Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

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: 001-36540

 

 

PFENEX INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-1356759

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

10790 Roselle Street, San Diego, CA   92121
(Address of Principal Executive Offices)   (Zip Code)

(858) 352-4400

(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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

☐  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

    

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

As of August 3, 2018, the registrant had 31,425,654 shares of Common Stock ($0.001 par value) outstanding.

 

 

 


Table of Contents

PFENEX INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

  
 

Item 1.

  

Financial Statements

     1  
    

Consolidated Balance Sheets as of June 30, 2018 and December  31, 2017

     1  
    

Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017

     2  
    

Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

     3  
    

Notes to Consolidated Financial Statements

     4  
 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17  
 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     30  
 

Item 4.

  

Controls and Procedures

     31  

PART II. OTHER INFORMATION

  
 

Item 1.

  

Legal Proceedings

     32  
 

Item 1A.

   Risk Factors      32  
 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     73  
 

Item 3.

  

Defaults Upon Senior Securities

     73  
 

Item 4.

  

Mine Safety Disclosures

     73  
 

Item 5.

  

Other Information

     73  
 

Item 6.

  

Exhibits

     73  
 

EXHIBIT INDEX

     74  

SIGNATURES

     75  


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

PFENEX INC.

Consolidated Balance Sheets

 

     June 30,
2018
(unaudited)
    December 31,
2017
 
     (in  thousands)  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 80,186     $ 57,664  

Restricted cash

     200       200  

Accounts and unbilled receivables, net

     1,373       1,306  

Income tax receivable

     206       638  

Other current assets

     1,749       1,705  
  

 

 

   

 

 

 

Total current assets

     83,714       61,513  

Property and equipment, net

     7,358       7,397  

Other long-term assets

     133       133  

Intangible assets, net

     4,505       4,771  

Goodwill

     5,577       5,577  
  

 

 

   

 

 

 

Total assets

   $ 101,287     $ 79,391  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Accounts payable

   $ 2,537     $ 1,905  

Accrued liabilities

     9,550       8,913  

Current portion of deferred revenue

     8,965     7,421  

Current portion of capital lease obligations

     312       228  
  

 

 

   

 

 

 

Total current liabilities

     21,364       18,467  

Deferred revenue, less current portion

     2,500     2,742  

Capital lease obligations, less current portion

     362     419  
  

 

 

   

 

 

 

Total liabilities

     24,226     21,628  

Commitments and contingencies

    

Stockholders’ equity

    

Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding

     —         —    

Common stock, par value $0.001, 200,000,000 shares authorized; 31,420,085 and 23,548,280 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

     32     24  

Additional paid-in capital

     260,844       219,446  

Accumulated deficit

     (183,815     (161,707
  

 

 

   

 

 

 

Total stockholders’ equity

     77,061       57,763  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 101,287     $ 79,391  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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PFENEX INC.

Consolidated Statements of Operations

(unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(in thousands, except per share data)    2018     2017     2018     2017  

Revenue

   $ 4,190     $ 3,029     $ 7,936     $ 5,847  

Cost of revenue

     924       905       2,444       1,715  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,266       2,124       5,492       4,132  

Operating expense

  

Research and development

     10,739       10,198       19,545       16,596  

Selling, general and administrative

     3,647       4,288       8,097       9,974  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     14,386       14,486       27,642       26,570  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,120     (12,362     (22,150     (22,438

Other income, net

     39       38       42       82  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (11,081   $ (12,324   $ (22,108   $ (22,356
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share basic and diluted

   $ (0.41   $ (0.52   $ (0.88   $ (0.95
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares used in calculating basic and diluted net loss per share

     26,771     23,486       25,178       23,462  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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PFENEX INC.

Consolidated Statements of Cash Flows

(unaudited)

 

     Six Months Ended
June 30,
 
     2018     2017  
     (in  thousands)  

Cash flows from operating activities

    

Net loss

   $ (22,108   $ (22,356

Adjustments to reconcile net loss to net cash used in operating activities

    

Depreciation and amortization

     558       391  

Amortization of intangible assets

     266       266  

Stock-based compensation expense

     1,758       1,728  

(Gain) loss on disposal of property and equipment

     1       (20

Changes in operating assets and liabilities

    

Accounts and unbilled receivables

     (67     1,324  

Other current assets

     346       616  

Accounts payable

     630       475  

Accrued liabilities

     1,017       832  

Deferred revenue

     1,302       (3,406

Income tax receivable

     432       —    
  

 

 

   

 

 

 

Net cash used in operating activities

     (15,865     (20,150
  

 

 

   

 

 

 

Cash flows from investing activities

    

Acquisitions of property and equipment

     (649     (1,416

Proceeds from sale of property and equipment

     —         45  
  

 

 

   

 

 

 

Net cash used in investing activities

     (649     (1,371
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from issuance of common stock

     39,131       —    

Repayments of capital lease obligations

     (127     (22

Proceeds from exercise of stock options and other stock issuances

     70       118  

Payment for taxes related to net share settlement of equity award

     (38     —    
  

 

 

   

 

 

 

Net cash provided by financing activities

     39,036       96  
  

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

     22,522       (21,425

Cash, cash equivalents and restricted cash

    

Beginning of period

     57,864       81,501  
  

 

 

   

 

 

 

End of period

   $ 80,386     $ 60,076  
  

 

 

   

 

 

 

Supplemental schedule of cash flow information

    

Asset acquisitions in accounts payable and accrued expenses

   $ 58     $ 301  

Acquisitions under capital lease obligations

   $ 154     $ —    

Restricted stock issuance for bonus accrual

   $ 56     $ —    

Receivable for common stock issuance cost

   $ 391     $ —    

Non-cash financing and investing transactions

    

Interest paid

   $ 24     $ 7  

Taxes paid

   $ 48     $ —    

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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PFENEX INC.

Notes to Consolidated Financial Statements

(unaudited)

1. Organization and Summary of Significant Accounting Policies

Business Activities and Organization

Pfenex Inc. (the Company or Pfenex) is a clinical-stage development and licensing biotechnology company focused on leveraging its Pf ēnex Expression Technology ® to improve protein therapies for unmet patient needs. Using the patented Pf ēnex Expression Technology platform, the Company has created an advanced pipeline of therapeutic equivalents, vaccines, biologics and biosimilars. The Company’s lead product candidates are PF708, a therapeutic equivalent candidate to Forteo ® (teriparatide) for the treatment of osteoporosis, and its novel anthrax vaccine candidates, Px563L and RPA563, funded through an advanced development contract with the U.S. government. In April 2018, the Company granted certain development and commercialization rights for PF708 in certain Asian countries to China NT Pharma Group Company Limited (NT Pharma). In June 2018, the Company granted Alvogen Malta Operations Ltd. (Alvogen) exclusive rights to commercialize and manufacture PF708 in the United States. In addition, the Company is developing hematology/oncology products in collaboration with Jazz Pharmaceuticals Ireland Limited (Jazz). Furthermore, the Company’s pipeline includes biosimilar candidates to Lucentis ® and Neulasta ® .

Product Candidates and Collaborations

The following table summarizes certain information about the Company’s lead product candidates and collaborations:

 

Product Candidate

  

Branded

Reference

Drug

  

Program

  

Indication

Proposed Therapeutic Equivalent

        

PF708 – Teriparatide

   Forteo   

•  Licensed in the United States to Alvogen;

•  Licensed in Mainland China, Hong Kong, Singapore, Malaysia, Thailand to NT Pharma;

•  Wholly-Owned Rest of World

   Osteoporosis

Multiple Hematology/Oncology 
Product Candidates

   Various   

•  Jazz Pharmaceuticals Ireland Limited

   Various

Novel Vaccines

        

Px563L/RPA563 – rPA based anthrax vaccines

   N/A   

•  U.S. Government Funded

   Anthrax post-exposure prophylaxis

Proposed Therapeutic Equivalent : PF708 – Teriparatide

PF708 is being developed as a therapeutic equivalent candidate to Forteo, which is approved and marketed by Eli Lilly and Company for the treatment of osteoporosis patients at a high risk of fracture. In April 2018, the Company and NT Pharma entered into a Development and License Agreement (NT Pharma Agreement), pursuant to which the Company granted an exclusive license to NT Pharma to commercialize PF708 in Mainland China, Hong Kong, Singapore, Malaysia and Thailand and a non-exclusive license to conduct development activities in such territories with respect to PF708. The Company will be responsible for commercial manufacturing and will provide NT Pharma with the product for commercial sale. NT Pharma will be responsible for all regulatory submissions and approvals in such territories. The Company will retain exclusive rights to PF708 in all countries outside of such territories, except for the United States, for which rights were subsequently granted to Alvogen. In June 2018, the Company and Alvogen entered into a Development and License Agreement (Alvogen Agreement) pursuant to which Alvogen will have the exclusive right to commercialize and manufacture PF708 in the United States. The Company will retain exclusive rights to PF708 in all countries outside of the United States except Mainland China, Hong Kong, Singapore, Malaysia and Thailand, where the Company has granted rights to NT Pharma. The Company will continue to be responsible for development and registration of PF708, while Alvogen will provide additional regulatory and development expertise.

 

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Novel Vaccine: Px563L/RPA563 – rPA based anthrax vaccines

The Company is also developing Px563L/RPA563, novel anthrax vaccine candidates, in response to the United States government’s unmet demand for increased quantity, stability and dose-sparing regimens of anthrax vaccine . The government contract is funded by the Biomedical Advanced Research and Development Authority (BARDA). Subject to continued funding from BARDA, the Company expects to continue to advance the program with the potential to initiate a Phase 2 trial in 2019. The Company had initially entered into a development contract with BARDA in 2010. The $25.2 million fully-funded contract was completed in 2015, at which time BARDA awarded the Company a cost-plus fixed fee advanced development contract valued at up to approximately $143.5 million. In January 2017, BARDA exercised two options under its existing contract for further development of Px563L/RPA563. One of the exercised options was increased by $1.7 million in May 2018, which increased the total contract value to $145.2 million.

Collaboration Partner: Jazz Pharmaceuticals Ireland Limited

In July 2016, the Company and Jazz announced an agreement under which the Company granted Jazz worldwide rights to develop and commercialize multiple early stage hematology/oncology product candidates, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology. In December 2017, the parties amended the Jazz agreement, bringing the total value of payments and potential payments associated with the collaboration to $224.5 million. In addition, the Company may be eligible to receive tiered royalties on worldwide sales of any products resulting from the collaboration at rates reduced from those under the 2016 agreement.

Other Pipeline Products

In addition to the Company’s lead product candidates, its pipeline includes various other biosimilar candidates, including PF582, the Company’s biosimilar candidate to Lucentis, and PF529, the Company’s biosimilar candidate to Neulasta, as well as vaccines and next generation biologic candidates. Following its strategic review in November 2017, the Company decided to pause its development activities for PF582 and PF529 and focus the Company’s efforts and resources elsewhere in its product portfolio.

The Company has several development and commercial partnerships in place for CRM197, which is a non-toxic mutant of diphtheria toxin. It is a well-characterized protein and functions as a carrier for polysaccharides and haptens, making them immunogenic. The Company developed a unique CRM197 based on its Pseudomonas Fluorescens Platform and sells non-GMP and cGMP CRM197 to mostly vaccine development-focused pharmaceutical partners. As a result of those efforts, the Company previously entered into commercial licenses for production strains capable of producing CRM197 with both Merck and Serum Institute of India. The Company’s CRM197 is currently being used or planned to be used in multiple late-stage clinical trials for such diseases as pneumococcal and meningitis bacterial infections.

The Company’s revenue in the near term is primarily related to monetizing its protein production platform through collaboration agreements, service agreements, government contracts and reagent protein product sales which may provide for various types of payments, including upfront payments, funding of research and development, milestone payments, intellectual property access fees and licensing fees.

At the Market Offering Program

In March 2018, the Company entered into an equity sales agreement (Sales Agreement) with William Blair & Company, L.L.C. (William Blair) to sell shares of the Company’s common stock having aggregate sales proceeds of up to $20.0 million, from time to time, through an “at the market” equity offering program under which William Blair will act as sales agent. Under the Sales Agreement, the Company sets the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. As of June 30, 2018, the Company had not sold any shares under the Sales Agreement.

Follow-on Public Offering

In May 2018, the Company completed a public offering of common stock in which it sold 7,820,000 shares of its common stock at an offering price of $5.50 per share, which included the full exercise by the underwriters of their option to purchase an additional 1,020,000 shares, pursuant to the Company’s existing shelf registration statement. The net proceeds generated from this transaction, after underwriting discounts and commissions and offering costs, were approximately $39.5 million. The Company has recorded a receivable for reimbursement of a portion of the issuance costs of approximately $0.4 million as of June 30, 2018.

 

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Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the instructions of the Securities and Exchange Commission, or SEC, on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year.

Use of Estimates

The preparation of the accompanying unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. Estimates have been prepared on the basis of the most current and best available information. However, actual results could differ from those estimates.

Risk and Uncertainties

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s product candidates, uncertainty of market acceptance of the Company’s products if approved for sale, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals.

Products developed by the Company require clearances from international and domestic regulatory agencies prior to commercial sales in such jurisdictions. There can be no assurance that the products will receive the necessary clearances. If the Company was denied clearance, clearance was delayed or the Company was unable to maintain clearance, it could have a materially adverse impact on the Company.

As of June 30, 2018, the Company had an accumulated deficit of $183.8 million and expects to incur substantial operating losses for the next several years. The Company believes that its existing cash and cash equivalents and cash inflow from operations will be sufficient to meet its anticipated cash needs for at least the next 12 months. The Company believes it has sufficient cash resources to fund all necessary activities leading up to and including potential commercial launch in the United States as early as the third quarter of 2019, subject to FDA approval of the application and other factors.

Cash and Cash Equivalents

The Company considers all highly liquid investments that are readily convertible into cash and have an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash amounts that are restricted as to withdrawal or usage are presented as restricted cash. In January 2017, the Company entered into a Borrower’s Pledge Agreement, which required $0.2 million in restricted cash to be provided as security for its commercial credit card arrangement with one of the Company’s banks.

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, investments and accounts and unbilled receivables. The Company has established guidelines intended to limit its exposure to credit risk by placing investments with high credit quality financial institutions, diversifying its investment portfolio and placing investments with maturities that help maintain safety and liquidity. All cash and cash equivalents were held at three major financial institutions as of June 30, 2018 and December 31, 2017. For the Company’s cash position of $80.4 million as of June 30, 2018, which included restricted cash of $0.2 million, the Company has exposure to credit loss for amounts in excess of insured limits in the event of non-performance by the institutions; however, the Company does not anticipate non-performance.

 

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Additional credit risk is related to the Company’s concentration of receivables. As of June 30, 2018 and December 31, 2017, receivables were concentrated among three customers representing 98% and 89% of total net receivables, respectively. No allowance for doubtful accounts was recorded at June 30, 2018 or December 31, 2017. For the three months ended June 30, 2018 and 2017, revenue was concentrated among three customers and/or collaboration partners representing 96% and two customers and/or collaborative partners representing 87% of total revenues, respectively. Revenue from two customers and/or collaboration partners represented 86% and 88% of total revenue for the six months ended June 30, 2018 and 2017, respectively.

A portion of revenue is earned from sales outside the United States. Non-U.S. revenue is denominated in U.S. dollars. A breakdown of the Company’s net revenue from U.S. and non-U.S. sources for the six months ended June 30, 2018 and 2017 is as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
(in thousands)    2018      2017      2018      2017  

US revenue

   $ 911      $ 1,206      $ 2,505      $ 2,263  

Non-US revenue

     3,279        1,823        5,431        3,584  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 4,190      $ 3,029      $ 7,936      $ 5,847  
  

 

 

    

 

 

    

 

 

    

 

 

 

During the three months ended June 30, 2018, Ireland and Bermuda each accounted for more than 10% of the Company’s revenue. During the six months ended June 30, 2018 and 2017, and the three months ended June 30, 2017, Ireland accounted for more than 10% of the Company’s revenue.

Revenue

The Company’s revenue is related to the monetization of its protein production platform through collaboration agreements, service agreements, license agreements, government contracts and sales of reagent protein products, which may provide for various types of payments, including upfront payments, funding of research and development, milestone payments, intellectual property access fees and licensing fees. The Company’s revenue generating agreements also include potential revenues for achieving milestones and for product royalties. The specifics of the Company’s significant agreements are detailed in Note 7—Significant Research and Development Agreements.

The Company considers a variety of factors in determining the appropriate method of accounting for its collaboration agreements, including whether multiple deliverables can be separated and accounted for individually as separate units of accounting. Where there are multiple deliverables within a collaboration agreement that cannot be separated and therefore are combined into a single unit of accounting, revenues are deferred and recognized using the relevant guidance over the estimated period of performance. To the extent an arrangement contains a contingent deliverable, the Company will recognize the allocated consideration once the deliverable has been fulfilled. If the deliverables can be separated, the Company applies the relevant revenue recognition guidance to each individual deliverable. The specific methodology for the recognition of the underlying revenue is determined on a case-by-case basis according to the facts and circumstances applicable to each agreement.

Upfront, nonrefundable licensing payments are assessed to determine whether or not the licensee is able to obtain standalone value from the license. Where the license does not have standalone value, non-refundable license fees are recorded as deferred revenue and recognized as revenue as the Company performs under the applicable agreement. Where the level of effort is relatively consistent over the performance period, the Company recognizes fixed or determined revenue on a straight-line basis over the estimated period of performance. Where the license has standalone value, the Company recognizes total license revenue at the time all revenue recognition criteria have been met.

Nonrefundable payments for research funding are generally recognized as revenue over the period the underlying research activities are performed.

Revenue under service agreements are recorded as services are performed. These agreements do not require development achievement as a performance obligation and provide for payment when services are rendered. All such revenue is nonrefundable. Upfront, nonrefundable payments for license fees, exclusivity and feasibility services received in excess of amounts earned are classified as deferred revenue and recognized as income over the contract term or period of performance based on the nature of the related agreement.

 

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The Company recognizes revenue for its cost-plus fixed fee government contracts in accordance with the authoritative guidance for revenue recognition including the authoritative guidance specific to federal government contractors. Reimbursable costs under the Company’s government contracts primarily include direct labor, materials, subcontracts, accountable property and indirect costs. In addition, the Company receives a fixed fee under its government contracts, which is unconditionally earned as allowable costs are incurred and is not contingent on success factors. Reimbursable costs under the Company’s government contracts, including the fixed fee, are generally recognized as revenue in the period the reimbursable costs are incurred and become billable.

The Company assesses milestone payments on an individual basis and recognizes revenue from nonrefundable milestone payments when the earnings process is complete and the payment is reasonably assured. Nonrefundable milestone payments related to arrangements under which the Company has continuing performance obligations are recognized as revenue upon achievement of the associated milestone, provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, and (ii) the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the milestone event. For the six months ended June 30, 2018, $1.3 million in revenue was recognized in connection with the Merck and Jazz collaborations. For the six months ended June 30, 2017, no revenue was recognized in connection with the achievement of development milestones associated with the Jazz collaboration.

The Company’s reagent protein products are primarily comprised of internally developed reagent protein products. Revenues for reagent product sales are reflected net of attributable sales tax. The Company generally offers a 30-day return policy. The Company recognizes reagent product revenue from product sales when it is realized or realizable and earned. As of June 30, 2018, the Company has had minimal product returns related to reagent protein product sales. Therefore, no reserve for warranty and return rights was recorded as of June 30, 2018 and December 31, 2017, respectively.

Revenue under arrangements where the Company outsources the cost of fulfillment to third parties is evaluated as to whether the related amounts should be recorded gross or net. The Company records amounts collected from the customer as revenue, and the amounts paid to suppliers as cost of revenue when it holds all or substantially all of the risks and benefits related to the product or service. For transactions where the Company does not hold all or substantially all the risk, the Company uses net reporting and therefore records the transaction as if the end-user made a purchase from the supplier with the Company acting as a sales agent.

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the presentation of restricted cash and restricted cash equivalents in the statements of cash flows. Under the ASU, restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statements of cash flows. The ASU is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash on the Consolidated Statement of Cash Flows. The ASU requires that the Consolidated Statement of Cash Flows explain the change in total cash and equivalents and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The ASU also requires a reconciliation between the total of cash and equivalents and restricted cash presented on the Consolidated Statement of Cash Flows and the cash and equivalents balance presented on the Consolidated Balance Sheet. The ASU was effective retrospectively on January 1, 2018, with early adoption permitted. This guidance was adopted during the quarter ended March 31, 2018. Upon adoption of this guidance, prior periods were retrospectively adjusted to conform to the current period’s presentation. For the six months ended June 30, 2017, the Company had previously disclosed $0.2 million of restricted cash as net cash used in financing activities. The effect of the adoption of ASU 2016-18 on the Company’s consolidated statement of cash flows was to reduce net cash used in financing by $0.2 million and include restricted cash balances in the balances of cash and cash equivalents and restricted cash.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The new standard clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 was effective for the Company in the first quarter of 2018, with early adoption permitted. The Company adopted this guidance during the quarter ended March 31, 2018, and the adoption did not have a material effect on its consolidated financial statements.

 

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Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Numerous updates were issued in 2016 that provide clarification on a number of specific issues as well as requiring additional disclosures. The effective date will be the first quarter of fiscal year 2019 using one of two retrospective application methods: the full retrospective method or the modified retrospective method. The Company plans to adopt the standard in the first quarter of fiscal year 2019 using the modified retrospective method. The Company does not expect the new standard to have a material impact on the recognition of revenue from its reagent protein product sales. However, the Company continues to evaluate the impact that this guidance will have on its consolidated financial statements in connection with its government, collaboration and license agreements, and plans to provide additional disclosure surrounding the potential impact of this standard as it nears the adoption date.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842), which requires lessees to recognize “right of use” assets and liabilities for all leases with lease terms of more than 12 months. The ASU requires additional quantitative and qualitative financial statement footnote disclosures about the leases, significant judgments made in accounting for those leases and amounts recognized in the financial statements about those leases. This guidance is effective for the Company in the first quarter of fiscal year 2020. The Company is currently evaluating the impact of the adoption of this accounting standard update on its financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This updated guidance eliminates Step 2 from the current two-step quantitative model for goodwill impairment tests. Step 2 required an entity to calculate an implied fair value, which included a hypothetical purchase price allocation requirement, for reporting units that failed Step 1. Per this updated guidance, a goodwill impairment will instead be measured as the amount by which a reporting unit’s carrying value exceeds its fair value as identified in Step 1. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718), which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for the Company in the first quarter of fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

2. Fair Value Measurements

The fair value measurements of the Company’s cash equivalents and investments, which are measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017, were determined using the inputs described above and are as follows:

 

            Fair Value Measurements at Reporting
Date Using
 
     Total      Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (in  thousands)  

June 30, 2018

           

Cash and money market funds

   $   80,386      $ 80,386      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 80,386      $ 80,386      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2017

           

Cash and money market funds

   $ 57,864      $ 57,864      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 57,864      $ 57,864      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Cash and money market funds at June 30, 2018 and December 31, 2017 include restricted cash, which is included in current assets on the balance sheet.

The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no significant transfers into or out of Level 1, 2, or 3 during the periods presented.

3. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows.

 

     June 30,
2018
    December 31,
2017
 
     (in thousands)  

Cash and cash equivalents

   $ 80,186     $ 57,664  

Restricted cash

     200       200  
  

 

 

   

 

 

 

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

   $ 80,386     $ 57,864  
  

 

 

   

 

 

 

 

4. Property and Equipment

 

Property and equipment consisted of the following:

 

 

 

     June 30,
2018
    December 31,
2017
 
     (in thousands)  

Furniture and equipment

   $ 365     $ 355  

Computers and IT equipment

     426       368  

Purchased software

     332       931  

Lab and research equipment

     8,516       8,131  

Leasehold improvements

     869       865  

Construction in progress

     190       162  

Other fixed assets

     64       64  
  

 

 

   

 

 

 

Total property and equipment, gross

     10,762       10,876

Less: accumulated depreciation and amortization

     (3,404     (3,479
  

 

 

   

 

 

 

Total property and equipment, net

   $ 7,358     $ 7,397  
  

 

 

   

 

 

 

Total property and equipment assets under capital lease were $1.2 million and $1.1 million as of June 30, 2018 and December 31, 2017, respectively. Accumulated depreciation related to assets under capital lease as of these dates were $151 thousand and $94 thousand, respectively. For the three and six months ended June 30, 2018 and 2017, total depreciation and amortization expense is included in research and development, selling, general and administrative expenses and cost of sales in the accompanying consolidated statements of operations as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2018      2017      2018      2017  
     (in thousands)  

Cost of revenue

   $ 5      $ —        $ 15      $ —    

Research and development

     240        125        467        243  

Selling, general and administrative

     39        79        76        148  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total depreciation and amortization expense

   $ 284      $ 204      $ 558      $ 391  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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5. Intangible Assets

Intangible assets consisted of the following:

 

     June 30,
2018
    December 31,
2017
 
     (in thousands)  

Customer relationships

   $ 3,750     $ 3,750  

Developed technology

     4,400       4,400  

Trade names

     910       910  
  

 

 

   

 

 

 

Gross intangible assets

     9,060       9,060  

Less: Accumulated amortization

     (4,555     (4,289
  

 

 

   

 

 

 

Total intangible assets, net

   $ 4,505     $ 4,771  
  

 

 

   

 

 

 

 

Amortization expense related to intangible assets was $0.1 million for both the three months ended June 30, 2018 and 2017, respectively, and $0.3 million for both the six months ended June 30, 2018 and 2017, respectively. Amortization expense is included within selling, general and administrative expense in the accompanying consolidated statements of operations. As of June 30, 2018, estimated amortization expense for the next five years amounts to approximately $0.5 million per year.

 

6. Accrued Liabilities

 

Accrued liabilities consisted of the following:

 

 

 

     June 30,
2018
     December 31,
2017
 
     (in thousands)  

Accrued vacation

   $ 517      $ 477  

Deferred rent

     608        620  

Accrued bonuses

     1,077        1,672  

Other accrued employee-related liabilities

     258        462  

Accrued professional fees

     1,287        575  

Accrued supplier liability

     562        690  

Accrued subcontractor costs

     4,722        2,681  

Accrued clinical trial costs

     148        866  

Other accrued liabilities

     371        870  
  

 

 

    

 

 

 

Total accrued liabilities

   $ 9,550      $ 8,913  
  

 

 

    

 

 

 

7. Significant Research and Development Agreements

The Company has two types of research and development agreements (i) those for which the Company co-develops or assists customers in developing their products (Collaboration Agreements), and (ii) those for which the Company receives funding to advance its own products (Funding Agreements).

Collaboration and License Agreement

Jazz

In July 2016, the Company entered into a development and license agreement with Jazz Pharmaceuticals for the development and commercialization of multiple early stage hematology/oncology product candidates, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology, and in the third quarter of 2017, achieved a process development milestone. The agreement also includes an option for Jazz to negotiate a license for a recombinant pegaspargase product candidate with the Company. Under the agreement, the Company received an upfront and option payment totaling $15.0 million in July 2016 and may be eligible to receive additional payments based on achievement of certain research and development, regulatory and sales-related milestones.

 

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In December 2017, the Company and Jazz entered into an amended and restated agreement. In connection with the amendment and restatement of the Jazz Agreement (as amended, the Amended Jazz Agreement), the Company received a total of $18.5 million, consisting of an upfront payment of $5.0 million and a payment of $13.5 million for development achievement. The Company may be eligible to receive additional payments under the Amended Jazz Agreement of up to $189.3 million based on achievement of certain research and development, regulatory and sales-related milestones. The total milestones are categorized as follows: $30.3 million based on achievement of certain research and development milestones; $34.0 million for certain regulatory milestones; and $125.0 million for sales milestones. For the non-sales-related milestones totaling $64.3 million, the Company conducted an evaluation as to whether they will be recorded using the milestone method and, as a result of this evaluation, estimates approximately $30.3 million of these non-sales-related milestones are deemed to be substantive. The Company may also be eligible to receive tiered royalties on worldwide sales of any products resulting from the collaboration at rates reduced from those under the 2016 agreement. Both Jazz and the Company will be contributing to the development efforts. Unless terminated earlier, the Amended Jazz Agreement will continue on a product-by-product basis for as long as Jazz is commercializing or having commercialized the products under the Amended Jazz Agreement.

In accordance with ASC 605-25, the Company identified all of the deliverables at the inception of the Jazz Agreement and again upon entering into the Amended Jazz Agreement. The deliverables have not changed under the amendment. The significant deliverables were determined to be the research and development services related to the pegaspargase product candidate option and for license and research and development activities of the other hematology/oncology products. The Company has determined that the license, together with the research and development activities, represent one unit of accounting for each product under license, as the license does not have standalone value from the respective development activities. The research and development activities related to the pegaspargase option were determined to have standalone value apart from the license and development activities for the other hematology/oncology products. The estimated selling price for the Pegaspargase product candidate and the hematology/oncology products was determined using an income approach. In determining the estimated selling price, the Company considered costs expected to be incurred for internal labor, burden rates, internal margins, and subcontractors. Based on the Company’s considerations of estimated selling price, the Company allocated the original $15.0 million upfront and option payment as follows: $10.0 million to the Pegaspargase product candidate and $2.5 million to each of the hematology/oncology products. For the $5.0 million upfront payment received under the terms of the Amended Jazz Agreement, the Company determined that $0.8 million represented development services performed prior to the amendment, which had been reimbursable under the original agreement. The remaining $4.2 million of the upfront payment was allocated to the remaining hematology product; the amount was deferred and will be recognized over the period of performance. The Amended Jazz Agreement provisions allow for Jazz to halt the advancement of one of the products under development and replace with others wherein the Company could potentially earn milestone revenue on those products. However, the Company believes it is unlikely Jazz would halt the advancement of the product under development and replace with other products. Therefore, none of the upfront payments were allocated to this option.

The upfront and option payment for the original Jazz agreement and the amendment are being deferred and will be recognized as revenue ratably over the period in which the Company expects services to be rendered for each respective unit of accounting. As previously disclosed, the estimated period of revenue recognition approximates a range of 15 to 32 months. Based on changes to this estimate that occurred during the quarter ended June 30, 2017, the Company has modified the period of revenue recognition to range from 15 to 35 months. During the year ended December 31, 2017, the Company completed the service period related to one of the hematology products. In the second quarter of 2018, the Company achieved two development milestones and recognized $750 thousand in revenue for successful achievement of process development milestones for PF745. During the three months ended June 30, 2018 and 2017, the Company recorded revenue of approximately $2.6 million and $1.6 million related to the Jazz Collaboration, respectively. During the six months ended June 30, 2018 and 2017, the Company recorded revenue of approximately $4.4 million and $3.3 million related to the Jazz collaboration, respectively. As of June 30, 2018 and December 31, 2017, deferred revenue associated with the Jazz collaboration was $6.4 million and $10.1 million, respectively. This deferred revenue will be recognized over the remaining period of performance from 9 to 12 months, subsequent to June 30, 2018.

NT Pharma

In April 2018, the Company entered into an agreement with NT Pharma under which the Company granted NT Pharma non-exclusive development and exclusive commercialization rights to PF708 in Mainland China, Hong Kong, Singapore, Malaysia and Thailand. In accordance with the agreement, the Company received an upfront payment of $2.5 million and may be eligible to receive up to $22.5 million in payments based on the achievement of certain development, regulatory, and sales-related milestones. In addition, the Company is eligible to receive double-digit royalties on net product sales. NT Pharma will be responsible for any further development required to achieve regulatory approval as well as commercialization activities in the applicable territories. The Company deems that none of the non-sales milestones are substantive. Milestones that are not considered substantive would be recognized as revenue over the remaining period of performance, assuming all other revenue recognition criteria are met.

In accordance with ASC 605-25, the Company identified all of the deliverables at the inception of the NT Pharma Agreement. The significant deliverables were determined to be the research and development services up through the NDA filing related to the PF708 product, the license and participation on the executive steering committee. The Company has determined that the license and the development services met the separation criteria; therefore, they are each treated as separate units of accounting.

 

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The upfront payment of $2.5 million is not fixed and determinable due to a contract clause that $2.5 million may be payable to NT Pharma if the NDA is not filed by a specified date; therefore, the upfront payment has been recorded as deferred revenue in the accompanying consolidated balance sheet.

Alvogen

In June 2018, the Company entered into an agreement with Alvogen in which the Company has granted Alvogen exclusive rights to commercialize PF708 in the United States. The Company will retain exclusive rights to PF708 in all countries outside of the United States except Mainland China, Hong Kong, Singapore, Malaysia and Thailand, where the Company has granted rights to NT Pharma. The Company will continue to be responsible for development and registration of PF708, while Alvogen will provide additional regulatory and development expertise. Alvogen will assume responsibility for costs related to litigation, commercial manufacturing and supply chain, and commercialization of PF708. In consideration for the licenses and other rights granted in the development and license agreement, the Company received an upfront payment of $2.5 million and may be eligible to receive an additional $25 million in support and regulatory milestone payments. The Company may also be eligible to receive a 50% gross profit split on sales if the product is rated as Therapeutic Equivalent (AP) and up to 40% if rated differently. The Company deems that the support and regulatory milestones are substantive.

In accordance with ASC 605-25, the Company identified all of the deliverables at the inception of the Alvogen Agreement. The significant deliverables were determined to be the development and regulatory services up through the NDA filing and ultimate approval related to the PF708 product, participation on the executive steering committee and the exclusive license granted to Alvogen. The Company has determined that the license and the development and regulatory activities meet the separation criteria; therefore, they are each treated as separate units of accounting.

To determine the stand-alone value of the license, the Company considered our negotiation discussions with Alvogen that led to the final terms of the agreement and other information. The Company determined a selling price for the services by estimating costs expected to be incurred for internal labor, burden rates, internal margins, and subcontractors. The Company has valued the services to be performed for participation on the executive steering committee and determined the value to be insignificant in relation to the entire agreement.

The upfront payment of $2.5 million is not fixed and determinable due to a contract clause that $2.5 million may be payable to Alvogen if the NDA approval is not transferred to Alvogen by a specified date; therefore, the upfront payment has been recorded as deferred revenue in the accompanying consolidated balance sheet. Alvogen is supporting certain agreed costs incurred by the Company related to the preparation and filing of the NDA for PF708. The Company records the reimbursement amounts as net against research and development expenses in the accompanying consolidated statement of operations. The Company estimates the amounts to be received related to the reimbursement and records the amounts when they are fixed and determinable. For the three months ended June 30, 2018, the Company recorded approximately $0.2 million for the estimated reimbursement costs.

Funding Agreements

The U.S. Department of Health and Human Services

In July 2010, the Company entered into a contract with BARDA within the Office of the Assistant Secretary for Preparedness and Response in the U.S. Department of Health and Human Services to develop a production strain and process for the production of bulk recombinant protective antigen (rPA) from anthrax. The arrangement is a cost-plus fixed fee contract comprised of a base program and follow on options at BARDA’s election. At the inception of the contract, both BARDA and the Company entered into the arrangement with the expectation that BARDA would fund all costs of development and no costs in excess of the arrangement would be incurred by the Company. In December 2014, the Company filed the investigational new drug (IND) application for Px563L. BARDA extended the contract in December 2014 and provided additional funding, increasing the total contract to $25.2 million. The development contract was completed in August 2015.

In August 2015, the Company entered into a contract with BARDA for the advanced development of Px563L/RPA563 as a novel vaccine candidate for the prevention of anthrax infection (BARDA Advanced Development Agreement). The BARDA Advanced Development Agreement is a cost-plus fixed fee development contract valued at up to approximately $143.5 million, including a 30-month base period of performance of approximately $15.9 million, and eight option periods valued at a total of approximately $127.6 million. The base period of performance was initially from August 2015 through February 2018 and later extended through September 2018. In addition to the base period, BARDA exercised additional phases of the development contract effective January 2017, totaling $4.9 million and allowing for the continuing development of Px563L/RPA563. The period of performance for the two option periods was extended through September 2018 and December 2019. Over the course of 2017, the Company continued to collect favorable stability data for both products. Potential next milestones in 2018 are the triggering of analytical and non-clinical animal study options, leading to potential Phase 2 study in 2019, subject in each case to continued funding by BARDA. In May 2018, BARDA increased the funding for one of the option periods by approximately $1.7 million. This modification increased the total contract value if all options are exercised by BARDA to approximately $145.2 million.

 

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Revenue is recognized in accordance with the authoritative guidance for revenue recognition including the authoritative guidance specific to federal government contractors. Reimbursable costs under this government contract primarily include direct labor, materials, subcontracts, accountable property and indirect costs. In addition, the Company receives a fixed fee under the BARDA contract, which is unconditionally earned as allowable costs are incurred and is not contingent on success factors. Reimbursable costs under this BARDA contract, including the fixed fee, are generally recognized as revenue in the period the reimbursable costs are incurred and become billable. The billing of any overage in indirect cost rates over the approved provisional rates in the contract is not allowed. Any such overage is expensed as incurred. When and if final rates with Defense Contract Audit Agency are approved, the Company will recognize any change in revenue resulting from the rate change in the period such revised rates are approved and as such this would be considered a change in estimate. This agreement is subject to early termination and stop-work order in conformance with Federal Acquisition Regulations 52.249-6 and 52.242-15 whereupon BARDA may immediately terminate the agreement early for convenience, or request the Company to stop all or any part of the work for a period of at least 90 days. If BARDA is not adequately funded, there is a potential that some or all of the follow-on options could be delayed or never elected.

8. Commitments and Contingencies

Capital Lease Agreements

In February 2018, the Company signed a lease agreement (the Lease) for the purchase of specialized equipment totaling approximately $0.2 million. The Lease, which is classified as a capital lease, has a term of 24 months and commenced during the three months ended March 31, 2018.

Payment commitments for the Company’s capital leases are summarized as follows:

 

     June 30,
2018
 
     (in thousands)  

2018

   $ 189  

2019

     342  

2020

     219  
  

 

 

 

Total future minimum lease payments

   $ 750  
  

 

 

 

In addition to the Lease, the Company has entered into operating and capital lease agreements for office and lab equipment that expire at various dates through 2021.

Clinical Study and Development Activity Commitments

The Company has entered into agreements with contract research organizations and subcontractors to further develop its product candidates. These contracts can be cancelled at any time, with some having certain cancellation fees associated with the termination of the contract, and others that only obligate the Company through the termination date.

9. Stock-Based Compensation

Summary Stock-Based Compensation Information

The following table summarizes stock-based compensation expense:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2018      2017      2018      2017  
     (in thousands)  

Cost of revenue

   $ 34      $ 60      $ 93      $ 122  

Research and development

     403        295        810        562  

Selling, general and administrative

     412        459        855        1,044  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 849      $ 814      $ 1,758      $ 1,728  
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock-based compensation from:

           

Stock options

   $ 810      $ 781      $ 1,643      $ 1,670  

Employee stock purchase plan

     39        33        115        58  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 849      $ 814      $ 1,758      $ 1,728  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table summarizes the Company’s stock option activity during the six months ended June 30, 2018:

 

     Number of
Options
(in thousands)
     Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term (in years)
     Aggregate
Instrinsic Value
(in thousands)
 

Outstanding at December 31, 2017

     3,237      $ 7.50        

Granted

     1,558        3.62        

Exercised

     (17      0.93        

Cancelled (forfeited)

     (505      7.10        
  

 

 

          

Outstanding at June 30, 2018

     4,273      $ 6.16        7.65      $ 4,392  
  

 

 

          

Vested and expected to vest at June 30, 2018

     3,690      $ 6.44        7.38      $ 3,499  

Vested and exercisable at June 30, 2018

     1,785      $ 8.16        5.50      $ 925  

The Company received approximately $15 thousand and $26 thousand from stock option exercises during the six months ended June 30, 2018 and 2017, respectively. Options outstanding at June 30, 2018 have a weighted average remaining contractual term of 7.65 years.

The exercise price of all options granted during the six months ended June 30, 2018 and 2017 was equal to the closing price of the Company’s common stock on the date of grant. The fair value of each stock option granted is estimated on the grant date under the fair value method using the Black-Scholes model. The estimated fair values of the stock option, including the effect of estimated forfeitures, are then expensed over the requisite service period which is generally the vesting period. The table below sets forth the weighted-average assumptions used to estimate the fair value of stock options:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2018     2017     2018     2017  

Risk-free interest rate

     2.9     2.0     2.6     2.1

Expected volatility

     71.1     66.7     71.0     67.2

Dividend yield

     0     0     0     0

Expected term (years)

     5.7       6.2       6.2       6.2  

The weighted average grant date fair value of options granted during the six months ended June 30, 2018 and 2017 was $2.36 and $4.11, respectively. As of June 30, 2018, there was approximately $5.3 million of unrecognized compensation cost related to unvested stock option awards and the weighted average period over which this cost is expected to be recognized is 2.68 years.

10. Income Taxes

During the three months and six months ended June 30, 2018, the Company recorded no income tax expense. The Company expects to be in an overall taxable loss position for 2018. No tax expense is expected in the next several years as the Company expects to generate taxable net operating losses and corresponding valuation allowances due to its investments in its lead product candidates and other pipeline products.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017.

Pursuant to the SEC Staff Accounting Bulletin (“SAB”) No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), a company may select between one of three scenarios to determine a reasonable estimate arising from the Tax Act. Those scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable estimate leaving the measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. As of June 30, 2018, the Company was able to reasonably estimate provisional adjustments, based on current year operations only, related to Meals & Entertainment and Compensation related items that do not have an impact on its financial statements due to a full valuation allowance. In all cases as it relates to the Tax Act, the Company will continue to refine its calculations as additional analysis is completed and as it gains a more thorough understanding of the tax law.

 

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11. Net Loss per Share of Common Stock

The following table summarizes the calculation of basic and diluted net loss per share:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2018      2017      2018      2017  
     (in thousands, except per share data)  

Net loss

   $ (11,081    $ (12,324    $ (22,108    $ (22,356
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares used in calculating basic and diluted net loss per share

     26,771        23,486        25,178        23,462  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per common share basic and diluted

   $ (0.41    $ (0.52    $ (0.88    $ (0.95
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period, determined using the treasury-stock method, if inclusion of these is dilutive. Because the Company reported a net loss for the three and six months ended June 30, 2018 and 2017, diluted net loss per common share is the same as basic net loss per common share for those periods.

The following potentially dilutive securities outstanding at the end of the periods presented have been excluded from the calculation of diluted shares outstanding because of their anti-dilutive impact to earnings per share:

 

     June 30,  
     2018      2017  
     (in thousands)  

Options to purchase common stock

     4,273        3,158  

Employee stock purchase plan

     82        49  
  

 

 

    

 

 

 

Total

     4,355        3,207  
  

 

 

    

 

 

 

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion and analysis should be read together with our consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section entitled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to:

 

   

the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure needs for the next 12 months, including our belief that we have sufficient cash resources to fund all necessary activities leading up to and including potential commercial launch in the United States as early as the third quarter of 2019, subject to FDA approval of the application and other factors;

 

   

our and any potential future collaboration partner’s ability to enroll patients in our clinical studies at the pace that we project;

 

   

our expectations regarding the initiation, timing, progress and the success of the design, primary and secondary end points, and duration of the clinical trials and planned clinical trials of PF708, Px563L/RPA563 and our other product candidates, and reporting results from same;

 

   

whether the results of our and our collaboration partners’ trials will be sufficient to support domestic or global regulatory filings and approvals for PF708, including our expectations regarding the timing of our submission of the NDA for PF708;

 

   

our ability to seek, obtain and maintain regulatory approval of PF708 or our other product candidates, and the timing of such submissions and regulatory approvals;

 

   

our ability to obtain an FDA determination that PF708 is therapeutically equivalent to Forteo;

 

   

our expectations regarding the earliest potential commercial launch of PF708 in the United States;

 

   

our reliance on third parties to conduct clinical studies;

 

   

our reliance on third-party contract manufacturers to manufacture and supply our product candidates for us;

 

   

the benefits of the use of PF708, Px563L/RPA563 or any of our other product candidates;

 

   

the rate and degree of market acceptance of PF708, Px563L/RPA563 or any of our other product candidates, if approved for sale;

 

   

regulatory developments in the United States and foreign countries;

 

   

our expectations regarding government and third-party payor coverage and reimbursement;

 

   

our ability to manufacture PF708, Px563L/RPA563 and our other product candidates in conformity with regulatory requirements and to scale up manufacturing of PF708, Px563L/RPA563 and our other product candidates to commercial scale;

 

   

our ability to successfully build a specialty sales force, or collaborate with third-parties (including our existing collaboration partners, Alvogen and NT Pharma), to commercialize PF708 and our other product candidates;

 

   

our ability to compete with companies currently producing the reference products, including Forteo;

 

   

our ability to compete with companies that may also seek and obtain approval for therapeutically equivalent versions of Forteo;

 

   

our reliance on Jazz, Alvogen, NT Pharma, and any future collaboration partner’s performance over which we do not have control;

 

   

our ability to retain and recruit key personnel, including development of a sales and marketing function;

 

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our ability to obtain and maintain intellectual property protection for PF708, Px563L/RPA563 or any other product candidates;

 

   

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;

 

   

our expectations regarding the market size, size of patient populations, and growth potential for our product candidates, if approved for commercial use;

 

   

our estimates of the expected patent expiration timelines for Forteo and other branded reference drugs and biologics;

 

   

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act;

 

   

our ability to develop new products and product candidates;

 

   

our ability to successfully establish and successfully maintain appropriate collaborations and derive significant revenue from those collaborations;

 

   

our financial performance; and

 

   

developments and projections relating to our competitors and our industry.

Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” elsewhere in this Form 10-Q filed with the Securities and Exchange Commission, or SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Form 10-Q. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

Pfēnex™ and Pfēnex Expression Technology ® are our primary registered trademarks. Other service marks, trademarks, and trade names referred to in this Form 10-Q are the property of their respective owners.

In this Form 10-Q, “we,” “us” and “our” refer to Pfenex Inc. and its subsidiaries.

 

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Overview

We are a clinical-stage development and licensing biotechnology company focused on leveraging our Pf ēnex Expression Technology to improve protein therapies for unmet patient needs. Using the patented Pf ēnex Expression Technology platform, we have created an advanced pipeline of therapeutic equivalents, vaccines, biologics and biosimilars. Our lead product candidates and collaborations are PF708, developed as a therapeutic equivalent drug candidate to Forteo ® (teriparatide) for the treatment of osteoporosis, and our novel anthrax vaccine candidates, Px563L and RPA563, funded through an advanced development contract with the U.S. government. In addition, we are developing hematology/oncology products in collaboration with Jazz Pharmaceuticals Ireland Limited (Jazz). Furthermore, our pipeline includes biosimilar candidates to Lucentis ® and Neulasta ® .

Product Candidates and Collaborations

The following table summarizes certain information about our lead product candidates and collaborations:

 

Product Candidate

  

Branded

Reference

Drug

  

Program

  

Indication

Proposed Therapeutic Equivalent

        

PF708 – Teriparatide

   Forteo   

•  Licensed in the United States to Alvogen;

•  Licensed in Mainland China, Hong Kong, Singapore, Malaysia, Thailand to NT Pharma;

•  Wholly-Owned Rest of World

   Osteoporosis

Multiple Hematology/Oncology 
Product Candidates

   Various   

•  Jazz Pharmaceuticals Ireland Limited

   Various

Novel Vaccines

        

Px563L/RPA563 – rPA based anthrax vaccines

   N/A   

•  U.S. Government Funded

   Anthrax post-exposure prophylaxis

Our lead product candidates and collaboration include the following:

 

   

PF708 – our teriparatide drug candidate.  PF708 is being developed as a therapeutic equivalent candidate to Forteo, which is approved and marketed by Eli Lilly and Company for the treatment of osteoporosis in certain patients with a high risk of fracture. Forteo achieved $1.7 billion in global product sales in 2017. PF708 is being developed pursuant to the 505(b)(2) regulatory pathway in the U.S. and references Forteo as the Reference Listed Drug. In November 2017, we announced the interim pharmacokinetic (PK) results from Study PF708-301, which compared the effect of PF708 and Forteo in osteoporosis patients. In May 2018, we announced positive top-line results from our PF708-301 study, which showed comparable overall profiles between PF708 and Forteo after 24 weeks of daily injection in osteoporosis patients.

The PF708-301 study enrolled a total of 181 patients, with 90 patients receiving PF708 and 91 receiving Forteo. There were 82 patients who completed the study in the PF708 treatment group, compared with 81 patients in the Forteo treatment group. The primary study endpoint was anti-drug antibody (ADA) incidence after 24 weeks of drug treatment. The secondary study endpoints included mean percentage changes in lumbar-spine bone mineral density (BMD) and median percentage changes in bone turnover markers (BTM) after 24 weeks of drug treatment, as well as pharmacokinetic (PK) parameters for up to four hours after the first dose. Safety study endpoints were incidences of adverse events (AE) and serious adverse events (SAE).

There were two PF708-treated patients and two Forteo-treated patients that developed ADA during the study. These low rates of immunogenicity are consistent with historical Forteo results (~3%) in postmenopausal osteoporosis patients. At Week 24, there were two ADA-positive findings for PF708 compared with none for Forteo, but the difference was not statistically significant. The ADA findings in the two PF708 patients were low in titer and resolved during follow-up. One of the two patients had  in vitro  neutralizing activity transiently detected at Week 4. However, pharmacological activity, as assessed by increases in BMD and BTM, was observed during the study for this patient. There were no apparent safety issues or abnormal serum calcium levels related to ADA or neutralizing antibody findings. These findings are consistent with observations in follow-on biologics and biosimilars approved in the United States, with almost all of the products demonstrating an ADA treatment difference of less than 5% in comparative patient studies. The overall ADA results are shown in Table 1, and individual titer results for all ADA-positive patients are shown in Table 2 (below).

 

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PF708 and Forteo demonstrated comparable effects on lumbar-spine BMD, P1NP (N-terminal propeptide of type 1 procollagen), which is a marker of bone formation and CTX (cross-linked C-terminal telopeptide of type 1 collagen), which is a marker of bone resorption. There were no statistically significant differences in any of these parameters between PF708 and Forteo. The lumbar-spine BMD results are shown in Figure 1 (below), and BTM results are shown in Figure 2 (below).

There were no significant imbalances in AE incidences or severity profiles between PF708 and Forteo. Treatment-emergent AE and SAE profiles are shown in Table 3 (below), and the severity of treatment-emergent AEs is shown in Table 4 (below).

The PF708-301 study assessed PF708 and Forteo across multiple endpoints in both female and male osteoporosis patients and showed comparable overall profiles. We believe the PF708-301 and PF708-101 study results meet the requirements for demonstrating clinical safety, effectiveness and bioequivalence. We expect that these results from the PF708-301 study, along with the previously announced bioequivalence findings from the PF708-101 study in healthy subjects, will support the PF708 NDA submission. In July we had a constructive Pre-NDA meeting with the agency which confirmed there were no additional clinical, nonclinical or analytical comparability studies requested by the agency, which we believe puts us on-track for submission to the FDA in the fourth quarter of 2018, with a potential commercial launch in the United States as early as the third quarter of 2019, subject, of course, to FDA approval of the application and other factors.

PF708 is being developed pursuant to the 505(b)(2) regulatory pathway in the U.S. and references Forteo as the Reference Listed Drug. While we believe our legal strategy supports launch in the U.S. as early as third quarter 2019, it is possible that various factors, including patent litigation by Eli Lilly and Company, may delay approval and launch. We believe we have sufficient cash resources to fund all necessary activities leading up to and including potential commercial launch in the United States as early as the third quarter of 2019, subject to FDA approval of the application and other factors. We believe the clinical program in the U.S. may be leveraged for regulatory filings in other geographies, such as the European Union (EU).

Table 1. Study PF708-301 Overall Anti-Drug Antibody Results

 

Time (wk)

  PF708     Forteo     P value  

0

    0/90       0     0/91       0     1.00  

1

    1/87       1.2     0/90       0     0.49  

4

    1/86       1.2     0/89       0     0.49  

12

    2/82       2.4     2/86       2.3     1.00  

24

    2/81       2.5     0/81       0     0.50  

24-week overall

    2/87       2.3     2/90       2.2     1.00  

Table 2. Study PF708-301 Anti-Drug Antibody Titer Results for Individual Patients

 

Time

(wk)

 

PF708

Patient 1

 

PF708

Patient 2

 

Forteo

Patient 1

 

Forteo

Patient 2

0

  Neg   Neg   Neg   Neg

1

  1:1   Neg   Neg   Neg

4

  1:1 *   Neg   Neg   Neg

12

  1:1   1:1   1:8   1:2

24

  1:1   1:1   Neg   Neg

Follow-up

  Neg   Neg   N/A   N/A

 

*

In vitro neutralizing activity detected; pharmacological activity, as assessed by changes in BMD and BTM, was observed during the study for this patient.

Antibody titer measures how much ADA is present in a positive sample. A value of 1:1 is the lowest possible finding, whereas a value of 1:8 represents an 8-fold increase.

Neg: negative; N/A: not applicable

 

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Table 3. Study PF708-301 Treatment-Emergent Adverse Event Profiles

 

Number and Percent of Patients with:

   PF708     Forteo  

Any AE

     75        83.3     73        80.2

Any SAE

     6        6.7     8        8.8

Any treatment-related AE

     48        53.3     45        49.5

Any AE leading to early withdrawal

     3        3.3     5        5.5

Any AE leading to death

     0        0     0        0

AE: adverse event; SAE: serious adverse event

Table 4. Study PF708-301 Severity of Treatment-Emergent Adverse Events

 

              Grade    
1
         Grade    
2
         Grade    
3
         Grade    
4
         Total      

All Findings

   PF708      169        84        6        2        261  
   Forteo      203        61        9        3        276  
              Grade    
1
         Grade    
2
         Grade    
3
         Grade    
4
         Total      

Injection

Site Findings

   PF708      36        1        0        0        37  
   Forteo      33        1        0        0        34  

Severity of AEs was assessed according to the Common Terminology Criteria for Adverse Events. Version 4.03

Figure 1. Study PF708-301 Lumbar-Spine Bone Mineral Density Results in Female and Male Patients

 

LOGO

 

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Figure 2. Study PF708-301 Bone Turnover Markers Results in All Patients

 

LOGO

In June 2018, we and Alvogen Malta Operations Ltd. (Alvogen) entered into a Development and License Agreement (Alvogen Agreement) pursuant to which Alvogen received the exclusive right to commercialize and manufacture PF708 in the United States. We have retained exclusive rights to the product in all countries outside of the United States except Mainland China, Hong Kong, Singapore, Malaysia and Thailand, where we have granted rights to NT Pharma. We will continue to be responsible for development and registration of PF708, while Alvogen will provide additional regulatory and development expertise. Alvogen will assume responsibility for costs related to litigation, commercial manufacturing and supply chain, and commercialization of PF708. In consideration for the licenses and other rights granted in the development and license agreement, we received an upfront payment of $2.5 million and may be eligible to receive an additional $25 million in support and regulatory milestone payments. We may also be eligible to receive a 50% gross profit split on sales if the product is rated as Therapeutic Equivalent (AP) and up to 40% if rated differently.

 

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In April 2018, we and China NT Pharma Group Company Limited (NT Pharma) entered into a Development and License Agreement (NT Pharma Agreement), pursuant to which we granted an exclusive license to NT Pharma to commercialize PF708 in Mainland China, Hong Kong, Singapore, Malaysia and Thailand and a non-exclusive license to conduct development activities in such territories with respect to PF708. We have retained exclusive rights to PF708 in all countries outside of such territories except for the United States, for which rights were subsequently granted to Alvogen. In accordance with the agreement, we received a payment of $2.5 million upon signing the NT Pharma Agreement and may be eligible to receive additional payments of up to $22.5 million based on the achievement of certain development, regulatory, and sales-related milestones. We may also be eligible to receive double-digit royalties on net sales of PF708. NT Pharma is responsible for any further development required to achieve regulatory approval as well as commercialization activities in the applicable territories.

 

 

Px563L and RPA563 – our two novel anthrax vaccine candidates funded by the Biomedical Advanced Research and Development Authority (BARDA). Both vaccine candidates are prepared using the identical antigen and are being evaluated in parallel, although Px563L contains an adjuvant and RPA563 does not. In August 2016, we announced positive immunogenicity and safety data from Day 70 analysis of the Px563L/RPA563 anthrax vaccine study. The Px563L results indicated that the vaccine was well-tolerated and afforded immunogenicity protection with fewer doses than the currently licensed product. We announced positive interim results from a Phase 1a study in healthy subjects in the second half of 2016 and the study was completed in the first half of 2017. We have generated stability data on the 2016 manufactured lot for up to 12 months, demonstrating the maintenance of high purity at 5 o C, the expected storage temperature, and accelerated stability data at 25 o C. We have also generated long-term stability data from our toxicology lot, showing the maintenance of high purity at 5 o C at 40 months. Over the course of 2017, we continued to collect favorable stability data for both products. In October 2017, we completed a meeting with the FDA in which the Agency provided guidance for the proposed clinical development and licensure plans for a post-exposure prophylaxis indication. In 2017, BARDA exercised additional options under its existing contract, allowing for the continued development of Px563L and RPA563. One of the exercised options was increased by $1.7 million in May 2018, which increased the total contract value to $145.2 million.

Potential next milestones in 2018 are the triggering of analytical and non-clinical animal study options, leading to a potential Phase 2 study in 2019, subject in each case to continued funding by BARDA. We believe the successful completion of the Phase 2 study and activities under our development contract with BARDA could lead to a procurement contract for supply of Px563L or RPA563 to the Strategic National Stockpile, if such product candidates receive regulatory approval.

 

 

Jazz Collaboration – multiple early stage hematology/oncology product candidates with Jazz.  In July 2016, we entered into a license and option agreement with Jazz, pursuant to which we and Jazz are collaboratively developing hematology/oncology products, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology, and Jazz will have the exclusive right to manufacture and commercialize such products throughout the world. In addition, pursuant to the agreement, we have granted Jazz certain other rights to negotiate the exclusive right to develop, manufacture and commercialize throughout the world other hematology/oncology products that are currently or in the future may be developed by us. In the third quarter of 2017, we completed a process and development milestone associated with this collaboration. In December 2017, we and Jazz signed an amended and restated agreement under which we will be eligible to receive an additional $43.5 million in amendment fee and development milestone payments as compared to the 2016 agreement, increasing the total value of upfront, option and amendment fee payments and potential payments for the achievement of development, regulatory and sales-related milestones associated with the collaboration to an aggregate of $224.5 million. We will also continue to be eligible to receive tiered royalties on worldwide sales of any products resulting from the collaboration at rates reduced from those under the 2016 agreement. In December 2017, as part of the amended and restated agreement, we received a total payment of $18.5 million, consisting of an upfront payment of $5.0 million and a payment of $13.5 million for development achievement. In the second quarter of 2018, we achieved two development milestones and received $750 thousand for successful achievement of process development milestones for PF745.

 

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Additional Biosimilar Pipeline Products  – Our pipeline includes biosimilar candidates to certain reference products, including biosimilar candidates to Lucentis and Neulasta. Following our strategic review in November 2017, we decided to pause development activities on PF582, our biosimilar candidate to Lucentis and PF529, our biosimilar to Neulasta, and focus development efforts elsewhere within the product portfolio while we continue to engage potential strategic partners to advance the programs and maximize value. Following the consummation of the Jazz collaboration in July 2016, we decided to advance the hematology/oncology assets that are part of the Jazz collaboration and pause development activities on PF530, our biosimilar candidate to Betaseron.

 

 

CRM197 – We have several development and commercial partnerships in place for CRM197, which is a non-toxic mutant of diphtheria toxin. It is a well-characterized protein and functions as a carrier for polysaccharides and haptens, making them immunogenic. We developed a unique CRM197 based on our Pseudomonas Fluorescens Platform and sell non-GMP and cGMP CRM197 to mostly vaccine development-focused pharmaceutical partners. As a result of those efforts, we previously entered into commercial licenses for production strains capable of producing CRM197 with both Merck and Serum Institute of India. Our CRM197 is currently being used in Merck’s first Phase 3 clinical study of (V114), an investigational polyvalent conjugate vaccine for the prevention of pneumococcal disease. This study was initiated in June 2018, at which time we earned a milestone payment. In addition, we are eligible to receive annual fees, milestone payments and a tiered royalty based on net sales for all products developed by Merck that use the Pf ēnex Expression Technology platform. Our CRM197 is also planned to be used in multiple late-stage clinical trials for such diseases as pneumococcal and meningitis bacterial infections.

To date, none of our product candidates have completed clinical development, been submitted for regulatory review or received marketing authorization from any regulatory agency. Therefore, we have not received revenue from the sale of any of our product candidates. Our product candidates are enabled by our patented protein production platform, Pf ēnex Expression Technology, which we believe confers several important competitive advantages compared to traditional techniques for protein production, including the ability to produce complex proteins with higher accuracy and greater degree of protein purity, as well as speed and cost advantages. The development of proteins, such as biosimilars, requires several competencies which represent both challenges and barriers to entry. Due to their inherent complexity, proteins require the use of living organisms to efficiently produce them at a large scale. Traditional techniques for protein production employ a trial and error approach to production organism, or strain, selection and process optimization, which is inherently inefficient and typically produces suboptimal results. This historically inefficient process provides barriers to creating or replicating complex proteins, adds significant time to market and results in the high cost of goods typical of biologic therapeutics. Together, these limitations pose significant hurdles for companies interested in entering the market with biosimilar and therapeutic equivalents to branded products. Our platform utilizes a proprietary high throughput robotically-enabled parallel approach, which allows the construction and testing of thousands of unique protein production variables in parallel, thereby allowing us to produce and characterize complex proteins while reducing the time and cost of development and long-term production.

The potential market opportunities for our most advanced product candidate, PF708, are substantial. We have developed PF708 as a therapeutic equivalent candidate to Forteo, which achieved product sales of approximately $1.7 billion in 2017. More than half of these product sales came from the U.S. alone, followed by Japan. In 2019, Forteo is expected to lose patent protection with respect to claims of patents listed in the Orange Book related to compounds, methods of treatment, and formulations in the U.S. An additional Orange Book listed patent, which has claims relating to the delivery system, expires in 2025. It is not clear whether this patent will delay approval of PF708.

Our revenue for the three months ended June 30, 2018 and 2017 was $4.2 million and $3.0 million, respectively, and was $7.9 million and $5.8 million for the six months ended June 30, 2018 and 2017, respectively. Our historical revenue has been primarily derived from monetizing our Pf ēnex Expression Technology through collaboration agreements, service agreements, government contracts and reagent protein product sales, which provide for various types of payments, including upfront payments, funding of research and development, milestone payments, intellectual property access fees and licensing fees.

 

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As of June 30, 2018, we had an accumulated deficit of $183.8 million, of which $89.8 million was attributable to recognizing the accretion in the redemption value of our convertible preferred stock. We recognized net losses of $11.1 million and $12.3 million for the three months ended June 30, 2018 and 2017, respectively, and $22.1 million and $22.4 million for the six months ended June 30, 2018 and 2017, respectively. As we continue to develop and invest more resources into the development and commercialization of our product candidates, our net operating losses will increase over the next several years. As a result, our research and development expenses will increase materially as we incur further costs of development. We currently utilize third-party clinical research organizations (CROs) to carry out our clinical development and we do not yet have an extensive sales organization. We will need substantial additional funding to support our operating activities, especially as we approach anticipated regulatory approval in the United States, Europe and other territories, and begin to establish our commercialization capabilities. Adequate funding may not be available to us on commercially reasonable terms, or at all. Since our inception, we have funded our operations primarily through the sale and issuance of common stock in our public offerings, revenue from our collaboration agreements, government contracts, service agreements, and reagent protein product sales, our prior credit facility and the private placement of equity securities. We have devoted substantially all of our capital resources to the research and development of our product candidates and working capital requirements.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we 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. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. The accompanying unaudited consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2017. Except as otherwise disclosed, there have been no material changes in our critical accounting policies and estimates in the preparation of our financial statements during the three and six months ended June 30, 2018 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on March 15, 2018.

Results of Operations

Comparison of the three and six months ended June 30, 2018 and 2017

The following table summarizes our net loss during the periods indicated:

 

     Three Months Ended
June 30,
           Six Months Ended
June 30,
        

(in thousands, except percentages)

   2018      2017      Change     2018      2017      Change  

Revenue

   $ 4,190      $ 3,029        38   $ 7,936      $ 5,847        36

Cost of revenue

     924        905        2     2,444        1,715        43
  

 

 

    

 

 

      

 

 

    

 

 

    

Gross profit

     3,266        2,124        54     5,492        4,132        33

Operating expense

                

Research and development

     10,739        10,198        5     19,545        16,596        18

Selling, general and administrative

     3,647        4,288        (15 )%      8,097        9,974        (19 )% 
  

 

 

    

 

 

      

 

 

    

 

 

    

Total operating expense

     14,386        14,486        (1 )%      27,642        26,570        4
  

 

 

    

 

 

      

 

 

    

 

 

    

Loss from operations

     (11,120      (12,362      (10 )%      (22,150      (22,438      (1 )% 

Other income, net

     39        38        3     42        82        (49 )% 
  

 

 

    

 

 

      

 

 

    

 

 

    

Net loss

   $ (11,081    $ (12,324      (10 )%    $ (22,108    $ (22,356      (1 )% 
  

 

 

    

 

 

      

 

 

    

 

 

    

 

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Revenue

 

     Three Months Ended
June 30,
           Six Months Ended
June 30,
        
(in thousands, except percentages)    2018      2017      Change     2018      2017      Change  

Revenue

   $ 4,190      $ 3,029        38   $ 7,936      $ 5,847        36

Revenue increased by $1.2 million, or 38%, to $4.2 million in the three months ended June 30, 2018 compared to $3.0 million in the same period in 2017. Revenue increased by $2.1 million, or 36%, to $7.9 million in the six months ended June 30, 2018, compared to $5.8 million in the same period in 2017. The increases in revenue for the periods presented were due to achievement of two development milestones related to the Jazz agreement and a milestone earned associated with Merck’s initiation of the first Phase 3 clinical study of a pneumococcal vaccine using our CRM197. The development of the Merck vaccine used the Pf ēnex Expression Technology platform. Revenue for the six months ended June 30, 2018 also included increased revenue related to the development of our Px563L product candidate under our government contract with BARDA, increased reagent protein product sales and increased license revenue associated with the Jazz agreement.

Given the nature of the novel vaccine development process with BARDA, revenue will fluctuate depending on stage of development.

Cost of Revenue

 

     Three Months Ended
June 30,
           Six Months Ended
June 30,
        
(in thousands, except percentages)    2018      2017      Change     2018      2017      Change  

Cost of revenue

   $ 924      $ 905        2   $ 2,444      $ 1,715        43

Cost of revenue increased by approximately $19 thousand, or 2%, in the three months ended June 30, 2018 compared to the same period in 2017. Cost of revenue increased by approximately $0.7 million, or 43%, to $2.4 million in the six months ended June 30, 2018, compared to $1.7 million in the same period in 2017. The increases in cost of revenue for the six months ended June 30, 2018 over the six months ended June 30, 2017 were due primarily to an increase in costs for our Px563L product candidate under our government contract with BARDA, as well as cost of additional sales of reagent protein product.

Given the nature of the novel vaccine development process with BARDA, these costs will fluctuate depending on stage of development.

Research and Development

 

     Three Months Ended
June 30,
           Six Months Ended
June 30,
        
(in thousands, except percentages)    2018      2017      Change     2018      2017      Change  

Research and development

   $ 10,739      $ 10,198        5   $ 19,545      $ 16,596        18

Research and development expenses increased by approximately $0.5 million, or 5%, to $10.7 million in the three months ended June 30, 2018 compared to $10.2 million in the same period in 2017. Research and development expenses increased by approximately $2.9 million, or 18%, to $19.5 million in the six months ended June 30, 2018, compared to $16.6 million in the same period in 2017. The increases were primarily due to increased activity for our product candidate PF708 to satisfy the clinical filing requirements for an NDA, which we expect to submit to the FDA in the fourth quarter of 2018. These increased costs were partially offset by a decrease in expenses due to our decision to pause our development activities on certain product candidates in 2017.

We expect research and development expenses to increase for the foreseeable future as we advance our lead product candidates and pipeline product candidates. The timing and amount of expenses incurred for our product candidates will depend largely upon the outcomes of current or future clinical studies for our product candidates, as well as the related regulatory requirements, manufacturing costs and any costs associated with the advancement of our preclinical programs.

 

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Selling, General and Administrative

 

     Three Months Ended
June 30,
           Six Months Ended
June 30,
        
(in thousands, except percentages)    2018      2017      Change     2018      2017      Change  

Selling, general and administrative

   $ 3,647      $ 4,288        (15 )%    $ 8,097      $ 9,974        (19 )% 

Selling, general and administrative expenses decreased by $0.6 million, or 15%, to $3.6 million in the three months ended June 30, 2018 compared to $4.3 million in the same period in 2017. Selling, general and administrative expenses decreased by $1.9 million, or 19%, to $8.1 million in the six months ended June 30, 2018, compared to $10.0 million in the same period in 2017. The decreases were primarily due to a decrease in expenses related to marketing, legal, severance, recruiting fees and other outside services.

Liquidity and Capital Resources

To date, we have funded our operations primarily through the sale and issuance of common stock in our public offerings, revenue from our collaboration agreements, government contracts, service agreements, and reagent protein product sales, our prior credit facility and the private placement of equity securities. At June 30, 2018, we had $80.2 million in cash and cash equivalents and $0.2 million in restricted cash as bank collateral for our commercial card program compared to $57.7 million in cash and cash equivalents and $0.2 million in restricted cash as of December 31, 2017. We believe we have sufficient cash resources to fund all necessary activities leading up to and including potential commercial launch in the United States as early as the third quarter of 2019, subject to FDA approval of the application and other factors.

In July 2016, we entered into a development and license agreement with Jazz Pharmaceuticals for the development and commercialization of multiple early stage hematology/oncology product candidates, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology, and in the third quarter of 2017, achieved a process development milestone. The agreement also includes an option for Jazz to negotiate a license for a recombinant pegaspargase product candidate with us. Under the terms of the agreement, we received an upfront and option payment totaling $15.0 million in July 2016, and may be eligible to receive additional payments based on the achievement of certain research and development, regulatory, and sales-related milestones.

In December 2017, we and Jazz entered into an amended and restated agreement, bringing the total value of payments and potential payments associated with the collaboration to $224.5 million. In addition, we may be eligible to receive tiered royalties on worldwide sales of any products resulting from the collaboration at rates reduced from those under the 2016 agreement.

According to an agreement signed in 2007, we are eligible to receive annual fees, milestone payments and a tiered royalty based on net sales for all products developed by Merck that use the Pf ēnex Expression Technology platform. In June 2018, Merck initiated the first Phase 3 clinical study of investigational 15-valent pneumococcal vaccine PCV-15 (V114), using our CRM/97, for which we earned milestone revenue.

In March 2018, we entered into an equity sales agreement (the “Sales Agreement”) with William Blair & Company, L.L.C. (“William Blair”) to sell shares of our common stock having aggregate sales proceeds of up to $20.0 million, from time to time, through an “at the market” equity offering program under which William Blair will act as sales agent. Under the Sales Agreement, we set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Sales Agreement provides that William Blair will be entitled to compensation for its services that will equal 3.0% of the gross sales price per share of all shares sold through William Blair under the Sales Agreement. The Sales Agreement shall automatically terminate upon the issuance and sale of placement shares equaling sales proceeds of $20.0 million and may be terminated earlier by either us or William Blair upon five days’ notice. We have no obligation to sell any shares under the Sales Agreement, and may at any time suspend solicitation and offers under the Sales Agreement. We have not sold any shares under the Sales Agreement.

 

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On May 25, 2018, we closed an underwritten public offering of 7,820,000 shares of our common stock at a price of $5.50 per share, which included the full exercise by the underwriters of their option to purchase an additional 1,020,000 shares of our common stock, pursuant to our existing shelf registration statement. Net proceeds from the offering were approximately $39.5 million. We believe that our existing cash and cash equivalents and our cash inflow from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. In light of the sufficiently positive results from Study PF708-301, we also believe we have sufficient cash resources to fund all necessary activities leading up to and including potential commercial launch in the United States as early as the third quarter of 2019, subject to FDA approval of the application and other factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital although we may receive milestone and other contingent payments under our current license and collaboration agreements. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional agreements with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future capital requirements will depend on many factors, including:

 

   

the timing and extent of spending on our research and development efforts, including with respect to PF708 and our other product candidates;

 

   

our ability to enter into and maintain collaboration, licensing, commercialization and other arrangements and the terms and timing of such arrangements;

 

   

the timing of the NDA submission and FDA’s filing of the application, and marketing approval for PF708, if any;

 

   

the cost of manufacturing and commercialization activities for PF708 and our other product candidates, if any;

 

   

the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

   

the receipt of any collaboration or milestone payments;

 

   

the scope, rate of progress, results and cost of our clinical trials, preclinical testing and other related activities;

 

   

the emergence of competing technologies or other adverse market developments;

 

   

the time and costs involved in seeking and obtaining regulatory and marketing approvals in multiple jurisdictions for our product candidates that successfully complete clinical trials;

 

   

the introduction of new product candidates and the number and characteristics of product candidates that we pursue;

 

   

the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;

 

   

the degree and rate of market acceptance of any products launched by us or our collaboration partners;

 

   

the expansion of our sales and marketing activities; and

 

   

the potential acquisition and in-licensing of other technologies, products or assets.

We may need to raise additional capital to fund our operations in the near future. Funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical trials, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

 

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Cash Flows

The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each of the periods presented below:

 

     Six Months Ended
June 30,
 
     2018      2017  
     (in thousands)  

Net cash (used in) provided by:

     

Operating activities

   $ (15,865    $ (20,150

Investing activities

     (649      (1,371

Financing activities

     39,036        96  
  

 

 

    

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   $ 22,522      $ (21,425
  

 

 

    

 

 

 

Net cash used in operating activities

Net cash used in operating activities was $15.9 million for the six months ended June 30, 2018 compared to net cash used in operating activities of $20.2 million for the six months ended June 30, 2017. Net cash used in operating activities for the six months ended June 30, 2018 and 2017 was primarily attributable to our research and development activities associated with PF708 and our other product candidates. The decrease in cash used in operating activities was primarily due to amounts received in the second quarter of 2018 upon entering into agreements with Alvogen and NT Pharma. A total of $5.0 million of deferred revenue was received.

Net cash used in investing activities

Net cash used in investing activities was $0.6 million for the six months ended June 30, 2018, compared to net cash used of $1.4 million for the six months ended June 30, 2017. We purchased less property and equipment in the six months ended June 30, 2018 as compared to the same period in 2017.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $39.0 million for the six months ended June 30, 2018 compared to net cash provided of $0.1 million for the six months ended June 30, 2017. Net cash provided for the six months ended June 30, 2018 consisted of $39.1 million in net proceeds from our public offering, pursuant to which we sold 7,820,000 shares of our common stock, and $0.1 million in proceeds from the issuance of common stock in connection with exercises of stock options and in connection with our Employee Stock Purchase Plan, or ESPP. This was partially offset by $0.2 million in repayment of capital lease obligations and payment of taxes related to net share settlement of equity awards. Net cash provided of $0.1 million for the six months ended June 30, 2017 resulted primarily from the issuance of common stock in connection with our ESPP, as well as exercises of stock options.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. As of June 30, 2018, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

Contractual Obligations and Commitments

In February 2018, we signed a lease agreement for the purchase of specialized equipment totaling approximately $0.2 million. The lease has a term of 24 months and commenced during the quarter ended March 31, 2018. Other than disclosed above, there have been no other material changes during the six months ended June 30, 2018 to our contractual obligations disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

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Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Numerous updates were issued in 2016 that provide clarification on a number of specific issues as well as requiring additional disclosures. The effective date will be the first quarter of fiscal year 2019 using one of two retrospective application methods: the full retrospective method or the modified retrospective method. We plan to adopt the standard in the first quarter of fiscal year 2019 using the modified retrospective method. We do not expect the new standard to have a material impact on the recognition of revenue from our reagent protein product sales. However, we continue to evaluate the impact that this guidance will have on our consolidated financial statements as it relates to our government, collaboration and license agreements, and plan to provide additional disclosure surrounding the potential impact of this standard as we near the adoption date.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842), which requires lessees to recognize “right of use” assets and liabilities for all leases with lease terms of more than 12 months. The ASU requires additional quantitative and qualitative financial statement footnote disclosures about the leases, significant judgments made in accounting for those leases and amounts recognized in the financial statements about those leases. The effective date will be the first quarter of fiscal year 2020. We are currently evaluating the impact of the adoption of this accounting standard update on our financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . This updated guidance eliminates Step 2 from the current two-step quantitative model for goodwill impairment tests. Step 2 required an entity to calculate an implied fair value, which included a hypothetical purchase price allocation requirement, for reporting units that failed Step 1. Per this updated guidance, a goodwill impairment will instead be measured as the amount by which a reporting unit’s carrying value exceeds its fair value as identified in Step 1. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718), which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for us in the first quarter of fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. As of June 30, 2018, we did not hold or issue financial instruments for trading purposes.

Interest rate fluctuation risk

The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our cash and cash equivalents without assuming significant risk. To achieve our objectives, we invest our cash and cash equivalents in money market funds, treasury obligations, short term certificates of deposit and high-grade corporate securities, directly or through managed funds, with maturities of 90 days or less. As of June 30, 2018, we had cash and cash equivalents of $80.2 million consisting of cash of $13.4 million and investments of $66.8 million in highly liquid U.S. money market funds. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our investments are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant and a 100 basis point movement in market interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates.

 

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Foreign currency exchange risk

We contract with clinical research organizations, investigational sites and suppliers in foreign countries. We are therefore subject to fluctuations in foreign currency rates in connection with these agreements. We have not entered into any material foreign currency hedging contracts although we may do so in the future. To date we have not incurred any material effects from foreign currency changes on these contracts. The effect of a 10% adverse change in exchange rates on foreign currency denominated cash and payables as of June 30, 2018 would not have been material. However, fluctuations in currency exchange rates could harm our business in the future.

 

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the quarter covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

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PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

We are currently not a party to any material legal proceedings.

 

ITEM 1A.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, before making an investment decision. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, operating results, cash flows and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks Relating to our Financial Condition and Need for Additional Capital

We have a limited operating history and expect to generate significant losses for the foreseeable future. If we do not generate significant revenue, we will not be profitable.

With the exception of two years, we have incurred annual net operating losses since inception, and to date have generated only limited revenue from government contracts, service agreements, collaboration agreements, and reagent protein product sales. We have recognized net losses of $22.1 million, $22.4 million and $25.7 million for the six months ended June 30, 2018 and 2017 and the year ended December 31, 2017, respectively. As of June 30, 2018, we had an accumulated deficit of $183.8 million and net working capital of $62.4 million. To date, we have funded our operations primarily through the sale and issuance of common stock in our public offerings, revenue from our collaboration agreements, government contracts, service agreements, and reagent protein product sales, our prior credit facility and the private placement of equity securities. As of June 30, 2018, we had capital resources consisting of cash and cash equivalents of $80.2 million. As we continue to develop and invest more resources into the development and commercialization of our product candidates, our net operating losses will increase over the next several years. To become profitable, we must successfully develop and obtain regulatory approval for our product candidates, and effectively manufacture and commercialize the product candidates we develop. If we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidates may receive approval, and our and our collaboration partners’ ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidates in those markets. We may never succeed in these activities and therefore may never generate revenue that is significant or large enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.

We will require substantial additional funds to seek and obtain regulatory approval for and commercialize our most advanced product and vaccine candidates and our other product candidates and, if additional capital is not available, we may need to limit, scale back or cease our operations.

Since our inception, a significant portion of our resources have been dedicated to the preclinical and clinical development of our product candidates, including PF708, Px563L/RPA563, PF582, and PF529. We believe that we will continue to expend substantial resources for the foreseeable future for the preclinical and clinical development of our current product pipeline, and the development of any other indications and product candidates we may choose to pursue, either alone or with a strategic collaboration partner. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical studies, and manufacturing and supply as well as marketing and selling any products that receive marketing authorization. For example, if PF708 is approved for sale in the United States, we and Alvogen will need to expend substantial resources devoted to commercializing PF708 and we are dependent on Alvogen to effectively commercialize, market and promote PF708. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of PF708, Px563L/RPA563, and our pipeline of other product candidates and preclinical products under development. Following our strategic review in November 2017, we decided to pause our development activities for PF582 and PF529, and focus our efforts and resources elsewhere in the product portfolio until strategic partnerships for these candidates are forged. In the future, we may be required to devote additional resources to the development of PF582 or PF529, or obtain a new collaboration partner on short notice, and the terms of any additional collaboration or other arrangements that we establish may not be favorable to us. We may also need to obtain substantial additional sources of funding to develop our product candidates as currently contemplated. If such additional funding is not available on favorable terms or at all, we may need to delay or reduce the scope of our product candidate development programs, or grant rights in the United States, as well as outside the United States, to our product candidates to one or more partners.

 

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We believe that our available cash and cash equivalents, including the proceeds from any revenue from our government contracts, service agreements, collaboration agreement, and reagent protein product sales will allow us to fund our operations for at least the next 12 months, including costs associated with the anticipated submission of the PF708 new drug application (NDA) to the U.S. Food and Drug Administration (FDA). However, changing circumstances and risks and uncertainties associated with our product development efforts may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected. Our future capital requirements may vary depending on the following:

 

   

the timing and extent of spending on our research and development efforts, including with respect to PF708 and our other product candidates;

 

   

our ability to enter into and maintain collaboration, licensing, commercialization and other arrangements and the terms and timing of such arrangements;

 

   

the cost of manufacturing and commercialization activities, if any;

 

   

the receipt of any collaboration or milestone payments;

 

   

the scope, rate of progress, results and FDA acceptance of the results, and cost of our clinical trials, preclinical testing and other related activities for our product candidates, including our anticipated submission of the NDA for PF708;

 

   

the emergence of competing technologies or other adverse market developments;

 

   

the time and costs involved in seeking and obtaining regulatory and marketing approvals in multiple jurisdictions for our product candidates that successfully complete clinical trials;

 

   

the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

   

the introduction of new product candidates and the number and characteristics of product candidates that we pursue;

 

   

the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;

 

   

if approved, the degree and rate of market acceptance of any products launched by us or our collaboration partners;

 

   

the expansion of our sales and marketing activities; and

 

   

the potential acquisition and in-licensing of other technologies, products or assets.

If we were to experience any delays or encounter issues with any of the above, including clinical holds, failed studies, inconclusive or hard-to-interpret results, safety or efficacy issues, or other regulatory challenges that require longer follow-up of existing studies, additional major studies, or additional supportive studies in order to pursue marketing approval, it could further increase the costs associated with the above and delay revenues.

We will need to raise additional capital to fund our operations in the near future. If we seek additional funding in the future, additional funds may not be available to us on acceptable terms or at all. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. We have a sales agreement in place with William Blair to sell up to $20.0 million worth of shares of our common stock, from time to time, through an “at the market” equity offering program under which William Blair will act as sales agent. As of June 30, 2018, $20.0 million worth of shares of our common stock remained available for sale under the “at the market” equity offering program. Any additional equity financing may be dilutive to our stockholders. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail the advancement of one or more of our product candidates. We also could be required to seek funds through arrangements with collaboration partners or others that may require us to relinquish rights to some of our technologies or product candidates which we would otherwise pursue on our own.

Any further development of PF582 and PF529 will require significant resources from us or another collaboration partner, and in the event that we do not find a collaboration partner, the development of PF582 and PF529 could be significantly delayed or result in the discontinuation of the development of PF582 and PF529.

In November 2017, we completed our strategic review of PF582 and PF529, our biosimilar product candidates to Lucentis ® and Neulasta ® , respectively. The strategic review considered the timeline for development and cost of both programs. As a result of our strategic review, we decided to pause development activities on PF582 and PF529 and focus development efforts elsewhere within the product portfolio while we continue to engage potential strategic partners to monetize PF582 and PF529. Further development of PF582 and PF529 will require significant resources from us or another collaboration partner. We or a new collaboration partner will be responsible for funding any new PF582 and PF529 development and clinical trial activities going forward. Any such further development will require significant resources to develop and commercialize PF582 and PF529, and such further development may not be possible in the near term without a new collaboration partner . There are no assurances that we will have access to additional capital or find a new collaboration partner or that the terms and timing of any such arrangements would be acceptable to us. As a result, we could experience a significant delay in the PF582 and PF529 development processes. If we determine instead to discontinue the development of PF582 or PF529, we will not receive any future return on our investment from that product candidate.

 

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Our quarterly operating results may fluctuate significantly.

Our operating results are subject to quarterly fluctuations. Our operating results are affected by numerous factors, including:

 

   

variations in the level of expenses related to our PF708, Px563L/RPA563 and other development and future commercialization programs;

 

   

addition or termination of clinical trials;

 

   

any intellectual property infringement lawsuit in which we may become involved;

 

   

regulatory developments affecting any of our products; and

 

   

our execution of any service, collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements.

If our quarterly operating results fall below the expectations of investors or securities analysts, the market price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the market price of our stock to fluctuate substantially.

Risks Relating to our Business and our Industry

Our business operations are dependent upon our senior management team and the ability of our other employees to execute on our business strategy. If we fail to attract, integrate, and keep senior management and key scientific personnel, we may be unable to successfully develop PF708, Px563L/RPA563 or any other product candidates, conduct our clinical trials and commercialize PF708, Px563L/RPA563 or any other product candidates we develop.

Our success depends in part on our continued ability to attract, integrate, retain, and motivate highly qualified management, clinical and scientific personnel, including our ability to develop an effective working relationship among senior management. Our senior management has substantially changed since the beginning of the last fiscal year, including, for example, the departures of our former chief executive officer, Bertrand Liang, former chief financial officer, Paul Wagner, and former chief manufacturing officer, Steven Sandoval. We have a new president and chief executive officer, Eef Schimmelpennink, who started in August 2017, and a new chief financial officer, Susan Knudson, who started in February 2018.

As new employees gain experience in their roles, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge and a lack of familiarity of new employees with business processes, operating requirements, policies and procedures, and we may experience additional costs as new employees gain necessary experience. It is important to our success that these key employees quickly adapt to and excel in their new roles. If they are unable to do so, our business and financial results could be materially adversely affected. In addition, the loss of the services of any member of our senior management or our scientific or technical support staff might significantly delay or prevent the development of our products or achievement of other business objectives by diverting management’s attention to transition matters and identification of suitable replacements, if any, and could have a material adverse effect on our business.

We believe that our future success is highly dependent upon the contributions of our senior management, particularly our Chief Executive Officer, Chief Financial Officer, Chief Business Officer, and Chief Medical and Scientific Officer, as well as our senior scientists and other members of our senior management team. Employment agreements with our Chief Executive Officer, Chief Financial Officer, Chief Business Officer, and Chief Medical and Scientific Officer, as well as our offer letters with our senior scientists, all provide for “at-will” employment. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of PF708, Px563L/RPA563, or any other products we develop.

Competition for qualified personnel in the biotechnology and pharmaceuticals industry is intense due to the limited number of individuals who possess the skills and experience required. To help attract, retain, and motivate qualified employees, we use share-based incentive awards such as employee stock options. Other companies may provide more generous compensation and benefits, more diverse opportunities and better chances for career advancement than we do. Some of these advantages may be more appealing to high-quality candidates and employees than those we have to offer. In addition, the decline in our stock price has created additional challenges related to our ability to compete effectively with respect to equity compensation. We may need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all, which may cause our business and operating results to suffer.

 

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If an improved version of a reference product or reference listed drug, such as Forteo, is developed, or if the market for a reference product or reference listed drug significantly declines, sales or potential sales of our biosimilar and therapeutic equivalent product candidates may suffer.

Reference product or reference listed drug (“originator”) sponsor companies may develop improved versions as part of a life cycle extension strategy, and may obtain regulatory approval of the improved version under a supplemental biologics license application (BLA) or NDA. If an originator sponsor company succeeds in obtaining an approval of an improved product, it may capture a significant share of the collective market and significantly reduce the market for the reference product/reference listed drug, and thereby the potential size of the market for our biosimilar and therapeutic equivalent product candidates. In addition, the improved product may be protected by additional patent rights.

Additionally, competition in the pharmaceutical market is intense. Reference products/reference listed drugs face competition on numerous fronts as technological advances are made that may offer patients a more convenient form of administration or increased efficacy, or as new products are introduced. As new products are approved that compete with the reference product/reference listed drug for our biosimilar or therapeutic equivalent product candidates, such as Forteo, sales may be significantly and adversely impacted and may render the originator obsolete. If the market for the originator is impacted, we in turn may lose significant market share or market potential for our products and product candidates. As a result, the value of our product pipeline could be negatively impacted and our business, prospects and financial condition could suffer.

Our product candidates, if approved, will face significant competition from the reference products and from other biosimilars and therapeutic equivalent products of the reference products, and from other products. Our failure to effectively compete may prevent us from achieving significant market penetration and expansion.

We expect to enter highly competitive pharmaceutical markets. Successful competitors in the pharmaceutical market have the ability to effectively discover, obtain patents, develop, test and obtain regulatory approvals for products, as well as the ability to effectively commercialize, market and promote approved products, including communicating the effectiveness, safety and value of products to consumers and medical professionals. Numerous companies, universities, and other research institutions are engaged in developing, patenting, manufacturing and marketing of products competitive with those that we are developing. Many of these potential competitors, such as Novartis AG, Genentech, Inc., a wholly-owned member of the Roche Group, Amgen Inc. and Eli Lilly and Company, are large, experienced companies that enjoy significant competitive advantages, such as substantially greater financial, research and development, manufacturing, personnel and marketing resources. Recent and potential future merger and acquisition activity in the biotechnology and pharmaceutical industries are likely to result in even more resources being concentrated among a smaller number of our competitors. These companies also maintain greater brand recognition and more experience and expertise in undertaking preclinical testing and clinical trials of product candidates, and obtaining the FDA and other regulatory approvals of products. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds that could make our product candidates obsolete.

In addition, our biosimilar, therapeutic equivalent and vaccine products may face competition from companies that develop and commercialize biosimilars, therapeutic equivalent products and vaccines that compete directly with our products. See  “Risks Related to Government Regulation—If other therapeutic equivalent or generic products to Forteo are approved and successfully commercialized before PF708, our business would suffer.”

Use of our product candidates could be associated with side effects or adverse events.

Use of our product candidates could be associated with side effects or adverse events which can vary in severity (from minor reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of our product candidates may be observed at any time, including in clinical trials or when a product is commercialized, and any such side effects or adverse events may negatively affect our and our collaboration partners’ ability to obtain and maintain regulatory approval or market our product candidates. Side effects such as toxicity or other safety issues associated with the use of our product candidates could require us or our collaboration partners to perform additional studies or halt development or sale of these product candidates or expose us to product liability lawsuits which would harm our business. We may be required by regulatory agencies to conduct additional animal or human studies regarding the safety and efficacy of our product candidates which we have not planned or anticipated. We may also be required to change our product labeling, including increasing the prominence and content of warnings and contraindications for our products. The FDA could require us to develop a Risk Evaluation and Mitigation Strategy (REMS) for such product or, if a REMS is already in place, to incorporate additional requirements under the REMS, and foreign regulatory authorities may require similar risk management strategies. There can be no assurance that we will resolve any issues related to any product-related adverse events to the satisfaction of the FDA or any regulatory agency in a timely manner or ever, which could harm our business, prospects and financial condition.

 

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In addition, if we and our collaboration partners are successful in commercializing PF708, Px563L/RPA563 or any other product candidates, the FDA, European Medicines Agency (EMA), competent authorities of the Member States of the European Economic Area (EEA), and other foreign regulatory agency regulations require that we timely report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We or our collaboration partners may fail to report adverse events we become aware of within the prescribed timeframe. We or our collaboration partners may also fail to appreciate that we or our collaboration partners have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we or our collaboration partners fail to comply with our reporting obligations, the FDA, the EMA, competent authorities of the Member States of the EEA, or other foreign regulatory agencies could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of our products.

We currently rely on a limited number of third parties for a substantial portion of our revenue. The loss of or a change in any of these third parties, including its creditworthiness, could materially reduce our revenue and adversely impact our financial position.

Two third parties accounted for more than 10% of our 2017 and 2015 revenue and one third party accounted for more than 10% of our 2016 revenue. Jazz Pharmaceuticals Ireland Limited (Jazz) and the Biomedical Advanced Research and Development Authority (BARDA) each accounted for more than 10% of our revenue in 2017, Pfizer accounted for more than 10% of our 2016 revenue, and Pfizer and BARDA each accounted for more than 10% of our revenue in 2015. We have also entered into agreements with Alvogen and NT Pharma to develop and commercialize PF708. The prospects for PF708 depend in part on the expertise, development and commercial skills, and financial strength of Alvogen and NT Pharma.

In addition, in August 2016, we entered into a termination agreement with Pfizer pursuant to which our development and license agreement was terminated and all rights to PF582 returned to us. The termination accelerated recognition of $45.8 million of revenue that had been previously deferred and we will not recognize any additional future revenue under this agreement. Pfizer will no longer be responsible for manufacturing, clinical studies and commercialization of PF582. We will not receive additional revenue from Pfizer.

In addition, in August of 2017, we and Strides Arcolab entered into a termination agreement pursuant to which our joint venture was terminated. While there was no activity under the joint venture with Strides Arcolab to date, following the termination we solely own the product candidates that were previously subject to the joint venture with Strides Arcolab.

The loss of any key collaboration partner or any significant adverse change in the size or terms of a contract with a key third party could significantly reduce our revenue over the short term. Moreover, having our revenue concentrated among a limited number of entities creates a concentration of financial risk for us, and in the event that any significant third party is unable to fulfill its payment obligations to us, our operating results and cash position would suffer. See  “Risks Relating to our Reliance on Third Parties—We are substantially dependent on the expertise of Alvogen, Jazz, and NT Pharma to develop and commercialize certain product candidates. If we fail to maintain our current strategic relationship with Alvogen, Jazz, our business, commercialization prospects and financial condition may be materially adversely affected.

We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates.

We continue to evaluate our business strategy and, as a result, may modify our strategy in the future. In this regard, we may, from time to time, focus our product development efforts on different product candidates or may delay, suspend or terminate the future development of a product candidate at any time for strategic, business, financial or other reasons. For example, in 2017 we decided to pause development activities on PF582 and PF529 and focus development efforts elsewhere within the product portfolio while we continue to engage potential strategic partners for PF582 and PF529 to advance the programs and maximize value. As a result of changes in our strategy, we have and may in the future change or refocus our existing product development, commercialization and manufacturing strategies. This could require changes in our facilities and our personnel. Any product development changes that we implement may not be successful. In particular, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates. Our decisions to allocate our research and development, management and financial resources toward particular product candidates may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate product development programs may also prove to be incorrect and could cause us to miss valuable opportunities.

 

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We currently have limited marketing capabilities and no sales organization.

We currently have limited sales and marketing capabilities. We have no prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team.

To commercialize PF708, we have entered into collaboration agreements with Alvogen and NT Pharma and the prospects for PF708 depend in part on the expertise, development and commercial skills, and financial strength of Alvogen and NT Pharma. Under the Alvogen agreement, Alvogen has the exclusive right to commercialize and manufacture PF708 in the United States. Under the NT Pharma agreement, we granted an exclusive license to NT Pharma to commercialize PF708 in certain Asian countries and a non-exclusive license to conduct development activities in such territories with respect to PF708. For Px563L/RPA563, and our other product candidates, if approved, we will need to identify potential sales, marketing and distribution partners or establish our own internal sales force. In the future, we may choose to collaborate with other third parties that have direct sales forces and established distribution systems, either to augment our own sales force or in lieu of our own sales force. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.

We enter into various contracts in the normal course of our business that periodically incorporate provisions whereby we indemnify the other party to the contract. In the event we would have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial position and results of operations.

In the normal course of business, we periodically enter into academic, commercial and consulting agreements that contain indemnification provisions. With respect to our academic agreements, we may be required to indemnify the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our sublicensees’ exercise of rights under the agreement. With respect to commercial agreements entered into with our protein production customers, we typically provide indemnification for claims from third parties arising out of any potential intellectual property infringement associated with our Pf ēnex Expression Technology ® in the course of performing our services. With respect to our commercial agreements, the bulk of which are with contract manufacturers, we indemnify our vendors from third-party product liability claims which result from the production, use or consumption of the product, as well as for certain alleged infringements of any patent or other intellectual property right by a third party. With respect to consultants, we indemnify them from claims arising from the good faith performance of their services. In all of the above cases, we do not indemnify the parties for claims resulting from the negligence or willful misconduct of the indemnified party.

In certain circumstances, we maintain insurance coverage which we believe may limit our obligations under certain of these indemnification provisions. However, we do not carry insurance for all risks that our business may encounter, including our obligations under certain indemnification provisions. To the extent we do not have insurance to cover certain indemnification obligations, we are denied insurance coverage, or our obligation under an indemnification provision exceeds applicable insurance coverage, any significant, uninsured liability may require us to pay substantial amounts, which would adversely affect our working capital and results of operations.

We may have difficulty expanding our operations successfully.

As we advance our product candidates through the development process, we will need to expand our development, regulatory, manufacturing, quality, sales and marketing capabilities or contract with other organizations to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various collaboration partners, suppliers and other organizations, including with respect to the commercialization of PF708, if PF708 receives regulatory approval.

As of June 30, 2018, we had 64 full-time employees, including a total of 16 employees who hold M.D. and/or Ph.D. degrees. Our management and personnel, systems and facilities currently in place may not be adequate to support this future growth. Therefore, we will need to continue to expand our managerial, operational, finance and other resources to manage our operations and clinical trials, continue our development activities and commercialize our product candidates, if approved. In order to effectively execute our growth strategy, we will be required to:

 

   

manage our clinical trials effectively;

 

   

identify, recruit, retain, incentivize and integrate additional employees;

 

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establish and maintain collaborations with third parties for the development and commercialization of our product candidates, or otherwise build and maintain a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

   

manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and

 

   

continue to improve our operational, financial and management controls, reporting systems and procedures.

Due to our limited financial resources and our limited experience in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. In addition, this expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our development and strategic objectives, or disrupt our operations, which could materially impact our business, revenue, and operating results.

The U.S. government holds certain intellectual property rights related to our Anthrax vaccines, Px563L and RPA563 and Malaria vaccine, Px533.

Although we have intellectual property related to expression of recombinant protective antigen in  P.  fluorescens , the U.S. government holds certain patents related to the recombinant protective antigen in Px563L and RPA563, as well as certain license rights to intellectual property related to other Px563L components used to produce the final vaccine, which, if exercised, could materially impact our business, revenue and operating results. We have rights to utilize this intellectual property held by the U.S. government by virtue of the Authorization and Consent clauses of our contracts with the U.S. government.

Our contracts with the U.S. government, and our subcontracts with U.S. government contractors, require ongoing funding decisions by the U.S. government; reduced or discontinued funding of these contracts could cause our financial condition and operating results to suffer materially.

Development of our anthrax vaccines, Px563L and RPA563, is funded by BARDA and development of our Px563L-SDI anthrax vaccine and our malaria vaccine, Px533, is funded by The National Institute of Allergy and Infectious Diseases (NIAID). The funding for government programs is subject to Congressional appropriations, often made on a fiscal year basis, even for programs designed to continue for several years. These appropriations can be subject to political considerations and stringent budgetary constraints. Additionally, our government-funded development contracts give the U.S. government the right, exercisable in its sole discretion, to extend this contract for successive options following a base period of performance. The value of the services to be performed during these options may constitute the majority of the total value of the underlying contract. If levels of government expenditures and authorizations for biodefense decrease or shift to programs in areas where we do not offer products or are not developing product candidates, or if the U.S. government otherwise declines to exercise its options under its contracts with us, our business, revenue and operating results would suffer.

Our current contract with BARDA is a cost-plus fixed fee contract and potential future contracts with the U.S. government may also be structured this way. Under our cost-plus fixed fee contracts, we are allowed to recover our approved costs plus a fixed fee. The total price on a cost-plus fixed fee contract is based primarily on allowable costs incurred, but generally is subject to contract funding limitations. U.S. government regulations require us to notify our customer of any cost overruns or underruns on a cost-plus fixed fee contract. If we incur costs in excess of the funding limitation specified in the contract, we may not be able to recover those cost overruns.

Moreover, changes in U.S. government contracting policies could directly affect our financial performance. Factors that could materially adversely affect our U.S. government contracting business include:

 

   

budgetary constraints affecting U.S. government spending generally, or specific departments or agencies in particular;

 

   

changes in U.S. government fiscal policies or available funding;

 

   

changes in U.S. government defense and homeland security priorities;

 

   

changes in U.S. government programs or requirements;

 

   

adoption of new laws or regulations;

 

   

technological developments;

 

   

U.S. government shutdowns, threatened shutdowns or budget delays;

 

   

competition and consolidation in our industry; and

 

   

general economic conditions.

 

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These or other factors could cause U.S. government departments or agencies to reduce their development funding or future purchases under contracts, to exercise their right to terminate contracts or fail to exercise their options to extend our contracts, any of which could have a material adverse effect on our business, financial condition, operating results and ability to meet our financial obligations.

Unfavorable provisions in government contracts, some of which are customary, may subject our business to material limitations, restrictions and uncertainties and may have a material adverse impact on our financial condition and operating results.

Government contracts contain provisions that give the U.S. government substantial rights and remedies, many of which are not typically found in commercial contracts, including provisions that allow the U.S. government to:

 

   

terminate existing contracts, in whole or in part, for any reason or no reason;

 

   

unilaterally reduce or modify the government’s obligations under such contracts or subcontracts, without the contractor’s consent, including by imposing equitable price adjustments;

 

   

audit contract-related costs and fees, including allocated indirect costs;

 

   

claim rights, including intellectual property rights, in products and data developed under such agreements;

 

   

under certain circumstances involving public health and safety, license inventions made under such agreements to third parties;

 

   

suspend the contractor from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

 

   

impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such contracts;

 

   

suspend or debar the contractor from doing future business with the government;

 

   

decline to exercise an option to continue a contract;

 

   

exercise an option to purchase only the minimum amount, if any, specified in a contract;

 

   

decline to exercise an option to purchase the maximum amount, if any, specified in a contract;

 

   

claim rights to facilities or to products, including intellectual property, developed under the contract;

 

   

require repayment of contract funds spent on construction of facilities in the event of contract default;

 

   

take actions that result in a longer development timeline than expected;

 

   

change the course of a development program in a manner that differs from the contract’s original terms or from our desired development plan, including decisions regarding our partners in the program;

 

   

pursue civil or criminal remedies under the False Claims Act (FCA) and False Statements Act; and

 

   

control or prohibit the export of products.

Generally, government contracts, including our contract with BARDA, contain provisions permitting unilateral termination or modification, in whole or in part, at the U.S. government’s convenience. Under general principles of government contracting law, if the U.S. government terminates a contract for convenience, the government contractor may recover only its incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the U.S. government terminates a contract for default, the government contractor is entitled to recover costs incurred and associated profits on accepted items only and may be liable for excess costs incurred by the government in procuring undelivered items from another source. In addition, government contracts normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

 

   

specialized accounting systems unique to government contracts;

 

   

mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

 

   

public disclosures of certain contract information, which may enable competitors to gain insights into our research program;

 

   

mandatory internal control systems and policies; and

 

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mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.

If we fail to maintain compliance with these requirements, we may be subject to potential contract or FCA liability and to termination of our contracts.

Furthermore, we are required to enter into agreements and subcontracts with third parties, including suppliers, consultants and other third-party contractors in order to satisfy our contractual obligations pursuant to our agreements with the United States government. Negotiating and entering into such arrangements can be time-consuming and we may not be able to reach agreement with such third parties. Any such agreement must also be compliant with the terms of our government contract. Any delay or inability to enter into such arrangements or entering into such arrangements in a manner that is non-compliant with the terms of our contract, may result in violations of our contract.

We may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts.

Most U.S. government contracts grant the U.S. government the right to use on a royalty free basis, for or on behalf of the U.S. government, any technologies developed and data first produced by the contractor under the government contract. If we were to develop technology under a contract with such a provision, we might not be able to prohibit third parties, including our competitors, from using that technology in providing products and services to the U.S. government.

Our business is subject to audit by the U.S. government and a negative audit could adversely affect our business.

U.S. government agencies such as the Department of Health and Human Services (HHS) and the Defense Contract Audit Agency (DCAA) routinely audit and investigate government contractors and recipients of federal grants and contracts. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards.

The HHS and the DCAA also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s accounting, purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including:

 

   

termination of contracts;

 

   

forfeiture of profits;

 

   

suspension of payments;

 

   

fines; and

 

   

suspension or prohibition from conducting business with the U.S. government.

In addition, we could suffer serious reputational harm if allegations of impropriety were made against us, which could cause our stock price to decrease.

The United States government’s determination to award a future contract may be challenged by an interested party, such as another bidder, at the United States Government Accountability Office (GAO) or in federal court. If such a challenge is successful, any future contract we may be awarded may be terminated.

The laws and regulations governing the procurement of goods and services by the U.S. government provide procedures by which other bidders and interested parties may challenge the award of a government contract. If we are awarded a government contract, such challenges or protests could be filed even if there are not any valid legal grounds on which to base the protest. If any such protests are filed, the government agency may decide to suspend our performance under the contract while such protests are being considered by the GAO or the applicable federal court, thus potentially delaying delivery of payment. In addition, we could be forced to expend considerable funds to defend any potential award. If a protest is successful, the government may be ordered to terminate the contract and resolicit proposals. The government agencies with which we have contracts could even be directed to award a potential contract to one of the other bidders.

 

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Laws and regulations affecting government contracts make it more costly and difficult for us to successfully conduct our business.

We must comply with numerous laws and regulations relating to the formation, administration and performance of government contracts, which can make it more difficult for us to retain our rights under our government contracts, including our contract with BARDA. These laws and regulations affect how we conduct business with government agencies. Among the most significant government contracting regulations that affect our business are:

 

   

the Federal Acquisition Regulations (FAR) and agency-specific regulations supplemental to the FAR, which comprehensively regulate the procurement, formation, administration and performance of government contracts;

 

   

the Truth in Negotiations Act, which requires certification and disclosure of cost or pricing data in connection with contract negotiations;

 

   

business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and include other requirements such as the Anti-Kickback Statute and Foreign Corrupt Practices Act;

 

   

export and import control laws and regulations; and

 

   

laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

Any material changes in applicable laws and regulations could restrict our ability to maintain our existing BARDA contract and obtain new contracts, which could limit our ability to conduct our business and materially adversely affect our results of operations.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of products we develop.

We face a risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may incur liability if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for PF708, Px563L/RPA563 or any other product candidates or products we develop;

 

   

injury to our reputation and significant negative media attention;

 

   

withdrawal of clinical trial participants or cancellation of clinical trials;

 

   

costs to defend the related litigation;

 

   

a diversion of management’s time and our resources;

 

   

substantial monetary awards to trial participants or patients;

 

   

regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

   

loss of revenue; and

 

   

the inability to commercialize any products we develop.

Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could impact the commercialization of PF708, Px563L/RPA563 and any other products we develop. We currently carry product liability insurance covering our clinical trials in the amount of $10.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing PF708, Px563L/RPA563 or any other product candidates, we intend to expand our insurance coverage to include the sale of such products; however, we may be unable to obtain this liability insurance on commercially reasonable terms.

 

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Our employees, independent contractors, principal investigators, CROs, CMOs, consultants and collaboration partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, independent contractors, principal investigators, third-party clinical research organizations (CROs) and contract manufacturing organizations (CMOs), consultants and collaboration partners may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or unauthorized activities that violate: (1) regulations of the FDA and comparable foreign authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; (2) manufacturing standards; (3) federal and state healthcare fraud and abuse laws and regulations; or (4) laws that require the reporting of true and accurate financial information and data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These activities also include the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Ethics and Conduct, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Our cash and cash equivalents and short-term investments could be adversely affected if the financial institutions in which we hold our cash and cash equivalents and short-term investments fail.

We regularly maintain cash balances at third-party financial institutions in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. While we monitor the cash balances in our accounts and adjust the balances as appropriate, these balances could be impacted, and there could be a material adverse effect on our business, if one or more of the financial institutions with which we deposit fails or is subject to other adverse conditions in the financial or credit markets. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets.

We may be subject to information technology failures, including data protection breaches and cyber-attacks, that could disrupt our operations, damage our reputation and adversely affect our business, operations, and financial results.

We rely on our information technology systems for the effective operation of our business and for the secure maintenance and storage of confidential data relating to our business and third-party businesses. Although we have implemented security controls to protect our information technology systems, experienced programmers or hackers may be able to penetrate our security controls, and develop and deploy viruses, worms and other malicious software programs that compromise our confidential information or that of third parties and cause a disruption or failure of our information technology systems. Any such compromise of our information technology systems could result in the unauthorized publication of our confidential business or proprietary information, result in the unauthorized release of customer, supplier or employee data, result in a violation of privacy or other laws, expose us to a risk of litigation, or damage our reputation. The cost and operational consequences of implementing further data protection measures either as a response to specific breaches or as a result of evolving risks, could be significant. In addition, our inability to use or access our information systems at critical points in time could adversely affect the timely and efficient operation of our business. Any delayed sales, significant costs or lost customers resulting from these technology failures could adversely affect our business, operations and financial results.

Third parties with which we conduct business have access to certain portions of our sensitive data. In the event that these third parties do not properly safeguard our data that they hold, security breaches could result and negatively impact our business, operations and financial results.

 

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Our business involves the use of hazardous materials and we, our collaboration partners, and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development and manufacturing activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including small quantities of acetonitrile, methanol, ethanol, ethidium bromide and compressed gases, and other hazardous compounds. We and our collaboration partners, manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products.

Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and interrupt our business operations.

We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, and the handling of biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. For claims not covered by workers’ compensation insurance, we also maintain an employer’s liability insurance policy in the amount of $1.0 million per occurrence and in the aggregate. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.

Environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. Any inability to comply with environmental laws and regulations may adversely affect our business and operating results.

Changes in accounting principles, or interpretations thereof, could have a significant impact on our financial position and results of operations.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, referred to as GAAP. These principles are subject to interpretation by the Securities and Exchange Commission (SEC) and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls.

It is not clear if or when these potential changes in accounting principles may become effective, whether we have the proper systems and controls in place to accommodate such changes and the impact that any such changes may have on our financial position and results of operations.

Even if PF708, Px563L/RPA563 or any of our other product candidates obtain regulatory approval, they may never achieve market acceptance or commercial success.

Even if we obtain FDA or other regulatory approvals, PF708, Px563L/RPA563 or any of our other product candidates may not achieve market acceptance among physicians and patients, and may not be commercially successful. The degree and rate of market acceptance of PF708, Px563L/RPA563 or any of our other product candidates for which we receive approval depends on a number of factors, including:

 

   

the performance of our collaboration partners, including Alvogen, Jazz, and NT Pharma;

 

   

the safety and efficacy of the product as demonstrated in clinical trials;

 

   

the clinical indications for which the product is approved;

 

   

acceptance by physicians, major operators of clinics and patients of the product as a safe and effective treatment;

 

   

proper training and administration of our products by physicians and medical staff;

 

   

the potential and perceived advantages of our products over alternative treatments;

 

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the cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part of physicians and patients;

 

   

relative convenience and ease of administration;

 

   

the prevalence and severity of adverse events; and

 

   

the effectiveness of our sales and marketing efforts.

Any failure by our product candidates that obtain regulatory approval to achieve market acceptance or commercial success would materially adversely affect our results of operations and delay, prevent or limit our ability to generate revenue and continue our business.

Risks Relating to our Reliance on Third Parties

We rely on third parties, and in some cases a single third party, to manufacture nonclinical and clinical supplies of our product candidates, supply key materials to manufacture our product candidates, and to store critical components of our product candidates for us. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product candidates, or fail to do so at acceptable quality levels or prices.

We do not currently have the infrastructure or capability internally to manufacture supplies of our product candidates for use in clinical studies, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on third-party manufacturers, including with respect to PF708, to manufacture our product candidates for preclinical and clinical studies. Successfully transferring complicated manufacturing techniques to manufacturing organizations and scaling up these techniques for commercial quantities will be time consuming and we may not be able to achieve such transfer. Moreover, the market for contract manufacturing services for protein therapeutics is highly cyclical, with periods of relatively abundant capacity alternating with periods in which there is little available capacity. If our need for contract manufacturing services increases during a period of industry-wide production capacity shortage, we may not be able to produce our product candidates on a timely basis or on commercially viable terms. Although we generally do not begin a clinical study unless we believe we have a sufficient supply of a product candidate to complete such study, any significant delay or discontinuation in the supply of a product candidate for an ongoing clinical study due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing, and potential regulatory approval of our product candidates, which could harm our business and results of operations.

Reliance on third-party manufacturers entails additional risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing agreement by the third party, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition, third-party manufacturers may not be able to comply with cGMP, or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions, untitled or warning letters, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates or any other product candidates or products that we may develop. Any failure or refusal to supply the components for our product candidates that are being developed could delay, prevent or impair clinical development or commercialization efforts. If our manufacturers were to breach or terminate their manufacturing arrangements with us, the development or commercialization of the affected products or product candidates could be delayed, which could have an adverse effect on our business. Any change in our manufacturers could be costly because the commercial terms of any new arrangement could be less favorable and because the expenses relating to the transfer of necessary technology and processes could be significant.

If PF708 or any of our other product candidates are approved, in order to produce the quantities necessary to meet anticipated market demand, any manufacturer that we and our collaboration partners engage may need to increase manufacturing capacity. If we, our collaboration partners, or our manufacturers are unable to produce PF708 or any of our product candidates in sufficient quantities to meet the requirements for the launch of these products or to meet future demand, our revenue and gross margins could be adversely affected. Although we currently believe that we, our collaboration partners, and our manufacturers will not have any material supply issues, we cannot be certain that we will be able to obtain long-term supply arrangements for PF708 or any of our other product candidates or materials used to produce such product candidate on acceptable terms, if at all. If we are unable to arrange for third-party manufacturing, or to do so on commercially reasonable terms, we may not be able to complete development of or market PF708 or any of our other product candidates.

 

 

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Any significant disruption in our supplier relationships could harm our business. We source key materials from third parties, either directly through agreements with suppliers or indirectly through our manufacturers who have agreements with suppliers. There are a small number of suppliers for certain capital equipment and key materials that are used to manufacture our product candidates. Such suppliers may not sell these key materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these key materials by our manufacturers. Any significant delay in the supply of a product candidate or its key materials for an ongoing clinical study could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidate. If our manufacturers, collaboration partners, or we are unable to purchase these key materials for our product candidates after regulatory approval, the commercial launch of our product candidates could be delayed or there could be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.

We also rely on third parties to store master and working cell banks for our product candidates. We have master and working cell banks and believe we would have adequate backup should any cell bank be lost in a catastrophic event. However, it is possible that we could lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks, which could materially and adversely affect our business, financial condition and results of operations.

We have no experience manufacturing our product candidates on a large clinical or commercial scale and have no manufacturing facility. We are dependent on single source third-party contract manufacturing organizations for the manufacture and supply of PF708.

We do not own or operate facilities for the manufacture of any of our product candidates, including PF708. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. For PF708, we currently rely on several single source contract manufacturing organizations, or CMOs. To meet our projected increased needs for supplies of our product candidates to support our activities through regulatory approval and commercial manufacturing, the CMOs with whom we currently work will need to increase the scale of production. In addition, the CMO on which we principally rely has limited experience manufacturing products on a commercial scale.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including reliance on the third-party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third-party because of factors beyond our control, including a failure to manufacture any products we may eventually commercialize in accordance with our specifications, and the possibility of termination or nonrenewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that any products that we may eventually commercialize be manufactured according to cGMPs and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMPs or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to delay in, or failure to obtain, regulatory approval of our product candidates. In addition, failure to comply with cGMPs could be the basis for the FDA to issue a warning letter, withdraw approvals for product candidates previously granted to us, or take other regulatory or legal action, including recall or seizure of outside supplies of the product candidate, total or partial suspension of production, suspension of on-going clinical trials, refusal to approve pending applications or supplemental applications, detention of product, refusal to permit the import or export of products, injunction, or imposing civil and criminal penalties.

If we receive FDA approval for PF708, Alvogen will be obligated to use diligent efforts to continue to develop, manufacture and commercialize PF708 in the United States at Alvogen’s cost and expense. Before PF708 can be approved, the manufacturing facilities for both the active pharmaceutical ingredient, or API, and finished pharmaceutical product, will be inspected by the FDA for compliance with cGMPs. If third-party manufacturers fail to pass these preapproval inspections, our NDA will not be approved or will be significantly delayed until compliance can be demonstrated. We and Alvogen have not yet identified alternate suppliers for PF708, or any other product candidate, in the event the current CMOs we utilize are unable to scale to commercial production, pass required preapproval inspections, or if we otherwise experience any problems with them. Although we believe alternative third-party suppliers with the necessary manufacturing and regulatory expertise and facilities exist, it would be expensive and take a significant amount of time to arrange for, and qualify, alternative suppliers. Furthermore, if we and Alvogen are required to identify, qualify and contract with new manufacturing suppliers of PF708, we and Alvogen would need to demonstrate to the satisfaction of the FDA in a bridging study that any new supply of PF708 is substantially the same as the PF708 used in our clinical trials. Any bridging study may require further clinical testing, including testing in patients. We cannot assure you that we can arrange for alternative third-party manufacturing sources for PF708, or any other product candidate, on commercially reasonable terms or in a timely manner, or that such manufacturers will be capable of manufacturing PF708, or any other product candidate, in compliance with cGMPs and to FDA’s satisfaction.

 

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Any significant disruption in our supplier relationships could harm our business. Any significant delay in the supply of a product candidate or its key materials for an ongoing clinical study could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.

We are substantially dependent on the expertise of Alvogen, Jazz, and NT Pharma to develop and commercialize certain product candidates. If we fail to maintain our current strategic relationship with Alvogen, Jazz, NT Pharma, or with any future collaboration partner, our business, commercialization prospects and financial condition may be materially adversely affected.

Because we have limited capabilities for late-stage product development, manufacturing, sales, marketing and distribution, we may need to enter into alliances with other companies to develop our product candidates. For example, to commercialize PF708, we have entered into collaboration agreements with Alvogen and NT Pharma and the prospects for PF708 depend in part on the expertise, development and commercial skills, and financial strength of Alvogen and NT Pharma. Under the Alvogen agreement, Alvogen has the exclusive right to commercialize and manufacture PF708 in the United States. Under the NT Pharma agreement, we granted an exclusive license to NT Pharma to commercialize PF708 in certain Asian countries and a non-exclusive license to conduct development activities in such territories with respect to PF708. In addition, we entered into an agreement with Jazz, pursuant to which we have transferred the development, manufacturing and commercialization of certain product candidates.

In February 2015, we entered into a development and license agreement with Pfizer to develop and commercialize PF582. In August 2016, we entered into a termination agreement with Pfizer pursuant to which the development and license agreement was terminated and all rights to PF582 have been returned to us. The termination accelerated recognition of $45.8 million of revenue that had been previously deferred and we will not recognize any additional future revenue under the Pfizer development and license agreement. Following our strategic review in November 2017, we decided to pause our development activities for PF582 and focus our efforts and resources elsewhere in our product portfolio. While we are seeking a new collaboration partner for the development and commercialization of PF582, there are no assurances that we will find a new collaboration partner or that the terms and timing of any such arrangements would be acceptable to us.

In addition, in August of 2017, we and Strides Arcolab entered into a termination agreement pursuant to which our joint venture was terminated. While there was no activity under the joint venture with Strides Arcolab to date, following the termination we solely own the product candidates that were previously subject to the joint venture with Strides Arcolab.

In July 2016, we entered into a license and option agreement with Jazz, pursuant to which we and Jazz are collaboratively developing hematology/oncology products, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology, and Jazz has the exclusive right to manufacture and commercialize such products throughout the world. In December 2017, we amended the agreement. We may be eligible to receive additional payments under the amended agreement of up to $188.5 million based on achievement of certain research and development, regulatory and sales-related milestones, bringing the total value of payments and potential payments associated with the collaboration to $224.5 million. In addition, we may be eligible to receive tiered royalties on worldwide sales of any products resulting from the collaboration at rates reduced from those under the 2016 agreement.

The prospects for the product candidates developed under this collaboration depend on the expertise, development and commercial skills, and financial strength of Alvogen, Jazz, and NT Pharma. Our collaborations with Alvogen, Jazz, NT Pharma. or any future collaboration partner may not be successful, and we may not realize the expected benefits from such collaborations, due to a number of important factors, including but not limited to the following:

 

   

Alvogen, Jazz, NT Pharma, or any future collaboration partner may terminate their agreements with us prior to completing development or commercialization of the product candidates under the collaboration, in whole or in part, adversely impacting the potential approval and our revenue from licensed products;

 

   

the timing and amount of any payments we may receive under these agreements will depend on, among other things, the efforts, allocation of resources, and successful commercialization of the relevant product candidates by Alvogen, Jazz, NT Pharma, or any future collaboration partner, as applicable, under our agreements;

 

   

the timing and amounts of expense reimbursement that we may receive are uncertain; or

 

   

Alvogen, Jazz, NT Pharma, or any future collaboration partner may change the focus of their development or commercialization efforts or pursue or emphasize higher priority programs.

 

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A failure of Alvogen, Jazz, NT Pharma or any future collaboration partner to successfully develop our product candidates which are covered by the collaboration, or commercialize such product candidates, or the termination of our agreements with Alvogen, Jazz, NT Pharma, or any future collaboration partner, as applicable, may have a material adverse effect on our business, results of operations and financial condition.

Our existing product development and/or commercialization arrangements, and any that we may enter into in the future, may not be successful, which could adversely affect our ability to develop and commercialize our product candidates.

We are a party to, and continue to seek additional, collaboration arrangements with other pharmaceutical companies for the development and/or commercialization of our current and future product candidates. In such alliances, we would expect our collaboration partners to provide substantial capabilities in clinical development, manufacturing, regulatory affairs, sales and marketing, both in the United States and internationally. For example, to commercialize PF708, we have entered into collaboration agreements with Alvogen and NT Pharma and the prospects for PF708 depend in part on the expertise, development and commercial skills, and financial strength of Alvogen and NT Pharma. Under the Alvogen agreement, Alvogen has the exclusive right to commercialize and manufacture PF708 in the United States. Under the NT Pharma agreement, we granted an exclusive license to NT Pharma to commercialize PF708 in certain Asian countries and a non-exclusive license to conduct development activities in such territories with respect to PF708.

For example, following our strategic review in November 2017, we decided to pause development activities for PF582 and PF529 and focus our efforts and resources elsewhere in our product portfolio. While we are seeking a new collaboration partner for the development and commercialization of PF582 and PF529, there are no assurances that we will find a new collaboration partner or that the terms and timing of any such arrangements would be acceptable to us. To the extent that we decide to enter into additional collaboration agreements, we will face significant competition in seeking appropriate collaboration partners. Any failure to meet our clinical milestones with respect to an unpartnered product candidate would make finding a collaboration partner more difficult. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement, and we cannot guarantee that we can successfully maintain such relationships or that the terms of such arrangements will be favorable to us. If we fail to maintain, establish and implement collaboration or other alternative arrangements, the value of our business and operating results will be adversely affected.

We may not be successful in our efforts to establish, implement and maintain collaborations or other alternative arrangements if we choose to enter into such arrangements. The terms of any collaboration or other arrangements that we may establish may not be favorable to us. The management of collaborations may take significant time and resources that distract our management from other matters. Our ability to successfully collaborate with any current or future collaboration partners may be impaired by multiple factors including:

 

   

a collaboration partner may shift its priorities and resources away from our programs due to a change in business strategies, or a merger, acquisition, sale or downsizing of its company or business unit;

 

   

a collaboration partner may cease development in therapeutic areas which are the subject of alliances with us;

 

   

a collaboration partner may change the success criteria for a particular program or product candidate thereby delaying or ceasing development of such program or candidate;

 

   

a significant delay in initiation of certain development activities by a collaboration partner will also delay payments tied to such activities, thereby impacting our ability to fund our own activities;

 

   

a collaboration partner could develop a product that competes, either directly or indirectly, with our current or future products, if any;

 

   

a collaboration partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;

 

   

a collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;

 

   

a collaboration partner may exercise its rights under the agreement to terminate our collaboration;

 

   

a dispute may arise between us and a collaboration partner concerning the research or development of a product candidate or commercialization of a product resulting in a delay in milestones, royalty payments or termination of a program and possibly resulting in costly litigation or arbitration which may divert management attention and resources;

 

   

the results of our clinical trials may not match our collaboration partners’ expectations, even if statistically significant;

 

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a collaboration partner may not adequately protect or enforce the intellectual property rights associated with a product or product candidate; and

 

   

a collaboration partner may use our proprietary information or intellectual property in such a way as to invite litigation from a third party.

Any such activities by our current or future collaboration partners could adversely affect us financially and could harm our business reputation.

In addition to product development and commercialization capabilities, we may depend on our alliances with other companies to provide substantial additional funding for development and potential commercialization of our product candidates. We may not be able to obtain funding on favorable terms from these alliances, and if we are not successful in doing so, we may not have sufficient funds to develop a particular product candidate internally, or to bring product candidates to market. Failure to bring our product candidates to market will prevent us from generating sales revenue, and this may substantially harm our business. Furthermore, any delay in entering into these alliances could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. As a result, our business and operating results may be adversely affected.

We rely on CROs to conduct and oversee our planned clinical trials for our product candidates and other clinical trials for product candidates we are developing or may develop in the future. If our CROs do not successfully carry out their contractual duties, meet expected deadlines, or otherwise conduct the trials as required or comply with regulatory requirements, or if our relationship with our CRO terminates, we and our collaboration partners may not be able to seek or obtain regulatory approval for or commercialize our product candidates when expected or at all, and our business could be substantially harmed.

We will continue to rely upon medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and in accordance with applicable legal and regulatory requirements. These third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. These third parties are not our employees, and except for remedies available to us under our agreements with such third parties, there is no guarantee that any such third party will devote adequate time and resources to our clinical trial. If our CRO or any other third parties upon which we rely for administration and conduct of our clinical trials do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, or if they otherwise perform in a substandard manner, our clinical trials may be extended, delayed, suspended or terminated, and we may not be able to complete development of, seek or obtain regulatory approval for, or successfully commercialize our product candidates. We plan to rely heavily on these third parties for the execution of clinical trials for products we are developing or may develop in the future, and will control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on our CRO does not relieve us of our regulatory responsibilities.

We, our CRO and our collaboration partners are required to comply with Good Clinical Practice (GCP), which are regulations and guidelines enforced by regulatory authorities around the world for products in clinical development. Regulatory authorities enforce these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we, our CRO or our collaboration partners fail to comply with applicable GCP regulations, the clinical data generated in clinical trials may be deemed unreliable and submission of marketing applications may be delayed or the regulatory authorities may require us to perform additional clinical trials before accepting our applications for review or approving marketing applications. We cannot assure that, upon inspection, a regulatory authority will determine that any of our clinical trials comply or complied with applicable GCP regulations. In addition, clinical trials must be conducted with product produced under current Good Manufacturing Practices (cGMP) regulations, which are enforced by regulatory authorities. Any failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if our CRO violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Comparative clinical trials require a substantial number of patients that can form the basis for generating statistically significant results. Delays in site initiation or unexpectedly low patient enrollment rates may delay the results of the clinical trial. CROs may also generate higher costs than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed. Further, if our relationship with our CRO is terminated, we may be unable to enter into arrangements with an alternative CRO on commercially reasonable terms, or at all. Switching or adding CROs can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Although we carefully manage our relationship with our CROs, there can be no assurance that we will not encounter such challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, prospects, financial condition or results of operations.

 

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We rely on third-party suppliers, and in some instances a single third-party supplier, for the manufacture and supply of certain materials in our protein production services, and these suppliers could cease to manufacture the materials, go out of business or otherwise not perform as anticipated.

We rely on third-party suppliers for our protein production services and in some instances a single third-party supplier, for the manufacture and supply of certain materials. We currently rely, and expect to continue to rely, on a single-source supplier for the manufacture and supply of CRM197. To meet these demands, our supplier is in the process of increasing production capacity, and we also have established a repository in the United States that is capable of storing a safety supply of CRM197 and the CRM197 cell bank. Furthermore, we have taken steps to identify alternate sources of supply sufficient to support future needs; however, there may be delays in switching to these alternative suppliers if our contract with primary sources are terminated without notice. Regardless of the foregoing alternative measures, we cannot guarantee that we will have an adequate supply of CRM197. If we are unable to secure adequate quantities of CRM197 from our primary supplier, from potential secondary suppliers or from our safety supply, we may be required to identify additional suppliers. If we are required to engage additional suppliers, we may not be able to enter into an alternative supply arrangement on commercially reasonable terms, or at all. Even if we are able to identify additional suppliers and enter into agreements on commercially reasonable terms, we may incur delays associated with identifying and qualifying additional suppliers and negotiating the terms of any supply contracts. These delays could adversely impact our business and negatively affect profitability of our protein production services.

We have entered into collaborations with third parties in connection with the development of certain of our product candidates. Even if we believe that the development of our technology and product candidates is promising, our partners may choose not to proceed with such development.

Our existing agreements with our collaboration partners, Alvogen, Jazz, and NT Pharma, and any future collaboration agreements we may enter into, are generally subject to termination by the counterparty on short notice upon the occurrence of certain circumstances. Accordingly, even if we believe that the development of product candidates is worth pursuing, our partners may choose not to continue with such development. If any of our collaborations are terminated, such as the termination of our collaboration with Pfizer in August 2016 and the termination of the joint venture agreement with Strides Arcolab in August 2017, we may be required to devote additional resources to the development of our product candidates or seek a new collaboration partner on short notice, and the terms of any additional collaboration or other arrangements that we establish may not be favorable to us.

We are also at risk that our current and any potential collaborations or other arrangements may not be successful. Factors that may affect the success of our collaborations include the following:

 

   

our collaboration partners may incur financial and cash flow difficulties that force them to limit or reduce their participation in our joint projects;

 

   

our collaboration partners may be pursuing alternative technologies or developing alternative products that are competitive to our technology and products, either on their own or in partnership with others;

 

   

our collaboration partners may terminate their collaboration with us, which could make it difficult for us to attract new partners or adversely affect perception of us in the business and financial communities; and

 

   

our collaboration partners may pursue higher priority programs or change the focus of their development programs, which could affect their commitment to us.

If we cannot maintain successful collaborations, our business, financial condition and operating results may be adversely affected.

If we are unable to maintain our commercial supply agreements with key customers purchasing CRM197 or if third-party distributors of our reagent proteins fail to perform as expected, sales revenue could decline.

We primarily sell CRM197 directly to biopharmaceutical companies and currently have several commercial supply agreements in place for long-term supply of CRM197. To establish and maintain relationships with customers, we believe we need to maintain adequate supplies of CRM197, remain price competitive, comply with regulatory regulations and provide high quality products. If we are unable to establish and maintain arrangements for the sale of CRM197, our revenue and profits would decline.

Although we sell our protein reagents through multiple sales channels, including our ecommerce website, we also sell our protein reagents to some of our customers through third-party distributors. Many of such third parties also market and sell products from our competitors. Our third-party distributors may terminate their relationships with us at any time, or with short notice. Our future performance will also depend, in part, on our ability to attract additional third-party distributors that will be able to market protein reagents effectively, especially in markets in which we have not previously distributed our protein reagents. If our current third-party distributors fail to perform as expected, our revenue and results of operations could be harmed.

 

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Risks Relating to Our Intellectual Property

Our collaboration partners and other third parties may assert ownership or commercial rights to inventions we develop from our use of the materials which they provide to us, or otherwise arising from our collaboration.

We collaborate with other companies and institutions with respect to research and development matters. Also, we rely on numerous third parties to provide us with materials that we use to develop our technology. If we cannot successfully negotiate sufficient ownership, licensing and/or commercial rights to any inventions that result from our use of any third-party collaborator’s materials, or if disputes arise with respect to the intellectual property developed with the use of a collaborator’s materials, or data developed in a collaborator’s study, our ability to capitalize on the market potential of these inventions or developments may be limited or precluded altogether.

If our efforts to protect our intellectual property related to our platform technology and our current or future product candidates are not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our current product candidates and our development programs. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. In particular, our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our platform and product candidates. However, we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, eroding our competitive position in our market.

The patentability of inventions, and the validity, enforceability and scope of patents in the biotechnology and pharmaceutical industry involve complex legal and scientific questions and can be uncertain. This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law in ways affecting the scope or validity of issued patents. The patent applications that we own or license may fail to result in issued patents in the United States or foreign countries. There is a substantial amount of prior art in the biotechnology and pharmaceutical fields, including scientific publications, patents and patent applications. Our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. We may be unaware of certain prior art relating to our patent applications and patents, which could prevent a patent from issuing from a pending patent application, or result in an issued patent being invalidated. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope of such issued patents or any other issued patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable.

Patents granted by the European Patent Office may be opposed by any person within nine months from the publication of their grant and, in addition, may be challenged before national courts at any time. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents and patent applications we hold, license or pursue with respect to our product candidates is threatened, it could threaten our ability to commercialize our product candidates. In addition, recent changes to the patent laws of the United States provide additional procedures for third parties to challenge the validity of issued patents based on patent applications filed after March 15, 2013. If the breadth or strength of protection provided by the patents and patent applications we hold or pursue with respect to our current or future product candidates is challenged, then it could threaten our ability to commercialize our current or future product candidates, and could threaten our ability to prevent competitive products from being marketed. Further, if we encounter delays in our clinical trials, the period of time during which we could market our current or future product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (i) file any patent application related to our product candidates, or (ii) invent any of the inventions claimed in our patents or patent applications. Furthermore, for applications filed before March 16, 2013, or patents issuing from such applications, an interference proceeding can be provoked by a third party, or instituted by the United States Patent and Trademark Office (USPTO), to determine who was the first to invent any of the subject matter covered by the patent claims of our applications and patents. As of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. The change to “first-to-file” from “first-to-invent” is one of the changes to the patent laws of the United States resulting from the Leahy-Smith America Invents Act (Leahy-Smith Act) signed into law on September 16, 2011. Among some of the other significant changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. It is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

 

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Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have.

Even if PF708 is approved by the FDA or the EMA we may be delayed in selling PF708 due to direct or indirect legal challenges.

Even if PF708 receives marketing approval in the U.S. or the EU, we may also be subject to direct legal challenges from Eli Lilly and Company, the manufacturer of Forteo, and we could be delayed or prevented from launching PF708 as a result of court orders, regulatory stays, or the time necessary to resolve such challenges. For instance, we are aware of at least one recent instance of a third party being subject to litigation initiated by Eli Lilly and Company on a product purporting to be a generic version of Eli Lilly’s Forteo (teriparatide [rDNA origin] injection) product. Similarly, we may be subject to indirect legal challenges in the U.S. as a result of new executive orders from the President of the United States or the amendment or reversal of various laws by the U.S. Congress that govern or impact the approval of products being developed pursuant to the 505(b)(2) pathway, including the Hatch-Waxman Act, which in aggregate may cause a delay in or prevent the approval or commercial launch of PF708.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

In addition to the protection afforded by patents, we also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain or enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents.

As part of our efforts to protect our trade secrets and other confidential information, we require our employees, consultants, collaborators and advisors to execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. We also note in this respect that trade secret protection in foreign countries may not provide protection to the same extent as federal and state laws in the United States. A breach of confidentiality could significantly affect our competitive position. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators or advisors have previous employment or consulting relationships. To the extent that our employees, consultants or contractors use any intellectual property owned by others in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions. Also, third parties, including our competitors, may independently develop substantially equivalent proprietary information and technologies or otherwise lawfully gain access to our trade secrets and other confidential information. In such a case, we would have no right to prevent such third parties from using such proprietary information or technologies to compete with us, which could harm our competitive position.

If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed.

Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents owned or controlled by other parties. Our competitors have developed large portfolios of patents and patent applications in fields relating to our business and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. There may also be patent applications that have been filed but not published that, when issued as patents, could be asserted against us. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving that a patent is invalid is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Also in proceedings before courts in Europe, the burden of proving invalidity of the patent usually rests on the party alleging invalidity. Third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

 

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As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation or post-grant proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or future products. Third parties may submit applications for patent term extensions in the United States and/or supplementary protection certificates in the EU member States seeking to extend certain patent protection which, if approved, may interfere with or delay the launch of one or more of our biosimilar or vaccine products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations. We may become involved in lawsuits to protect or enforce our inventions, patents or other intellectual property or the patents of our licensors, which could be expensive and time consuming.

Competitors may infringe our intellectual property, including our patents or the patents of our licensors. In addition, one or more of our third-party collaborators may have submitted, or may in the future submit, a patent application to the USPTO without naming a lawful inventor that developed the subject matter in whole or in part while under an obligation to execute an assignment of rights to us. As a result, we may be required to file infringement or inventorship claims to stop third-party infringement, unauthorized use, or to correct inventorship. This can be expensive, particularly for a company of our size, and time-consuming. Any claims that we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property rights. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied.

An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference, derivation or other proceedings brought at the USPTO or any foreign patent authority may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or collaborators. Litigation or USPTO proceedings brought by us may fail. An unfavorable outcome in any such proceedings could require us to cease using the related technology or to attempt to license rights to it from the prevailing party, or could cause us to lose valuable intellectual property rights. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or collaborators, to prevent misappropriation of our trade secrets, confidential information or proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.

We may not be able to globally protect our intellectual property rights.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States and in some cases, may even force us to grant a compulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.

 

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Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreign intellectual property laws.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to use our technologies and this circumstance would have a material adverse effect on our business.

We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets of former or other employers.

Many of our employees and consultants, including our senior management, have been employed or retained by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees or consultants have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s or consultant’s former or other employer. We are not aware of any material threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to Government Regulation

The approval processes of the FDA, EMA, and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we and our collaborators are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The research, development, testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, marketing, distribution, post-approval monitoring and reporting, and export and import of drug and biologic products are subject to extensive regulation by the FDA and other regulatory authorities in the United States, by the EMA and Competent Authorities of the Member States of the EEA, and by other regulatory authorities in other countries, which regulations differ from country to country. Neither we nor any collaboration partner is permitted to market PF708, Px563L/RPA563 or any other product candidates in the United States until approval from the FDA is received, or in the EEA until we receive European Commission authorization or approval from one or more Competent Authorities of the Member States of the EEA, as applicable. The time required to obtain approval from regulatory

 

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authorities is unpredictable, typically takes many years following the commencement of clinical trials, and depends upon numerous factors, including the substantial discretion of such regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the filing of an application and/or the approval or the decision not to approve an application. We and our collaboration partners have not submitted any market application to regulatory authorities or obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Applications for our product candidates could fail to receive regulatory approval or their regulatory approval could be delayed for many reasons, including but not limited to the following:

 

   

the data collected from clinical studies of our product candidates may not be sufficient to support the submission of a Biologics License Application (BLA) under the section 351(a) pathway of the PHSA; an NDA under the section 505(b)(2) of the Food, Drug, and Cosmetic Act; a BLA for a biosimilar product application under the section 351(k) pathway of the PHSA, a biosimilar marketing authorization under Article 6 of Regulation (EC) No. 726/2004 and/or Article 10(4) of Directive 2001/83/EC in the EEA, or other submission or to obtain regulatory approval in the United States, the EEA, or elsewhere;

 

   

regulatory authorities may disagree with the design (including the duration) or implementation of our clinical trials and may, at any time, determine that the regulatory pathway that we have committed to for PF708, Px563L/RPA563 or any other product candidate is inappropriate;

 

   

the population studied in the clinical program may not be sufficiently broad or representative to assure efficacy and safety in the full population for which we seek approval;

 

   

regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

   

we may be unable to demonstrate to the satisfaction of regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;

 

   

regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with whom we contract for clinical and commercial supplies; and

 

   

the approval policies or regulations of regulatory authorities may significantly change in a manner that renders our clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to seek or obtain regulatory approval to market PF708, Px563L/RPA563 or any other product candidates, which would significantly harm our business, results of operations and prospects. Moreover, any delays in the commencement or completion of clinical testing could significantly impact our product development costs and could result in the need for additional financing.

Our most advanced product development program is PF708. The top-line results announced in May 2018 of our Study PF708-301, which will be used to support regulatory approval, showed comparable overall profiles between PF708 and Forteo after 24 weeks of daily injection in osteoporosis patients. The primary end point for Study PF708-301 is anti-drug anti-body formation after 24 weeks of drug treatment. The secondary end points are changes in bone mineral density and bone turnover markers after 24 weeks of drug treatment, as well as PK parameters for up to 4 hours after the first dose. FDA has indicated that if the outcome of the immunogenicity primary end point is not sufficiently positive, 12-month data bone mineral density data may be necessary to support regulatory approval of PF708, which would add time, expense, and uncertainty to the development of PF708. We cannot provide assurances that immunogenicity data generated in Study 708-301, even if successful, will not require us to generate additional bone mineral density data to support the submission or approval of an NDA, or that submission of such additional data will ultimately result in approval.

In addition, even if we or our collaboration partners were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than requested, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

 

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If we fail to obtain approval for our most advanced product candidates or if our most advanced product candidates are not commercially successful, we may have to curtail our product development programs and our business would be materially harmed.

We have invested a significant portion of our time, financial resources and efforts in the development of our most advanced product candidates, including PF708 and Px563L/RPA563. The clinical and commercial success of our product candidates will depend on a number of factors, including the following:

 

   

timely and successful completion of all necessary clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the accurate and satisfactory performance of third-party contractors;

 

   

our ability to find suitable collaboration partners to develop our product candidates or our ability to obtain substantial additional sources of funding to develop our product candidates;

 

   

timely receipt of necessary marketing approvals from the FDA, the European Commission, and similar foreign regulatory authorities;

 

   

maintaining an acceptable safety and adverse event profile of our products following approval;

 

   

achieving and maintaining compliance with all regulatory requirements applicable to our product candidates or any approved products;

 

   

making arrangements with third-party manufacturers for, or establishing, commercial manufacturing capabilities;

 

   

launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;

 

   

obtaining and maintaining patent and trade secret protection and regulatory exclusivity, where available, for our product candidates;

 

   

the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;

 

   

acceptance of our products, if and when approved, by patients, the medical community and third-party payors; and

 

   

the ability to raise additional capital on acceptable terms to achieve our goals.

If we and our collaboration partners are unable to seek and obtain regulatory approval for any of our product candidates in a timely manner or at all, we may never realize revenue from these products and we may have to curtail our other product development programs. As a result, our business, financial condition and results of operations would be materially harmed.

Our ability to market our therapeutic equivalent products in the United States may be significantly delayed or prevented by the Hatch-Waxman patent dispute resolution mechanism, including a potential automatic 30-month stay of regulatory approval of our marketing applications.

The Hatch-Waxman Act.  The provisions of Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (FFDCA) were created, in part, to help avoid unnecessary duplication of studies already performed on a previously approved (“reference” or “listed”) drug; the section gives NDA applicants express permission to rely on data not developed or owned by the applicant. Indeed, an NDA filed under Section 505(b)(2) is one for which one or more of the investigations relied upon by the applicant for approval were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. We are pursuing a Section 505(b)(2) regulatory strategy for our PF708 product candidate and we plan to reference Forteo (teriparatide), marketed by Eli Lilly for the treatment of osteoporosis, as our listed drug. It is possible that for one reason or another, we will not be able to establish that our PF708 product candidate is suitable for approval under the Section 505(b)(2) framework. In addition, to the extent we rely on certain data and information that was submitted to the FDA related to the safety of Forteo, the FDA will likely require any approved labeling for PF708 to include certain safety information that is included in the Forteo label, including contraindications, warnings, precautions and other safety information.

The owner of an NDA for a branded drug product must list with the FDA certain patents with claims that cover the applicant’s branded product. Each of the patents listed in the application for the drug is then published in the Orange Book. Any applicant who files a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA that: (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA, referred to as a Paragraph I Certification; (2) such patent has expired, referred to as a Paragraph II Certification; (3) the date on which such patent expires, referred to as a Paragraph III Certification; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted, referred to as a Paragraph IV Certification.

 

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The applicant may also elect to submit a “section viii” statement certifying that its proposed label does not contain, or carves out, any language regarding a patented method-of-use rather than certify to a listed method-of-use patent. An applicant submitting a Paragraph IV Certification must provide notice to each owner of the patent that is the subject of the certification and to the holder of the approved branded drug to which the 505(b)(2) application references. If the reference drug application holder and patent owners file a lawsuit directed to one of the Orange Book listed patents within 45 days of the receipt of the Paragraph IV Certification notice, the FDA is prohibited from approving the 505(b)(2) application until the earlier of 30 months from the receipt of the Paragraph IV Certification, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the applicant. Given the anticipated timing for submitting our 505(b)(2) NDA for PF708 and the expiration dates for patents currently listed in the Orange Book with Forteo, we likely will be making a Paragraph IV certification with regard to one of the patents, which means we may face litigation and a 30 month stay. It is possible that litigation will not be brought, or if brought will be resolved in less than 30 months, but if we are sued and the case is not resolved, we could face a delay in the launch of PF708, if it is approved. Non-Patent  Exclusivity and Approval of Competing Products . Additionally, non-patent exclusivity provisions under the FFDCA can delay the submission or the approval of a 505(b)(2) application or an ANDA. For example, a pharmaceutical manufacturer may obtain five years of non-patent exclusivity upon NDA approval of a new chemical entity (NCE), which is a drug that contains an active moiety that has not been approved by the FDA in any other NDA. An “active moiety” is defined as the molecule or ion responsible for the drug substance’s physiological or pharmacologic action, excluding any part of the molecule that is a salt, ester, or non-covalent derivative. During the five-year exclusivity period, the FDA cannot accept for filing any 505(b)(2) application or any ANDA for the same active moiety; the FDA may accept an application for filing after four years if the 505(b)(2) or ANDA applicant makes a Paragraph IV Certification. An application or supplemental application for a drug that is not a new active moiety may obtain a three-year period of exclusivity for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical trials, other than bioavailability or bioequivalence studies, was essential to the approval of the application and was conducted or sponsored by the applicant. Should this occur, the FDA would be precluded from approving any 505(b)(2) NDA or ANDA for the same condition of approval until after the three-year exclusivity period has run. However, unlike NCE exclusivity, the FDA can accept an application and begin the review process during the entire exclusivity period. We do not expect that PF708 will be subject to such exclusivity as all relevant exclusivity periods for the listed drug, Forteo, have expired.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Furthermore, we rely on our collaboration partners, CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials for our product candidates. While we have agreements governing the committed activities of our collaboration partners and CROs, we have limited influence over their actual performance. A failure of one or more clinical trials can occur at any time during the trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates that have shown promising results in early studies may still suffer significant setbacks in subsequent clinical studies. For example, the results generated to date in the clinical trial for PF708 do not ensure that later clinical trials will demonstrate similar results. There is a high failure rate for drugs and biologics proceeding through clinical studies, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier clinical trials, and we cannot be certain that we will not face similar setbacks. Even if the clinical trials for our product candidates are completed, nonclinical and clinical data are often susceptible to varying interpretations and analyses, and the results may not be sufficient to obtain regulatory approval for our product candidates.

We have in the past and may in the future experience delays in ongoing clinical trials for our product candidates, and we do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. The commencement or completion of clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:

 

   

generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of human clinical studies;

 

   

raise sufficient capital to fund a trial;

 

   

obtain regulatory approval, or feedback on trial design, necessary to commence a trial;

 

   

identify, recruit and train suitable clinical investigators;

 

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reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

obtain institutional review board (IRB) approval or Ethics Committee (EC) positive opinion, as applicable at each site;

 

   

identify, recruit, and enroll suitable patients to participate in a trial;

 

   

have patients complete a trial or return for post-treatment follow-up;

 

   

ensure clinical sites observe trial protocol or continue to participate in a trial;

 

   

address any patient safety concerns that arise during the course of a trial;

 

   

address any conflicts with new or existing laws or regulations;

 

   

add a sufficient number of clinical trial sites;

 

   

manufacture sufficient quantities of product candidate for use in clinical trials; and

 

   

avoid delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies, or the inability to do any of the foregoing.

Patient enrollment is a significant factor in the completion of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or the ECs of the institutions in which such trials are being conducted, by the data safety monitoring board, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

If we or our collaboration partners experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenue from any of these product candidates will be delayed. In addition, any delays in completing clinical trials for our product candidates will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

The development, manufacture and commercialization of biosimilar, therapeutic equivalent, and vaccine products pose unique risks, and our failure to successfully introduce biosimilar, therapeutic equivalent products, and vaccine products could have a negative impact on our business and future operating results.

We are actively working to develop multiple biosimilar, therapeutic equivalent products and vaccines, including our most advanced product candidates, PF708 and Px563L/RPA563. The cost to develop each biosimilar, proposed therapeutic equivalent drug, and vaccine product candidate could vary significantly and is highly dependent on the specific compound and the amount and type of clinical work that will be necessary for regulatory approval. There can be no assurance that our clinical work will be successful, or that regulatory authorities will not require additional clinical development beyond that which we have planned. Additionally, we may enter into alliances and collaborations to fund biosimilar and therapeutic equivalent product research and development activities, and the success of any such biosimilar or therapeutic equivalent product program may depend on our ability to realize the benefits under such arrangements. Due to events beyond our control or the risks identified herein, we may be unable to fund all or some of our internal biosimilar, therapeutic equivalent, and vaccine product research and development initiatives, which would have an adverse impact on our strategy and growth initiatives.

 

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We intend to pursue market authorization globally when commercially appropriate. Since October 2005, the EU has had a regulatory framework for the authorization of biosimilar products and as of June 30, 2018, forty-four biosimilar medicinal products, less three subsequently withdrawn, have been approved. In the United States, an abbreviated pathway for approval of biosimilar products was established by the BPCIA, enacted on March 23, 2010, as part of the ACA. The BPCIA established this abbreviated pathway under section 351(k) of the PHSA. Subsequent to the enactment of the BPCIA, the FDA issued draft guidance regarding the demonstration of biosimilarity as well as the submission and review of biosimilar applications. However, to date, only eleven biosimilars have been approved by the FDA, and no biosimilar product has been designated as interchangeable to the reference drug. Moreover, market acceptance of biosimilar products in the U.S. is unclear. Numerous states are considering or have already enacted laws that regulate or restrict the substitution by state pharmacies of biosimilars for biological products already licensed by the FDA pursuant to BLAs, or “reference products.” Market success of biosimilar products will depend on demonstrating to patients, physicians, payors, and relevant authorities that such products are safe and efficacious compared to other existing products.

We will continue to analyze and incorporate into our biosimilar development plans any final regulations issued by the FDA, pharmacy substitution policies enacted by state governments, and other applicable requirements established by relevant authorities. The costs of development and approval, along with the probability of success for our biosimilar product candidates, will be dependent upon application of any laws and regulations issued by the relevant regulatory authorities.

Biosimilar products may also be subject to extensive patent clearances and patent infringement litigation, which will likely delay and could prevent the commercial launch of a product. Moreover, the BPCIA prohibits the FDA from accepting an application for a biosimilar candidate to a reference product within four years of the reference product’s licensure by the FDA. In addition, the BPCIA provides innovative biologics with 12 years of exclusivity from the date of their licensure, during which time the FDA cannot approve any application for a biosimilar candidate to the reference product. Although unsuccessful, there have been efforts in the past to reduce the exclusivity period to 7 years. We cannot predict whether similar efforts will be made in the future, or if any such efforts may succeed.

The BPCIA is complex and continues to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning is subject to significant uncertainty. Future implementation decisions by the FDA could result in delays in the development or commercialization of our product candidates or increased costs to assure regulatory compliance, and could adversely affect our operating results by restricting or significantly delaying our ability to market new biosimilar products. In the EEA, holders of marketing authorizations of reference products (for which a marketing authorization was applied for under the centralized procedure after November 20, 2005, or under the Decentralized, Mutual Recognition and national procedures, after October 30, 2005) enjoy eight years of data exclusivity during which a generic or hybrid medicinal product or biosimilar marketing authorization applicant cannot rely on the preclinical and clinical data included in the reference product’s dossier, and 10 years of marketing exclusivity during which a generic or hybrid medicinal product or biosimilar of the reference product cannot be placed in the EEA market. The 10-year marketing exclusivity period can be extended to a maximum of 11 years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. The data and marketing exclusivity periods start from the date of the initial authorization, which for reference medicinal products authorized through the Centralized Procedure is the date of notification of the marketing authorization decision to the marketing authorization holder of the reference product.

We may rely on the Animal Rule in conducting trials, which could be time consuming and expensive.

To obtain FDA approval for our vaccine candidates Px563L and/or RPA563, we may obtain clinical data from trials in healthy human subjects that demonstrate adequate safety, and efficacy data from adequate and well-controlled animal studies under regulations issued by the FDA in 2002, often referred to as the “Animal Rule.” Among other requirements, the animal studies must establish that the drug or biological product is reasonably likely to produce clinical benefits in humans. If we use this approach we may not be able to sufficiently demonstrate this correlation to the satisfaction of the FDA, as these corollaries are difficult to establish and are often unclear. Because the

FDA must agree that data derived from animal studies may be extrapolated to establish safety and effectiveness in humans, seeking approval under the Animal Rule may add significant time, complexity and uncertainty to the testing and approval process. The FDA may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies, refuse to approve Px563L and/or RPA563, or place restrictions on our ability to commercialize the products. In addition, products approved under the Animal Rule are subject to additional requirements including post-marketing study requirements, restrictions imposed on marketing or distribution or requirements to provide information to patients. Further, regulatory authorities in other countries have not, at this time, established an Animal Rule equivalent, and consequently there can be no assurance that we will be able to make a submission for marketing approval in foreign countries based on such animal data.

 

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Additionally, few facilities in the U.S. and internationally may have the capability to test animals involving exposure to anthrax or otherwise assist us in qualifying the requisite animal models, and we must compete with other companies for access to this limited pool of highly specialized resources. We therefore may not be able to secure contracts to conduct the testing in a predictable timeframe or at all.

If the FDA allows generic versions of Forteo to be approved under the ANDA regulatory pathway, PF708 may face additional competition.

PF708, similar to Forteo, is made recombinantly using living cells. In October 2017, however, the FDA issued a draft guidance document that identified standards by which chemically manufactured, or synthetic, versions of Forteo may be approved under the 505(j), or Abbreviated New Drug Application (ANDA), regulatory pathway, which would not require the conduct of a comparative clinical trial in patients for approval of the product. In addition, the FDA has rejected two citizen petitions that sought to prohibit approval of an ANDA for a synthetic version of Forteo. The availability of the ANDA regulatory pathway for synthetic versions of Forteo may result in additional competition for PF708. Additionally, products approved under the ANDA pathway are considered generic drugs, and generally are approved as therapeutic equivalents to the reference product, and therefore may be automatically substituted for the reference listed drug, depending on health care statutes and policies within each of the 50 states. The potential automatic substitution status of these generic products may adversely affect our ability to generate revenue with PF708 after regulatory approval.

If we do not obtain a therapeutic equivalence designation for PF708 from the FDA, our business may suffer.

We are developing PF708 under the 505(b)(2) regulatory pathway in the United States. Additionally, we have received guidance from the FDA on requirements for a therapeutic equivalence designation, which may allow automatic substitution for the reference listed drug, depending on health care statutes and policies within each of the 50 states. Even with FDA guidance on the requirements, however, demonstrating therapeutic equivalence may prove difficult, and we may receive regulatory approval without obtaining therapeutic equivalence designation from the FDA, an outcome that could adversely affect our ability to generate revenue from PF708, if approved.

If other therapeutic equivalent or generic products to Forteo are approved and successfully commercialized before PF708, our business would suffer.

Other companies may seek approval to manufacture and market therapeutic equivalent or generic product versions of Forteo. If other therapeutic equivalent or generic product versions of Forteo are approved and successfully commercialized before PF708, we may never achieve significant market share for PF708, our revenue would be reduced and, as a result, our business, prospects and financial condition could suffer.

Failure to obtain regulatory approval in each regulatory jurisdiction would prevent us and our collaboration partners from marketing our products to a larger patient population and reduce our commercial opportunities.

In order to market our products in the EU, the United States and other jurisdictions, we or our collaboration partners must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The EMA is responsible for the assessment of centralized marketing authorization applications for human medicines. This procedure results in a single marketing authorization granted by the European Commission that is valid in all EU Member States, as well as in EEA States Iceland, Liechtenstein and Norway. The time required to obtain approval abroad may differ from that required to obtain FDA approval. When a marketing authorization application is submitted to the EMA, a related scientific evaluation is conducted by the EMA’s Committee for Medicinal Products for Human Use (CHMP), and a scientific opinion is prepared concerning the suitability of the product for authorization. This scientific opinion is sent to the European Commission which, before arriving at a final decision on a marketing authorization application, must consult the Standing Committee on Medicinal Products for Human Use. The Standing Committee is composed of representatives of the EU member states and chaired by a non-voting European Commission representative. The European Parliament also has a related “droit de regard.” The European Parliament’s role is to ensure that the European Commission has not exceeded its powers in deciding to grant or refuse to grant a marketing authorization. In accordance with the centralized procedure, the maximum timeframe for the evaluation of an MAA is 210 days. This excludes clock stops during which additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP.

The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval and we may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products within the United States or in any market outside the United States. Failure to obtain these approvals would materially and adversely affect our business, financial condition and results of operations.

 

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Even if we and our collaboration partners obtain regulatory approvals for PF708, or any of our other product candidates, we will be subject to ongoing regulatory review.

Even if we and our collaboration partners obtain regulatory approval for PF708, or any of our other product candidates, any products we develop will be subject to ongoing regulatory review with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities. Manufacturers and manufacturers’ facilities are required to comply with extensive FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP. As such, we and our contract manufacturers will be subject to continual and unannounced review and inspections by the regulatory authorities governing the markets in which we wish to sell our products. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control.

Any regulatory approvals that we and our collaboration partners receive for PF708 or any of our other product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or on other conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 trials, and surveillance to monitor the safety and efficacy or the safety, purity, and potency of the product candidate. We and our collaboration partners will be required to promptly report any serious and unexpected adverse events and certain quality or production problems with our products to regulatory authorities, as well as submit other periodic reports. Any new legislation addressing drug or biologic product safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. We and our collaboration partners will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drug and biologic products are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. As such, we will not be allowed to promote our products for indications or uses for which they do not have approval. The holder of an approved NDA, BLA, 351(k) application or marketing authorization application must submit new or supplemental applications and obtain prior approval for certain changes to the approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical studies to verify the safety and efficacy of our products in general or in specific patient subsets. An unsuccessful post-marketing study or failure to complete such a study could result in penalties or other adverse consequences, up to and including potential withdrawal of marketing approval.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of a product, or if we or our collaboration partners fail to comply with applicable regulatory requirements, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we or our collaboration partners fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may subject us to administrative or judicially imposed sanctions or other actions, including, among other things:

 

   

adverse publicity, fines or untitled or warning letters;

 

   

mandated modifications to promotional materials or requirements to provide corrective information to healthcare practitioners;

 

   

a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

 

   

civil or criminal penalties;

 

   

injunctions;

 

   

suspending or withdrawing regulatory approval;

 

   

suspending any of our ongoing clinical studies;

 

   

refusing to approve pending applications or supplements to approved applications submitted by us;

 

   

imposing restrictions on our operations, including suspending or closing our contract manufacturers’ facilities; or

 

   

seizing or detaining products, or requiring a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.

 

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We will also be subject to various health care fraud and abuse laws, including anti-kickback, false claims and fraud laws, and physician payment transparency laws, and any violations by us of such laws could result in fines or other penalties.

Although we currently do not have any products on the market, if PF708 or any of our other product candidates are approved and we begin commercialization, we will be subject to healthcare regulation and enforcement by the federal government and the states and EEA and other foreign governments in which we conduct our business. These laws include, without limitation, state and federal, as well as EEA and other foreign, anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws and regulations, such as the following:

 

   

The U.S. federal Anti-Kickback Statute prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order, or arranging for or recommending the purchase, lease or order of, any good or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced-price items and services. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. This statute has been interpreted to apply to arrangements between pharmaceutical companies on one hand and Medicare patients, prescribers, purchasers and formulary managers on the other. In addition, the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common manufacturer business arrangements and activities from prosecution and administrative sanction, the exemptions and safe harbors are drawn narrowly, and practices or arrangements that involve remuneration may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection, and therefore would be subject to a facts and circumstances analysis to determine potential Anti-Kickback Statute liability.

 

   

The U.S. civil False Claims Act (which can be enforced through “qui tam,” or whistleblower actions, by private citizens on behalf of the federal government) prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government. Many pharmaceutical and other healthcare companies have been investigated or subject to lawsuits by whistleblowers and have reached substantial financial settlements with the federal government under the False Claims Act for a variety of alleged improper marketing activities, including providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees, grants, free travel, and other benefits to physicians to induce them to prescribe the company’s products; and inflating prices reported to private price publication services, which are used to set drug reimbursement rates under government healthcare programs. In addition, the government and private whistleblowers have pursued False Claims Act cases against pharmaceutical companies for causing false claims to be submitted as a result of the marketing of their products for unapproved uses. Pharmaceutical and other healthcare companies also are subject to other federal false claim laws, including federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs.

 

   

The U.S. federal Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program (which includes both government and privately funded benefits programs), or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program.

 

   

The majority of states have adopted analogous laws and regulations, including state anti-kickback and false claims laws, that may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payer, including private insurers. Other states have adopted laws that, among other things, require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities.

 

   

The Physician Payments Sunshine Act, implemented as the Open Payments program, and its implementing regulations, require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to Centers for Medicare & Medicaid Services information related to certain payments made in the preceding calendar year and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

 

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Additionally, the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HIPAA, and its implementing regulations also impose certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information and impose notification obligations in the event of a breach of the privacy or security of individually identifiable health information. Further, numerous federal and state laws and regulations that address privacy and data security, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act, or FTC Act), govern the collection, use, disclosure and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure investors that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.

We also may be subject to healthcare privacy and data privacy laws and regulations, and violations of these laws could result in government enforcement actions and create liability for us, private litigation and/or adverse publicity that could negatively affect our business.

We may be subject to laws and regulations covering data privacy and the protection of health-related and other personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues which may affect our business. Numerous federal and state laws and regulations, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of personal information. Failure to comply with such laws and regulations could result in government enforcement actions and create liability for us (including the imposition of significant penalties), private litigation and/or adverse publicity that could negatively affect our business. In addition, healthcare providers who prescribe our products and research institutions we collaborate with are subject to privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA other than with respect to providing certain employee benefits, we potentially could be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

EU member states, Switzerland and other countries have also adopted data protection laws and regulations that impose significant compliance obligations. In the EU, the collection and use of personal health data is governed by the provisions of the General Data Protection Regulation (GDPR). The GDPR entered into application on 25 May 2018, repealing the Data Protection Directive and increasing our responsibility and liability in relation to the processing of personal data of EU subjects. The GDPR, together with the national legislation of the individual EU member states governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting.

These obligations and restrictions concern, in particular, the consent of the individuals to whom the personal data relates, the information provided to the individuals, the transfer of personal data outside the EU, security breach notifications, security and confidentiality of the personal data, as well as substantial potential fines for breaches of the data protection obligations. Data protection authorities from the different EU member states may interpret the GDPR and national laws differently and impose additional requirements, which add to the complexity of processing personal data of EU subjects.

With respect to the transfer of personal data out of the EU, the GDPR provides that the transfer of personal data to countries that the European Commission does not consider to provide an adequate level of data protection, including the United States, is permitted only on specific legal bases.

 

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In Case C-362/14 Maximillian Schrems v. Data Protection Commissioner, or the Schrems case, the judgment by the Court of Justice of the European Union (CJEU) held invalid the Safe Harbor Framework, which many United States entities had relied upon as a basis for transferring personal data from the EU to the United States. As a result, United States entities could rely only on the alternate procedures for such data transfer provided in the EU Data Protection Directive. On February 29, 2016, however, the European Commission announced an agreement with the United States Department of Commerce, or the DOC, to replace the invalidated Safe Harbor framework with a new “Privacy Shield.” On July 12, 2016, the European Commission adopted a decision on the adequacy of the protection provided by the Privacy Shield, which is intended to address the requirements set out by the CJEU in the Schrems case. The Privacy Shield imposes more stringent obligations on companies, provides stronger monitoring and enforcement by the DOC and the Federal Trade Commission, and makes commitments on the part of public authorities regarding access to information. United States entities have been able to certify to the DOC their compliance with the privacy principles of the Privacy Shield since August 1, 2016 and rely on the Privacy Shield certification to transfer personal data from the EU to the United States.

In October 2016, however, three French digital rights advocacy groups, La Quadrature du Net, French Data Network and the Fédération FDN, brought an action for annulment of the European Commission decision on the adequacy of the Privacy Shield before the CJEU (Case T-738/16). The case is currently pending before the CJEU. If the CJEU invalidates the Privacy Shield, it will no longer be possible to rely on the Privacy Shield certification to transfer personal data from the EU to entities in the United States. Adherence to the Privacy Shield is not, however, mandatory. Entities based in the United States are permitted to rely either on their adherence to the Privacy Shield or on the other authorized means and procedures to transfer personal data provided by the GDPR.

Our failure to comply with these laws, or changes in the way in which these laws are implemented, could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.

Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory approval of PF708, Px563L/RPA563 or any other product candidates and to produce, market, and distribute our products after approval is obtained, if any.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacturing, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance may be revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or guidance, or revisions or reinterpretations of existing regulations or guidance, may impose additional costs or lengthen FDA review times for PF708, Px563L/RPA563 or any other product candidates. We cannot determine how changes in regulations, statutes, policies, or interpretations when and if issued, enacted or adopted, may affect our business in the future. Such changes could require substantial time and impose significant costs, and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any other products would harm our business, financial condition, and results of operations.

If efforts by manufacturers of reference products to delay or limit the use of biosimilars and therapeutic equivalent products are successful, our sales of biosimilar and other therapeutic equivalent products may suffer.

Many manufacturers of reference products have increasingly used legislative, regulatory and other means in attempts to delay regulatory approval of and competition from biosimilars and therapeutic equivalent products. These efforts have included sponsoring legislation to prevent pharmacists from substituting biosimilars for prescribed reference products or to make such substitutions more difficult by establishing notification, recordkeeping, and/or other requirements, as well as seeking to prevent manufacturers of biosimilars from referencing the branded products in biosimilar product labels and marketing materials. If these or other efforts to delay or block competition are successful, we may be unable to sell our biosimilar and therapeutic equivalent product candidates, which could have a material adverse effect on our sales and profitability.

Our and our collaboration partners’ future sales will be dependent on the availability and level of coverage and reimbursement from third-party payors who continue to implement cost-cutting measures and more stringent reimbursement standards.

In the United States and internationally, our and our collaboration partners’ ability to generate revenue on future sales of our products will be dependent, in significant part, on the availability and level of coverage and reimbursement from third-party payors, such as state and federal governments and private insurance plans. Insurers have implemented cost-cutting measures and other initiatives to enforce more stringent reimbursement standards and likely will continue to do so in the future. These measures include the establishment of more restrictive formularies and increases in the out-of-pocket obligations of patients for such products. In addition, particularly in the U.S. and increasingly in other countries, we will be required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities.

 

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In March 2010, the ACA, as amended by the Health Care and Education Reconciliation Act, was enacted with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both government and private insurers. The ACA, among other things, subjected biologic products to potential competition by lower-cost biosimilars and follow-on products, implemented new price reporting requirements for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, added new entity types eligible for participation in the Public Health Service’s 340B drug pricing program, established annual fees and taxes on manufacturers of certain prescription drugs, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable reference product drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. The Bipartisan Budget Act of 2018 increased such manufacturer point-of-sale discounts in the Medicare Part D coverage gap discount program to 70% beginning in 2019.

Other legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011. This included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and will stay in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, the American Tax Payer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals. We expect that additional healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal, state and foreign governments will pay for healthcare products and services, which could result in reduced demand for our products, if approved, or additional pricing pressures. Furthermore, certain legislative changes to and regulatory changes under the ACA have occurred in the 115th U.S. Congress and under the Trump Administration. For example, the Bipartisan Budget Act of 2018 will sunset the exclusion of biosimilars from the Medicare Part D coverage gap discount program beginning in 2019. The impact of these changes on us and potential effect on biosimilar manufacturing industry as a whole is currently unknown. Additional legislative changes to and regulatory changes under the ACA remain possible. Any additional changes to the ACA may have an impact on our results of operations, and may have a material adverse effect on our results of operations. We cannot predict what other healthcare programs and regulations will ultimately be implemented at the federal or state level or the effect of any future legislation or regulation in the United States may have on our business.

If we successfully commercialize any of our products, we may participate in the Medicaid Drug Rebate program. Participation is required for federal funds to be available for our covered outpatient drugs under Medicaid and, if applicable, Medicare Part B. Under the Medicaid Drug Rebate Program, we would be required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our drugs under Medicaid and, if applicable, Part B of the Medicare program.

Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in the Public Health Service’s 340B drug pricing program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients.

In addition, in order to be eligible to have its products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, a manufacturer also must participate in the U.S. Department of Veterans Affairs, or VA, Federal Supply Schedule, or FSS, pricing program. Under this program, the manufacturer is obligated to make its innovator and single source products available for procurement on an FSS contract and charge a price to four federal agencies, VA, U.S. Department of Defense, or DoD, Public Health Service and U.S. Coast Guard, that is no higher than the statutory Federal Ceiling Price. Moreover, pursuant to regulations issued by the DoD Defense Health Agency to implement Section 703 of the National Defense Authorization Act for Fiscal Year 2008, manufacturers are required to provide rebates on utilization of their innovator and single source products that are dispensed to TRICARE beneficiaries by TRICARE network retail pharmacies. The requirements under the Medicaid Drug Rebate, 340B, FSS, and TRICARE programs could reduce the revenue we may generate from any products that are commercialized in the future and could adversely affect our business and operating results.

 

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If we successfully commercialize any of our product candidates and if we participate in the Medicaid drug rebate program or other governmental pricing programs, failure to comply with reporting and payment obligations under these programs could result in additional reimbursement requirements, penalties, sanctions, and fines which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

The Medicaid Drug Rebate Program and other governmental pricing programs require participating manufacturers to report pricing data to various government agencies. Pricing calculations vary among products and programs and include average manufacturer price and best price for the Medicaid Drug Rebate Program, average sales price for certain categories of drugs that are paid under Part B of the Medicare program, and non-federal average manufacturer price for the VA FSS pricing program. If we successfully commercialize any of our products and participate in such governmental pricing programs, we will be liable for errors associated with our submission of pricing data. That liability could be significant. For example, if we are found to have knowingly submitted false average manufacturer price, average sales price, best price, or non-federal average manufacturer price information to the government, or fail to timely submit such information, we may be liable for significant civil monetary penalties. The foregoing also could be grounds for other sanctions, such as termination from the Medicaid Drug Rebate Program.

Foreign governments tend to impose strict price controls, which may adversely affect our revenue, if any.

In some foreign countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. Our existing or future collaboration partners, if any, may elect to reduce the price of our products in order to increase the likelihood of obtaining reimbursement approvals which could adversely affect our revenues and profits. To obtain reimbursement or pricing approval in some countries, we or our collaboration partners may also be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Our ability to market our biosimilar product candidates in the United States may be significantly delayed or prevented by the BPCIA patent dispute resolution mechanism.

The Biologics Price Competition and Innovation Act of 2009, Title VII, Subtitle A of the Patient Protection and Affordable Care Act, collectively referred to as the Affordable Care Act (ACA), Pub.L.No.111-148, 124 Stat.119, Sections 7001-02 signed into law March 23, 2010, and codified in 42 U.S.C. §262 (BPCIA) created an elaborate and complex patent dispute resolution mechanism for biosimilars that could prevent us from launching our product candidates in the United States or could substantially delay such launches. The BPCIA mechanism required for 351(k) biosimilar applicants may pose greater risk as compared to the litigation risk to which we might be exposed under a traditional 351(a) BLA regulatory pathway.

The BPCIA sets forth patent disclosure and briefing that are demanding and time-sensitive. The following is an overview of the patent exchange and patent briefing procedures set forth in the BPCIA:

 

   

Disclosure of the Biosimilar Application. Within 20 days after the FDA publishes a notice that its application has been accepted for review, a 351(k) biosimilar applicant can decide whether or not it chooses to provide a copy of its application to the originator. If the applicant does not provide its application, the originator may file for a “declaration of infringement, validity, or enforceability of any patent that claims the biological product or a use of the biological product.”

 

   

Identification of Pertinent Patents. Within 60 days of the date of receipt of the application the originator must identify patents owned or controlled by the originator which it believes could reasonably be asserted against the biosimilar applicant.

 

   

Statement by the Biosimilar Applicant. Within 60 days of the date of receipt of the originator’s patent list, the biosimilar applicant must state either that it will not market its product until the relevant patents have expired or alternatively provide its arguments that the patents are invalid, unenforceable or would not be infringed by the proposed biosimilar product candidate. The biosimilar applicant may also provide the originator with a list of patents the biosimilar applicant believes the originator could reasonably assert against a person not licensed by the originator engaged in the making, using, offering to sell, selling, or importing into the United States of the reference product.

 

   

Statement by the Originator. In the event the biosimilar applicant has asserted that the patents are invalid, unenforceable or would not be infringed by the proposed follow-on product, the originator must provide the biosimilar applicant with a response within 60 days. The response must provide the legal and factual basis of the opinion that such patent will be infringed by the commercial marketing of the proposed biosimilar and a response to any arguments offered from the biosimilar applicant concerning validity and enforceability.

 

   

Patent Resolution Negotiations. If the originator provides its detailed views that the proposed biosimilar would infringe valid and enforceable patents, then the parties are required to engage in good faith negotiations to identify which of the discussed patents will be the subject of a patent infringement action. If the parties agree on the patents to be litigated, the originator firm must bring an action for patent infringement within 30 days.

 

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Simultaneous Exchange of Patents. If those negotiations do not result in an agreement within 15 days, then the biosimilar applicant must notify the originator of how many patents (but not the identity of those patents) that it wishes to litigate. Within five days, the parties are then required to exchange lists identifying the patents to be litigated. The number of patents identified by the originator may not exceed the number provided by the biosimilar applicant. However, if the biosimilar applicant previously indicated that no patents should be litigated, then the originator may identify one patent.

 

   

Commencement of Patent Litigation. The originator must then commence patent infringement litigation within 30 days. That litigation will involve all of the patents on the originator’s list and all of the patents on the follow-on applicant’s list. The follow-on applicant must then notify the FDA of the litigation. The FDA must then publish a notice of the litigation in the Federal Register.

 

   

Notice of Commercial Marketing. The BPCIA requires the biosimilar applicant to provide notice to the originator at least 180 days in advance of its first commercial marketing of its proposed follow-on biologic. The originator is allowed to seek a preliminary injunction blocking such marketing based upon any patents that either party had preliminarily identified, but were not subject to the initial phase of patent litigation. The litigants are required to “reasonably cooperate to expedite such further discovery as is needed” with respect to the preliminary injunction motion.

Biosimilar companies such as ours have the option of applying for U.S. regulatory approval for our products under either a traditional 351(a) BLA approval route, or under the 351(k) approval route established by the BPCIA. The factors underpinning such a decision are extremely complex and involve, among other things, balancing legal risk (in terms of, e.g., the degree and timing of exposure to potential patent litigation by the originator) versus regulatory risks (in terms of, e.g., the development costs and the differing scope of regulatory approval that may be afforded under 351(a) versus 351(k)).

A significant legal risk in pursuing regulatory approval under the 351(k) regulatory approval route is that the above-summarized patent exchange process established by the BPCIA could result in the initiation of patent infringement litigation prior to FDA approval of a 351(k) application, and such litigation could result in blocking the market entry of our products. In particular, while the 351(k) route is more attractive to us (versus 351(a)) for reasons related to development time and costs and the potential broader scope of eventual regulatory approval for our proposed biosimilar candidates, the countervailing risk in such a regulatory choice is that the complex patent exchange process mandated by the BPCIA could ultimately prevent or substantially delay us from launching our products in the United States.

Moreover, the disclosure process set forth in the process outlined above, which is directed to disclosure by the biosimilar applicant of not only its regulatory application but also the applicant’s manufacturing process, has the potential to afford originators an easier path than traditional infringement litigation for developing any factual grounds they may require to support allegations of infringement. The rules established in the BPCIA’s patent dispute procedures (versus the rules governing traditional patent infringement litigation) place biosimilar firms at a significant disadvantage by affording originators a much easier mechanism for factual discovery, thereby increasing the risk that a biosimilar product could be blocked from the market more quickly than under traditional patent infringement litigation processes. However, a June 12, 2017 decision by the United States Supreme Court held that no injunction is available under federal law to force compliance with the patent exchange and patent briefing process. The Supreme Court remanded the case to the Federal Circuit to answer: (1) whether an injunction is available under state law; and (2) whether such a state-law injunction is preempted by federal law. The Federal Circuit recently held that the “BPCIA preempts state law remedies for an applicant’s failure to comply with § 262(l)(2)(A).”

Preparing for and conducting the patent exchange, briefing and negotiation process outlined above will require extraordinarily sophisticated legal counseling and extensive planning, all under extremely tight deadlines. Moreover, it may be difficult for us to secure such legal support if large, well-funded originators have already entered into engagements with highly qualified law firms or if the most highly qualified law firms choose not to represent biosimilar applicants due to their long-standing relationships with originators. Furthermore, we could be at a serious disadvantage in this process as an originator company may be able to apply substantially greater legal and financial resources to this process than we could.

We are aware that some biosimilar companies, namely Sandoz International GmbH (Sandoz), a subsidiary of Novartis AG, and Celltrion, Inc. have engaged in legal challenges against originators to establish their right to bring declaratory judgment actions against such originators outside the complex framework of the BPCIA patent exchange rules in order to challenge the validity of the originators’ patents prior to the filing of any biosimilar regulatory application. For example, in the Sandoz case against the originator Amgen (relating to Sandoz’ proposed etanercept (Enbrel ® ) biosimilar) the federal district court ruled that Sandoz did not have the right to bring a declaratory judgment action against Amgen to challenge the validity of certain Amgen-controlled patents directed to Enbrel, but instead determined that Sandoz must use the patent exchange mechanism established in the BPCIA. Sandoz appealed this decision to the United States Court of Appeals for the Federal Circuit, and on December 5, 2014 the Federal Circuit Court ruled that Sandoz had not met the legal requirements to pursue a declaratory judgment action against Amgen. The Federal Circuit court did not address whether the patent resolution mechanism established in the BPCIA would preclude Sandoz from filing its declaratory judgment action against Amgen if and when it files an FDA application under the BPCIA for its etanercept biosimilar.

 

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In October 2014, Amgen filed suit in federal district court against Sandoz alleging that Sandoz unlawfully refused to follow the patent resolution provisions of the BPCIA in connection with Sandoz’ July 2014 regulatory approval application under 351(k) for its Neupogen ® (filgrastim) biosimilar, Zarxio ® . Amgen sought declaratory and injunctive relief. Following litigation at the federal district court and appeals to the Federal Circuit, on February 16, 2016, Sandoz petitioned the United States Supreme Court for certiorari review of the Federal Circuit decision that biosimilar applicants must wait until FDA approval before providing 180-day notice and Amgen filed a cross petition to review the decision that the patent exchange and briefing process is optional. On June 12, 2017, the Supreme Court issued a unanimous opinion in Amgen v. Sandoz holding that notice of commercial marketing may be given prior to FDA approval of the biosimilar product. The Court also held that no injunction is available under federal law to force compliance with the patent exchange and patent briefing process. The Court remanded the case to the Federal Circuit to answer: (1) whether an injunction is available under state law; and (2) whether such a state-law injunction is preempted by federal law. On December 14, 2017, the Federal Circuit affirmed the dismissal of Amgen’s unfair competition and conversion claims and that Amgen’s state law claims are preempted on both field and conflict grounds. In particular, the Federal Circuit noted that the “BPCIA preempts state law remedies for an applicant’s failure to comply with § 262(l)(2)(A).”

If we file a 351(k) regulatory approval application for one or more of our products, we may consider it necessary or advisable to adopt the strategy of selecting one or more patents of the originator to litigate in the above described BPCIA process (for example in steps 3 and 7, of the process, as outlined above), either to assert our non-infringement of such patents or to challenge their validity; but we may ultimately not be successful in that strategy and could be prevented from marketing the product in the United States.

Under the complex and uncertain rules of the BPCIA patent provisions, coupled with the inherent uncertainty surrounding the legal interpretation of any originator patents that might be asserted against us in this new process, we see substantial risk that the BPCIA process may significantly delay or defeat our ability to market our products in the United States.

If we and our collaboration partners are not able to demonstrate biosimilarity of our biosimilar product candidates to the satisfaction of regulatory authorities, we will not obtain regulatory approval for commercial sale of our biosimilar product candidates and our future results of operations would be adversely affected.

Our future results of operations depend, to a significant degree, on our and our collaboration partners’ ability to obtain regulatory approval for and commercialize our proposed biosimilar products. To obtain regulatory approval for the commercial sale of these product candidates, we will be required to demonstrate to the satisfaction of regulatory authorities, among other things, that our proposed biosimilar products are highly similar to biological products already licensed by the FDA pursuant to Biologic License Applications (BLAs), notwithstanding minor differences in clinically inactive components, and that they have no clinically meaningful differences as compared to the marketed biological products in terms of the safety, purity and potency of the products. In the EEA, the similar nature of a biosimilar and a reference product is demonstrated by comprehensive comparability studies covering quality, biological activity, safety and efficacy.

In addition, the FDA may determine that a proposed biosimilar product is “interchangeable” with a reference product, meaning that the biosimilar product may be substituted by a pharmacist for the reference product without the intervention of the health care provider who prescribed the reference product, if the application includes sufficient information to show that the product is biosimilar to the reference product and that it can be expected to produce the same clinical result as the reference product in any given patient. If the biosimilar product may be administered more than once to a patient, the applicant must demonstrate that the risk in terms of safety or diminished efficacy of alternating or switching between the biosimilar and reference product is not greater than the risk of using the reference product without such alternation or switch. To make a final determination of biosimilarity or interchangeability, regulatory authorities may require additional confirmatory information beyond what we and our collaboration partners plan to initially submit in our applications for approval, such as more in-depth analytical characterization, animal testing, or further clinical studies. Provision of sufficient information for approval may prove difficult and expensive. We cannot predict whether any of our biosimilar product candidates will meet regulatory authority requirements for approval as a biosimilar or interchangeable product. To date, the FDA has not approved a biosimilar product as being interchangeable to the reference drug.

Analytical assessments can identify potential differences between biosimilar candidates and reference products. Differences in the analytical assessments may require clinical studies to reduce the residual uncertainties. In the event that regulatory authorities require us to conduct additional clinical trials or other lengthy processes, the commercialization of our proposed biosimilar products could be delayed or prevented. Delays in the commercialization of, or the inability to obtain regulatory approval for, these products could adversely affect our operating results by restricting or significantly delaying our introduction of new biosimilars.

 

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We intend to market our products outside of the United States, and we will be subject to the risks of doing business outside of the United States.

Because we intend to market our product candidates, if approved, outside of the United States, our business is subject to risks associated with doing business outside of the United States. Accordingly, our business and financial results in the future could be adversely affected due to a variety of factors, including:

 

   

efforts to develop an international sales, marketing and distribution organization may increase our expenses, divert our management’s attention from the acquisition or development of product candidates or cause us to forgo profitable licensing opportunities in these geographies;

 

   

changes in a specific country’s or region’s political and cultural climate or economic condition;

 

   

unexpected changes in foreign laws and regulatory requirements;

 

   

difficulty of effective enforcement of contractual provisions in local jurisdictions;

 

   

inadequate intellectual property protection in foreign countries;

 

   

trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the U.S. Department of Commerce and fines, penalties or suspension or revocation of export privileges;

 

   

the effects of applicable foreign tax structures and potentially adverse tax consequences; and

 

   

significant adverse changes in foreign currency exchange rates.

Moreover, our partners and third-party contractors located outside the U.S. may have inadequate compliance programs or may fail to respect the laws and guidance of the territories in which they operate. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could also have an adverse effect on our business, financial condition and results of operations.

Risks Relating to Owning Our Common Stock

The market price of our stock may fluctuate significantly, and investors may have difficulty selling their shares.

Our stock is currently traded on NYSE American, but we can provide no assurance that we will be able to maintain an active trading market on NYSE American or any other exchange in the future. The trading volume of our stock tends to be low relative to our total outstanding shares, and we have several stockholders who hold substantial blocks of our stock. As of June 30, 2018, we had 31,420,085 shares of common stock outstanding, and stockholders holding at least 5% of our stock, individually or with affiliated persons or entities, collectively beneficially owned or controlled approximately 37% of such shares. Sales of large numbers of shares by any of our large stockholders could adversely affect our trading price, particularly given our relatively small historic trading volumes. If stockholders holding shares of our common stock sell, indicate an intention to sell, or if it is perceived that they will sell, substantial amounts of their common stock in the public market, the trading price of our common stock could decline.

Since shares of our common stock were sold in our initial public offering in July 2014 at a price of $6.00 per share, our stock price has ranged from $2.07 to $24.41 through June 30, 2018. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this quarterly report on Form 10-Q, factors that may cause volatility in our share price include:

 

   

actual or anticipated quarterly variation in our results of operations or the results of our competitors;

 

   

announcements by us or our competitors of new commercial products, significant contracts, commercial relationships or capital commitments;

 

   

issuance of new or changed securities analysts’ reports or recommendations for our stock;

 

   

developments or disputes concerning our intellectual property or other proprietary rights;

 

   

changes to our organization and management;

 

   

commencement of, or our involvement in, litigation;

 

   

market conditions in the relevant market;

 

   

reimbursement or legislative changes in the relevant market;

 

   

failure to complete significant sales;

 

   

regulatory developments that may impact our product candidates;

 

   

any future sales of our common stock or other securities;

 

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any major change to the composition of our board of directors or management; and

 

   

general economic conditions and slow or negative growth of our markets.

The stock market in general and market prices for the securities of biopharmaceutical companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of our common stock has been and will likely continue to be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If securities or industry analysts publish unfavorable research about our business or cease to cover our business, our stock price and/or trading volume could decline.

The trading market for our common stock may rely, in part, on the research and reports that equity research analysts publish about us and our business. We do not have any control of the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts cease coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, the market price of our common stock may decline.

We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. Any such future issuance, including any issuances pursuant to our “at the market” equity offering program under our sales agreement with William Blair, could result in substantial dilution to our existing stockholders and could cause our stock price to decline. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, the market price of our common stock may decline.

Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock. We also register the offer and sale of all shares of common stock that we may issue under our equity compensation plans.

Furthermore, certain of our executive officers have adopted, and other directors and executive officers may in the future adopt, written plans, known as “Rule 10b5-1 Plans,” under which they have contracted, or may in the future contract, with a broker to sell shares of our common stock on a periodic basis to diversify their assets and investments. Sales of substantial amounts of our common stock in the public markets, including, but not limited to, sales made by our executive officers and directors pursuant to Rule 10b5-1 Plans, or the perception that these sales could occur, could cause the market price of our common stock to decline.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (JOBS Act) enacted in April 2012, and may remain an “emerging growth company” for up to five years following the completion of our initial public offering, although, if we have more than $1.07 billion in annual revenue, if the market value of our common stock that is held by non-affiliates

 

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exceeds $700 million as of December 31 of any year, or we issue more than $1.0 billion of non-convertible debt over a three-year period before the end of that five-year period, we would cease to be an “emerging growth company” as of the following December 31. For as long as we remain an “emerging growth company,” we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include:

 

   

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We have taken advantage of reduced reporting burdens in our reports filed with the Securities and Exchange Commission (SEC). In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to avail ourselves of this exemption and, as a result, our financial statements may not be comparable to the financial statements of reporting companies who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. We cannot predict whether investors will find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the market price of our common stock may be reduced or more volatile.

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.

In connection with our audit committee investigation, which concluded in the first quarter of 2017, we concluded that we had a material weakness relating to our former chief executive officer’s failure to set an appropriate “tone-at-the-top.” While we have designed and implemented measures that we believe address this material weakness, we continue to develop our internal controls, processes and reporting systems. However, completion of remediation does not provide assurance that our controls will operate properly or that our financial statements will be free from error. There may be undetected material weaknesses in our internal control over financial reporting, as a result of which we may not detect financial statement errors on a timely basis.

If we identify new material weaknesses in our internal control over financial reporting or we are unable to successfully remediate any future material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities laws and NYSE American listing requirements regarding the timely filing of periodic reports, investors may lose confidence in our financial reporting, and our stock price may decline.

Additionally, our independent registered public accounting firm is not required to and did not perform an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act due to a transition period established by the rules of the Securities and Exchange Commission (SEC) for newly public companies that have not lost their “emerging growth company” status as defined in the JOBS Act. Had our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional control deficiencies amounting to significant deficiencies or material weaknesses may have been identified. We cannot be certain as to when we will be able to implement the requirements of Section 404 of the Sarbanes-Oxley Act. If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory agencies such as the SEC. In addition, failure to comply with Section 404 or the report by us of a significant deficiency or material weakness may cause investors to lose confidence in our financial statements, and the trading price of our common stock may decline. If we fail to remedy any significant deficiency or material weakness, our financial statements may be inaccurate, our access to the capital markets may be restricted and the trading price of our common stock may decline.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We expect to generate a tax net operating loss for 2018. The 2017 net operating loss carryforwards are available to offset future taxable income, if any, until such unused losses expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by

 

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value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership. As a result, if or when we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As a result, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.

We are incurring increased costs as a result of operating as a public company and our management is required to devote substantial time to new compliance initiatives and corporate governance practices including maintaining an effective system of internal control over financial reporting.

As a public company, and increasingly after we are no longer an “emerging growth company,” we are incurring significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC, and the NYSE American impose numerous requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Also, the Securities Exchange Act of 1934 (Exchange Act), as amended, requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. Our management and other personnel devote a substantial amount of time to comply with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and changing governance practices.

The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404(a) of the Sarbanes-Oxley Act requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting. Section 404(b) of Sarbanes-Oxley Act (Section 404(b)) also requires our independent registered public accounting firm to attest to the effectiveness of our internal control over financial reporting. As an “emerging growth company,” we are availing ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b). However, we may no longer avail ourselves of this exemption when we are no longer an “emerging growth company.” When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404(b) will correspondingly increase. Our compliance with applicable provisions of Section 404 requires us and will continue to require us to incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements.

Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of any required compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.

Our directors, executive officers and principal stockholders will continue to have substantial control over us and could limit investors’ ability to influence the outcome of key transactions, including transactions that would cause a change of control.

As of June 30, 2018, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates beneficially owned or controlled approximately 39% of the outstanding shares of our common stock. Accordingly, these executive officers, directors and stockholders and their respective affiliates, acting as a group, have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders may therefore delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

 

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Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:

 

   

We will indemnify our directors and officers for serving us in those capacities, or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

   

We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

   

We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

   

We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

 

   

The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

   

We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

To the extent that a claim for indemnification is brought by any of our directors or officers, it would reduce the amount of funds available for use in our business.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

 

   

authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock;

 

   

require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

 

   

specify that special meetings of our stockholders can be called only by our board of directors, the chairman of the board of directors, or the chief executive officer;

 

   

establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

 

   

establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms;

 

   

provide that our directors may be removed only for cause;

 

   

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

   

specify that no stockholder is permitted to cumulate votes at any election of directors; and

 

   

require a super-majority of votes to amend certain of the above-mentioned provisions.

 

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These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

We have broad discretion in the use of the net proceeds from our public offerings, including our “at the market” offering, and may not use them effectively.

We have broad discretion as to how to spend and invest the proceeds from our public offerings, including our “at-the-market” offering with William Blair, and we may spend or invest these proceeds in a way with which our stockholders disagree. Accordingly, investors will need to rely on our judgment with respect to the use of these proceeds and these uses may not yield a favorable return to our stockholders. In addition, until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

With the exception of the issuance of shares of common stock to our preferred stockholders in connection with the payment of all accrued and unpaid dividends in connection with our initial public offering, we do not anticipate paying any cash dividends in the foreseeable future.

At the closing of our initial public offering, our board of directors issued shares of common stock to pay all accrued but unpaid dividends on our convertible preferred stock. With the exception of this dividend, we do not anticipate paying cash dividends on any classes of our capital stock in the foreseeable future. We currently intend to retain our future earnings for the foreseeable future to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain on an investment in our common stock for the foreseeable future.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent Sale of Unregistered Securities

None.

(c) Issuer Purchases of Equity Securities

We did not repurchase any shares of our common stock during the three months ended June 30, 2018.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5.

OTHER INFORMATION

Appointment of Principal Accounting Officer

On August 7, 2018, Susan A. Knudson was appointed to the role of principal accounting officer of the company. Ms. Knudson is currently also the chief financial officer and principal financial officer of the company. Upon the appointment of Ms. Knudson as principal accounting officer, Patricia Lady ceased to act as principal accounting officer of the company, but will continue her role as our Vice President of Finance.

Susan A. Knudson, age 54, has served as our Chief Financial Officer since February 2018. From 2009 to 2017, Ms. Knudson held various roles at Neothetics, Inc., a specialty pharmaceutical company, including Chief Financial Officer from 2014 to 2017 and Vice President of Finance and Administration from 2009 to 2014. Prior to joining Neothetics, Ms. Knudson served as Senior Director of Finance and Administration at Avera Pharmaceuticals, a pharmaceutical company, from May 2002 to January 2009. Prior to May 2002, Ms. Knudson served as Director of Finance and Administration at MD Edge, Inc., a medical communications company, from October 2000 to April 2002. Prior to joining MD Edge, Ms. Knudson served as Assistant Director of Accounting at Isis Pharmaceuticals, a pharmaceutical company, from April 2000 to October 2000. Ms. Knudson has also held senior positions at CombiChem, General Atomics and Deloitte & Touche. Ms. Knudson holds a B.A. in Accounting from the University of San Diego.

No new compensatory arrangements were entered into with Ms. Knudson in connection with her appointment as principal accounting officer. There are no family relationships between Ms. Knudson and any of our directors or executive officers. There are no transactions between Ms. Knudson and us which are reportable under Item 404(a) of Regulation S-K.

 

ITEM 6.

EXHIBITS

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Description

   Incorporated by Reference Herein  
   Form      File No.      Exhibit      Filing Date  
 10.1#+    Development and License Agreement, dated April 18, 2018, between the Registrant and China NT Pharma Group Company Limited            
 10.2#+    Modification 6, effective May 15, 2018, between the Registrant and the United States Department of Health and Human Services            
 10.3#+    Development and License Agreement, dated June 11, 2018, between the Registrant and Alvogen Malta Operations Ltd.            
 31.1#    Certification of Chief Executive Officer pursuant to Exchange Act Rules   13a-14(a) and 15d-14(a), as adopted pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.            
 31.2#    Certification of Principal Financial Officer pursuant to Exchange Act Rules   13a-14(a) and 15d-14(a), as adopted pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.            
 32.1**    Certifications of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section  1350, as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002.            
101.INS    XBRL Instance Document.            
101.SCH    XBRL Taxonomy Extension Schema Document.            
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document.            
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.            
101.LAB    XBRL Taxonomy Extension Label Linkbase Document.            
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.            

 

#

Filed herewith.

+

Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the non-public information has been filed separately with the SEC

**

The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended (the “Exchange Act”), and is not to be incorporated by reference into any filing of Pfenex Inc. under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    PFENEX INC.
Dated: August 8, 2018     By:   /s/ Evert B. Schimmelpennink
      Evert B. Schimmelpennink
     

Chief Executive Officer, President and Secretary

(Principal Executive Officer)

Dated: August 8, 2018     By:   /s/ Susan A. Knudson
      Susan A. Knudson
     

Chief Financial Officer

(Principal Financial and Principal Accounting Officer)

 

75

Exhibit 10.1

Confidential

EXECUTION

CONFIDENTIAL TREATMENT REQUESTED

CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION THAT WAS OMITTED IN THE EDGAR VERSION HAS BEEN NOTED IN THIS DOCUMENT WITH A PLACEHOLDER IDENTIFIED BY THE MARK “[***].

DEVELOPMENT AND LICENSE AGREEMENT

by and between

PFENEX INC.

and

CHINA NT PHARMA GROUP COMPANY LTD.

April 18, 2018

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Table of Contents

 

            Page  

Article I. Definitions

     1  

Section 1.1

    

Defined Terms

     1  

Article II. Grant of License

     11  

Section 2.1

    

Product License

     11  

Section 2.2

    

Sublicenses

     12  

Section 2.3

    

No Implied Licenses

     12  

Article III. Product Development

     13  

Section 3.1

    

Development Efforts

     13  

Section 3.2

    

Subcontracting

     14  

Section 3.3

    

Records; Audit Rights

     15  

Section 3.4

    

Regulatory Affairs

     15  

Section 3.5

    

Commitment Activities

     17  

Section 3.6

    

Medical Affairs

     18  

Section 3.7

    

Non-Competition

     18  

Section 3.8

    

Divestment of Assets by Pfenex

     19  

Article IV. Payments

     20  

Section 4.1

    

Upfront License Payment

     20  

Section 4.2

    

Development Milestone Payment

     20  

Section 4.3

    

Sales Milestone Payment

     20  

Section 4.4

    

Royalties

     20  

Section 4.5

    

Reports

     20  

Section 4.6

    

Payment Terms

     21  

Section 4.7

    

Records; Audit Rights

     21  

Article V. Manufacture of Product; Pharmacovigilance; Sales and Marketing

     21  

Section 5.1

    

Manufacturing Responsibility

     21  

Section 5.2

    

Product Packaging and Labeling

     22  

Section 5.3

    

Product Documentation

     22  

Section 5.4

    

Non-Medical Product Complaints

     22  

Section 5.5

    

Product Recalls

     22  

Section 5.6

    

Registrations

     22  

Section 5.7

    

Regulatory Inspections

     22  

Section 5.8

    

Product Pricing and Promotion; Agency Contacts

     23  

Section 5.9

    

Reporting; Adverse Drug Reactions

     23  

Section 5.10

    

Sales and Marketing

     23  

Section 5.11

    

Ex-Territory Sales; Export Monitoring

     23  

Article VI. Territory Product Trademark; Intellectual Property Litigation

     24  

Section 6.1

    

Territory Product Trademarks

     24  

Section 6.2

    

Ownership of Inventions

     25  

Section 6.3

    

Patent Prosecution and Maintenance of Inventions

     25  

Section 6.4

    

Manufacturing Process

     26  

Section 6.5

    

Enforcement Actions

     26  

Section 6.6

    

Reimbursement Requirements

     28  

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Table of Contents

(continued)

 

            Page  

Section 6.7

    

Recovered Amounts

     28  

Section 6.8

    

Common Interest Agreement

     28  

Section 6.9

    

Patent Marking

     28  

Section 6.10

    

Article XI Not Applicable

     28  

Article VII. Executive Steering Committee

     28  

Section 7.1

    

Formation and Purpose

     28  

Section 7.2

    

Membership

     29  

Section 7.3

    

Meeting Requirements

     29  

Section 7.4

    

Decision-Making; Dispute Resolution

     29  

Section 7.5

    

Meeting Minutes

     31  

Section 7.6

    

Expenses

     31  

Section 7.7

    

Working Committees

     31  

Section 7.8

    

Committee Authority; Withdrawal

     31  

Section 7.9

    

Day-to-Day Responsibilities

     32  

Section 7.10

    

Cooperation

     32  

Article VIII. Confidentiality; Taxes; Nonsolicitation; publications

     33  

Section 8.1

    

Confidentiality

     33  

Section 8.2

    

Agents

     34  

Section 8.3

    

Restrictions on Sharing Information

     34  

Section 8.4

    

Taxes

     34  

Section 8.5

    

Nonsolicitation

     35  

Section 8.6

    

Publications

     36  

Article IX. Representations, Warranties and Covenants

     36  

Section 9.1

    

Representations and Warranties of Pfenex

     36  

Section 9.2

    

Representations and Warranties of NT Pharma

     39  

Section 9.3

    

Covenants

     40  

Section 9.4

    

Disclaimer of Warranties

     41  

Section 9.5

    

Public Announcements

     41  

Section 9.6

    

Insurance

     42  

Article X. Term; Termination

     42  

Section 10.1

    

Term

     42  

Section 10.2

    

Termination

     42  

Section 10.3

    

General Effects of Termination

     43  

Section 10.4

    

Additional Effects of Termination

     43  

Article XI. Indemnification and Liability Limits

     45  

Section 11.1

    

Indemnification by Pfenex

     45  

Section 11.2

    

Indemnification by NT Pharma

     45  

Section 11.3

    

Indemnification Procedure

     46  

Section 11.4

    

Limitations on Liability

     47  

Section 11.5

    

Unavailability of Indemnification

     47  

Article XII. Miscellaneous

     47  

Section 12.1

    

Force Majeure

     47  

Section 12.2

    

Notices

     48  

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

ii


Table of Contents

(continued)

 

            Page

Section 12.3

 

Governing Law

     49  

Section 12.4

 

Internal Dispute Resolution

     49  

Section 12.5

 

Arbitration

     49  

Section 12.6

 

Relationship of the Parties

     49  

Section 12.7

 

Assignment

     50  

Section 12.8

 

Binding Effect

     50  

Section 12.9

 

Entire Agreement; Amendments

     50  

Section 12.10

 

Severability

     50  

Section 12.11

 

Rules of Construction

     50  

Section 12.12

 

Waiver

     51  

Section 12.13

 

English Language

     51  

Section 12.14

 

Counterparts

     51  

Section 12.15

 

Electronic Execution and Delivery

     51  

Section 12.16

 

License Protection

     52  

Section 12.17

 

Further Assurances

     52  

Section 12.18

 

Compliance with Applicable Laws

     52  

Section 12.19

 

Expenses

     52  

Section 12.20

 

Third Party Beneficiaries

     52  

Section 12.21

 

Equitable Remedies

     52  

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

iii


DEVELOPMENT AND LICENSE AGREEMENT

This Development and License Agreement (this “ Agreement ”) is entered into as of April 18, 2018 (the “ Effective Date ”) by and between Pfenex Inc., a Delaware corporation (“ Pfenex ”), and China NT Pharma Group Company Ltd., a company incorporated in Cayman Islands (“ NT Pharma ”).

WITNESSETH

WHEREAS, Pfenex is a clinical stage biotechnology company engaged in the development of difficult to manufacture and high-value proteins, focusing on biosimilar therapeutics, including Product (as defined below);

WHEREAS, NT Pharma has expertise in the development, distribution, marketing and commercialization of pharmaceutical products for human use in the Territory (as defined below); and

WHEREAS, NT Pharma wishes to obtain from Pfenex, and Pfenex wishes to grant to NT Pharma, an exclusive license to develop, commercialize, promote, market, offer for sale, sell and distribute Product in the Territory, subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pfenex and NT Pharma agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.1     Defined Terms . The following words and phrases, when used herein with initial capital letters, shall have the meaning set forth or referenced below:

Acquiring Entity ” means a Third Party (including the parent company of such Third Party, as applicable) that merges or consolidates with or acquires Pfenex, or to which Pfenex transfers all or substantially all its assets to which this Agreement pertains (the “ Acquisition Transaction ”).

Action ” means any proceeding, action, claim (formal or informal, including by way of a letter), arbitration, administrative or regulatory action or other type of legal action, whether taken as a plaintiff or an initiating party (including through a request for declaratory judgment) or by way of counter-claim or defense.

Adverse Drug Responses ” shall be defined in more detail in the PV Agreement to include any “Adverse Drug Responses” as defined in the then-current guidelines and regulations promulgated by the ICH (International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use) and “Adverse Drug Experience” as defined in the then-current 21 CFR Section 314.80.

Affiliate ” means any corporation or other business entity controlled by, controlling or under common control with a Party. For purposes of this definition, “control” means (a) direct or indirect beneficial ownership of fifty percent (50%) or more (or, if less than fifty

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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percent (50%), the maximum ownership interest permitted by Applicable Law) of the voting stock in such corporation or other business entity or (b) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of such corporation or other business entity, whether through ownership of voting securities, by contract or otherwise.

Agents ” has the meaning set forth in Section 8.2.

Agreement ” has the meaning set forth in the preamble to this Agreement.

Annual Net Sales ” means, for a given Annual Period, the aggregate Net Sales for Product during such Annual Period.

Annual Period ” means (a) for 2018, the period commencing on the Effective Date and ending on December 31, 2018 (or the date this Agreement is terminated if such termination occurs prior to December 31, 2018), (b) for each successive calendar year during the Term (other than the calendar year in which the Term expires or this Agreement is terminated) the period beginning on January 1 st of such year and ending on December 31 st of such year, and (c) for the calendar year (other than 2018) in which the Term expires or this Agreement is terminated, the period beginning on January 1 st of such calendar year and ending on the effective date of the termination of this Agreement.

Applicable Law ” means each applicable federal, state, local or foreign constitution, treaty, law, statute, ordinance, rule, regulation, interpretation, directive, policy, order, writ, award, decree, injunction, judgment, stay or restraining order of any Governmental Authority or Regulatory Agency, the terms of any Regulatory Approval, and any other ruling or decision of, agreement with or by, or requirement of any Governmental Authority, including the United States Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et. seq. and any other applicable United States or non-United States anti-corruption laws.

Assignee ” means any Person (other than Pfenex and NT Pharma) that is assigned or transferred, or succeeds to, any rights under this Agreement.

Average Sale Price ” means, with respect to a particular country and particular period, the weighted average sale price of Product, Bundled Product or other product or service included in a Bundled Product, as applicable, such weighted average price determined by dividing (a) the total gross amounts invoiced on commercial sales of Product, Bundled Product or other product or service included in a Bundled Product in arms-length transactions in the applicable country during the applicable period, by (b) the units of Product, Bundled Product or other products or services included in a Bundled Product commercially sold in arms-length transactions in such country during such period. When determining the gross amounts invoiced for Product included in a Bundled Product, the methodology used to allocate a portion of the gross amounts invoiced for the Bundled Product to Product, as set forth in the definition of Net Sales, shall be used to allocate gross amounts invoiced for Product.

Bundled Product ” means Product sold together with any other product(s) or service(s) at a single unit price, whether packaged together or separately, and which other product(s) or service(s) have material independent value from Product itself.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Business ” means the research, development, manufacture and commercialization of Product by Pfenex, NT Pharma and their respective Affiliates and subcontractors, either individually or jointly.

Business Day ” means any day other than a Saturday, Sunday or a holiday on which banks in Shanghai, China or the State of California are authorized by Applicable Law to be closed.

cGxP ” means then-current good manufacturing, clinical or laboratory practices and quality system regulations, as applicable, promulgated by any Regulatory Agency.

China Clinical Study ” means a human clinical study with respect to Product in Mainland China that is required by the SFDA in order to obtain Regulatory Approval for Product in Mainland China.

CMC Section ” means the “Chemistry, Manufacturing and Controls” section of a NDA, or the comparable section of an MAA for any other jurisdiction, with respect to Product.

Commercial Territory ” has the meaning set forth in Section 5.11(a).

Commercially Reasonable Efforts ” means, with respect to the activities to be conducted by a Party with respect to any objective, the reasonable, diligent, good faith efforts and resources (financial and otherwise) to accomplish such objective as such Party would normally use to accomplish a similar objective under similar circumstances, it being understood and agreed that, with respect to the development and commercialization of Product, such efforts shall be substantially equivalent to those efforts and resources it commonly expends with respect to a product with similar commercial potential. Without limiting the foregoing, such efforts shall include: (i) promptly assigning responsibilities for activities for which such Party is responsible to specific employee(s) who are held accountable for the progress, monitoring and completion of such activities, (ii) setting and consistently seeking to achieve meaningful objectives for carrying out such activities, and (iii) consistently making and implementing decisions and allocating resources necessary or appropriate to advance progress with respect to and complete such objectives in an expeditious manner. For clarity, it is understood that Commercially Reasonable Efforts shall be evaluated both on a Territory-wide basis and on a country-by-country basis based on factors relevant to such country (including size of market, availability, pricing strategies, likelihood of gray-market goods, Applicable Law, and likelihood of Regulatory Approval) and are expected to change over time.

Commitment Activities ” has the meaning set forth in Section 3.5(a).

Common Interest Agreement ” has the meaning set forth in Section 6.8.

Competing Activities ” has the meaning set forth in Section 3.7(b).

Competing Product ” means any product (other than Product) that is the Reference Product or a Generic Product or that contains the active pharmaceutical ingredient of the Reference Product (or a modified or derivative version thereof) as its sole active pharmaceutical ingredient.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Competing Product Enforcement Action ” has the meaning set forth in Section 6.5(b).

Components ” means all Drug Substance, raw materials, components/component parts, labeling, packaging (both primary and secondary), ancillary goods, shipping materials and other items used to manufacture and supply Product hereunder in accordance with the applicable Product Specifications and Packaging Specifications.

Confidential Information ” has the meaning set forth in Section 8.1.

Confidentiality Exceptions ” has the meaning set forth in Section 8.1.

Control ” means, with respect to particular Know-How or a particular Patent, possession by the Party granting the applicable right, license or sublicense to the other Party as provided herein of the power and authority, whether arising by ownership, license, or other authorization, to disclose and deliver the particular Know-How to the other Party, or to grant and authorize under such Know-How or Patent the right, license or sublicense, as applicable, of the scope granted to such other Party in this Agreement without giving rise to a violation of the terms of any agreement or other arrangement with, or the rights of, any Third Party. Notwithstanding anything to the contrary in this Agreement, the following shall not be deemed to be Controlled by Pfenex: (a) any Know-How or Patent owned by or licensed to any Acquiring Entity immediately prior to the effective date of the Acquisition Transaction, and (b) any Know-How or Patent that any Acquiring Entity subsequently develops without accessing or practicing any Know-How or Patent owned by or licensed to Pfenex immediately prior to the effective date of the Acquisition Transaction. “ Controlled ” and “ Controlling ” shall have their correlative meanings.

Cooperating Party ” has the meaning set forth in Section 6.5(d).

Debarred Entity ” means a Person (other than an individual) that has been debarred by the FDA pursuant to 21 U.S.C. § 335a (a) or (b), or by another Regulatory Agency pursuant to a comparable statute, from submitting or assisting in the submission of any application for any abbreviated or other drug application or generation or preparation of any data with respect thereto, or any affiliate of such Person.

Debarred Individual ” means an individual who has been debarred by the FDA pursuant to 21 U.S.C. § 335a (a) or (b), or by another Regulatory Agency pursuant to a comparable statute, from providing services in any capacity (including generation or preparation of data) to a Person that has an approved or pending drug application.

Dispute ” has the meaning set forth in Section 12.4.

Divest ” has the meaning set forth in Section 3.7(b)(iii).

Divestible Asset ” has the meaning set forth in Section 3.7(b)(iii).

Dow Technology Assignment Agreement ” means that certain Technology Assignment Agreement, dated as of November 30, 2009, by and between Dow Global Technologies Inc., The Dow Chemical Company and Pfenex.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Dow Technology Licensing Agreement ” means that certain Technology Licensing Agreement, dated as of November 30, 2009, by and between Dow Global Technologies Inc., The Dow Chemical Company and Pfenex.

Drug Substance ” means that certain peptide as described in more detail in that certain memorandum exchanged between the Parties before the Effective Date and referencing this Agreement.

Effective Date ” has the meaning set forth in the preamble to this Agreement.

EMA ” means the European Medicines Agency.

Enforcement Actions ” has the meaning set forth in Section 6.5(b).

Enforcing Party ” has the meaning set forth in Section 6.5(d).

Executive Steering Committee ” has the meaning set forth in Section 7.1.

Existing Trademark ” means the trademark set forth in Exhibit C .

FATCA ” means Sections 1471 through 1474 of 26 U.S.C., as of the Effective Date (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of 26 U.S.C.

FDA ” means the United States Food and Drug Administration.

First Commercial Sale ” means the first commercial sale of Product to a Third Party by or under authority of NT Pharma or any of its Affiliates or sublicensees in a given jurisdiction after receiving Regulatory Approval for Product in such jurisdiction.

Force Majeure ” has the meaning set forth in Section 12.1.

GAAP ” means, with respect to a Person, United States generally accepted accounting principles, consistently applied by such Person across its operations.

Generic Product ” means, with respect to the Reference Product, a pharmaceutical product that (a) is therapeutically equivalent to the Reference Product, applying the definition of “therapeutically equivalent” set forth in the Preface to the current edition of the FDA publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” as such definition may be amended in the future, or applying a similar standard under the Applicable Law of such other applicable jurisdiction, and (b) has been approved by a Regulatory Agency based upon an application that contains scientific evidence establishing, through in vitro or in vivo studies, the bioequivalence of such product to the Reference Product, such that such pharmaceutical product would be substitutable by a pharmacist for the Reference Product when filling a prescription written for the Reference Product without having to seek authorization to do so from the physician writing such prescription.

Governmental Authority ” means any supranational, national, regional, state, provincial, local or other government, or other court of competent jurisdiction, legislature, governmental, administrative or regulatory agency, department, body, bureau, council or commission or any other supranational, national, regional, state, provincial, local or other

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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governmental authority or instrumentality, including Regulatory Agencies, in each case having jurisdiction in any country or other jurisdiction.

Indemnification Notice ” has the meaning set forth in Section 11.3(a).

Indemnification Objection ” has the meaning set forth in Section 11.3(b).

Indemnified Party ” has the meaning set forth in Section 11.3(a).

Indemnified Taxes ” means Taxes imposed as a result of any assignment or transfer of any rights under this Agreement by any Party to any Assignee (including by merger, liquidation or reorganization) on the other Party (the “ Non-Assigning Party ”), or on any payment under this Agreement to the Non-Assigning Party, other than Taxes imposed on or with respect to the Non-Assigning Party or required to be withheld or deducted from a payment to the Non-Assigning Party that are (a) imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case (i) imposed as a result of the Non-Assigning Party being organized under the laws of, or having its principal office in, the jurisdiction imposing such Taxes (or any political subdivision thereof) or (ii) that are imposed as a result of a present or former connection between the Non-Assigning Party and the jurisdiction imposing such Tax (other than connections arising from the Non-Assigning Party having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced this Agreement), (b) attributable to the Non-Assigning Party’s failure to comply with Section 8.4(a) and (c) any U.S. federal withholding Taxes imposed under FATCA. The term Indemnified Taxes includes penalties, fines and other additional statutory charges incidental or related to the imposition thereof, only to the extent not caused by the acts or omissions of the Non-Assigning Party.

Indemnify ” has the meaning set forth in Section 11.1.

Indemnifying Party ” has the meaning set forth in Section 11.3(a).

Infringement Notice ” has the meaning set forth in Section 6.5(a).

Infringing Activity ” has the meaning set forth in Section 6.5(a).

Intellectual Property ” means all intellectual property or intangible rights anywhere in the world, including (a) Patents, (b) trademarks, service marks, trade dress, trade names, Internet domain names, assumed names and entity names, together with the goodwill of the business associated with and symbolized by such trademarks, service marks, trade dress, trade names and entity names, in each case whether or not registered, (c) published and unpublished works of authorship, whether copyrightable or not, including all statutory and common law copyrights associated therewith, (d) trade secrets, and (e) Know-How.

Inventions ” has the meaning set forth in Section 6.2.

Inventory Sell Down Period ” has the meaning set forth in Section 10.4(c).

IP Strategy ” has the meaning set forth in Section 7.1.

Know-How ” means technical information and materials, in any tangible or intangible form whatsoever, including technology, reports, databases, data, results, analytical

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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models, chemicals, inventions (patentable or otherwise), practices, methods, knowledge, techniques, specifications, formulations, formulae, know-how, skill, experience, test data, including pharmacological, biological, chemical, biochemical, toxicological and clinical test data, analytical and quality control data, stability data, studies and procedures and patent and other legal information or descriptions; provided, however, that Know-How shall exclude any Patents.

Lien ” means any liens, claims, charges, pledges, security interests or other encumbrances of any nature whatsoever.

Losses ” has the meaning set forth in Section 11.1.

MAA ” means a NDA or similar application to a Regulatory Agency to obtain Regulatory Approval for Product in any jurisdiction outside the United States.

Manufacturing Action ” has the meaning set forth in Section 6.4(a).

Manufacturing Cost ” means all internal and Third Party costs and expenses incurred or accrued by Pfenex or its Affiliates allocable to the manufacture of Product, as calculated by Pfenex in accordance with its internal accounting practices applied on a consistent basis, including the allocation of direct and indirect depreciation and overhead attributable to Product.

NDA ” means a New Drug Application filed with the FDA pursuant to 21 U.S.C. § 505(b) to obtain Regulatory Approval for Product in the United States.

Net Sales ” means, for a specified period, the gross amounts invoiced by NT Pharma or its Affiliates or sublicensees for the sale or transfer of Product by NT Pharma or any of its Affiliates or sublicensees to Third Parties during such period, less the following deductions to the extent charged as part of the invoiced price, or separately stated on the invoice or calculated as a function of the invoice price (without duplication, and to the extent not reimbursed by a Third Party):

(a)    [***];

(b)    [***]; and

(c)    [***].

For clarity, any Product that is provided for use as promotional samples or in connection with a compassionate use program, in each case at a price at or below cost, is not subject to the definition of Net Sales, is not a “commercial sale” for purposes of this Agreement and shall not be taken into account in determining Average Sale Price.

In the case of any sale or transfer of a Product to a non-Affiliate other than in a transaction exclusively for cash, the Net Sales amount per unit shall be deemed to be the Average Sale Price for the calendar quarter in which such sale or transfer took place.

With respect to a Bundled Product, the Net Sales of such Bundled Product shall first be calculated in accordance with the definition of Net Sales above, and then the Net Sales of Product included in such Bundled Product shall be determined by multiplying the Net Sales of such Bundled Product by the fraction A/B where “A” is the Average Sale Price of the

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Product included as part of such Bundled Product as sold alone (i.e., without any other product(s) or service(s)) and “B” is the Average Sale Price of the Bundled Product.

Neutral ” has the meaning set forth in Exhibit B .

NT Pharma ” has the meaning set forth in the preamble to this Agreement.

NT Pharma Indemnitees ” has the meaning set forth in Section 11.1.

NT Pharma’s Knowledge ” means the actual knowledge of NT Pharma’s Chief Executive Officer, Chief Financial Officer, Senior Director of Global Business, and Legal Head, in each case after reasonable inquiry and investigation, which shall include review of NT Pharma’s or each such person’s own records and inquiry of those employees who have primary responsibility for the specific matter at issue.

Other Business ” has the meaning set forth in Section 3.7(b).

Packaging Specifications ” means the packaging, labeling and branding specifications for Product.

Parties ” means NT Pharma and Pfenex.

Party ” means either NT Pharma or Pfenex.

Patent ” means (a) any issued patent, including any inventor’s certificate, substitution, extension, confirmation, reissue, reexamination, renewal or any like governmental grant for protection of inventions, and (b) any pending application for any of the foregoing, including any continuation, divisional, substitution, continuation-in-part, provisional and converted provisional application.

Person ” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a Governmental Authority or other entity of any kind.

Pfenex ” has the meaning set forth in the preamble to this Agreement.

Pfenex Expression Technology ” means Pfenex’s proprietary Pseudomonas fluorescens expression platform technology used in the manufacture of biologic and other pharmaceutical products, including the development and production of strains used to manufacture such biologic and other pharmaceutical products, including through the optimization of a nucleic acid sequence, together with all Intellectual Property related thereto. The Pfenex Expression Technology includes all Intellectual Property (including Patents) transferred or licensed to Pfenex under the Dow Technology Assignment Agreement or the Dow Technology Licensing Agreement.

Pfenex Housemark ” has the meaning set forth in Section 6.1(c).

Pfenex Indemnitees ” has the meaning set forth in Section 11.2.

Pfenex Know-How ” means Know-How Controlled by Pfenex or its Affiliates at any time during the Term that is useful for the operation of the Business in the Territory.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Pfenex Patents ” means Patents in the Territory Controlled by Pfenex or its Affiliates at any time during the Term (a) claiming the composition of the Drug Substance (and Product) or (b) claiming methods of use, administration or formulation of the Drug Substance (and Product). A list of current Pfenex Patents is set forth in that certain memorandum exchanged between the Parties before the Effective Date and referencing this Agreement.

Pfenex Technology ” means, collectively, the Pfenex Know-How, the Pfenex Patents and the Inventions, but excluding the Pfenex Expression Technology.

Pfenex s Knowledge ” means the actual knowledge of Pfenex’s Chief Executive Officer, Chief Financial Officer, Chief Business Officer, and Pfenex’s Senior Director of Upstream Processing and Intellectual Property (which is Diane Retallack on the Effective Date), in each case after reasonable inquiry and investigation, which shall include review of Pfenex’s or each such person’s own records and inquiry of those employees who have primary responsibility for the specific matter at issue.

Prior Agreement ” has the meaning set forth in Section 8.3.

Product ” means any pharmaceutical product in final packaged form consisting of the Drug Substance as the sole active pharmaceutical ingredient.

Product Complaint ” has the meaning set forth in Section 5.4.

Product Documentation ” means all marketing and promotional literature, packaging inserts (including patient information leaflets) and customer documentation applicable to Product.

Product Financial Records ” has the meaning set forth in Section 4.7.

Product License ” has the meaning set forth in Section 2.1.

Product Records ” has the meaning set forth in Section 3.3.

Product Specifications ” means the product and performance specifications for Product, including Product formulae and materials required for the manufacture of Product.

Prosecution and Maintenance ” means, with regard to a Patent, the preparation, filing, prosecution and maintenance of such Patent, as well as re-examinations, reissues, requests for Patent term extensions and the like with respect to such Patent, together with the conduct of interferences and inter partes actions, the defense of oppositions and other similar proceedings with respect to the particular Patent; and “ Prosecute and Maintain ” has its correlative meaning.

PV Agreement ” has the meaning set forth in Section 5.9(a).

Quarterly Period ” means a three (3) month period of each calendar year ending on March 31, June 30, September 30 or December 31, except that the first Quarterly Period shall be a period commencing on the Effective Date and ending on June 30, 2018.

Reference Product ” means Forsteo ® and Forteo ® (teriparatide), as branded and approved in the applicable jurisdiction.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Registrations ” means all permits, licenses, approvals and authorizations granted by any Regulatory Agency with respect to Product (including the manufacture, handling, use, storage, import, transport, distribution, marketing, promotion or sale thereof).

Regulatory Agency ” means any federal, state or local regulatory agency, department, bureau or other Governmental Authority in the United States, the European Union or any other country, as applicable, including the FDA, the EMA and the SFDA, in each case that is responsible for Registrations necessary for, or otherwise governs, the manufacture, handling, use, storage, import, transport, distribution or sale of Product.

Regulatory Approval ” means, with respect to Product in a given country, all necessary Registrations from the applicable Regulatory Agency in such country to distribute, market, promote, sell and place on the market Product in such country.

Regulatory Commitment Activities ” means any study of Product required by a Regulatory Agency to be conducted as a condition of Regulatory Approval by such Regulatory Agency.

Regulatory Materials means regulatory applications (including MAAs), submissions, notifications, communications, correspondence, Registrations or other filings made to, received from or otherwise conducted with any Regulatory Agency (including minutes of meetings with any Regulatory Agency) that are necessary for or otherwise relate to the development, manufacture or commercialization of Product.

Rolling Forecast ” has the meaning set forth in Section 5.1.

Safety Reasons ” means it is a Party’s reasonable belief that there is an unacceptable risk for harm in humans based upon (a) preclinical safety data, including data from animal toxicology studies or (b) the observation of serious adverse effects in humans after Product has been administered to humans, such as during a clinical study or after the First Commercial Sale of Product.

SEC ” has the meaning set forth in Section 9.5.

SFDA ” means the State Food and Drug Administration of China, or any successor agency with a similar scope of responsibility regarding the regulation of human pharmaceutical products in Mainland China.

Solicitation Action ” has the meaning set forth in Section 8.5.

Soliciting Party ” has the meaning set forth in Section 8.5.

Subcontractor ” has the meaning set forth in Section 3.2.

Subject Transaction ” has the meaning set forth in Section 3.7(b).

Tax ” or “ Taxes ” means any and all taxes, duties, imposts, charges, withholdings, rates, levies and other governmental impositions and other taxes of any kind whatsoever imposed, assessed or charged.

Taxed Party ” has the meaning set forth in Section 8.4(c).

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Taxing Authority ” means any Governmental Authority responsible for the imposition, assessment or collection of any Tax.

Term ” has the meaning set forth in Section 10.1.

Territory ” means Mainland China, Hong Kong, Singapore, Malaysia and Thailand.

Territory Manufacturing Obligations ” has the meaning set forth in Section 12.7.

Territory Medical Affairs Strategy ” has the meaning set forth in Section 3.6(a).

Territory Product Trademark ” has the meaning set forth in Section 6.1(a).

Third Party ” means any Person other than a Party and such Party’s Affiliates.

Third Party Claim ” has the meaning set forth in Section 11.1.

Timeline ” has the meaning set forth in Section 3.1(a)(i).

Trademark License ” has the meaning set forth in Section 6.1(a).

Transfer Taxes ” has the meaning set forth in Section 8.4(d).

United States ” means the United States of America, including the District of Columbia, Puerto Rico and all other territories and possessions of the United States of America.

Upfront Payment ” has the meaning set forth in Section 4.1.

U.S. Collaborator ” has the meaning set forth in Section 12.7.

Working Committee ” has the meaning set forth in Section 7.1.

ARTICLE II.

GRANT OF LICENSE

Section 2.1     Product License .    Subject to the terms and conditions of this Agreement, Pfenex hereby grants to NT Pharma (a) an exclusive license under the Pfenex Technology to commercialize, promote, market, offer for sale, sell and distribute Product in the Territory during the Term and (b) a non-exclusive license under the Pfenex Technology to conduct development activities in the Territory with respect to Product during the Term (collectively, the “ Product License ”). The Product License shall be transferable solely in accordance with Section 12.7 and sublicensable solely in accordance with Section 2.2. For clarity, the Parties agree and acknowledge that the Product License does not include any right to make or have made Drug Substance or Product or to access or use the Pfenex Expression Technology, except that NT Pharma shall have the right to use information related to the Pfenex Expression Technology provided pursuant to Section 3.1(b) to the extent necessary for NT Pharma to deal with regulatory affairs and medical affairs, promote and market the Product, and perform its other obligations and exercise its other rights provided under this Agreement in the Territory. Upon the request by either Party, the Parties shall discuss in good faith the necessary amendments to this Agreement to expand the scope of the Product License to Product in bulk form and to the supply agreement and quality agreement referenced in

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 5.1. Pfenex confirms that irrespective of whether or not the Parties have expanded the Product License to Product in bulk form, during the Term it will not, nor will it license, authorize or assist any Affiliate or Third Party to import, commercialize, promote, market, offer for sale, sell or distribute Product in bulk form in the Territory.

Section 2.2     Sublicenses . The Product License includes the right to sublicense within the scope thereof in accordance with this Section 2.2. If NT Pharma intends to grant a candidate a sublicense with respect to a portion of the Product License that is related to the application or maintenance of the Regulatory Approval in a jurisdiction within the Territory, it shall serve Pfenex a 30-day prior notice setting out the identity of such sublicensee, and (a) if the contemplated sublicense is with respect to Regulatory Approval in Mainland China, NT Pharma shall not grant such sublicense without Pfenex’s prior written consent, which is not to be unreasonably withheld, delayed or conditioned, and (b) if the contemplated sublicense is with respect to any jurisdiction outside Mainland China, NT Pharma shall give due consideration to any objection that may be raised by Pfenex within 30 days, but NT Pharma shall have the right to make a final decision as to whether to grant the sublicense at issue except that if Pfenex raises an objection for reason that the contemplated sublicense is likely to render Pfenex not compliant with Applicable Law, in which situation NT Pharma shall not grant the sublicense without Pfenex’s prior written consent. For clarity, it is understood and agreed that NT Pharma may choose and use distributors in the Territory at its discretion, provided that (A) NT Pharma remains primarily responsible for the activities of any such distributors, (B) NT Pharma (or its Affiliate) (I) books sales of Product in each country in the Territory in accordance with NT Pharma’s ordinary course of business, and (II) remains primarily responsible for the marketing and promotion of Product in the Territory, which will be under the Existing Trademark or other trademarks Controlled by NT Pharma or its Affiliates, and (C) any distributor that is granted the right to apply for or maintain the Regulatory Approval in a jurisdiction of the Territory shall be subject to the restrictions on sublicensing in this Section 2.2. With respect to any sublicense granted by NT Pharma in accordance with this Section 2.2:

(a)    NT Pharma shall promptly notify Pfenex of the grant of each sublicense and provide Pfenex a copy of the final executed sublicense agreement, which copy may be redacted with respect to information not pertinent to this Agreement;

(b)    NT Pharma shall be responsible for the failure by its sublicensees to comply with all relevant restrictions, limitations and obligations in this Agreement; and

(c)    NT Pharma shall also have the right to sublicense the Trademark License granted pursuant to Section 6.1(a), provided that such sublicense shall be (i) granted to the applicable sublicensee in conjunction with a sublicense under the Product License granted pursuant to this Section 2.2 and (ii) subject to the terms and conditions of this Section 2.2.

Section 2.3     No Implied Licenses ; Retained Rights . Each Party acknowledges that the rights and licenses granted under this Article II and elsewhere in this Agreement are limited to the scope expressly granted. Accordingly, except for the rights expressly granted under this Agreement, no right, title, or interest of any nature whatsoever is granted whether by implication, estoppel, reliance or otherwise, by either Party to the other Party. Without limiting the obligations hereunder (including the exclusivity set forth in Section  3.7), all rights with respect to Know-How, Patents or other Intellectual Property that are not specifically granted herein are reserved to the owner thereof, and specifically, Pfenex retains

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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all rights under the Pfenex Technology to (a) commercialize, promote, market, offer for sale, sell and distribute Product outside the Territory, (b) conduct development activities with respect to Product worldwide, to support development and commercialization of Product outside the Territory, and (c) to make and have made Drug Substance and Product. NT Pharma agrees that it will not, and it will ensure that its Affiliates will not, and it will not grant any sublicensee the right to, use or otherwise exploit the Pfenex Technology, except as expressly licensed and permitted in this Agreement.

ARTICLE III.

PRODUCT DEVELOPMENT

Section 3.1     Development Efforts .

(a)     NT Pharma Responsibilities .

(i)    Within ninety (90) days after the Effective Date, the Executive Steering Committee (by consensus of the Parties and without regard to any final decision-making authority of either Party as set forth in Section 7.4(b)(i) and Section 7.4(b)(ii)) shall determine and set forth in writing a timeline listing the key activities of, and the milestones to be achieved by Pfenex and NT Pharma, respectively, with respect to the development of and Regulatory Approval for Product in Mainland China and the targeted completion date for each such activity and milestone (the “ Timeline ”); however, it is understood that such activities and milestones for which Pfenex is responsible under the Timeline shall be limited to delivery of appropriate sections of the NDA pursuant to Section 3.1(b), the manufacture of Product for clinical development (if applicable) pursuant to Section 5.1, and the other activities or obligations of Pfenex as expressly provided in this Agreement. The Parties acknowledge that one Party’s commencement or completion of certain activities or milestones may be conditioned on the other Party’s completion of certain activities or provision of certain items, as may be specified in the Timeline. NT Pharma shall use Commercially Reasonable Efforts to develop Product as necessary to obtain and maintain, at its own cost, Regulatory Approvals for Product in each country within the Territory, in accordance with the Timeline in the case of Mainland China.

(ii)    NT Pharma shall develop the Product in the Territory (including the conduct of the China Clinical Study, if required) in a good scientific manner and in accordance with cGxP of the applicable jurisdiction to the extent cGxP is applicable to such activities, to achieve such objectives efficiently and expeditiously, in compliance with all Applicable Laws. NT Pharma shall keep Pfenex reasonably informed as to NT Pharma’s (and its Affiliates’) planned activities (including written development plans with estimated timelines) and progress with respect to the development and regulatory affairs relating to Product through quarterly updates to the Executive Steering Committee.

(iii)    Pfenex will have the right to terminate this Agreement and receive a termination fee in the amount of [***] in accordance with Section 10.2(a)(iii), should NT Pharma fail to comply with the Timeline, unless such failure is due to circumstances outside of NT Pharma’s reasonable control or due to Pfenex’s breach of this Agreement.

(iv)    NT Pharma shall cooperate and provide Pfenex with reasonable assistance in connection with the performance by Pfenex of its obligations under Section 3.1(b).

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(b)     Pfenex Responsibilities . Pfenex shall, promptly but no later than ten (10) days following submission to the FDA, which Pfenex anticipates will be no later than [***], provide NT Pharma with appropriate sections of the NDA for Product and, upon the request of NT Pharma, provide NT Pharma with such additional records, documents, data and other information in its possession or control related to the development of Product, as may be reasonably requested by NT Pharma to perform its obligations or exercise its rights under this Agreement, provided, however, that Pfenex shall not be required to provide any manufacturing records or laboratory notebooks unless that information is necessary for NT Pharma to obtain Regulatory Approval in the Territory. Such records, documents, data and other information provided by Pfenex shall remain the sole property of Pfenex, shall be deemed to be the Confidential Information of Pfenex, shall not be used by NT Pharma for any purpose other than the development and commercialization of Product in the Territory in accordance with this Agreement and shall be provided to NT Pharma in such form as maintained by or on behalf of Pfenex in the ordinary course of business, and Pfenex shall not be obligated to provide any translations. Pfenex shall also provide necessary training and advice to NT Pharma to enable it to understand the records, documents, data and other information so provided by Pfenex, including providing necessary on-site technical guidance and support, provided that NT Pharma shall reimburse Pfenex for its reasonable out-of-pocket costs incurred in providing such training and advice. Until such time as NT Pharma submits a MAA to the SFDA for Product in Mainland China, if Pfenex fails to provide in a timely fashion any material information or documentation in its possession or control that is reasonably requested in writing by NT Pharma, NT Pharma reserves the right to terminate the Agreement and receive a payment in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) in accordance with Section 10.2(b)(v). Pfenex shall keep NT Pharma reasonably informed as to Pfenex’s progress with respect to its development activities relating to Product through quarterly updates to the Executive Steering Committee at its meetings. Pfenex shall cooperate and provide NT Pharma with reasonable assistance in connection with the performance by NT Pharma of its obligations under Section 3.1(a).

Section 3.2     Subcontracting . NT Pharma may subcontract to Affiliates or Third Parties (each, a “ Subcontractor ”) any portion of its responsibilities with respect to development of Product in the Territory. Each Subcontractor shall enter into a written agreement with NT Pharma pursuant to which such Subcontractor shall (a) be bound by obligations of confidentiality and non-use with respect to the Confidential Information of Pfenex or otherwise relating to Product at least as protective as the obligations set forth in Section 8.1 through Section 8.3, (b) be bound by obligations with respect to Intellectual Property sufficient to enable NT Pharma to comply with the terms and conditions of this Agreement as if NT Pharma completed any such subcontracted activity itself, (c) be required to make representations and warranties with respect to debarment comparable to the representations and warranties made by NT Pharma under Section 9.2(g), (d) be obligated to provide notice to NT Pharma upon becoming the subject of any investigation or debarment proceeding that could lead to such Subcontractor becoming a Debarred Entity or Debarred Individual and (e) be required to comply with all Applicable Laws, including, if applicable, cGxP. NT Pharma shall supervise and be responsible under this Agreement for the work of any such Subcontractor. No subcontracting of any obligation or activity under this Agreement shall relieve NT Pharma of any of its obligations or responsibilities under this Agreement.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 3.3     Records; Audit Rights . NT Pharma shall, and shall cause each Subcontractor engaged pursuant to Section 3.2 to, maintain complete and accurate books and records, in sufficient detail (and in good scientific manner appropriate for patent and regulatory purposes, when applicable) and for purposes of demonstrating compliance with the terms hereof, that fully and properly reflect all work done and results achieved with respect to development of Product (the completion of which is evidenced by the obtaining of Regulatory Approval) and maintenance of Regulatory Approval in each country within the Territory (the “ Product Records ”). NT Pharma shall retain all Product Records that it possesses or obtains through any arrangement with Subcontractors for a period of at least three (3) years or for such longer period to the extent required by Applicable Law. During such period, upon the written request of Pfenex, the Product Records possessed by NT Pharma or obtained by NT Pharma through arrangements with Subcontractors shall be subject to inspection and audit by and at the expense of Pfenex no more than once in any Annual Period (or more frequently upon demonstration of reasonable cause). Such audits shall occur upon reasonable notice and during normal business hours by an independent auditor selected by Pfenex and confirmed by NT Pharma in advance, which confirmation shall not be unreasonably withheld or delayed. Pfenex shall treat all information received or subject to review under this Section 3.3 as Confidential Information of NT Pharma in accordance with the provisions of Article VIII. Pfenex shall cause its independent auditor to enter into, before the commencement of the audit, a confidentiality agreement, in form and substance reasonably acceptable to NT Pharma, to maintain such records and information of NT Pharma in confidence in accordance with Article VIII and not use such records or information except to the extent permitted by this Agreement, including any enforcement of the provisions hereof.

Section 3.4     Regulatory Affairs .

(a)     Filing for Regulatory Approvals . NT Pharma shall use Commercially Reasonable Efforts to obtain and maintain, solely in its own name (or the name of one of its Affiliates or Third Party designees) in all countries in the Territory other than Mainland China and in the name of Pfenex Inc. in Mainland China, and at NT Pharma’s own cost, all Regulatory Approvals for Product in each country within the Territory. Pfenex, as the registered holder of the Regulatory Approval of the Product in Mainland China, shall take all actions and execute all documents as necessary to enable NT Pharma to submit the filing to the SFDA and obtain the Regulatory Approval in Mainland China in the name of Pfenex Inc. If at any time NT Pharma is allowed by Applicable Law to register itself or one of its Affiliates or a Third Party designee as the holder of the Regulatory Approval for the Product in Mainland China, then upon the request by NT Pharma and approval by Pfenex, such approval not to be unreasonably withheld, delayed or conditioned, Pfenex shall take all actions and execute all documents as reasonably necessary to register NT Pharma or its designated Affiliate or Third Party as holder of Regulatory Approval for the Product in Mainland China, at NT Pharma’s expense.

(b)     Ownership of Regulatory Approvals; Regulatory Cooperation . NT Pharma (or its Affiliates or Third Party designees) shall solely own all Regulatory Approvals with respect to Product in the Territory (except that the Regulatory Approval registered in the name of Pfenex Inc. with respect to Product in Mainland China shall be owned by Pfenex pursuant to Section 3.4(a)), and shall have the right to control filing or submission of Regulatory Materials in order to obtain and maintain such Regulatory Approvals, subject to Section 5.6 and the oversight of and in consultation with the

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Executive Steering Committee. Accordingly, prior to the filing of any Regulatory Materials (including any MAA) for Product with any Regulatory Agency in the Territory, NT Pharma shall provide a copy thereof to Pfenex (through the Executive Steering Committee) for its review and comment. Pfenex shall have fifteen (15) Business Days from the date Pfenex receives a copy of any Regulatory Materials to provide NT Pharma with comments regarding such Regulatory Materials and NT Pharma shall consider all such comments in good faith. NT Pharma shall be responsible for managing all communications and interactions with Regulatory Agencies with respect to Product in the Territory; provided that NT Pharma shall, to the extent permitted by Applicable Law, provide Pfenex with (i) reasonable advanced notice (and in no event less than fifteen (15) Business Days’ advance notice whenever feasible) of substantive meetings with any Regulatory Agency in the Territory that are either scheduled with or initiated by or on behalf of NT Pharma or its Affiliates; (ii) an opportunity to have a reasonable number (but at least one (1)) representative participate in all substantive meetings with any such Regulatory Agency, and in any case keep Pfenex informed as to all material interactions with any such Regulatory Agency; and (iii) a copy of any material documents, information and correspondence submitted to any Regulatory Agency as soon as reasonably practicable.

(c)     Use of Regulatory Materials .

(i)    To the extent permitted by Applicable Law and necessary or useful to obtain or maintain any Regulatory Approval for Product in the Territory, NT Pharma shall have a right to refer to and use in filing for Regulatory Approval with Regulatory Agencies in the Territory, all (i) regulatory filings, (ii) regulatory approvals and (iii) documents, information and data contained in such filings or approvals, which Pfenex has used or filed with or produced to a Regulatory Agency with respect to Product or the Pfenex Technology. Pfenex shall submit and file with the applicable Regulatory Agency all documents necessary or advisable to grant to NT Pharma such rights to such filings, approvals, documents, information or data, subject in each case to the requirements and restrictions of the applicable Regulatory Agency. NT Pharma may sublicense the right of reference set forth in this Section 3.4(c)(i) to its sublicensees in the Territory in accordance with Section 2.2.

(ii)    To the extent permitted by Applicable Law and necessary or useful to obtain or maintain any Regulatory Approval for Product outside the Territory, Pfenex shall have a right to refer to and use in filing for Regulatory Approval with Regulatory Agencies outside the Territory, all (i) regulatory filings, (ii) regulatory approvals and (iii) documents, information and data contained in such filings or approvals, which NT Pharma has used or filed with or produced to a Regulatory Agency in the Territory with respect to Product or the Pfenex Technology. If any of the documents, information and data provided in the preceding sentence are submitted directly to any Regulatory Agency outside the Territory by Pfenex or any of its other licensees or enable Pfenex or any of its other licensees to apply for Regulatory Approval in any jurisdiction outside the Territory without the need to conduct human clinical studies, Pfenex shall reimburse NT Pharma for a portion of the out-of-pocket expenses incurred by NT Pharma during the Product development process for developing such documents, information or data, and the specific amount will be discussed and agreed by the Parties in good faith. All documents, data and information provided by NT Pharma under this Section 3.4(c)(ii), except in the case of information originally provided to NT Pharma by or on behalf of Pfenex, shall remain the sole property of

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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NT Pharma, shall be deemed to be the Confidential Information of NT Pharma, and shall not be used by Pfenex for any purpose other than the development and commercialization of Product outside the Territory, and NT Pharma shall not be obligated to provide any translations. NT Pharma shall submit and file with the applicable Regulatory Agency all documents necessary or advisable to grant to Pfenex such rights to such filings, approvals, documents, information or data, subject in each case to the requirements and restrictions of the applicable Regulatory Agency. Pfenex may sublicense the right of reference set forth in this Section 3.4(c)(ii) to a licensee solely for use in connection with the development, manufacture or commercialization of Product outside the Territory provided that Pfenex has obtained from that licensee, for the benefit of NT Pharma, a right of reference of comparable scope as set forth in Section 3.4(c)(i), mutatis mutandis , to the extent permitted by Applicable Law.

(iii)    Each Party disclaims any representation or warranty that any filings, approvals, documents, information or data provided as set forth in this Section 3.4(c) shall meet the requirements of any particular country, or that such filings, approvals, documents, information or data shall be adequate or usable by the other Party in connection with seeking any Regulatory Approval in any particular country.

(d)     Regulatory Assistance .

(i)    Pfenex shall cooperate and provide NT Pharma with reasonable assistance in connection with the exercise by NT Pharma of its rights and performance by NT Pharma of its obligations under this Section 3.4 and, in connection therewith, Pfenex shall provide to NT Pharma all Product dossiers and other information that are in Pfenex’s possession or control (in such form as maintained by or on behalf of Pfenex in the ordinary course of business, and without obligation to provide any translations) and reasonably requested by NT Pharma for purposes of applying for and obtaining Regulatory Approvals for Product in the Territory, and NT Pharma shall be entitled to use such dossiers and other information for such purpose.

(ii)    NT Pharma shall cooperate and provide Pfenex with reasonable assistance in connection with the exercise by Pfenex of its rights and performance by Pfenex of its obligations under this Section 3.4 and, in connection therewith, NT Pharma shall provide to Pfenex all Product dossiers and other information that are in NT Pharma’s possession or control (in such form as maintained by or on behalf of NT Pharma in the ordinary course of business, and without obligation to provide any translations) and reasonably requested by Pfenex for purposes of applying for and obtaining Regulatory Approvals for Product outside the Territory, and Pfenex shall, subject to the payment requirement provided in Section 3.4(c)(ii) (if applicable), be entitled to use such dossiers and other information for such purpose.

Section 3.5     Commitment Activities .

(a)     NT Pharma Responsibilities .    NT Pharma shall have the exclusive right to control and shall be responsible for (i) all Regulatory Commitment Activities and post-marketing surveillance studies and data collection and analysis with respect to Product in the Territory; (ii) all pharmacovigilance activities with respect to Product in the Territory (subject to the PV Agreement); and (iii) all medical investigations and evaluations and the reporting of adverse events related to Product in the Territory, in each case (clauses (i) – (iii)) as required under Applicable Law or by any Regulatory Agency in

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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the applicable jurisdictions (collectively, the “ Commitment Activities ”). NT Pharma shall bear the expense of all Commitment Activities.

(b)     Pfenex Assistance . Pfenex shall cooperate and provide NT Pharma with reasonable assistance in connection with the performance by NT Pharma of its obligations under this Section 3.5, including providing NT Pharma with access to manufacturing and or clinical study sites, records, documents, data and other information related to any manufacturing batch, or preclinical or clinical study conducted by or on behalf of Pfenex hereunder to the extent reasonably necessary in connection with the Commitment Activities, including batch records, protocols, statistical analysis plans, final clinical study reports and clinical study enrollment information, progress, results and data generated in scientific studies or memorialized in laboratory notebooks with respect to Product.

Section 3.6     Medical Affairs .

(a)     Medical Affairs Strategy . NT Pharma shall have the exclusive right to control, and shall use Commercially Reasonable Efforts to conduct, a comprehensive strategy of all medical affairs matters relating to Product in the Territory (the “ Territory Medical Affairs Strategy ”), including with respect to (i) the preparation of any publication based on data and other information relating to any trial or study with respect to Product in the Territory, or (ii) the planning and implementation of congress participations, medical education programs and key opinion leader or advisory board meetings with respect to Product in the Territory. NT Pharma shall bear the expense with respect to conducting the Territory Medical Affairs Strategy.

(b)     Pfenex Assistance . Pfenex shall cooperate and provide NT Pharma with reasonable assistance in connection with the performance by NT Pharma of its obligations under this Section 3.6.

Section 3.7     Non-Competition .

(a)     Competing Products . Notwithstanding anything contained herein to the contrary, neither NT Pharma nor its Affiliates shall, directly or indirectly, itself, through an Affiliate or otherwise, (i) research, develop, obtain Regulatory Approval for (or take any actions directed thereto), manufacture, market, import, offer for sale, sell or otherwise commercialize (including through a distributor or other Third Party) any Competing Product during the Term or (ii)  authorize or assist (including by investing in or otherwise providing funding to) any Third Party to do any of the foregoing.

(b)     Post Effective-Date Affiliates . In the event that, after the Effective Date, NT Pharma enters into any transaction (a “ Subject Transaction ”) whereby a Third Party that is engaged in activities that would otherwise be prohibited by Section 3.7(a) (the “ Competing Activities ”) becomes an Affiliate of NT Pharma or merges with NT Pharma (such Affiliate or, in the event of a merger, the portion of the business which is not NT Pharma’s business immediately prior to the Subject Transaction, the “ Other Business ”), NT Pharma shall provide notice to Pfenex within five (5) Business Days of the closing of the Subject Transaction, specifying the identity of the Other Business and describing in reasonable detail, to the extent permitted by Applicable Law and without disclosing any proprietary information, the Competing Activities and their focus. Such notice shall also state whether NT Pharma elects to: (A) Divest the Competing Activities; (B) assign all of

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

18


its rights and obligations under this Agreement to a Third Party (and such assignment shall not require the prior written consent of Pfenex pursuant to Section 12.7, provided that such Third Party has capabilities to fulfill all of the obligations of NT Pharma under this Agreement; (C) keep separate all of the Competing Activities not so included within the activities under this Agreement; or (D) cease engaging in the Competing Activities within ninety (90) days following the consummation of the Subject Transaction; provided that:

(i)    NT Pharma shall not have the right to make the election described under clause (C) above if [***] of the Other Business’ business immediately prior to the Subject Transaction consists of the Competing Activities (as measured by the percentage of both research and development expenditures and revenue with respect to the Competing Activities when compared to the research and development expenditures or revenue, as applicable, of the Other Business in total for the trailing twelve month period ending upon the consummation of the Subject Transaction).

(ii)    In the event NT Pharma elects the option described in clause (C) above, then (I) NT Pharma shall not have the right to exercise any of its rights or fulfill any of its obligations under this Agreement through such Other Business, (II) such Other Business shall not receive any license or other right under any Pfenex Technology for any Competing Activities, (III) Pfenex shall not have any license under any Patents or Know-How Controlled by the Other Business that was not licensed to Pfenex prior to the Subject Transaction, (IV) NT Pharma shall maintain capacity and resources that are reasonably necessary to fulfill its obligations under this Agreement, to the extent NT Pharma was required to maintain such capacity and resources had the Subject Transaction not occurred, and (V) NT Pharma shall use its Commercially Reasonable Efforts to put procedures and mechanisms in place to separate its activities under this Agreement and the Competing Activities, including preventing any disclosure of the Confidential Information of Pfenex to the Other Business and to prevent receipt or use for activities under this Agreement of any technology or proprietary information of the Other Business.

(iii)    In the event NT Pharma elects the option described in clause (A) or (B) above, then NT Pharma shall Divest the Competing Activities or all of its rights and obligations under this Agreement (as applicable, the “ Divestible Asset ”) as soon as reasonably practicable following the Subject Transaction. For purposes of this Section 3.7(b), “ Divest ” means, with respect to the Divestible Asset, (I) the sale, exclusive license or other transfer of all of the right, title and interest in and to such Divestible Asset, including all Intellectual Property and other assets relating solely thereto, to a Third Party (other than the Other Business), without the retention or reservation of any rights, license or interest (other than solely an economic and other customary termination interests) by NT Pharma or Other Business in such Divestible Asset, and (II) the complete shutdown of the Divestible Asset such that no Intellectual Property or other asset solely relating thereto is used by NT Pharma or its Affiliates and delivery of written confirmation from NT Pharma to Pfenex that NT Pharma and its Affiliates covenant not to use any Intellectual Property and assets solely relating to such Divestible Asset.

Section 3.8     Divestment of Assets by Pfenex .    Pfenex shall not transfer any of its assets or rights to a Third Party or engage in any other kind of transaction with a Third Party that may render Pfenex unable to fully perform its obligations under this Agreement (except for the situation described in Section 12.7), unless approved in writing by NT Pharma.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

19


ARTICLE IV.

PAYMENTS

Section 4.1     Upfront License Payment . NT Pharma shall pay to Pfenex a one-time, non-refundable (except as provided in Section 10.2(b)(v)) upfront license payment in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the “ Upfront Payment ”), such amount to be paid on the Effective Date.

Section 4.2     Development Milestone Payment . In further consideration of NT Pharma’s rights under this Agreement, NT Pharma shall pay to Pfenex a one-time, non-refundable milestone payment in the amount of [***] within five (5) Business Days following [***].

Section 4.3     Sales Milestone Payment . In further consideration of NT Pharma’s rights under this Agreement, NT Pharma shall pay to Pfenex a one-time, non-refundable milestone payment in the amount of [***] following [***].

Section 4.4     Royalties .

(a)    Commencing on the date on which the First Commercial Sale with respect to Product occurs in the Territory and continuing so long as there are Net Sales, NT Pharma shall pay to Pfenex a royalty for each Quarterly Period in a given Annual Period in an amount equal [***] of Annual Net Sales of Product in the Territory during such Annual Period.

(b)    Within forty-five (45) days following the end of each Quarterly Period, NT Pharma shall pay to Pfenex all amounts payable pursuant to this Section 4.4 by wire transfer of immediately available funds to the account designated by Pfenex.

Section 4.5     Reports .

(a)    With respect to every Quarterly Period for which NT Pharma is obligated to make any payments under Section 4.4, NT Pharma shall furnish to Pfenex a written report for such Quarterly Period within thirty (30) days after the end of such Quarterly Period showing in reasonably specific detail:

(i)    the total gross amounts invoiced for Product sold by NT Pharma or its Affiliates or sublicenses and the calculation of Net Sales for Product during such Quarterly Period, including amounts deducted by category from gross amounts invoiced to arrive at Net Sales;

(ii)    the exchange rates used in determining any payment amount in Dollars; and

(iii)    the total amounts due to Pfenex under Section 4.4.

(b)    With respect to sales of Product invoiced in Dollars, the gross sales, Net Sales (including all deductions permitted to be made hereunder in calculating the same) shall be expressed in Dollars. With respect to any sale of Product invoiced in a currency other than Dollars, the gross sales, Net Sales (including all deductions permitted to be made hereunder in calculating the same) shall be expressed in their Dollar equivalent, calculated using the foreign currency exchange rate for the applicable currency

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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used by NT Pharma in the ordinary course of business to publicly report its financial results.

Section 4.6     Payment Terms . All payments under this Agreement shall be made in Dollars and, unless otherwise provided herein, shall be (a) due within forty-five (45) days from the date of invoice and (b) non-refundable and non-creditable. Any payments or portions thereof due hereunder which are not paid when due shall bear interest equal to the lesser of the rate equal to the thirty (30) day U.S. dollar LIBOR rate effective for the date that payment was due, as published by The Wall Street Journal , Internet Edition at www.wsj.com in the “Money Rates” column, plus an additional annual interest rate of two percent (2%), or the maximum rate permitted by Applicable Law, calculated on the number of days such payment is delinquent. This Section 4.6 shall in no way limit any other non-monetary remedies available to either Party.

Section 4.7     Records; Audit Rights . NT Pharma shall, and shall cause its Affiliates and sublicensees (as applicable) to, maintain complete and accurate books and records, in sufficient detail to confirm the accuracy of payments with respect to royalties under this Agreement (the “ Product Financial Records ”). NT Pharma shall retain all Product Financial Records for a period of at least three (3) years or for such longer period to the extent required by Applicable Law. During such period, upon the written request of Pfenex, the Product Financial Records possessed by, or reasonably available to, NT Pharma shall be subject to inspection and audit by and at the expense of Pfenex no more than once in any Annual Period (or more frequently upon demonstration of reasonable cause). Such audits shall occur upon reasonable notice and during normal business hours by an independent auditor selected by Pfenex and confirmed in advance by NT Pharma, which confirmation shall not be unreasonably withheld or delayed. Pfenex shall treat all information received or subject to review under this Section 4.7 as Confidential Information of NT Pharma in accordance with the provisions of Article VIII. Pfenex shall cause its independent auditor to enter into, before the commencement of such audit, a confidentiality agreement, in form and substance reasonably acceptable to NT Pharma, to maintain such records and information of NT Pharma in confidence in accordance with Article VIII and not use such records or information except to the extent permitted by this Agreement, including any enforcement of the provisions hereof. If any such audit reveals that NT Pharma has failed to accurately make any payment required under this Agreement, then NT Pharma shall promptly pay to Pfenex any underpaid amounts due under this Agreement, together with interest calculated as set forth in Section 4.6, or Pfenex shall promptly pay to NT Pharma any overpaid amounts paid under this Agreement, as the case may be. If any such audit reveals an underpayment of amounts due under this Agreement greater than five percent (5%) of the amounts actually due for any Annual Period, then NT Pharma shall pay the reasonable out-of-pocket costs incurred in conducting such audit.

ARTICLE V.

MANUFACTURE OF PRODUCT; PHARMACOVIGILANCE; SALES AND

MARKETING

Section 5.1      Manufacturing Responsibility . Pfenex shall be responsible for and control the manufacturing of Product (including Drug Substance) for development and commercialization in the Territory and shall control the procurement, manufacture, and qualification of the Components required for the manufacture of such Product, for supply to NT Pharma in accordance with this Agreement. In connection therewith, Pfenex may elect to manufacture, fill and package Product itself or engage one or more Third Parties to

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

21


manufacture, fill or package Product on its behalf. The transfer price of Product supplied by Pfenex to NT Pharma shall be [***]. [***], which amounts shall be adjusted annually based on the percentage increase or decrease in the most recent calendar year Producer Price Index, Industry: Pharmaceutical Preparations, Series ID: PCU2834# (N), as published by the U.S. Department of Labor, Bureau of Labor Statistics. [***]. Not later than nine (9) months prior to the estimated date of obtaining Regulatory Approval for Product in Mainland China, the Parties shall in good faith negotiate and enter into a supply agreement and a quality agreement with respect to the supply of Product by Pfenex to NT Pharma, containing provisions for the transfer price as set forth in this Section 5.1 and other terms and conditions typical in such agreements and consistent with the terms of this Agreement.

Section 5.2     Product Packaging and Labeling . Subject to Section 6.1, NT Pharma shall control the content and type of all Packaging Specifications (and any changes or supplements thereto) for Product in the Territory, and shall be responsible, at its own expense, for performing any repackaging with respect to the secondary packaging of the Product as necessary to comply with Applicable Law or commercial requirements in the Territory.

Section 5.3     Product Documentation . Subject to Section 6.1, NT Pharma shall control the content and type of, and procurement of, at its own expense, all Product Documentation (and any changes or supplements thereto) for Product in the Territory.

Section 5.4     Non-Medical Product Complaints . Pfenex, shall have the exclusive right to control, and shall be responsible for, the management of (including the preparation of all responses with respect to) all Product complaints received from a Third Party (each, a “ Product Complaint ”) related to manufacturing or packaging of Product for development or commercialization in the Territory and, in connection therewith, NT Pharma shall provide all reasonable assistance requested by Pfenex in connection with its preparation of the response to such Product Complaints at Pfenex’s cost and expense.

Section 5.5     Product Recalls . NT Pharma shall, at its sole expense, have the exclusive right to control, and shall be responsible for, any recall of Product in the Territory, with the cooperation and assistance of Pfenex. Notwithstanding the foregoing, if the recall is caused by a defect in the Product (a) for which Pfenex is responsible under the supply agreement or the quality agreement as provided above in Section 5.1, or (b) due to a breach of Applicable Law, negligent act or willful misconduct of Pfenex or its Affiliates (including their subcontractors, if applicable), then all the costs and expenses for the recall and any related fines and penalties shall be borne by Pfenex.

Section 5.6     Registrations . Pfenex shall, at its sole expense, obtain and maintain all Registrations with respect to the manufacture of the Product for development and commercialization in the Territory. Pfenex hereby represents and warrants that, to Pfenex’s Knowledge, as of the Effective Date, it is not aware of any such Registrations specific to any portion of the Territory. NT Pharma (a) hereby represents and warrants that, to NT Pharma’s Knowledge, as of the Effective Date, it is not aware of any such Registrations specific to any portion of the Territory and (b) agrees that, in the event that Pfenex is required by Applicable Law to obtain any such Registration(s) specific to any portion of the Territory, NT Pharma shall pay for the costs of obtaining and maintaining such Registration(s).

Section 5.7     Regulatory Inspections . Except as otherwise provided herein, Pfenex shall be responsible, at its sole expense, for handling and responding to all Regulatory

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Agency inspections with respect to Pfenex’s manufacture of Product. To the extent that Pfenex requires the assistance of NT Pharma in order to fulfill its obligations pursuant to this Section 5.7, NT Pharma shall reasonably cooperate with and assist Pfenex in connection therewith.

Section 5.8     Product Pricing and Promotion; Agency Contacts .

(a)    Subject to Section 6.1, NT Pharma shall, at its sole expense, have the exclusive right to control, and shall be responsible for, the advertising, marketing, promotion (including preparing and distributing Product Documentation), sales prices and pricing, promotional and marketing strategies and terms of sale for Product in the Territory. NT Pharma shall be the contact for review and discussion of all Product Documentation for Product with the applicable Governmental Authorities in the Territory.

(b)    If NT Pharma or any of its Affiliates sells Product to a Third Party to whom it also sells or otherwise provides other products or services (which are not Bundled Products), NT Pharma and its Affiliates shall not shift, allocate, price, discount or otherwise weigh payments received in any such transaction or any combination of transactions, with the purpose of reducing or disadvantaging the Net Sales of Product in favor of any other product, service or consideration in order to reduce the payments owed by NT Pharma to Pfenex hereunder.

Section 5.9     Reporting; Adverse Drug Reactions .

(a)     Pharmacovigilance Agreement . Not later than the first delivery of Product by or on behalf of Pfenex to NT Pharma or its designee pursuant to Section 5.1, the Parties shall enter into a pharmacovigilance agreement (the “ PV Agreement ”) on reasonable and customary terms, which agreement shall (i) contain detailed procedures regarding the maintenance of core safety information and the exchange of safety data relating to Product (including Adverse Drug Response reporting) on a worldwide basis, (ii) provided that, as between the Parties, Pfenex shall be responsible for establishing and maintaining the worldwide safety database relating to Product, and (iii) ensure compliance with the reporting requirements of all applicable Regulatory Agencies (including the FDA) on a worldwide basis with respect to Product.

(b)     Adverse Event Reporting . Without limiting Section 5.9(a), each Party shall within one (1) Business Day (after becoming aware of such information) report all customer complaints and Adverse Drug Responses in English to the other Party (or its designee for such purpose). As between the Parties, NT Pharma shall be responsible for the timely reporting of all Adverse Drug Responses, complaints and safety data relating to Product to each applicable Regulatory Agency in the Territory in accordance with Applicable Law. Pfenex shall also inform NT Pharma as soon as practicable under the circumstances of any compliance or safety issues of which Pfenex becomes aware and which have led to a regulatory action with respect to Product.

Section 5.10     Sales and Marketing . NT Pharma shall use Commercially Reasonable Efforts to market, promote, sell and distribute Product in the Territory and, as between the Parties, shall bear all costs to market, promote, sell and distribute Product in the Territory.

Section 5.11     Ex-Territory Sales; Export Monitoring.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(a)     Ex-Territory Sales . Subject to applicable laws, neither Party shall engage in any advertising or promotional activities relating to Product directed primarily to customers or other buyers or users of Product located outside the Territory in the case of NT Pharma or inside the Territory in the case of Pfenex (such territory with respect to such Party, the “ Commercial Territory ”) or accept orders for Product from or sell Product into the other Party’s Commercial Territory for its own account, and if a Party receives any order for Product in the other Party’s Commercial Territory, it shall refer such orders to the other Party. Pfenex shall use Commercially Reasonable Efforts to impose comparable obligations as set forth in this Section 5.11(a) upon its Affiliates, other licensees or distributors operating within Pfenex’s Commercial Territory. For avoidance of any doubt, nothing contained in this paragraph shall affect Pfenex’s obligation to indemnify NT Pharma Indemnitees as provided in Section 11.1.

(b)     Export Monitoring . Each Party shall use Commercially Reasonable Efforts to monitor and prevent exports of Product from its own Commercial Territory for commercialization in the other Party’s Commercial Territory using methods permitted under Applicable Law that are commonly used in the industry for such purpose, and shall promptly notify the other Party of any such exports of Product from its Commercial Territory, and any actions taken to prevent such exports. Each Party agrees to take reasonable actions requested in writing by the other Party that are consistent with Applicable Law to prevent exports of Product from its Commercial Territory for commercialization in the other Party’s Commercial Territory.

ARTICLE VI.

TERRITORY PRODUCT TRADEMARK; INTELLECTUAL PROPERTY

LITIGATION

Section 6.1     Territory Product Trademarks .

(a)    Subject to the terms and conditions of this Agreement (including the performance by Pfenex of its manufacturing obligations under this Agreement), Pfenex hereby grants to NT Pharma an exclusive, transferable (solely in accordance with Section 12.7), sublicenseable (subject to the provisions of Section 2.2) license to use the Existing Trademark solely in connection with commercialization of Product in the Territory during the Term (the “ Trademark License ”). Pfenex shall use Commercially Reasonable Efforts to (i) complete registration of the Existing Trademark in each jurisdiction within the Territory as soon as practically possible, and (ii) maintain the registration of such trademark during the Term.

(b)    NT Pharma shall commercialize Product in the Territory solely under the Existing Trademark, provided that NT Pharma shall otherwise have the sole right to select the trade dress, style of packaging, labeling and the like used in connection with the commercialization of Product in the Territory, including promotional or advertising taglines. The commercialization of Product in the Territory under any trademark other than the Existing Trademark shall be subject to the prior written consent of Pfenex except that NT Pharma shall have the sole right to select and register in its own name a Chinese trademark the pronunciation of which shall be similar to that of the Existing Trademark to the extent feasible for use in connection with the commercialization of Product in Mainland China. Any such other trademark under which Product is commercialized in the Territory, including all goodwill associated therewith, and all applications, registrations, extensions, renewals and other rights relating thereto, shall be collectively referred to as a

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Territory Product Trademark .” NT Pharma shall be the exclusive owner of each Territory Product Trademark, excluding, for the avoidance of doubt, the Existing Trademark which is owned by Pfenex and licensed to NT Pharma pursuant to Section 6.1(a). NT Pharma shall have the sole right to register and renew, at its expense, each such Territory Product Trademark in any country or jurisdiction of NT Pharma’s choosing, provided that the Existing Trademark shall be registered and renewed by Pfenex.

(c)    NT Pharma shall fully comply with all reasonable guidelines, if any, communicated by Pfenex concerning the use of the Existing Trademark. NT Pharma acknowledges the validity of the Existing Trademark, and shall not challenge or assist others to challenge the Existing Trademark (except to the extent such restriction is expressly prohibited by Applicable Law) or the registration thereof or attempt to register any trademarks, marks or trade names confusingly similar to those of Pfenex. NT Pharma shall not engage in any activity that would adversely affect the name, reputation or goodwill of Pfenex or the Product. Except as set forth in this Section 6.1, nothing contained in this Agreement shall grant or shall be deemed to grant to NT Pharma any right, title or interest in or to the Existing Trademark. Upon termination of this Agreement, NT Pharma shall immediately cease to use the Existing Trademark, subject to NT Pharma’s rights during the Inventory Sell Down Period pursuant to Section 10.4(c).

(d)    To the extent permitted by Applicable Law, at Pfenex’s election, the Product Documentation, including labels (subject to space limitations) shall include the Pfenex tradename and associated mark (as may be updated from time to time, the “ Pfenex Housemark ”) to be placed in a size (but not less than thirty percent (30%) of that of NT Pharma or its Affiliate) and location reasonably agreed to by the Parties and consistent with the standards of the pharmaceutical industry. Subject to the foregoing, Pfenex hereby grants to NT Pharma, its Affiliates and Third Party distributors a limited right to use the Pfenex Housemark solely in connection with the sale and marketing of Product in the Territory in accordance with this Agreement. The Pfenex Housemark and all goodwill associated therewith, and all applications, registrations, extensions and renewals and other rights relating thereto, shall be the sole property of Pfenex. Pfenex shall have the sole right to register and renew, at its expense, the Pfenex Housemark, or any portion thereof, in any country or jurisdiction of Pfenex’s choosing.

Section 6.2     Ownership of Inventions . All right, title and interest in and to all inventions and Know-How, including all Intellectual Property rights in the foregoing, made, conceived, reduced to practice or otherwise generated by or on behalf of a Party or its Affiliates, or jointly by or on behalf of the Parties or their Affiliates, in connection with this Agreement (collectively, “ Inventions ”) shall be solely owned by Pfenex. NT Pharma hereby assigns to Pfenex all of its right, title and interest in and to all Inventions (including related Patents and Know-How) and agrees to execute and deliver all documents and instruments reasonably requested by Pfenex to effect, evidence or record the foregoing assignment. NT Pharma shall promptly disclose to Pfenex all Inventions made, conceived, reduced to practice or otherwise generated by or on behalf of a NT Pharma or its Affiliates, solely or jointly, and shall promptly respond to reasonable requests from Pfenex for additional information relating to such Inventions.

Section 6.3     Patent Prosecution and Maintenance of Inventions . Pfenex shall have the first right to Prosecute and Maintain all Patents claiming Inventions, at its own cost and expense. Pfenex shall consult with NT Pharma and keep NT Pharma reasonably informed of the status of such Patents in the Territory and shall promptly provide NT Pharma with all

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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material correspondence received from any patent authority in the Territory in connection therewith. In addition, Pfenex shall promptly provide NT Pharma with drafts of all proposed material filings and correspondence to any patent authority in the Territory with respect to such Patents for NT Pharma’s review and comment prior to the submission of such proposed filings and correspondence. Pfenex shall consider in good faith any comments provided by NT Pharma in a timely manner, prior to submitting such filings and correspondence to the applicable patent authority in the Territory. If Pfenex decides to discontinue the Prosecution or Maintenance of any such Patent in any jurisdiction in the Territory, it shall notify NT Pharma of such decision. Thereafter, NT Pharma shall have the right, but not the obligation, to Prosecute and Maintain such Patent in such jurisdiction in the Territory at its own cost and expense, if doing so does not, in Pfenex’s reasonable, good faith determination, cause a material adverse effect on Pfenex’s Intellectual Property rights covering products other than Product.

(a)     Disclosures . Each Party acknowledges the highly proprietary and confidential nature of unpublished patent applications and related information and without limiting the provisions of Article VIII agrees to limit the access to any such applications and information received from the other Party hereunder to those who need such access for the purposes of this Section 6.3 and limit the use thereof solely to the purposes of this Section 6.3. Without limiting the foregoing, any disclosures made pursuant to this Section 6.3 will be structured in a manner so as provide reasonable access to the applicable information while limiting the risk of adversely affecting the patentability of the subject matter disclosed.

Section 6.4     Manufacturing Process .

(a)    In the event that any Third Party commences any Action against either Party or any of such Party’s Affiliates alleging that the manufacture of Product (including the use of any Pfenex Technology in the manufacture of Product) infringes any Intellectual Property of such Third Party (a “ Manufacturing Action ”), the Party against whom such Action is commenced shall provide the other Party prompt written notice thereof, and Pfenex shall have the sole right to control the defense of such Manufacturing Action (including any settlement, compromise or consent to any judgment with respect thereto). If Pfenex elects to assume control over the defense of any such Manufacturing Action where NT Pharma or its Affiliate is a defendant, then NT Pharma or its Affiliate shall have the right to participate with counsel of its selection (at NT Pharma’s sole cost and expense) and Pfenex shall, subject to Section 6.4(b), continue to control and defend NT Pharma or its Affiliate until final judgment in such Manufacturing Action.

(b)    NT Pharma shall provide, at the cost and expense of Pfenex, all cooperation and assistance reasonably requested by Pfenex in connection with any Manufacturing Action, including (i) providing Pfenex with detailed responses to its inquiries, and (ii) identifying and providing witnesses in the Territory who will assist in the preparation of evidence, provide written evidence, appear as witnesses in court and assist in other ways that Pfenex reasonably requests.

Section 6.5     Enforcement Actions .

(a)    Each Party shall promptly give the other Party written notice (each, an “ Infringement Notice ”) of any actual or suspected infringement, misappropriation or other violation by a Third Party of the Pfenex Technology in the Territory (“ Infringing

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Activity ”) that come to such Party’s or any of its Affiliates’ attention, as well as the identity of such Third Party and any evidence of such Infringing Activity within such Party’s or any of its Affiliates’ custody or control that such Party or any of its Affiliates is reasonably able to provide.

(b)    Pfenex shall have the first right, but not the obligation, at Pfenex’s cost and expense, to take any action in response to such Infringing Activity and to enter into or permit the settlement of any litigation or other enforcement action (collectively, “ Enforcement Actions ”); provided that Pfenex shall provide prompt written notice of any Enforcement Action to NT Pharma arising from the development, manufacture, launch, marketing, commercialization and sale of a Competing Product in the Territory (each, a “ Competing Product Enforcement Action ”), permit NT Pharma (subject to the Common Interest Agreement) to review and comment on such Competing Product Enforcement Action and give reasonable consideration to any comments made by NT Pharma in relation to such Competing Product Enforcement Action. If required by Applicable Law and to the extent Pfenex does not have standing, NT Pharma shall permit, and shall take all actions reasonably necessary to enable, an Enforcement Action to be brought in its name, including being joined as a necessary party, at Pfenex’s sole cost and expense. Pfenex may settle, compromise or consent to any judgment with respect to any Enforcement Action without the prior written consent of NT Pharma, on fifteen (15) Business Days’ notice to NT Pharma; provided, that if, prior to the expiration of such fifteen (15) Business Day period, NT Pharma determines, and advises Pfenex of such determination in writing, that a settlement, compromise or consent to judgment with respect to a Competing Product Enforcement Action would likely have a material adverse impact on NT Pharma in the Territory, then Pfenex shall not settle, compromise or consent to any judgment with respect to such Competing Product Enforcement Action without the prior written consent of NT Pharma (which consent shall not be unreasonably withheld, delayed or conditioned).

(c)    If Pfenex does not institute a Competing Product Enforcement Action against the Infringing Activity involving the Pfenex Technology within one (1) month from the date of the Infringement Notice and Pfenex has not provided notice to NT Pharma specifying that (i) the initiation of such Competing Product Enforcement Action is likely to invalidate or narrow the claims of any Pfenex Patent and (ii) such invalidation or narrowing would likely have a material adverse impact on Pfenex or its Affiliates, or the Pfenex Technology, NT Pharma shall have the right, but not the obligation, at NT Pharma’s sole cost and expense, to bring the Competing Product Enforcement Action; provided that NT Pharma shall provide prompt written notice of any such Competing Product Enforcement Action to Pfenex, permit Pfenex (subject to the Common Interest Agreement) to review and comment on strategic decisions and material pleadings and communications regarding such Competing Product Enforcement Action and give reasonable consideration to any comments made by Pfenex in relation to such Competing Product Enforcement Action. In such case and if required by Applicable Law and to the extent NT Pharma does not have standing, Pfenex shall permit, and shall take all actions reasonably necessary to enable, a Competing Product Enforcement Action to be brought in its name, including being joined as a necessary party, at NT Pharma’s sole cost and expense. NT Pharma may not enter into any settlement or consent to any judgment with respect to any such Competing Product Enforcement Action without the prior written consent of Pfenex (not to be unreasonably withheld, delayed or conditioned).

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(d)    In any Enforcement Action instituted by either Pfenex or NT Pharma to enforce the Pfenex Technology as provided herein above, the other Party (the “ Cooperating Party ”) shall, at the reasonable request of the Party initiating such Enforcement Action (the “ Enforcing Party ”), cooperate and provide reasonable assistance to the Enforcing Party, including (i) providing the Enforcing Party with documents (whether in written, electronic or other form) related to the Pfenex Technology in the Territory, (ii) identifying and describing any Intellectual Property that has been incorporated into the Pfenex Technology in the Territory by the Cooperating Party, and (iii) identifying and providing witnesses who will assist in the preparation of evidence, provide written evidence, appear as witnesses in court and assist in other ways that the Enforcing Party reasonably requests. To the extent that the cooperation or assistance requested results in costs being incurred by the Cooperating Party, then the Enforcing Party shall be responsible for the payment of all reasonably incurred out-of-pocket expenses.

Section 6.6     Reimbursement Requirements . To the extent that any Party would be required pursuant to this Article VI to reimburse or pay the other Party for any costs or expenses incurred by such other Party, such obligation shall be subject to submission by such other Party of reasonable documentation with respect thereto. To the extent that either Party would be entitled to be reimbursed for, or otherwise have paid, any costs or expenses incurred by such Party, such costs and expenses shall only be reimbursed or paid to the extent reasonably incurred by such Party and submitted for reimbursement or payment pursuant to an invoice, which shall be payable in accordance with Section 4.6.

Section 6.7     Recovered Amounts . Any monetary damages, court-ordered Third Party costs, settlements, royalties or other recovery received from any Third Party resulting from, arising out of or relating to any Competing Product Enforcement Action, after reimbursement of the Cooperating Party’s expenses pursuant to Section 6.6 and the Enforcing Party’s expenses, shall be distributed (a) if Pfenex is the Enforcing Party, [***] to Pfenex and [***] to NT Pharma and (b) if NT Pharma is the Enforcing Party, [***] to NT Pharma and [***] to Pfenex.

Section 6.8     Common Interest Agreement . At the request of either Party, the Parties shall enter into a common interest agreement in a reasonable and customary form acceptable to both Parties (the “ Common Interest Agreement ”) to protect each Party’s privilege to the extent possible under Applicable Law.

Section 6.9     Patent Marking . Pfenex, in its discretion, shall mark (or cause to be marked) Product supplied to NT Pharma hereunder for sale in the Territory with appropriate Pfenex Patent numbers or indicia to the extent permitted by Applicable Law, for those countries in the Territory in which such notices impact recoveries of damages or remedies available with respect to infringement of Patents.

Section 6.10     Article XI Not Applicable . Article XI shall not apply to the extent its application would be inconsistent with this Article VI.

ARTICLE VII.

EXECUTIVE STEERING COMMITTEE

Section 7.1     Formation and Purpose . In order to oversee, review and coordinate the activities of the Parties under this Agreement, Pfenex and NT Pharma will form an executive

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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steering committee upon the Effective Date (the “ Executive Steering Committee ”), whose initial members are listed in that certain memorandum exchanged between the Parties before the Effective Date and referencing this Agreement. The Executive Steering Committee shall, in accordance with the procedures set forth in Section 7.4, (a) review and comment on the development and commercialization of Product in the Territory, (b) consult with NT Pharma regarding NT Pharma’s plans for seeking Regulatory Approval in the Territory, (c) review and comment on the creation and implementation of strategies related to the Patents of Third Parties, in each case with respect to the development, manufacture, launch (including obtaining Regulatory Approval), marketing, commercialization and sale of Product in the Territory (collectively, “ IP Strategy ”), (d) serve as a forum for discussion of matters relating to the development and commercialization of Product in the Territory, (e) establish one or more working committees and subcommittees as may be established by mutual consent of Pfenex and NT Pharma (each, a “ Working Committee ”), and (f) perform such other duties as are specifically assigned to the Executive Steering Committee in this Agreement. The Executive Steering Committee shall be the primary forum for Pfenex and NT Pharma to communicate with one another regarding the plans for, and progress of, the development and commercialization of Product in the Territory.

Section 7.2     Membership . The Executive Steering Committee shall consist of three (3) individuals appointed by NT Pharma and three (3) individuals appointed by Pfenex. If either Pfenex or NT Pharma seeks to appoint any individual who is not listed in that certain memorandum exchanged between the Parties before the Effective Date and referencing this Agreement (which shall include not only the initial members of the Executive Steering Committee, but also other pre-approved potential appointees of Pfenex and NT Pharma), then the appointing Party shall notify the non-appointing Party and the non-appointing Party shall have the right to comment on each such appointee, which comments the appointing Party shall consider in good faith. Unless otherwise agreed by the Parties, the Executive Steering Committee and each Working Committee shall have at least one (1) representative with relevant decision-making authority from each Party such that such committee is able to effectuate all of its decisions within the scope of its responsibilities. Each member of the Executive Steering Committee shall be subject to the obligations of non-use and non-disclosure of Confidential Information set forth in Article VIII.

Section 7.3     Meeting Requirements . The Executive Steering Committee shall meet on a quarterly basis (or less frequently if Pfenex and NT Pharma mutually agree) during the Term, and shall hold its first meeting within (30) days after the Effective Date for purposes of discussing the Timeline. The Executive Steering Committee may meet by phone, videoconference or in person. Each meeting shall be held on a date to be agreed upon by Pfenex and NT Pharma. Notwithstanding the foregoing, meetings may be called at any time if requested by either Party by prior written notice, including the proposed agenda of the meeting, sent to the other Party at least two (2) weeks in advance; provided that if a meeting is requested to be convened urgently pursuant to this Agreement, Pfenex and NT Pharma shall exercise Commercially Reasonable Efforts to convene such meeting as promptly as is practicable. Meetings shall only be effective if at least one (1) representative designated by NT Pharma and one (1) representative designated by Pfenex are present or participating in the meeting.

Section 7.4     Decision-Making; Dispute Resolution .

(a)    The Executive Steering Committee shall have a single chairperson who shall (i) solicit agenda items from the other Executive Steering Committee members,

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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coordinate and prepare the agenda (which shall include any agenda items reasonably proposed by Executive Steering Committee members from the other Party), provide the agenda along with appropriate information for such agenda reasonably in advance (to the extent possible) of any meeting and ensure the orderly conduct of the Executive Steering Committee’s meetings, (ii) attend (subject to the below) each meeting of the Executive Steering Committee, and (iii) prepare and issue minutes of each meeting (which shall accurately reflect the discussions and decisions of the Executive Steering Committee at such meeting) in accordance with Section 7.5. Such minutes from each Executive Steering Committee meeting shall not be finalized until the Executive Steering Committee members from the other Party have reviewed and confirmed the accuracy of such minutes as described in Section 7.5 and if not previously confirmed, such matter shall be the first order of business at the next Executive Steering Committee meeting. The Party appointing the chairperson shall alternate between Pfenex and NT Pharma every calendar year, and shall initially be designated by Pfenex. In the event the chairperson or another representative of the Executive Steering Committee from either Party is unable to attend or participate in any meeting of the Executive Steering Committee, the Party who appointed such Executive Steering Committee chairperson or representative may appoint a substitute chairperson or other representative for that meeting. All decisions of the Executive Steering Committee and any Working Committee shall be made by consensus, with each Party having one (1) vote. Each Party shall work in good faith to reach consensus on matters and in no event shall either Party unreasonably withhold, condition or delay any approval or other decision of the Executive Steering Committee or a Working Committee hereunder. In the event a Working Committee fails to reach consensus with respect to a particular matter within its authority, then upon request by either Party such matter shall be referred to the Executive Steering Committee for resolution.

(b)    If the Executive Steering Committee is unable to reach a decision as to any matter within its authority (including any matter expressly required to be resolved by the Executive Steering Committee pursuant to this Agreement) after a period of ten (10) Business Days, then either Pfenex or NT Pharma may provide written notice of such dispute to the Chief Executive Officer of the other Party and such matter shall be resolved as set forth below. The Chief Executive Officers (or their respective designees, who shall be senior officer of Pfenex and NT Pharma, but shall not be members of the Executive Steering Committee) of each of Pfenex and NT Pharma shall discuss the dispute in person or telephonically and use their good faith efforts to resolve the dispute within thirty (30) days after submission of such dispute to such officers. If any such dispute is not resolved by the Chief Executive Officers or their designees within thirty (30) days after submission of such dispute to such officers, then:

(i)    the Chief Executive Officer of Pfenex shall have authority to finally resolve, in such officer’s reasonable discretion exercised in good faith, all matters related to (A) the Pfenex Technology, the Pfenex Expression Technology and the Prosecution and Maintenance of Patents claiming Inventions and the enforcement thereof (except for matters that NT Pharma has the right to control pursuant to Section 6.5(c)), (B) information supporting or referenced in the CMC Section with respect to Product, (C) the manufacture of Product for development or commercialization purposes, (D) the content of proposed publications or presentations under Section 8.6 and (E) the existence of Safety Reasons under Section 10.2(a)(iv) and Section 10.2(b)(iii).

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(ii)    the Chief Executive Officer of NT Pharma shall have authority to finally resolve, in such officer’s reasonable discretion exercised in good faith, all matters related to (A) IP Strategy (other than as referenced in Section 7.4(b)(i)(A)), (B) regulatory affairs with respect to Product in the Territory (including communications with Regulatory Agencies in the Territory), (C) the marketing, promotion, sale and distribution of Product in the Territory, and (D) the protocol for any preclinical or human clinical study with respect to Product in the Territory.

Notwithstanding the foregoing, neither Party shall have any final decision-making authority with respect to matters described in Section 7.1, other than IP Strategy.

Section 7.5     Meeting Minutes . The Parties shall reasonably cooperate to finalize the definitive minutes of the Executive Steering Committee no later than thirty (30) days after the meeting to which the minutes pertain, as follows: (i) the chairperson of the Executive Steering Committee shall be responsible for preparing and sending a draft of the minutes to the other Party’s representatives, and shall furnish such draft within ten (10) days of such meeting, (ii) the other Party’s representatives shall have ten (10) days after receiving the draft minutes to collect comments and to discuss any modifications thereof and (iii) within the following ten (10) days any disputes as to the minutes shall be resolved between the Parties and the final version of the minutes shall be issued by the Party appointing the chairperson which shall be subject to approval by NT Pharma and Pfenex by signing and dating the minutes or unanimous approval of the Executive Steering Committee at its next meeting. The minutes shall include a list of any actions, decisions or determinations approved by the Executive Steering Committee and a list of any issues yet to be resolved. In addition, the minutes shall set forth the place and date where the next meeting shall be held.

Section 7.6     Expenses . Each of Pfenex and NT Pharma shall be responsible for the expenses of the participation of its representatives in the Executive Steering Committee and any Working Committees, including travel costs.

Section 7.7     Working Committees . Each Working Committee shall (a) be comprised as the Executive Steering Committee determines is necessary to fulfill its responsibilities (it being understood that a particular Working Committee may not necessarily have the same number of representatives from each Party) and (b) report into and be subordinate to the Executive Steering Committee. A Working Committee shall only have the authority expressly delegated to such Working Committee by the Executive Steering Committee. Each Working Committee shall keep the Executive Steering Committee regularly informed of the activities that it is tasked with overseeing or otherwise carrying out, both through in-person and written reporting as reasonably necessary for the Executive Steering Committee to fulfill its responsibilities with respect thereto.

Section 7.8     Committee Authority; Withdrawal .

(a)     General . Notwithstanding the creation of the Executive Steering Committee and any Working Committee, each Party shall retain the rights, powers and discretion granted to it under this Agreement, and no committee shall be delegated or vested with rights, powers or discretion unless such delegation or vesting is expressly provided herein, or the Parties expressly so agree. Neither the Executive Steering Committee nor any Working Committee shall have the power to (a) amend, modify or waive compliance with this Agreement, (b) to determine whether or not a Party has met its diligence or other obligations under the Agreement, or (c) to determine whether or not a

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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breach of this Agreement has occurred, and no decision of the Executive Steering Committee or any such Working Committee, as applicable, shall be in contravention of any terms and conditions of this Agreement. It is understood and agreed that issues to be formally decided by the Executive Steering Committee and any Working Committee, as applicable, are only those specific issues that are expressly provided in this Agreement to be decided by the Executive Steering Committee and any such Working Committee, as applicable.

(b)     Withdrawal . At any time after receipt of Regulatory Approval in Mainland China with respect to Product, and for any reason, Pfenex shall have the right to withdraw from participation in the Executive Steering Committee or any or all of the Working Committees upon notice to NT Pharma referencing this Section 7.8(b), which notice shall be effective immediately upon receipt. Thereafter, (i) any information, documents or reports that a Party is otherwise required to provide to the Executive Steering Committee pursuant to this Agreement shall be provided directly to the other Party, and (ii) any matters delegated to the Executive Steering Committee pursuant to this Agreement shall be made by mutual written agreement of the Parties, subject to the dispute resolution and final decision-making provisions of Section 7.4(b). For purposes of clarification, Pfenex’s withdrawal from the Executive Steering Committee or any Working Committee shall not affect any other obligation or responsibility of Pfenex set forth in this Agreement.

Section 7.9     Day-to-Day Responsibilities . Each Party shall be responsible for day-to-day implementation and operation of the activities under this Agreement for which it has or is otherwise assigned responsibility under this Agreement, provided that such implementation is not inconsistent with the express terms and conditions of this Agreement, the decisions of the Executive Steering Committee or any Working Committee within the scope of its authority specified herein or Applicable Law. Notwithstanding the preceding sentence, if Pfenex reasonably believes that a decision of NT Pharma relating to its development activities with respect to Product is likely to have a material adverse impact on the profile, safety, efficacy or commercial value of Product outside the Territory, it shall provide NT Pharma with written notice indicating Pfenex’s disagreement with NT Pharma’s decision together with a description, in reasonable detail, of Pfenex’s reasoning in support of such disagreement. After receipt of such notice from Pfenex, the Parties shall discuss in good faith (for a period not to exceed thirty (30) days or such longer period as may be agreed by the Parties in writing) to agree on the development activities in question, failing which the decision made by Pfenex shall be binding. Notwithstanding anything to the contrary under this Agreement, Pfenex shall not object to an activity that is required by a Regulatory Agency in the Territory.

Section 7.10     Cooperation . A Party that is obligated to cooperate with the other Party hereunder (a) may consider all relevant factors including its other then-current obligations and resource commitments when determining whether the cooperation activities are reasonable, and (b) shall not be obligated to obtain any additional resources (including hire any personnel) to accomplish its cooperation hereunder. Such Party’s obligation to cooperate in a particular activity shall not alleviate the other Party’s obligation to perform the underlying activity.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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ARTICLE VIII.

CONFIDENTIALITY; TAXES; NONSOLICITATION; PUBLICATIONS

Section 8.1     Confidentiality . Each of Pfenex and NT Pharma acknowledges that, in the course of discussions and negotiations and performing its obligations hereunder, (a) it has received or may receive information from the other Party and (b) the other Party may disclose to it information, data and processes that such other Party wishes to protect from use by and disclosure to Third Parties (all information described in clauses (a) and (b), unless subject to the Confidentiality Exceptions, “ Confidential Information ”). Each Party shall retain in confidence all Confidential Information of the other Party and (except as expressly provided herein) shall not use Confidential Information of such other Party for any purpose other than the purposes indicated herein and in connection with the performance of this Agreement or disclose such Confidential Information to a Third Party other than its Agents without the written consent of such other Party. Confidential Information shall not include information that: (i) is or becomes public knowledge (through no fault of the receiving Party or its Agents); (ii) is made lawfully available to the receiving Party, other than under an obligation of confidentiality, by a Third Party that, to the knowledge of the receiving Party, is under no duty of confidentiality to the disclosing Party; (iii) is already in the receiving Party’s possession at the time of receipt from the disclosing Party (and such prior possession can be reasonably demonstrated by competent evidence by the receiving Party) other than as a result of disclosure by a Third Party that, to the actual knowledge of the receiving Party, was under a duty of confidentiality to the disclosing Party with respect to such information; or (iv) is independently developed by the receiving Party or its Affiliates without the use of or reference to Confidential Information of the other Party (and such independent development can be reasonably demonstrated by competent evidence prepared by the receiving Party) (collectively, the “ Confidentiality Exceptions ”). Notwithstanding the foregoing, a receiving Party may use and disclose Confidential Information of the other Party (A) to the extent required by Applicable Law; provided, however, that if legally permissible, the receiving Party shall give the disclosing Party advance written notice as promptly as is practicable to permit it to seek a protective order or other similar order, at the disclosing Party’s sole cost, with respect to the disclosure of such Confidential Information, and, thereafter, the receiving Party shall disclose only the minimum Confidential Information that it is advised by counsel is required to be disclosed in order to comply; (B) to the extent such disclosure is reasonably necessary for the Prosecution and Maintenance of Patents (including applications therefor) in accordance with Section 6.3, complying with the terms of the Dow Technology Assignment Agreement and Dow Technology Licensing Agreement (provided that Pfenex shall provide NT Pharma with prior written notice of any such disclosure, including a copy of any such disclosure), prosecuting or defending litigation, conducting preclinical or clinical studies, or obtaining and maintaining regulatory approvals (including Regulatory Approvals); (C) in communication with consultants and advisors (including financial advisors, lawyers and accountants) on a need to know basis, in each case, under appropriate non-disclosure and non-use obligations substantially equivalent to those of this Agreement (provided that the disclosing Party shall be responsible for any breach of this Section 8.1 by those parties to which it discloses Confidential Information); or (D) to the extent mutually agreed to by the Parties in writing. Either Party shall have the right to disclose this Agreement to actual and potential licensees and collaborators with respect to Product, investors and acquirers of a majority of the business or assets of such Party related to this Agreement in connection with negotiations of definitive agreements, under reasonable conditions of confidentiality.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 8.2     Agents . Each of Pfenex and NT Pharma shall limit disclosure of the other Party’s Confidential Information to only those of their respective Affiliates, directors, managers, officers, employees and contractors (collectively “ Agents ”) who are concerned with the performance of this Agreement, have a legitimate need to know such Confidential Information in the performance of their duties and are bound by written obligations of non-disclosure and non-use at least as protective of the disclosing Party and its Confidential Information as the terms hereof. Each Party shall be responsible for any breach of Section 8.1 by its Agents and advisors (including financial advisors, lawyers and accountants) and shall take all reasonably necessary measures to restrain its Agents and advisors (including financial advisors, lawyers and accountants) from unauthorized disclosure or use of the Confidential Information.

Section 8.3     Restrictions on Sharing Information . Notwithstanding anything to the contrary, neither Party shall be obligated pursuant to this Agreement to provide, or grant access to, any information (a) that is Confidential Information it is prevented from disclosing to the other Party by an enforceable confidentiality agreement with a Third Party and that such Party used Commercially Reasonable Efforts to obtain the consent of such Third Party to provide or grant access to the other Party, (b) the disclosure of which would adversely affect the attorney-client privilege between such Party and its counsel, based upon the advice of such Party’s outside legal counsel, or (c) the disclosure of which is not permitted pursuant to any Applicable Law or requirement of a Governmental Authority; provided in each case where information was not provided or access was not granted as would otherwise be required under this Agreement, such Party shall inform the other Party of the reason it was not provided or granted and a description of the specific nature of the applicable information. Following the Effective Date and during the Term, in connection with entering into any material agreement (or material amendment thereof) with any Third Party related to the Business, each Party agrees to use Commercially Reasonable Efforts to negotiate with such Third Party to include provisions in such agreement (or such amendment) sufficient to allow the other Party to receive relevant Confidential Information of such Third Party.

This Agreement supersedes the Mutual Confidentiality Agreement between the Parties dated November 15, 2017 (the “ Prior Agreement ”) with respect to information disclosed thereunder. All information exchanged between the Parties under the Prior Agreement shall be deemed Confidential Information of the disclosing Party and shall be subject to the terms of Sections 8.1, 8.2 and 8.3.

Section 8.4     Taxes .

(a)    The Parties agree that for U.S. federal income tax purposes they will treat the transaction under this Agreement, unless otherwise required by Applicable Law, as a collaboration agreement that does not constitute a partnership or a joint venture, and agree to not take (or cause any Person to take), any position on any Tax return or in the course of any audit, examination or other proceeding inconsistent with such treatment, unless otherwise required by Applicable Law and except upon a final determination of the applicable Taxing Authority.

(b)    Any and all payments by or on account of any obligation of any Party under this Agreement shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the good faith discretion of the applicable withholding Party) requires the deduction or withholding of any Tax from any such payment by any Party, then such Party shall be entitled to make

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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such deduction or withholding, any amount so deducted or withheld shall be deemed paid to the other Party that was entitled to the payment subject to withholding, such Party shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with Applicable Law, and if such Tax is an Indemnified Tax, then the sum payable by the applicable Assignee shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 8.4) the applicable recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made. Upon request by the other Party, such withholding Party shall deliver to the other Party that was entitled to the payment subject to withholding, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the other Party.

(c)    Any Assignee shall indemnify the Non-Assigning Party, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 8.4) payable or paid by such Non-Assigning Party or required to be withheld or deducted from a payment to such Non-Assigning Party and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. Notwithstanding anything to the contrary in this Agreement, if a Party (the “ Taxed Party ”) obtains a credit from any Governmental Authority for any portion of any Indemnified Tax paid by the other Party, then the Taxed Party shall promptly reimburse the other Party the amount of such credit, and the Taxed Party shall use Commercially Reasonable Efforts to obtain available credits with respect to any such Indemnified Taxes.

(d)    All transfer, documentary, sales, use, excise, customs, charges, duties, ad valorem, value added, stamp, registration, recording, property and other such similar Taxes (other than, for the avoidance of doubt, Taxes assessed against income), and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) lawfully assessed or charged in connection with any of the transactions contemplated under this Agreement (collectively, “ Transfer Taxes ”) shall be paid and borne by the paying Party when due, and the Party responsible under such Applicable Law for paying such Transfer Taxes shall, at its own expense, file all necessary Tax returns and other documentation with respect to all such Transfer Taxes, and, if required by Applicable Law, the Parties will, and will cause their Affiliates to, join in the execution of any such Tax returns and other documentation.

Section 8.5     Nonsolicitation . Each Party (for purposes of this Section 8.5, a “ Soliciting Party ”) agrees that, during the Term, such Soliciting Party will not solicit for employment or consultancy, employ or engage as a consultant or solicit the termination of employment or consultancy with the other Party (a “ Solicitation Action ”), any individual that at the time of such Solicitation Action (a) is an officer or employee of the other Party or a consultant that is devoting a majority of such individual’s time to the business of the other Party and (b) is or was actively involved in the other Party’s performance of its obligations hereunder; provided, however, that the foregoing shall not prohibit (i) any advertisement or general solicitation (or hiring or engagement as an employee or consultant as a result thereof) for employment or consultancy not specifically directed at any such individual; (ii) the hiring or engagement as an employee or consultant of any such individual who initiates employment

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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or consultancy discussions with such Soliciting Party, provided that such initial discussions are not encouraged or solicited by such Soliciting Party; or (iii) any Solicitation Action with respect to any individual following the cessation of such individual’s employment with (or service as a consultant that is devoting a majority of such person’s time to the business of) the other Party without any solicitation or encouragement by such Soliciting Party.

Section 8.6     Publications . NT Pharma may publish or present data or results relating to Product in scientific journals with primary circulation in the Territory or at scientific conferences in the Territory, subject to the prior review, comment and approval by Pfenex as set forth in this Section 8.6, such approval not to be unreasonably withheld, delayed or conditioned. NT Pharma shall provide Pfenex with the opportunity to review any proposed abstract, manuscript or presentation which discloses information relating to Product by delivering a copy thereof to Pfenex no less than sixty (60) days (for publication in scientific journals) or thirty (30) days (for presentation at scientific conferences) before its intended submission for publication or presentation. Pfenex shall have thirty (30) days (for publication in scientific journals) or ten (10) days (for presentation at scientific conferences) from its receipt of any such abstract, manuscript or presentation in which to notify NT Pharma in writing of its approval or any specific objections to the disclosure. In the event that Pfenex objects to the disclosure in writing within such thirty (30) or ten (10) day period, NT Pharma agrees not to submit the publication or abstract or make the presentation containing the objected-to information until the Parties have agreed to the content of the proposed disclosure, and if the Parties are unable to agree, the matter shall be referred to the Executive Steering Committee. NT Pharma shall delete from the proposed disclosure any Confidential Information of Pfenex upon the request of Pfenex. NT Pharma shall delay any proposed disclosure to allow Pfenex sufficient time for the drafting and filing of a patent application directed to any patentable subject matter identified by Pfenex in such proposed disclosure. Once any such abstract or manuscript is accepted for publication, NT Pharma shall provide Pfenex with a copy of the final version of the manuscript or abstract. The Parties further agree that for the presentation at scientific conferences, if the abstract, manuscript or presentation intended for a forthcoming scientific conference does not go beyond that previously approved by Pfenex, then it shall be exempted from further approval by Pfenex as provided under this paragraph. NT Pharma shall not be obligated to prepare any translations under this Section 8.6 but shall provide to Pfenex any translations prepared by NT Pharma.

ARTICLE IX.

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 9.1     Representations and Warranties of Pfenex . Pfenex hereby represents and warrants to NT Pharma as of the Effective Date as follows:

(a)     Organization and Good Standing . Pfenex is duly incorporated, validly existing and in good standing under the laws of Delaware, with all requisite corporate power and authority required to conduct its business as presently conducted.

(b)     Authority . Pfenex has all requisite corporate power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. The execution and delivery by Pfenex of this Agreement and the performance by Pfenex of its obligations hereunder have been duly authorized by all requisite corporate action of Pfenex and no other action on the part of Pfenex or its stockholders or board of directors is

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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necessary to authorize the execution, delivery or performance by Pfenex of this Agreement.

(c)     Valid and Binding Agreement . This Agreement has been duly executed and delivered by Pfenex and constitutes the legal, valid and binding obligation of Pfenex, enforceable against Pfenex in accordance with its terms, except to the extent that the enforceability thereof may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and (ii) general principles of equity.

(d)     Non-Contravention . The execution and delivery of this Agreement by Pfenex and the performance by Pfenex of its obligations hereunder, including the grant of the Product License pursuant to Article II, does not and will not (i) violate any provision of the organizational documents of Pfenex, (ii) conflict with or violate any Applicable Law applicable to Pfenex or any of its assets or properties, (iii) require any permit, authorization, consent, approval, exemption or other action by, notice to or filing with any entity or Governmental Authority (other than as expressly contemplated hereby), (iv) violate, conflict with, result in a material breach of, or constitute (with or without notice or lapse of time or both) a material default under, or an event which would give rise to any right of notice, modification, acceleration, payment, cancellation or termination under, or in any manner release any party thereto from any obligation under, any permit or contract to which Pfenex is a party or by which any of its properties or assets are bound, in each case that are necessary for Pfenex’s performance of its obligations or grant of rights to NT Pharma hereunder, or (v) result in the creation or imposition of any Lien on any part of the properties or assets of Pfenex.

(e)     No Commissions . Pfenex is not under any obligation to pay any commission or similar fee in connection with the transactions contemplated by this Agreement for which NT Pharma shall be made responsible or shall become obligated to pay for any reason.

(f)     No Litigation . There is no Action against Pfenex or any of its Affiliates or that has been brought by Pfenex or any of its Affiliates which is pending or, to Pfenex’s Knowledge, threatened in writing, and, to Pfenex’s Knowledge, there is no investigation of Pfenex or its Affiliates pending before any Governmental Authority, in each case (i) that would reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement, (ii) that would reasonably be expected to materially adversely affect the Product in the Territory or the conduct of the Business in the Territory or (iii) that would reasonably be expected to materially adversely affect reimbursement for Product under any program funded by a Governmental Authority in the Territory.

(g)     Regulatory Matters; Compliance with Law . Pfenex and its Affiliates are, and have been at all times, in compliance in all respects with Applicable Laws that are or were applicable to its conduct of the Business in the Territory or its ownership or use of Product in the Territory, except where any non-compliance with Applicable Law would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Product in the Territory, the conduct of the Business in the Territory or Pfenex’s ability to perform its obligations hereunder. No Governmental Authority has notified Pfenex or any of its Affiliates or, to Pfenex’s Knowledge, subcontractors in writing that

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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any activities in its conduct of the Business in the Territory are in violation of any Applicable Law or the subject of any Action or investigation.

(h)     No Competing Products . Neither Pfenex nor its Affiliates currently owns or in-licenses a Competing Product in any stage of development or commercialization or has any currently ongoing program to develop or acquire such a Competing Product.

(i)     Pfenex Technology .

(i)    Pfenex Controls the Pfenex Patents listed in that certain memorandum exchanged between the Parties before the Effective Date and referencing this Agreement, and Pfenex has not granted any rights to any Third Party under the Pfenex Technology that conflicts with the rights granted to NT Pharma hereunder. None of the Pfenex Patents is or, to Pfenex’s Knowledge, has been the subject of any pending Action with respect to inventorship challenges, interferences, reissues, reexaminations, inter partes review, post grant review, supplemental review, invalidation, opposition, cancellation, abandonment or any order or decree of any Governmental Authority restricting the use of such Pfenex Patent in connection with Product. To Pfenex’s Knowledge, none of the Pfenex Patents is or has been the subject any threatened Action of the types described in the immediately prior sentence.

(ii)    To Pfenex’s Knowledge, neither the practice of the Pfenex Technology in the Territory, the conduct of the Business in the Territory, nor the development, making, using, sale, offer for sale, or import of Product in the Territory, infringes any Intellectual Property of any Third Party or misappropriates or makes any unauthorized use of any Intellectual Property of any Third Party. Neither Pfenex nor any of Pfenex’s Affiliates has received written notice from any Third Party claiming that the practice of the Pfenex Technology in the Territory, its conduct of the Business in the Territory, or development, making, using, sale, offer for sale, or import of Product in the Territory infringes any Intellectual Property of any Third Party or misappropriates or makes any unauthorized use of any Intellectual Property of any Third Party.

(iii)    To Pfenex’s Knowledge, no Third Party is infringing, misappropriating or making any unauthorized use of any Pfenex Technology in the Territory, and there is no Action or investigation in contemplation of an Action by Pfenex pending or threatened against any Third Party related to the Pfenex Technology in the Territory.

(iv)    None of the Pfenex Technology is subject to any outstanding decree, order, judgment or stipulation of a Governmental Authority against Pfenex, its Affiliates or, to Pfenex’s Knowledge, any other Person restricting in any manner the conduct of the Business in the Territory or the development, making, use, sale, offer for sale or import of Product in the Territory.

(v)    Other than the Dow Technology Licensing Agreement and Dow Technology Assignment Agreement, there are no contracts pursuant to which Pfenex in-licenses or otherwise has rights under any Intellectual Property of any Third Party that is material to the Business in the Territory or the Pfenex Technology. Pfenex has not out-licensed or otherwise granted rights to any Third Party under any Pfenex Technology with respect to Product or the Reference Product in the Territory.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(vi)    To Pfenex’s Knowledge, Pfenex owns or has received all licenses or otherwise has sufficient rights with respect to the Pfenex Technology necessary for Pfenex to comply with the terms of this Agreement.

(j)     Existing Trademark .    The Existing Trademark is identical to the trademark used by Pfenex in connection with the Product in the United States. The status of the Existing Trademark in the Territory is set out in Exhibit C. No one has challenged, and to Pfenex’s Knowledge, there exists no threatened challenge of, the validity or the registration of the Existing Trademark.

(k)     Manufacturing Process . To Pfenex’s Knowledge, the current processes used to manufacture and produce Product, including any Pfenex Technology contained or used therein or therewith, do not infringe the Intellectual Property of any Third Party.

(l)     Debarment . Neither Pfenex nor any of its Affiliates, nor, to Pfenex’s Knowledge, any of its subcontractors, employees or agents has ever been, is currently, or is the subject of a debarment proceeding that could lead to that party becoming, as applicable, a Debarred Entity or Debarred Individual.

Section 9.2     Representations and Warranties of NT Pharma . NT Pharma hereby represents and warrants to Pfenex as of the Effective Date as follows:

(a)     Organization and Good Standing . NT Pharma is duly incorporated, validly existing and in good standing under the laws of Cayman Islands, with all requisite corporate power and authority required to conduct its business as presently conducted.

(b)     Authority . NT Pharma has all requisite corporate power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. The execution and delivery by NT Pharma of this Agreement and the performance by NT Pharma of its obligations hereunder have been duly authorized by all requisite corporate action of NT Pharma and no other action on the part of NT Pharma or its stockholders or board of directors is necessary to authorize the execution, delivery or performance by NT Pharma of this Agreement.

(c)     Valid and Binding Agreement . This Agreement has been duly executed and delivered by NT Pharma and constitutes the legal, valid and binding obligation of NT Pharma, enforceable against NT Pharma in accordance with its terms, except to the extent that the enforceability thereof may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and (ii) general principles of equity.

(d)     Non-Contravention . The execution and delivery of this Agreement by NT Pharma and the performance by NT Pharma of its obligations hereunder does not and will not (i) violate any provision of the organizational documents of NT Pharma, (ii) conflict with or violate any Applicable Law applicable to NT Pharma or its assets or properties, (iii) require any permit, authorization, consent, approval, exemption or other action by, notice to or filing with any entity or Governmental Authority (other than as expressly contemplated hereby), (iv) violate, conflict with, result in a material breach of, or constitute (with or without notice or lapse of time or both) a material default under, or an event which would give rise to any right of notice, modification, acceleration, payment,

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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cancellation or termination under, or in any manner release any party thereto from any obligation under, any permit or contract to which NT Pharma is a party or by which any of its properties or assets are bound, in each case that are necessary for NT Pharma’s performance of its obligations or grant of rights to Pfenex hereunder or (v) result in the creation or imposition of any Lien on any part of the properties or assets of NT Pharma.

(e)     No Commissions . NT Pharma is not under any obligation to pay any commission or similar fee in connection with the transactions contemplated by this Agreement for which Pfenex shall be made responsible or shall become obligated to pay for any reason.

(f)     No Litigation . There is no Action against NT Pharma or any of its Affiliates or that has been brought by NT Pharma or any of its Affiliates which is pending or, to NT Pharma’s Knowledge, threatened in writing, and, to NT Pharma’s Knowledge, there is no investigation of NT Pharma or its Affiliates pending before any Governmental Authority, in each case (i) that would reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement, (ii) that would reasonably be expected to materially adversely affect the Product or the conduct of the Business or (iii) that would reasonably be expected to materially adversely affect reimbursement for Product under any program funded by a Governmental Authority.

(g)     Debarment . NT Pharma represents and warrants that neither it nor any of its Affiliates, Subcontractors, employees or agents has ever been, is currently, or is the subject of a debarment proceeding that could lead to that party becoming, as applicable, a Debarred Entity or Debarred Individual.

(h)     No Competing Products . Neither NT Pharma nor its Affiliates currently owns or in-licenses a Competing Product in any stage of development or commercialization or has any currently ongoing program to develop or acquire such a Competing Product.

Section 9.3     Covenants .

(a)     Debarment by Pfenex . If, during the Term, Pfenex or any of its Affiliates, subcontractors, employees or agents becomes or is the subject of any Regulatory Agency investigation or debarment proceeding that could lead to Pfenex or such Affiliate, subcontractor, employee or agent, as applicable, becoming a Debarred Entity or Debarred Individual, Pfenex shall immediately notify NT Pharma, and, if such occurrence materially and adversely affects Pfenex’s ability to perform its obligations hereunder or NT Pharma’s ability to develop, obtain Regulatory Approval for, manufacture, commercialize, promote, market, offer for sale, sell or distribute Product in the Territory, then such occurrence shall be deemed a material breach of this Agreement and NT Pharma shall have the right to terminate this Agreement pursuant to Section 10.2(b)(i).

(b)     Debarment by NT Pharma . If, during the Term, NT Pharma or any of its Affiliates, Subcontractors, employees or agents becomes or is the subject of any Regulatory Agency investigation or debarment proceeding that could lead to NT Pharma or such Affiliate, Subcontractor, employee or agent, as applicable, becoming a Debarred Entity or Debarred Individual, NT Pharma shall immediately notify Pfenex, and if such occurrence materially and adversely affects NT Pharma’s ability to perform its obligations

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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hereunder, then such occurrence shall be deemed a material breach of this Agreement and Pfenex shall have the right to terminate this Agreement pursuant to Section 10.2(a)(i).

(c)     Assignment of Inventions . Each Party shall maintain valid and enforceable agreements with all persons and entities acting by or on behalf of such Party or its Affiliates under this Agreement which require such persons and entities to assign to such Party their entire right, title and interest in and to all Inventions made by such persons and entities in connection with their activities under this Agreement.

(d)     Anti-corruption Laws . Neither NT Pharma, nor any of its Affiliates or sublicensees, in performing any of its obligations or activities under this Agreement, shall engage in any activities (such as offering a bribe to any government official), directly or indirectly (e.g., through use of an agent), that would subject Pfenex to liability under the United States Foreign Corrupt Practices Act or any other applicable anti-corruption laws.

(e)     Maintenance of Regulatory Approval . Pfenex shall use Commercially Reasonable Efforts to obtain and maintain the Regulatory Approval for the Product in the United States during the Term in compliance with the Applicable Law. If any change to the Product or the Regulatory Approval in the United States or any procedure performed with the Regulatory Agency in the United States may, to Pfenex’s Knowledge, result in a change to the Regulatory Approval in a jurisdiction within the Territory or result in a procedure needing to be performed with the Regulatory Agency within the Territory, Pfenex shall serve NT Pharma an appropriate prior notice about the intended change before implementation and shall give reasonable consideration to the suggestion or objection raised by NT Pharma.

Section 9.4     Disclaimer of Warranties . EXCEPT AS SET FORTH IN SECTION 9.1, SECTION 9.2, AND SECTION 5.6, PFENEX AND NT PHARMA EXPRESSLY DISCLAIM ANY IMPLIED WARRANTIES WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT (INCLUDING THE PRODUCT AND PFENEX TECHNOLOGY), INCLUDING ANY WARRANTY OF MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE.

Section 9.5 Public Announcements . Neither Party nor their respective Affiliates shall make any public announcement regarding this Agreement or disclose the terms and conditions of this Agreement to any Third Party without the prior written consent of the other Party (not to be unreasonably withheld, delayed or conditioned), except (a) to advisors (including consultants, financial advisors, attorneys and accountants) on a need to know basis, in each case, under circumstances that reasonably protect the confidentiality thereof, or (b) to the extent such disclosure is required by Applicable Law (including securities laws). Notwithstanding the foregoing, (i) without the prior written consent of the other Party, (A) Pfenex may (I) file with the Securities and Exchange Commission (the “ SEC ”) a Current Report on Form 8-K describing this Agreement and the transactions contemplated hereby and (II) file a copy of this Agreement with the SEC as an exhibit to such Current Report on Form 8-K or a subsequent periodic report, and (B) NT Pharma may make an announcement and issue a circular with respect to the execution of this Agreement and the transactions contemplated hereunder pursuant to the rules of the Stock Exchange of Hong Kong (the “ Circular ”); provided that Pfenex or NT Pharma, as the case may be, shall consult with the other Party so as to minimize the necessary disclosure and shall seek confidential treatment of such portions of this Agreement or the terms and conditions thereof as permitted under Applicable Laws; and (ii) the Parties agree to issue a joint press release announcing the

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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execution of this Agreement, which is attached hereto as Exhibit  A . Thereafter, Pfenex and NT Pharma may each disclose to Third Parties the information contained in such Current Report on Form 8-K, such Circular, or such press release without the need for further approval by the other Party.

Section 9.6     Insurance . Each Party shall insure with reputable insurers against risks usually insured against by companies carrying on the same or similar business to that Party. The types of coverage, value and terms of insurance of one Party shall be determined in accordance with the Applicable Law, industry practice and the business needs of that Party. The supply agreement to be negotiated by the Parties in accordance with Section 5.1 shall set forth specific insurance minimum coverage levels that are mutually agreed by the Parties.

ARTICLE X.

TERM; TERMINATION

Section 10.1     Term . This Agreement shall become effective on the Effective Date and continue in full force and effect unless and until this Agreement is terminated in accordance with Section 10.2 (the “ Term ”).

Section 10.2     Termination .

(a)    Notwithstanding anything contained herein to the contrary, Pfenex may terminate this Agreement in its entirety:

(i)    upon sixty (60) days’ prior written notice to NT Pharma if NT Pharma has committed a material breach of this Agreement (with the specific nature of such breach being identified in such notice) and NT Pharma fails to cure such breach within such sixty (60) day period;

(ii)    immediately upon written notice to NT Pharma following, in the case of insolvency, the appointment of a receiver by a court of competent jurisdiction with respect to the assets of NT Pharma, the assignment for the benefit of creditors of the assets of NT Pharma or the entry of an order for relief (or similar ruling or proceeding) under applicable bankruptcy or insolvency laws against NT Pharma;

(iii)    upon sixty (60) days’ prior written notice to NT Pharma if NT Pharma shall fail to comply with the Timeline as set forth in Section 3.1(a)(i) and fails to cure such breach within such sixty (60) day period, in which case NT Pharma shall pay to Pfenex a termination fee in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000) within five (5) Business Days following the effective date of such termination; provided, however, that such termination right shall not apply if such failure to comply with the Timeline is due to circumstances outside of NT Pharma’s reasonable control or due to Pfenex’s breach of this Agreement; or

(iv)    upon written notice to NT Pharma based upon Safety Reasons. If NT Pharma disputes the existence of such Safety Reasons, such dispute shall be referred to the Executive Steering Committee and Pfenex’s right to terminate this Agreement shall be stayed during the pendency of such dispute resolution process.

(b)    Notwithstanding anything contained herein to the contrary, NT Pharma may terminate this Agreement in its entirety:

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(i)    upon sixty (60) days’ prior written notice to Pfenex if Pfenex has committed a material breach of this Agreement (with the specific nature of such breach being identified in such notice) and Pfenex fails to cure such breach within such sixty (60) day period;

(ii)    immediately upon written notice to Pfenex following, in the case of insolvency, the appointment of a receiver by a court of competent jurisdiction with respect to the assets of Pfenex, the assignment for the benefit of creditors of the assets of Pfenex or the entry of an Order for Relief under Title 11 of the United States Code against Pfenex;

(iii)    upon written notice to Pfenex based upon Safety Reasons. If Pfenex disputes the existence of such Safety Reasons, such dispute shall be referred to the Executive Steering Committee and NT Pharma’s right to terminate this Agreement shall be stayed during the pendency of such dispute resolution process;

(iv)    upon ninety (90) days’ prior written notice to Pfenex, without cause; or

(v)    prior to the submission by NT Pharma of a MAA to the SFDA for Product in Mainland China, upon sixty (60) days’ prior written notice to Pfenex if Pfenex fails to provide in a timely fashion any material information or documentation in its possession or control that is reasonably requested in writing by NT Pharma pursuant to Section 3.1(b) and fails to cure such breach within such sixty (60) day period, or fails to submit the NDA to the FDA by [***] (unless such failure is due to circumstances outside of Pfenex’s reasonable control), in which case Pfenex shall pay NT Pharma a payment in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) within five (5) Business Days following the effective date of such termination.

Section 10.3     General Effects of Termination . Upon the termination of this Agreement, Article I, Section 3.3 (for the period set forth therein), Section 3.4(c)(ii), Article IV (with respect to payments that accrued prior to termination of this Agreement and Section 4.7), Section 5.9(b), Section 6.2, Sections 8.1 – 8.4, Article IX (with respect to breaches thereof as of the Effective Date), Section 9.4, Section 9.5, Section 9.6 (for a period of three (3) years after the expiration or termination of this Agreement), this Article X, Article XI and Article XII shall survive and remain in effect. Notwithstanding anything contained in this Agreement to the contrary, in no event shall the termination of this Agreement affect any Party’s obligation to pay any amounts owed to any other Party as of the time of such termination or release either Party of any other obligation or liability which, at the time of such termination, has already accrued to the other Party or which is attributable to a period prior to such termination. Except as otherwise expressly provided in this Article X, all rights and obligations of the Parties under this Agreement shall terminate upon termination of this Agreement for any reason.

Section 10.4     Additional Effects of Termination . If this Agreement is terminated pursuant to Section 10.2(a) or Section 10.2(b) (excluding Section 10.2(a)(iv) and Section 10.2(b)(iii)), then:

(a)     Transition Assistance . During the Inventory Sell Down Period, (i) NT Pharma shall cooperate with Pfenex or its designee(s) to facilitate the transition of the development and commercialization of Product in the Territory to Pfenex or its designee(s)

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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after the termination of this Agreement, (ii) upon request by Pfenex, NT Pharma shall transfer to Pfenex some or all quantities of any unlabeled Product in its or its Affiliates’ possession or control, within thirty (30) days of NT Pharma’s receipt of such request; provided , however , that Pfenex shall pay NT Pharma the actual cost that NT Pharma incurred to acquire the quantities so provided to Pfenex, and (iii) upon Pfenex’s request, the Executive Steering Committee shall promptly (but in any event not more than thirty (30) days after such request) meet and establish a transition plan to implement the transition of the development and commercialization of Product in the Territory to Pfenex or its designee(s), including any clinical studies. Accordingly, NT Pharma shall take all actions reasonably necessary, and cooperate with Pfenex or its designee(s), to facilitate a smooth, orderly and prompt transition so that Pfenex or its applicable designee is fully enabled and has control over any ongoing development and commercialization of Product in the Territory.

(b)     Regulatory Materials . Promptly following the Inventory Sell Down Period:

(i)    NT Pharma shall promptly assign and transfer to Pfenex all Regulatory Materials for Product in the Territory that are held or controlled by or under authority of NT Pharma or its Affiliates, and shall take such actions and execute such other instruments, assignments and documents as may be necessary to effect the transfer of rights under such Regulatory Materials to Pfenex and Pfenex shall assume all obligations, including pharmacovigilance obligations, under all Applicable Laws with regard to such Regulatory Materials.

(ii)    NT Pharma shall cause each of its Affiliates to transfer any such Regulatory Materials to Pfenex.

(iii)    If Applicable Law prevents or delays the transfer of ownership or possession of Regulatory Materials to Pfenex, NT Pharma shall grant, and does hereby grant, to Pfenex an exclusive (except as to NT Pharma to the extent necessary to comply with Applicable Laws) and irrevocable right of access and reference to such Regulatory Materials, and shall cooperate fully to make the benefits of such Regulatory Materials available to Pfenex or its designee(s).

(iv)    NT Pharma shall provide to Pfenex copies of all such Regulatory Materials that are held or controlled by NT Pharma.

(v)    Except for the parts constituting Confidential Information of NT Pharma, Pfenex shall be free to use and disclose such Regulatory Materials and other items in connection with the exercise of its rights and licenses under this Section 10.4(b).

(c)     Inventory Sale . Until one hundred and eighty (180) days following the effective date of such termination of this Agreement (or, on a jurisdiction-by-jurisdiction basis in the Territory, such earlier date upon which Pfenex or its designee commences the distribution and sale of Product in such jurisdiction, if applicable, provided that Pfenex or its designee shall have purchased from NT Pharma, before its commencement of the distribution and sale of Product, all remaining Product inventory in that jurisdiction with at least one (1) year of shelf-life remaining at the time of purchase and at a price agreed by the relevant parties, such price not to exceed the transfer price paid by NT Pharma to Pfenex for such Product) (the “ Inventory Sell Down Period ”), NT Pharma and its Affiliates may continue to distribute and sell in the Territory any labeled Product remaining in NT Pharma’s inventory

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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as of the effective date of such termination of this Agreement, and Pfenex hereby grants NT Pharma a non-exclusive license to sell and distribute such remaining labeled Product inventory in the Territory. For clarity, Product sold by NT Pharma or its Affiliates pursuant to this Section 10.4(c) shall be subject to the payments under Article IV with respect thereto.

(d)     Territory Product Trademarks . Promptly following Pfenex’s request, NT Pharma shall assign and transfer to Pfenex or its designee(s) any Territory Product Trademarks designated by Pfenex and the goodwill associated therewith at a price agreed by the Parties, excluding NT Pharma’s tradename and associated mark.

(e)     Costs and Expenses . Except as expressly provided herein, the costs incurred by the Parties under Section 10.4(a) and Section 10.4(b) shall be equally borne by the Parties. Notwithstanding the foregoing, the costs incurred by the Parties under Section 10.4(a) and Section 10.4(b) shall be borne (i) by the breaching Party if this Agreement is terminated pursuant to Section 10.2(a)(i), Section 10.2(a)(iii), Section 10.2(b)(i) or Section 10.2(b)(v), (ii) by the insolvent Party if this Agreement is terminated pursuant to Section 10.2(a)(ii) or Section 10.2(b)(ii) or (iii) by NT Pharma if this Agreement is terminated pursuant to Section 10.2(b)(iv).

ARTICLE XI.

INDEMNIFICATION AND LIABILITY LIMITS

Section 11.1     Indemnification by Pfenex . Pfenex shall indemnify, defend and hold harmless (collectively, “ Indemnify ”) NT Pharma, its Affiliates and its and their respective directors, officers, employees, agents and representatives (the “ NT Pharma Indemnitees ”) from and against any and all losses, damages, liabilities, penalties, costs and expenses (including reasonable attorneys’ fees and court costs) (collectively, “ Losses ”), resulting from suits, claims, actions and demands, in each case, brought by a Third Party (each, a “ Third Party Claim ”) against any NT Pharma Indemnitee arising out of (i) any breach by Pfenex of any of its obligations or representations and warranties or covenants hereunder, (ii) the negligence, recklessness or willful misconduct by Pfenex or any of its Affiliates or any of their respective officers, directors, employees, agents or representatives in connection with the performance of this Agreement, (iii) any violation by Pfenex or any of its Affiliates or any of their respective officers, directors, employees, agents or representatives of any Applicable Law applicable to the performance of Pfenex’s obligations under this Agreement, or (iv) the development, handling, use, storage, import, manufacture, transport, promotion, marketing, advertising, distribution or sale of Product by Pfenex or any of its employees, agents, Affiliates or licensees, including claims based upon product liability, bodily injury, death or property damage. Pfenex’s obligation to Indemnify the NT Pharma Indemnitees pursuant to this Section 11.1 shall not apply to the extent such Losses are attributable to a cause or event described in clause (i), (ii), (iii) or (iv) of Section 11.2.

Section 11.2     Indemnification by NT Pharma . NT Pharma shall Indemnify Pfenex, its Affiliates and its and their respective directors, officers, employees, agents and representatives (the “ Pfenex Indemnitees ”) from and against any and all Losses resulting from Third Party Claims against any Pfenex Indemnitee arising out of (i) any breach by NT Pharma of any of its obligations or representations and warranties or covenants hereunder, (ii) the negligence, recklessness or willful misconduct by NT Pharma or any of its Affiliates or any of their respective officers, directors, employees, agents or representatives in connection with the performance of this Agreement, (iii) any violation by NT Pharma or any of its Affiliates and any of their respective officers, directors, employees, agents or

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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representatives of any Applicable Laws applicable to the performance of NT Pharma’s obligations under this Agreement, or (iv) the development, handling, use, storage, import, transport, promotion, marketing, advertising, distribution or sale of Product by NT Pharma or any of its employees, agents, Affiliates or sublicensees, including claims based upon product liability, bodily injury, death or property damage. NT Pharma’s obligation to Indemnify the Pfenex Indemnitees pursuant to this Section 11.2 shall not apply to the extent such Losses are attributable to a cause or event described in clause (i), (ii), (iii) or (iv) of Section 11.1.

Section 11.3     Indemnification Procedure .

(a)    The Party seeking indemnification under this Article XI (the “ Indemnified Party ”) agrees to give prompt written notice (the “ Indemnification Notice ”) to the Party against whom indemnity is sought (the “ Indemnifying Party ”) of the assertion of any Third Party Claim, or the commencement of any proceeding in respect of which indemnity may be sought under this Article XI; provided that the failure of an Indemnified Party to promptly notify the Indemnifying Party on a timely basis will not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party unless and to the extent the Indemnifying Party demonstrates that it is materially prejudiced by the Indemnified Party’s failure to give timely notice.

(b)    If the Indemnifying Party does not object to any claim or claims made in the Indemnification Notice in a written objection (the “ Indemnification Objection ”) prior to the expiration of twenty (20) Business Days from the Indemnifying Party’s receipt of the Indemnification Notice, the Indemnifying Party shall be deemed not to object to the information contained within the Indemnification Notice. If the Indemnifying Party delivers an Indemnification Objection within such twenty (20) Business Day period, the Indemnifying Party and the Indemnified Party shall attempt in good faith to resolve the dispute for twenty (20) Business Days after the Indemnifying Party’s receipt of such Indemnification Objection. If no resolution is reached, the dispute shall be resolved in accordance with the provisions of Section 12.4 and Section 12.5.

(c)    The Indemnifying Party, if it so elects, may assume and control the defense of a Third Party Claim at the Indemnifying Party’s expense and shall consult with the Indemnified Party with respect thereto, including the employment of counsel reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party shall not have the right to assume control of such defense if the claim that the Indemnifying Party seeks to assume control of (i) seeks material non-monetary relief or (ii) involves criminal or quasi-criminal allegations. If the Indemnifying Party is permitted to assume and control the defense of a Third Party Claim and elects to do so, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnified Party unless (x) the Indemnifying Party has specifically agreed in writing otherwise, (y) the Indemnified Party has been advised by outside counsel that a reasonable likelihood exists of a material legal conflict of interest between the Indemnifying Party and the Indemnified Party or (z) the Indemnifying Party has failed to assume the defense and employ counsel (in which case the fees and expenses of the Indemnified Party’s counsel shall be paid by the Indemnifying Party if the Indemnifying Party otherwise has an obligation to indemnify the Indemnified Party for the related Third Party Claim). If the Indemnifying Party has assumed the defense of a Third Party Claim in accordance with the terms hereof, the Indemnifying Party may not enter into a settlement

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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or consent to any judgment without the prior written consent of the Indemnified Party unless (A) such settlement or judgment involves monetary damages only, all of which will be paid, without limitation, by the Indemnifying Party, and no admission of fault or culpability on behalf of any Indemnified Party, and (B) a term of the settlement or judgment is that the Person or Persons asserting such claim unconditionally and irrevocably release all Indemnified Parties from all liability with respect to such claim; otherwise, the consent of the Indemnified Party shall be required in order to enter into any settlement of, or consent to the entry of a judgment with respect to, any claim (which consent shall not be unreasonably withhold, delayed or conditioned). If the Indemnifying Party does not assume or is not controlling the defense of a Third Party Claim for any reason, then the Indemnified Party may retain counsel of its own choosing, at the expense of the Indemnifying Party, and assume and control the defense of such Third Party Claim, and the Indemnifying Party shall have the right to employ counsel separate from counsel employed by the Indemnified Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnifying Party shall be at the expense of the Indemnifying Party. The Indemnifying Party shall have no obligations with respect to any Losses resulting from the Indemnified Party’s admission, settlement or other communication without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld, delayed or conditioned).

Section 11.4     Limitations on Liability . EXCEPT AS ARISING AS THE RESULT OF THE FRAUD OR WILLFUL MISCONDUCT BY A PARTY, OR ARISING FROM BREACH OF A PARTY’S CONFIDENTIALITY OBLIGATIONS IN SECTIONS 8.1-8.3 OR OBLIGATIONS UNDER SECTION 3.7 AND EXCEPT WITH RESPECT TO OBLIGATIONS TO INDEMNIFY A PARTY UNDER SECTION 11.1 OR SECTION 11.2, NEITHER PARTY, NOR ANY OF THEIR RESPECTIVE AFFILIATES, DIRECTORS, MEMBERS, OFFICERS, EMPLOYEES, SUBCONTRACTORS OR AGENTS, SHALL HAVE, UNDER ANY LEGAL THEORY (INCLUDING CONTRACT, NEGLIGENCE AND TORT LIABILITY), ANY LIABILITY TO ANY OTHER PARTY FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES ARISING OUT OF OR RELATED TO BREACH OF THIS AGREEMENT.

Section 11.5     Unavailability of Indemnification . If the indemnification provided for in this Article XI is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any Loss, then the Indemnifying Party shall, in lieu of indemnifying such Indemnified Party hereunder, contribute to the amount paid or payable by such Indemnified Party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of, and relative benefit enjoyed by, the Indemnifying Party, on the one hand, and the relative fault of, and relative benefit enjoyed by, the Indemnified Party, on the other hand, in connection with the actions or omissions that resulted in such Loss as well as any other relevant equitable considerations.

ARTICLE XII.

MISCELLANEOUS

Section 12.1     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 when such failure or delay is caused by or results from the causes beyond the reasonable control of the affected Party, including: fire, floods, earthquake, tsunami, ice, tornado, hurricane, windstorm, eruption, explosion, sabotage or vandalism, embargoes, war, acts of war (whether war be declared or

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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not), invasion, domestic or foreign terrorist act, act of a public enemy, insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, shortages of materials, failure of utilities, acts of God or acts, omissions or delays in acting by any Governmental Authority (each, an event of “ Force Majeure ”); provided that such affected Party shall provide the other Party with prompt written notice of the circumstances surrounding such a material failure or delay and will use Commercially Reasonable Efforts to overcome the difficulties created thereby and to resume performance of its obligations as soon as practicable. If the performance of any such obligation under this Agreement is delayed owing to such a Force Majeure for any continuous period of more than one hundred eighty (180) days, the Parties will consult with respect to an equitable solution, including the possibility of the mutual termination of this Agreement. For the avoidance of doubt, the occurrence of an event of Force Majeure shall not relieve any Party from fulfilling any obligation required hereunder; rather, the period for performance of such obligation shall be tolled during the occurrence of such Force Majeure.

Section 12.2     Notices . Any notice, request, approval or consent required or permitted to be given by any Party shall be in writing and shall be to the Parties at the addresses or facsimile number listed below, or such other address or facsimile number as such Party will have last given by notice to the other Party, and shall be deemed to have been sufficiently given when delivered in person, transmitted by facsimile (receipt verified) or by express courier service (signature required) or five (5) days after it was sent by registered mail, return receipt requested (or its equivalent), provided that no postal strike or other disruption is then in effect or comes into effect within two (2) days after such mailing.

 

If to Pfenex, to:    Pfenex Inc.
   10790 Roselle Street
   San Diego, CA 92121
   Facsimile: 858-224-7303
   Attention: Patrick Lucy, Chief Business Officer
With a copy to:    Wilson Sonsini Goodrich & Rosati
   650 Page Mill Road
   Palo Alto, CA 94304
   Facsimile: 650-493-6811
   Attention: Ian B. Edvalson
If to NT Pharma, to:    China NT Pharma Group Company Ltd.
   Room 2305 – 2306, 23/F, China Resources
   Building
   26 Habour Road
   Wanchai, Hong Kong
   Facsimile: +852 2508 9459
   Attention: Senior Director of Global Business
With a copy to:    China NT Pharma Group Company Ltd.
   11/F, S2, The Bund Finance Center
   No. 600 Zhongshan East 2nd Road
   Huangpu District, Shanghai, P.R.C.
   Facsimile: +86 21 2315 9900
   Attention: Head of Legal

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 12.3     Governing Law . This Agreement shall be construed, governed, interpreted and applied in accordance with the laws of the State of New York, without giving effect to any conflicts of laws principles. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.

Section 12.4     Internal Dispute Resolution . In the event that a dispute, difference or question arises pertaining to any matters which are the subject of this Agreement not otherwise resolved in accordance with Section 7.4(b) (a “ Dispute ”), prior to the initiation of arbitration as described in Section 12.5, the Dispute shall be submitted to the Chief Executive Officers (or their respective designees) of NT Pharma and Pfenex, who shall use their good faith efforts to resolve the Dispute within fourteen (14) days after notice is provided pursuant to Section 12.2. If any such Dispute is not resolved by the Chief Executive Officers or their designees within fourteen (14) days after submission of such Dispute to such officers, then the Dispute shall be resolved in accordance with the arbitration procedure set forth in Section 12.5. For clarity, Disputes include disagreements regarding (a) the interpretation of this Agreement and (b) the breach or alleged breach by a Party of its obligations under this Agreement and associated remedies and damages of a Party in the event of a breach of the Agreement by the other Party (and the structure and payment of any such damages).

Section 12.5     Arbitration .

(a)    If the Parties are unable to resolve a Dispute under Section 12.4, then the Parties agree that all Disputes of any kind or nature (except those described in Section 12.5(c)) shall be resolved exclusively pursuant to the arbitration clauses set forth in Exhibit B ; provided that judgment upon any arbitral award may be confirmed and entered by any court having competent jurisdiction over the Parties or their assets. The determination resulting from such arbitration shall be final, binding and non-appealable for purposes of this Agreement. Nothing in Section 12.4 or this Section 12.5 shall limit any Party’s right to seek and obtain in any such arbitration any equitable relief to which such Party is entitled hereunder.

(b)    Notwithstanding Section 12.4 and Section 12.5(a), an application for emergency or temporary injunctive relief by any Party shall not be subject to internal dispute resolution under Section 12.4 or arbitration under Section 12.5(a); provided, however, that the remainder of any such Dispute (beyond the application for emergency or temporary injunctive relief) shall be subject to internal dispute resolution under Section 12.4 and arbitration under Section 12.5(a), as applicable.

(c)    Any Dispute relating to the ownership, scope, validity, enforceability or infringement of any Patent covering the manufacture, use or sale of Product or of any trademark rights relating to any Product shall be submitted to the Governmental Authority of competent jurisdiction in the country where such Patent or trademark exists.

Section 12.6     Relationship of the Parties . The relationship of the Parties under this Agreement is that of independent contractors. Nothing contained in this Agreement, nor the performance of any obligations under this Agreement, shall create an association, partnership, joint venture or relationship of principal and agent, master and servant, or employer and employee between the Parties. No Party has any express or implied right or authority under this Agreement to assume or create any obligations or make any representations or warranties on behalf of or in the name of the other Party or such other Party’s Affiliates.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 12.7     Assignment . Neither Party may assign, transfer or sublicense any of its rights or obligations under this Agreement without the prior written consent of the other Party, except that (a) any Party may assign this Agreement, without such consent, (i) in whole or in part to an Affiliate of such Party, upon written notice to the other Party of such assignment, provided that such Party hereby guarantees the performance of any such Affiliate, or (ii) in whole to any Third Party successor by merger, acquisition or sale of all or substantially all of such Party’s assets to which this Agreement relates, upon written notice to the other Party of any such assignment, provided that such Third Party shall assume the obligations and covenants of the assigning Party under this Agreement, and (b) Pfenex may assign its rights and obligations with respect to the manufacture and supply of Product for the Territory as set forth in Section 5.1 through Section 5.7, including Pfenex’s rights and obligations under the supply agreement and quality agreement referenced in Section 5.1 (collectively, the “ Territory Manufacturing Obligations ”), without such consent, to a U.S. Collaborator (as defined below), provided that such U.S. Collaborator shall (I) assume the Territory Manufacturing Obligations, and (II) agree in writing, as may be reasonably requested by NT Pharma, to provide NT Pharma with necessary documentation or information to enable NT Pharma to complete the relevant procedures with Regulatory Agencies with respect to such change. For purposes of this Agreement, “ U.S. Collaborator ” means a Third Party to which Pfenex grants the right to commercialize Product in a territory that includes the United States. Except as expressly provided in this Section 12.7, any attempted assignment or transfer of this Agreement shall be null and void.

Section 12.8     Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective permitted successors and assigns; and by their signatures hereto, each Party intends to, and does hereby, become bound.

Section 12.9     Entire Agreement; Amendments . This Agreement, the Common Interest Agreement (when executed), that certain memorandum exchanged between the Parties before the Effective Date and referencing this Agreement, and the schedules and exhibits hereto and thereto, contain the entire understanding of the Parties with respect to the subject matter herein, and cancel all previous agreements (oral and written), negotiations and discussions, dealing with the same subject matter. The Parties, from time to time during the Term, may modify any of the provisions hereof only by an instrument in writing duly executed by the Parties.

Section 12.10     Severability . If any part or parts of this Agreement are held to be illegal, void or ineffective, the remaining portions of this Agreement shall remain in full force and effect. If any of the terms or provisions are in conflict with any Applicable Law, then such term(s) or provision(s) shall be deemed inoperative to the extent that they may conflict therewith, and shall be deemed to be modified so as to conform with such Applicable Law. In the event of any ambiguity respecting any term or terms hereof, the Parties agree to construe and interpret such ambiguity in good faith in such a way as is appropriate to ensure its enforceability and viability. If any exclusive remedy provided hereunder is determined to be unenforceable, then the Party entitled to such remedy shall in lieu thereof be entitled to such other remedies as are available to such Party under this Agreement or in law or equity under Applicable Law, subject in any case to the limitations imposed by, and other terms of, this Agreement.

Section 12.11     Rules of Construction . Interpretation of this Agreement shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

50


gender as the context requires; (b) references to the terms article, section, paragraph and exhibit are references to the articles, sections, paragraphs and exhibits to this Agreement unless otherwise specified; (c) references to “$” and “Dollars” mean United States dollars; (d) the word “including” and words of similar import mean “including without limitation,” unless otherwise specified; (e) the word “or” shall have the meaning associated with the phrase “and/or” and not be exclusive unless otherwise specified; (f) provisions shall apply, when appropriate, to successive events and transactions; (g) a reference to any Person includes such Person’s successors and permitted assigns; (h) this Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted; (i) the word “day” means a calendar day unless otherwise specified; (j) the word “notice” means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other communications contemplated under this Agreement; (k) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP; (l) the words “hereof,” “herein,” “hereby,” “hereunder” and derivative or similar words refer to this Agreement (including any Exhibits); (m) provisions that require that a Party, the Parties or the Executive Steering Committee “agree,” “consent” or “approve” or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise; (n) references to any specific law, rule or regulation, or article, section or other division thereof, shall be deemed to include the then-current amendments thereto or any replacement law, rule or regulation thereof; and (o) neither Party or its Affiliates shall be deemed to be acting “on behalf of” the other Party hereunder. All Exhibits referred to herein are hereby incorporated by reference. The headings contained in this Agreement are used only as a matter of convenience, and in no way define, limit, construe or describe the scope or intent of any section of this Agreement.

Section 12.12     Waiver . No failure or delay on the part of any Party in either exercising or enforcing any right under this Agreement shall operate as a waiver of, or impair, any such right. No single or partial exercise or enforcement of any such right shall preclude any other or further exercise or enforcement thereof or the exercise or enforcement of any other right. No waiver of any such right shall have effect unless given in a signed writing. No waiver of any such right shall be deemed a waiver of any other right.

Section 12.13     English Language . This Agreement shall be written and executed in the English language. Any translation into any other language shall not be an official version hereof, and in the event of any conflict in interpretation between the English version and such translation, the English version shall control.

Section 12.14     Counterparts . This Agreement may be executed in multiple counterparts, and all such executed counterparts shall constitute the same agreement.

Section 12.15     Electronic Execution and Delivery . A facsimile, PDF or other reproduction of this Agreement may be executed by one or more Parties, and an executed copy of this Agreement may be delivered by one or more Parties by facsimile, e-mail or other electronic transmission device pursuant to which the signature of or on behalf of such Party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any Party, all Parties agree to execute an original of this Agreement as well as any facsimile or reproduction thereof. The Parties hereby agree that no Party shall raise the execution of a facsimile, PDF or other reproduction of this Agreement, or the fact that any signature or document was transmitted or communicated by facsimile, e-mail or other electronic transmission device, as a defense to the formation of this Agreement.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

51


Section  12.16     License Protection . The Parties acknowledge and agree that each of Pfenex and NT Pharma shall be entitled to all of the rights and protections set forth in Section 365(n) of Title 11 of the United States Code with respect to all licenses contained herein.

Section 12.17     Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may reasonably be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

Section 12.18     Compliance with Applicable Laws . Each Party shall comply with all Applicable Laws governing its performance of the terms of this Agreement.

Section 12.19     Expenses . Except as otherwise expressly set forth herein, each Party shall pay all costs and expenses incident to its negotiation and preparation of this Agreement and to its performance and compliance with all obligations contained herein on its part to be performed or complied with, including the fees, expenses and disbursements of its counsel and other advisors.

Section  12.20     Third Party Beneficiaries . Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the Parties and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement, except as contemplated by the terms of Article XI.

Section 12.21    Equitable Remedies. Each Party acknowledges that a breach or threatened breach by such Party of any of its obligations under this Agreement may give rise to irreparable harm to the other Party for which monetary damages may not be an adequate remedy and hereby agrees that, in the event of such breach or a threatened breach by any Party of any such obligations, the other Party suffering such harm shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to seek equitable relief, including a temporary restraining order, an injunction or specific performance, subject in any case to Section 12.4 and Section 12.5, without the obligation to post any bond.

(The remainder of this page is intentionally left blank. The signature page follows.)

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

52


IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date.

 

PFENEX INC.
By:  

/s/ Eef Schimmelpennink

Name:   Eef Schimmelpennink
Title:   CEO
CHINA NT PHARMA GROUP COMPANY LTD.
By:  

/s/ NG Tit

Name:   NG Tit
Title:   Chairman & CEO

[Signature Page to Development and License Agreement]

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

53


Exhibit A

Press Release (for US)

 

LOGO

Pfenex and NT Pharma Enter into a Development and License Agreement for Pfenex’s PF708 Therapeutic Equivalent Candidate to Forteo ®

SAN DIEGO and HONG KONG April 18, 2018—Pfenex Inc. (NYSE AMERICAN: PFNX) and China NT Pharma Group Company Limited (NT Pharma) (HKG:1011) today announced an agreement under which Pfenex granted NT Pharma non-exclusive development and exclusive commercialization rights to PF708, a teriparatide therapeutic equivalent candidate to Eli Lilly & Company’s Forteo ® , in Mainland China, Hong Kong, Singapore, Malaysia and Thailand.

In accordance with the agreement, Pfenex received a payment of $2.5 million upon signing of the agreement and may be eligible to receive additional payments of up to $22.5 million based on the achievement of certain development, regulatory, and sales-related milestones. Pfenex may also be eligible to receive double-digit royalties on net product sales. NT Pharma will be responsible for any further development required to achieve regulatory approval as well as commercialization activities in the territory.

“This agreement will expand NT Pharma’s orthopedic product portfolio which currently includes Miacalcic franchise acquired from Novartis. The collaboration with Pfenex will leverage the strengths and resources of both companies to accelerate the development and commercialization of the product,” said Mr. Ng Tit, NT Pharma Chairman and Chief Executive Officer. “This partnership will open further discussion on potential partnering for other Pfenex pipeline product candidates.”

“We are pleased to announce our collaboration with NT Pharma, a recognized pharmaceutical leader in China and the Asia Pacific region. Upon receipt of the relevant marketing approvals, we believe this collaboration will allow us to drive sales of PF708 in key pharmaceutical markets,” said Eef Schimmelpennink, Chief Executive Officer of Pfenex. “NT Pharma is well positioned to complete the development and commercialization of the product in the territory given its demonstrated experience in the orthopedic space.”

About Pfenex Inc.

We are a clinical-stage development and licensing biotechnology company focused on leveraging our Pfenex Expression Technology ® to improve protein therapies for unmet patient needs. Using the patented Pfenex Expression Technology platform, we have created an advanced pipeline of therapeutic equivalents, vaccines, biologics and biosimilars. Our lead product candidates are PF708, a therapeutic equivalent candidate to Forteo ® (teriparatide) for the treatment of osteoporosis, and our novel anthrax vaccine candidates, Px563L and RPA563, funded through an advanced development contract with the U.S. government. In addition, we are developing hematology/oncology products, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology, in collaboration with Jazz Pharmaceuticals. Furthermore, our pipeline includes biosimilar candidates to Lucentis ® and

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Neulasta ® .

About China NT Pharma Group Company Limited (NT Pharma)

NT Pharma is a technology-based pharmaceutical company which is principally engaged in the investment, research and development (“R&D”), manufacturing and sales of pharmaceutical products in the People’s Republic of China (“China” or “PRC”) and countries overseas, with its products covering therapeutic areas of severe illness such as oncology, orthopedics, Central Nervous System (“CNS”), hepatology and respiratory system. NT Pharma owns two new Class 1 drugs in China, one well-known international brand-name drug, and a number of generic drugs, and the Group conducts its production through three of its subsidiaries, namely Suzhou First Pharmaceutical Co., Ltd. (“Suzhou First”), Jiangsu NT Biopharma Co., Ltd. (“Jiangsu Biopharma”) and NT Pharma Changsha Pharmaceutical Co., Ltd. (“Changsha Pharma”) and overseas partnered CMO. The Group also owns several sales and distribution companies with around 1,000 sales professionals and R&D specialists. The Group has an extensive promotion network in China, covering nearly 10,000 hospitals.

Pfenex Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern Pfenex’s expectations, strategy, plans or intentions. Forward-looking statements in this press release include, but are not limited to, statements regarding the future potential of PF708, including development and commercialization PF708; the potential to receive future milestone and royalty payments under Pfenex’s agreement with NT Pharma; the expectation for PF708 to obtain marketing approval in key pharmaceutical markets; the belief that this agreement will accelerate development and commercialization of PF708; the potential for the collaboration to drive sales of PF708 in key pharmaceutical markets; the belief that NT Pharma is well positioned to complete the development and commercialization of PF708; and the potential for future collaborations with Pfenex and NT Pharma. Actual results may differ materially from those indicated by these forward-looking statements as a result of the uncertainties inherent in the clinical drug development process, including, without limitation, challenges in successfully demonstrating the efficacy and safety of product candidates; the pre-clinical and clinical results for product candidates, which may not support further development of product candidates or may require additional clinical trials or modifications of ongoing clinical trials or regulatory pathways; challenges related to commencement, patient enrollment, completion, and analysis of clinical trials; Pfenex’s ability to obtain additional funding to support its business activities and establish and maintain strategic business alliances and new business initiatives; Pfenex’s dependence on third parties for development, manufacture, marketing, sales and distribution of products; unexpected expenditures; and difficulties in obtaining and maintaining intellectual property protection for product candidates. Information on these and additional risks, uncertainties, and other information affecting Pfenex’s business and operating results is contained in Pfenex’s Annual Report on Form 10-K for the year ended December 31, 2017 and in Pfenex’s subsequent reports filed with the

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Securities and Exchange Commission. The forward-looking statements in this press release are based on information available to Pfenex as of the date hereof, and Pfenex disclaims any obligation to update any forward-looking statements, except as required by law.

Pfenex investors and others should note that we announce material information to the public about the Company through a variety of means, including our website (http://www.pfenex.com/), our investor relations website (http://pfenex.investorroom.com/), press releases, SEC filings, public conference calls, corporate Twitter account (https://twitter.com/pfenex), Facebook page (https://www.facebook.com/Pfenex-Inc-105908276167776/timeline/), and LinkedIn page (https://www.linkedin.com/company/pfenex-inc) in order to achieve broad, non-exclusionary distribution of information to the public and to comply with our disclosure obligations under Regulation FD. We encourage our investors and others to monitor and review the information we make public in these locations as such information could be deemed to be material information. Please note that this list may be updated from time to time.

Pfenex Contact

Susan A. Knudson

Chief Financial Officer

(858) 352-4324

SKnudson@pfenex.com

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Press Release (for Hong Kong)

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

 

LOGO

DISCLOSEABLE TRANSACTION

IN RELATION TO

DEVELOPMENT AND LICENSE AGREEMENT

THE LICENSE AGREEMENT

On 18 April 2018, China NT Pharma Group Company Limited (the “Company”, as the “licensee”), entered into the development and license agreement (the “License Agreement”) with Pfenex Inc., a Delaware corporation, as the licensor (the “Licensor”) (“Pfenex” and the Company will be collectively referred to as the “Parties” or individually as a “Party”), under which the Company will have the exclusive right to commercialize a therapeutic equivalent/biosimilar teriparatide injection to the reference drug product Forteo ® (the “Product”) in Mainland China, Hong Kong, Singapore, Malaysia and Thailand (the “Territories” and each a “Territory”) and the Company will have the non-exclusive right to conduct development of the Product for commercialization in the Territory. The Product has been undergoing a robust development program in the United States.

LISTING RULES IMPLICATIONS

As some of the applicable percentage ratios calculated in accordance with Rule 14.07 of the Listing Rules in respect of the aggregate estimated amount of the consideration payable by the Group to Pfenex pursuant to the License Agreement exceed 5% but all of the applicable percentage ratios are less than 25%, the License Agreement is only subject to the reporting and announcement requirements but arc exempt from the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

The major terms of the License Agreement are as follows:

THE LICENSE AGREEMENT

 

Date:    18 April 2018  
Parties:   

(i) the Licensor:

  Pfenex
  

(ii)  the Licensee:

  the Company

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiry, the Licensor and its ultimate beneficial owner(s) are third parties independent of the Company and connected persons (as defined in the Listing Rules) of the Company.

 

Subject matter:    establish a partnership providing the Company with the right to develop and exclusively commercialize the Product in the Territories
Commencement date:    the date of signing of the License Agreement
Consideration:    The consideration has been agreed by Parties based on the analysis of the Product future commercial potential with reference to the existing revenue generated from the branded original product - Forteo.
   The Company will pay a one-time and non-refundable upfront payment of US$2,500,000 upon signing the License Agreement to acquire exclusive rights of the Product in the Territories and may incur additional payments of up to US$22,500,000 based on the achievement of certain development, regulatory and sales-related milestones. The Company may also be required to pay double-digit royalties on net product sales.
Terms:    Pursuant to the License Agreement, the Company’s rights will continue on an ongoing basis in the Territories, as long as the Company continues to pursue development and commercialisation of the Product in the Territories, unless and until either Party exercises specified termination rights.

REASONS FOR AND BENEFITS OF ENTERING INTO THE LICENSE AGREEMENT

The Group is principally engaged in the investment, research and development, manufacturing and sales of pharmaceutical products in the People’s Republic of China and overseas countries. The Board is of the view that entering into the License Agreement will expand the orthopaedics product portfolio and biologics therapy of the Group, which is expected to benefit the Company and its shareholders as a whole. The collaboration of the Parties will utilize the strengths and resources of both companies to accelerate the development and commercialisation of biosimilars in which the Group has been highly interested. This cooperation will bring further discussion on the strategic cooperation for other Pfenex’s pipeline research and development candidates.

INFORMATION OF THE PARTIES

The Group

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


The Company is an investment holding company. The Group is principally engaged in research and development, manufacturing, sales and distribution of pharmaceutical products, as well as the provision of pharmaceutical marketing and promotion services in China with its proprietary core products covering such therapeutic areas as oncology, central nervous system, hepatopathy and respiratory system. The Group has an extensive promotion network in China, covering over nearly 10,000 hospitals. The Group conducts its production through three of its subsidiaries, namely Suzhou First Pharmaceutical Co., Ltd. (“Suzhou First”), Jiangsu NT Biopharma Co., Ltd. (“Jiangsu Biopharma”) and NT Pharma Changsha Pharmaceutical Co., Ltd. (“Changsha Pharma”), Suzhou First has been certified by the new GMP, and has obtained approvals from the State Food and Drug Administration of China for over 100 types of drug registration licenses. Jaingsu Biopharma mainly manufactures anti-tumor drug and Changsha Pharma mainly manufactures traditional Chinese medicine for treatment of hepatopathy. During 2017, the Group substantially dedicated its focus on improving its operating profit margins, expanding its proprietary product portfolio and developing its own research and development capabilities. For the year ended 31 December 2017, the overall revenue of the Group was RMB604.9 million and operating profit improved significantly to RMB269.6 million.

Pfenex

Pfenex Inc. is a company incorporated in United States of America and listed on the NYSE American Stock Exchange. Pfenex is a clinical-stage development and licensing biotechnology company focused on leveraging its Pfenex Expression Technology ® to improve protein therapies for unmet patient needs. Using the patented Pfenex Expression Technology platform, Pfenex has created an advanced pipeline of therapeutic equivalents, vaccines, biologics and biosimilars. Pfenex lead product candidates are PF708, a therapeutic equivalent candidate to Forteo ® (teriparatide) for the treatment of osteoporosis, and its novel anthrax vaccine candidates, Px563L and RPA563, funded through an advanced development contract with the U.S. government. In addition, Pfenex is developing hematology oncology products, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology, in collaboration with Jazz Pharmaceuticals. Furthermore, Pfenex pipeline includes biosimilar candidates to Lucentis ® and Neulasta ® .

GENERAL

All the terms and conditions of the License Agreement are negotiations between the Parties at arm’s length basis. The Directors believe that the terms of the License Agreement are fair and reasonable and in the interests of the shareholders and the Company as a whole.

To the best of the knowledge, information and belief of the Directors and having made all reasonable enquiries, Pfenex and their ultimate beneficial owncr(s) (where applicable) are third parties independent of the Company and its connected persons (as defined in the Listing Rules) as at the date of this announcement.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


LISTING RULES IMPLICATIONS

As some of the applicable percentage ratios calculated in accordance with Rule 14.07 of the Listing Rules in respect of the aggregate estimated amount of the consideration payable by the Group to the Pfenex pursuant to the License Agreement exceed 5% but all of the applicable percentage ratios arc less than 25%, the License Agreements are only subject to the reporting and announcement requirements but are exempt from the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

DEFINITIONS

 

“Board”

  

the board of Directors

“Company” or “NT Pharma”    China NT Pharma Group Company Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange
“Commencement Date”    means the date of signing of this agreement
“Director (s)”    the director(s) of the Company
“DNA”    Deoxyribonucleic acid
“FDA”    Food and Drug Administration, the United States of America
“GMP”    Good Manufacturing Practice
“Group”    the Company and its subsidiaries
“Listing Rules”    the Rules Governing the Listing of Securities on the Stock
   Exchange
“Shareholders”    holders of the Shares
“Stock Exchange”    The Stock Exchange of Hong Kong Limited
“USS”    United States dollars, the lawful currency of the US
“%”    percent

 

By Order of the Board
China NT Pharma Group Company Limited
Ng Tit
Chairman

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Hong Kong, 18 April 2018

As at the date of this announcement, the executive Directors are Mr. Ng Tit, Ms. Chin Yu and Mr. Wu Weizhong; the non-executive Directors are Dr. Qian Wei and Ms. Lou Jianying; and independent non-executive Directors are Mr. Tze Shan Hailson Yu, Mr. Patrick Sun, and Dr. Lap-Chee Tsui.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Exhibit B

Arbitration

Any Dispute that has not been resolved in accordance with such Section 12.4 shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules in force when the notice of arbitration is submitted.

The seat of arbitration shall be Hong Kong.

The number of arbitrators shall be three (3). The arbitration proceedings shall be conducted in English.

Pending the selection of the arbitration panel or pending the arbitration panel’s determination of the merits of any Dispute, either Party may seek interim or provisional relief from a court of competent jurisdiction as necessary to protect the interests of such Party.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Exhibit C

Existing Trademark

 

Jurisdiction

   Trademark Name    Status    Classes      Filing Date      Appl. No.  

Mainland China

   BONSITY    Pending      5        June 30, 2017        25083070  

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 10.2

CONFIDENTIAL TREATMENT REQUESTED

CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION THAT WAS OMITTED IN THE EDGAR VERSION HAS BEEN NOTED IN THIS DOCUMENT WITH A PLACEHOLDER IDENTIFIED BY THE MARK “[***]”.

 

    AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT

  

 

1. CONTRACT ID CODE            

 

 

    PAGE OF PAGES            

           1           18    

 

 

    2. AMENDMENT/MODIFICATION NO.    

    0006

          3. EFFECTIVE DATE                     

    See Block 16C

 

    4. REQUISITION/PURCHASE REQ. NO.        

    OS219059

  5. PROJECT NO,  (If applicable)

 

    6.ISSUED BY                         

  CODE             HHS/OS/ASPR/BARDA                      7. ADMINISTERED BY  (If other than Item 6)           CODE               ASPR-BARDA02  

 

    US DEPT OF HEALTH & HUMAN SERVICES

    ASST SEC OF PREPAREDNESS & RESPONSE

    ACQ MANAGEMENT, CONTRACTS, & GRANTS

    O’NEILL HOUSE OFFICE BUILDING

    Washington DC 20515

 

 

 

US DEPT OF HEALTH & HUMAN SERVICES

ASST SEC OF PREPAREDNESS & RESPONSE

ACQ MANAGEMENT, CONTRACTS, & GRANTS

O’NEILL HOUSE OFFICE BUILDING

Washington DC 20515

 

       
    8. NAME AND ADDRESS OF CONTRACTOR (No.,  street, county, State and ZIP code)   (x)   

    9A. AMENDMENT OF SOLICITATION NO.

 

 

PFENEX, INC 1358378

PFE6NEX INC. 10790 ROSELLE ST

10790 ROSELLE ST

SAN DIEGO CA 921211508

     

    9B. DATED (SEE ITEM 11)

 

 

  X  

    10A. MODIFICATION OF CONTRACT/ORDER NO.

 

    HHSO100201500011C

 

 

 

     

    10B. DATED (SEE ITEM 13)

    08/14/2015

 

   
    CODE 1358378      FACILITY CODE                     

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

           

 

The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers                      is extended,                     is not extended.

 

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing Items 8 and 15, and returning              copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified

    12 ACCOUNTING AND APPROPRIATION DATA (if required)

 

    See Schedule

  Net Increase:    $1,737,505.23
    13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

    CHECK ONE   

  

A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: ( Specify authority ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.

 
    

B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES ( such as changes in paying office, appropriation date, etc. ) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

 

     X   

  

C.   THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:

52.243-5 Alternate 1 Changes-Cost-reimbursement and Mutual agreement of the parties

    

D.   OTHER ( Specify type of modification and authority )

 

     E. IMPORTANT:      Contractor              is not             is required to sign this document and return     1       copies to the issuing office.

 

14. DESCRIPTION OF AMENDMENT/MODIFICATION ( Organized by UCF section headings, including solicitation/contract subject matter where feasible. )

    Tax ID Number: 27-1356759

    DUNS Number: 013603710

    1. The purpose of this modification is to add additional funding in the amount of $1,737,505.23 for CLIN 0005.

    Continued . . .

    Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

 

    15A. NAME AND TITLE OF SIGNER (Type or print)

 

    SUSAN A. KNUDSON CFO

  

16A. NAME AND TITLE OF CONTRACTING OFFICER ( Type or print )

 

WENDELL CONYERS

    15B. CONTRACTOR/OFFEROR

 

     /s/ Susan. A Knudson                                             

                             (Signature of person authorized to sign)

  

15C. DATE SIGNED

 

05/10/2018

  

16B . UNITED STATES OF AMERICA

 

/s/ Wendell Conyers                                 

               (Signature of Contracting Officer)

  

16C. DATE SIGNED

 

05/15/2018

 

NSN 7540-01-152-8070

PREVIOUS EDITION UNUSABLE

     

STANDARD FORM 30 (REV. 10-83)

Prescribed by GSA

FAR (48 CFR) 53.243

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


CONTINUATION SHEET   REFERENCE NO. OF DOCUMENT BEING CONTINUED    PAGE    OF
  HHSO100201500011C/0006                   2    18

NAME OF OFFEROR OR CONTRACTOR

PFENEX, INC 1358378

           

ITEM NO.

(A)

   SUPPLIES/SERVICES
(B)
  

QUANTITY

(C)

  

UNIT

(D)

  

UNIT PRICE

(E)

  

AMOUNT

(F)

     Period of Performance: 08/14/2015 to 8/09/2020                  
         
     Change Item 5 to read as follows (amount shown is the obligated amount):                  
         
5    Option 4 — MANUFACTURING PROCESS OPTIMIZATION
Obligated Amount: $1,737,505.23
                  1,737,505.23
         
    

Accounting info

 

2017.1992017.25103 Appr. Yr.: 2017 CAN: 1992017 Object Class: 25103

Funded: $2,437,723.00

Accounting Info: Object Class: 25106

2018.1992018.25106 Appr. Yr.: 2018 CAN: 1992018

Funded: $1,737,505.23

                   


Contract No. HHSO100201600009C

Modification #06

   Continuation Sheet Block 14    Page 3 of 18

SUMMARY OF CHANGES

Beginning with the effective date of this modification, the Government and Contractor mutually agree as follows:

 

1.

Add an additional funding to CLIN 005 in order to provide necessary funding to Pfenex to [***].

*When submitting an invoice for this work please reference this requisition number: OS219059. These funds must be tracked separate from other funds on CLIN 0005.

 

2.

Delete and replace ARTICLE B.3. OPTION PRICES due to the request for additional funds for CLIN 0005, Option 4 period of performance:

 

CLIN

  Option    Estimated
Period of Parf.
     Supplies/
Services
   Total Est
Cost
     Fixed Fee      Total
Est. Cost
Plus
Fixed Fee
     Exercised
Yes/No
0002   1     
08/12/2015-
11/03/2016

 
   [***]    $ 2,480,823      $ 148,849      $ 2,629,672      No
0003   2     

11/24/2016-

02/24/2019

 

 

   [***]    $ 12,966,402      $ 777,984      $ 13,744,386      No
0004   3     

05/27/2018-

08/02/2020

 

 

   [***]    $ 44,230,173      $ 2,653,810      $ 46,883,983      No
0005   4     

12/22/2016-

12/31/2019

 

 

   [***]    $ 4,037,244      $ 137,984      $ 4,175,228      Yes
0006   5     

12/22/2016-

09/30/2018

 

 

   [***]    $ 2,304,571      $ 138,274      $ 2,442,845      Yes
0007   6     

01/09/2016-

08/05/2020

 

 

   [***]    $ 14,107,610      $ 846,457      $ 14,954,067      No
0008   7     

11/24/2016-

08/09/2020

 

 

   [***]    $ 41,202,354      $ 2,472,141      $ 43,674,496      No
0009   8     

12/24/2016-

05/13/2017

 

 

   [***]    $ 750,622      $ 45,037      $ 795,659      No

 

3.

Delete and replace ARTICLE B.4. LIMITATIONS APPLICABLE to DIRECT COSTS

(b)    Travel Costs

Total expenditures for travel (transportation, lodging, subsistence, and incidental expenses) incurred in direct performance of this contract during the base segment and all options exercised (CLINs 0001, 0005 and 0006) shall not exceed $58,093.00 without the prior written approval of the Contracting Officer. The Contractor shall notify the Contracting Officer in writing when travel expenditures have exceeded 80% of each segment (CLIN) travel expenses. Cost must be consistent with Federal Acquisition Regulations (FAR) 52.247-63 — Preference for U.S. Air Flag carriers (See chart below)

 

4.

Funding Total Summary: the total funded amount on the contract changed from $20,772,168.00 to $22,509,673.23.

 

5.

Contract Total Summary ( if all options are exercise ): the total contract value changed from $143,454,431 to $145,191,936.

 

6.

Section J (Attachment 1) SOW: Delete and replace the entire SOW: Updated 20 March 2018

Topic Area of Interest No. 1.

Contractual Statement of Work

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


PREAMBLE

Independently and not as an agency of the Government, the Contractor shall be required to furnish all the necessary services, qualified personnel, material, equipment, and facilities, not otherwise provided by the Government, as needed to perform the Statement of Work submitted in response to the BARDA Broad Agency Announcement (BAA) BAA-13-100-SOL-00013.

The Government reserves the right to modify the milestones, progress, schedule, budget, or deliverables to add or delete deliverables, process, or schedules if the need arises. Because of the nature of this research and development (R&D) contract and the complexities inherent in this and prior programs, at designated milestones the Government will evaluate whether work should be redirected, removed, or whether schedule or budget adjustments should be made. The Government reserves the right to change the product, process, schedule, or events to add or delete part or all of these elements as the need arises.

Overall Objectives and Scope

[***]:

Base Period - [***]

Option Period 1— [***]

Option Period 2 — [***]

Option Period 3 — [***]

Option Period 4 — [***]

Option Period 5 — [***]

Option Period 6 — [***]

Option Period 7 — [***]

Option Period 8 — [***]

WBS 1 BASE PERIOD - [***]

[***]

WBS 1.1 Program Management

DURATION: [***]

The Contractor shall provide for the following, as outlined below and in the contract deliverables list (Article F.2), for the base period and all options:

[***]

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 10.3

Execution Version

CONFIDENTIAL TREATMENT REQUESTED

CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION THAT WAS OMITTED IN THE EDGAR VERSION HAS BEEN NOTED IN THIS DOCUMENT WITH A PLACEHOLDER IDENTIFIED BY THE MARK “[***]”.

DEVELOPMENT AND LICENSE AGREEMENT

by and between

PFENEX INC.

and

ALVOGEN MALTA OPERATIONS LTD.

June 11, 2018

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Table of Contents

 

         Page  

ARTICLE I DEFINITIONS / INTERPRETATION

     1  

Section 1.1

  Defined Terms      1  

Section 1.2

  Additional Definitions      10  

Section 1.3

  Interpretation      12  
ARTICLE II GRANT OF LICENSE    12  

Section 2.1

  Product License      12  

Section 2.2

  Sublicenses      13  

Section 2.3

  No Implied Licenses; Retained Rights      13  

Section 2.4

  Non-Competition      14  

ARTICLE III DEVELOPMENT / REGULATORY ACTIVITIES

     14  

Section 3.1

  Pfenex Responsibilities      14  

Section 3.2

  Alvogen Responsibilities      14  

Section 3.3

  Coordination; Assistance; Subcontracting      15  

Section 3.4

  Regulatory Materials      16  

ARTICLE IV PAYMENTS

     18  

Section 4.1

  Upfront License Payment      18  

Section 4.2

  Support Payments      18  

Section 4.3

  Approval Payment      19  

Section 4.4

  Therapeutically Equivalent Milestone Payment      19  

Section 4.5

  Profit Share      19  

Section 4.6

  Reports      20  

Section 4.7

  Payment Terms      20  

Section 4.8

  Records; Audit Rights      20  

Section 4.9

  Costs      21  

Section 4.10

  Annual Reconciliation and True-up      21  

ARTICLE V MANUFACTURE OF PRODUCT; SALES AND MARKETING

     21  

Section 5.1

  Manufacturing Responsibility      21  

Section 5.2

  Manufacturing Cooperation      22  

Section 5.3

  Product Packaging and Labeling      22  

Section 5.4

  Product Documentation      22  

Section 5.5

  Product Recalls      22  

Section 5.6

  Product Pricing and Promotion; Agency Contacts      22  

Section 5.7

  Sales and Marketing      23  

Section 5.8

  Ex-Territory Sales; Export Monitoring      23  

ARTICLE VI PRODUCT TRADEMARK; INTELLECTUAL PROPERTY LITIGATION

     23  

Section 6.1

  Product Trademarks      23  

Section 6.2

  Ownership of Product Inventions      24  

Section 6.3

  Patent Prosecution and Maintenance of Product Inventions      25  

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

i


Table of Contents

(continued)

 

         Page  

Section 6.4

 

Third Party Actions

     25  

Section 6.5

 

Enforcement Actions

     26  

Section 6.6

 

Patent Extensions; Orange Book Listings; Patent Certifications

     27  

Section 6.7

 

Reimbursement Requirements

     28  

Section 6.8

 

Recovered Amounts

     28  

Section 6.9

 

Common Interest Agreement

     28  

Section 6.10

 

Patent Marking

     28  

ARTICLE VII EXECUTIVE STEERING COMMITTEE

     28  

Section 7.1

 

Formation and Purpose

     28  

Section 7.2

 

Membership

     28  

Section 7.3

 

Meeting Requirements

     29  

Section 7.4

 

Decision-Making; Dispute Resolution

     29  

Section 7.5

 

Meeting Minutes

     30  

Section 7.6

 

Expenses

     31  

Section 7.7

 

Working Committees

     31  

Section 7.8

 

Committee Authority

     31  

Section 7.9

 

Day-to-Day Responsibilities

     31  

Section 7.10

 

Cooperation; Withdrawal

     31  

ARTICLE VIII CONFIDENTIALITY; TAXES; NONSOLICITATION; PUBLICATIONS

     32  

Section 8.1

 

Confidentiality

     32  

Section 8.2

 

Agents

     33  

Section 8.3

 

Restrictions on Sharing Information

     33  

Section 8.4

 

Prior Agreements

     33  

Section 8.5

 

Taxes

     34  

Section 8.6

 

Nonsolicitation

     35  

Section 8.7

 

Public Announcements

     35  

Section 8.8

 

Publications

     36  

ARTICLE IX REPRESENTATIONS, WARRANTIES AND COVENANTS

     36  

Section 9.1

 

Representations and Warranties of Pfenex

     36  

Section 9.2

 

Representations and Warranties of Alvogen

     40  

Section 9.3

 

Covenants

     41  

Section 9.4

 

Disclaimer of Warranties

     42  

Section 9.5

 

Insurance

     42  

ARTICLE X TERM; TERMINATION

     43  

Section 10.1

 

Term

     43  

Section 10.2

 

Termination

     43  

Section 10.3

 

General Effects of Expiration or Termination

     44  

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

ii


Table of Contents

(continued)

 

         Page  

Section 10.4

 

Additional Effects of Expiration or Termination

     44  

Section 10.5

 

Additional Effects of Specific Terminations

     45  

ARTICLE XI INDEMNIFICATION AND LIABILITY LIMITS

     46  

Section 11.1

 

Indemnification by Pfenex

     46  

Section 11.2

 

Indemnification by Alvogen

     46  

Section 11.3

 

Indemnification Procedure

     47  

Section 11.4

 

Limitations on Liability

     48  

Section 11.5

 

Product Liability Allocation

     50  

Section 11.6

 

Cooperation

     50  

ARTICLE XII MISCELLANEOUS

     50  

Section 12.1

 

Force Majeure

     50  

Section 12.2

 

Notices

     51  

Section 12.3

 

Governing Law

     52  

Section 12.4

 

Internal Dispute Resolution

     52  

Section 12.5

 

Arbitration

     52  

Section 12.6

 

Relationship of the Parties

     52  

Section 12.7

 

Assignment

     53  

Section 12.8

 

Binding Effect

     53  

Section 12.9

 

Entire Agreement; Amendments

     53  

Section 12.10

 

Severability

     53  

Section 12.11

 

Waiver

     53  

Section 12.12

 

English Language

     54  

Section 12.13

 

Counterparts

     54  

Section 12.14

 

Electronic Execution and Delivery

     54  

Section 12.15

 

Bankruptcy License Protection

     54  

Section 12.16

 

Further Assurances

     55  

Section 12.17

 

Compliance with Applicable Laws

     55  

Section 12.18

 

Expenses

     55  

Section 12.19

 

Third Party Beneficiaries

     55  

Section 12.20

 

Equitable Remedies

     55  

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

iii


DEVELOPMENT AND LICENSE AGREEMENT

This Development and License Agreement (this “ Agreement ”) is entered into as of June 11, 2018 (the “ Effective Date ”) by and between Pfenex Inc., a Delaware corporation (“ Pfenex ” or a “ Party ”), and Alvogen Malta Operations Ltd., a Maltese corporation (“ Alvogen ” or a “ Party ”, and together with Pfenex, the “ Parties ”).

BACKGROUND

A.     Pfenex is a clinical stage biotechnology company engaged in the development of difficult to manufacture and high-value proteins, focusing on biosimilar therapeutics, including Product (as defined below);

B.     Alvogen has expertise in the development, manufacture, and Commercialization of pharmaceutical products for human use in the Territory (as defined below); and

WHEREAS, Alvogen wishes to obtain from Pfenex, and Pfenex wishes to grant to Alvogen, an exclusive right to develop, manufacture, and Commercialize Product in the Territory, subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pfenex and Alvogen agree as follows:

ARTICLE I

DEFINITIONS / INTERPRETATION

Section 1.1     Defined Terms . The following words and phrases, when used herein with initial capital letters, have the meanings set forth or referenced below:

Accounting Standards ” means, with respect to a Person, then current generally accepted accounting principles consistently applied by such Person across its operations, including United States GAAP and International Financial Reporting Standards.

Acquiring Entity ” means a Third Party (including the parent company of such Third Party, as applicable) that merges or consolidates with or acquires Pfenex, or to which Pfenex transfers all or substantially all its assets to which this Agreement pertains (any such merger, consolidation or acquisition, the “ Acquisition Transaction ”).

Action ” means any proceeding, action, claim (formal or informal, including by way of a letter), arbitration, administrative or regulatory action or other type of legal action, whether taken as a plaintiff or an initiating party (including through a request for declaratory judgment) or by way of counter-claim or defense.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

1


Adverse Drug Responses ” shall be defined in more detail in any PV Agreement to include any “Adverse Drug Experience” as defined in the then-current 21 C.F.R. Section 314.80 and “Adverse Drug Responses” as defined in the then-current guidelines and regulations promulgated by the ICH (International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use).

Affiliate ” means any Person controlled by, controlling or under common control with another Person; provided, however, that (i) any direct or indirect stockholder of a Party that is a financial sponsor, professional investor, or investment fund (of whatever nature) and (ii) any portfolio companies or investments that is held, controlled or managed by any Person described in clause (i) shall, in each of cases (i) and (ii), be deemed to not be an Affiliate of such Party for purposes of this Agreement. For purposes of this definition, “control” means (a) direct or indirect beneficial ownership of fifty percent (50%) or more of the voting stock in Person, or (b) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

Alvogen’s Knowledge means the actual knowledge, after reasonable inquiry, of the President, Chief Financial Officer, Vice President of Legal Affairs, and Vice President of Business Development, in each case of Alvogen Inc., a Delaware corporation.

ANDA ” means an Abbreviated New Drug Application pursuant to 21 U.S.C. § 355(j) et seq ., and the regulations promulgated thereunder, as such application may be amended or supplemented from time to time.

Annual Period ” means (a) for calendar year 2018, the period commencing on the Effective Date and ending on December 31, 2018 (or the date this Agreement is terminated if such termination occurs prior to December 31, 2018), (b) for each successive calendar year during the Term (other than the calendar year in which the Term expires or this Agreement is terminated) the period beginning on January 1st of such year and ending on December 31st of such year, and (c) for the calendar year (other than 2018) in which the Term expires or this Agreement is terminated, the period beginning on January 1st of such calendar year and ending on the effective date of the termination of this Agreement.

Applicable Law ” means each applicable federal, state, local or foreign constitution, treaty, law, statute, ordinance, rule, regulation, directive, policy, order, writ, award, decree, injunction, judgment, stay or restraining order of any Governmental Authority (including the FDA), the terms of any NDA Approval, and any other ruling or decision of, agreement with or by, or requirement of any Governmental Authority.

Assignee ” means any Person (other than Pfenex and Alvogen) that is assigned or transferred, or succeeds to, any rights under this Agreement.

Average Sale Price ” means, with respect to a particular country and particular period, the weighted average sale price of Product, Bundled Product or other product or service included in a Bundled Product, as applicable, as determined by dividing (a) the Net Sales on commercial sales of such Product or Bundled Product or net sales of other product or service

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

2


included in a Bundled Product in arms-length transactions in the applicable country during the applicable period, by (b) the units of such Product, Bundled Product or other products or services included in a Bundled Product commercially sold in arms-length transactions in such country during such period.

Bundled Product ” means Product sold together with any other product(s) or service(s) at a single unit price, whether packaged together or separately, and which other product(s) or service(s) have material independent value from Product itself.

Business ” means the research, development, manufacture and Commercialization of and specific to, Product in the Territory by or on behalf of Pfenex, Alvogen and their respective Affiliates and subcontractors, either individually or jointly.

Business Day ” means any day other than a Saturday, Sunday or a holiday on which banks in the United States are authorized by Applicable Law to be closed.

cGxP ” means then-current good manufacturing, clinical or laboratory practices and quality system regulations, as applicable, promulgated by the FDA.

Code ” means the United States Internal Revenue Code of 1986, as amended and the Treasury regulations promulgated thereunder.

COGs ” means, with respect to Product, actual costs and expenses incurred or accounted for by Alvogen or its Affiliates allocable to the sourcing and manufacture of Product (and the components thereof including the Drug Substance); provided, however with respect to Product (and the components thereof including the Drug Substance) acquired by Alvogen or its Affiliates from a Third Party, the COGs for such Product (and the components thereof including the Drug Substance) shall be deemed to be the amount actually paid therefor to such Third Party or incurred by Alvogen or its Affiliates for such Product (and the components thereof including the Drug Substance), including the transfer price payable by Alvogen or its Affiliate to a Third Party Supplier, and all out-of-pocket costs incurred by Alvogen (or its Affiliate) for handling, intake testing, and holding and storing of Product, including any special packaging expenses, Taxes, inspection fees and other similar out-of-pocket charges applicable to the shipping and transport of Product purchased by Alvogen or its Affiliate, in all cases for or allocable to Product in accordance with Accounting Standards.

Commercialization ” means, with respect to a product, any and all processes and activities conducted to establish and maintain sales for such product, including obtaining and maintaining pricing, reimbursement, coding and patient access, offering for sale, detailing, selling (including launching), marketing (including pre-launch and launch, as well as advertising activities), promoting, storing, transporting, distributing, and importing such product. For clarity, Commercialization includes activities traditionally conducted by sales representatives (including field sales, institutional sales, pharmacy/trade sales and managed care sales representatives) and other individuals having similar functions. “ Commercialize ,” “ Commercialized ” and “ Commercializing ” shall have their correlative meanings.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

3


Competing Product means (a) the Reference Product, (b) a therapeutic product other than the Product that contains the active pharmaceutical ingredient of the Reference Product (including the Drug Substance or a modified or derivative version thereof) as its sole active pharmaceutical ingredient or (c) any revised formulation, strength, presentation or delivery method of any product described in (a) or (b), where the Regulatory Materials with respect thereto reference or would be required to reference the Reference Product.

Control means, with respect to particular Know-How or a particular Patent, possession of the power and authority by the Party granting the applicable right, license or sublicense to the other Party as provided herein, whether arising by ownership, license, or other authorization, to disclose and deliver the particular Know-How to the other Party, or to grant and authorize under such Know-How or Patent the right, license or sublicense, as applicable, of the scope granted to such other Party in this Agreement without giving rise to a violation of the terms of any agreement or other arrangement with, or the rights of, any Third Party. Notwithstanding anything to the contrary in this Agreement, the following shall not be deemed to be Controlled by Pfenex: (a) any Know-How or Patent owned by or licensed to any Acquiring Entity (other than from Pfenex or its Affiliates) immediately prior to the effective date of the Acquisition Transaction, and (b) any Know-How or Patent that any Acquiring Entity subsequently develops, which is not based upon and without accessing or practicing any Know-How or Patent owned by or licensed to Pfenex immediately prior to the effective date of the Acquisition Transaction. “ Controls ” and “ Controlled ” have their correlative meanings.

Debarred Entity means a Person (other than an individual) that has been debarred by the FDA pursuant to 21 U.S.C. § 335a (a) or (b).

Debarred Individual means an individual who has been debarred by the FDA pursuant to 21 U.S.C. § 335a (a) or (b).

Diligent Efforts ” means, with respect to the activities to be conducted by a Party with respect to any objective, the reasonable, diligent, good faith efforts and resources (financial and otherwise) to accomplish such objective as similarly situated Third Parties would normally use to accomplish a similar objective under similar circumstances, it being understood and agreed that, with respect to the development and commercialization of Product, such efforts shall be consistent with those efforts and resources similarly situated Third Parties commonly expend for their own products (and, if the FDA has given notice that the Product is Therapeutically Equivalent to the Reference Product, for their own high-priority products) at a similar stage of development or commercialization and with similar commercial and market potential. In considering Product’s commercial potential Alvogen shall not consider payments required to be paid to Pfenex hereunder. Without limiting the foregoing, such efforts shall include: (a) assigning responsibilities for activities for which such Party is responsible to specific employee(s) who are held accountable for the progress, monitoring and completion of such activities in a timely manner, (b) setting and seeking to reasonably achieve meaningful objectives for carrying out such activities, and (c) making and implementing reasonable decisions and allocating resources reasonably necessary or appropriate to advance progress with respect to and complete such objectives in an expeditious manner, in each case, consistent with the efforts and resources normally used by similarly situated Third Parties in the performance of

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

4


such activity for their own products (and, if the FDA has given notice that the Product is Therapeutically Equivalent to the Reference Product, for their own high-priority products), in each case owned by such Party or to which such Party has exclusive rights, at a similar stage of development or commercialization and with similar commercial and market potential as Product, taking into account all relevant factors, including patent coverage, safety and efficacy, product profile, competitiveness of the marketplace and other products, proprietary position and profitability (including pricing and reimbursement).

Distribution Cost Allowance ” means, for each Quarterly Period, an expense allowance [***] for [***].

Dow Technology Assignment Agreement means that certain Technology Assignment Agreement, dated as of November 30, 2009, by and between Dow Global Technologies Inc., The Dow Chemical Company and Pfenex.

Dow Technology Licensing Agreement means that certain Technology Licensing Agreement, dated as of November 30, 2009, by and between Dow Global Technologies Inc., The Dow Chemical Company and Pfenex.

Drug Substance ” means that certain peptide as described in more detail in the Product Memo.

FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code (or any amended or successor version described above), and any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to such intergovernmental agreement.

FDA means the United States Food and Drug Administration, or any successor agency thereto.

First Commercial Sale means the first commercial sale of Product to a Third Party by or under authority of Alvogen or any of its Affiliates or approved sublicensees in the Territory after NDA Approval for Product.

Freight Charges ” means out-of-pocket freight, shipping and insurance costs, as well as any special packaging expenses, Taxes, inspection fees and other out-of-pocket charges incurred by Alvogen (or its Affiliate), to the extent attributable to the shipping and transport of Product from the Third Party Supplier to Alvogen (or its Affiliate) in accordance with Accounting Standards.

Governmental Authority means any supranational, national, regional, state, provincial, local or other government, or other court of competent jurisdiction, legislature, governmental, administrative or regulatory agency, department, body, bureau, council or

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

5


commission or any other supranational, national, regional, state, provincial, local or other governmental authority or instrumentality, including the FDA, in each case having jurisdiction in any country or other jurisdiction.

Gross Profit means, with respect to a particular Quarterly Period, the amount equal to Net Sales during such Quarterly Period less [***], to the extent attributable or allocated to the sale of Product; provided, however, that in the event that Gross Profit is negative during any Quarterly Period, such negative amount will be carried forward to future Quarterly Periods for the purpose of calculating Gross Profit. Any negative amounts will be carried forward until such negative amounts are completely offset by Gross Profit from future Quarterly Periods.

Indemnified Taxes means Taxes imposed as a result of any assignment or other transfer of any kind of any rights under this Agreement by any Party to any Assignee (including by merger, liquidation or reorganization) on the other Party (the “ Non-Assigning Party ”), or on any payment by the Assignee under this Agreement to the Non-Assigning Party, other than Taxes imposed on or with respect to the Non-Assigning Party or required to be withheld or deducted from a payment to the Non-Assigning Party that are (a) imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case (i) imposed as a result of the Non-Assigning Party being organized under the laws of, or having its principal office in, the jurisdiction imposing such Taxes (or any political subdivision thereof), or (ii) that are imposed as a result of a present or former connection between the Non-Assigning Party and the jurisdiction imposing such Tax (other than connections arising from the Non-Assigning Party having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced this Agreement), (b) attributable to the Non-Assigning Party’s failure to comply with Section 8.5(a), and (c) any withholding Taxes imposed under FATCA. The term Indemnified Taxes includes penalties, fines and other additional statutory charges incidental or related to the imposition thereof, only to the extent not caused by the acts or omissions of the Non-Assigning Party.

Intellectual Property ” means any and all intellectual property or intangible rights anywhere in the world, including (a) Patents, (b) published and unpublished works of authorship, whether copyrightable or not, including all statutory and common law copyrights associated therewith, (c) trade secrets, and (d) Know-How, but excluding Trademarks.

Know-How means technical information and materials, in any tangible or intangible form whatsoever, including technology, reports, databases, data, results, analytical models, chemicals, inventions (patentable or otherwise), practices, methods, knowledge, techniques, specifications, formulations, formulae, know-how, skill, experience, test data, including pharmacological, biological, chemical, biochemical, toxicological and clinical test data, analytical and quality control data, stability data, studies and procedures and patent and other legal information or descriptions; provided, however, that Know-How shall exclude any Patents.

Lien means any liens, claims, charges, pledges, security interests or other encumbrances of any nature whatsoever.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

6


Manufacturing Cost ” means, with respect to a particular Quarterly Period, means the quotient of (a) the COGs for all Product sold during such Quarterly Period, divided by (b) the total number of units of Product sold during such Quarterly Period.

NDA means a New Drug Application filed with the FDA as more fully defined in 21 C.F.R. §314.50 et. seq. (including any such application filed pursuant to Section 505(b)(1) or Section 505(b)(2)).

NDA Approval means, with respect to a pharmaceutical product in the Territory, approval by the FDA of the initial NDA therefor.

Net Sales means, for a specified period, the gross revenue recognized by Alvogen or its Affiliates or its approved sublicensees (any, a “ Selling Person ”) for the commercial sale of Product by a Selling Person to Third Parties, less the following deductions to the extent charged as part of the invoiced price, separately stated on the invoice, calculated as a function of the invoice price or otherwise taken, paid, accrued, allowed, included or allocated (without duplication, and to the extent not reimbursed by a Third Party):

(a)    [***];

(b)    [***];

(c)    [***];

(d)    [***];

(e)    [***];

(f)    [***]; and

(g)    [***];

in each case (a) – (g), [***].

Notwithstanding the foregoing, sales among Selling Persons shall not be included in the computation of Net Sales hereunder (except where such Selling Person is an end user).

For clarity, any Product that is provided for use as promotional samples or in connection with a compassionate use program shall be excluded from the calculation of Net Sales, is not a “commercial sale” for purposes of this Agreement and shall not be taken into account in determining Average Sale Price.

In the case of any sale or transfer of a Product to a non-Affiliate other than in a transaction exclusively for cash, the Net Sales amount per unit shall be deemed to be the Average Sale Price for the calendar quarter in which such sale or transfer took place.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

7


With respect to a Bundled Product, the Net Sales of such Bundled Product shall first be calculated in accordance with the definition of Net Sales above, and then the Net Sales of Product included in such Bundled Product shall be determined as follows:

(i)    [***]; or

(ii)    [***].

Orange Book ” means the FDA publication Approved Drug Products with Therapeutic Equivalence Evaluations , as may be amended from time to time.

Patent means (a) any issued patent, including any inventor’s certificate, substitution, extension, confirmation, reissue, reexamination, renewal or any like governmental grant for protection of inventions, and (b) any pending application for any of the foregoing, including any continuation, divisional, substitution, continuation-in-part, provisional and converted provisional application.

PDUFA Fee means the fee payable to the FDA pursuant 21 U.S.C. 379h for the review of the initial NDA filed with respect to the Product.

Person means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a Governmental Authority or other entity of any kind.

Pfenex Expression Technology means Pfenex’s proprietary Pseudomonas fluorescens expression platform technology used in the development and production of strains to produce biologic and other pharmaceutical products (including the Product) through the optimization of a nucleic acid sequence, together with all Intellectual Property related thereto, including all other Intellectual Property (including Patents and Know-How) transferred or licensed to Pfenex under the Dow Technology Assignment Agreement or the Dow Technology Licensing Agreement.

Pfenex Know-How means Know-How Controlled by Pfenex or its Affiliates at any time during the Term that is necessary or used for the operation of the Business in the Territory.

Pfenex Patents means Patents in the Territory Controlled by Pfenex or its Affiliates at any time during the Term (a) claiming the composition of the Drug Substance (and Product), (b) claiming methods of use, administration or formulation of the Drug Substance (and Product), or (c) claiming the manufacture of the Drug Substance. A list of current Pfenex Patents is set forth in the Product Memo.

Pfenex Technology means, collectively, the Pfenex Know-How, the Pfenex Patents and the Product Inventions, but excluding the Pfenex Expression Technology.

Pfenex’s Knowledge means the actual knowledge, after reasonable inquiry, of Pfenex’s Chief Executive Officer, Chief Financial Officer, Chief Business Officer, and Pfenex’s Senior Director of Upstream Processing and Intellectual Property.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

8


Prior Agreements means (a) that certain Letter of Intent between the Alvogen Group, Inc. and Pfenex dated May 25, 2018, and (b) that Secrecy Agreement between the Alvogen Group, Inc. and Pfenex dated September 1, 2017.

Product means pharmaceutical product consisting of the Drug Substance as the sole active pharmaceutical ingredient as further described in the Product Memo; “Product”, when referring to a manufactured product, means such product on final packaged form and meeting the specifications therefor.

Product Documentation means all marketing and promotional literature, packaging inserts (including patient information leaflets) and customer documentation applicable to Product.

Product Memo ” means that certain memorandum exchanged between the Parties on the Effective Date and referencing this Agreement.

Product Trademark means the Trademark set forth in the Product Memo, or such other Trademark as designated pursuant to Section 6.1(b).

Prosecution and Maintenance means, with regard to a Patent, the preparation, filing, prosecution and maintenance of such Patent, as well as re-examinations, reissues, requests for Patent term extensions and the like with respect to such Patent, together with the conduct of interferences and inter partes actions, the defense of oppositions and other similar proceedings with respect to the particular Patent; and “ Prosecute and Maintain ” has its correlative meaning.

Quarterly Period means a three (3) month period of each calendar year ending on March 31, June 30, September 30 or December 31, except that the first Quarterly Period shall be a period commencing on the Effective Date and ending on September 30, 2018.

Reference Product means Forteo ® (teriparatide), as branded and approved in the Territory.

Registrations means all permits, licenses, approvals and authorizations granted by any Regulatory Agency with respect to Product (including the manufacture, handling, storage, import, transport, distribution, marketing, promotion, advertising or sale thereof).

Regulatory Agency ” mean any federal, state or local regulatory agency, department, bureau or other Governmental Authority in the United States, the European Union or any other country, as applicable, including the FDA in each case that is responsible for Registrations necessary for, or otherwise governs, the manufacture, handling, storage, import, transport, distribution or sale of Product.

Regulatory Approval means, with respect to Product in a given country, all necessary Registrations from the applicable Regulatory Agency in such country to distribute, market, promote, sell and place on the market Product in such country.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

9


Regulatory Commitment Activities means any study or trial of Product that is required by the FDA to be conducted after NDA Approval, or that the sponsor of the NDA agrees at the written request of FDA will be conducted following such approval.

Regulatory Materials means, with respect to a product, regulatory applications (including NDAs), submissions, notices, notifications, communications, correspondence, Registrations or other filings (including requests for Therapeutic Equivalence designation) made to, received from or otherwise conducted with any Regulatory Agency (including minutes of meetings with any Regulatory Agency) that are necessary for or otherwise relate to the development, manufacture or Commercialization of such product.

Safety Reasons means it is a Party’s reasonable belief that there is an unacceptable risk for harm in humans based upon (a) preclinical safety data, including data from animal toxicology studies, or (b) the observation of serious adverse effects in humans after Product has been administered to humans, such as during a clinical study or after the First Commercial Sale, in each of clauses (a) and (b), which would materially impact the safety or efficacy and the commercial feasibility of Product.

Tax or Taxes means any and all taxes, including value added taxes, duties, imposts, charges, withholdings, rates, levies and other governmental impositions and other taxes of any kind whatsoever imposed, assessed or charged.

Taxing Authority means any Governmental Authority responsible for the imposition, assessment or collection of any Tax, including the United States Internal Revenue Service.

Territory means the United States of America, including the District of Columbia, the Commonwealth of Puerto Rico and all other territories and possessions of the United States of America (collectively, the “ United States ” or “ U.S. ”).

Therapeutically Equivalent or “Therapeutic Equivalence” means, with respect to a pharmaceutical product, that such pharmaceutical product is “therapeutically equivalent” to a designated reference product, as defined in the Preface to the current edition of the Orange Book, such that the applicable pharmaceutical product would be substitutable by a pharmacist for the designated reference product when filling a prescription written for such reference product without having to seek authorization to do so from the physician writing such prescription (i.e., an A-Rated product).

Third Party means any Person other than a Party and such Party’s Affiliates.

Trademark ” means, any trademark, service mark, trade dress, trade name, assumed name and entity name, together with the goodwill associated with and symbolized by such trademark, service mark, trade dress, trade name and entity name, in each case whether or not registered.

Section 1.2     Additional Definitions . Each of the following terms has the meaning defined in the corresponding Section or part of the Agreement indicated below:

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

10


Defined Term

 

Section

 

Defined Term

 

Section

ADR   Exhibit 12.5   Neutral   Exhibit 12.5
Agents   Section 8.2   Other Party   Section 3.3(a)
Agreement   Preamble   Parties   Preamble
Alvogen   Preamble   Party   Preamble
Alvogen Indemnitees   Section 11.1   Pfenex   Preamble
Article III Activities   Section 3.3(a)   Pfenex Housemark   Section 6.1(d)
Assisting Party   Section 3.4(e)   Pfenex Indemnitees   Section 11.2
Bankruptcy Code   Section 12.15   Pfenex Profit Share   Section 4.5
COGs Reduction Plan   Section 5.2(a)   Product Financial Records   Section 4.8
Commercial Territory   Section 5.8(a)   Product Inventions   Section 6.2
Commitment Activities   Section 3.2(b)   Product License   Section 2.1
Common Interest Agreement   Section 6.9   Product Records   Section 3.3(d)
Confidential Information   Section 8.1   PTO   Section 6.3(a)
Confidentiality Exceptions   Section 8.1   PV Agreement   Section 3.3(e)
Cooperating Party   Section 6.5(d)   Regulatory Commitment Costs   Section 3.2(c)
Development Plan   Section 3.1(a)   Responsible Party   Section 3.3(a)
Dispute   Section 12.4   Reviewing Party   Section 3.4(a)
Effective Date   Preamble   SEC   Section 8.7
Enforcement Action   Section 6.5(b)   Solicitation Action   Section 8.6
Enforcing Party   Section 6.5(d)   Soliciting Party   Section 8.6
Executive Steering Committee   Section 7.1   Subcontractor   Section 3.3(c)
Filing Party   Section 3.4(a)   Taxed Party   Section 8.5(c)
Force Majeure   Section 12.1   Term   Section 10.1
Indemnification Notice   Section 11.3(a)   Territory Medical Affairs Strategy   Section 3.2(b)(ii)
Indemnification Objection   Section 11.3(b)   Third Party Action   Section 6.4(a)
Indemnified Party   Section 11.3(a)   Third Party Claim   Section 11.1
Indemnify   Section 11.1   Third Party Supplier   Section 5.1(a)
Indemnifying   Section 11.3(a)   Trademark   Section 6.1(a)

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

11


Defined Term

 

Section

 

Defined Term

 

Section

Party     License  
Infringement Notice   Section 6.5(a)   Transfer Effective Date   Section 3.2(a)
Infringing Activity   Section 6.5(a)   Transfer Taxes   Section 8.5(d)
IP Strategy   Section 7.1   Working Committee   Section 7.1
Losses   Section 11.1    

Section 1.3     Interpretation . Interpretation of this Agreement is governed by the following rules of construction, unless the context clearly requires otherwise: (a) words in the singular include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms article, section, paragraph and exhibit are references to the Articles, Sections, Paragraphs and Exhibits to this Agreement; (c) references to “$” and “Dollars” mean United States dollars; (d) the words “including,” “includes,” and words of similar meaning are interpreted as incorporating the phrase “without limitation,” or “but not limited to”; (e) the word “or” have the meaning associated with the phrase “and/or” and not be exclusive; (f) provisions apply, when appropriate, to successive events and transactions; (g) a reference to any Person includes such Person’s successors and permitted assigns; (h) this Agreement is construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted; (i) the word “day” means a calendar day unless otherwise specified; (j) the word “notice” means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other communications contemplated under this Agreement; (k) each accounting term not otherwise defined in this Agreement has the meaning assigned to it consistent with the requirements of Accounting Standards; (l) the words “hereof,” “herein,” “hereby,” “hereunder” and derivative or similar words refer to this Agreement (including the Exhibits); (m) provisions that require that a Party, the Parties or the Executive Steering Committee “agree,” “consent” or “approve” or the like require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise; (n) references to any specific law, rule or regulation, or article, section or other division thereof, shall be deemed to include the then-current amendments thereto or any replacement law, rule or regulation thereof; and (o) neither Party or its Affiliates shall be deemed to be acting “on behalf of” the other Party hereunder. All Exhibits referred to herein are hereby incorporated by reference. The headings contained in this Agreement are used only as a matter of convenience, and in no way define, limit, construe or describe the scope or intent of any Section of this Agreement. When calculating any cost, expense or other amount hereunder no specific charge or element thereof shall be accounted for more than once.

ARTICLE II

GRANT OF LICENSE

Section 2.1     Product License . Subject to the terms and conditions of this Agreement, Pfenex hereby grants to Alvogen (a) an exclusive license under the Pfenex Technology to Commercialize Product in the Territory during the Term, and (b) an exclusive license under the

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

12


Pfenex Technology to (i) manufacture or have manufactured the Product (and components thereof including the Drug Substance) in the Territory during the Term, and (ii) conduct any development activities assigned to Alvogen under the Development Plan in the Territory with respect to Product during the Term (collectively, the “ Product License ”). The Product License shall be transferable solely in accordance with Section 12.7 and sublicensable solely in accordance with Section 2.2.

Section 2.2     Sublicenses .

(a)    The Product License includes the right to sublicense within the scope thereof; provided, however, that Alvogen shall not sublicense to a Third Party its license under the Pfenex Technology to Commercialize, or have manufactured, Product in the Territory except (i) to a Third Party Supplier, (ii) as reasonably necessary to comply with Applicable Law, or (iii) as mutually agreed by the Parties in writing. For clarity, it is understood and agreed that, Alvogen may use distributors in the Territory, provided that (A) Alvogen remains responsible to ensure that the activities of any such distributors are consistent with the terms of this Agreement, and (B) Alvogen (or its Affiliate) (I) books sales of Product in the Territory in accordance with Alvogen’s ordinary course of business, and (II) remains primarily responsible for the marketing and promotion of Product in the Territory, which will be under the Product Trademark or other trademarks Controlled by Alvogen or its Affiliates.

(b)    Alvogen shall obtain Pfenex’s written approval prior to the grant of any sublicense and provide Pfenex a copy of the final executed sublicense agreement.

(c)    Alvogen shall be responsible for the failure by its sublicensees to comply with all relevant restrictions, limitations and obligations in this Agreement.

(d)    Alvogen shall also have the right to sublicense the Trademark License granted pursuant to Section 6.1(a), provided that such sublicense shall be (i) granted to the applicable approved sublicensee in conjunction with a sublicense under the Product License granted pursuant to this Section 2.2, and (ii) subject to the terms and conditions of this Section 2.2.

Section 2.3     No Implied Licenses; Retained Rights . Each Party acknowledges that the rights and licenses granted under this Article II and elsewhere in this Agreement are limited to the scope expressly granted. Accordingly, except for the rights expressly granted under this Agreement, no right, title, or interest of any nature whatsoever is granted whether by implication, estoppel, reliance or otherwise, by either Party to the other Party. Without limiting the obligations hereunder (including the exclusivity set forth in Section 2.4), all rights with respect to Know-How, Patents or other Intellectual Property that are not specifically granted herein are reserved to the owner thereof, and specifically, Pfenex retains all rights under the Pfenex Technology to (a) Commercialize, Product outside the Territory, (b) conduct development activities with respect to Product (and components thereof including the Drug Substance) worldwide, solely to support development and Commercialization of Product outside the Territory and (c) engage and authorize Third Parties to conduct the activities described in clauses (a) and (b). Alvogen agrees that it will not, and it will ensure that its Affiliates will not, and it

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

13


will not grant any sublicensee the right to, use or otherwise exploit the Pfenex Technology, except as expressly licensed and permitted in this Agreement.

Section 2.4     Non-Competition. Neither Party nor their respective Affiliates shall, directly or indirectly, itself, through an Affiliate or otherwise, (a) research, develop, seek or obtain NDA Approval or any other Regulatory Approval in the Territory for (or take any actions directed thereto), manufacture, market, import, offer for sale, sell or otherwise Commercialize (including through a distributor or other Third Party) any Competing Product in the Territory during the Term or (b) authorize or assist (including by investing in or otherwise providing funding to) any Third Party to do any of the foregoing.

ARTICLE III

DEVELOPMENT / REGULATORY ACTIVITIES

Section 3.1     Pfenex Responsibilities . Pfenex (itself or, subject to Section 3.3, through its Affiliates or Third Parties) shall use Diligent Efforts to:

(a)    conduct the development activities for Product in the Territory set forth in the development plan and associated timelines attached hereto as Exhibit  3.1(a) (as may be updated by the Executive Steering Committee, the “ Development Plan ”) and such activities shall be conducted in accordance with applicable cGxP and Applicable Law with the goal of supporting the preparation and filing of an NDA for the Product and obtaining NDA Approval for the Product;

(b)    prepare, file with the FDA and defend the NDA for Product and obtain NDA Approval for Product. In connection with the filing and review of such NDA, Pfenex shall apply for and use Diligent Efforts to obtain a waiver (or reduction) with respect to the PDUFA Fee, as provided in 21 U.S.C. 379h(d); provided, however, if despite such Diligent Efforts, the FDA notifies Pfenex that any PDUFA Fee is payable, then the Parties shall share the cost of such PDUFA Fee equally (i.e., on a 50:50 basis). Accordingly, Alvogen shall remit its share of the PDUFA Fee to Pfenex within five (5) Business Days of receipt of an invoice therefor from Pfenex; and

(c)    Upon receipt of NDA Approval for Product, Pfenex shall file a notice with the FDA (and copying Alvogen) under 21 CFR 314.72 transferring the NDA Approval to Alvogen (the “ Transfer Notice ”).

Section 3.2     Alvogen Responsibilities .

(a)    Upon receipt of the Transfer Notice, Alvogen shall file a notice with the FDA (and copying Pfenex) under 21 C.F.R. 314.72 accepting transfer of the NDA Approval and specifying the date that the change in ownership is effective (the “ Transfer Effective Date ”).

(b)    As of the Transfer Effective Date, Alvogen shall:

(i)    be responsible for and conduct (itself or, subject to Section 3.3(c), through its Affiliates or Third Parties) (A) all Regulatory Commitment Activities and post-

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

14


marketing surveillance studies and data collection and analysis with respect to Product in the Territory; (B) all pharmacovigilance activities with respect to Product in the Territory (subject to the PV Agreement); and (C) all medical investigations and evaluations and the reporting of Adverse Drug Responses related to Product in the Territory, in each case (clauses (A) – (C)) as required by the FDA or under Applicable Law (collectively, the “ Commitment Activities ”);

(ii)    have the exclusive right to control, and shall use Diligent Efforts to conduct, a comprehensive strategy of all medical affairs matters relating to Product in the Territory (the “ Territory Medical Affairs Strategy ”), including with respect to (i) the preparation of any publication based on data and other information relating to any trial or study with respect to Product in the Territory, or (ii) the planning and implementation of congress participations, medical education programs and key opinion leader or advisory board meetings with respect to Product in the Territory; and

(iii)    use Diligent Efforts to take such other actions reasonably necessary to maintain the NDA Approval for Product.

(c)    Alvogen shall bear all costs and expenses in connection with Alvogen’s responsibilities under this Section 3.2 (the “ Regulatory Commitment Costs ”), including the costs and expenses incurred in connection with the Commitment Activities and the Territory Medical Affairs Strategy; provided that Pfenex may, at its sole discretion, elect to reimburse Alvogen for any portion of such Regulatory Commitment Costs, and any such reimbursed amounts shall not be counted toward the amounts described in Section 10.2(b)(v).

Section 3.3     Coordination; Assistance; Subcontracting .

(a)    The Party responsible for conducting a particular activity pursuant to this Article III (with respect to such activity, the “ Responsible Party ”) shall keep the other Party (the “ Other Party ”) reasonably informed as to the Responsible Party’s (and its Affiliates’) planned activities (including written plans with estimated timelines) and progress with respect to such activities (individually and collectively, the “ Article III Activities ”) through quarterly updates to the Executive Steering Committee.

(b)    The Other Party shall cooperate and provide the Responsible Party with reasonable assistance in connection with the performance by the Responsible Party of its Article III Activities.

(c)    The Responsible Party may subcontract to Affiliates or Third Parties (each, a “ Subcontractor ”) any portion of its responsibilities with respect to development of Product in the Territory. Each Subcontractor shall enter into a written agreement with the Responsible Party pursuant to which such Subcontractor shall (i) be bound by obligations of confidentiality and non-use with respect to the Confidential Information of the Other Party or otherwise relating to Product at least as protective as the obligations set forth in Section 8.1 through Section 8.3, (ii) be bound by obligations with respect to Intellectual Property sufficient to enable the Responsible Party to comply with the terms and conditions of this Agreement as if the Responsible Party completed any such subcontracted Article III Activity itself, (iii) be required to make representations and warranties with respect to debarment comparable to the

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

15


representations and warranties made by the Responsible Party under Section 9.2(g), (iv) be obligated to provide notice to the Responsible Party upon becoming the subject of any investigation or debarment proceeding that could lead to such Subcontractor becoming a Debarred Entity or Debarred Individual, and (v) be required to comply with all Applicable Laws, including, if applicable, cGxP. The Responsible Party shall supervise and be responsible under this Agreement for the work of any such Subcontractor. No subcontracting of any obligation or activity under this Agreement shall relieve the Responsible Party of any of its obligations or responsibilities under this Agreement.

(d)    The Responsible Party shall, and shall cause each Subcontractor engaged pursuant to Section 3.3(c) to, maintain complete and accurate books and records, in sufficient detail (and in good scientific manner appropriate for patent and regulatory purposes, when applicable, and in compliance with all Applicable Laws) and for purposes of demonstrating compliance with the terms hereof, that fully and properly reflect all work done and results achieved with respect to development of Product in the Territory (the “ Product Records ”). The Responsible Party shall retain all Product Records for a period of at least three (3) years or for such longer period to the extent required by Applicable Law. During such period, upon the written request of the Other Party, the Product Records shall be subject to inspection and audit by and at the expense of the Other Party no more than two times in any Annual Period. Such audits shall occur upon reasonable notice and during normal business hours by an independent auditor selected by the Other Party and reasonably acceptable to the Responsible Party. The Other Party shall treat all information received or subject to review under this Section 3.3(d) as Confidential Information of the Responsible Party in accordance with the provisions of Article VIII. The Other Party shall cause its independent auditor to enter into a confidentiality agreement, in form and substance reasonably acceptable to the Responsible Party, to maintain such records and information of the Responsible Party in confidence in accordance with Article VIII and not use such records or information except to the extent permitted by this Agreement, including any enforcement of the provisions hereof.

(e)    The Parties shall enter into one or more safety exchange or pharmaco-vigilance agreements (each, a “ PV Agreement ”) on reasonable and customary terms to ensure compliance with safety reporting requirements of all applicable Regulatory Agencies globally (including in connection with maintaining the NDA Approval for Product) by providing detailed procedures regarding the collection, exchange and management of safety data relating to Product, including but not limited to the establishment and maintenance of a global safety database (which database shall be maintained by Alvogen), Adverse Drug Responses collection and reporting, and maintenance of core safety information. Pfenex (itself, its Affiliates and licensees) shall have reasonable access to such database and the data therein, including the right to query such data to determine and report safety signals.

Section 3.4     Regulatory Materials .

(a)    Prior to the Transfer Notice, Pfenex shall have the sole right to control filing or submission of Regulatory Materials to the FDA with respect to the Product including the NDA for Product, subject to Section 3.1 and the oversight of and in consultation with the Executive Steering Committee, and shall be responsible for managing all communications and

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

16


interactions with the FDA with respect to Product in the Territory. From and after the Transfer Notice, Alvogen shall have the sole right to control filing or submission of Regulatory Materials with the FDA with respect to Product including the NDA Approval for Product, subject to Section 3.2 and the oversight of and in consultation with the Executive Steering Committee, and shall be responsible for managing all communications and interactions with the FDA with respect to Product in the Territory. In either case, prior to the filing of any Regulatory Materials (including the NDA) for Product with the FDA, the filing Party (the “ Filing Party ”) shall provide a copy thereof to the other Party (through the Executive Steering Committee, the “ Reviewing Party ”) for its review and comment. The Reviewing Party shall have fifteen (15) Business Days from the date it receives a copy of any Regulatory Materials with respect to the Product to provide the Filing Party with comments regarding such Regulatory Materials, unless the FDA or Applicable Law requires that such Regulatory Material(s) be filed on a timeline that does not reasonably permit such advanced notice, in which case the Reviewing Party shall have as much time as is reasonably practicable to provide the Filing Party with comments. The Filing Party shall consider all such comments in good faith. The Filing Party shall, to the extent permitted by Applicable Law, provide the Reviewing Party with (i) reasonable advanced notice (and in no event less than fifteen (15) Business Days’ advance notice whenever feasible) of substantive meetings with any Regulatory Agency in the Territory that are either scheduled with or initiated by or on behalf of the Filing Party or its Affiliates, (ii) an opportunity to have a reasonable number (but at least two (2)) representatives participate in all substantive meetings with the FDA with respect to Product, and in any case keep the Reviewing Party informed as to all material interactions with the FDA with respect to Product, and (iii) a copy of any material documents, information and correspondence submitted to or received from the FDA with respect to Product as soon as reasonably practicable.

(b)    To the extent permitted by Applicable Law and necessary or useful to maintain the NDA Approval (including any supplement thereto) for Product in the Territory, Alvogen shall have a right to refer to and use in any filing with respect to the NDA Approval for Product to the FDA, all (i) regulatory filings (including the NDA), (ii) NDA Approval, and (iii) documents, information and data contained in such filings or approvals, which Pfenex has used or filed with or produced to the FDA with respect to Product or the Pfenex Technology. Pfenex shall submit and file with the FDA all documents necessary or advisable to grant to Alvogen such rights to such filings, approvals, documents, information or data, subject in each case to the requirements and restrictions of the FDA. Alvogen may sublicense the right of reference set forth in this Section 3.4(b) to its sublicensees for the Territory in accordance with Section 2.2.

(c)    To the extent permitted by Applicable Law and necessary or useful to obtain or maintain any marketing or other approval or for the filing of any Regulatory Materials for Product for the development, manufacture, or Commercialization of Product outside the Territory, Pfenex shall have a right to refer to and use in filing for such approvals with Regulatory Agencies outside the Territory, all (i) Regulatory Materials (including the NDA), (ii) NDA Approval, and (iii) documents, information and data contained in such filings or approvals, which Alvogen has used or filed with or produced to the FDA with respect to Product or the Pfenex Technology. Alvogen shall submit and file with the applicable Regulatory Agency all documents necessary or advisable to grant to Pfenex such rights to such materials, filings,

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

17


approvals, documents, information or data, subject in each case to the requirements and restrictions of the applicable Regulatory Agency. Pfenex may sublicense the right of reference set forth in this Section 3.4(c) to its licensees solely for use in connection with the development, manufacture, or Commercialization of Product outside the Territory.

(d)    Each Party disclaims any representation or warranty that any filings, approvals, documents, information or data provided as set forth in this Section 3.4 shall meet the requirements of any particular country, or that such filings, approvals, documents, information or data shall be adequate or usable by the other Party in connection with seeking any marketing authorization for Product in any particular country.

(e)    Each Party (the “ Assisting Party ”) shall cooperate and provide the other Party with reasonable assistance in connection with the exercise by the other Party of its rights and performance by the other Party of its obligations under this Article III and, in connection therewith, the Assisting Party shall provide to the other Party all Product dossiers and other information that are in the Assisting Party’s possession or control (in such form as maintained by or on behalf of the Assisting Party in the ordinary course of business, and without obligation to provide any translations) and reasonably requested by the Other Party for purposes of performing such obligations or exercising such rights with respect to the Product, and the other Party shall be entitled to use such dossiers and other information for such purpose.

ARTICLE IV

PAYMENTS

Section 4.1     Upfront License Payment . In partial consideration of Alvogen’s rights under this Agreement, Alvogen shall pay to Pfenex a one-time upfront license payment in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000), such amount to be paid within 3 Business Days of the Effective Date. Such upfront license payment shall be non-refundable and non-creditable.

Section 4.2     Support Payments .

(a)    On the later to occur of (a) October 31, 2018 and (b) within thirty (30) days of Alvogen’s receipt from Pfenex of copy of the notice from the FDA that FDA has accepted the NDA for Product for review, Alvogen shall pay to Pfenex a one-time support payment in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000), in consideration of Pfenex’s production of consistency batches of Product and related development and support activities. Such support payment shall be non-refundable and non-creditable, provided that, for the avoidance of doubt, all tangible materials arising from such consistency batches shall be owned by Alvogen.

(b)    Alvogen agrees to either, at its option: (i) reimburse Pfenex for its reasonable, out-of-pocket expenses approved in advance by Alvogen (which approval will not be unreasonably withhold, conditioned or delayed) incurred from and after June 1, 2018 with respect to Third Party consultant/contractors engaged by Pfenex as of the Effective Date with respect to regulatory affairs, quality, manufacturing and supply chain for the Product (the

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

18


Product Contractors ”) or (ii) provide, at Alvogen’s cost, internal or external experts (reasonably acceptable to Pfenex) to provide the support equivalent to Product Contractors.

Section 4.3     Approval Payment . Within [***] of Alvogen’s receipt from Pfenex of a copy of the notice NDA Approval for Product, Alvogen shall pay to Pfenex [***].

Section 4.4     Therapeutically Equivalent Milestone Payment . In further consideration of Alvogen’s rights under this Agreement, Alvogen shall pay to Pfenex [***] within [***] of receipt of notice from the FDA that the Product is Therapeutically Equivalent to the Reference Product [***]:

 

[***]

   [***]

[***]

   [***]

[***]

   [***]

[***]

   [***]

Such milestone payment shall be non-refundable and non-creditable.

Section 4.5     Profit Share . Commencing on the First Commercial Sale in the Territory and continuing so long as there are Net Sales of Product in the Territory, Alvogen shall pay to Pfenex a share of Gross Profit for each Quarterly Period in an amount equal to the following (such percentage share paid to Pfenex, the “ Pfenex Profit Share ”):

(a)    For each Quarterly Period that begins prior to receipt of notice from the FDA that the Product is Therapeutically Equivalent to the Reference Product, the percentage of Gross Profit during such Quarterly Period (“ Quarterly Gross Profits ”) as set forth in the table immediately below:

 

Amount of Quarterly Gross Profits

   Percentage payable to Pfenex

[***]

   [***]

[***]

   [***]

[***]

   [***]

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

19


(b)    For each Quarterly Period that begins on or after receipt of notice from the FDA that the Product is Therapeutically Equivalent to the Reference Product, [***] of Quarterly Gross Profits of Product in the Territory.

(c)    Within sixty (60) days following the end of each Quarterly Period following the First Commercial Sale, Alvogen shall pay to Pfenex all amounts payable pursuant to this Section 4.5 by wire transfer of immediately available funds to the account designated by Pfenex.

Section 4.6     Reports . With respect to every Quarterly Period for which Alvogen is obligated to make any payments under Section 4.5, Alvogen shall furnish to Pfenex a written report for such Quarterly Period within thirty (30) days after the end of such Quarterly Period showing in reasonably specific detail:

(a)    the total gross amounts invoiced for Product sold by all Selling Persons and the calculation of Net Sales for Product during such Quarterly Period, including amounts deducted by category from gross amounts invoiced to arrive at Net Sales;

(b)    a reasonably detailed calculation of the COGs for Product invoiced during such Quarterly Period;

(c)    calculation of Gross Profit; and

(d)    the total amounts due to Pfenex under Section 4.5.

Section 4.7     Payment Terms . All payments under this Agreement shall be made in Dollars and, unless otherwise provided herein, shall be non-refundable and non-creditable. Any payments or portions thereof due hereunder which are not paid when due shall bear interest equal to the lesser of the rate equal to the thirty (30) day effective federal fund rate (EFFR) for the date that payment was due, as published by The Wall Street Journal , Internet Edition at www.wsj.com in the “Money Rates” column, plus an additional two hundred (200) basis points, or the maximum rate permitted by Applicable Law, calculated on the number of days such payment is delinquent. This Section 4.7 shall in no way limit any other remedies available to either Party.

Section 4.8     Records; Audit Rights . Alvogen shall, and shall cause other Selling Persons to, maintain complete and accurate books and records, in sufficient detail to confirm the accuracy of payments and costs with respect to payments under this Agreement (the “ Product Financial Records ”). Alvogen shall retain all Product Financial Records for a period of at least three (3) years or for such longer period to the extent required by Applicable Law. During such period, upon the written request of Pfenex, the Product Financial Records shall be subject to inspection and audit by and at the expense of Pfenex no more than two times in any Annual Period, unless for cause. Such audits shall occur upon reasonable notice and during normal business hours by an independent auditor selected by Pfenex and reasonably acceptable to Alvogen. Pfenex shall treat all information received or subject to review under this Section 4.8 as Confidential Information of Alvogen in accordance with the provisions of Article VIII. Pfenex shall cause its independent auditor to enter into a confidentiality agreement, in form and substance reasonably acceptable to Alvogen, to maintain such records and information of

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Alvogen in confidence in accordance with Article VIII and not use such records or information except to the extent permitted by this Agreement, including any enforcement of the provisions hereof. If any such audit reveals that Alvogen has failed to accurately make any payment required under this Agreement, then Alvogen shall promptly pay to Pfenex any underpaid amounts due under this Agreement, together with interest calculated as set forth in Section 4.7, or Pfenex shall promptly pay to Alvogen any overpaid amounts paid under this Agreement, as the case may be. If any such audit reveals an underpayment of amounts due under this Agreement greater than five percent (5%) of the amounts actually due for any Annual Period, then Alvogen shall pay the reasonable out-of-pocket costs incurred in conducting such audit.

Section 4.9     Costs . Except as otherwise expressly provided herein, each Party shall bear all costs and expenses of carrying out those activities allocated to it hereunder, including the costs and expenses of its Affiliates and Third Parties acting on its and its Affiliates’ behalf or under their authority.

Section 4.10     Annual Reconciliation and True-up . Certain payments and measurement periods in this Agreement are based on Quarterly Periods, including but not limited to the Distribution Cost Allowance, Gross Profit, and Manufacturing Costs. The Parties shall perform a reconciliation of all such amounts at the end of each Annual Period to determine what such amounts would have been if they had been measured on the basis of an Annual Period (with appropriate adjustments or consolidation of related caps, threshold amounts, and other calculations). If the amount of any such payments that would have been made under this Agreement for such Annual Period would have been different than the payments calculated for the corresponding Quarterly Periods, then the Parties shall adjust the payments in the last Quarterly Period to eliminate such difference. The Parties, through the Executive Steering Committee, shall establish a mechanism and timing to facilitate such reconciliation.

ARTICLE V

MANUFACTURE OF PRODUCT; SALES AND MARKETING

Section 5.1     Manufacturing Responsibility .

(a)    Except for the Product necessary for Pfenex to conduct the activities described in Section 3.1, Alvogen shall be responsible for and control the manufacturing of Product (and components thereof including Drug Substance and any assembly and packaging of finished Products), for qualification of the components required for the manufacture of such Product and preparing, filing and obtaining all related and necessary Registrations (with the exception of the NDA, which is addressed in Section 3.1) necessary for such manufacture for all purposes under this Agreement, including for Commercialization, in the Territory. In connection therewith, Alvogen may elect to manufacture, fill and package Product itself or engage one or more Third Parties to manufacture, fill or package Product on its behalf (each, a “ Third Party Supplier ”); however, such engagement (other than with respect to Third Parties previously engaged by Pfenex for such purpose) shall be subject to the prior approval of Pfenex, not to be unreasonably withheld conditioned or delayed. For clarity, Pfenex shall be responsible for the supply of all Product necessary for the conduct of the activities described in Section 3.1.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

21


(b)    Promptly after the Effective Date, Alvogen shall assume responsibility for establishing commercial supply agreements with each of Pfenex’s existing Third Party suppliers of Product (and components thereof including Drug Substance) in the supply chain for Product, the identity of which suppliers have been disclosed to Alvogen. At the request of Alvogen, Pfenex shall cooperate with and reasonably assist Alvogen to negotiate and enter into such agreements.

Section 5.2     Manufacturing Cooperation .

(a)    Promptly (but no later than thirty (30) days) after the Effective Date, the Parties shall mutually develop a plan (together with a budget therefor) for the reduction of COGs for the Product (the “ COGs Reduction Plan ”), which plan shall be based upon the initial draft elements described in Exhibit 5.2 . Thereafter, [***].

(b)    Without limiting Alvogen’s obligations under this Section 5.2 and at the request of Pfenex, the Parties agree to discuss through the Executive Steering Committee the possibility of coordinating or otherwise using common sourcing, contract manufacturer(s) or otherwise for the manufacture and supply of Product (and components thereof including Drug Substance) and any assembly and packaging of finished Products to (i) support the development and commercialization of the Product thereof (x) by or on behalf of Alvogen in the Territory (or outside the Territory to the extent that Alvogen or its Affiliate is a commercial partner for a foreign equivalent of the Product in a country outside the Territory) and (y) by or on behalf of Pfenex (or its designee(s)) outside of the Territory, and (ii) take advantage of available economies of scale and other synergies. If the Parties agree to any such coordination, then they will enter into a separate agreement referencing this Agreement setting forth the details of such agreement.

Section 5.3     Product Packaging and Labeling . Subject to Section 6.1, Alvogen shall control the content and type of packaging (and any changes or supplements thereto) for Product in the Territory.

Section 5.4     Product Documentation . Subject to Section 6.1, Alvogen shall control the content and type of, and procurement of, at its own expense, all Product Documentation (and any changes or supplements thereto) for Product in the Territory.

Section 5.5     Product Recalls . Alvogen shall have the exclusive right to control, and shall be responsible for, any recall of Product in the Territory. Any costs and expenses related to such recall shall be allocated in accordance with Article XI.

Section 5.6     Product Pricing and Promotion; Agency Contacts .

(a) Subject to Section 6.1, Alvogen shall, at its sole expense, have the exclusive right to control, and shall be responsible for, the advertising, marketing, promotion (including preparing and distributing Product Documentation), sales prices and pricing, promotional and marketing strategies and terms of sale for Product in the Territory. Alvogen shall be the contact for review and discussion of all Product Documentation for Product with the applicable Governmental Authorities in the Territory.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

22


(b)    If Alvogen or any of its Affiliates sells Product to a Third Party to whom it also sells or otherwise provides other products or services (which are not Bundled Products), Alvogen and its Affiliates shall not shift, allocate, price, discount or otherwise weigh payments received in any such transaction or any combination of transactions, with the purpose of reducing or disadvantaging the Net Sales of Product in favor of any other product, service or consideration in order to reduce the payments owed by Alvogen to Pfenex hereunder.

Section 5.7     Sales and Marketing . After the Transfer Effective Date, Alvogen shall use Diligent Efforts (including with respect to the timing of the launch of Product) to Commercialize Product in the Territory.

Section 5.8     Ex-Territory Sales; Export Monitoring .

(a)     Ex-Territory Sales . Subject to Applicable Law and any written agreement covering Commercialization efforts outside the Territory, neither Party shall engage in any advertising or promotional activities relating to Product directed primarily to customers or other buyers or users of Product located outside the Territory in the case of Alvogen or inside the Territory in the case of Pfenex (or other Persons acting under its or its Affiliates’ authority) (such territory with respect to such Party, the “ Commercial Territory ”) or accept orders for Product from or sell Product into the other Party’s Commercial Territory for its own account, and if a Party receives any order for Product in the other Party’s Commercial Territory, it shall refer such orders to the other Party.

(b)     Export Monitoring . Each Party shall use Diligent Efforts to monitor exports of Product from its own Commercial Territory for commercialization in the other Party’s Commercial Territory using methods permitted under Applicable Law that are commonly used in the industry for such purpose, and shall promptly notify the other Party of any such exports of Product from its Commercial Territory. Each Party agrees to take reasonable actions requested in writing by the other Party that are consistent with Applicable Law to prevent exports of Product from its Commercial Territory for Commercialization in the other Party’s Commercial Territory.

ARTICLE VI

PRODUCT TRADEMARK; INTELLECTUAL PROPERTY LITIGATION

Section 6.1     Product Trademarks .

(a)    Subject to the terms and conditions of this Agreement, Pfenex hereby grants to Alvogen an exclusive, transferable (solely in accordance with and subject to Section 12.7), sublicensable (solely in accordance with and subject to Section 2.2) license to use the Product Trademark solely for Commercialization of Product in the Territory during the Term (the “ Trademark License ”). To the extent that Alvogen obtains any right in the Product Trademark (including any goodwill associated therewith), Alvogen hereby assigns the same to Pfenex.

(b)    Prior to receipt of notice from the FDA that the Product is Therapeutically Equivalent to the Reference Product, Alvogen shall Commercialize Product in the Territory

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

23


solely under the Product Trademark, provided that Alvogen shall otherwise have the sole right to select the trade dress, style of packaging, labeling and the like used in connection with the Commercialization of Product in the Territory, including promotional or advertising taglines. The Commercialization of Product in the Territory under any Trademark other than the then-existing Product Trademark (or any Trademark specific to Alvogen or its Affiliate) shall be subject to the prior written consent of Pfenex, not to be unreasonably withheld, delayed or conditioned. If Pfenex so consents, any such other trademark under which Product is Commercialized in the Territory, including all goodwill associated therewith, shall collectively be within the Product Trademark and Pfenex shall be the exclusive owner of each Product Trademark and licensed to Alvogen pursuant to Section 6.1(a). Pfenex shall register and renew, at its expense, each such Product Trademark in the Territory.

(c)    Alvogen shall fully comply with all reasonable guidelines, if any, communicated in writing by Pfenex concerning the use of the Product Trademark. Alvogen shall not challenge or assist others to challenge the Product Trademark (except to the extent such restriction is expressly prohibited by Applicable Law) or the registration thereof or attempt to register any trademarks, marks or trade names confusingly similar to those of Pfenex. Alvogen shall not engage in any activity that would adversely affect the name, reputation or goodwill of Pfenex or the Product. Except as set forth in this Section 6.1, nothing contained in this Agreement shall grant or shall be deemed to grant to Alvogen any right, title or interest in or to the Product Trademark. Upon termination of this Agreement, Alvogen shall immediately cease to use the Product Trademark.

(d)    To the extent permitted by Applicable Law, at Pfenex’s election, the Product Documentation, including labels (subject to space limitations) shall include the Pfenex tradename and associated mark (as may be updated from time to time, the “ Pfenex Housemark ”) to be placed in a size (but at least seventy-five percent (75%) of that of Alvogen or its Affiliate) and location reasonably agreed to by the Parties and consistent with the standards of the pharmaceutical industry. Subject to the foregoing, Pfenex hereby grants to Alvogen, its Affiliates and Third Party distributors a limited right to use the Pfenex Housemark solely in connection with the sale and marketing of Product in the Territory in accordance with this Agreement. The Pfenex Housemark and all goodwill associated therewith, and all applications, registrations, extensions and renewals and other rights relating thereto, shall be the sole property of Pfenex. Accordingly, to the extent Alvogen obtains any right with respect thereto, it hereby assigns the same to Pfenex. Pfenex shall have the sole right to register and renew, at its expense, the Pfenex Housemark, or any portion thereof, in any country or jurisdiction of Pfenex’s choosing.

Section 6.2     Ownership of Product Inventions . All right, title and interest in and to all inventions and Know-How, including all Intellectual Property rights in the foregoing, made, conceived, reduced to practice or otherwise generated by or on behalf of a Party or its Affiliates, or jointly by or on behalf of the Parties or their Affiliates, in connection with this Agreement including Alvogen’s manufacture and supply of Product (collectively, “ Product Inventions ”) shall be solely owned by Pfenex. Alvogen hereby assigns to Pfenex all of its right, title and interest in and to all Product Inventions (including related Patents and Know-How) and agrees to execute and deliver all documents and instruments reasonably requested by Pfenex to effect,

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

24


evidence or record the foregoing assignment. Alvogen shall promptly disclose to Pfenex all Product Inventions made, conceived, reduced to practice or otherwise generated by or on behalf of Alvogen or its Affiliates, solely or jointly, and shall promptly respond to reasonable requests from Pfenex for additional information relating to such Product Inventions.

Section 6.3     Patent Prosecution and Maintenance of Product Inventions .

(a)    Pfenex shall have the first right to Prosecute and Maintain all Patents claiming Product Inventions, at its own cost and expense, in the Territory. Pfenex shall consult with Alvogen and keep Alvogen reasonably informed of the status of such Patents in the Territory and shall promptly provide Alvogen with all material correspondence received from the U.S. Patent and Trademark Office (the “ PTO ”) in connection therewith. In addition, Pfenex shall promptly provide Alvogen with drafts of all proposed material filings and correspondence to the PTO with respect to such Patents for Alvogen’s review and comment prior to the submission of such proposed filings and correspondence. Pfenex shall consider in good faith any comments provided by Alvogen in a timely manner, prior to submitting such filings and correspondence to the PTO. If Pfenex decides to discontinue the Prosecution or Maintenance of any such Patent, it shall notify Alvogen of such decision. Thereafter, Alvogen shall have the right, but not the obligation, to Prosecute and Maintain such Patent at its own cost and expense, if doing so does not, in Pfenex’s reasonable, good faith determination, cause a material adverse effect on Pfenex’s Intellectual Property rights covering products other than Product.

(b)    Alvogen acknowledges the highly proprietary and confidential nature of unpublished patent applications and related information and without limiting the provisions of Article VIII agrees to limit the access to any such applications and information received from Pfenex hereunder to those who need such access for the purposes of this Section 6.3 and limit the use thereof solely to the purposes of this Section 6.3. Without limiting the foregoing, any disclosures made pursuant to this Section 6.3 will be structured in a manner so as to provide reasonable access to the applicable information while limiting the risk of adversely affecting the patentability of the subject matter disclosed.

Section 6.4     Third Party Actions .

(a)    In the event that any Third Party commences any Action against either Party or any of such Party’s Affiliates alleging that the Product (including the use or the manufacture of Product) infringes any Intellectual Property of such Third Party in the Territory (a “ Third Party Action ”), the Party against whom such Action is commenced shall provide the other Party prompt written notice thereof, and Alvogen shall have the sole right and responsibility to control the defense of such Third Party Action (including the right to seek any license from such Third Party, or enter into any settlement or compromise or consent to any judgment with respect thereto) at Alvogen’s sole expense. If Pfenex or its Affiliate is a defendant, then Pfenex or its Affiliate shall have the right to participate with counsel of its selection (at its cost and expense) and Alvogen shall use counsel reasonably acceptable to Pfenex, at Alvogen’s sole cost and expense, and Alvogen shall continue to control and defend Pfenex or its Affiliate until final judgment or settlement in such Third Party Action.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

25


(b)    Pfenex shall provide cooperation and assistance reasonably requested by Alvogen in connection with any such Third Party Action, including (i) providing Alvogen with detailed responses to its inquiries, and (ii) identifying and providing witnesses who will assist in the preparation of evidence, provide written evidence, appear as witnesses in court.

(c)    In the event that, in the reasonable judgment of Alvogen (after consultation with Pfenex), a Third Party is likely to commence an Action against either Party or any of such Party’s Affiliates alleging that the Product (including the use or the manufacture of Product) infringes any Intellectual Property of such Third Party in the Territory, then Alvogen shall have the sole right and responsibility to conduct inter partes actions, conduct post-grant proceedings before the PTO or seek a declaratory judgment in respect of any Patent that may be asserted against the Product.

Section 6.5     Enforcement Actions .

(a)    Each Party shall promptly give the other Party written notice (each, an “ Infringement Notice ”) of any actual or suspected infringement, misappropriation or other violation by a Third Party of the Pfenex Technology in the Territory (“ Infringing Activity ”) that come to such Party’s or any of its Affiliates’ attention, as well as the identity of such Third Party and any evidence of such Infringing Activity within such Party’s or any of its Affiliates’ custody or control that such Party or any of its Affiliates is reasonably able to provide.

(b)    Alvogen shall have the first right, but not the obligation, at its sole cost and expense, to take any action in response to Infringing Activity arising from the development, manufacture and/or Commercialization of a Competing Product in the Territory (each, an “ Enforcement Action ”) and to enter into or permit the settlement of such Enforcement Action; provided that Alvogen shall provide prompt written notice of any Enforcement Action to Pfenex, permit Pfenex (subject to the Common Interest Agreement) to review and comment on such Enforcement Action and give reasonable consideration to any comments made by Pfenex in relation to such Enforcement Action. If required by Applicable Law and to the extent Alvogen does not have standing, Pfenex shall permit, and shall take all actions reasonably necessary to enable, an Enforcement Action to be brought in its name, including being joined as a necessary party, at Alvogen’s sole cost and expense (other than any counsel selected separately to represent Pfenex). Alvogen may not settle, compromise or consent to any judgment with respect to any Enforcement Action without the prior written consent of Pfenex, not to be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Alvogen shall not have the right to initiate an Enforcement Action if Pfenex has provided notice to Alvogen specifying that, in Pfenex’s reasonable opinion (based on advice of patent counsel), (i) the initiation of such Enforcement Action is likely to invalidate or narrow the claims of any Pfenex Patent and (ii) such invalidation or narrowing would likely have a material adverse impact on Pfenex or its Affiliates or the Pfenex Technology.

(c)    If Alvogen does not institute an Enforcement Action against the Infringing Activity within three (3) months from the date of the Infringement Notice, Pfenex shall have the right, but not the obligation, at Pfenex’s sole cost and expense, to bring the Enforcement Action; provided that Pfenex shall provide prompt written notice of any such Enforcement Action to

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

26


Alvogen, permit Alvogen (subject to the Common Interest Agreement) to review and comment on strategic decisions and material pleadings and communications regarding such Enforcement Action and give reasonable consideration to any comments made by Alvogen in relation to such Enforcement Action. In such case and if required by Applicable Law and to the extent Pfenex does not have standing, Alvogen shall permit, and shall take all actions reasonably necessary to enable, an Enforcement Action to be brought in its name, including being joined as a necessary party, at Alvogen’s sole cost and expense. Pfenex may not enter into any settlement or consent to any judgment with respect to any such Enforcement Action without the prior written consent of Alvogen, not to be unreasonably withheld, delayed or conditioned.

(d)    In any Enforcement Action instituted by either Pfenex or Alvogen to enforce the Pfenex Technology as provided herein above, the other Party (the “ Cooperating Party ”) shall, at the reasonable request of the Party initiating such Enforcement Action (the “ Enforcing Party ”), cooperate and provide reasonable assistance to the Enforcing Party, including (i) providing the Enforcing Party with documents (whether in written, electronic or other form) related to the Pfenex Technology in the Territory, (ii) identifying and describing any Intellectual Property that has been incorporated into the Pfenex Technology in the Territory by the Cooperating Party, (iii) allowing inspection, whether court-ordered or otherwise, of any facility owned, operated or controlled by the Cooperating Party in the Territory, and (iv) identifying and providing witnesses who will assist in the preparation of evidence, provide written evidence, appear as witnesses in court and assist in other ways that the Enforcing Party reasonably requests. To the extent that the cooperation or assistance requested results in external costs being incurred by the Cooperating Party, then the Enforcing Party shall be responsible for the payment of all reasonably incurred external expenses.

Section 6.6     Patent Extensions; Orange Book Listings; Patent Certifications . If elections with respect to obtaining patent term extension or supplemental protection certificates or their equivalents in Territory with respect to the Product becomes available, upon NDA Approval for the Product, Pfenex and Alvogen shall mutually agree on the determination of which issued Patent to extend for the Product, and Alvogen shall take such reasonable actions as are necessary to effectuate or assist in such extension.

(a)    With respect to regulatory exclusivity periods, Pfenex, prior to the transfer of the NDA Approval, and Alvogen or its Affiliate, following such transfer, shall be responsible for seeking and maintaining all such regulatory exclusivity periods that may be available for the Product in the Territory, subject to approval of the Party that is not responsible for seeking and maintaining such exclusivity, such approval not to be unreasonably withheld, delayed or conditioned. The Party that is responsible therefor shall make all filings necessary to list the appropriate exclusivity periods and Pfenex Patents, if any, in the Orange Book with respect to the Product, and the Parties shall mutually agree on which Pfenex Patents, if any, to list in the Orange Book with respect to the Product.

(b)    Pfenex and Alvogen shall each notify and provide the other Party with copies of any notice of a Paragraph IV Patent Certification (including any associated documents) by a Third Party filing an ANDA or an NDA, or any other similar patent certification by a Third Party in the Territory, in each such case referencing Product. Such notification and copies will

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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be provided to the other Party promptly (but no later than within five (5) Business Days) after receipt of such notification and will be sent to the address set forth in Section 12.2.

Section 6.7     Reimbursement Requirements .    To the extent that any Party would be required pursuant to this Article VI to reimburse or pay the other Party for any costs or expenses incurred by such other Party, such obligation shall be subject to submission by such other Party of reasonable documentation with respect thereto. To the extent that either Party would be entitled to be reimbursed for, or otherwise have paid, any costs or expenses incurred by such Party, such costs and expenses shall only be reimbursed or paid to the extent reasonably incurred by such Party and submitted for reimbursement or payment pursuant to an invoice, which shall be payable in accordance with Section 4.7.

Section 6.8     Recovered Amounts . [***].

Section 6.9     Common Interest Agreement . The Parties acknowledge they have entered into the certain common interest agreement effective September 1, 2017 (the “ Common Interest Agreement ”).

Section 6.10     Patent Marking . Alvogen shall mark (or cause to be marked) Product Commercialized in the Territory with appropriate Pfenex Patent numbers or indicia as provided 35 U.S.C 287(a).

ARTICLE VII

EXECUTIVE STEERING COMMITTEE

Section 7.1     Formation and Purpose . In order to oversee, review and coordinate the activities of the Parties under this Agreement, Pfenex and Alvogen will form an executive steering committee upon the Effective Date (the “ Executive Steering Committee ”), whose initial members are listed in the Product Memo. The Executive Steering Committee shall, in accordance with the procedures set forth in Section 7.4, (a) review and comment on the development and Commercialization of Product in the Territory, (b) consult with Pfenex regarding filing the NDA with the FDA, (c) review and comment on the creation and implementation of strategies related to the Pfenex Patents and Patents of Third Parties, in each case with respect to the development (including obtaining NDA Approval), Commercialization of Product in the Territory (collectively, “ IP Strategy ”), (d) serve as a forum for discussion of matters relating to the development and Commercialization of Product in the Territory, (e) establish one or more working committees and subcommittees as may be established by mutual consent of Pfenex and Alvogen (each, a “ Working Committee ”), and (f) perform such other duties as are specifically assigned to the Executive Steering Committee in this Agreement. The Executive Steering Committee shall be the primary forum for Pfenex and Alvogen to communicate with one another regarding the plans for, and progress of, the development and Commercialization of Product in the Territory.

Section 7.2     Membership . The Executive Steering Committee shall consist of three (3) employees of Alvogen (or its Affiliate) appointed by Alvogen and three (3) employees of Pfenex appointed by Pfenex. Unless otherwise agreed by the Parties, the Executive Steering Committee and each Working Committee shall have at least one (1) member with relevant decision-making

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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authority from each Party such that such committee is able to effectuate all of its decisions within the scope of its responsibilities. Each Party shall ensure that each of its members of the Executive Steering Committee shall be subject to the obligations of non-use and non-disclosure of Confidential Information set forth in Article VIII.

Section 7.3     Meeting Requirements . The Executive Steering Committee shall meet on a quarterly basis (or more or less frequently if Pfenex and Alvogen mutually agree) during the Term, and shall hold its first meeting within thirty (30) days after the Effective Date. The Executive Steering Committee may meet by phone, videoconference or in person. Each meeting shall be held on a date to be agreed upon by Pfenex and Alvogen. Notwithstanding the foregoing, meetings may be called at any time if requested by either Party by prior written notice, including the proposed agenda of the meeting, sent to the other Party at least two (2) weeks in advance; provided that if a meeting is requested to be convened urgently pursuant to this Agreement, Pfenex and Alvogen shall convene such meeting as promptly as is practicable. At least one (1) member designated by Alvogen and one (1) member designated by Pfenex shall be required to be present at or participating in the meeting in order to establish a quorum for such meeting. Each Party shall be able to invite a reasonable number of observers (who may include consultants and experts) to each Executive Steering Committee; provided that each such individual is subject to confidentiality obligations consistent with the provisions of Sections 8.1, 8.2 and 8.3.

Section 7.4     Decision-Making; Dispute Resolution .

(a)    The Executive Steering Committee shall have a single chairperson who shall (i) solicit agenda items from the other Executive Steering Committee members, coordinate and prepare the agenda (which shall include any agenda items reasonably proposed by Executive Steering Committee members from the other Party), provide the agenda along with appropriate information for such agenda reasonably in advance (to the extent possible) of any meeting and ensure the orderly conduct of the Executive Steering Committee’s meetings, (ii) attend (subject to the below) each meeting of the Executive Steering Committee, and (iii) prepare and issue minutes of each meeting (which shall accurately reflect the discussions and decisions of the Executive Steering Committee at such meeting) in accordance with Section 7.5. Such minutes from each Executive Steering Committee meeting shall not be finalized until the Executive Steering Committee members from the other Party have reviewed and confirmed the accuracy of such minutes as described in Section 7.5 and if not previously confirmed, such matter shall be the first order of business at the next Executive Steering Committee meeting. The Party appointing the chairperson shall alternate between Pfenex and Alvogen every calendar year, and shall initially be designated by Alvogen. In the event the chairperson or another member of the Executive Steering Committee from either Party is unable to attend or participate in any meeting of the Executive Steering Committee, the Party who appointed such Executive Steering Committee chairperson or member may appoint a substitute chairperson or other member for that meeting. All decisions of the Executive Steering Committee and any Working Committee shall be made by consensus, with each Party having one (1) vote. Each Party shall work in good faith to reach consensus on matters and in no event shall either Party unreasonably withhold, condition or delay any approval or other decision of the Executive Steering Committee or a Working Committee hereunder. In the event a Working Committee fails to reach consensus with

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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respect to a particular matter within its authority, then upon request by either Party such matter shall be referred to the Executive Steering Committee for resolution.

(b)    If the Executive Steering Committee is unable to reach a decision as to any matter within its authority (including any matter expressly required to be resolved by the Executive Steering Committee pursuant to this Agreement) after a period of ten (10) Business Days, then either Pfenex or Alvogen may provide written notice of such dispute to the President or Chief Executive Officer of the other Party and such matter shall be resolved as set forth below. The Chief Executive Officers (or their respective designees, who shall be senior officer of Pfenex and Alvogen, but shall not be members of the Executive Steering Committee) of each of Pfenex and Alvogen shall discuss the dispute in person or telephonically and use their good faith efforts to resolve the dispute within thirty (30) days after submission of such dispute to such officers. If any such dispute is not resolved by the Chief Executive Officers or their designees within thirty (30) days after submission of such dispute to such officers, then:

(i)    the Chief Executive Officer of Pfenex shall have authority to finally resolve, in such officer’s reasonable discretion exercised in good faith, all disputed matters related to (A) the Pfenex Technology and the Prosecution and Maintenance of Patents claiming Product Inventions and the enforcement thereof (except for matters that Alvogen has the right to control pursuant to Section 6.5(c)), (B) communications with the FDA and the content of the NDA and other Regulatory Materials (up and through the date of the Transfer Notice), (C) the Development Plan prior to the Transfer Notice and the conduct of the activities thereunder as described in Section 3.1(a), (D) the content of proposed publications or presentations under Section 8.8, (E) the COGs Reduction Plan or the implementation thereof under Section 5.2(a) and (F) the existence of Safety Reasons under either Section 10.2(a)(iii) or Section 10.2(b)(iii); and

(ii)    the Chief Executive Officer of Alvogen shall have authority to finally resolve, in such officer’s reasonable discretion exercised in good faith, all matters related to (A) IP Strategy (other than as referenced in Section 7.4(b)(i)(A)), (B) regulatory affairs with respect to Product in the Territory (including communications and filings with the FDA) (only after the Transfer Notice as referenced in Section 7.4(b)(i)(B)) and (C) the manufacture and Commercialization of Product in the Territory.

Section 7.5     Meeting Minutes . The Parties shall reasonably cooperate to finalize the definitive minutes of the Executive Steering Committee no later than thirty (30) days after the meeting to which the minutes pertain, as follows: (a) the chairperson of the Executive Steering Committee shall be responsible for preparing and sending a draft of the minutes to the other Party’s members, and shall furnish such draft within ten (10) days of such meeting, (b) the other Party’s members shall have ten (10) days after receiving the draft minutes to collect comments and to discuss any modifications thereof, and (c) within the following ten (10) days any disputes as to the minutes shall be resolved between the Parties and the final version of the minutes shall be issued by the Party appointing the chairperson which shall be subject to approval by Alvogen and Pfenex by signing and dating the minutes or unanimous approval of the Executive Steering Committee at its next meeting. The minutes shall include a list of any actions, decisions or determinations approved by the Executive Steering Committee and a list of any issues yet to be

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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resolved. In addition, the minutes shall set forth the place and date where the next meeting shall be held.

Section 7.6     Expenses . Each of Pfenex and Alvogen shall be responsible for the expenses of the participation of its members in the Executive Steering Committee and any Working Committees, including travel costs.

Section 7.7     Working Committees . Each Working Committee shall (a) be comprised as the Executive Steering Committee determines is necessary to fulfill its responsibilities (it being understood that a particular Working Committee may not necessarily have the same number of members from each Party), and (b) report into and be subordinate to the Executive Steering Committee. A Working Committee shall only have the authority expressly delegated to such Working Committee by the Executive Steering Committee. Each Working Committee shall keep the Executive Steering Committee regularly informed of the activities that it is tasked with overseeing or otherwise carrying out, both through in-person and written reporting as reasonably necessary for the Executive Steering Committee to fulfill its responsibilities with respect thereto.

Section 7.8     Committee Authority . Notwithstanding the creation of the Executive Steering Committee and any Working Committee, each Party shall retain the rights, powers and discretion granted to it under this Agreement, and no committee shall be delegated or vested with rights, powers or discretion unless such delegation or vesting is expressly provided herein, or the Parties expressly so agree. Neither the Executive Steering Committee nor any Working Committee shall have the power to (a) amend, modify or waive compliance with this Agreement, (b) to determine whether or not a Party has met its diligence or other obligations under the Agreement, or (c) to determine whether or not a breach of this Agreement has occurred, and no decision of the Executive Steering Committee or any such Working Committee, as applicable, shall be in contravention of any terms and conditions of this Agreement. It is understood and agreed that issues to be formally decided by the Executive Steering Committee and any Working Committee, as applicable, are only those specific issues that are expressly provided in this Agreement to be decided by the Executive Steering Committee and any such Working Committee, as applicable.

Section 7.9     Day-to-Day Responsibilities . Each Party shall be responsible for day-to-day implementation and operation of the activities under this Agreement for which it has or is otherwise assigned responsibility under this Agreement, provided that such implementation is not inconsistent with the express terms and conditions of this Agreement, the decisions of the Executive Steering Committee or any Working Committee within the scope of its authority specified herein or Applicable Law. In the event that Pfenex renders such a binding decision, Pfenex shall provide Alvogen with written notice of the decision within thirty (30) days, including a description, in reasonable detail, of Pfenex’s reasoning in support of the decision.

Section 7.10     Cooperation; Withdrawal .

(a)    A Party that is obligated to cooperate with the other Party hereunder (i) may consider all relevant factors including its other then-current obligations and resource commitments when determining whether the cooperation activities are reasonable, and (ii) shall not be obligated to obtain any additional resources (including hire any personnel) to accomplish

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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its cooperation hereunder. Such Party’s obligation to cooperate in a particular activity shall not alleviate the other Party’s obligation to perform the underlying activity.

(b)    At any time after proper delivery of the Transfer Notice, and for any reason, Pfenex shall have the right to withdraw from participation in the Executive Steering Committee or any or all of the Working Committees upon notice to Alvogen referencing this Section 7.10(b), which notice shall be effective immediately upon receipt. Thereafter, (i) any information, documents or reports that a Party is otherwise required to provide to the Executive Steering Committee pursuant to this Agreement shall be provided directly to the other Party, and (ii) any matters delegated to the Executive Steering Committee pursuant to this Agreement shall be made by mutual written agreement of the Parties, subject to the dispute resolution and final decision-making provisions of Section 7.4(b). For purposes of clarification, Pfenex’s withdrawal from the Executive Steering Committee or any Working Committee shall not affect any other obligation or responsibility of Pfenex set forth in this Agreement.

ARTICLE VIII

CONFIDENTIALITY; TAXES; NONSOLICITATION; PUBLICATIONS

Section 8.1     Confidentiality . Each of Pfenex and Alvogen acknowledges that, in the course of discussions and negotiations and performing its obligations hereunder, (a) it has received or may receive information from the other Party and (b) the other Party may disclose to it information, data and processes that such other Party wishes to protect from use by and disclosure to Third Parties (all information described in clauses (a) and (b), unless subject to the Confidentiality Exceptions, “ Confidential Information ”). Each Party shall retain in confidence all Confidential Information of the other Party and (except as expressly provided herein) shall not (i) use Confidential Information of such other Party for any purpose other than the purposes indicated herein and in connection with the performance of this Agreement or (ii) disclose such Confidential Information to a Third Party other than its Agents without the written consent of such other Party. Confidential Information shall not include information that: (A) is or becomes public knowledge (through no fault of the receiving Party or its Agents); (B) is made lawfully available to the receiving Party, other than under an obligation of confidentiality, by a Third Party that, to the knowledge of the receiving Party, is under no duty of confidentiality to the disclosing Party; (C) is already in the receiving Party’s possession at the time of receipt from the disclosing Party (and such prior possession can be reasonably demonstrated by competent evidence by the receiving Party) other than as a result of disclosure by a Third Party that, to the actual knowledge of the receiving Party, was under a duty of confidentiality to the disclosing Party with respect to such information; or (D) is independently developed by the receiving Party or its Affiliates without the use of or reference to Confidential Information of the other Party (and such independent development can be reasonably demonstrated by competent evidence prepared by the receiving Party) ((A) – (D), collectively, the “ Confidentiality Exceptions ”). Notwithstanding the foregoing, a receiving Party may use and disclose Confidential Information of the other Party (I) to the extent required by Applicable Law; provided, however, that if legally permissible, the receiving Party shall give the disclosing Party advance written notice as promptly as is practicable to permit it to seek a protective order or other similar order, at the disclosing Party’s sole cost, with respect to the disclosure of such Confidential Information, and, thereafter, the receiving Party shall disclose only the minimum Confidential Information that it is

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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advised by counsel is required to be disclosed in order to comply, (II) to the extent such disclosure is reasonably necessary for the Prosecution and Maintenance of Patents (including applications therefor) in accordance with Section 6.3, prosecuting or defending litigation, conducting preclinical or clinical studies, or obtaining and maintaining NDA Approval (including NDA Approval), (III) in communication with consultants and advisors (including financial advisors, lawyers and accountants) and others on a need to know basis, in each case, under appropriate nondisclosure and non-use obligations substantially equivalent to those of this Agreement (provided that the disclosing Party shall be responsible for any breach of this Section 8.1 by those parties to which it discloses Confidential Information), or (IV) to the extent mutually agreed to by the Parties in writing.

Section 8.2     Agents . Each of Pfenex and Alvogen shall limit disclosure of the other Party’s Confidential Information to only those of its Affiliates, directors, managers, officers, employees and others (collectively “ Agents ”) who are concerned with the performance of this Agreement, have a legitimate need to know such Confidential Information in the performance of their duties and are bound by written obligations of non-disclosure and nonuse at least as protective of the disclosing Party and its Confidential Information as the terms hereof. Each Party shall be responsible for any breach of Section 8.1 by its Agents and advisors (including financial advisors, lawyers and accountants) and shall take all reasonably necessary measures to restrain its Agents and advisors (including financial advisors, lawyers and accountants) from unauthorized disclosure or use of the Confidential Information.

Section 8.3     Restrictions on Sharing Information . Notwithstanding anything to the contrary, neither Party shall be obligated pursuant to this Agreement to provide, or grant access to, any information (a) that it reasonably and in good faith considers to be Confidential Information it is prevented from disclosing to the other Party by an enforceable confidentiality agreement with a Third Party and that such Party used Diligent Efforts to obtain the consent of such Third Party to provide or grant access to the other Party, (b) the disclosure of which would adversely affect the attorney-client privilege between such Party and its counsel, or (c) the disclosure of which is not permitted pursuant to any Applicable Law or requirement of a Governmental Authority; provided in each case where information was not provided or access was not granted as would otherwise be required under this Agreement, such Party shall inform the other Party of the reason it was not provided or granted and a description of the specific nature of the applicable information. Following the Effective Date and during the Term, in connection with entering into any material agreement (or material amendment thereof) with any Third Party related to the Business, each Party agrees to use Diligent Efforts to negotiate with such Third Party to include provisions in such agreement (or such amendment) sufficient to allow the other Party to receive relevant Confidential Information of such Third Party.

Section 8.4     Prior Agreements . This Agreement supersedes the Prior Agreements in their entirety, including with respect to information disclosed thereunder. All information exchanged between the Parties under the Prior Agreements shall be deemed Confidential Information of the disclosing Party and shall be subject to the terms of Section 8.1, Section 8.2 and Section 8.3.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 8.5     Taxes .

(a)    The Parties agree that for U.S. federal income tax purposes they will treat the transaction under this Agreement, unless otherwise required by Applicable Law, as a collaboration agreement that does not constitute a partnership or a joint venture, and agree to not take (or cause any Person to take), any position on any Tax return or in the course of any audit, examination or other proceeding inconsistent with such treatment, unless otherwise required by Applicable Law and except upon a final determination of the applicable Taxing Authority.

(b)    Any and all payments by or on account of any obligation of any Party under this Agreement shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the reasonable and good faith discretion of the applicable withholding Party) requires the deduction or withholding of any Tax from any such payment by any Party, then the applicable Party shall be entitled to make such deduction or withholding, any amount so deducted or withheld shall be deemed paid to the other Party that was entitled to the payment subject to withholding, shall timely pay the full amount deducted or withheld to the relevant Taxing Authority in accordance with Applicable Law. To Alvogen’s Knowledge, Applicable Law, does not require Alvogen to withhold any of Taxes from any payment required under this Agreement. To the extent that as a result of any change in any Tax law a payment to Pfenex pursuant to this Agreement becomes subject to U.S. federal or Malta withholding Tax (or to an increased rate of such withholding) after the date hereof, Alvogen shall indemnify Pfenex, within ten (10) days after demand therefor, for the full amount of any withholding Taxes imposed on such payment (including U.S. federal or Malta withholding Tax imposed on amounts payable under this Section 8.5(b)). Notwithstanding anything to the contrary, if Pfenex or any Affiliate thereof actually obtains a refund or a credit from any Taxing Authority for any portion of any Tax for which it was indemnified under this Section 8.5(b) by Alvogen, Pfenex shall promptly reimburse Alvogen the amount of such refund or credit; and, upon request by Alvogen, Pfenex shall obtain available refunds or credits with respect to any such Taxes.

(c)    Any Assignee shall indemnify the Non-Assigning Party, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 8.5) payable or paid by such Non-Assigning Party or required to be withheld or deducted from a payment to such Non-Assigning Party and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Taxing Authority. Notwithstanding anything to the contrary in this Agreement, if a Party (the “ Taxed Party ”) obtains a refund or credit from any Taxing Authority for any portion of any Indemnified Tax paid by the other Party, then the Taxed Party shall promptly reimburse the other Party the amount of such refund or credit (but only to the extent of payments made under this Section 8.5(c) with respect to the Taxes giving rise to such refund or credit), net of all out-of-pocket expenses (including Taxes) of such Taxed Party and without interest (other than interest paid by the relevant Taxing Authority with respect to such refund or credit), and upon request, the Taxed Party shall use Diligent Efforts to obtain available refunds or credits with respect to any such Indemnified Taxes provided, however, that such Taxed Party, upon the request of such Taxed Party, shall repay to such Taxed Party the amount of refund or credit paid

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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over pursuant to this sentence in the event that such Taxed Party is required to repay such refund or credit to such Taxing Authority.

(d)    All transfer, documentary, sales, use, excise, customs, charges, duties, ad valorem, value added, stamp, registration, recording, property and other such similar Taxes (other than, for the avoidance of doubt, Taxes assessed against income), and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) lawfully assessed or charged in connection with any of the transactions contemplated under this Agreement (collectively, “ Transfer Taxes ”) shall be paid and borne 50% by Alvogen and 50% by Pfenex when due, and the Party responsible under such Applicable Law for paying such Transfer Taxes shall, at its own expense, file all necessary Tax returns and other documentation with respect to all such Transfer Taxes and pay such Taxes, and, if required by Applicable Law, the Parties will, and will cause their Affiliates to, join in the execution of any such Tax returns and other documentation.

(e)    The Parties agree to cooperate with one another and use reasonable efforts to reduce or eliminate tax withholding or similar obligations in respect of royalties, milestone payments, and other payments made by Alvogen to Pfenex under this Agreement. Pfenex shall provide Alvogen any tax forms that may be reasonably necessary in order for Alvogen not to withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty. Each Party shall provide the other with reasonable assistance to enable the recovery, as permitted by applicable Laws, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax.

Section 8.6     Nonsolicitation . Each Party (for purposes of this Section 8.6, a “ Soliciting Party ”) agrees that, during the Term, such Soliciting Party will not solicit for employment or consultancy, employ or engage as a consultant or solicit the termination of employment or consultancy with the other Party (a “ Solicitation Action ”), any individual that at the time of such Solicitation Action (a) is an officer or employee of the other Party or a consultant that is devoting a majority of such individual’s time to the business of the other Party, and (b) is or was actively involved in the other Party’s performance of its obligations hereunder; provided, however, that the foregoing shall not prohibit (i) any advertisement or general solicitation (or hiring or engagement as an employee or consultant as a result thereof) for employment or consultancy not specifically directed at any such individual, (ii) the hiring or engagement as an employee or consultant of any such individual who initiates employment or consultancy discussions with such Soliciting Party, provided that such initial discussions are not encouraged or solicited by such Soliciting Party, or (iii) any Solicitation Action with respect to any individual following the cessation of such individual’s employment with (or service as a consultant that is devoting a majority of such person’s time to the business of) the other Party without any solicitation or encouragement by such Soliciting Party.

Section 8.7     Public Announcements . Neither Party nor their respective Affiliates shall make any public announcement regarding this Agreement or disclose the terms and conditions of this Agreement to any Third Party without the prior written consent of the other Party (not to be unreasonably withheld, delayed or conditioned), except (a) to advisors (including consultants,

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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financial advisors, attorneys and accountants) on a need to know basis, in each case, under circumstances that reasonably protect the confidentiality thereof, (b) to actual and potential (i) licensees and collaborators with respect to Product, and (ii) investors and acquirers of the Business or otherwise a majority of the business or assets of such Party related to this Agreement in connection with negotiations of definitive agreements, under reasonable conditions of confidentiality, or (c) to the extent such disclosure is required by Applicable Law (including securities laws). Notwithstanding the foregoing, (A) without the prior written consent of the other Party, either Party may (I) file with the Securities and Exchange Commission (the “ SEC ”) a Current Report on Form 8-K describing this Agreement and the transactions contemplated hereby and (II) file a copy of this Agreement with the SEC as an exhibit to such Current Report on Form 8-K or a subsequent periodic report; provided that the filing Party shall consult with the other Party so as to minimize the necessary disclosure and shall seek confidential treatment of such portions of this Agreement or the terms and conditions thereof as permitted under Applicable Laws, and (B) the Parties agree to issue a joint press release announcing the execution of this Agreement, which is attached hereto as Exhibit  8.7 . Thereafter, Pfenex and Alvogen may each disclose to Third Parties the information contained in such Current Report on Form 8-K or such press release without the need for further approval by the other Party.

Section 8.8     Publications . Alvogen may publish or present data or results relating to Product in scientific journals with primary circulation in the Territory or at scientific conferences in the Territory, subject to the prior review, comment and approval by Pfenex as set forth in this Section 8.8, which approval shall not be unreasonably withheld, delayed or conditioned. Alvogen shall provide Pfenex with the opportunity to review any proposed abstract, manuscript or presentation which discloses information relating to Product by delivering a copy thereof to Pfenex no less than thirty (30) days before its intended submission for publication or presentation. Pfenex shall have ten (10) days from its receipt of any such abstract, manuscript or presentation in which to notify Alvogen in writing of its approval or any specific objections to the disclosure. In the event that Pfenex has a reasonable basis for objecting to the disclosure, it shall object in writing (with the basis therefor) within such ten (10) day period, and Alvogen will not submit the publication or abstract or make the presentation containing the objected-to information until the Parties have agreed to the content of the proposed disclosure, and if the Parties are unable to agree, the matter shall be referred to the Executive Steering Committee. Alvogen shall delete from the proposed disclosure any Confidential Information of Pfenex upon the request of Pfenex. Alvogen shall delay any proposed disclosure to allow Pfenex sufficient time for the drafting and filing of a patent application directed to any patentable subject matter identified by Pfenex in such proposed disclosure. The Parties agree to take all reasonable steps to address and resolve a notice of objection by Pfenex within thirty (30) days of receipt of such notice. Once any such abstract or manuscript is accepted for publication, Alvogen shall provide Pfenex with a copy of the final version of the manuscript or abstract.

ARTICLE IX

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 9.1     Representations and Warranties of Pfenex . Pfenex hereby represents and warrants to Alvogen as of the Effective Date as follows:

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(a)     Organization and Good Standing . Pfenex is duly incorporated, validly existing and in good standing under the laws of Delaware, with all requisite corporate power and authority required to conduct its business as presently conducted.

(b)     Authority . Pfenex has all requisite corporate power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. The execution and delivery by Pfenex of this Agreement and the performance by Pfenex of its obligations hereunder have been duly authorized by all requisite corporate action of Pfenex and no other action on the part of Pfenex or its stockholders or board of directors is necessary to authorize the execution, delivery or performance by Pfenex of this Agreement.

(c)     Valid and Binding Agreement . This Agreement has been duly executed and delivered by Pfenex and constitutes the legal, valid and binding obligation of Pfenex, enforceable against Pfenex in accordance with its terms, except to the extent that the enforceability thereof may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and (ii) general principles of equity.

(d)     Non-Contravention . The execution and delivery of this Agreement by Pfenex and the performance by Pfenex of its obligations hereunder, including the grant of the Product License pursuant to Article II, does not and will not (i) violate any provision of the organizational documents of Pfenex, (ii) conflict with or violate any Applicable Law applicable to Pfenex or any of its assets or properties, (iii) require any permit, authorization, consent, approval, exemption or other action by, notice to or filing with any entity or Governmental Authority (other than as expressly contemplated hereby), (iv) violate, conflict with, result in a material breach of, or constitute (with or without notice or lapse of time or both) a material default under, or an event which would give rise to any right of notice, modification, acceleration, payment, cancellation or termination under, or in any manner release any party thereto from any obligation under, any permit or contract to which Pfenex is a party or by which any of its properties or assets are bound, in each case that are necessary for Pfenex’s performance of its obligations or grant of rights to Alvogen hereunder, or (v) result in the creation or imposition of any Lien on any part of the properties or assets of Pfenex.

(e)     No Commissions . Pfenex is not under any obligation to pay any commission or similar fee in connection with the transactions contemplated by this Agreement for which Alvogen shall be made responsible or shall become obligated to pay for any reason.

(f)     No Litigation . There is no Action against Pfenex or any of its Affiliates or that has been brought by Pfenex or any of its Affiliates which is pending or, to Pfenex’s Knowledge, threatened in writing, and, to Pfenex’s Knowledge, there is no investigation of Pfenex or its Affiliates pending before any Governmental Authority, in each case (i) that would reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement, (ii) that would reasonably be expected to materially adversely affect Pfenex’s development activities for Product in the Territory, the Product in the Territory or the conduct of the Business in the Territory, or (iii) that would reasonably be expected to materially adversely

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

37


affect reimbursement for Product under any program funded by a Governmental Authority in the Territory.

(g)     Regulatory Matters; Compliance with Law . Pfenex and its Affiliates are, and have been at all times, in compliance in all respects with Applicable Laws that are or were applicable to its conduct of the Business in the Territory or its ownership or use of Product in the Territory, and hold and are operating in compliance with such Registrations of the FDA as are required for the conduct of the Business in the Territory, except where any non-compliance with Applicable Law or failure to hold or operate in compliance with such Registrations would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Product in the Territory, the conduct of the Business in the Territory or Pfenex’s ability to perform its obligations hereunder. No event has occurred which allows, or after notice or lapse of time would allow, revocation or termination of any such Registration except where the occurrence of such event would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Product in the Territory, the conduct of the Business in the Territory or Pfenex’s ability to perform its obligations hereunder. The clinical, pre-clinical and other studies and tests of Product conducted by, on behalf of or sponsored by Pfenex were and, if still pending, are being conducted in all material respect in accordance with standard medical and scientific research procedures and all Applicable Laws, including but not limited to the Federal Food, Drug and Cosmetic Act and its applicable implementing regulations at 21 C.F.R. Parts 50, 54, 56, 58 and 312. No Governmental Authority has notified Pfenex or any of its Affiliates or, to Pfenex’s Knowledge, subcontractors in writing that any activities in its conduct of the Business in the Territory are in violation of any Applicable Law or the subject of any Action or investigation, except where any violation of Applicable Law or any Action or investigation would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Product in the Territory, the conduct of the Business in the Territory or Pfenex’s ability to perform its obligations hereunder.

(h)     No Competing Products . Neither Pfenex nor its Affiliates currently owns, in-licenses or is in the process of in-licensing a Competing Product in any stage of development or Commercialization or currently has any ongoing program to develop or acquire such a Competing Product. Pfenex has not out-licensed or otherwise granted rights to any Third Party under any Pfenex Technology with respect to Product or a Competing Product, in each case in the Territory.

(i)     Pfenex Technology .

(i)    Pfenex Controls the Pfenex Patents listed in the Product Memo, and Pfenex has not granted any rights to any Third Party under the Pfenex Technology that conflicts with the rights granted to Alvogen hereunder. None of the Pfenex Patents is or has been the subject of any pending Action or, to Pfenex’s Knowledge, the subject of any threatened Action with respect to inventorship challenges, interferences, reissues, reexaminations, inter partes review, post grant review, supplemental review, invalidation, opposition, cancellation, abandonment or any order or decree of any Governmental Authority restricting the use of such Pfenex Patent in connection with Product.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(ii)    Neither Pfenex nor any of Pfenex’s Affiliates has received written notice from any Third Party claiming that the practice of the Pfenex Technology or its conduct of the Business infringes any patent claim of any Third Party or misappropriates or makes any unauthorized use of any Intellectual Property of any Third Party.

(iii)    To Pfenex’s Knowledge, no Third Party is infringing, misappropriating or making any unauthorized use of any Pfenex Technology in the Territory with respect to a Competing Product, and there is no Action or investigation in contemplation of an Action by Pfenex pending or threatened against any Third Party related to the Pfenex Technology in the Territory with respect to a Competing Product.

(iv)    None of the Pfenex Technology is subject to any outstanding decree, order, judgment or stipulation of a Governmental Authority against Pfenex, its Affiliates or, to Pfenex’s Knowledge, any other Person restricting in any manner the conduct of the Business.

(v)    There are no contracts pursuant to which Pfenex in-licenses or otherwise has rights under any Intellectual Property of any Third Party that is material to the Business or the operation thereof.

(vi)    To Pfenex’s Knowledge, Pfenex owns or has received all licenses or otherwise has sufficient rights with respect to the Pfenex Technology necessary for Pfenex to comply with the terms of this Agreement.

(vii)    The Pfenex Expression Technology is not necessary for the conduct of the Business, but in the event it is necessary, Pfenex has the right to license or sublicense the Pfenex Expression Technology to Alvogen or any of its Affiliates, without any obligation of Alvogen to make any payment of money, royalties or other consideration in connection with the operation of the Business, including Alvogen’s operation thereof after termination of this Agreement pursuant to Section 10.2(a)(iii); and

(viii)    Pfenex has taken commercially reasonable steps to protect and preserve the confidentiality of all confidential information included in the Pfenex Patents and has taken legally adequate measures to protect the Know-How that is Controlled by Pfenex that is or would be material to the Business, in the case of all such steps or measures, that are consistent with the practices of the biotechnology industry, and all of Pfenex’s employees, contractors and consultants who were or are engaged in the development or invention of any Pfenex Technology have entered into written agreements with Pfenex validly and irrevocably assigning to Pfenex all rights, title and interests in and to such Pfenex Technology (or all such rights, title and interests have or are vested in Pfenex as a matter of law).

(j)     Debarment . Neither Pfenex nor any of its Affiliates, nor, to Pfenex’s Knowledge, any of its subcontractors, employees or agents has ever been, is currently, or is the subject of a debarment proceeding that could lead to that party becoming, as applicable, a Debarred Entity or Debarred Individual.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(k)     No Adverse Findings . To Pfenex’s Knowledge, there is no event, discovery, fact, development, change or circumstance which, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect, only taking into consideration information reasonably available as of the Effective Date, on the Development Plan or on the ability to obtain Regulatory Approval for, manufacture, commercialize, promote, import, market, offer for sale, sell or distribute Product in the Territory during the Term. To Pfenex’s Knowledge, Pfenex has disclosed to Alvogen all material information (or such information is available in Pfenex’s public filings) with respect to the Product and the Business.

Section 9.2     Representations and Warranties of Alvogen . Alvogen hereby represents and warrants to Pfenex as of the Effective Date as follows:

(a)     Organization and Good Standing . Alvogen is duly incorporated, validly existing and in good standing under the laws of Malta, with all requisite corporate power and authority required to conduct its business as presently conducted;

(b)     Authority . Alvogen has all requisite corporate power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. The execution and delivery by Alvogen of this Agreement and the performance by Alvogen of its obligations hereunder have been duly authorized by all requisite corporate action of Alvogen and no other action on the part of Alvogen or its stockholders or board of directors is necessary to authorize the execution, delivery or performance by Alvogen of this Agreement;

(c)     Valid and Binding Agreement . This Agreement has been duly executed and delivered by Alvogen and constitutes the legal, valid and binding obligation of Alvogen, enforceable against Alvogen in accordance with its terms, except to the extent that the enforceability thereof may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights, and (ii) general principles of equity;

(d)     Non-Contravention . The execution and delivery of this Agreement by Alvogen and the performance by Alvogen of its obligations hereunder does not and will not (i) violate any provision of the organizational documents of Alvogen, (ii) conflict with or violate any Applicable Law applicable to Alvogen or its assets or properties, (iii) require any permit, authorization, consent, approval, exemption or other action by, notice to or filing with any entity or Governmental Authority (other than as expressly contemplated hereby), (iv) violate, conflict with, result in a material breach of, or constitute (with or without notice or lapse of time or both) a material default under, or an event which would give rise to any right of notice, modification, acceleration, payment, cancellation or termination under, or in any manner release any party thereto from any obligation under, any permit or contract to which Alvogen is a party or by which any of its properties or assets are bound, in each case that are necessary for Alvogen’s performance of its obligations or grant of rights to Pfenex hereunder, or (v) result in the creation or imposition of any Lien on any part of the properties or assets of Alvogen;

(e)     No Commissions . Alvogen is not under any obligation to pay any commission or similar fee in connection with the transactions contemplated by this Agreement for which Pfenex shall be made responsible or shall become obligated to pay for any reason;

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(f)     No Litigation . There is no Action against Alvogen or any of its Affiliates or that has been brought by Alvogen or any of its Affiliates which is pending or, to Alvogen’s Knowledge, threatened in writing, and, to Alvogen’s Knowledge, there is no investigation of Alvogen or its Affiliates pending before any Governmental Authority, in each case (i) that would reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement, (ii) that would reasonably be expected to materially adversely affect the Product or the conduct of the Business, or (iii) that would reasonably be expected to materially adversely affect reimbursement for Product under any program funded by a Governmental Authority;

(g)     Debarment . Alvogen represents and warrants that neither it nor any of its Affiliates, nor, to Alvogen’s Knowledge, any of its Subcontractors, employees or agents has ever been, is currently, or is the subject of a debarment proceeding that could lead to that party becoming, as applicable, a Debarred Entity or Debarred Individual; and

(h)     No Competing Products . Neither Alvogen nor its Affiliates currently owns or is in the process of in-licensing a Competing Product in any stage of development or Commercialization or currently has any ongoing program to develop or acquire such a Competing Product.

Section 9.3     Covenants .

(a)     Debarment by Pfenex . If, during the Term, Pfenex or any of its Affiliates, subcontractors, employees or agents becomes or is the subject of any Regulatory Agency investigation or debarment proceeding that could lead to Pfenex or such Affiliate, subcontractor, employee or agent, as applicable, becoming a Debarred Entity or Debarred Individual, Pfenex shall immediately notify Alvogen, and, if such occurrence materially and adversely affects Pfenex’s ability to perform its obligations hereunder or Alvogen’s ability to develop, obtain NDA Approval for, manufacture or Commercialize, Product in the Territory, then such occurrence shall be deemed a material breach of this Agreement and Alvogen shall have the right to terminate this Agreement pursuant to Section 10.2(b)(i).

(b)     Debarment by Alvogen . If, during the Term, Alvogen or any of its Affiliates, Subcontractors, employees or agents becomes or is the subject of any Regulatory Agency investigation or debarment proceeding that could lead to Alvogen or such Affiliate, Subcontractor, employee or agent, as applicable, becoming a Debarred Entity or Debarred Individual, Alvogen shall immediately notify Pfenex, and if such occurrence materially and adversely affects Alvogen’s ability to perform its obligations hereunder, then such occurrence shall be deemed a material breach of this Agreement and Pfenex shall have the right to terminate this Agreement pursuant to Section 10.2(a)(i).

(c)     Assignment of Product Inventions . Each Party shall maintain valid and enforceable agreements with all persons and entities acting by or on behalf of such Party or its Affiliates under this Agreement which require such Persons to assign to such Party their entire right, title and interest in and to all Product Inventions made by such Person in connection with their activities under this Agreement.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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Section 9.4     Disclaimer of Warranties . EXCEPT AS SET FORTH IN SECTIONS 9.1 AND 9.2, PFENEX AND ALVOGEN EXPRESSLY DISCLAIM ANY WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT (INCLUDING THE PRODUCT AND PFENEX TECHNOLOGY), INCLUDING ANY WARRANTY OF MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE.

Section 9.5     Insurance .

(a)    To provide sufficient protection to both Pfenex and Alvogen, Pfenex and Alvogen will each, individually, at its own cost and expense, obtain and maintain in full force and effect, during the Term, the following lines of insurance and specified limits:

(i)     Commercial General Liability (including Premises Operations) . The policy must be on an occurrence form and include the following limits: [***].

(ii)     Commercial Umbrella Liability . This policy must include the following limits: [***].

(iii)     Product Liability Insurance . [***].

(b)    Insurance for each Party shall be primary and non-contributory to any insurance or self-insurance maintained by the other Party. Each Party shall be named as an additional insured within the other Party’s products liability and general liability insurance policies; provided, that such additional insured status will apply solely to the extent of the insured Party’s indemnity obligations under this Agreement. All of the aforementioned lines can be satisfied via any combination of primary, excess or umbrella insurance coverage. Upon execution of this Agreement and upon written request thereafter, each Party shall provide the other Party with an insurance certificate evidencing the required insurance limits in this Section 9.5. Each Party shall provide thirty (30) days’ notice to the other Party prior to any cancellation or material change to the required insurance policies. All insurance companies utilized by a Party to meet the requirements herein must have an A.M. Best Rating of “A-, VII” or better. Each Party may self-insure all or any portion of the insurance requirements in this Section 9.5 during any given Annual Period, as long as such self-insuring Party has earnings before interest, tax depreciation and amortization expense of at least $100,000,000 on the basis of such Party’s Accounting Standards for the immediately preceding Annual Period. Additional insured status obligations will operate in the same manner, whether insurance is carried through third parties or through self-insurance.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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ARTICLE X

TERM; TERMINATION

Section 10.1     Term . This Agreement shall become effective on the Effective Date and continue until the earlier of (i) ten (10) years following the First Commercial Sale in the Territory, or (ii) the date this Agreement is terminated in accordance with Section 10.2 (such shorter period, the “ Term ”).

Section 10.2     Termination .

(a)    Notwithstanding anything contained herein to the contrary, Pfenex may terminate this Agreement in its entirety:

(i)    upon ninety (90) days’ prior written notice to Alvogen if Alvogen has materially breached this Agreement (with the specific nature of such breach being identified in such notice) and Alvogen fails to cure such breach within such ninety (90) day period; provided, however, that the failure to timely pay any payment obligation that is subject to a good faith Dispute shall not be deemed a material breach of this Agreement;

(ii)    immediately upon written notice to Alvogen following, in the case of insolvency, the appointment of a receiver by a court of competent jurisdiction with respect to the assets of Alvogen, the assignment for the benefit of creditors of the assets of Alvogen or the entry of an order for relief (or similar ruling or proceeding) under applicable bankruptcy or insolvency laws against Alvogen; or

(iii)    upon written notice to Alvogen based upon Safety Reasons. If Alvogen disputes the existence of such Safety Reasons, such dispute shall be referred to the Executive Steering Committee and Pfenex’s right to terminate this Agreement shall be stayed during the pendency of such dispute resolution process.

(b)    Notwithstanding anything contained herein to the contrary, Alvogen may terminate this Agreement in its entirety:

(i)    upon ninety (90) days’ prior written notice to Pfenex, if Pfenex has materially breached of this Agreement (with the specific nature of such breach being identified in such notice) and Pfenex fails to cure such breach within such ninety (90) day period;

(ii)    immediately upon written notice to Pfenex following, in the case of insolvency, the appointment of a receiver by a court of competent jurisdiction with respect to the assets of Pfenex, the assignment for the benefit of creditors of the assets of Pfenex or the entry of an order for relief (or similar ruling or proceeding) under applicable bankruptcy or insolvency laws against Pfenex;

(iii)    upon written notice to Pfenex based upon Safety Reasons. If Pfenex disputes the existence of such Safety Reasons, such dispute shall be referred to the Executive Steering Committee and Alvogen’s right to terminate this Agreement shall be stayed during the pendency of such dispute resolution process;

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(iv)    upon sixty (60) days’ prior written notice to Pfenex given anytime thirty six (36) months after the Effective Date, provided that as of the date of such notice the Transfer Effective Date has not occurred;

(v)    upon sixty (60) days’ prior written notice to Pfenex, [***]; or

(vi)    upon twelve (12) months’ prior written notice to Pfenex for any or no reason, beginning one (1) year after the First Commercial Sale in the Territory.

Section 10.3     General Effects of Expiration or Termination .

(a)    Except as otherwise expressly provided in this Article X, all rights and obligations of the Parties under this Agreement shall terminate upon expiration or termination of this Agreement for any reason.

(b)    Notwithstanding anything contained in this Agreement to the contrary, in no event shall the expiration or termination of this Agreement affect any Party’s obligation to pay any amounts owed to any other Party as of the time of such expiration or termination or release either Party of any other obligation or liability which, at the time of such expiration or termination, has already accrued to the other Party or which is attributable to a period prior to such expiration or termination.

(c)    Upon the expiration or termination of this Agreement, Articles I, XI and XII and Sections 3.3(d) (for the period specified therein), 4.4 – 4.7 (inclusive, with respect to the period prior to the effective date of termination), 4.8 (for the period specified therein), 4.10 (with respect to the period prior to the effective date of termination), 5.5 (with respect to any Product sold before termination), 6.2, 8.1 (for a period of five (5) years after the effective date of termination) 8.6 (for a period of twelve (12) months after the effective date of termination), 9.4, 9.5(a)(iii) (for the period specified therein), 10.3, 10.4 and 10.5 (in the circumstances provided therein) shall survive and remain in effect.

Section 10.4     Additional Effects of Expiration or Termination . If this Agreement expires or is terminated pursuant to Section 10.2(a)(i) (Alvogen breach), Section 10.2(a)(ii) (Alvogen Insolvency), Section 10.2(b)(ii) (Pfenex Insolvency), Section 10.2(b)(iv) (Late Transfer Effective Date), Section 10.2(b)(v) (Excessive Regulatory Costs), or Section 10.2(b)(vi) (One Year Notice), then:

(a)     Transition Assistance . (i) Alvogen shall cooperate with Pfenex or its designee(s) to facilitate the transition of the development and manufacture, if any, and Commercialization of Product in the Territory to Pfenex or its designee(s) after the notice of termination of this Agreement, (ii) upon request by Pfenex, Alvogen shall transfer to Pfenex some or all quantities of any unlabeled Product in its or its Affiliates’ possession or control, within thirty (30) days of Alvogen’s receipt of such request; provided , however , that Pfenex shall pay Alvogen the actual cost that Alvogen incurred to acquire the quantities so provided to Pfenex, and (iii) upon Pfenex’s request, the Executive Steering Committee shall promptly (but in any event not more than thirty (30) days after such request) meet and establish a transition plan to implement the transition of the development, manufactures and Commercialization of Product

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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in the Territory to Pfenex or its designee(s). Accordingly, Alvogen shall take all actions reasonably necessary, and cooperate with Pfenex or its designee(s), to facilitate a smooth, orderly and prompt transition so that Pfenex or its applicable designee is reasonably enabled and has control over any ongoing development, manufacture and Commercialization of Product in the Territory.

(b)     Regulatory Materials .

(i)    Alvogen shall promptly assign and transfer to Pfenex all Regulatory Materials for Product in the Territory that are held or controlled by or under authority of Alvogen or its Affiliates, and shall take such actions and execute such other instruments, assignments and documents as may be necessary to effect the transfer of rights under such Regulatory Materials to Pfenex and Pfenex shall assume all obligations, including pharmacovigilance obligations, under all Applicable Laws with regard to such Regulatory Materials;

(ii)    Alvogen shall cause each of its Affiliates to transfer all such Regulatory Materials to Pfenex;

(iii)    If Applicable Law prevents or delays the transfer of ownership or possession of Regulatory Materials for Product to Pfenex, Alvogen shall grant, and does hereby grant, to Pfenex an exclusive (except as to Alvogen to the extent necessary to comply with Applicable Laws) and irrevocable right of access and reference to such Regulatory Materials, and shall cooperate fully to make the benefits of such Regulatory Materials available to Pfenex or its designee(s); and

(iv)    Alvogen shall provide to Pfenex copies of all such Regulatory Materials.

(c)     Redirection of Subdomain Name . With respect to any subdomain name owned and used by Alvogen or its Affiliate in connection with the Product Trademark or the Product as of the expiration of the Term or effective date of termination: (i) Alvogen shall, as soon as practicable thereafter, post a notice mutually consented to by the Parties, on the webpage associated with each such subdomain name, advising visitors that applicable Product is now marketed by Pfenex or its Affiliates (or another statement agreed to by the Parties), and shall otherwise leave such Product webpage intact pending receipt of a redirection request from Pfenex; and (ii) Alvogen shall, as soon as practicable following receipt of a request from Pfenex, implement an automatic redirect taking visitors from the internet address (url) associated with each such subdomain to a Pfenex-controlled website designated by Pfenex. In addition, with respect to any internet address (url) specific to the Product Trademark or Product and associated contents, Alvogen shall at Pfenex’s request assign the same to Pfenex or its designee.

(d)     Costs and Expenses . Except as expressly provided herein, each Party shall perform its obligations under this Section 10.4 at its own costs.

Section 10.5     Additional Effects of Specific Terminations .

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(a)    If this Agreement is terminated pursuant to any of Section 10.2(a)(iii), Section 10.2(b)(i), Section 10.2(b)(ii), Section 10.2(b)(iii) prior to the Transfer Effective Date or pursuant to Section 10.2(b)(iv), then Pfenex shall, within sixty (60) Business Days of the effective date of termination, remit payment to Alvogen the amount of Two Million Five Hundred Thousand Dollars ($2,500,000).

(b)    If this Agreement is terminated pursuant to Section 10.2(a)(iii) and Pfenex has exercised its final resolution authority under Section 7.4(b)(i) with respect to the underlying Safety Reasons, then (i) no payments under Section 4.5 shall be due for any Gross Profit (or associated Net Sales) occurring after the effective date of such termination, (ii) the Product License shall become perpetual and irrevocable (provided, however, that such irrevocability shall not limit the remedies available to any Party hereunder for breach of this Agreement), (iii) Pfenex shall have no obligation to indemnify Alvogen under clause (f) of Section 11.1 with respect to any activities after the effective date of such termination, and (iv) Alvogen’s indemnification obligations under clauses (e) and (f) of Section 11.2 shall not be subject to the limitations set forth in Section 11.4. and in the case of clause (f) no portion of such Losses shall be allocated to Pfenex under Section 11.5.

ARTICLE XI

INDEMNIFICATION AND LIABILITY LIMITS

Section 11.1     Indemnification by Pfenex . Pfenex shall indemnify, defend and hold harmless (collectively, “ Indemnify ”) Alvogen, its Affiliates and its and their respective directors, officers, employees, agents and representatives (the “ Alvogen Indemnitees ”) from and against any and all losses, damages, liabilities, penalties, costs and expenses (including reasonable attorneys’ fees and court costs) (collectively, “ Losses ”), resulting from suits, claims, actions and demands, in each case, brought by a Third Party (each, a “ Third Party Claim ”) against any Alvogen Indemnitee arising out of (a) any breach by Pfenex of any of its obligations or representations and warranties hereunder, (b) the negligence, recklessness or willful misconduct by Pfenex or any of its Affiliates or any of their respective officers, directors, employees, agents or representatives in connection with the performance of this Agreement, (c) any violation by Pfenex or any of its Affiliates or any of their respective officers, directors, employees, agents or representatives of any Applicable Law applicable to the performance of Pfenex’s obligations under this Agreement, (d) development of the Product, regulatory actions taken on or prior to the Transfer Effective Date, actions performed pursuant to Section 3.1, or the performance under this Agreement, in each case by Pfenex or any of its employees, agents, or Affiliates, (e) Commercialization of the Product by Pfenex or any of its employees, agents, Affiliates or licensees outside of the Territory, or (f) the allocated portion (allocated in accordance with Section 11.5) of any claims based upon product liability, bodily injury, death or property damage relating to Product sold in the Territory during the Term. Pfenex’s obligation to Indemnify the Alvogen Indemnitees pursuant to this Section 11.1 shall not apply to the extent such Losses are attributable to a cause or event described in Section 11.2. This Section 11.1 shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

Section 11.2     Indemnification by Alvogen . Alvogen shall Indemnify Pfenex, its Affiliates and its and their respective directors, officers, employees, agents and representatives (the “ Pfenex Indemnitees ”) from and against any and all Losses resulting from Third Party Claims against any Pfenex Indemnitee arising out of (a) any breach by Alvogen of any of its obligations or representations and warranties hereunder, (b) the negligence, recklessness or

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

46


willful misconduct by Alvogen or any of its Affiliates or any of their respective officers, directors, employees, agents or representatives in connection with the performance of this Agreement, (c) any violation by Alvogen or any of its Affiliates and any of their respective officers, directors, employees, agents or representatives of any Applicable Laws applicable to the performance of Alvogen’s obligations under this Agreement, (d) regulatory actions taken after the Transfer Effective Date, actions performed pursuant to Section 3.2, or the performance under this Agreement, in each case by Alvogen or any of its employees, agents, or Affiliates, (e) Commercialization of Product by Alvogen or any of its employees, agents, Affiliates or sublicensees inside of the Territory (other than claims based upon product liability, bodily injury, death or property damage relating to Product, which are allocated in clause (f) of this Section 11.2 and clause (f) of Section 11.1), or (f) the allocated portion (allocated in accordance with Section 11.5) of any claims based upon product liability, bodily injury, death or property damage relating to Product sold in the Territory during the Term. Alvogen’s obligation to Indemnify the Pfenex Indemnitees pursuant to this Section 11.2 shall not apply to the extent such Losses are attributable to a cause or event described in Section 11.1. This Section 11.2 shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

Section 11.3     Indemnification Procedure .

(a)    The Party seeking indemnification under this Article XI (the “ Indemnified Party ”) agrees to give prompt written notice (the “ Indemnification Notice ”) to the Party against whom indemnity is sought (the “ Indemnifying Party ”) of the assertion of any Third Party Claim, or the commencement of any proceeding in respect of which indemnity may be sought under this Article XI; provided that the failure of an Indemnified Party to promptly notify the Indemnifying Party on a timely basis will not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party unless and to the extent the Indemnifying Party demonstrates that it is materially prejudiced by the Indemnified Party’s failure to give timely notice.

(b)    If the Indemnifying Party does not object to any claim or claims made in the Indemnification Notice in a written objection (the “ Indemnification Objection ”) prior to the expiration of twenty (20) Business Days from the Indemnifying Party’s receipt of the Indemnification Notice, the Indemnifying Party shall be deemed not to object to the information contained within the Indemnification Notice. If the Indemnifying Party delivers an Indemnification Objection within such twenty (20) Business Day period, the Indemnifying Party and the Indemnified Party shall attempt in good faith to resolve the dispute for twenty (20) Business Days after the Indemnifying Party’s receipt of such Indemnification Objection. If no resolution is reached, the dispute shall be resolved in accordance with the provisions of Section 12.4 and Section 12.5.

(c)    The Indemnifying Party, if it so elects, may assume and control the defense of a Third Party Claim at the Indemnifying Party’s expense and shall consult with the Indemnified Party with respect thereto, including the employment of counsel reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party shall not have the right to assume control of such defense if the claim that the Indemnifying Party seeks to

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

47


assume control of (i) seeks material non-monetary relief, or (ii) involves criminal or quasi-criminal allegations; provided further that Alvogen shall be entitled to assume and control (subject to Pfenex having the right to participate and comment) the defense of Third Party Claims relating to clause (f) of Section 11.2 and clause (f) of Section 11.1) as if it was the Indemnifying Party for such claim. If the Indemnifying Party is permitted to assume and control the defense of a Third Party Claim and elects to do so, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnified Party unless (A) the Indemnifying Party has specifically agreed in writing otherwise, or (B) the Indemnifying Party has failed to assume the defense and employ counsel (in which case the fees and expenses of the Indemnified Party’s counsel shall be paid by the Indemnifying Party if the Indemnifying Party otherwise has an obligation to indemnify the Indemnified Party for the related Third Party Claim). If the Indemnifying Party has assumed the defense of a Third Party Claim in accordance with the terms hereof, the Indemnifying Party may not enter into a settlement or consent to any judgment without the prior written consent of the Indemnified Party unless (I) such settlement or judgment involves monetary damages only, all of which will be paid, without limitation, by the Indemnifying Party, and no admission of fault or culpability on behalf of any Indemnified Party, and (II) a term of the settlement or judgment is that the Person or Persons asserting such claim unconditionally and irrevocably release all Indemnified Parties from all liability with respect to such claim; otherwise, the consent of the Indemnified Party shall be required in order to enter into any settlement of, or consent to the entry of a judgment with respect to, any claim (which consent shall not be unreasonably withhold, delayed or conditioned). If the Indemnifying Party does not assume or is not controlling the defense of a Third Party Claim for any reason, then the Indemnified Party may retain counsel of its own choosing, at the expense of the Indemnifying Party, and assume and control the defense of such Third Party Claim, and the Indemnifying Party shall have the right to employ counsel separate from counsel employed by the Indemnified Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnifying Party shall be at the expense of the Indemnifying Party. The Indemnifying Party shall have no obligations with respect to any Losses resulting from the Indemnified Party’s admission, settlement or other communication without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld, delayed or conditioned).

Section 11.4     Limitations on Liability . Notwithstanding any provision of this Agreement to the contrary, any claims an Indemnified Party makes under this Article XI will be limited as follows (except as provided in Section 10.5(b)):

(a)     Annual Deductible . The Alvogen Indemnitees shall only be entitled to indemnification pursuant to this Article XI (excluding claims made under clause (f) of Section 11.2 and clause (f) of Section 11.1) for Losses incurred in a given Annual Period to the extent the aggregate amount of such Losses incurred by the Alvogen Indemnitees in such Annual Period and for which the Alvogen Indemnitees are entitled to indemnification pursuant to this Article XI (excluding Losses relating to clause (f) of Section 11.2 and clause (f) of Section 11.1) exceeds 1% of the aggregate amount paid by Alvogen to Pfenex in such Annual Period. The Pfenex Indemnitees shall only be entitled to indemnification pursuant to this Article XI (excluding

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

48


claims made under clause (f) of Section 11.2 and clause (f) of Section 11.1) for Losses incurred in a given Annual Period to the extent the aggregate amount of such Losses incurred by the Pfenex Indemnitees in such Annual Period and for which the Pfenex Indemnitees are entitled to indemnification pursuant to this Article XI (excluding Losses relating to clause (f) of Section 11.2 and clause (f) of Section 11.1) exceeds 1% of the aggregate amount paid by Alvogen to Pfenex hereunder in such Annual Period.

(b)     Annual Cap . The aggregate amount of Losses incurred by the Alvogen Indemnitees in a given Annual Period for which the Alvogen Indemnitees shall be entitled to indemnification pursuant to this Article XI (excluding Loss claims made under clause (f) of Section 11.2 and clause (f) of Section 11.1) shall be limited to an amount equal to [***]. The aggregate amount of Losses incurred by the Pfenex Indemnitees in a given Annual Period for which the Pfenex Indemnitees shall be entitled to indemnification pursuant to this Article XI (excluding Loss claims made under clause (f) of Section 11.2 and clause (f) of Section 11.1) shall be limited to an amount equal to [***].

(c)     No Special or Indirect Damages . Except as arising out of a failure of a Party to pay any amount owed hereunder, or arising as the result of the fraud by a Party, or arising from breach of a Party’s confidentiality obligations in Sections 8.1-8.3 or obligations under Section 2.4, neither Party, nor any of their respective Affiliates, directors, members, officers, employees, subcontractors or agents, shall have, under any legal theory (including contract, negligence and tort liability), any liability to any other Party for any consequential, special, indirect, incidental or punitive damages arising out of or related to breach of this Agreement.

(d)     Net of Insurance, Third-Party Recoveries and Tax Benefits . All Losses for which any Indemnified Party would otherwise be entitled to indemnification under this Article XI shall be reduced by the amount of insurance proceeds actually received by an Indemnified Party from an insurance carrier, Tax benefits, indemnification payments and other third-party recoveries to which any Indemnified Party is entitled in respect of any Losses incurred by such Indemnified Party. In the event any Indemnified Party or any of its Affiliates is entitled to any insurance proceeds, Tax benefits, indemnity payments or any third party recoveries in respect of any Losses (or any of the circumstances giving rise thereto) for which such Indemnified Party is entitled to indemnification pursuant to this Article XI, such Indemnified Party shall use commercially reasonable efforts to obtain, receive or realize such proceeds, benefits, payments or recoveries. In the event that any such insurance proceeds, indemnity payments or other third-party recoveries (but not Tax benefits, which shall only result in a one-time reduction in Losses at the time provided for below) are obtained, received or realized by an Indemnified Party subsequent to receipt by such Indemnified Party of any indemnification payment hereunder in respect of the claims to which such insurance proceeds, indemnity payments or other third-party recoveries relate, appropriate refunds shall be made promptly by the relevant Indemnified Parties of all or the relevant portion of such indemnification payment. For purposes of this Section 11.4(d), any Indemnified Party will be deemed to realize a Tax benefit in respect of any Losses incurred to the extent that the liability for cash income Taxes of the Indemnified Party in the taxable period during which such Losses are incurred (calculated with such Losses excluded) exceeds the actual liability for cash income

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

49


Taxes of the Indemnified Party for such taxable period (calculated with such Losses included). If any Indemnified Party receives any indemnification payment pursuant to this Article XI, at the election of the Indemnifying Party, such Indemnified Party shall assign to the Indemnifying Party all of its claims for recovery against third Persons as to such Losses, whether by insurance coverage, contribution claims, subrogation or otherwise but only up to the amount of such indemnification payment.

(e)     Mitigation of Losses . An Indemnified Party shall use commercially reasonable efforts to mitigate any Losses for which it is entitled to indemnification pursuant to this Article XI. The Indemnifying Party shall have the right, but not the obligation, and shall be afforded the opportunity by the Indemnified Party to the extent reasonably possible, to take all available steps to minimize Losses for which the Indemnified Party is entitled to indemnification before such Losses actually are incurred by the Indemnified Party.

Section 11.5     Product Liability Allocation . All Losses relating to the indemnity provisions contained in clause (f) of Section 11.2 and clause (f) of Section 11.1 shall be allocated between Alvogen and Pfenex such that Pfenex bears the Pfenex Profit Share (as in effect in the Quarterly Period when such Losses were incurred) of such Losses and Alvogen bears the remainder of such Losses.

Section 11.6     Cooperation . The Indemnified Party and Indemnifying Party shall cooperate in all reasonable respects in connection with the defense of any Third Party Action. At the reasonable request of the Indemnifying Party, each Indemnified Party shall grant the Indemnifying Party and its representatives all reasonable access to the books, records, employees and properties of such Indemnified Party to the extent reasonably related to the matters to which the applicable indemnification claim relates. All such access shall be granted during normal business hours and shall be granted under the conditions which shall not unreasonably interfere with the business and operations of such Indemnified Party. Indemnifying Party and the Indemnified Party may, but are not obligated to, share materials that are privileged or otherwise protected from disclosure under applicable Law. To the extent the defense of any Action presents the need for understanding of materials that are privileged or otherwise protected from disclosure, The Parties agree to act in good faith in considering entry into a common interest agreement (or similar agreement) that would facilitate these protected materials to be shared in furtherance of defending the Action.

ARTICLE XII

MISCELLANEOUS

Section 12.1     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 when such failure or delay is caused by or results from the causes beyond the reasonable control of the affected Party, including: fire, floods, earthquake, tsunami, ice, tornado, hurricane, windstorm, eruption, explosion, sabotage or vandalism, embargoes, war, acts of war (whether war be declared or not), invasion, domestic or foreign terrorist act, act of a public enemy, insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, shortages of materials, failure of utilities, acts of God or

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

50


acts, omissions or delays in acting by any Governmental Authority (each, an event of “ Force Majeure ”); provided that such affected Party shall provide the other Party with prompt written notice of the circumstances surrounding such a material failure or delay and will use Diligent Efforts to overcome the difficulties created thereby and to resume performance of its obligations as soon as practicable. If the performance of any such obligation under this Agreement is delayed owing to such a Force Majeure for any continuous period of more than one hundred eighty (180) days, the Parties will consult with respect to an equitable solution, including the possibility of the mutual termination of this Agreement. For the avoidance of doubt, the occurrence of an event of Force Majeure shall not relieve any Party from fulfilling any obligation required hereunder; rather, the period for performance of such obligation shall be tolled during the occurrence of such Force Majeure.

Section 12.2     Notices . Any notice, request, approval or consent required or permitted to be given by any Party shall be in writing and shall be to the Parties at the addresses or facsimile number listed below, or such other address or facsimile number as such Party will have last given by notice to the other Party, and shall be deemed to have been sufficiently given when delivered in person, transmitted by electronic mail (receipt verified) or by express courier service (signature required) or five (5) days after it was sent by registered mail, return receipt requested (or its equivalent), provided that no postal strike or other disruption is then in effect or comes into effect within two (2) days after such mailing.

 

If to Pfenex, to:    Pfenex Inc.
     10790 Roselle Street
     San Diego, CA 92121
     Attention: Patrick Lucy, Chief Business Officer
     PKL@Pfenex.com
With a copy to:    Wilson Sonsini Goodrich & Rosati
     650 Page Mill Road
     Palo Alto, CA 94304
     Attention: Ian B. Edvalson
     iedvalson@wsgr.com
If to Alvogen, to:    Alvogen Malta Operations Ltd.
     10 Bloomfield Avenue, Bldg B
     Pine Brook, NJ 07058
     Attention: Legal
     Andrea.Sweet@alvogen.com
With a copy to:    Latham & Watkins LLP
     650 Town Center Drive
     20th Floor
     Costa Mesa, CA 92626
     Attention: David C. Lee
   david.lee@lw.com

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

51


Section 12.3     Governing Law . This Agreement and all matters and disputes arising therefrom shall be construed, governed, interpreted and applied in accordance with the laws of the State of New York, without giving effect to any conflicts of laws principles.

Section 12.4     Internal Dispute Resolution . In the event that a dispute, difference or question arises pertaining to any matters which are the subject of this Agreement not otherwise resolved in accordance with Section 7.4(b) (a “ Dispute ”), prior to the initiation of arbitration as described in Section 12.5, the Dispute shall be submitted to the Chief Executive Officers (or their respective designees) of Alvogen and Pfenex, who shall use their good faith efforts to resolve the Dispute within ten (10) Business Days after notice is provided pursuant to Section 12.2. If any such Dispute is not resolved by the Chief Executive Officers or their designees within ten (10) Business Days after submission of such Dispute to such officers, then the Dispute shall be resolved in accordance with the arbitration procedure set forth in Section 12.5. For clarity, Disputes include disagreements regarding (a) the interpretation of this Agreement, and (b) the breach or alleged breach by a Party of its obligations under this Agreement and associated remedies and damages of a Party in the event of a breach of the Agreement by the other Party (and the structure and payment of any such damages).

Section 12.5     Arbitration .

(a)    If the Parties are unable to resolve a Dispute under Section 12.4, then the Parties agree that all Disputes of any kind or nature (except those described in Section 12.5(c)) shall be resolved exclusively pursuant to the alternative dispute resolution terms and conditions set forth in Exhibit  12.5 ; provided that judgment upon any arbitral award may be confirmed and entered by any court having competent jurisdiction over the Parties or their assets. The determination resulting from such alternative dispute resolution shall be final, binding and non-appealable for purposes of this Agreement. Nothing in Section 12.4 or this Section 12.5 shall limit any Party’s right to seek and obtain in any such alternative dispute resolutions any equitable relief to which such Party is entitled hereunder.

(b)    Notwithstanding Section 12.4 and Section 12.5(a), an application for emergency or temporary injunctive relief by any Party shall not be subject to internal dispute resolution under Section 12.4 or alternative dispute resolution under Section 12.5(a); provided, however, that the remainder of any such Dispute (beyond the application for emergency or temporary injunctive relief) shall be subject to internal dispute resolution under Section 12.4 and alternative dispute resolution under Section 12.5(a), as applicable.

(c)    Any Dispute relating to the ownership, scope, validity, enforceability or infringement of any Patent covering the manufacture, use or sale of Product or of any trademark rights relating to any Product shall be submitted to the Governmental Authority of competent jurisdiction in the country where such Patent or trademark exists.

Section 12.6     Relationship of the Parties . The relationship of the Parties under this Agreement is that of independent contractors. Nothing contained in this Agreement, nor the performance of any obligations under this Agreement, shall create an association, partnership, joint venture or relationship of principal and agent, master and servant, or employer and employee between the Parties. No Party has any express or implied right or authority under this

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

52


Agreement to assume or create any obligations or make any representations or warranties on behalf of or in the name of the other Party or such other Party’s Affiliates.

Section 12.7     Assignment . Neither Party may assign, transfer or sublicense any of its rights or obligations under this Agreement without the prior written consent of the other Party, except that any Party may assign this Agreement, without such consent, (a) in whole or in part to an Affiliate of such Party, upon written notice to the other Party of such assignment, provided that such Party hereby guarantees the performance of any such Affiliate, or (b) in whole to any Third Party successor by merger, acquisition or sale of all or substantially all of such Party’s assets to which this Agreement relates, upon written notice to the other Party of any such assignment, provided that such Third Party shall assume the obligations and covenants of the assigning Party under this Agreement. Except as expressly provided in this Section 12.7, any attempted assignment or transfer of this Agreement shall be null and void. As a condition to the effectiveness of any permitted assignment of this Agreement, in whole or in part, the Assignee shall first agree in writing to the provision contained in Section 8.5(c). The Parties intend that Alvogen will assign its distribution and payment obligations hereunder to Alvogen, Inc. or another Affiliate of Alvogen.

Section 12.8     Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective permitted successors and assigns; and by their signatures hereto, each Party intends to, and does hereby, become bound.

Section 12.9     Entire Agreement; Amendments . This Agreement, the Product Memo, the Common Interest Agreement, and the schedules and exhibits hereto and thereto, contain the entire understanding of the Parties with respect to the subject matter herein, and cancel all previous agreements (oral and written including the Prior Agreements), negotiations and discussions, dealing with the same subject matter. The Parties, from time to time during the Term, may modify any of the provisions hereof only by an instrument in writing duly executed by the Parties.

Section 12.10     Severability . If any part or parts of this Agreement are held to be illegal, void or ineffective, the remaining portions of this Agreement shall remain in full force and effect. If any of the terms or provisions of this Agreement are in conflict with any Applicable Law, then such term(s) or provision(s) shall be deemed inoperative to the extent that they may conflict therewith, and shall be deemed to be modified so as to conform with such Applicable Law. In the event of any ambiguity respecting any term or terms hereof, the Parties agree to construe and interpret such ambiguity in good faith in such a way as is appropriate to ensure its enforceability and viability. If any exclusive remedy provided hereunder is determined to be unenforceable, then the Party entitled to such remedy shall in lieu thereof be entitled to such other remedies as are available to such Party under this Agreement or in law or equity under Applicable Law, subject in any case to the limitations imposed by, and other terms of, this Agreement.

Section 12.11     Waiver . No failure or delay on the part of any Party in either exercising or enforcing any right under this Agreement shall operate as a waiver of, or impair, any such right. No single or partial exercise or enforcement of any such right shall preclude any other or further

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

53


exercise or enforcement thereof or the exercise or enforcement of any other right. No waiver of any such right shall have effect unless given in a signed writing. No waiver of any such right shall be deemed a waiver of any other right.

Section 12.12     English Language . This Agreement shall be written and executed in the English language. Any translation into any other language shall not be an official version hereof, and in the event of any conflict in interpretation between the English version and such translation, the English version shall control.

Section 12.13     Counterparts . This Agreement may be executed in multiple counterparts, and all such executed counterparts shall constitute the same agreement.

Section 12.14     Electronic Execution and Delivery . A facsimile, PDF or other reproduction of this Agreement may be executed by one or more Parties, and an executed copy of this Agreement may be delivered by one or more Parties by facsimile, e-mail or other electronic transmission device pursuant to which the signature of or on behalf of such Party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any Party, all Parties agree to execute an original of this Agreement as well as any facsimile or reproduction thereof. The Parties hereby agree that no Party shall raise the execution of a facsimile, PDF or other reproduction of this Agreement, or the fact that any signature or document was transmitted or communicated by facsimile, e-mail or other electronic transmission device, as a defense to the formation of this Agreement.

Section 12.15     Bankruptcy License Protection . Notwithstanding anything contained in this Agreement to the contrary, all licenses and rights to licenses granted under or pursuant to this Agreement (including without limitation the Product License) are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the “ Bankruptcy Code ”), licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that the “royalties” (as such term is used in Section 365(n) of the Bankruptcy Code) to be paid under this Agreement are those payments described in Sections 4.4 and 4.5 of this Agreement. Alvogen, as the licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code, and upon commencement of a bankruptcy proceeding by or against Pfenex under the Bankruptcy Code, shall be entitled to a complete duplicate of, or complete access to (as Alvogen deems appropriate), any such intellectual property and all embodiments of such intellectual property. Such intellectual property and all embodiments thereof shall be promptly delivered to Alvogen (i) upon any such commencement of a bankruptcy proceeding upon written request therefor by Alvogen, unless Pfenex elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under clause (i) above, upon the rejection of this Agreement by or on behalf of Pfenex, upon written request therefor by Alvogen, and each Party hereby acknowledges and agrees that the foregoing shall serve as its consent to such transfer of the intellectual property and all embodiments thereof. The foregoing provisions of this Section 12.15 are without prejudice to any rights Alvogen may have arising under the Bankruptcy Code or other Applicable Law.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

54


Section 12.16     Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may reasonably be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

Section 12.17     Compliance with Applicable Laws . Each Party shall comply with all Applicable Laws governing its performance of the terms of this Agreement.

Section 12.18     Expenses . Except as otherwise expressly set forth herein, each Party shall pay all costs and expenses incident to its negotiation and preparation of this Agreement and to its performance and compliance with all obligations contained herein on its part to be performed or complied with, including the fees, expenses and disbursements of its counsel and other advisors.

Section 12.19     Third Party Beneficiaries . Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the Parties and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement, except as expressly contemplated by the terms of Article XI.

Section 12.20     Equitable Remedies . Each Party acknowledges that a breach or threatened breach by such Party of any of its obligations under this Agreement may give rise to irreparable harm to the other Party for which monetary damages may not be an adequate remedy and hereby agrees that, in the event of such breach or a threatened breach by any Party of any such obligations, the other Party suffering such harm shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to seek equitable relief, including a temporary restraining order, an injunction or specific performance, subject in any case to Sections 12.4 and 12.5, without the obligation to post any bond.

(The remainder of this page is intentionally left blank. The signature page follows.)

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date.

 

PFENEX INC.
By:  

/s/ Eef Schimmelpennink

Name:   Eef Schimmelpennink
Title:   CEO
ALVOGEN MALTA OPERATIONS LTD.
By:  

/s/ Kirsten Burgess

Name:   Kirsten Burgess
Title:   VP, US Supply Chain

[ Signature Page to Development and License Agreement ]

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Exhibit 3.1(a)

Development Plan

Summary

[***]

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Exhibit 5.2

COGs Reduction Plan

[***]

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Exhibit 8.7

Press Release

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


LOGO

DRAFT RELEASE

Pfenex and Alvogen Enter into U.S. Agreement for Commercialization of PF708, a

Therapeutic Equivalent Candidate to Forteo ®

- - -

SAN DIEGO, June XX, 2018 — Pfenex (NYSE American: PFNX) and Alvogen today announced entering into an agreement granting Alvogen exclusive rights to commercialize Pfenex’s lead drug candidate, PF708, a teriparatide therapeutic equivalent candidate to Eli Lilly & Company’s Forteo ® , in the United States.

This collaboration aligns the interests and strengths of Pfenex and Alvogen in actions designed to secure regulatory approval and commercializing PF708 in the United States. Pfenex will continue to be responsible for development and registration of PF708, while Alvogen will provide additional regulatory and development expertise. Alvogen will assume responsibility for costs related to litigation, commercial manufacturing and supply chain, and commercialization of PF708. In consideration for the licenses and other rights granted in the development and license agreement, Pfenex received an upfront payment of $2.5 million and may be eligible to receive an additional $25M in support and regulatory milestone payments. Pfenex may also be eligible to receive a 50% gross profit split on sales if the product is rated as Therapeutic Equivalent (AP), and up to 40% if rated differently.

PF708 is being developed through the 505(b)(2) regulatory pathway in the United States and references Forteo ® which achieved $1.7 billion in global sales in 2017. Following the positive top-line PF708-301 study results as announced last month, Pfenex expects to submit a new drug application for PF708 to the U.S. Food and Drug Administration (FDA) in the third quarter of 2018 leading to potential launch in the US, if approved by the FDA, as early as the third quarter of 2019.

“We are excited to partner with Alvogen and believe that given their proven success in the US market it will maximize the value of PF708. Alvogen’s established commercial business with vast resources and experience will support us through the NDA submission process, product launch and commercialization. When these operational benefits are combined with the favorable financial terms of the agreement, we see this collaboration as a significant step towards building long-term value for Pfenex stockholders,” said Eef Schimmelpennink, Chief Executive Officer of Pfenex. “We have structured the agreement with Alvogen in a way that offers Pfenex experienced guidance and financial support as the PF708 commercialization program advances. By leading the PF708 program up to potential approval, the Pfenex team will be building additional experience for the development of future programs, while also maintaining the potential for long term value capture through a significant share of gross profits.”

“We are excited by the market opportunity that PF708 offers as a therapeutic equivalent candidate to Forteo ® for the U.S. market. Forteo ® achieved $1.7 billion in global sales in 2017,” stated Robert

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Wessman, Chief Executive Officer of Alvogen. “The Alvogen team looks forward to working with the Pfenex team in preparing the PF708 program for the NDA submission to the FDA, and setting up a robust commercial manufacturing and supply chain. Once PF708 receives market approval, we expect to quickly leverage our commercial operations in the U.S. in bringing the product to market. PF708 is highly complementary to our product portfolio in the U.S., which is focused on complex high value generics and brands, including; niche generics, patches, semi-solids, controlled release oral drugs and injectables.”

About Pfenex Inc.

Pfenex Inc. is a clinical-stage development and licensing biotechnology company focused on leveraging our Pfēnex Expression Technology ® to improve protein therapies for unmet patient needs. Using the patented Pfēnex Expression Technology platform, the company has created an advanced pipeline of therapeutic equivalents, vaccines, biologics and biosimilars. The company’s lead product candidates are PF708, a therapeutic equivalent candidate to Forteo ® (teriparatide) for the treatment of osteoporosis, and our novel anthrax vaccine candidates, Px563L and RPA563, funded through an advanced development contract with the U.S. government. In addition, Pfenex is developing hematology/oncology products, including PF743, a recombinant crisantaspase, and PF745, a recombinant crisantaspase with half-life extension technology, in collaboration with Jazz Pharmaceuticals. Furthermore, the company’s pipeline includes biosimilar candidates to Lucentis ® and Neulasta ® .

About Alvogen

Alvogen is a global, privately owned pharmaceutical company focused on developing, manufacturing and selling generic, brand, over-the-counter brands (OTC) and biosimilar products for patients around the world. The company has commercial operations in 35 countries with 2,800 employees and operates four manufacturing and development hubs in the U.S., Romania, Korea and Taiwan. North America is Alvogen’s single largest market and other key markets include: South Korea, Russia, Romania, Hungary, Ukraine, Taiwan, Japan and China. Learn more about Alvogen on www.alvogen.com.

Cautionary Note Regarding Forward-Looking Statement – This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements because they contain words such as “if,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern Pfenex’s expectations, strategy, plans or intentions. Forward-looking statements in this press release include, but are not limited to, statements regarding the future potential of PF708, including development and commercialization of PF708; the potential to receive future milestone and royalty payments under Pfenex’s agreement with Alvogen; the expected timing of Pfenex’s submission of the NDA for PF708; the expectation for PF708 to obtain marketing approval in the United States; Pfenex’s expectation to develop the product under the 505(b)(2) regulatory pathway in the United States; the belief that this agreement will help advance development and commercialization of PF708; potential market opportunities for PF708; the potential for the collaboration to support the PF708 program for the NDA submission to the FDA; and the belief that Alvogen will be able to quickly leverage its commercial operations in the U.S. in bringing PF708 to market. Actual results may differ materially from those indicated by these forward-looking statements as a result of the uncertainties inherent in the clinical drug development process, including, without limitation, challenges in successfully demonstrating the efficacy and safety of product candidates; the pre-clinical and clinical results for product candidates, which may not support further development of product candidates or may require additional clinical trials or modifications of ongoing clinical trials or regulatory pathways; challenges related to commencement,

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


patient enrollment, completion, and analysis of clinical trials; Pfenex’s ability to obtain additional funding to support its business activities and establish and maintain strategic business alliances and new business initiatives; Pfenex’s dependence on third parties for development, manufacture, marketing, sales and distribution of products; unexpected expenditures; and difficulties in obtaining and maintaining intellectual property protection for product candidates. Information on these and additional risks, uncertainties, and other information affecting Pfenex’s business and operating results is contained in Pfenex’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and in Pfenex’s subsequent reports filed with the Securities and Exchange Commission. The forward-looking statements in this press release are based on information available to Pfenex as of the date hereof, and Pfenex disclaims any obligation to update any forward-looking statements, except as required by law.

Pfenex investors and others should note that we announce material information to the public about the Company through a variety of means, including our website (http://www.pfenex.com/), our investor relations website (http://pfenex.investorroom.com/), press releases, SEC filings, public conference calls, corporate Twitter account (https://twitter.com/pfenex), Facebook page (https://www.facebook.com/Pfenex-Inc-105908276167776/timeline/), and LinkedIn page (https://www.linkedin.com/company/pfenex-inc) in order to achieve broad, non-exclusionary distribution of information to the public and to comply with our disclosure obligations under Regulation FD. We encourage our investors and others to monitor and review the information we make public in these locations as such information could be deemed to be material information. Please note that this list may be updated from time to time.

For further information:

Susan A. Knudson

Chief Financial Officer

Pfenex Inc.

(858) 352-4324

sknudson@pfenex.com

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Exhibit 12.5

Alternative Dispute Resolution

The Parties recognize that bona fide disputes as to certain matters may arise from time to time during the Term of this Agreement which relate to any Party’s rights or obligations. To have such a dispute resolved by this Alternative Dispute Resolution (“ ADR ”) provision, a Party first must comply with Section 12.4 of the Agreement to which this is an exhibit. If the matter has not been resolved in accordance with such Section 12.4, a Party may initiate an ADR proceeding as provided herein. The Parties shall have the right to be represented by counsel in such a proceeding.

1.    To begin an ADR proceeding, a Party shall provide written notice to the other Party of the issues to be resolved by ADR in accordance with this Exhibit  12.5 . Within fourteen (14) days after its receipt of such notice, the other Party may, by written notice to the Party initiating the ADR, add additional issues to be resolved within the same ADR.

2.    Unless either Party requests otherwise in writing within the fourteen (14) day period described in Paragraph 1 above, the issue shall be resolved in accordance with the Fast Track Mediation and Arbitration Rules of Procedure as administered by JAMS (formerly known as Judicial Arbitration and Mediation Services) (“ JAMS ”) by a single arbitrator appointed in accordance with such rules and subject to the provisions of Paragraphs 3 - 13 below.

3.    Within twenty-one (21) days following receipt of the original ADR notice, the Parties shall select a mutually acceptable neutral to preside in the resolution of any disputes in this ADR proceeding (each, a “ Neutral ”). If the Parties are unable to agree on a mutually acceptable Neutral within such period, a Party may request the President of JAMS, 18881 Von Karman Ave., Suite 350, Irvine, CA 92612, to select a Neutral pursuant to the following procedures:

(a)    JAMS shall submit to the Parties a list of not less than five (5) candidates within fourteen (14) days after receipt of the request, along with Curriculum Vitae for each candidate. No candidate shall be an employee, director, or shareholder of any Party or any of their Affiliates. Each candidate submitted by JAMS shall (i) be an attorney licensed to practice law for at least twenty (20) years in the United States; and (ii) have material legal or business experience in the pharmaceutical industry.

(b)    Such list shall include a statement of disclosure by each candidate of any circumstances likely to affect his or her impartiality.

(c)    Each Party shall number the candidates in order of preference (with the number one (1) signifying the greatest preference) and shall deliver the list to JAMS within seven (7) days following receipt of the list of candidates. If a Party believes a conflict of interest exists regarding any of the candidates, that Party shall provide a

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


written explanation of the conflict to JAMS along with its list showing its order of preference for the candidates. Any Party failing to return a list of preferences on time shall be deemed to have no order of preference.

(d)    If the Parties collectively have identified fewer than three (3) candidates deemed to have conflicts, JAMS immediately shall designate as the Neutral the candidate for whom the Parties collectively have indicated the greatest preference. If a tie should result between two candidates, JAMS may designate either candidate. If the Parties collectively have identified three (3) or more candidates deemed to have conflicts, JAMS shall review the explanations regarding conflicts and, in its sole discretion, may either (i) immediately designate as the Neutral the candidate for whom the Parties collectively have indicated the greatest preference, or (ii) issue a new list of not less than five (5) candidates, in which case the procedures set forth in subparagraphs 2(a)–2(d) shall be repeated.

4.    No earlier than forty-five (45) days or later than ninety (90) days after selection, the Neutral shall hold a hearing to resolve each of the issues identified by the Parties. The ADR proceeding shall take place in San Diego, California.

5.    At least fourteen (14) days prior to the hearing, each Party shall submit the following to the other Party and the Neutral:

(a)    a copy of all exhibits on which such Party intends to rely in any oral or written presentation to the Neutral;

(b)    a list of any witnesses such Party intends to call at the hearing, and a short summary of the anticipated testimony of each witness;

(c)    a proposed ruling on each issue to be resolved, together with a request for a specific damage award or other remedy for each issue. The proposed rulings and remedies shall not contain any recitation of the facts or any legal arguments and shall not exceed one (1) page per issue.

(d)    a brief in support of such Party’s proposed rulings and remedies, provided that the brief shall not exceed thirty (30) double-spaced pages. This page limitation shall apply regardless of the number of issues raised in the ADR proceeding.

Except as expressly set forth in subparagraphs 5(a)–5(d), no discovery shall be required or permitted by any means, including depositions, interrogatories, requests for admissions, or production of documents.

6.    The hearing shall be conducted on consecutive days and shall be governed by the following rules:

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


(a)    Each Party shall be entitled to ten (10) hours of hearing time to present its case. The Neutral shall determine whether each Party has had the ten (10) hours to which it is entitled.

(b)    Each Party shall be entitled, but not required, to make an opening statement, to present regular and rebuttal testimony, documents or other evidence, to cross-examine witnesses, and to make a closing argument. Cross-examination of witnesses shall occur immediately after their direct testimony. Opening statements, closing statements, rebuttal testimony and cross-examination time shall be charged against the Party conducting same.

(c)    The Party initiating the ADR shall begin the hearing and, if it chooses to make an opening statement, shall address not only issues it raised but also any issues raised by the responding Party. The responding Party, if it chooses to make an opening statement, also shall address all issues raised in the ADR. Thereafter, the presentation of regular and rebuttal testimony and documents, other evidence, and closing arguments shall proceed in the same sequence.

(d)    Except when testifying, witnesses shall be excluded from the hearing until closing arguments.

(e)    Settlement negotiations, including any statements made therein, shall not be admissible under any circumstances. Affidavits prepared for purposes of the ADR hearing also shall not be admissible. Live videoconference or telephonic testimony will be permitted at the discretion of the Neutral. The Neutral shall have sole discretion with regards to the exercise of its subpoena powers to compel the attendance of witnesses and the production of documents from Third Parties. As to all other matters, the Neutral shall have sole discretion regarding the admissibility of any evidence.

7.    Within ten (10) days following completion of the hearing, each Party may submit to the other Party and the Neutral a post-hearing brief in support of its proposed rulings and remedies, provided that such brief shall not contain or discuss any new evidence and shall not exceed thirty (30) pages. This page limitation shall apply regardless of the number of issues raised in the ADR proceeding.

8.    The Neutral shall rule on each disputed issue within twenty-one (21) days following completion of the hearing. Such ruling shall adopt in its entirety the proposed ruling and remedy of one of the Parties on each disputed issue but may adopt one Party’s proposed rulings and remedies on some issues and the other Party’s proposed rulings and remedies on other issues. The Neutral shall not issue any written opinion or otherwise explain the basis of the ruling.

9.    The Neutral shall be paid a reasonable fee plus expenses. These fees and expenses, along with the reasonable legal fees and expenses of the prevailing Party (including all

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


expert witness fees and expenses), the fees and expenses of a court reporter, and any expenses for a hearing room, shall be paid as follows:

(a)    If the Neutral rules in favor of one Party on all disputed issues in the ADR, the losing Party shall pay one hundred percent (100%) of such fees and expenses.

(b)    If the Neutral rules in favor of one Party on some issues and the other Party on other issues, the Neutral shall issue with the rulings a written determination as to how such fees and expenses shall be allocated between the Parties. The Neutral shall allocate fees and expenses in a way that bears a reasonable relationship to the outcome of the ADR, with the Party prevailing on more issues, or on issues of greater value or gravity, recovering a relatively larger share of its legal fees and expenses.

10.    The rulings of the Neutral and the allocation of fees and expenses shall be binding, non-reviewable, and non-appealable to the extent allowed by Applicable Law, and may be entered as a final judgment in any court having jurisdiction.

11.    Except as provided in paragraph 10 or as required by Applicable Law, the existence of the dispute, any settlement negotiations, the ADR hearing, any submissions (including exhibits, testimony, proposed rulings, and briefs), and the rulings shall be deemed Confidential Information of both Parties. The Neutral shall have the authority to impose sanctions for unauthorized disclosure of Confidential Information.

12.    The Neutral may not award punitive damages. The Parties hereby waive the right to the award of punitive damages.

13.    The hearings shall be conducted in the English language.

 

[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 31.1

CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Evert B. Schimmelpennink, certify that:

 

  1.

I have reviewed this Quarterly Report on Form 10-Q of Pfenex Inc.;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 8, 2018       /s/ Evert B. Schimmelpennink
      Evert B. Schimmelpennink
     

Chief Executive Officer, President and Secretary

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Susan A. Knudson, certify that:

 

  1.

I have reviewed this Quarterly Report on Form 10-Q of Pfenex Inc.;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 8, 2018       /s/ Susan A. Knudson
      Susan A. Knudson
     

Chief Financial Officer

(Principal Financial and Principal Accounting Officer)

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Evert B. Schimmelpennink, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, that the Quarterly Report of Pfenex Inc. on Form 10-Q for the quarterly period ended June 30, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Pfenex Inc.

 

Date: August 8, 2018     By:   /s/ Evert B. Schimmelpennink
      Evert B. Schimmelpennink
      Chief Executive Officer, President and Secretary
      (Principal Executive Officer)

I, Susan A. Knudson, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, that the Quarterly Report of Pfenex Inc. on Form 10-Q for the quarterly period ended June 30, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Pfenex Inc.

 

Date: August 8, 2018     By:   /s/ Susan A. Knudson
      Susan A. Knudson
      Chief Financial Officer
      (Principal Financial and Principal Accounting Officer)