UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 000-51534
INNOVIVE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 74-3123261 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
555 Madison Avenue, 25 th Floor, New York, New York 10022
(Address of principal executive offices, including zip code)
(212) 716-1810
(Registrant’s telephone number, including area code)
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 x NO ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
As of November 13, 2006, there were 9,147,068 shares of Registrant’s common stock outstanding.
| Page | ||||
| PART I – FINANCIAL INFORMATION | 3 | |||
|
Item 1. |
Financial Statements | 3 | ||
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operation | 14 | ||
|
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 18 | ||
|
Item 4. |
Controls and Procedures | 18 | ||
| PART II – OTHER INFORMATION | 18 | |||
|
Item 6. |
Exhibits | 18 | ||
| Signatures | 19 | |||
2
PART I – FINANCIAL INFORMATION
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Condensed Balance Sheets
See Notes to Condensed Financial Statements.
3
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Condensed Statements of Operations
(UNAUDITED)
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
Period
from
2004
|
||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||||||
|
OPERATING EXPENSES |
||||||||||||||||||||
|
Research and development |
$ | 3,805,512 | $ | 416,789 | $ | 8,030,849 | $ | 1,250,813 | $ | 11,827,830 | ||||||||||
|
General and administrative |
1,174,949 | 492,025 | 2,480,097 | 1,147,233 | 4,336,256 | |||||||||||||||
|
Total operating expenses |
4,980,461 | 908,814 | 10,510,946 | 2,398,046 | 16,164,086 | |||||||||||||||
|
LOSS FROM OPERATIONS |
(4,980,461 | ) | (908,814 | ) | (10,510,946 | ) | (2,398,046 | ) | (16,164,086 | ) | ||||||||||
|
INTEREST INCOME |
89,427 | 12,048 | 99,471 | 12,048 | 115,688 | |||||||||||||||
|
INTEREST EXPENSE (includes amortization of debt discount, charge for beneficial conversion feature and change in fair value of warrant liability) |
— | 161,895 | 1,189,493 | 185,130 | 1,605,850 | |||||||||||||||
|
NET LOSS |
(4,891,034 | ) | (1,058,661 | ) | (11,600,968 | ) | (2,571,128 | ) | (17,654,248 | ) | ||||||||||
|
Imputed preferred stock dividends |
— | — | (808,965 | ) | — | (808,965 | ) | |||||||||||||
|
Net loss applicable to common shares |
$ | (4,891,034 | ) | $ | (1,058,661 | ) | (12,409,933 | ) | $ | (2,571,128 | ) | $ | (18,463,213 | ) | ||||||
|
NET LOSS PER COMMON SHARE – BASIC AND DILUTED |
$ | (0.53 | ) | $ | (0.34 | ) | $ | (2.27 | ) | $ | (0.83 | ) | ||||||||
|
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED |
9,147,068 | 3,160,000 | 5,463,287 | 3,086,082 | ||||||||||||||||
See Notes to Condensed Financial Statements.
4
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Condensed Statements Of Changes In Stockholders' Equity (Deficiency)
For The Nine Months Ended September 30, 2006 and Period From March
24, 2004 (Inception) To September 30, 2006
(UNAUDITED)
See Notes to Condensed Financial Statements.
5
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(UNAUDITED)
|
For the Nine
Months Ended September 30, 2006 |
For the Nine
Months Ended September 30, 2005 |
Period from March 24, 2004 (inception) to
September 30,
|
||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
|
Net loss |
$ | (11,600,968 | ) | $ | (2,571,128 | ) | $ | (17,654,248 | ) | |||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
|
Expenses paid by related party on behalf of the Company |
— | 20,000 | 120,000 | |||||||||
|
Non cash interest expense |
937,072 | — | 937,072 | |||||||||
|
Depreciation and amortization |
77,469 | 5,564 | 86,309 | |||||||||
|
Amortization of stock-based non-employee compensation |
230,250 | 24,124 | 315,921 | |||||||||
|
Amortization of stock-based employee compensation |
236,516 | — | 275,114 | |||||||||
|
Stock issued in connection with license agreement |
792,000 | — | 1,584,000 | |||||||||
|
Amortization of debt discount |
127,619 | 63,122 | 255,238 | |||||||||
|
Amortization of debt issuance costs |
178,626 | 48,710 | 357,352 | |||||||||
|
Change in fair value of warrant liability |
(53,823 | ) | — | 98,408 | ||||||||
|
Changes in operating assets and liabilities: |
||||||||||||
|
Increase in other current assets |
(221,826 | ) | (21,250 | ) | (236,390 | ) | ||||||
|
Increase in other assets |
— | (105,969 | ) | (105,969 | ) | |||||||
|
Increase in accounts payable and accrued expenses |
687,151 | 145,702 | 1,748,518 | |||||||||
|
Increase in accrued interest payable |
— | 73,298 | 129,457 | |||||||||
|
Net Cash Used In Operating Activities |
(8,609,914 | ) | (2,317,827 | ) | (12,089,218 | ) | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
|
Purchase of office equipment |
(13,472 | ) | (62,179 | ) | (89,864 | ) | ||||||
|
Net Cash Used In Investing Activities |
(13,472 | ) | (62,179 | ) | (89,864 | ) | ||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
|
Proceeds from note payable to related party |
3,540,000 | 1,377,000 | 5,167,000 | |||||||||
|
Proceeds from senior convertible notes |
— | 2,249,984 | 2,249,984 | |||||||||
|
Proceeds from Series A preferred financing, net |
12,501,135 | — | 12,501,135 | |||||||||
|
Proceeds from subscriptions receivable |
— | 2,845 | 3,160 | |||||||||
|
Payments for debt issuance costs, net |
— | (190,854 | ) | (190,854 | ) | |||||||
|
Net Cash Provided By Financing Activities |
16,041,135 | 3,438,975 | 19,730,425 | |||||||||
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
7,417,749 | 1,058,969 | 7,551,343 | |||||||||
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
133,594 | 22,734 | — | |||||||||
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
$ | 7,551,343 | $ | 1,081,703 | $ | 7,551,343 | ||||||
|
Supplemental Schedule of Non-Cash Investing and Financing Activities: |
||||||||||||
|
Value of common stock issued to officers valued at $1.10 per share |
— | — | $ | 173,690 | ||||||||
|
Value of warrant liability allocated to senior convertible notes |
— | — | $ | 360,798 | ||||||||
6
Supplemental Schedule of Non-Cash Investing and Financing Activities (continued):
See Notes to Condensed Financial Statements.
7
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
Note 1 - Business, basis of presentation and summary of significant accounting policies:
Business:
Innovive Pharmaceuticals, Inc. ("Innovive" or the "Company") was incorporated in the State of Delaware on March 24, 2004. Innovive is a specialty pharmaceutical company focused on the acquisition, development and commercialization of innovative pharmaceutical products. The Company's current licensed compounds target the treatment of cancer, conditions stemming from the abnormal regulation of cell growth and other immunological diseases.
Basis of presentation:
Since incorporation, the Company's activities have been acquiring its pharmaceutical compound portfolio, raising capital, establishing office facilities and recruiting personnel as well as research and development activities, including formulation, testing and manufacturing of its licensed products and designing and executing clinical studies for these products. The Company has not generated any revenues since inception. Accordingly, the Company is considered to be in the development stage.
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, the financial statements do not include all information and notes required by accounting principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2006 or for any subsequent period. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2005, which are included in the Company’s registration statement on Form S-1 filed with the Securities and Exchange Commission (“SEC”) on August 7, 2006. The condensed balance sheet as of December 31, 2005 has been derived from the audited financial statements included in the Form S-1.
The Company's financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. For the three and nine months ended September 30, 2006, the Company incurred a net loss of $4,891,034 and $11,600,968, respectively. For the nine months ended September 30, 2006 the Company had negative cash flows from operating activities of $8,609,914. The Company has an accumulated deficit from March 24, 2004 (Inception) through September 30, 2006 of $18,463,213. Although the Company had cash and cash equivalents of $7,551,343 at September 30, 2006, management believes that the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing or will need to generate revenue from the licensing of its products or by entering into strategic alliances to be able to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company, but it cannot assure that such financing will be available on acceptable terms. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Stock –Based compensation:
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123(R) (“SFAS 123R”), “Share-Based Payment”, revising Statement of Financial Accounting Standards No. 123 (“SFAS 123”) requiring that the fair value of all share-based payments to employees be recognized in the financial statements over the service period. The Company adopted SFAS 123(R) effective January 1, 2006, using the modified-prospective transition method. Under this method, the Company is required to recognize compensation expense for the fair value of all awards granted after the date of adoption and for the unvested portion of previously granted employee options that remained outstanding as of the adoption date. The Company reclassified the amounts in deferred compensation related to the restricted stock granted to two officers upon adoption of SFAS 123(R), but did not have to restate its prior period financial statements. The Company measures the fair value of employee options using the Black-Scholes option pricing model.
8
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
The Company accounts for stock options granted to non-employees on a fair value basis using the Black-Scholes option pricing method in accordance with SFAS 123R and Emerging Issues Task Force (“EITF”) No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” Accordingly, such options are adjusted to fair value at the end of each reporting period until such options vest and the fair value of the options is amortized to consulting expense over the related vesting period. As of September 30, 2006, there was approximately $220,000 of unamortized consulting expense associated with the unvested non-employee options; this amount will be revalued at each reporting period and amortized to operations through June 2009.
For the purpose of valuing options granted to employees and non-employees during the nine months ended September 30, 2006, the Company has used the Black-Scholes option pricing model with the following assumptions:
|
Risk-free interest rate |
4.60%-5.11% |
|
|
Volatility |
69.75%-75.15% |
|
|
Lives in years |
5.00-7.00 | |
|
Dividend yield |
0% |
Volatility was calculated based on industry comparables at the date of grant.
Accounting for warrants issued with convertible debt and preferred stock:
The Company accounts for the value of warrants and the intrinsic value of beneficial conversion rights arising from the issuance of convertible debt instruments with nondetachable conversion rights that are in-the-money at the commitment date pursuant to the consensuses for EITF Issue No. 98-5, EITF Issue No. 00-19 and EITF Issue No. 00-27. Such values are determined by first allocating an appropriate portion of the proceeds received from the debt instruments to the warrants or any other detachable instruments included in the exchange. The fair value of the warrants is allocated to warrant liability and to debt discount, which is charged to interest expense over the term of the debt instrument. The warrant liability is adjusted to its fair value at the end of each reporting period. The intrinsic value of the beneficial conversion rights at the commitment date may also be recorded as additional paid-in capital and debt discount as of that date or, if the terms of the debt instrument are contingently adjustable, may only be recorded if a triggering event occurs and the contingency is resolved. Since the warrants associated with the senior convertible notes were initially exercisable into an indeterminable number of common shares, the Company determined that, under the guidance of EITF 00-19, the Company could not conclude that it had sufficient authorized and unissued shares to net-share settle any warrants or options issued to non-employees. Therefore, as of December 31, 2005, the Company had classified the fair value of all vested warrants and options issued to non-employees as a liability.
On June 29, 2006 in connection with the private placement of Series A Preferred Shares (see Note 5), the senior convertible notes were converted into 796,086 shares of Series A preferred stock and an additional 140,883 warrants were issued in association with such senior convertible notes. Accordingly, since the financial instrument which prevented the Company from concluding whether it had sufficient authorized and unissued shares to net-share settle any warrants and options to non-employees was no longer outstanding, the fair value of the liability for all vested warrants and options issued to non-employees of $618,049 as of that date was reclassified from warrant liability to additional paid-in capital within the condensed balance sheet at that time.
Furthermore, on June 29, 2006 in connection with the private placement of Series A Preferred Shares, the contingent beneficial conversion feature on the senior convertible notes totaling $788,086 (including accrued interest) was charged to interest expense on the condensed statement of operations for the nine months ended September 30, 2006 and is included in additional paid-in capital within the condensed balance sheet as of September 30, 2006.
9
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
Earnings (loss) per common share:
“Basic” earnings (loss) per common share equals net income (loss) applicable to common shares divided by weighted average common shares outstanding during each period. “Diluted” earnings per common share equals net income divided by the sum of weighted average common shares outstanding during the period, adjusted for the effects of potentially dilutive securities. The Company's basic and diluted per share amounts are the same since the Company had losses in each period presented. As of September 30, 2006, there were 1,139,397 warrants and stock options outstanding which are potentially dilutive. Furthermore, due to the lack of a required dividend and the full voting rights associated with the Series A convertible preferred stock sold on June 29, 2006, the Company’s weighted-average outstanding share amounts for the three and nine months ended September 30, 2006 include the effect of 5,587,068 shares of Series A Preferred convertible stock that were issued and outstanding until their conversion into common stock on August 10, 2006. As of September 30, 2005, there were outstanding warrants for an aggregate of 140,883 shares in connection with the senior convertible notes that were not included in the computation of diluted loss per share. At September 30, 2005, there were no options or preferred shares outstanding.
Note 2 - Note payable - related party:
In June 2004, the Company entered into an open-ended future advance promissory note agreement whereby Paramount Biocapital Investments LLC or one or more of its affiliates (“Paramount”), agreed to advance funds for obligations arising out of the operations of Innovive's business. Paramount is solely owned by a significant stockholder of Innovive. Additionally, in April 2006, the Company entered into an open-ended future advance promissory note agreement whereby an entity related to the sole shareholder of Paramount agreed to advance funds in a similar manner. Each individual future advance promissory note accrued interest at a fixed rate equal to 5% per annum and was payable upon the earlier of two years from the date of issuance of the note or the date on which Innovive entered into certain specified financing transactions. During the nine months ended September 30, 2006, the Company borrowed an aggregate principal amount of $3,540,000 under these future advance promissory notes. Interest expense pursuant to the future advance promissory note agreements totaled $0 and $90,958 and $164,011 for the three and nine months ended September 30, 2006, and the period from March 24, 2004 (Inception) to September 30, 2006, respectively.
On June 29, 2006, in connection with the private placement of Series A Preferred shares (see Note 5), the aggregate amount of principal and accrued interest under the future advance promissory note due to Paramount totaling $4,073,390 automatically converted into 1,028,634 shares of Series A convertible preferred stock at fair value. Additionally, the aggregate amount of principal and accrued interest under the future advance promissory note due to the entity related to the sole shareholder of Paramount totaling $1,377,621 automatically converted into 347,884 shares of Series A convertible preferred stock.
Note 3 - Administrative services - related party:
The Company pays monthly fees for administrative services of $600 to Paramount.
As of September 30, 2006 two directors of the Company and the Company's Treasurer were also full-time employees of either Paramount or its affiliates.
Note 4 - Stock option plan and warrants:
In March 2004, Innovive established the 2004 Stock Option Plan (the “Plan”), which provides for the granting of up to 925,000 options to officers, directors, employees and consultants for the purchase of common stock through March 2014. The options will have a maximum term of ten years, vest over a period to be determined by the Company's Board of Directors and have an exercise price at or above fair market value.
Consultant Options
In October 2005, 94,800 options were issued to a consultant to purchase shares with an exercise price of $1.10 per share and will expire in October 2015. As a result of adjusting these options to fair value in accordance with EITF No. 96-18, the Company recorded charges to the statement of operations, net of amortization, of $34,635 and $132,539 for the three and nine months ended September 30, 2006, respectively. As of September 30, 2006, none of these options had been exercised.
10
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
On June 29 and August 8, 2006, 30,000 and 45,000 options, respectively, were issued to certain members of the Company’s scientific advisory board with an exercise price of $3.96 per share and will expire in June and August 2016. In accordance with EITF No. 96-18, the Company recorded charges to the statement of operations, net of amortization, of $97,714 for the three and nine months ended September 30, 2006. As of September 30, 2006, none of these options had been exercised.
Employee Options
On June 29, 2006 the Company issued 177,301options to certain employees of Innovive (including 156,301 options to the CEO). Using the Black-Scholes option pricing model, the fair value of these options was $2.79 per share or a total of $494,435. All of these options have an exercise price of $3.96 and expire in June 2016.
On August 8, 2006, an aggregate of 255,000 options was issued to certain employees and directors. Using the Black-Scholes option pricing model, the fair value of these options was $2.83 per share or a total of $720,525. All of these options have an exercise price of $3.96 and expire in August 2016. As of September 30, 2006, none of these options had been exercised.
A summary of the status of the Company’s stock options granted to directors and employees as of September 30, 2006 and changes during the nine months ended September 30, 2006 is presented below:
As of September 30, 2006, the aggregate intrinsic value of options outstanding and exercisable was $0. No options were exercised during the three and nine months ended September 30, 2006. The total remaining unrecognized compensation expense relating to unvested stock options amounted to $1,021,866 at September 30, 2006. The weighted average remaining requisite service period of the unvested options was 19 months.
Restricted Stock
Innovive granted 157,900 restricted stock awards to certain executives of the Company in May 2005. The awards were valued at $1.10 per share or a total value of $173,690. The Company is amortizing the fair value of these awards over their three-year vesting period.
11
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
A summary of the status of the Company’s restricted stock awards as of September 30, 2006 and changes during the nine months ended September 30, 2006 is presented below:
| September 30, 2006 | |||||
| Shares |
Weighted
average fair value |
||||
|
Outstanding at December 31, 2005 |
157,900 | $ | 1.10 | ||
|
Granted |
— | — | |||
|
Cancelled |
— | — | |||
|
Outstanding at September 30, 2006 |
157,900 | $ | 1.10 | ||
|
Restricted stock exercisable at September 30, 2006 |
52,633 | ||||
Warrants
In connection with the June 2005 senior convertible note financing, a total of 55,656 warrants at an exercise price of $4.36 were issued to the designees of the placement agent, Paramount BioCapital Inc. (“Paramount BioCapital”) of the senior convertible notes financing. Paramount BioCapital is solely owned by a significant shareholder of Innovive. These warrants have a cashless exercise feature and expire in June 2012. As of September 30, 2006, none of these placement warrants had been exercised.
In February 2006, 54,967 warrants were issued to a consultant with an exercise price of $2.97 and will expire in February 2013. As a result of adjusting the liabilities related to these warrants to fair value in accordance with EITF No. 00-19, the Company reduced expenses charged to the statement of operations in the amounts of $0 and $12,328 for the three and nine months ended September 30, 2006, respectively. As of September 30, 2006, none of these warrants had been exercised.
On June 29, 2006, in connection with the private placement of Series A convertible preferred shares (see Note 5), 341,446 warrants at an exercise price of $4.36 were issued to the co-placement agents of the private placement, of which 200,795 warrants were issued to designees of Paramount BioCapital. These warrants have a cashless exercise feature and expire in June 2013. As of September 30, 2006, none of these placement warrants had been exercised.
At September 30, 2006, there were warrants outstanding for the purchase of a total of 537,296 shares.
Note 5 – Private Placement:
On June 29, 2006, Innovive raised gross proceeds of $13,521,277 ($12,501,135 net of offering expenses) through the private placement (“Private Placement”) of 3,414,464 shares of its $.001 par value Series A convertible preferred stock at a sale price of $3.96 per share. The Series A convertible preferred stock had no required dividend. Each share of Series A convertible preferred stock was convertible into one share of common stock. Innovive was required to file a registration statement for the common shares underlying the Series A convertible preferred shares with the SEC no later than August 28, 2006. Such registration statement was filed with the SEC on August 7, 2006 and declared effective on August 10, 2006. Upon the effectiveness of such registration statement with the SEC, all shares of Series A convertible preferred stock automatically converted into common shares. In connection with the Private Placement, a total of 341,446 warrants to purchase common shares with an exercise price of $4.36 per share and an expiration date of June 29, 2013 were issued to the designees of the co-placement agents of the Private Placement, resulting in an imputed preferred stock dividend. The Company valued the warrants at fair value using a Black-Scholes option pricing model resulting in an imputed dividend payable of $808,965 that was recorded as an increase in deficit accumulated in the development stage with a corresponding increase of preferred stock within the condensed balance sheet.
As a result of the Private Placement, senior convertible notes issued by the Company in June 2005 with an aggregate amount of principal and accrued interest of $2,364,415 were automatically converted into 796,086 shares of Series A convertible
12
INNOVIVE PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
preferred stock at a conversion price of $2.97 per share, all of which converted to shares of common stock on August 10, 2006 upon the effectiveness of the registration statement filed with the SEC. In addition, the purchasers of the senior convertible notes received 85,227 warrants to purchase shares of common stock at an exercise price of $4.36 per share. Accordingly, the total debt converted was reclassified from notes payable to preferred stock within the condensed balance sheet. Additionally, 55,656 warrants to purchase common shares were issued to the placement agent of the senior convertible notes at an exercise price of $4.36 per share. Furthermore, as a result of the private placement there was a beneficial conversion feature totaling $788,086 for the senior convertible notes including accrued interest that was charged to interest expense and included in additional paid-in capital at that time.
Additionally, as a result of the Private Placement, the aggregate principal and accrued interest totaling $5,451,011 from future advance promissory notes issued to Paramount in June 2004 and an entity related to the sole shareholder of Paramount in April 2006 were automatically converted into an aggregate of 1,376,518 shares of Series A convertible preferred stock at a conversion price of $3.96 per share, all of which converted to shares of common stock on August 10, 2006 upon the effectiveness of the registration statement filed with the SEC. Accordingly, the total debt converted was reclassified from notes payable to preferred stock within the condensed balance sheet at that time. This financing arrangement is more fully described in Note 2 within these condensed financial statements.
Note 6 – License Agreement:
On August 18, 2006, the Company entered into a license agreement with KTB Tumorforschungs GmbH, or KTB, for the license of patent rights held by KTB for the worldwide development and commercialization of DOXO-EMCH, a novel doxorubicin prodrug, or INNO-206. The license granted to Innovive is exclusive and worldwide, applies to all products that may be subject to the licensed intellectual property and may be used in all fields of use. Innovive may sublicense the intellectual property in its sole discretion. KTB granted the Company an option to include within the license any technology that is claimed or disclosed in the licensed patents and patent applications for use in the field of oncology. Innovive also has the right of first refusal on any license that KTB wishes to make to a third party regarding any technology that is claimed or disclosed in the licensed patents and patent applications for use in the field of oncology.
The Company paid KTB a license issue fee of $500,000 on execution of the agreement that was recorded as research and development expense for the three and nine months ended September 30, 2006. Under the license agreement, Innovive must pay KTB royalties based on net sales and make payments to KTB in the aggregate of up to $8,500,000 upon meeting various clinical and regulatory milestones. In the event that the Company must pay a third party in order to exercise its rights to the intellectual property under the agreement, it will deduct a percentage of those payments from the royalties due KTB, up to an agreed upon cap. This deduction includes a percentage of any payments that might be required to be made by Innovive to Bristol-Myers Squibb. Bristol-Myers Squibb holds a patent on technology that might be considered to block the patents and patent applications that are the subject of the license agreement with KTB. The Company intends to pursue this issue with Bristol-Myers Squibb to develop a mutually beneficial arrangement. To Innovive’s knowledge, Bristol-Myers Squibb is not pursuing the development of this potentially blocking intellectual property.
Under the agreement, the Company must use commercially reasonable efforts to conduct the research and development activities it determines are necessary to obtain regulatory approval to market the product in those countries that it determines are commercially feasible. Under the agreement, KTB will use its commercially reasonable efforts to provide Innovive with access to suppliers of the active pharmaceutical ingredient of the product on the same terms and conditions as may be provided to KTB by those suppliers.
The license agreement expires on a product-by-product basis upon expiration of the subject patent rights. Innovive has the right to terminate the agreement on 30 days notice, provided it pays a cash penalty to KTB. KTB may terminate the agreement if the Company is in breach and the breach is not cured within a required amount of time or if the Company fails to use diligent and commercially reasonable efforts to meet various clinical milestones.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to risks and uncertainties, including those set forth under “ Item 1- Risks Associated with Our Business” in our Registration Statement on Form 10, under “Risk Factors” in our Registration Statement on Form S-1 and under “Cautionary Statement” included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results. The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report.
Overview
Since our inception in March 2004, we have focused our efforts and resources primarily on acquiring and developing four pharmaceutical technologies, INNO-105, INNO-206, INNO-305 and INNO-406, raising capital and recruiting personnel. We are actively pursuing the acquisition of other pharmaceutical products for development. We are a development stage company and have no product sales to date and we will not receive any product sales until we receive approval from the FDA or equivalent foreign regulatory authorities to begin selling our pharmaceutical candidates. Assuming we do not encounter any unforeseen safety issues or regulatory delays during the course of developing our product candidates, we expect to complete the development of INNO-406 in the first half of 2008, INNO-305 in the first half of 2009 and INNO-206 in the first half of 2010. We ceased development of INNO-105 in late September 2006. Drug development is an expensive effort, and the expenses related to the research and development of our current candidates, INNO-206, INNO-305 and INNO-406, will be significant from now through their anticipated approval. To the extent we are successful in acquiring additional product candidates for our development pipeline, our need to finance further research and development will continue to increase. Accordingly, our success will depend not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of the products. Through September 30, 2006, our major sources of working capital have been proceeds from a private sale in June 2005 of our senior convertible promissory notes, advances from a related party under future advance promissory notes, and the June 2006 private placement of our Series A convertible preferred stock.
Need for Operating Funds
At September 30, 2006, we had cash on hand of $7,551,343, consisting mainly of net proceeds received from the private placement of our Series A convertible preferred stock. We expect to continue to incur losses and negative cash flows from operating activities for the foreseeable future. As a result, we believe that there is substantial doubt about our ability to continue as a going concern and we have received a “going concern” opinion from our auditors in connection with their audit of our financial statements as of December 31, 2005. As a result of the private placement of Series A convertible preferred stock on June 29, 2006, we believe that our cash on hand will sustain our operations through March 2007. Thereafter, we will need additional equity or debt financing or will need to generate revenue from the licensing of our product candidates or by entering into strategic alliances to be able to sustain our operations until we can achieve profitability and positive cash flows.
Lack of Revenue
We had not generated any revenue from any source through September 30, 2006 and we do not expect to generate revenue within the foreseeable future, if ever. None of our existing product candidates is expected to be commercially available until 2008 at the earliest, if at all.
Critical Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Our significant accounting policies are more fully described in Note 1 to the condensed financial statements included in this report. The following accounting policies are critical to fully understanding and evaluating our financial results.
Research and Development Expense
Research and development expenses consist primarily of costs associated with determining feasibility, licensing and pre-clinical and clinical testing of our licensed pharmaceutical candidates. These costs include fees paid to consultants and outside service providers for drug manufacturing and development, legal expenses and other expenses. We expense our research and development costs as they are incurred.
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Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, management evaluates their estimates and judgments. Management bases estimates on historical experience and on various other factors that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results might differ from these estimates under different assumptions or conditions.
Accounting for Stock-Based Compensation
We account for restricted common stock issued to our employees using the fair value method of Statement of Financial Accounting Standards, or SFAS, No. 123(R), “Accounting for Stock-Based Compensation and Related Interpretations,” or SFAS 123(R). In determining the fair value of the shares of restricted stock we issued in 2005, we considered, among other factors, (1) the advancement of our technology, (2) our financial position and (3) the fair value of our common stock as determined in arm’s-length transactions. Our results include non-cash compensation expense as a result of the issuance of the restricted common stock utilizing this method. We expect to record additional non-cash compensation expense in the future, which might be significant, particularly if our stock price increases.
We account for stock options granted to employees and non-employees on a fair value basis in accordance with SFAS 123(R), “Accounting for Stock-Based Compensation,” and for stock options granted to non-employees in accordance with Emerging Issues Task Force, or EITF, Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” Any options issued to employees and non-employees are recorded in the financial statements using the fair value method and then amortized to expense over the applicable vesting periods. Pursuant to EITF Issue No. 96-18, the non-cash charge to operations for non-employee options with vesting or other performance criteria is affected each reporting period by changes in the fair value of the options.
We account for the value of warrants and the intrinsic value of beneficial conversion rights arising from the issuance of convertible debt instruments with nondetachable conversion rights that are in-the-money at the commitment date pursuant to the consensuses for EITF Issue No. 98-5, EITF Issue No. 00-19 and EITF Issue No. 00-27. Such values are determined by first allocating an appropriate portion of the proceeds received from the debt instruments to the warrants or any other detachable instruments included in the exchange. The fair value of the warrants is allocated to warrant liability and to debt discount, which is charged to interest expense over the term of the debt instrument. The warrant liability is adjusted to its fair value at the end of each reporting period. The intrinsic value of the beneficial conversion rights at the commitment date may also be recorded as additional paid-in capital and debt discount as of that date or, if the terms of the debt instrument are contingently adjustable, may only be recorded if a triggering event occurs and the contingency is resolved. Since the warrants associated with the senior convertible notes were initially exercisable into an indeterminable number of common shares, we had determined that, under the guidance of EITF 00-19, we could not conclude that we had sufficient authorized and unissued shares to net-share settle any warrants or options issued to non-employees. Therefore, as of December 31, 2005, we had classified the fair value of all vested warrants and options issued to non-employees as a liability. As a result of the private placement of our Series A convertible preferred stock on June 29, 2006, the fair value of the liability for all vested warrants and options issued to non-employees was reclassified from warrant liability to additional paid-in capital within the condensed balance sheet.
Results of Operations
Three Months Ended September 30, 2006 and 2005
Research and development expense. For the three months ended September 30, 2006, research and development expense was $3,805,512 as compared to $416,789 for the three months ended September 30, 2005. The increase was primarily due to an upfront licensing fee of $500,000 for INNO-206 and higher research and development costs, primarily due to pre-clinical work and Phase I clinical trials for INNO-406.
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General and administrative expense. For the three months ended September 30, 2006, general and administrative expense was $1,174,949 as compared to $492,025 for the three months ended September 30, 2005. This increase is mainly attributable to higher payroll, primarily the result of increased headcount and higher other costs as we expand our operations in support of our development program.
Interest expense. For the three months ended September 30, 2006, interest expense was $0 as compared to $161,895 for the three months ended September 30, 2005. The decrease was due to the conversion of the notes payable into Series A convertible preferred stock at June 29, 2006.
Interest income. For the three months ended September 30, 2006, interest income was $89,427 as compared to $12,048 for the three months ended September 30, 2005. The increase was attributable to higher average cash and cash equivalents for the current three-month period primarily as a result of the net proceeds received from the private placement of our Series A convertible preferred stock on June 29, 2006.
Net loss. Net loss for the three months ended September 30, 2006 was $4,891,034 as compared to $1,058,661 for the three months ended September 30, 2005. The increase in net loss was primarily attributable to the increase in research and development expense and general and administrative expense discussed above.
Nine Months Ended September 30, 2006 and 2005
Research and development expense. For the nine months ended September 30, 2006, research and development expense was $8,030,849 as compared to $1,250,813 for the nine months ended September 30, 2005. The increase was primarily due to milestone payments (including a non-cash charge for $792,000 in connection with release of shares from escrow to a licensor), the $500,000 upfront licensing fee for INNO-206, and higher research and development, primarily due to pre-clinical work and Phase I clinical trials for INNO-406.
General and administrative expense. For the nine months ended September 30, 2006, general and administrative expense was $2,480,097 as compared to $1,147,233 for the nine months ended September 30, 2005. This increase is mainly attributable to increased headcount and higher other costs as we expand our operations in support of our development program.
Interest expense. For the nine months ended September 30, 2006, interest expense was $1,189,493 as compared to $185,130 for the nine months ended September 30, 2005. The increase was due to several factors including:
| • | the increase in borrowings related to the future advance promissory note issued to Paramount BioCapital Investments LLC in June 2004 and a related party; |
| • | the issuance of the 5% senior convertible notes in June 2005, non-cash amortization of debt issuance costs and debt discount related to the senior convertible notes offset by a gain due to the change in value of the warrant liability; and |
| • | a $788,086 non-cash amortization charge for the recognition of the beneficial conversion feature on the senior convertible notes. |
Interest income. For the nine months ended September 30, 2006, interest income was $99,471 as compared to $12,048 for the nine months ended September 30, 2005. The increase was attributable to higher average cash and cash equivalents for the current nine-month period.
Net loss. Net loss for the nine months ended September 30, 2006 was $11,600,968 as compared to $2,571,128 for the nine months ended September 30, 2005. The increase in net loss was attributable to the increase in research and development expense, general and administrative expense and interest expense discussed above.
Liquidity and Capital Resources
Since March 24, 2004 (Inception) to September 30, 2006, we have incurred an accumulated deficit of $18,463,213, primarily as a result of expenses incurred through a combination of acquisition costs related to INNO-105, INNO-206, INNO-305 and INNO-406, research and development activities related to INNO-105, INNO-305 and INNO-406 and expenses supporting those activities.
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Pursuant to our license agreement for INNO-305, we may be obligated to pay to Sloan-Kettering Institute for Cancer Research, or SKI, an annual license maintenance fee of $100,000 beginning on the first anniversary of the license agreement for INNO-305, which will be December 15, 2006, and ending on the first commercial sale of INNO-305; we are not required to pay this fee in any year in which we make a milestone payment under the agreement. In the event we achieve certain milestones in connection with the development of INNO-206, INNO-305 and INNO-406, we will be obligated to make clinical and regulatory milestone payments in the aggregate amount of $8,500,000 for INNO-206, $6,600,000 for INNO-305 and $13,350,000 for INNO-406, pursuant to the terms of their respective license agreements. We intend to fund these payments by raising capital, which will be dependent on the progress of our testing of INNO-206, INNO-305 and INNO-406 and any other technologies we might acquire at each stage.
We discontinued development of INNO-105 in late September 2006. We notified Penn State Research Foundation, or PSRF, that we intend to discontinue the license effective December 30, 2006. Under the terms of our license agreement with PSRF we would have been obligated to make 10 milestone payments in the aggregate amount of $26,750,000 to PSRF if we had achieved all of those clinical and regulatory milestones. We also would have been required to continue to pay $100,000 a year to the Pennsylvania State University College of Medicine pursuant to a sponsored research agreement that runs for the term of the PSRF license agreement.
We have financed our operations since inception primarily through debt financing and a private placement of our Series A convertible preferred stock. As of September 30, 2006, we had cash on hand of $7,551,343, consisting mainly of net proceeds received from the private placement of our Series A convertible preferred stock on June 29, 2006. As a result of the private placement of Series A convertible preferred stock on June 29, 2006, we believe that our cash on hand will sustain our operations through March 2007. Thereafter, we will need additional equity or debt financing or will need to generate revenue from the licensing of our product candidates or by entering into strategic alliances to be able to sustain our operations until we can achieve profitability and positive cash flows. We will continue to fund operations from cash on hand and future financings until we can achieve profitability, if ever.
The significant operating and capital expenditures for product licensing and development for INNO-206, INNO-305 and INNO-406 and any future products, including pre-clinical trials and FDA-approved clinical trials, will require additional funding. Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing. Such additional funds might not be available on acceptable terms, if at all, and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. We will consider raising additional funds through all viable means, including one or more private placements of common stock, preferred stock or debt or a combination thereof. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs, including any milestone payments.
Cautionary Statement
We operate in a highly competitive environment that involves a number of risks, some of which are beyond our control. The following statement highlights some of these risks. For more detail, see “Item 1 – Risks Associated with Our Business” in our Registration Statement on Form 10 and “Risk Factors” in our Registration Statement on Form S-1.
Statements contained in this Form 10-Q that are not historical facts are or might constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, our expectations might not be attained. Forward-looking statements involve known and unknown risks that could cause actual results to differ materially from expected results. Factors that could cause actual results to differ materially from our expectations expressed in this report include, among others: our need for additional capital; the cost and uncertainty of the research, clinical trials and other development activities involving pharmaceutical products; the unpredictability of the duration and results of regulatory review of new drug applications and investigational new drug applications; our dependence on a limited number of pharmaceutical products in development, the uncertainty of their development and, if developed, the uncertainty of market acceptance of those products; the uncertainty of developing a sales force to market our products; the uncertainty of obtaining, and our dependence on, third parties to manufacture our products; intense competition; the possible impairment of, or inability to obtain, intellectual property rights and the costs of obtaining such rights from third parties; and results of future litigation and other risk factors detailed from time to time in our other SEC filings.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
Item 4. Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of that date in providing the reasonable assurance discussed above.
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
| Incorporated by Reference to | ||||||||||
|
Exhibit Number |
Description of Document |
Registrant’s
Form |
Dated |
Exhibit
Number |
Filed
Herewith |
|||||
| 10.15* | License Agreement dated April 17, 2006 between Innovive Pharmaceuticals, Inc. and KTB Tumorforschungs GmbH | X | ||||||||
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
| 31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
| 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
| 32.2 | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
| * | Certain portions of this Exhibit have been omited pursuant to a request for confidential treatment and those portions have been filed separately with the SEC. |
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In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Innovive Pharmaceuticals, Inc. | ||||
| Date: November 13, 2006 | By: |
/s/ Steven Kelly |
||
| Steven Kelly | ||||
| President and Chief Executive Officer | ||||
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Exhibit 10.15
Portions of this exhibit marked [*] are requested to be treated confidentially.
LICENSE AGREEMENT
17 th August 2006
THIS LICENSE AGREEMENT (this “Agreement”) dated as of August 17 th , 2006 (the “Effective Date”) is entered into between KTB Tumorforschungs GmbH (Tumor Biology Center), a privately-held corporation (“Licensor”), having a place of business at Breisacher Str. 117, Freiburg, Germany, and Innovive Pharmaceuticals, Inc. a corporation with principal offices located at 555 Madison Avenue, New York, New York 10022 (“Company”).
WHEREAS, Licensor owns or has rights in the Technology (as defined below).
WHEREAS, Company desires to obtain an exclusive license under Licensor’s rights in the Technology on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the terms defined in this Section 1 shall have the respective meanings set forth below:
1.1 “ Affiliate ” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever.
1.2 “ Competent Authority(ies) ” shall mean, collectively, the governmental entities in each country in the Territory responsible for (a) the regulation of any Product intended for use in the Field, including the FDA, the EMEA and the MHLW, (b) the establishment, maintenance and/or protection of rights related to the Licensed Patent Rights, or (c) any other applicable regulatory or administrative agency in any country in the Territory that is comparable to, or a counterpart of, the foregoing.
1.3 “ Field ” shall mean all fields of use.
1.4 “ First Commercial Sale ” shall mean, with respect to any Product, the first sale of such Product after all applicable marketing and pricing approvals (if any) have been granted by the Competent Authority.
1.5 “ Licensed IP Rights ” shall mean, collectively, the Licensed Patent Rights and the Licensed Know-How Rights.
1.6 “ Licensed Know-How Rights ” shall mean all trade secret and other know-how rights in and to all data, information, compositions and other technology (including, but not limited to, formulae, procedures, protocols, techniques and results of experimentation and testing) that are not Licensed Patent Rights and which are necessary or useful for Company to make, use, develop, sell or seek regulatory approval to market a composition, or to practice any method or process, at any time claimed or disclosed in any issued patent or pending patent application within the Licensed Patent Rights or which otherwise relates to the Technology, where such licensed-know how rights are owned by Licensor or Licensor has the right to grant a sublicense for.
1.7 “ Licensed Patent Rights ” shall mean (a) the patents and patent applications listed on Exhibit A hereto, and all worldwide counterparts thereof in which Licensor has an ownership or the right to grant a sublicense for, to the extent they claim or disclose the Technology, (b) all U.S. and foreign patents and patent applications that claim or cover the Technology in which Licensor heretofore or hereafter has an ownership or (sub)licensable interest, (c) all divisions, continuations, continuations-in-part, that claim priority to, or common priority with, the patent applications listed in clauses (a)—(b) above or the patent applications that resulted in the patents described in clauses (a)—(b) above which Licensor owns or has the right to grant a sublicense for, and (d) all patents that have issued or in the future issue from any of the foregoing patent applications, including utility, model and design patents and certificates of invention, together with any reissues, renewals, extensions or additions thereto, which are owned by Licensor or Licensor has the right to grant a sublicense for.
1.8 “ Net Sales ” shall mean, with respect to any Product, the gross sales price of such Product invoiced by Company or its Affiliate or sublicensees to customers who are not Affiliates (or are Affiliates but are the end users of such Product) less, to the extent actually paid or accrued by Company or its Affiliate or sublicensees (as applicable), (a) credits, allowances, discounts and rebates to, and chargebacks from the account of, such customers for spoiled, damaged, out-dated and returned Product, provided however , Licensor’s consent shall be required for any discount above [*] ([*]%) or any transfer on a non-cash-basis (except transfers for research or development purposes, clinical trials, compassionate use purposes or as samples or promotions) in order for such discount or transfer to be excluded from the calculation of Net Sales ; (b) freight and insurance costs incurred by Company or its Affiliate or sublicensees (as applicable) in transporting such Product to such customers; (c) cash, quantity and trade discounts, rebates and other price reductions for such Product given to such customers under price reduction programs; (d) sales, use, value-added and other taxes (excluding income taxes and other taxes on profit and property) incurred on the sale of such Product to such customers; and (e) customs duties, surcharges and other governmental charges incurred in exporting or importing such Product to such customers.
1.9 “ Non-Royalty Sublicensing Income ” shall mean, with respect to any Product, the aggregate cash consideration directly received by Company or its Affiliates in consideration for the Company or its Affiliates entry into a sublicense agreement under the Licensed IP Rights with a Third Party sublicensee with respect to such Product, but excluding (a) Royalty Sublicensing Revenues, (b) amounts received to reimburse Company or its Affiliates’ cost to perform research, development or similar services, (c) amounts received in reimbursement of patent or other out-of-pocket expenses, and (d) amounts received in
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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consideration for the purchase of any securities of Company or its Affiliates at fair market value. Notwithstanding the foregoing, if a Third Party purchases securities in any Affiliate, and the purchase price is inter alia determined by the (direct or indirect) receipt of a sublicense under the Licensed IP Rights (e.g. a sublicense hold by the purchased Affiliate) or to Products (unless such premium is paid to reimburse Company or its Affiliates’ cost to perform research, development or similar services related to the Technology or Product development) then the respective portion of the purchase price shall be included within Non-Royalty Sublicensing Income. The same shall apply if a Third Party purchases securities in Company and a premium above the fair market value is paid for the (direct or indirect) receipt of a sublicense under the Licensed IP Rights or to Products (unless such premium is paid to reimburse Affiliates’ cost to perform research, development or similar services related to the Technology or Product development).
1.10 “ Oncology Field ” shall mean the detection, diagnosis, prognosis, monitoring, prevention or treatment of any oncologic disease, state or condition in humans or animals.
1.11 “ Optional Technology ” shall mean all methods, compositions, uses, technology, data and information that is claimed or disclosed in the patents and patent applications listed on Exhibit A hereto (as may be amended from time to time by the parties), or any modifications or derivatives thereto, in each case to the extent having application in the Oncology Field.
1.12 “ Person ” shall mean an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.
1.13 “ Product(s) ” shall mean any product for use in the Field that if made, used, sold, offered for sale or imported absent the license granted hereunder would infringe a Valid Claim, or that otherwise uses or incorporates the Licensed IP Rights.
1.14 “ Registration(s) ” shall mean any and all permits, licenses, authorizations, registrations or regulatory approvals (including NDAs) required and/or granted by any Competent Authority as a prerequisite to the development, manufacturing, packaging, marketing and selling of any product.
1.15 “ Royalty Sublicensing Revenues ” shall mean, with respect to any Product, the aggregate royalty cash consideration, received by Company or its Affiliates directly in consideration for the sublicense under the Licensed IP Rights by Company or its Affiliates to a Third Party sublicensee with respect to such Product, that is based on sales of such Product by or on behalf of such sublicensee.
1.16 “ Royalty Term ” shall mean, with respect to each Product in each country, the term for which a Valid Claim remains in effect that, if granted or issued, would be infringed but for the license granted by this Agreement, by the use, offer for sale, sale or import of such Product in such country.
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1.17 “ Technology ” shall mean (a) all methods, compositions, uses, technology, data and information relating to any anthracycline derivates with an acid-sensitive linkers, and (b) if Company has exercised its option under Section 3.6, the Optional Technology (including the applicable Mentioned Optional Technology).
1.18 “ Territory ” shall mean the world.
1.19 “ Third Party ” shall mean any Person other than Licensor, Company and their respective Affiliates.
1.20 “ Valid Claim ” shall mean (a) claim of an issued or granted and unexpired patent included within the Licensed Patent Rights, which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise or (b) a claim of a pending patent application included within the Licensed Patent Rights, which claim was filed in good faith, has not been pending for more than seven (7) years and has not been abandoned or finally disallowed without the possibility of appeal or refiling of such application. Any claim that has been pending for more than seven (7) years and which is thereafter issued or granted becomes a Valid Claim under (a) at its issue or grant date.
2. REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other party as follows:
2.1 Corporate Existence . Such party is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated.
2.2 Authorization and Enforcement of Obligations . Such party (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder, and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms.
2.3 No Consents . All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such party in connection with this Agreement have been obtained.
2.4 No Conflict . The execution and delivery of this Agreement and the performance of such party’s obligations hereunder (a) do not conflict with or violate any requirement of applicable laws or regulations, and (b) do not conflict with, or constitute a default under, any contractual obligation of it.
2.5 Licensed IP Rights . To the best of Licensor’s knowledge Licensor (a) is the sole owner or exclusive licensee of the Licensed IP Rights, and except as Licensor has expressly informed Company in writing prior to the date of this Agreement, has not granted to any Third Party any license or other interest in the Licensed IP Rights, (b) is not aware of any
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Third Party patent, patent application or other intellectual property rights that would be infringed (i) by practicing any process or method or by making, using or selling any composition which is claimed or disclosed in the Licensed Patent Rights or which constitutes Licensed Know-How Rights, or (ii) by making, using or selling Products, and (c) is not aware of any infringement or misappropriation by a Third Party of the Licensed IP Rights. The Company is aware of the patents US 5,622,929, US 824,951, US 5,606,017 and EP 554 708 B1.
3. LICENSE GRANT
3.1 Licensed IP Rights . Licensor hereby grants to Company an exclusive license (with the right to grant sublicenses through multiple tiers) under the Licensed IP Rights to conduct research and to develop, make, have made, use, offer for sale, sell and import Product in the Territory for use in the Field.
3.2 Availability of the Licensed IP Rights . Licensor shall provide Company with a copy of all information available to Licensor relating to the Licensed IP Rights, Products or Technology, including without limitation: (a) regulatory submissions, (b) communications with the Competent Authorities (including the minutes of any meetings), (c) trial master files, including case report forms, (d) listings and tables of results from the clinical trials, (e) treatment-related serious adverse event reports from the clinical trials, (f) storage of and access permission to any retained samples of materials used in clinical trials, and (g) access to CROs involved in the clinical trials.
3.3 Registrations . Licensor acknowledges and agrees that Company shall own all Registrations for Products for use in the Field in each country in the Territory. Licensor hereby grants to Company a free-of-charge right to reference and use and have full access to all other Registrations and all other regulatory documents that relate to the Licensed IP Rights, Products or Technology, including INDs, BLAs, NDAs and DMFs (whether as an independent document or as part of any NDA, and all chemistry, manufacturing and controls information), and any supplements, amendments or updates to the foregoing (for the purposes of this Section, the “Right of Reference”). Company shall have the right to (sub)license the Right of Reference to its sublicensees and Affiliates. Licensor shall promptly notify Company of any written or oral notices received from, or inspections by any Competent Authority relating to any such Registrations, and shall promptly inform Company of any responses to such written notices or inspections and the resolution of any issue raised by such Competent Authority. During the time that Licensor is the holder of a Registration, Company shall be entitled to attend any and all meetings and participate in telephone calls with the Competent Authorities, including without limitation any meeting preparation, meeting co-ordination and preparation of minutes.
3.4 Access to Manufacturers . Licensor shall use its commercially reasonable efforts to provide access to Company to any suppliers of the API form of any Product for use in the Field on terms and conditions no less favorable than those terms and conditions between Licensor and such supplier.
3.5 Sublicense . Company may grant sublicenses in multiple tiers in its sole discretion. The Company shall provide Licensor with copies of all sublicense agreement within thirty (30) days of their execution date. Company shall have the right to redact any confidential
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information in such copies of sublicense agreements that does not relate to either the Licensed IP Rights hereunder or the economic terms therein. Each sublicense agreement shall contain covenants by the sublicensee for such sublicensee to observe and perform the same terms and conditions as those set forth for the Company in this Agreement. The Company shall be responsible for curing the acts or omissions of its sublicensees and shall not grant any rights which are inconsistent with the rights granted to and obligations of the Company hereunder. All sublicenses shall survive termination of this Agreement provided such sublicensees are not in breach (taking into account any applicable cure period provided in such sublicense); and, provided further that Licensor shall not be obligated to incur any obligation or duties to any sublicensee of the Company not otherwise provided for in this Agreement.
3.6 Optional Technology .
3.6.1 Option . Company shall have the right and option to include Optional Technology within the license grant set forth in Section 3.1 above for use in the Oncology Field. Such right and option may be exercised at any time by Company sending to Licensor written notice of such exercise, with respect to each different combination of an anti-neoplastic agent and a linker the option is exercised for (“Mentioned Optional Technology”). Each exercise of this option causes the obligation of Company to pay additional Milestones in accordance with Section 4.2 of this Agreement, including a license issue fee in accordance with Section 4.2 (a). Upon exercise of such right and option, the Mentioned Optional Technology shall be included within the definition of Technology and shall be included within the license grant set forth in Section 3.1 for use within the Oncology Field. The same terms and conditions as stipulated in this Agreement for the license of Technology apply for the Mentioned Optional Technology as well, especially, but not limited to, the obligation of Company to pay Royalties for the license of Mentioned Optional Technology in accordance with Section 4.1 of this Agreement.
3.6.2 Right of first refusal : If Licensor desires to grant to any Third Party a license or other right to any intellectual property rights covering Optional Technology in the Oncology Field, Licensor shall give to Company express written notice thereof, together with (i) copies of all data and information in its or its Affiliates’ possession regarding applications of the Optional Technology within the Oncology Field, or (ii) the terms and conditions of an intended license agreement with a Third Party (“Third Party Agreement”). If Company fails to exercise in case (i) its right under Section 3.6.1 within [*] ([*]) days after the receipt of such notice, data and information, and in case (ii) its hereby granted right of first refusal within [*] ([*]) days after the receipt of such notice and the intended Third Party Agreement, then Licensor shall have the right to enter into a binding Third Party Agreement granting such license or other right to such Third Party within another [*] ([*]) days. Licensor shall not grant such license or other right to such Third Party on terms and conditions that are more favorable to such Third Party than in case (i) the terms and conditions of this Agreement, and in case (ii) the disclosed terms and conditions of the intended Third Party Agreement unless Licensor first offers in writing to Company such more favorable terms and conditions and Company fails to accept such offer within [*] ([*]) days after written notice of such more favorable offer. Company may not exercise its right under Section 3.6.1 from receipt of the notice of the intended Third Party Agreement (case (ii)) on, until the end of the period, Licensor may enter into a binding Third Party Agreement.
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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4. FINANCIAL CONSIDERATIONS
4.1 Royalties .
4.1.1 Royalty Rate . In consideration for the licenses granted to Company herein, during the Royalty Term for a Product, Company shall pay to Licensor royalties, with respect to each Product, equal to (a) [*] percent ([*]%) of Net Sales of such Product by Company and its Affiliates of up to [*] Dollars in any calendar year, [*] percent ([*]%) of Net Sales of such Product by Company and its Affiliates in excess of [*] Dollars but less then [*] Dollars in any calendar year, and [*] percent ([*]%) of Net Sales of such Product by Company and its Affiliates of greater than [*] Dollars in any calendar year, (b) the greater of (i) [*] percent ([*]%) of Royalty Sublicensing Revenues, or (ii) [*] percent ([*]%) of Net Sales of such Product by such sublicensee, and (c) [*] percent ([*]%) of all Non-Royalty Sublicensing Income received by Company and its Affiliates. Only one royalty shall be owing for a Product regardless of how many Valid Claims cover such Product.
4.1.2 Third Party Royalties . If Company or its Affiliates is required to pay royalties to any Third Party in order to exercise its rights hereunder to make, have made, use, sell, offer to sale or import any Product, then Company shall have the right to credit against the royalties owing to Licensor under Section 4.1.1 above with respect to sales of such Product in such country: (a) [*] percent ([*]%) of such Third Party royalty payments made to Bristol-Myers Squibb Company (“BMS”) for any of the patents (or patents from the same patent family) identified in the last sentence of Section 2.5, and (b) [*] percent ([*]%) of all other such Third Party royalty payments. Company shall keep Licensor involved in any discussions with BMS for a license to such patents. Company shall have the right to credit any such Third Party royalties paid by a sublicensee against the royalties owing to Licensor in accordance with the foregoing, to the extent such Third Party royalties are deducted from the applicable Royalty Sublicensing Revenue paid by such sublicensee. Notwithstanding the foregoing, Company shall not reduce the amount of the royalties paid to Licensor under Section 4.1.1 above by reason of this Section 4.1.2, with respect to sales of such Product in such country, to less than [*] percent ([*]%) of Net Sales of such Product in such country.
4.2 Milestones . Company shall pay to Licensor the following milestone payments within [*] ([*]) days following the first achievement of the applicable milestone:
(a) A license issue fee of Five Hundred Thousand U.S. dollars (U.S. $ 500,000.00), payable within thirty (30) days of execution of this Agreement;
(b) [*] US dollars (U.S. $[*]) upon first dosing of a patient in a first Phase II clinical trial under Company-sponsored (or Affiliate-sponsored, or sublicensee-sponsored) Investigative New Drug Application (“IND”) for a Product;
(c) [*] US dollars (U.S. $[*]) upon conclusion of an End-of-Phase II Meeting with respect to a Product as defined by 21 CFR 312.47(b) or compareable regulation with a Competent Authority;
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC |
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(d) [*] US dollars (U.S. $[*]) upon first dosing of a patient in the first Phase III clinical trial under a Company-sponsored (or Affiliate sponsored, or sublicensee-sponsored) IND for a Product;
(e) [*] US dollars (U.S. $ [*]) upon the first acceptance for review by a Competent Authority of a New Drug Application (“NDA”) for a Product;
(f) [*] US dollars (U.S. $[*]) upon first final approval by a Competent Authority of a Company-sponsored (or Affiliate sponsored, or sublicensee-sponsored) NDA for a Product;
(g) [*] US dollars (U.S. $ [*]) upon second final approval by a Competent Authority of a Company-sponsored (or Affiliate sponsored, or sublicensee-sponsored) NDA for a Product; and
(h) [*] US dollars (U.S. $ [*]) upon the final approval of each subsequent NDA for a Product.
5. ROYALTY REPORTS AND ACCOUNTING
5.1 Royalty Reports . Within sixty (60) days after the end of each calendar quarter during the term of this Agreement following (i) execution by Company or its Affiliate of the first sublicense agreement for the Licensed IP Rights, or (ii) the First Commercial Sale of a Product, Company shall furnish to Licensor a quarterly written report showing in reasonably specific detail (a) the calculation of Net Sales, Non-Royalty Sublicensing Income and Royalty Sublicensing Revenues during such calendar quarter; (b) the calculation of all royalties Company or its Affiliates have received from sublicensees for such quarter; (c) the calculation of the royalties, if any, that shall have accrued based upon such Net Sales, Non-Royalty Sublicensing Income and Royalty Sublicensing Revenues; and (d) the withholding taxes, if any, required by law to be deducted with respect to such sales; and (e) the exchange rates, if any, used in determining the amount of United States dollars. With respect to sales of Products invoiced in United States dollars, the gross sales, Net Sales, Non-Royalty Sublicensing Income, Royalty Sublicensing Revenues and royalties payable shall be expressed in United States dollars. With respect to (i) Net Sales, Non-Royalty Sublicensing Income and Royalty Sublicensing Revenues invoiced in a currency other than United States dollars and (ii) cash consideration paid in a currency other than United States dollars by Company’s sublicensees hereunder, all such amounts shall be expressed both in the currency in which the distribution is invoiced and in the United States dollar equivalent. The United States dollar equivalent shall be calculated using the average of the exchange rate (local currency per US$1) published in The Wall Street Journal , Western Edition, under the heading “Currency Trading” on the last business day of each month during the applicable calendar quarter.
5.2 Audits .
5.2.1 Upon the written request of Licensor and not more than once in each calendar year , Company shall permit an independent certified public accounting firm of nationally recognized standing selected by Licensor and reasonably acceptable to Company, at Licensor’s expense, to have access during normal business hours to such of the financial records
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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of Company as may be reasonably necessary to verify the accuracy of the payment reports hereunder for the eight (8) calendar quarters immediately prior to the date of such request (other than records for which Licensor has already conducted an audit under this Section.
5.2.2 If such accounting firm concludes that additional amounts were owed during the audited period, Company shall pay such additional amounts within thirty (30) days after the date Licensor delivers to Company such accounting firm’s written report so concluding. The fees charged by such accounting firm shall be paid by Licensor; provided, however, if the audit discloses that the royalties payable by Company for such period are more than [*] percent ([*]%) of the royalties actually paid for such period, then Company shall pay the reasonable fees and expenses charged by such accounting firm.
5.2.3 Licensor shall cause its accounting firm to retain all financial information subject to review under this Section 5.2 in strict confidence; provided, however, that Company shall have the right to require that such accounting firm, prior to conducting such audit, enter into an appropriate non-disclosure agreement with Company regarding such financial information. The accounting firm shall disclose to Licensor only whether the reports are correct or not and the amount of any discrepancy. No other information shall be shared. Licensor shall treat all such financial information as Company’s Confidential Information
6. PAYMENTS
6.1 Payment Terms . Royalties shown to have accrued by each royalty report provided for under Section 5.1 above shall be due on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date. Any payment required to be paid by Company pursuant to this Agreement shall, if overdue, bear interest at [*]% per year, or the maximum amount allowed under applicable law if less.
6.2 Exchange Control . If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country in the Territory where the Product is sold, Company shall have the right, in its sole discretion, to make such payments by depositing the amount thereof in local currency to Licensor’s account in a bank or other depository institution in such country. If the royalty rate specified in this Agreement should exceed the permissible rate established in any country, the royalty rate for sales in such country shall be adjusted to the highest legally permissible or government-approved rate.
6.3 Withholding Taxes . Company shall be entitled to deduct the amount of any withholding taxes, value-added taxes or other taxes, levies or charges with respect to such amounts payable by Company, its Affiliates or sublicensees, or any taxes required to be withheld by Company, its Affiliates or sublicensees, to the extent Company, its Affiliates or sublicensees pay to the appropriate governmental authority on behalf of Licensor such taxes, levies or charges. Company shall use reasonable efforts to minimize any such taxes, levies or charges required to be withheld on behalf of Licensor by Company, its Affiliates or sublicensees. Company promptly shall deliver to Licensor proof of payment of all such taxes, levies and other charges, together with copies of all communications from or with such governmental authority with respect thereto.
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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7. RESEARCH AND DEVELOPMENT OBLIGATIONS
7.1 Research and Development Efforts . Company shall use its commercially reasonable efforts to conduct such research, development and preclinical and human clinical trials as Company determines are necessary or desirable to obtain regulatory approval to manufacture and market such Products as Company determines are commercially feasible in the Territory, and shall use its commercially reasonable efforts to obtain regulatory approval to market, and following approval to commence marketing and market each such Product in such countries in the Territory as Company determines are commercially feasible.
7.2 Records . Company shall maintain records, in sufficient detail and in good scientific manner, which shall reflect all work done and results achieved in the performance of its research and development regarding the Products.
7.3 Reports . Within ninety (90) days following the end of each calendar year during the term of this Agreement, Company shall prepare and deliver to Licensor a written summary report which shall describe (a) the research performed to date employing the Licensed IP Rights, (b) the progress of the development, and testing of Products in clinical trials, and (c) the status of obtaining regulatory approvals to market Products.
7.4 Study Report . Licensor shall provide to Company (a) promptly following the Effective Date, a draft study report describing in reasonable detail the data and information resulting from the DOXO-EMCH Phase I clinical trial, together with and any conclusions made by Licensor regarding such data and information, and (b) no later than October 1, 2006, a final study report or manuscript regarding such clinical study that is suitable for submission to a peer-reviewed journal selected by Company.
8. CONFIDENTIALITY
8.1 Confidential Information . During the term of this Agreement, and for a period of [*] ([*]) years following the expiration or earlier termination hereof, each party shall maintain in confidence all information of the other party that is disclosed by the other party and identified as, or acknowledged to be, confidential at the time of disclosure (the “Confidential Information”), and shall not use, disclose or grant the use of the Confidential Information except on a need-to-know basis to those directors, officers, affiliates, employees, permitted licensees, permitted assignees and agents, consultants, clinical investigators or contractors, to the extent such disclosure is reasonably necessary in connection with performing its obligations or exercising its rights under this Agreement. To the extent that disclosure is authorized by this Agreement, prior to disclosure, each party hereto shall obtain agreement of any such Person to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by this Agreement. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party’s Confidential Information.
8.2 Permitted Disclosures . The confidentiality obligations contained in Section 8.1 above shall not apply to the extent that (a) any receiving party (the “Recipient”) is required (i) to disclose information by law, regulation or order of a governmental agency or a court of competent jurisdiction, or (ii) to disclose information to any governmental agency for
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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purposes of obtaining approval to test or market a product, provided in either case that the Recipient shall provide written notice thereof to the other party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof; or (b) the Recipient can demonstrate that (i) the disclosed information was public knowledge at the time of such disclosure to the Recipient, or thereafter became public knowledge, other than as a result of actions of the Recipient in violation hereof; (ii) the disclosed information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; (iii) the disclosed information was disclosed to the Recipient on an unrestricted basis from a source unrelated to any party to this Agreement and not under a duty of confidentiality to the other party; or (iv) the disclosed information was independently developed by the Recipient without use of the Confidential Information disclosed by the other party. Notwithstanding any other provision of this Agreement, Company may disclose Confidential Information of the Licensor relating to information developed pursuant to this Agreement to fulfill its obligations or exercise its rights under this Agreement to any Person with whom Company has, or is proposing to enter into, a business relationship, as long as such Person has entered into a confidentiality agreement with Company.
8.3 Terms of this Agreement . Except as otherwise provided in Section 8.2 above, Licensor and Company shall not disclose any terms or conditions of this Agreement to any Third Party without the prior consent of the other party. Notwithstanding the foregoing, prior to execution of this Agreement, Company and Licensor shall agree upon the substance of information that can be used to describe the terms of this transaction, and Company and Licensor may disclose such information, as modified by mutual agreement from time to time, without the other party’s consent.
9. PATENTS
9.1 Patent Prosecution and Maintenance .
9.1.1 Company shall have the right to control, at its sole cost, the preparation, filing, prosecution and maintenance of all patents and patent applications within the Licensed Patent Rights. Company shall give Licensor an opportunity to review and comment on the text of each patent application subject to this Section 9.1 before filing, and shall supply Licensor with a copy of such patent application as filed, together with notice of its filing date and serial number.
9.1.2 Company shall pay for all patent prosecution costs for the European national phase filing of [*] in Great Britain, Germany, Austria, France, Spain, Italy, Belgium, Switzerland and Ireland and the parties shall regularly amend Exhibit A to add all resulting patent applications and patents to include such patent applications and patents within the definition of Licensed Patent Rights.
9.1.3 Company shall pay all costs (including, but not limited to, reasonable attorney fees) for filing, prosecution and maintenance of the planned patent application regarding the galenic formulation of DOXO-EMCH which has the tentative title: “Method for producing a galenic formulation of anthracycline derivatives” and was invented by Licensor and described to Company. Licensor will be responsible for filing the patent
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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application and Licensor will be the sole owner of all patent rights following of the patent application(s). The parties acknowledge that this patent application(s) and the following patent rights belong to the Licensed Patent Rights in accordance with Section 1.7 of this Agreement. Company will pay the lump sum of [*] US dollars (U.S. $ [*]) to Licensor, within thirty (30) days after Licensor has filed the first patent application, regardless of whether the patent will be issued or not.
9.1.4 Licensor shall cooperate with Company, execute all lawful papers and instruments and make all rightful oaths and declarations as may be necessary in the preparation, prosecution and maintenance of all patents and other filings referred to in this Section 9.1.
9.1.5 If Company, in its sole discretion, decides to abandon the preparation, filing, prosecution or maintenance of any patent or patent application in the Licensed Patent Rights, then Company shall notify Licensor in writing thereof and following the date of such notice (a) Licensor shall be responsible in its sole discretion for and shall control, at its sole cost, the preparation, filing, prosecution and maintenance of such patents and patent applications, (b) Company shall thereafter have no license under this Agreement to such patents and patent applications, and (c) Licensor shall retain a non-exclusive right under the Licensed IP Rights solely to the extent necessary to practice the inventions claimed in such abandoned patent or patent application, to the extent that such retained right does not compete with the commercialization of Products.
9.2 Notification of Infringement . Each party shall notify the other party of any substantial infringement in the Territory known to such party of any Licensed Patent Rights and shall provide the other party with the available evidence, if any, of such infringement.
9.3 Enforcement of Patent Rights . Company, at its sole expense, shall have the first right to determine the appropriate course of action to enforce Licensed Patent Rights or otherwise abate the infringement thereof, to take appropriate action to enforce Licensed Patent Rights, to defend any declaratory judgments seeking to invalidate or hold the Licensed Patent Rights unenforceable, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation, declaratory judgments or other enforcement action with respect to Licensed Patent Rights, in each case in Company’s own name and, if required by law, in the name of Licensor and shall consider, in good faith, the interests of Licensor in so doing. If Company does not, within [*] ([*]) days of receipt of notice from Licensor, abate the infringement or file suit to enforce the Licensed Patent Rights against at least one infringing party in the Territory, Licensor shall have the right to take whatever action it deems appropriate to enforce the Licensed Patent Rights; provided, however, that, within [*] ([*]) days after receipt of notice of Licensor’s intent to file such suit, Company shall have the right to jointly prosecute such suit and to fund up to [*] ([*]) the costs of such suit. The party controlling any such enforcement action shall not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the non-controlling party without the prior written consent of the other party. All monies recovered by Company, for suits brought solely by Company, or by either party for suits brought by both Company and Licensor, upon the final judgment or settlement of any such suit to enforce the Licensed Patent Rights shall be first used for reimbursement of expenses, and all remaining moneys shall be distributed as follows: (a) if
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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such amounts were awarded as damages for lost profits, such amounts shall be considered “Net Sales” under this Agreement and Company shall pay to Licensor the applicable royalty under Section 4.1.1(a), and (b) if such amounts were awarded as punitive or other damages, such amounts shall be considered as “Non-Royalty Sublicensing Income” and Company shall pay Licensor the applicable royalty under Section 4.1.1(c). If Company does not receive sufficient monies from a final judgment or settlement to cover its expenses for such suit, Company shall have the right to credit up to [*] percent ([*]%) of such expenses against any royalties or other fees owing by Company in accordance with Section 4.1.2 above (i.e., Company shall not reduce the amount of royalties paid to Licensor to less than [*] percent ([*]%) of Net Sales). Only Licensor will be entitled to all monies recovered by Licensor, for suits brought solely by Licensor in accordance with this Section.
9.4 Cooperation . In any suit to enforce and/or defend the License Patent Rights pursuant to this Section 9, the party not in control of such suit shall, at the request and expense of the controlling party, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like.
10. TERMINATION
10.1 Expiration . Subject to Sections 10.2 and 10.3 below, this Agreement shall expire on the expiration of Company’s obligation to pay royalties to Licensor under Section 4.1 above. Upon expiration of this Agreement Company shall have a fully paid-up, non-exclusive license under the Licensed Know-How Rights to make, have made, use, sell, offer for sale and import Products in the Territory for use in the Field.
10.2 Termination by Company . Company may terminate this Agreement in its sole discretion, upon [*] ([*]) days prior written notice to Licensor, provided however , that the Company shall pay to Licensor a termination fee of [*] Dollars ($[*]) upon any such termination. Following termination of this Agreement pursuant to this Section 10.2, Company shall transfer to Licensor all rights in toxicity, efficacy, data, information, governmental approvals specifically regarding Products and other rights, claims or any other transferable legal position or other intangible asset that Company has generated or developed in the course of exercising its rights under this Agreement, to the extent that Company is not legally or contractually restricted thereto and subject to Licensor paying to Company its costs to effect such transfer.
10.3 Termination for Cause . Except as otherwise provided in Section 12, Licensor may terminate this Agreement in writing (a) upon or after the breach of any material provision of this Agreement by Company if Company has not cured such breach within [*] ([*]) days after notice thereof by Licensor; provided, however, if any default is not capable of being cured within such [*] ([*]) day period and Company is diligently undertaking to cure such default as soon as commercially feasible thereafter under the circumstances, Licensor shall have no right to terminate this Agreement; (b) if the Company has failed to use commercially reasonable efforts to prosecute and maintain the Patent Rights; (c) if the Company has failed to use diligent and commercially reasonable efforts to meet one or more of the following diligence milestones: (i) successful completion of Phase II clinical trial of a first Product under a Company-sponsored (or Affiliate-sponsored) IND within [*] ([*]) years from the Effective Date
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OR completion of a Phase II clinical trial of a first Product in Europe within [*] years of the Effective Date; (ii) the first acceptance for review by the FDA of a first NDA for a first Product within [*] ([*]) years of the Effective Date; and (iii) the first final approval of an application for commercial sale within [*] ([*]) years of the Effective Date. Notwithstanding anything to the contrary herein, Company shall not be in default of this Section, and the Licensor shall provide the Company with additional time in which to complete any of the aforementioned diligence milestones, if the Company provides reasoned basis for such an extension, where such reasoned basis includes: (A) any delay requested by, or in connection with a request from, a Competent Authority, including without limitation requests by the FDA that the Company perform additional studies or trials; or that the Company reformulate or alter the manufacturing process of any Product; or that the Company cease any clinical trial or redesign any clinical trial; or that the Company perform any other action or cease to perform any action or otherwise delay the clinical development of any Product, or (B) any force majeure event in accordance with Section 12 below.
10.4 Effect of Expiration or Termination .
10.4.1 If this Agreement terminates pursuant to this Article 10 (other than under Section 10.1), then all rights hereunder granted by Licensor to Company pursuant to Section 3 will terminate, and all rights granted therein will immediately revert to Licensor with no further notice or action required on Licensor’s behalf. In that event, any sublicense granted by Company shall be automatically assigned by Company to Licensor without any action of either Party such that the sublicense becomes a direct license between Licensor and the applicable sublicensee as applicable. Company is obligated to hand over to Licensor all relevant documents concerning the Sublicenses.
10.4.2 Company has the right to sell all Products that are produced or the order to produce irrevocably given to a third Party at the time of termination of this Agreement.
10.4.3 Immediately upon termination of this Agreement under Article 10 (other than pursuant to Section 10.1), Company has to furnish to Licensor a report as mentioned in Section 5.1 of this Agreement. Royalties shown in this report are due and payable at once and in any case not later than [*] ([*]) days after the effective date of such termination. Licensor have the right to audit this report in accordance with Section 5.2 of this Agreement.
10.4.4 The ending of this Agreement regardless of whatever reason has no influence or effect on all payments made by Company to Licensor.
10.4.5 Upon termination of this Agreement under this Article 10 (other than pursuant to Sections 10.1 or 10.2), the Company shall negotiate in good faith the terms of an agreement pursuant to which the Company shall sell to Licensor all rights in toxicity, efficacy, data, information, governmental approvals specifically regarding Products and other right, claim or any other transferable legal position or other intangible asset generated by Company and its Affiliates in the course of Companies efforts to develop Products or obtain governmental approval for the sale of Products, for use in connection with the development and commercialization of Products on commercially reasonable terms and in each case to the extent Company is not prohibited by existing legal or contractual obligations.
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10.5 Accrued Obligations . Company shall remain responsible for obligations accrued prior to effectiveness of termination of this Agreement, such as, without limitation, any payment, indemnity, and insurance obligations that accrue prior to the effectiveness of any termination pursuant to this Article 10. Company shall also abandon prosecution and maintenance of all Licensed Patents and contemporaneously provide Licensor with the right and all relevant documents to continue the prosecution and maintain patent rights in the event of any termination of this Agreement. Sections 8 and 13 shall survive the expiration or termination of this Agreement.
11. INDEMNIFICATION
11.1 Indemnification . Company shall defend, indemnify and hold Licensor harmless from all losses, liabilities, damages and expenses (including attorneys’ fees and costs) incurred as a result of any claim, demand, action or proceeding arising out of any breach of this Agreement by Company, or the gross negligence or willful misconduct of Company in the performance of its obligations under this Agreement, except in each case to the extent arising from the gross negligence or willful misconduct of Licensor or the breach of this Agreement by Licensor.
11.2 Procedure . Licensor promptly shall notify Company of any liability or action in respect of which Licensor intends to claim such indemnification, and Company shall have the right to assume the defense thereof with counsel selected by Company. The indemnity agreement in this Section 11 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of Company, which consent shall not be withheld unreasonably. The failure to deliver notice to Company within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve Company of any liability to Licensor under this Section 11, but the omission so to deliver notice to Company will not relieve it of any liability that it may have to Licensor otherwise than under this Section 11. Licensor under this Section 11, its employees and agents, shall cooperate fully with Company and its legal representatives in the investigation and defense of any action, claim or liability covered by this indemnification.
11.3 Insurance . Company shall maintain product liability insurance with respect to the research, development, manufacture and sales of Products by Company in such amount as Company customarily maintains with respect to the research, development, manufacture and sales of its similar products. Company shall maintain such insurance for so long as it continues to research, develop, manufacture or sell any Products, and thereafter for so long as Company customarily maintains insurance covering the research, development, manufacture or sale of its similar products.
12. FORCE MAJEURE
Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected party including but not limited to fire, floods, embargoes, war, acts of war (whether war be declared or not), acts of terrorism, insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party.
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13. MISCELLANEOUS
13.1 Notices . Any consent, notice or report required or permitted to be given or made under this Agreement by one of the parties hereto to the other party shall be in writing, delivered by any lawful means to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee.
| If to Licensor: | KTB Tumorforschungs GmbH | |
| Breisacher Str. 117 | ||
| Freiburg, Germany | ||
| Attention: ____________ | ||
| If to Company: | Innovive Pharmaceuticals, Inc. | |
| 555 Madison Avenue, 25 th Floor | ||
| New York, NY 10022 | ||
| Attention: Eric Poma | ||
| with a copy to: |
____________________
____________________
____________________ |
|
| Attention: _________ | ||
13.2 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of Switzerland without regard to the conflicts of law principles thereof.
13.3 Arbitration . Any dispute, controversy or claim initiated by either party arising out of or relating to this Agreement, its negotiations, execution or interpretation, or the performance by either party of its obligations under this Agreement (other than (a) any dispute, controversy or claim regarding the validity, enforceability, claim construction or infringement of any patent rights, or defenses to any of the foregoing, or (b) any bona fide third party action or proceeding filed or instituted in an action or proceeding by a Third Party against a party to this agreement), whether before or after termination of this Agreement, shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. Any such arbitration shall be conducted in the English language in Zurich, Switzerland. The arbitrators shall have the authority to grant specific performance and to allocate between the parties the costs of arbitration (including reasonable attorneys’ fees and expenses of the parties) in such equitable manner as they determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. In no event shall a demand for arbitration be made after the date when institution of a legal or equitable proceeding based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Notwithstanding the foregoing, either party shall have the right, without waiving any right or
16
remedy available to such party under this Agreement or otherwise, to seek and obtain from any court of competent jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of such party, pending the selection of the arbitrators hereunder or pending the arbitrators’ determination of any dispute, controversy or claim hereunder.
13.4 Assignment . Company shall not assign its rights or obligations under this Agreement without the prior written consent of Licensor; provided , however , that Company may, without such consent, assign this Agreement and its rights and obligations hereunder (a) to any Affiliate, or (b) in connection with the transfer or sale of all or substantially all of its business, or in the event of its merger, consolidation, change in control or similar transaction; provided, however, that in each case such successor Affiliate or other entity must have a net asset value (using GAAP and not including the value of the Licensed Technology) on a consolidated basis of at least five million dollars ($5,000,000), or shall have a net asset value on a consolidated basis of at least five million dollars ($5,000,000) within twelve (12) months of such assignment, and if such successor Affiliate or entity does not have such net asset value within twelve (12) months of such assignment, the assignment shall be deemed null and void. Any permitted assignee shall assume all obligations of its assignor under this Agreement.
13.5 Waivers and Amendments . No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the parties hereto.
13.6 Entire Agreement . This Agreement embodies the entire agreement between the parties and supersedes any prior representations, understandings and agreements between the parties regarding the subject matter hereof. There are no representations, understandings or agreements, oral or written, between the parties regarding the subject matter hereof that are not fully expressed herein.
13.7 Severability . Any of the provisions of this Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity or enforceability of any of the terms of this Agreement in any other jurisdiction.
13.8 Waiver . The waiver by either party hereto of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise.
13.9 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date.
| KTB TUMORFORSCHUNGS GMBH | ||
| By: | ____________________________________ | |
| Name: Arno Fritzen | ||
| Title Commercial Director | ||
| INNOVIVE PHARMACEUTICALS, INC. | ||
| By: | ____________________________________ | |
| Name: Steven Kelly | ||
| Title President and CEO | ||
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EXHIBIT A
Licensed Patent Rights
US [*] and AUS [*] based on [*] of [*]
PRODRUG 1:
[*]
AU Patent No. [*]
EP [*]
U.S. Application [*]
U.S. Application [*]
PRODRUG 2:
[*]
EP [*]
U.S. Application [*]
| [*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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EXHIBIT 31.1
CERTIFICATION
I, Steven Kelly, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Innovive 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 and 15d-15) 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. | 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 |
| c. | 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 13, 2006 | By: |
/s/ Steven Kelly |
||
|
Steven Kelly, President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, J. Gregory Jester, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Innovive 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 and 15d-15) 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. | 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 |
| c. | 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 13, 2006 | By: |
/s/ J. Gregory Jester |
||
|
J. Gregory Jester, Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Innovive Pharmaceuticals, Inc. (the “Company”) for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Steven Kelly, President and Chief Executive Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report. |
|
/s/ Steven Kelly |
| Steven Kelly |
| President and Chief Executive Officer |
| November 13, 2006 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Innovive Pharmaceuticals, Inc. (the “Company”) for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, J. Gregory Jester, Vice President and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report. |
|
/s/ J. Gregory Jester |
| J. Gregory Jester |
| Vice President and Chief Financial Officer |
| November 13, 2006 |