.2.6 SNBL is unable to supply TRANSCEPT the Device in the quantities and within the time periods specified in any Purchase Order submitted to and accepted by SNBL in accordance with the terms and conditions of this Section 6.2, then the Parties shall discuss and consider in good faith an alternative allocation of inventory and/or resources to maximize the development progress of the Product taking into consideration the timing and impact of any delay on upcoming and ongoing studies or clinical trials for the Product.
6.2.8
Shipping Terms
. SNBL shall arrange for the delivery of the Device to the carrier designated by TRANSCEPT for shipping to the location as stated on the Purchase Order
16
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
(including any Third Party location designated by TRANSCEPT). Each shipment of the Device shall be delivered by SNBL FCA (Incoterms 2010) TRANSCEPT’S designated carrier. TRANSCEPT shall be responsible for all the shipping costs (including insurance costs) for the shipping and delivery of the Device hereunder.
6.2.9
Representations and Warranties.
SNBL warrants that the Device supplied pursuant to this Section 6.2 shall, at the time of delivery by SNBL: (a) have been manufactured in accordance with cGMPs and (b) comply in all material aspects with the Device Specifications and the information shown on the certificate of analysis provided for the particular shipment.
For clarity, the foregoing warranty does not apply to any non-conformity, damage or harm to Device caused by or otherwise related to improper storage, handling, transportation, or usage occurring after delivery by SNBL to the carrier designated by TRANSCEPT. Assuming payment in full of amounts due to SNBL for the particular order of Device by TRANSCEPT, SNBL further warrants that title to such Device supplied pursuant to this Section 6.2 will pass free and clear of any security interest, lien, or other similar encumbrance. For purposes of the foregoing, “
cGMP
” means then-current good manufacturing practices and standards as provided for (and as amended from time to time) in the current Quality System Regulations (QSR), as defined by the FDA, including 21 CFR § 820 et seq., or other ordinances, rules, regulations or guidance documents established by the FDA and any arrangements, additions or clarifications mutually agreed to by the Parties from time to time.
6.2.10
Non-Conformity.
Within [***] days following receipt of each delivery of Device supplied under this Section 6.2, TRANSCEPT or its designee may conduct an inspection of the Device and may reject such quantities of the Device on the grounds that such quantities (i) fail to conform with the applicable shipping requirements as specified under the applicable Purchase Order or (ii) fail to conform to any warranty provided above in Section 6.2.9 (“
Non-Conforming Devices
”). TRANSCEPT shall notify SNBL in writing of any Non-Conforming Devices within such [***] day period following receipt of each delivery of Device supplied under this Section 6.2 or, if such nonconformity is not evident upon reasonable physical inspection, within [***] days after discovery of such nonconformity. To the extent such Devices constitute Non-Conforming Devices (as confirmed by SNBL or its designee or by a third party laboratory as set forth in this Section 6.2.10), SNBL shall promptly replace, at its expense, each such Non-Conforming Device with a Device conforming to the warranties as provided above in Section 6.2.9. Upon request from SNBL, TRANSCEPT shall return any Non-Conforming Device in accordance with SNBL’s instructions at SNBL’s expense. If the Parties disagree as to whether any quantities of Devices are Non-Conforming Devices, TRANSCEPT shall submit a sample of the relevant shipment of Non-Conforming Devices to an independent testing laboratory of recognized repute selected by TRANSCEPT and approved by SNBL, such approval not to be unreasonably withheld, delayed or conditioned, for analysis of whether such Device constitutes a Non-Conforming Device. The costs associated with such analysis by such independent testing laboratory will be paid by the Party whose assessment of whether the Device constituted a non-Conforming Device was mistaken. The determination by the independent testing laboratory, unless clearly erroneous, will be final and binding.
6.2.11
TRANSCEPT Audit
. TRANSCEPT shall have the right, upon reasonable advance notice (in no event less than [***] days) and during regular business hours, to inspect and
17
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
audit (or have inspected or have audited by a Third Party auditor reasonable acceptable to SNBL) the facilities used by SNBL to manufacture the Device (including those of any SNBL CMO) to assure compliance by SNBL with this Agreement, the Device Development Plan and applicable Laws. Such inspections and audits shall not be carried out by TRANSCEPT more than once per year unless there is reasonable cause for additional inspections or audits (including without limitation follow-up relating to a prior major deficiency noted in the course of a previous inspection or audit), in which case more frequent audits will be allowed. Any information made available to TRANSCEPT during such audit or inspection shall be deemed SNBL’s Confidentiality Obligations. At any SNBL CMO’s request, TRANSCEPT shall enter into customary confidentiality agreement with such SNBL CMO prior to such inspection or audit. Notwithstanding the foregoing, in the event SNBL, after using reasonable efforts, fails to obtain the right for TRANSCEPT to inspect and audit any SNBL CMO, SNBL shall obtain for itself such right and, at the request and reasonable expense of TRANSCEPT, SNBL shall exercise such inspection right with respect to such SNBL CMO on TRANSCEPT’s behalf, using a Third Party auditor reasonable acceptable to TRANSCEPT and provide the results of such inspection and audit to TRANSCEPT. If an inspection or audit under this Section 6.2.11 reveals a failure to materially comply with the requirements of this Agreement and applicable Laws, then TRANSCEPT shall promptly provide to SNBL written notice of such fact, which notice shall contain in reasonable detail the deficiency found. The Parties shall discuss in good faith the alleged deficiency and SNBL shall use reasonable efforts to remedy or have remedied such deficiency, or implement a plan to remedy such deficiency, as soon as reasonably practical following receipt of the notification thereof.
6.3
Phase III and Commercial Supply of the Device.
6.3.1
[***] prior to [***], TRANSCEPT shall notify SNBL referencing this Section 6.3 and SNBL shall have the first right to negotiate to be the exclusive supplier of the Device (subject to Sections 6.3.3 and 6.4) to be used by TRANSCEPT and its sublicensees to manufacture finished Product for all other activities hereunder, including further development and commercialization of the Product.
6.3.2
If SNBL notifies TRANSCEPT [***] of SNBL’s receipt of such notice from TRANSCEPT that it desires to so negotiate to be TRANSCEPT’s exclusive supplier of the Device, the Parties shall negotiate exclusively in good faith for a period of [***] months
the terms of a supply agreement (the “
Supply Agreement
”) for the supply by SNBL (directly or through any Third Party contract manufacturer) to TRANSCEPT and its sublicensees of the Device to be used by TRANSCEPT and its sublicensees to manufacture the Product for all other activities hereunder, including further development and commercialization of the Product, provided that it is understood the Supply Agreement will not be finalized and executed until the design of the Device has been validated and verified in accordance with the Device Development Plan. Such supply agreement shall be consistent with the supply terms set forth in
Exhibit 6.3
; provided that, if the price of the Device under such supply agreement [***].
6.3.3
In connection with the execution of the Supply Agreement, the Parties shall use good faith efforts to establish supply interruption risk-management plan that would be implemented by SNBL with respect to its supply of the Device pursuant to the Supply Agreement;
18
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
however, if the Parties are unable to agree on such plan for any reason, TRANSCEPT shall have the right to, at its own cost (except as otherwise provided in this Section 6.3.3), qualify and establish one or more back-up Third Party manufacturers approved by SNBL, which approval shall not be unreasonably withheld (each, a “
Backup CMO
”). In such event, SNBL shall perform technology transfer to such Backup CMO(s) to the extent necessary to enable such Backup CMO(s) to manufacture and supply the Device for TRANSCEPT and its sublicensees hereunder; provided that each such Backup CMO is bound by a written agreement that (i) is consistent with terms of this Agreement, including information sharing, confidentiality and intellectual property ownership provisions consistent with those set forth in Article 8 and Article 9, (ii) provides a right for SNBL to conduct periodic on-site audits of the Backup CMO for the sole purpose of monitoring the Backup CMO’s compliance with its confidentiality obligations; (iii) expressly provides that SNBL is a third party beneficiary to such agreement with respect to its confidentiality and non-use obligations and intellectual property ownership provisions. TRANSCEPT agrees to reasonably cooperate with SNBL to enforce against such Backup CMO for any breach of confidentiality or non-use obligations or intellectual property ownership provisions under such agreement. TRANSCEPT shall reimburse SNBL the amount of costs and expenses reasonably incurred by SNBL in performing the technology transfer contemplated hereunder in excess of [***]. TRANSCEPT shall have the right to supply its and its sublicensee’s requirements for the Device using the Backup CMO(s) only (a) to the extent that SNBL fails to supply Devices in accordance with the Supply Agreement and (b) such number of Devices as is reasonably necessary for the Backup CMO(s) to maintain commercial readiness but, with respect to such commercial readiness under (b), in no event exceeding [***] of all Devices used by TRANSCEPT or its sublicensees for commercial purposes pursuant to this clause (b) unless SNBL fails to meet its supply obligations under the Supply Agreement.
6.4
Third Party Supplier
. In the event the Parties fail to enter into the Supply Agreement pursuant to Section 6.3 for any reason, then TRANSCEPT shall have the right to seek the supply of the Device from one or more Third Party manufacturers approved by SNBL, which approval shall not to be unreasonably withheld (each, a “Third Party Supplier”). SNBL shall perform technology transfer to such Third Party Supplier(s) to the extent necessary to enable such Third Party Supplier(s) to manufacture and supply the Device for TRANSCEPT and its sublicensees hereunder; provided that each such Third Party Supplier is bound by a written agreement that (i) is consistent with terms of this Agreement, including information sharing, confidentiality and intellectual property ownership provisions consistent with those set forth in Article 8 and Article 9, (ii) provides a right for SNBL to conduct periodic on-site audits on the Third Party Supplier for the sole purpose of monitoring the Third Party Supplier’s compliance with its confidentiality obligations; (iii) expressly provides that SNBL is a third party beneficiary to such agreement with respect to its confidentiality and non-use obligations and intellectual property ownership provisions. TRANSCEPT agrees to reasonably cooperate with SNBL to enforce against such Third Party Supplier for any breach of confidentiality or non-use obligations or intellectual property ownership provisions under such agreement. In no event shall TRANSCEPT enter into any supply agreement with a Third Party Supplier that contains terms more favorable to the Third Party supplier when taken as a whole than the terms last offered to SNBL with respect to supply of the Device, without first offering such more favorable terms to SNBL for review and acceptance by SNBL; provided that SNBL shall accept or not accept such terms [***] after receipt. In the event that SNBL has not accepted such terms [***], SNBL shall be deemed to have not accepted such terms.
19
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
ARTICLE 7
FINANCIAL TERMS
7.1
Technology Access Fee
. In consideration for the rights and licenses granted by SNBL pursuant to this Agreement, TRANSCEPT shall pay to SNBL a nonrefundable technology access fee in the amount of One Million U.S. Dollars ($1,000,000) within [***] days of the Effective Date.
7.2
Development Milestones
. In further consideration for the rights and licenses granted by SNBL pursuant to this Agreement, TRANSCEPT shall make the following development milestone payments (“
Development Milestone Payment
”) to SNBL upon achievement of the corresponding milestone events (each, a “
Development Milestone Event
”):
|
|
|
|
|
|
Development Milestone Event
|
Development Milestone Payment
|
|
1. [***]
|
[***]
|
|
2. [***]
|
[***]
|
|
3. [***]
|
[***]
|
|
4. [***]
|
[***]
|
TRANSCEPT agrees to promptly notify SNBL of its achievement of each Development Milestone Event for which a payment is due under this Section 7.2. The Development Milestone Payments set forth in Section 7.2 shall each be due and payable to SNBL within [***] days following the achievement of the applicable Development Milestone Event; provided, however, that (i) TRANSCEPT may withhold [***] of any Development Milestone Payment due during the pendency of [***], with such portion of the Development Milestone Payment due within [***] days after the conclusion of such [***] unless TRANSCEPT terminates this Agreement pursuant to Section 12.3 by submitting a termination notice within such [***] day period, and (ii) in the event TRANSCEPT terminates this Agreement pursuant to Section 12.3 by submitting a termination notice within [***] days after delivery of the final report containing statistical analysis of data from the [***], TRANSCEPT shall have no obligation to pay [***] Development Milestone Payment set forth in the table above. In the event that TRANSCEPT has not [***] and, as a result, no [***] is pending at the time a Development Milestone Event is achieved, TRANSCEPT shall make all Development Milestone Payments in full, subject only to (ii) in the previous sentence. For clarity, if a subsequent Development Milestone Event is achieved and the corresponding previous Development Milestone Event for the Product has not yet been achieved for any reason, notwithstanding anything herein to the contrary such previous Development Milestone Event shall be deemed to have been achieved and the corresponding Development Milestone Payment set forth in the table above shall be payable simultaneous with the Development Milestone Payment for the achievement of the subsequent Development Milestone Event.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
7.3
Commercialization Milestones
. In further consideration for the rights and licenses granted by SNBL pursuant to this Agreement, TRANSCEPT shall pay to SNBL the amounts set forth in the following table (each, a “
Commercialization Milestone Payment
”) upon the Annual Net Sales first meeting or exceeding the corresponding amount (each, a “
Commercialization
Milestone Event
”):
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|
|
|
|
|
Commercialization Milestone Event
|
Commercialization Milestone Payment
|
|
1. [***]
|
[***]
|
|
2. [***]
|
[***]
|
|
3. [***]
|
[***]
|
As used herein, “
Annual Net Sales
” shall mean, with respect to a particular calendar year, all Net Sales of the Product for the Field within the Territory during such calendar year.
TRANSCEPT agrees to promptly notify SNBL of its achievement of each Commercialization Milestone Event for which a payment is due under this Section 7.3. The Commercialization Milestone Payments set forth in Section 7.3 shall each be due and payable to SNBL within [***] days of the completion of TRANSCEPT’s year-end financial statements, provided that in any event TRANSCEPT shall pay each Commercialization Milestone Payment within [***] days after the end of the applicable calendar year during which such Commercialization Milestone Event is achieved. All milestone payments under this Section 7.3 shall be non-refundable and non-creditable. For clarity, if more than one Commercialization Milestone Event is achieved in a particular calendar year, all corresponding Commercialization Milestone Payments for each such Commercialization Milestone Events so achieved in such calendar year shall be due as described in this Section 7.3; however, it is understood that each Commercialization Milestone Payment shall be payable only once upon the first achievement of the applicable Commercialization Milestone Event.
7.4
Royalties
.
7.4.1
Royalty Rates
. TRANSCEPT shall pay to SNBL the applicable royalty rate on Annual Net Sales of the Product as set forth in the table below:
|
|
|
|
|
|
Annual Net Sales
|
Royalty Rate
|
|
[***]
|
[***]
|
|
[***]
|
[***]
|
|
[***]
|
[***]
|
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
7.4.2
Royalty Term
. On a country-by-country basis, Licensee’s royalty obligation shall commence on the First Commercial Sale of the Product in such country and continue until the later date of (i) the expiration of the last Patent within the Licensed Patents Covering the Product in such country and (ii) fifteen (15) years from the First Commercial Sale of the Product in such country (the “
Royalty Term
”).
7.4.3
Royalty Reductions
. On a country-by-country basis, during any period during the Royalty Term in which, in such country, (i) there is [***] the Product and there is [***] in such country, the applicable royalty rate for Net Sales of the Product generated during such period in such country shall be reduced by [***] of the applicable rate set forth in the table above in this Section 7.4, or (ii) there is [***] the Product and there is [***] in such country, the applicable royalty rate for Net Sales of the Product generated during such period in such country shall be reduced by [***] of the applicable rate set forth in the table above in this Section 7.4. For clarity, it is understood that in no event shall the royalties payable to SNBL for the Product in any country be reduced by more than [***] of the applicable rate set forth in the table above in this Section 7.4.
7.4.4
Royalty Stacking
. If, during the Royalty Term, TRANSCEPT enters into an agreement with a Third Party pursuant to which TRANSCEPT obtains a license under any Patent right of such Third Party that is necessary for TRANSCEPT and/or its sublicensees to exercise TRANSCEPT’s rights under this Agreement with respect to the Product in any country, then, on a country-by-country basis, royalties payable to SNBL under this Section 7.4 during any quarter shall be reduced by the amount equal to [***] of royalties payable to such Third Party in connection with the sale of the Product during the same quarter under such Third Party license; provided that in no event shall the royalties payable to SNBL for the Product in any country be reduced by more than [***] of the applicable rate set forth in the table above in this Section 7.4 during any quarter.
7.4.5
Payment/Reports
. All payments under this Section 7.4 shall be due and payable within [***] days of the last day of the quarter during which the corresponding Net Sales are recognized. Together with any such payment, TRANSCEPT shall deliver a report specifying on a country-by-country basis: (i) total gross invoiced amount from sales of the Product by TRANSCEPT and its sublicensees; (ii) amounts deducted by category (e.g., normal and customary trade, cash and other discounts, allowances and credits actually allowed and taken directly with respect to sales of Product) from gross invoiced amounts to calculate Net Sales; (iii) Net Sales; and (iv) royalties payable to SNBL hereunder.
7.5
Payment Method
. All payments under this Agreement shall be made in U.S. Dollars. Except as otherwise provided herein payments shall be due [***] days after receipt of SNBL’s invoice therefor. All payments hereunder shall be paid by wire transfer in immediately available funds to an account designated by SNBL. Any payments or portions thereof due under this Agreement that are not paid by the date such payments are due under this Agreement will bear simple interest at per annum amount equal to the lower of (a) [***], as reported in
The Wall Street Journal
(U.S. Internet Edition at www.wsj.com), on the due date (or, if the due date is not a business day, on the last business day prior to such due date), or (b) the maximum rate permitted by applicable
22
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Laws, calculated based on the number of days such payment is delinquent. This Section 7.5 shall in no way limit any other remedies available to SNBL.
7.6
Currency Conversion
. For any currency conversion required in determining any Net Sales, such conversion shall be made at the exchange rate used by TRANSCEPT, consistent with its general internal corporate policies as they relate to its income statement, for its own consolidation purposes for the translation of such currency into United States Dollars for any payments due pursuant to this Agreement. Such policies will be made available to SNBL upon request.
7.7
Taxes.
All amounts referenced hereunder are exclusive of any withholding tax or similar taxes and payments hereunder shall be made without deduction for such taxes, except to the extent that any such deduction or withholding is required by Laws in effect at the time of payment. Any tax required to be withheld on amounts payable under this Agreement shall promptly be paid by TRANSCEPT on behalf of SNBL to the appropriate governmental authority, and TRANSCEPT shall furnish to SNBL appropriate evidence of payment of any such tax or other amount required by applicable Laws to be deducted from any royalty payment, including any tax or withholding levied by a foreign taxing authority in respect of the payment or accrual of any royalty.
7.8
Inspection of Records
. During the Term and three (3) years thereafter, TRANSCEPT shall, and shall cause its sublicensees to, keep full and accurate books and records setting forth gross sales of the Product, Net Sales of the Product, itemized deductions from gross sales taken to calculate Net Sales and otherwise necessary to calculate other amounts payable to SNBL under this Article 7. TRANSCEPT shall permit SNBL, through independent qualified public accountants engaged by SNBL, to examine such books and records at any reasonable time, but not later than three (3) years following the rendering of any corresponding reports, accountings and payments pursuant to this Article 7. Such accountants may be required by TRANSCEPT to enter into a reasonably acceptable confidentiality agreement. The opinion of said independent accountants regarding such reports, accountings and payments shall be binding on the Parties other than in the case of clear error. SNBL shall bear the cost of any such examination and review; provided that if the inspection and audit shows an underpayment of more than [***] of the amount due for the applicable period, then TRANSCEPT shall promptly reimburse SNBL for all costs incurred in connection with such examination and review. TRANSCEPT shall promptly pay to SNBL the amount of any underpayment revealed by an examination and review. Any overpayment by TRANSCEPT revealed by an examination and review shall be fully-creditable against future payments owed by TRANSCEPT to SNBL under this Article 7.
ARTICLE 8
CONFIDENTIALITY
8.1
Confidential Information
.
8.1.1
Confidential Information
. As used in this Agreement, the term “
Confidential Information
” means all secret, confidential or proprietary information or data of a Party or any of its Affiliates, whether provided in written, oral, graphic, video, computer, electronic or other form, provided pursuant to this Agreement, or generated pursuant to this Agreement, by one Party or its
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Affiliate (the “
Disclosing Party
”) to the other Party or its Affiliate (the “
Receiving Party
”), including but not limited to, information relating to the Disclosing Party’s existing or proposed research, development efforts, patent applications, business or proprietary formulations, compounds or other products and any other information, data and materials expressly stated in this Agreement to be Confidential Information of a Party. Notwithstanding the foregoing, Confidential Information shall not include any information or materials that:
(a)
were already known to the Receiving Party (other than under an obligation of confidentiality), at the time of disclosure by the Disclosing Party, to the extent such Receiving Party has documentary evidence to that effect existing prior to such disclosure;
(b)
were generally available to the public or otherwise part of the public domain at the time of disclosure thereof to the Receiving Party through no breach of this Agreement;
(c)
became generally available to the public or otherwise part of the public domain after disclosure or development thereof, as the case may be, and other than through any act or omission of the Receiving Party in breach of such Party’s confidentiality obligations under this Agreement;
(d)
were disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others; or
(e)
were independently discovered or developed by or on behalf of the Receiving Party without the use of the Confidential Information belonging to the other Party, to the extent such Receiving Party has documentary evidence to that effect.
8.1.2
Confidentiality Obligations
. Each Party shall keep all Confidential Information of the other Party with the same degree of care it maintains the confidentiality of its own information of a similar nature. Neither Party shall use Confidential Information of the other Party for any purpose other than in performance of its obligations or the exercise of its rights under this Agreement or disclose the such Confidential Information or the terms of this Agreement to any other Person other than to such of its and its Affiliates’ directors, managers, employees, independent contractors, agents, suppliers, or consultants and others who have a need to know such Confidential Information or terms of this Agreement for the purposes of such Party’s performance of its obligations or exercise of its rights (including granting sublicenses and assigning the Agreement in accordance with the terms and conditions hereof) under this Agreement or such Party’s enforcement of its rights under this Agreement; provided, however, that the Party intending to disclose the Confidential Information of the other Party or the terms of this Agreement shall advise any such Person who receives such Confidential Information or terms of this Agreement of the confidential nature thereof and of the obligations contained in this Agreement relating thereto, and such Party shall ensure (including, in the case of a Third Party, by means of a written agreement with such Third Party having terms at least as protective as those contained in this Article 8) that all such directors, managers, employees, independent contractors, agents, suppliers, consultants or others comply with such obligations as if they had been a Party hereto. Each Party shall be responsible for any breaches of this Agreement by its or its Affiliates’ directors, managers, employees,
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
independent contractors, agents, suppliers, consultants or others to whom it discloses the other Party’s Confidential Information, except that each Party may keep one (1) copy of the Confidential Information of the other Party for the first Party’s archival purposes. Such archival copy shall be deemed to be the property of the Disclosing Party, and shall continue to be subject to the provisions of this Article 8. It is understood that receipt of Confidential Information under this Agreement will not limit the Receiving Party from assigning its employees to any particular job or task in any way it may choose, subject to the terms and conditions of this Agreement.
8.1.3
Permitted Disclosure and Use
. Without limiting Section 8.1.2, the Receiving Party may disclose Confidential Information of the other Party or the terms of this Agreement (i) to any governmental authority in order to prosecute or maintain any intellectual property in accordance with this Agreement, (ii) as reasonably necessary to exercise the rights and licenses granted such Receiving Party in this Agreement, (iii) for prosecuting or defending litigation as contemplated by, or arising out of, this Agreement, (iv) to its or its Affiliates’ employees, agents, consultants, advisors (including financial advisors, lawyers and accounts), contractors, licensees or sublicensees only on a need-to-know basis for the sole purpose of performing its or its Affiliates’ obligations or exercising its or its Affiliates’ rights under this Agreement, provided that in each case the recipient of such Confidential Information are bound by written obligations of confidentiality and non-use at least as equivalent in scope as those set forth in this Article 8 prior to any such disclosure, (v) to existing and potential investors, merger partners or acquirers, including their respective consultants and professional advisors (including financial advisors, lawyers and accounts), solely on a need-to-know basis in order to evaluate an actual or potential investment, acquisition or similar business transactions; and provided that in connection with such disclosure, the disclosing Party shall inform each recipient of the confidential nature of such terms and cause each recipient to treat such information as confidential consistent with the nature of the information so disclosed.
8.1.4
Required Disclosure.
A Receiving Party may disclose Confidential Information of the Disclosing Party or the terms of this Agreement to the extent that it is required by Law (including, without limitation, in connection with FDA filings, U.S. Securities and Exchange Commission filings or filings with other government agencies) or any rules of any recognized stock exchange, to be disclosed by the Receiving Party; provided that the Receiving Party shall apply for confidential treatment of such Confidential Information of the Disclosing Party or the terms of this Agreement required to be disclosed to the fullest extent permitted by Law, shall provide the Disclosing Party a copy of the proposed confidential treatment request as soon as reasonably practicable and shall use commercially reasonable efforts to provide such copy sufficiently in advance of its filing to give such Disclosing Party a meaningful opportunity to comment thereon, and shall incorporate in such confidential treatment request any reasonable comments of the Disclosing Party or shall cooperate with the Disclosing Party in the event that the Disclosing Party wishes to seek a protective order or the like with respect to any of its Confidential Information.
8.1.5
Notification
. The Receiving Party shall notify the Disclosing Party promptly upon discovery of any unauthorized use or disclosure of the Disclosing Party’s Confidential Information, and will cooperate with the Disclosing Party in any reasonably requested fashion to
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
assist the Disclosing Party to regain possession of such Confidential Information and to prevent its further unauthorized use or disclosure.
8.1.6
Prior CDA
. This Agreement supersedes the Confidential Disclosure Agreement between SNBL and TRANSCEPT dated February 25, 2013 (the “
Prior CDA
”) solely with respect to information disclosed thereunder concerning the subject matter of this Agreement (including information related to or exchanged under the Feasibility Agreement). All such information exchanged between SNBL and TRANSCEPT under the Prior CDA and to the extent fall under the definition of Confidential Information hereunder, shall be deemed Confidential Information of the applicable disclosing Party and shall be subject to the terms of this Article 8.
8.2
Publicity; Filing of this Agreement
. Except as required by Law or order of any governmental authority, all publicity, press releases and other announcements or disclosures relating to the existence and terms of this Agreement or the transactions contemplated hereby shall be reviewed in advance by, and shall be subject to the written approval of, both Parties. It is understood that such publicity, press releases and other announcements shall (i) not disclose any Confidential Information of the other Party and (ii) shall give complete and appropriate attribution to the other Party’s role(s) in the project contemplated in this Agreement. Each Party shall provide the other Party an opportunity to review and comment on the language of such attribution prior to first use thereof in a press release or other public disclosure proposed to be made by such Party. Notwithstanding the foregoing, the Parties agree that upon execution of this Agreement, the Parties will issue a joint press release to announce the execution of this Agreement, which is attached hereto as
Exhibit 8.2
. Once information is disclosed to the public pursuant to this Section 8.2, either Party may further disclose such information without further approval of the other Party.
8.3
Use of Names
. Except as otherwise provided in Section 8.2 or pursuant to Section 4.4.2, neither Party shall use the name of the other Party in relation to this transaction in any public announcement, press release or other public document without the written consent of such other Party, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that either Party may use the name of the other Party in any document filed with any governmental authority, in all cases subject to such Party giving complete and appropriate attribution to the other Party’s role(s) in the project contemplated in this Agreement.
8.4
Survival
. The obligations and prohibitions contained in this Article 8 shall survive the expiration or termination of this Agreement for a period of [***] years.
ARTICLE 9
OWNERSHIP OF INVENTIONS AND PATENT RIGHTS
9.1
Ownership of Inventions
.
9.1.1
SNBL Technology Improvements.
Any and all Inventions that constitute (i) any improvement or modification to the Formulation Technology and/or the Device that is not solely applicable to the Product; or (ii) any methods or processes of use or manufacture relating to the Formulation Technology and/or the Device that is not solely applicable to the Product (collectively, “
SNBL Technology Improvements
”) shall be solely owned by SNBL regardless of
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inventorship. TRANSCEPT agrees to assign and hereby assigns all of its right, title and interest in and to the SNBL Technology Improvements to SNBL.
9.1.2
Joint Inventions
. Without limiting Section 9.1.1 above, any and all Inventions conceived or created or first reduced to practice individually by or under authority of either Party or jointly by or under authority of both Parties (collectively, “
Joint Inventions
”) shall be jointly owned by the Parties. Except as expressly provided otherwise in this Agreement, neither Party shall have any obligation to obtain any approval of the other Party for, nor pay the other Party any share of the proceeds from or otherwise account to the other Party for, the practice, enforcement, licensing, assignment or other exploitation of Joint Inventions, and each Party hereby waives any right it may have under the Laws of any country to require such approval, sharing or accounting. The Parties hereby acknowledge and agree that any Joint Invention (as defined in the Feasibility Agreement) arising from the Feasibility Agreement shall be deemed a Joint Invention under this Agreement and subject to the terms and conditions hereof.
9.1.3
Disclosure of Inventions.
Each Party shall promptly disclose to the other Party any invention disclosures, or other similar documents, submitted to it by its employees, agents or independent contractors describing subject matter that are purported to be Inventions, and information relating to such Inventions.
9.1.4
Further Assurances
. Each Party agrees to assist the other Party, at such other Party’s expense, in every proper way to accomplish and perfect the ownership provisions set forth in this Section 9.1 in any and all countries, including the execution of all applications, specifications, oaths, assignments and all other instruments that such other Party may deem reasonably necessary or useful in connection therewith.
9.2
Patent Prosecution
.
9.2.1
Non-Product-Specific Patents
. As between the Parties, SNBL shall have the sole right to control the Prosecution and Maintenance of the Non-Product-Specific Patents (including Non-Product-Specific Patents claiming any Joint Invention) at its expense using counsel of its choice. SNBL agrees to (i) keep TRANSCEPT reasonably informed with respect to such activities (including providing TRANSCEPT copies of all material documents received and filed in connection with the Prosecution and Maintenance of such Non-Product-Specific Patents), (ii) consult in good faith with TRANSCEPT regarding such matters, including the abandonment of any claims thereof Covering the Product, and (iii) provide TRANSCEPT a reasonable opportunity to review and comment on material submissions and correspondence with the applicable patent offices and take into consideration TRANSCEPT’s reasonable input with respect thereto.
9.2.2
Product-Specific Patents
. As between the Parties, TRANSCEPT shall have the right, at its expense, to control the Prosecution and Maintenance of the Product-Specific Patents (including Product-Specific Patents claiming any Joint Invention) at its expense using counsel to which SNBL has no reasonable objection. TRANSCEPT agrees to (i) involve SNBL in the process of preparing any material documents and other communications to be filed in a patent office with respect to each Product-Specific Patent, (ii) keep SNBL reasonably informed with respect to the Prosecution and Maintenance of any Product-Specific Patents (including providing to SNBL copies
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of all material documents sent to or received from any patent office regarding any such Product-Specific Patents), and (iii) consult in good faith with SNBL regarding such matters and incorporate SNBL’s reasonable comments and recommendations with respect thereto. TRANSCEPT further agrees to coordinate with SNBL in the Prosecution and Maintenance of Product-Specific Patents to avoid any prejudice to Non-Product-Specific Patents.
9.2.3
Other Patents
. As between the Parties, SNBL shall have the sole right to control the Prosecution and Maintenance of Patents claiming SNBL Technology Improvements. Except as otherwise provided in Section 9.2.1 or in Section 9.2.2, unless mutually agreed by the Parties in writing, neither Party shall file any intellectual property protection, including without limitation, patent applications on any Joint Inventions without the prior written consent of the other Party.
9.3
Defense of Third Party Infringement Claims
. If the Product commercialized by TRANSCEPT or its sublicensees becomes the subject of a Third Party’s claim or assertion of infringement of a Patent relating to the manufacture, use, sale, offer for sale or importation of the Product for the Field within the Territory, the Party first having notice of the claim or assertion shall promptly notify the other Party, and the Parties shall promptly confer to consider the claim or assertion and the appropriate course of action. Unless the Parties otherwise agree in writing, each Party shall have the right to defend itself against a suit that names it as a defendant (the “
Defending Party
”). Neither Party shall enter into any settlement of any claim described in this Section 9.3 that adversely affects the other Party’s rights or interests without such other Party’s written consent, which consent shall not be unreasonably conditioned, withheld or delayed. In any event, the other Party shall reasonably assist the Defending Party and cooperate in any such litigation at the Defending Party’s request and expense.
9.4
Enforcement
.
9.4.1
Notice of Infringement.
In the event that either Party reasonably believes that any Licensed Patent is being infringed by a Third Party or is subject to a declaratory judgment action arising from such infringement, in each case with respect to the manufacture, use, sale, offer for sale or importation of a product comprising a pharmaceutical product incorporating any Compound in combination with a respiratory delivery system for the Field within the Territory (an “
Infringing Product
”), such Party shall promptly notify the other Party. In such event, the Parties shall negotiate in good faith a strategy with respect to such infringement.
9.4.2
Product-Specific Patents.
(a)
As between the Parties, TRANSCEPT will have the first right, but not the obligation, to take any reasonable measures to enforce any Product-Specific Patent (including Product-Specific Patents claiming any Joint Invention) against infringing activities that involve any Infringing Product, including (i) initiating or prosecuting an infringement or other appropriate suit or action against such Third Party including, without limitation, any certification filed pursuant to 21 U.S.C. §355(b)(2)(A) (or any amendment or successor statute thereto) claiming that any Product-Specific Patent is invalid or that infringement will not arise from the manufacture, importation, use or sale of an Infringing Product by a Third Party; or (ii) defending any declaratory judgment action
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with respect thereto (the type of action described in each of (i) and (ii), an “
Enforcement Action
”). Reasonably in advance of undertaking any Enforcement Action under this Section 9.4.2(a), TRANSCEPT will notify SNBL of its intent to take such action and will keep SNBL reasonably informed regarding the status of such action. Subject to Section 9.4.4, TRANSCEPT will have the sole and exclusive right to select counsel for any suit brought or defended by TRANSCEPT under this Section 9.4.2(a) and will pay all expenses of such suit, including attorneys’ fees and court costs.
(b)
In the event that TRANSCEPT fails to take reasonable measures to enforce any Product-Specific Patent against infringing activities that involve any Infringing Product within 90 days of a request by SNBL to do so, SNBL may initiate an Enforcement Action against such infringement activities with respect to such Infringing Product at SNBL’s expense. Reasonably in advance of taking any Enforcement Action under this Section 9.4.2(b), SNBL will notify TRANSCEPT of its intent to take such action and will keep TRANSCEPT reasonably informed regarding the status of such action. Subject to Section 9.4.4, SNBL will have the sole and exclusive right to select counsel for any suit brought by SNBL under this Section 9.4.2(b) and will pay all expenses of such suit, including attorneys’ fees and court costs.
9.4.3
Non-Product-Specific Patents.
(a)
As between the Parties, SNBL retains the sole right to initiate and control any Enforcement Action of Non-Product-Specific Patents (including Non-Product-Specific Patents claiming any Joint Invention) with respect to any Infringing Product. Notwithstanding the foregoing, in the event a [***] is developing or commercializing any Infringing Products [***], at TRANSCEPT’s written request, SNBL agrees to take reasonable measures [***] to abate such infringing activities. In the event (i) SNBL fails to [***] or bring an Enforcement Action against [***] within [***] days after receiving TRANSCEPT’s written request or (ii) SNBL [***] within [***] days after receiving TRANSCEPT’s written request but fails to [***] to abate such infringing activities within [***] days after receiving TRANSCEPT’s written request, then TRANSCEPT shall have the right to initiate and control an Enforcement Action of the applicable Non-Product-Specific Patent against such [***].
(b)
As between the Parties, SNBL retains the sole right to initiate and control any Enforcement Action of Licensed Patents with respect to any infringing activities that [***].
9.4.4
Expenses and Cooperation.
The Party bringing an Enforcement Action pursuant to Section 9.4.2 or 9.4.3 (the “
Controlling Party
”) will have the sole and exclusive right to select counsel for such Enforcement Action and will pay all expenses of the suit, including attorneys’ fees and court costs. If required under applicable Law in order for the Controlling Party to initiate and/or maintain such Enforcement Action, or if the Controlling Party is unable to initiate, prosecute or defend such Enforcement Action solely in its own name, the other Party (the “
Cooperating Party
”) will join as a necessary party to the Enforcement Action at the Controlling Party’s request and expense. In addition, at the Controlling Party’s request and expense, the Cooperating Party will provide reasonable assistance to the Controlling Party in connection with an Enforcement Action. The Cooperating Party will have the right to participate and be represented in any such Enforcement Action by its own counsel at its own expense.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
9.4.5
Recoveries.
Any amounts recovered by the Controlling Party under Section 9.4.2 or 9.4.3(a) will be used first to reimburse the Controlling Party and then the Cooperating Party, in each case for its reasonable costs and expenses, including attorneys’ fees incurred in bringing and maintaining the applicable enforcement action, with any remainder to be allocated between the Parties as follows: (i) the portion of any remaining recovery that is attributable to a damages award for reasonable royalties or lost profits with respect to any Infringing Product shall be allocated between the Parties in proportion to their respective shares of net profits (calculated in accordance with Accounting Standards) with respect to the Product under this Agreement, and (ii) any further remainder, if any, shall be retained by the Controlling Party.
9.4.6
Other Patents
. It is understood that during the Term, SNBL Technology Improvements and Joint Inventions that are reasonably necessary or useful for the development and commercialization of the Product shall be deemed Licensed Know-How, and Patents claiming such Licensed Know-How shall be deemed Licensed Patents and the enforcement thereof shall be subject to Sections 9.4.1 – 9.4.5 (all inclusive). Subject to the foregoing, as between the Parties, SNBL shall have the sole right to control the enforcement of Patents claiming SNBL Technology Improvements, and, except as otherwise expressly provided in Section 9.4.2 or in Section 9.4.3, the Parties shall discuss in good faith regarding the allocation of responsibilities between the Parties regarding the enforcement of Patents claiming Joint Inventions.
9.5
Patent Marking
. To the extent commercially feasible, TRANSCEPT shall mark (and shall use Commercially Reasonable Efforts to cause to be marked) all units of Product sold under this Agreement with the number of each issued patent within the Licensed Patents that cover such Products. Any such marking with be in conformance with the Laws of the country of sale.
9.6
Regulatory Data Protection
. The Parties will evaluate in good faith and identify all Patents that may meet the requirements for FDA publication in Approved Drug Products with Therapeutic Equivalence Evaluations (the “
Orange Book
”), in connection with the Product. Subject to the terms of this Section 9.6, TRANSCEPT shall be solely responsible for deciding which such patents to submit to FDA for listing in the Orange Book. In the case of newly allowed Patents, prior to issuance and no later than five (5) business days following a notice of allowance of any such Patent, TRANSCEPT shall inform SNBL whether it believes that there is a reasonable basis for listing such Patent in the Orange Book. TRANSCEPT shall maintain with FDA correct and complete listings of applicable Patents for the Product.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1
Representations, Warranties and Covenants
.
10.1.1
Mutual Representations
. Each of the Parties hereby represents and warrants to the other Party that, as of the Effective Date:
(a)
such Party has full corporate right, power and authority to enter into this Agreement and to perform its respective obligations under this Agreement;
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(b)
such Party has the right to grant the licenses and sublicenses granted pursuant to, and under the terms of, this Agreement;
(c)
this Agreement is a legal and valid obligation binding upon such Party and enforceable in accordance with its terms;
(d)
the execution, delivery and performance of the Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it is bound, nor violate any Law of any governmental authority having jurisdiction over it; and
(e)
such Party has not granted, and will not grant during the Term, rights to any Third Party under the Licensed Technology that conflict with the rights granted to the other Party hereunder.
10.1.2
Additional Representations of SNBL
. SNBL hereby represents and warrants to TRANSCEPT that:
(a)
as of the Effective Date, all Patents and all Know-How owned by SNBL, or licensed by SNBL from a Third Party, necessary or useful to develop and commercialize Products for the Field in the Territory are licensed to TRANSCEPT under the terms and conditions of this Agreement;
(b)
the Patents and Know-How owned by SNBL and licensed to TRANSCEPT under the terms and conditions of this Agreement are free and clear of any encumbrance, lien, claim of ownership or license by any Third Party except for such encumbrance, lien, claim of ownership or license that does not conflict with the license granted by SNBL to TRANSCEPT hereunder;
(c)
as of the Effective Date, SNBL has not granted, and will not grant during the Term, rights to any Third Party under the Licensed Technology that conflict with the rights granted to Licensee hereunder;
(d)
as of the Effective Date, SNBL has not received any written notice of any threatened claim or litigation seeking to invalidate or otherwise challenge the Licensed Patents or SNBL’s rights therein; and
(e)
as of the Effective Date, none of the Licensed Patents are subject to any pending reexamination, opposition, interference or litigation proceedings.
10.2
Disclaimer of Warranty / Limitation of Liability
.
10.2.1
Disclaimer
. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT, SNBL AND TRANSCEPT MAKE NO REPRESENTATIONS AND GRANT NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND SNBL AND TRANSCEPT EACH SPECIFICALLY DISCLAIMS ANY OTHER REPRESENTATIONS AND WARRANTIES,
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WHETHER WRITTEN OR ORAL, EXPRESS, STATUTORY OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
10.2.2
Limitation of Liability
. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR LOST PROFITS OR FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING UNDER ANY CAUSE OF ACTION AND ARISING IN ANY WAY OUT OF THIS AGREEMENT. THE FOREGOING LIMITATIONS SHALL NOT APPLY TO BREACHES OF ARTICLE 8 OR OTHERWISE LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS UNDER ARTICLE 11.
ARTICLE 11
INDEMNIFICATION; INSURANCE
11.1
Indemnification
.
11.1.1
Indemnification by TRANSCEPT
. TRANSCEPT hereby agrees to save, defend and hold SNBL, its Affiliates, and their respective officers, directors, agents and employees harmless from and against any and all complaints, actions, suits, proceedings, hearings, investigations, claims, demands brought by Third Parties (each, a “
Third Party Claim
”) or any liability, loss, damage, cost and expense (including reasonable attorneys’ fees) arising from such Third Party Claims, in either case resulting from (a) any breach by TRANSCEPT of any of its representations, warranties, covenants or obligations pursuant to this Agreement, (b) the negligence or willful misconduct by TRANSCEPT or its Affiliates or their respective officers, directors, employees, agents or consultants in performing any obligations under this Agreement, or (c) the development, manufacture, use, offer for sale, sale or marketing of the Product by or under the authority of TRANSCEPT, or any of its Affiliates or sublicensees; in each case except to the extent that such Third Party Claims, liability, loss, damage, cost and expense (including reasonable attorneys’ fees) are the responsibility of SNBL pursuant to Section 11.1.2. For purposes of (c) in this Section 11.1.1, the activities of SNBL under the terms of this Agreement shall not be activities conducted under the authority of TRANSCEPT.
11.1.2
Indemnification by SNBL
. SNBL hereby agrees to save, defend and hold TRANSCEPT, its Affiliates, and their respective officers, directors, agents and employees harmless from and against any and all Third Party Claims, liability, loss, damage, cost and expense (including reasonable attorneys’ fees) arising from such Third Party Claims, in either case resulting from (a) any breach by SNBL of any of its representations, warranties, covenants or obligations pursuant to this Agreement, (b) the negligence or willful misconduct by SNBL or its Affiliates or their respective officers, directors, employees, agents or consultants in performing any obligations under this Agreement, (c) the development, manufacture, use, offer for sale, sale or marketing of the Device by or under the authority of SNBL, or any of its Affiliates or licensees (excluding TRANSCEPT), or (d) the use by SNBL of the Formulation Technology or the Device except as part of Products delivered to TRANSCEPT under the terms of this Agreement; in each case except to the extent that
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such Third Party Claims, liability, loss, damage, cost and expense (including reasonable attorneys’ fees) are the responsibility of TRANSCEPT pursuant to Section 11.1.1.
11.2
Indemnification Procedures
. Promptly after receipt by a Party seeking indemnification under this Article 11 (an “
Indemnitee
”) of notice of any pending or threatened Third Party Claim against it, such Indemnitee shall give written notice to the Party from whom the Indemnitee is entitled to seek indemnification pursuant to this Article 11 (the “
Indemnifying Party
”) of the commencement thereof; provided that the failure so to notify the Indemnifying Party shall not relieve it of any liability that it may have to any Indemnitee hereunder, except to the extent the Indemnifying Party demonstrates that it is materially prejudiced thereby. Any Third Party Claim that is subject to indemnification under this Article 11 shall be brought against an Indemnitee and such Indemnitee shall give written notice to the Indemnifying Party of the commencement thereof, the Indemnifying Party shall assume sole control of the defense thereof with counsel reasonably satisfactory to such Indemnitee and, the Indemnifying Party shall not be liable to such Indemnitee under this Article 11 for any fees of other counsel thereafter, in each case subsequently incurred by such Indemnitee in connection with the defense thereof. No compromise or settlement of any Third Party Claim may be effected by the Indemnifying Party without the Indemnitee’s written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided such consent shall not be required if (a) there is no finding or admission of any violation of Law or any violation of the rights of any person and no effect on any other claims that may be made against the Indemnitee and (b) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party.
11.3
Insurance
. Each Party shall obtain and maintain, during the Term and for six (6) years thereafter, reasonable insurance at levels consistent with industry standards based upon such Party’s activities hereunder and indemnification obligations hereunder, with the other Party named as an additional insured, as applicable. Each Party shall furnish to the other Party on request certificates issued by the insurance company setting forth the amount of the liability insurance (or evidence of self-insurance) and shall promptly notify the other Party at least thirty (30) days prior to termination or material reduction to the level of coverage of its insurance policy.
ARTICLE 12
TERM AND TERMINATION
12.1
Term
. The term of this Agreement and the rights and obligations of the Parties under this Agreement shall commence on the Effective Date and, unless earlier terminated in accordance with the provisions of this Article 12, shall continue on a country-by-country basis until the expiration of the applicable Royalty Term (the “
Term
”). Upon expiration, but not earlier termination, of this Agreement, TRANSCEPT’s licenses under the Licensed Know-How shall become fully-paid, non-exclusive and irrevocable.
12.2
Termination for Material Breach
. Either Party may terminate this Agreement and the licenses granted herein for material breach of the other Party by giving ninety (90) days’ written notice to the breaching Party (specifying in reasonable detail the basis for such termination and referencing this Section 12.2) and such breaching Party has not cured such breach (if curable) within such ninety (90)-day period. For the avoidance of doubt, TRANSCEPT’s failure to use Commercially Reasonable Efforts to develop the Product in accordance with Section 4.1.1 shall be
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
deemed a material breach of this Agreement entitling SNBL to terminate this Agreement if TRANSCEPT fails to cure such breach during the applicable ninety (90) day cure period. Notwithstanding the foregoing, if the Party alleged to be in material breach disputes such breach in good faith, then the other Party shall not have the right to terminate this Agreement unless it is determined in accordance with Article 13 that such material breach occurred.
12.3
Termination for Convenience
. TRANSCEPT shall have the right to terminate this Agreement in its entirety upon ninety (90) days’ prior notice to SNBL referencing this Section 12.3.
12.4
Termination for Patent Challenge
. If TRANSCEPT or any of its sublicensees challenges under any court action or proceeding, or before any patent office, the validity, patentability, enforceability, scope or non-infringement of any Licensed Patent, or initiates a reexamination of any Licensed Patent, or assists any Third Party to conduct any of the foregoing activities, SNBL will have the right to immediately terminate this Agreement.
12.5
Termination for Insolvency
. To the extent permitted under Laws, each Party shall have the right to terminate this Agreement upon delivery of written notice to the other Party in the event that (i) such other Party files in any court or agency pursuant to any statute or regulation of any jurisdiction a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of such other Party or its assets, (ii) such other Party is served with an involuntary petition against it in any insolvency proceeding and such involuntary petition has not been stayed or dismissed within ninety (90) days of its filing, or (iii) such other Party makes an assignment of substantially all of its assets for the benefit of its creditors.
12.6
Effects of Termination
.
12.6.1
Reversion of Rights
. As of the effective date of any termination of this Agreement, the licenses granted by SNBL to TRANSCEPT under this Agreement shall terminate and all rights in the Licensed Technology shall revert to SNBL. Accordingly, TRANSCEPT shall promptly return or destroy (with proof of destruction) all copies and embodiments of Licensed Know-How and other Confidential Information of SNBL in its possession.
12.6.2
Accrued Obligations
. The expiration or termination of this Agreement for any reason shall not release either Party from any liability which, at the time of such expiration or termination, has already accrued to the other Party or which is attributable to a period prior to such expiration or termination, nor will any termination of this Agreement preclude either Party from pursuing all rights and remedies it may have under this Agreement, or at law or in equity, with respect to breach of this Agreement.
12.7
Survival
. The following Articles and Sections, together with any definitions used or Exhibit referenced therein, shall survive any termination or expiration of this Agreement: Articles 1, 8, 11, 13 and 14 and Sections 2.3, 5.4, 7.8, 9.1, 9.2.3, 9.4.6, 10.2, 12.6 and 12.7. Except as otherwise provided in this Article 12, all rights and obligations of the Parties under this Agreement shall terminate upon expiration or termination of this Agreement for any reason.
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ARTICLE 13
DISPUTE RESOLUTION
13.1
Initial Escalation.
With respect to all disputes arising between the Parties, including any alleged failure to perform, or breach of, this Agreement, or any issue relating to the interpretation or application of this Agreement (any such dispute or issue, a “
Dispute
”), if the Parties are unable to resolve such Dispute within thirty (30) days after such Dispute is first identified by either Party in writing to the other, either Party shall have the right to refer such Dispute to the senior executive officers for each Party for attempted resolution by written notice to the other Party referencing the particular Dispute and this Section 13.1. In such case, each Party shall designate a senior executive officer of the Party having the right to bind such Party with respect to the matter of the Dispute, and such officers shall conduct good faith negotiations and seek to resolve the Dispute within thirty (30) days after such notice is received, including having at least one (1) in person meeting of the senior executive officers within twenty (20) days after such notice is received. If the senior executive officers resolve such Dispute, a memorandum setting forth their agreement to resolve the Dispute will be prepared and signed by both Parties if requested by either Party. In all events, the Parties shall cooperate in an effort to limit the issues for consideration in such manner as narrowly as reasonably practicable in order to resolve the Dispute.
13.2
Binding Arbitration.
If the senior executive officers designated by the Parties are not able to resolve such Dispute referred to them under Section 13.1 within such thirty (30) day period, then either Party shall have the right to refer such Dispute (except as provided in Section 13.3) for resolution through binding arbitration by written notice to the other Party referencing the particular Dispute and this Section 13.2 at any time after the conclusion of such period, on the following basis:
13.2.1
The place of arbitration shall be [***] and all proceedings and communications shall be in English.
13.2.2
The arbitration shall be administered by Judicial Arbitration and Mediation Services (“
JAMS
”) pursuant to the Comprehensive Arbitration Rules and Procedures of JAMS then in effect (the “
JAMS Rules
”).
13.2.3
The arbitration shall be conducted by a panel of three neutral, independent arbitrators experienced in the pharmaceutical business and life sciences industry generally. Within thirty (30) days after the notice initiating the arbitration, each Party shall appoint one arbitrator meeting the foregoing criteria by written notice to the other Party and the two Party-appointed arbitrators shall select the third arbitrator within thirty (30) days of their appointment. If the Party-appointed arbitrators are unable to agree upon the third arbitrator, the third arbitrator shall be appointed by JAMS.
13.2.4
Judgment upon the award rendered by such arbitrators shall be binding on the Parties and may be entered by any court or forum having jurisdiction.
13.2.5
Either Party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Further, either Party also
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of such Party pending the arbitration award.
13.2.6
The arbitrators shall have no authority to award punitive or any other type of damages not measured by a Party’s compensatory damages.
13.2.7
Each Party shall bear its own costs and expenses and attorneys’ fees and an equal share of the arbitrators’ and any administrative fees of arbitration.
13.2.8
Reasons for the arbitrators’ decision should be complete and explicit, including determinations of law and fact. The written reasons should also include the basis for any damages awarded and a statement of how the damages were calculated. Such written decision should be rendered by the arbitrators following a full comprehensive hearing, as soon as practicable but in no event later than twelve (12) months following the selection of the arbitrators under Section 13.2.3.
13.2.9
Except to the extent necessary to confirm an award or as may be required by law, neither Party nor any arbitrator may disclose the existence, content, or results of any arbitration conducted hereunder without the prior written consent of both Parties.
13.2.10
In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable statute of limitations; provided that such limitation shall be tolled as of the date a Party notifies the other Party of such dispute, controversy or claim pursuant to this Article 13.
13.2.11
Any and all activities conducted under this Section 13.2, including any and all proceedings, written and oral submission, and decisions of the arbitrator(s), shall be deemed Confidential Information of each of the Parties, and shall be subject to Article 8.
13.3
Patent Dispute Resolution
.
Notwithstanding Section 13.2, any dispute, controversy or claim relating to the ownership, scope, validity, enforceability or infringement of any Patent rights covering the manufacture, use or sale of the Product (including the Formulation Technology) or of any trademark rights relating to the Product shall not be subject to arbitration under Section 13.2, but shall be submitted to a court of competent jurisdiction in which such Patent or trademark rights were granted or arose.
13.4
Injunctive Relief.
Nothing herein may prevent either Party from seeking any preliminary injunction or temporary restraining order in order to prevent any Confidential Information from being disclosed or further disclosed without appropriate authorization under this Agreement.
ARTICLE 14
MISCELLANEOUS
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14.1
Governing Law
. This Agreement and any Dispute shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to conflicts of laws principles.
14.2
Entire Agreement; Amendment
. This Agreement, including the Exhibits attached hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties and supersede and terminate all prior agreements and understandings between the Parties with respect to the subject matter hereof[; provided that the Feasibility Agreement shall remain in full force and effect in accordance with its terms except as otherwise expressly provided in this Agreement.
There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.
14.3
Force Majeure
. Except for payment obligations hereunder, each Party shall be excused from the performance of its obligations under this Agreement (other than payment obligations) to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall include conditions beyond the reasonable control of the affected Party, including, an act of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. If the performance of any such obligation under this Agreement is delayed, or is reasonably likely to be delayed, owing to such a force majeure for any continuous period of more than [***] days, the Parties will consult with respect to an equitable solution, including the possibility of the mutual termination of this Agreement.
14.4
Notices
. Every notice, election, demand, consent, request, approval, report, offer, acceptance, certificate, or other communication required or permitted under this Agreement or by applicable Laws shall be in writing and shall be deemed to have been delivered and received (a) when personally delivered, (b) on the seventh (7
th
) business day after which sent by registered or certified mail, postage prepaid, return receipt requested, (c) on the date on which transmitted by facsimile with a receipt evidencing a successful transmission, or by email with confirmation by the recipient confirming such email has been received and reviewed, or (d) on the third (3
rd
) business day after the business day on which deposited with a regulated public carrier (e.g., Federal Express) for overnight delivery (receipt verified), freight prepaid, addressed to the Party for whom intended at the mailing address or facsimile number set forth below, or such other mailing address or facsimile number, notice of which is given in a manner permitted by this Section 14.3.
For SNBL
:
Shin Nippon Biomedical Laboratories, Ltd
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
2438 Miyanoura
Kagoshima 891-1394, Japan
Attn:
[***]
Facsimile:
[***]
Email:
[***]
With a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
United States
Attention: [***]
Telephone: [***]
Facsimile: [***]
Email: [***]
For TRANSCEPT
:
Transcept Pharmaceuticals, Inc.
1003 West Cutting Boulevard, Point Richmond
California 94804, U.S.A.
Attn:
[***]
,
Facsimile:
[***]
Email:
[***]
14.5
Independent Contractors
. In making and performing this Agreement, TRANSCEPT and SNBL shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied for any purpose to create an agency, partnership, limited partnership, joint venture or employer and employee relationship between TRANSCEPT and SNBL and this Agreement shall not be construed to suggest otherwise. At no time shall one Party make commitments or incur any charges or expenses for or in the name of the other Party. Except as otherwise provided in this Agreement, each Party shall be solely responsible for its own costs and expenses associated with this Agreement.
14.6
Assignment
. Neither Party will sell, transfer, assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of Law or otherwise, this Agreement or any of its rights or obligations under this Agreement without the prior written consent of the other Party (which consent may not be unreasonably withheld, conditioned or delayed); provided, however, that either Party may assign or transfer this Agreement or any of its rights or obligations under this Agreement without the consent of the other Party (a) to any Affiliate of such Party, provided that the assigning Party shall remain responsible for the acts and omissions of such Affiliate hereunder, or (b) to any Third Party that succeeds to all or substantially all of the business or assets of such Party to which this Agreement pertains (whether by merger, reorganization, acquisition, sale, operation of law or otherwise). Any such assignment described in clause (b) above shall be
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
conditioned upon the relevant permitted assignee or surviving entity following any merger or consolidation (if such surviving entity is not the assigning Party) to assume in writing all of the assigning Party’s obligations under this Agreement. Any attempted assignment in violation of this Section 14.6 shall be null and void.
14.7
Compliance with Laws/Other
. Without limiting anything herein, all rights and obligations of TRANSCEPT and SNBL are subject to prior compliance with, and each Party shall comply with, all applicable Laws, including obtaining all necessary approvals required by the applicable Regulatory Authorities. In addition, each Party shall conduct its activities under this Agreement in accordance with good scientific and business practices.
14.8
Counterparts
. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures provided by facsimile transmission shall be deemed to be original signatures.
14.9
Further Actions
. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
14.10
Severability
. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.
14.11
No Waiver
. Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement. No provision of this Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party.
[THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY; SIGNATURE PAGE FOLLOWS.]
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
IN WITNESS WHEREOF
, the Parties have executed this Agreement in duplicate originals by their duly authorized representatives as of the Effective Date.
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Shin Nippon Biomedical Laboratories, Ltd.
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Transcept Pharmaceuticals, Inc.
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By:
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/s/ Hideyuki Hirama
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By:
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/s/ Glenn A. Oclassen
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Name:
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Hideyuki Hirama
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Name:
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Glenn A. Oclassen
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Title:
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Executive Officer,
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Title:
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Chief Executive Officer, President
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Senior Director of TR Division
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List of Exhibits:
Exhibit 1.8
Device and Specifications
Exhibit 1.15
Formulation Technology
Exhibit 1.20.2
Licensed Patents
Exhibit 4.1.1
Product Development Plan
Exhibit 4.1.2
Device Development Plan
Exhibit 5.1
Technology Transfer Plan
Exhibit 5.3
Development Information to be Shared with SNBL
Exhibit 6.3
Supply Term Sheet
Exhibit 8.2
Joint Press Release
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 1.8
Device and Specifications
[***]
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 1.15
Formulation Technology
SNBL’s proprietary inhalable dry powder pharmaceutical formulations [***].
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 1.20.2
Licensed Patents
[***]
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 4.1.1
Draft Product
Development Plan
Best estimates
To be finalized after JDC review
Table of Contents
Assumptions…………………………………………………………………………………….47
Gantt chart……………………………………………………………………………………....48
Plan outline…………………………………………………………………………...………... 49
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Assumptions
[***]
45
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Plan Overview (Gantt chart)
[***]
46
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Plan outline
[***] [4 pages]
47
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 4.1.2
Device Development Plan
[***]
48
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 5.1
Technology Transfer Plan
Promptly after the Effective Date, SNBL will transfer the following materials to BHL:
[***]
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 5.3
Development Information to be Shared with SNBL
[***]
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 6.3
Commercial Supply Term Sheet
The following term sheet (this “
Term Sheet
”) summarizes the terms and conditions of a proposed definitive supply agreement (the “
Supply Agreement
”) pursuant to Section 6.3 of the Agreement. Unless defined herein, capitalized terms shall have the meanings ascribed to them in the Agreement.
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Supply Obligation:
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SNBL shall use Commercially Reasonable Efforts to supply all of TRANSCEPT’s and its sublicensees’ requirements of the Device to manufacture finished Product for all Phase III Clinical Trials, all further development activities and commercialization of Product, subject to the terms and conditions of the Supply Agreement.
Subject to the terms specified under “Failure to Supply” below, TRANSCEPT and its sublicensees shall exclusively purchase their requirements of the Device to manufacture finished Product for all Phase III Clinical Trials, all further development activities and all commercialization of Product from SNBL.
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Pricing and Payment:
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The price for the Device supplied by SNBL to TRANSCEPT under the Supply Agreement will be [***].
In the event the per unit price for the Device [***] is lower than [***] of the per unit price [***], SNBL will [***]. This paragraph shall not apply with respect to any price [***].
The Supply Agreement will further include a [***], which [***] will be determined based on [***].
TRANSCEPT shall pay to SNBL the amount invoiced for any shipment of Devices within [***] days after the applicable invoice date. SNBL will invoice TRANSCEPT upon shipment.
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Forecasting and Purchase Orders:
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Each calendar month during the term of the Supply Agreement, TRANSCEPT shall provide to SNBL a rolling forecast of its anticipated orders of Devices for the following [***] months.
The first [***] months of each such forecast will be binding on the Parties (the “
Binding Forecast
”).
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
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Product Compliance; Quality Assurance:
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SNBL warrants that any Device supplied pursuant to the Supply Agreement shall, at the time of delivery by SNBL: (a) have been manufactured in accordance with cGMPs and all applicable Laws, and (b) comply with the Device Specifications (including specifications for labels and packaging thereof) and the information shown on the certificate of analysis provided for the particular shipment, in each case in all material aspects.
The Parties will negotiate and enter into a separate quality agreement setting forth quality assurance and quality control practices that are standard in the medical device manufacturing industry and mutually agreed by the Parties.
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Acceptance and Rejection:
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Within [***] days following receipt of each delivery of Device supplied under the Supply Agreement, TRANSCEPT or its designee may conduct an inspection of the Device and may reject such quantities of the Device on the grounds that such quantities (i) fail to conform with the applicable shipping requirements as specified under the applicable purchase order placed by TRANSCEPT or its designee in accordance with the Supply Agreement or (ii) fail to conform to any product warranty for the Device provided under the Supply Agreement (“
Non-Conforming Devices
”). TRANSCEPT shall notify SNBL in writing of any Non-Conforming Devices within such [***] day period following receipt of each delivery of Device supplied under the Supply Agreement or, if such nonconformity is not evident upon reasonable physical inspection, within [***] days after discovery of such nonconformity. To the extent such Devices constitute Non-Conforming Devices, SNBL shall promptly replace, at its expense, each such Non-Conforming Device with a Device conforming to the product warranties for the Device provided under the Supply Agreement. Upon request from SNBL, TRANSCEPT shall return any Non-Conforming Device in accordance with SNBL’s instructions at SNBL’s expense.
If the Parties disagree as to whether any quantities of Devices are Non-Conforming Devices, TRANSCEPT shall submit a sample of the relevant shipment of Non-Conforming Devices to an independent testing laboratory of recognized repute selected by TRANSCEPT and approved by SNBL, such approval not to be unreasonably withheld, delayed or conditioned, for analysis of whether such Device constitutes a Non-Conforming Device. The costs associated with such analysis by such independent testing laboratory will be paid by the Party whose assessment of whether the Device constituted a non-Conforming Device was mistaken. The determination by the independent testing laboratory, unless clearly erroneous, will be final and binding.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
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Recalls:
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TRANSCEPT shall have the sole responsibility for, and sole control over, initiating and managing any recall or withdrawal of any Product, provided that TRANSCEPT shall consult with SNBL and adopt its reasonable comments and suggestions with respect to any recall or withdrawal of Product to the extent resulting from the Device component of Product. At TRANSCEPT’s request, SNBL shall cooperate and provide assistance in connection with any such recall or withdrawal. Any such recall or withdrawal, including any assistance provided by SNBL, shall be at TRANSCEPT sole expense, except to the extent that any such recall or withdrawal is a result of any breach of Product warranties for Device or SNBL’s negligence or intentional misconduct.
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Failure to Supply:
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A “
Failure to Supply
” shall be deemed to occur if SNBL fails to supply to TRANSCEPT and its sublicensees at least [***] of the quantity of Devices ordered by TRANSCEPT and its sublicensees in accordance with the then-current Binding Forecast that meet the Device Specifications during [***], which failure has not been completely cured within [***] thereafter.
In the event of a Failure to Supply, (i) if one or more Backup CMO(s) have been established pursuant to the Section 6.3.3 of the Agreement, the restriction on quantities that may be supplied by such Backup CMO(s) set forth in that section shall no longer have any effect, or (ii) if one or more Backup CMO(s) have not been established pursuant to Section 6.3.3 of the Agreement, the Parties shall qualify and establish one or more Backup CMO(s) subject to similar terms and conditions set forth in Section 6.3.3, except that TRANSCEPT shall have the right to supply its and its sublicensee’s requirements for the Device using such Backup CMO(s) without the restriction on quantities set forth in Section 6.3.3 of the Agreement.
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Intellectual Property Ownership:
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Ownership of any Inventions developed under the Supply Agreement shall be governed by the terms of the Agreement.
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Term and Termination:
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The term of the Supply Agreement shall be specified in the Supply Agreement.
Either Party may terminate the Supply Agreement for the other Party’s material breach of the Supply Agreement which material breach is not cured within 90 days of receiving the breaching Party’s notice thereof or insolvency.
The Supply Agreement shall contain usual and customary provisions covering the effects of termination or expiration of the Supply Agreement, including any obligations of the Parties that survive such termination or expiration.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
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Assignment:
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Either Party may assign the Supply Agreement or any of its rights or obligations thereunder (a) to any Affiliate of such Party, provided that the assigning Party shall remain responsible for the acts and omissions of such Affiliate; or (b) to any Third Party that succeeds to all or substantially all of the business or assets of such Party to which the Supply Agreement pertains (whether by merger, reorganization, acquisition, sale, operation of law or otherwise); provided that any permitted assignee assumes in writing all of the assigning Party’s obligations under the Supply Agreement.
No other assignment will be allowed without the prior written consent of the other Party
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Governing Law:
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This term sheet and the Supply Agreement shall be governed by the laws of the State of New York, without reference to conflicts of laws principles.
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Other Terms:
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The Supply Agreement shall contain terms and conditions typically contained in agreements governing the supply of medical devices.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 8.2
Joint Press Release
TRANSCEPT AND SHIN NIPPON BIOMEDICAL LABORATORIES ANNOUNCE GLOBAL LICENSING AGREEMENT FOR
ADVANCED ACUTE MIGRAINE TREATMENT
TO-2070 is new migraine treatment with a profile promising meaningful therapeutic advantages in an easy-to-use, self-administered dosage form
POINT RICHMOND, CA and TOKYO, JAPAN; September XX, 2013
– Transcept Pharmaceuticals, Inc. (NASDAQ: TSPT), and Shin Nippon Biomedical Laboratories, Ltd (“SNBL”), today announced that the companies have entered into an exclusive worldwide licensing agreement for a novel, rapidly absorbed treatment for acute migraine incorporating dihydroergotamine (DHE) as the active drug. The agreement grants Transcept the global development and commercialization rights to the product candidate, designated TO-2070, which is expected to offer a new and potentially improved approach to the treatment of acute migraine. Preclinical data suggest that TO-2070 may offer significant migraine treatment benefits beyond those provided by less convenient and more invasive DHE drug delivery methods, such as injection, liquid nasal sprays or pulmonary inhalation. TO-2070 is designed to provide these benefits at a relatively low cost via a unique and proprietary nasal powder spray delivery system that can be easily self-administered by patients.
Under the terms of the agreement, Transcept has also agreed to pay SNBL an upfront technology license fee of $1 million, development milestones totaling $6.5 million through New Drug Application (NDA) approval and, following the launch of the product, commercialization milestones tied to the achievement of specified annual sales levels totaling up to $35 million. Additionally, Transcept will pay tiered, low double-digit royalties on annual net sales. The parties anticipate entering into further agreements under which SNBL would supply Transcept with nasal powder delivery devices and would provide Transcept with certain preclinical and clinical services to support TO-2070 development.
Glenn A. Oclassen, President and CEO of Transcept, stated as follows: “For more than 55 years, SNBL has been a leader in the field of biopharmaceutical research, and this nasal powder spray delivery system is the latest example of its innovative spirit. Our TO-2070 agreement enables Transcept and SNBL to work together to develop a potentially important new therapeutic for acute migraine, which is among the most common neurological disorders. There are approximately 30 million migraine cases each year in the United States alone, and we estimate that the worldwide therapeutic market is over $3 billion. However, current treatment options are not adequate to meet
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
the needs of patients. We believe that TO-2070 represents a significant potential therapeutic advance that could offer patients and physicians rapid and meaningful relief of migraine symptoms. TO-2070 will offer these advantages in a DHE treatment system that does not have the problems associated with intranasal liquid, injectable or pulmonary delivery, that can be conveniently self-administered, and that has a relatively low manufacturing cost.”
DHE is a well-established acute migraine treatment, especially among migraine specialists, and has been approved for use in the United States since 1946. However, it has poor oral bioavailability and is not available in an oral dosage form. Instead, DHE is generally administered via subcutaneous (SC), intramuscular (IM) or intravenous (IV) injection. It is also available as a liquid nasal spray; however, the performance of that product is limited by an inconvenient administration regimen, slow onset of relief, inconsistent absorption, post-nasal drip and bitter taste. A DHE product that is delivered via pulmonary inhalation is under review by the Food and Drug Administration.
TO-2070 is based on a breakthrough fast-acting nasal drug delivery technology created by SNBL that combines a novel muco-adhesive powder drug carrier with a proprietary nasal powder spray delivery device. This system is the product of a decade-long SNBL internal development program with the objective of unlocking the significant market potential for nasal drug delivery by overcoming many of the obstacles that have limited its application to date. Unlike previous nasal drug delivery technologies, the SNBL system is able to consistently deliver drug into the nasal cavity with each administration and hold it in place on the nasal mucosa to enable enhanced absorption into the bloodstream. Delivery of the dry powder drug formulation to the nasal mucosa via the specially designed device nozzle is achieved by simply squeezing the device. Unlike other dry powder nasal delivery systems, there is no need for patients to blow into or otherwise manipulate the SNBL device. The SNBL system avoids delivery of drug formulation to the lungs and thereby mitigates potential safety issues associated with the pulmonary route of delivery. Animal model data have shown pharmacokinetic (PK) results that are similar to subcutaneous and intramuscular drug administration of DHE, suggesting the potential for migraine relief heretofore achievable only with injectable DHE dosage forms. Furthermore, the easy-to-use delivery device allows patients to self-administer their treatment without the need to manipulate complicated devices, or to visit their physician or emergency room.
“The decision by Transcept to license this promising new migraine therapeutic provides an important validation for our breakthrough drug delivery platform, which we believe is positioned to trigger a renewed focus on the broad potential of nasal drug delivery. We believe that this new relationship with Transcept, with its track record of successfully advancing a neuroscience product all the way through NDA approval, provides an ideal opportunity to bring our novel technology to market,” said Ryoichi Nagata M.D. Ph.D., SNBL CEO and President.
Alan Rapoport, M.D., Clinical Professor of Neurology at the David Geffen School of Medicine at UCLA, Los Angeles, CA, and President of the International Headache Society commented: “DHE has proven to be an excellent treatment for many of the migraine patients who have tried it. This medication can work quickly depending on how it is administered, provides long-lasting relief, has demonstrated a low migraine recurrence rate and can be effectively administered late in the migraine process. Despite these important advantages, the therapeutic impact of DHE has been somewhat
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limited by challenges associated with the effective delivery of the drug. With this in mind, a novel delivery system that enables the administration of DHE in a convenient way and offers patients rapid and sustained migraine relief, would represent an important advance in the treatment of migraine.”
Based on the long history of use and established safety profile of DHE, and the data from the animal model PK study indicating that TO-2070 has the potential to deliver therapeutic doses of DHE as rapidly as an IM or SC injection, Transcept is planning the first human PK study for the second half of 2014. This study is expected to be followed by a meeting with FDA to discuss how Transcept intends to pursue a 505(b)(2) regulatory pathway for TO-2070. Transcept believes that this regulatory strategy provides key development benefits associated with reduced cost, mitigated risk and potentially expedited approval.
In addition to TO-2070, Transcept and SNBL are evaluating further potential opportunities for new neuroscience products incorporating the SNBL technology that would deliver meaningful clinical benefits to patients.
About Transcept
Transcept Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on the development and commercialization of proprietary products to address important therapeutic needs in the field of neuroscience. The company’s lead development candidate is TO-2070, a novel, rapidly absorbed treatment for acute migraine incorporating dihydroergotamine (DHE) as the active drug. Preclinical data suggest that TO-2070 may offer significant migraine treatment benefits beyond those provided by less convenient and more invasive DHE drug delivery methods, such as injection, liquid nasal sprays or pulmonary inhalation.
In addition to advancing TO-2070, Transcept is continuing to evaluate opportunities to supplement its development pipeline with new programs appropriate to its area of expertise. The company’s management team developed Intermezzo
®
from concept to its approval by the FDA in 2011. Purdue holds commercialization and development rights for Intermezzo in the United States. For further information about Transcept, please visit
www.transcept.com
. For information about Intermezzo, please visit
www.MyIntermezzo.com
.
About Shin Nippon Biomedical Laboratories (SNBL)
For more than 55 years, SNBL has been a leader in providing development services to biopharmaceutical companies, generating high quality data with the exceptional precision needed to rapidly advance new medical therapies and innovations that improve patients’ lives.
In addition to providing services, SNBL has a Translational Research business, which utilizes its development capabilities to develop value-adding technologies and provides them to the pharmaceutical and medical industry. Under such business, SNBL has developed μco™ System, a novel intranasal drug delivery technology platform, to provide effective delivery solutions to pharmaceutical products. For further information about SNBL, please visit
http://www.snbl.com
. For information about SNBL's nasal drug delivery technology, please visit
http://www.snbl-nds.co.jp/en/.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Forward Looking Statements
This press release contains forward-looking statements that involve substantial risks and uncertainties regarding Transcept. All statements, other than statements of historical facts, included in this press release regarding Transcept’s strategy, future operations, future financial position, future revenues, projected expenses, prospects, plans and objectives of management are forward-looking statements. Examples of such statements include, but are not limited to, statements relating to the following: TO-2070 offers a new and improved approach to the treatment of acute migraine; the potential for TO-2070 to be superior to existing migraine treatments, including by offering significant benefits at relatively low cost; the benefits and nature of SNBL’s nasal drug delivery system with respect to TO-2070 and as compared to existing delivery systems, including convenience, cost, ease of self-administration, safety and speed; the amount, timing and nature of payments by Transcept to SNBL under the TO-2070 licensing agreement; the nature of Transcept’s relationship and collaboration with SNBL and market opportunities pursuant to such relationship; Transcept’s estimates regarding the potential size of the market for migraine treatments; beliefs regarding the inadequacy of existing treatment options for migraine; the potential market importance of TO-2070 and SNBL’s nasal drug delivery system; the occurrence and timing of Transcept’s planned FDA meeting and initial human PK study relating to TO-2070; and the potential benefits of Transcept’s regulatory strategy. Transcept may not actually achieve the plans, carry out the intentions or meet the expectations or projections disclosed in its forward-looking statements and you should not place undue reliance on these forward-looking statements. Actual results or events could differ materially from the plans, intentions, expectations and projections disclosed in the forward-looking statements. Various important factors relating to Transcept could cause actual results or events to differ materially from the forward-looking statements that Transcept makes, including the following: achieving acceptance of Intermezzo by physicians, patients and third party payors; Transcept’s dependence on its collaboration with Purdue; supplying sufficient quantities of Intermezzo from third party manufacturers and suppliers to meet anticipated market demand; the impact of competitive products and the market for Intermezzo generally; obtaining, maintaining and protecting regulatory exclusivity and intellectual property protection for Intermezzo; Transcept’s ability to identify and finance additional product candidates for in-licensing or acquisition; and the ability of Transcept to obtain additional funding, if needed, to support its business activities. These and other risks are described in greater detail in the "Risk Factors" section of Transcept periodic reports filed with the SEC . Forward-looking statements do not reflect the potential impact of any future in-licensing, collaborations, acquisitions, mergers, dispositions, joint ventures, or investments Transcept may enter into or make. Transcept does not assume any obligation to update any forward-looking statements, except as required by law.
Contacts:
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Transcept Pharmaceuticals, Inc.
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Vida Strategic Partners (media)
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Leone Patterson
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Tim Brons
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Vice President, Chief Financial Officer
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Executive Vice President
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(510) 215-3500
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(415) 675-7402
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lpatterson@transcept.com
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tbrons@vidasp.com
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Shin Nippon Biomedical Laboratories, Ltd.
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Shunji Haruta, Ph.D.
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General Manager, NDS Division
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haruta-shunji@snbl.co.jp
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Glenn A. Oclassen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Transcept Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
November 7, 2013
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/s/
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Glenn A. Oclassen
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Glenn A. Oclassen
President and Chief Executive Officer
(Principal Executive Officer)
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Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Leone Patterson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Transcept Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
November 7, 2013
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/s/
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Leone D. Patterson
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Leone D. Patterson
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
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Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Transcept Pharmaceuticals, Inc. (the “
Company
”) hereby certify, to such officers' knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q
for the quarterly period ended
September 30, 2013
(the “
Report
”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
November 7, 2013
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/s/ Glenn A. Oclassen
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Glenn A. Oclassen
President and Chief Executive Officer
(Principal Executive Officer)
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/s/ Leone D. Patterson
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Leone D. Patterson
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
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A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.